Sunoco LP - Annual Report: 2019 (Form 10-K)

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Item 1.	Business

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•	Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in 30 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States. Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama, Texas, Arkansas and New York.

•	Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey.

•	Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.

•	Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands.

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•	75 company-owned and operated retail stores;

•	537 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangements with such operators;

•	6,742 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and

•	2,581 other commercial customers, including unbranded retail stores, other fuel distributors, school districts and municipalities and other industrial customers.

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•	requiring remedial action to mitigate releases of hydrocarbons, hazardous substances or wastes caused by our operations or attributable to former operators;

•	requiring capital expenditures to comply with environmental control requirements; and

•	enjoining the operations of facilities deemed to be in noncompliance with environmental laws and regulations.

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Item 1A.	Risk Factors

•	demand for motor fuel in the markets we serve, including seasonal fluctuations in demand for motor fuel;

•	competition from other companies that sell motor fuel products or have convenience stores in the market areas in which we or our commission agents or dealers operate;

•	regulatory action affecting the supply of or demand for motor fuel, our operations, our existing contracts or our operating costs;

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•	prevailing economic conditions;

•	supply, extreme weather and logistics disruptions; and

•	volatility of margins for motor fuel.

•	the level and timing of capital expenditures we make;

•	the cost of acquisitions, if any;

•	our debt service requirements and other liabilities;

•	fluctuations in our general working capital needs;

•	reimbursements made to our general partner and its affiliates for all direct and indirect expenses they incur on our behalf pursuant to the partnership agreement;

•	our ability to borrow funds at favorable interest rates and access capital markets;

•	restrictions contained in debt agreements to which we are a party;

•	the level of costs related to litigation and regulatory compliance matters; and

•	the amount of cash reserves established by our general partner in its discretion for the proper conduct of our business.

•	a general or prolonged decline in, or shocks to, regional or broader macro-economies;

•	regulatory changes that could impact the markets in which we operate, such as immigration or trade reform laws or regulations prohibiting or limiting hydraulic fracturing, which could reduce demand for our goods and services or lead to pricing, currency, or other pressures; and

•	deflationary economic pressures, which could hinder our ability to operate profitably in view of the challenges inherent in making corresponding deflationary adjustments to our cost structure.

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•	our inability to renew a ground lease for certain of our fuel storage terminals on similar terms or at all;

•	our dependence on third parties to supply our fuel storage terminals;

•	outages at our fuel storage terminals or interrupted operations due to weather-related or other natural causes;

•	the threat that the nation’s terminal infrastructure may be a future target of terrorist organizations;

•	the volatility in the prices of the products stored at our fuel storage terminals and the resulting fluctuations in demand for our storage services;

•	the effects of a sustained recession or other adverse economic conditions;

•	the possibility of federal and/or state regulations that may discourage our customers from storing gasoline, diesel fuel, ethanol and jet fuel at our fuel storage terminals or reduce the demand by consumers for petroleum products;

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•	competition from other fuel storage terminals that are able to supply our customers with comparable storage capacity at lower prices; and

•	climate change legislation or regulations that restrict emissions of GHGs could result in increased operating and capital costs and reduced demand for our storage services.

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•	the validity of our assumptions about revenues, capital expenditures and operating costs of the acquired business or assets, as well as assumptions about achieving synergies with our existing business;

•	the validity of our assessment of environmental and other liabilities, including legacy liabilities;

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the costs associated with additional debt or equity capital, which may result in a significant increase in our interest expense and financial leverage resulting from any additional debt incurred to finance the acquisition, or the issuance of additional common units on which we will make distributions, either of which could offset the expected accretion to our unitholders from such acquisition and could be exacerbated by volatility in the equity or debt capital markets;

•	a failure to realize anticipated benefits, such as increased available cash per unit, enhanced competitive position or new customer relationships;

•	a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition;

•	the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; and

•	the risk that our existing financial controls, information systems, management resources and human resources will need to grow to support future growth and we may not be able to react timely.

•	operating a larger combined organization in new geographic areas and new lines of business;

•	hiring, training or retaining qualified personnel to manage and operate our growing business and assets;

•	integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees;

•	diversion of management’s attention from our existing business;

•	assimilation of acquired assets and operations, including additional regulatory programs;

•	loss of customers or key employees;

•	maintaining an effective system of internal controls in compliance with the Sarbanes-Oxley Act of 2002 as well as other regulatory compliance and corporate governance matters; and

•	integrating new technology systems for financial reporting.

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•	making it more difficult for us to satisfy our obligations with respect to our senior notes and our credit agreements governing our revolving credit facility and term loan;

•	limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, the execution of our growth strategy and other activities;

•	requiring us to dedicate a substantial portion of our cash flow from operations to pay interest on our debt, which would reduce our cash flow available to make distributions to our unitholders and to fund working capital, capital expenditures, acquisitions, execution of our growth strategy and other activities;

•	making us more vulnerable to adverse changes in general economic conditions, our industry and government regulations and in our business by limiting our flexibility in planning for, and making it more difficult for us to react quickly to, changing conditions; and

•	placing us at a competitive disadvantage compared with our competitors that have less debt.

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•	incur certain additional indebtedness;

•	incur, permit, or assume certain liens to exist on our properties or assets;

•	make certain investments or enter into certain restrictive material contracts;

•	repurchase units; and

•	merge or dispose of all or substantially all of our assets.

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•	Our general partner’s affiliates, including ETO, ET and its affiliates, are not prohibited from engaging in other business or activities, including those in direct competition with us.

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In addition, neither our partnership agreement nor any other agreement requires ETO to pursue a business strategy that favors us. The affiliates of our general partner have fiduciary duties to make decisions in their own best interests and in the best interest of their owners, which may be contrary to our interests. In addition, our general partner is allowed to take into account the interests of parties other than us or our unitholders, such as ETO, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders.

•	Certain officers and directors of our general partner are officers or directors of affiliates of our general partner, and also devote significant time to the business of these entities and are compensated accordingly.

•	Affiliates of our general partner, including ETO, are not limited in their ability to compete with us and may offer business opportunities or sell assets to parties other than us.

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Our partnership agreement provides that our general partner may, but is not required to, in connection with its resolution of a conflict of interest, seek “special approval” of such resolution by appointing a conflicts committee of the general partner’s board of directors composed of one or more independent directors to consider such conflicts of interest and to either, itself, take action or recommend action to the board of directors, and any resolution of the conflict of interest by the conflicts committee shall be conclusively deemed to be approved by our unitholders.

•	Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.

•	Our general partner determines the amount and timing of asset purchases and sales, borrowings, repayment of indebtedness and issuances of additional partnership securities and the level of reserves, each of which can affect the amount of cash that is distributed to our unitholders.

•	Our general partner determines the amount and timing of any capital expenditure and whether a capital expenditure is classified as a maintenance capital expenditure or an expansion capital expenditure. These determinations can affect the amount of cash that is distributed to our unitholders.

•	Our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make incentive distributions on the incentive distribution rights.

•	Our partnership agreement permits us to distribute up to $25 million as operating surplus, even if it is generated from asset sales, non-working capital borrowings or other sources that would otherwise constitute capital surplus. This cash may be used to fund distributions on the incentive distribution rights.

•	Our general partner determines which costs incurred by it and its affiliates are reimbursable by us.

•	Our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with its affiliates on our behalf. There is no limitation on the amounts our general partner can cause us to pay it or its affiliates.

•	Our general partner has limited its liability regarding our contractual and other obligations.

•	Our general partner may exercise its right to call and purchase common units if it and its affiliates own more than 80% of the common units.

•	Our general partner controls the enforcement of obligations owed to us by it and its affiliates. In addition, our general partner will decide whether to retain separate counsel or others to perform services for us.

•	ETO may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to ETO’s incentive distribution rights without the approval of the conflicts committee of the board of directors of our general partner or our unitholders. This election may result in lower distributions to our common unitholders in certain situations.

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•	the right to share in Partnership’s profits and losses;

•	the right to share in the Partnership’s distributions;

•	the rights upon dissolution and liquidation of the Partnership;

•	whether, and the terms upon which, the Partnership may redeem the securities;

•	whether the securities will be issued, evidenced by certificates and assigned or transferred; and

•	the right, if any, of the security to vote on matters relating to the Partnership, including matters relating to the relative rights, preferences and privileges of such security.

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Our partnership agreement permits our general partner to make a number of decisions in its individual capacity, as opposed to its capacity as general partner. This entitles our general partner to consider only the interests and factors that it desires, with no duty or obligation to give consideration to the interests of, or factors affecting, our common unitholders. Decisions made by our general partner in its individual capacity will be made by ETO, as the owner of our general partner, and not by the board of directors of our general partner. Examples of such decisions include:

•	whether to exercise limited call rights;

•	how to exercise voting rights with respect to any units it owns;

•	whether to exercise registration rights; and

•	whether to consent to any merger or consolidation, or amendment to our partnership agreement.

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•	Our partnership agreement provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as general partner so long as it acted in good faith, meaning it believed that the decisions were not adverse to the interests of our partnership.

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Our partnership agreement provides that our general partner and the officers and directors of our general partner will not be liable for monetary damages to us for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that our general partner or those persons acted in bad faith or, in the case of a criminal matter, acted with knowledge that such person’s conduct was criminal.

•	Our partnership agreement provides that our general partner will not be in breach of its obligations under the partnership agreement or its duties to us or our limited partners with respect to any transaction involving an affiliate if:

•	the transaction with an affiliate or the resolution of a conflict of interest is:

•	approved by the conflicts committee of the board of directors of our general partner, although our general partner is not obligated to seek such approval; or

•	approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner and its affiliates; or

•	the board of directors of our general partner acted in good faith in taking any action or failing to act.

•	arising out of or relating in any way to our partnership agreement (including any claims, suits or actions to interpret, apply or enforce the provisions of our partnership agreement or the duties, obligations or liabilities among our limited partners or of our limited partners to us, or the rights or powers of, or restrictions on, our limited partners or us);

•	brought in a derivative manner on our behalf;

•	asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of us or our general partner, or owed by our general partner, to us or the limited partners;

•	asserting a claim arising pursuant to any provision of the Delaware Act; or

•	asserting a claim governed by the internal affairs doctrine,

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•	our existing unitholders’ proportionate ownership interest in us will decrease;

•	the amount of cash available for distribution on each unit may decrease;

•	the ratio of taxable income to distributions may increase;

•	the relative voting strength of each previously outstanding unit may be diminished; and

•	the market price of the common units may decline.

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Item 1B.	Unresolved Staff Comments

Item 2.	Properties

Item 3.	Legal Proceedings

Item 4.	Mine Safety Disclosures

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Item 5.	Market for Our Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

•	provide for the proper conduct of our business;

•	comply with applicable law, any of our debt instruments or other agreements or any other obligation; or

•	provide funds for distributions to our unitholders for any one or more of the next four quarters;

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Item 6.	Selected Financial Data

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Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

•	our ability to make, complete and integrate acquisitions from affiliates or third-parties;

•	business strategy and operations of Energy Transfer Operating, L.P. and Energy Transfer LP and their respective 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;

•	changes in our credit rating, as assigned by rating agencies;

•	a deterioration in the credit and/or capital market;

•	environmental, tax and other federal, state and local laws and regulations;

•	the fact that we are not fully insured against all risk incidents 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 (“General Partner”), and its affiliates, and limits the fiduciary duties of our General Partner and its affiliates.

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•	75 company-owned and operated retail stores;

•	537 independently operated commission agent locations where we sell motor fuel to retail customers under commission agent arrangement with such operators;

•	6,742 retail stores operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and

•	2,581 other commercial customers, including unbranded retail stores, other fuel distributors, school districts, municipalities and other industrial customers.

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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.

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Gross profit per gallon. Gross profit per gallon is calculated as the gross profit on motor fuel (excluding non-cash inventory adjustments) 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.

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Adjusted EBITDA. Adjusted EBITDA, as used throughout this document, is defined as earnings before net interest expense, income taxes, depreciation, amortization and accretion expense, allocated non-cash unit-based compensation expense, unrealized gains and losses on commodity derivatives and inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations, such as gain or loss on disposal of assets and non-cash impairment charges.

•	Adjusted EBITDA 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;

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•	it does not reflect interest expense or the cash requirements necessary to service interest or principal payments on our revolving credit facility or term loan;

•	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.

(1)	Excludes depreciation, amortization and accretion.

(2)	We define Adjusted EBITDA as described above under “Key Measures Used to Evaluate and Assess Our Business.”

(3)	Includes amounts from discontinued operations in 2018.

(4)	Includes other non-cash adjustments and excludes the impact of inventory adjustments consistent with the definition of Adjusted EBITDA.

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(1)	Includes amounts from discontinued operations in 2018.

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a decrease in operating costs of $143 million, primarily as a result of the divestment of 1,030 company-operated fuel sites to 7-Eleven on January 23, 2018, the conversion of 207 retail sites to commission agent sites during April 2018 and the May 2019 sale of our ethanol plant in Fulton, New York. These expenses include other operating expense, general and administrative expense and lease expense; and

•	an increase in unconsolidated affiliate adjusted EBITDA of $4 million; partially offset by

•	a decrease in non-motor fuel sales gross profit of $44 million, primarily related to lower merchandise gross profit as a result of the divestment of 1,030 company-operated fuel sites to 7-Eleven on January 23, 2018 and the conversion of 207 retail sites to commission agent sites during April 2018; and

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a decrease in the gross profit on motor fuel sales of $76 million, primarily due to lower fuel margins, a one-time benefit of approximately $25 million related to a cash settlement with a fuel supplier recorded for the year ended December 31, 2018 and a $8 million one-time charge related to a reserve for an open contractual dispute recorded for the year ended December 31, 2019; partially offset by a 4.2% increase in gallons sold for the year ended December 31, 2019 compared to the year ended December 31, 2018.

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(1)	Excludes depreciation, amortization and accretion.

(2)	We define Adjusted EBITDA as described above under “Key Measures Used to Evaluate and Assess Our Business.”

(3)	Includes amounts from discontinued operations.

(4)	Excludes the impact of inventory adjustments consistent with the definition of Adjusted EBITDA.

(1)	Includes amounts from discontinued operations.

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a decrease in the gross profit on motor fuel sales of $294 million, primarily due to a 25.2%, or $0.038, decrease in cents per gallons sold as a result of the change in mix of gallons sold from higher gross profit company-operated fuel sites to supplying lower gross profit Fuel Distribution and Marketing gallons as a result of the divestment of 1,030 company-operated fuel sites to 7-Eleven on January 23, 2018;

•	a decrease in other gross profit of $671 million, primarily related to lower merchandise gross profit as a result of the divestment of 1,030 company-operated fuel sites to 7-Eleven on January 23, 2018; offset by

•	a decrease in operating costs of $871 million, as a result of the divestment of 1,030 company-operated fuel sites to 7-Eleven on January 23, 2018. These expenses include other operating expense, general and administrative expense and rent expense.

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•	issued $600 million of 6.000% senior notes due 2027;

•	borrowed $2.4 billion and repaid 3.0 billion under our 2018 Revolver to fund daily operations;

•	paid $353 million in distributions to our unitholders, of which $165 million was paid to ETO.

•	issued $2.2 billion of Senior Notes, comprised of $1.0 billion in aggregate principal amount of 4.875% senior notes due 2023, $800 million in aggregate principal amount of 5.500% senior notes due 2026 and $400 million in aggregate principal amount of 5.875% senior notes due 2028;

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borrowed $2.8 billion and repaid $2.9 billion under our 2014 Revolver and 2018 Revolver to fund daily operations; redeemed $2.2 billion of our existing senior notes, comprised of $800 million in aggregate principal amount of 6.250% senior notes due 2021, $600 million in aggregate principal amount of 5.500% senior notes due 2020, and $800 million in aggregate principal amount of 6.375% senior notes due 2023;

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•	repaid the $1.2 billion Term Loan in full and terminated it; redeemed the outstanding Series A Preferred Units held by ETE for $300 million and a call premium of $3 million; repurchased 17,286,859 SUN common units owned by ETP for aggregate cash consideration of approximately $540 million; and

•	paid $383 million in distributions to our unitholders, of which $192 million was paid to ETO and ET collectively.

•	received $300 million proceeds from issuance of Series A Preferred Units;

•	borrowed $2.7 billion and repaid $2.9 billion under our 2014 Revolver to fund daily operations;

•	paid $431 million in distributions to our unitholders, of which $251 million was paid to ETP and ETE collectively.

(1)	Payments include required principal payments on our debt, finance lease obligations and sale leaseback obligations (see Note 10 to our Consolidated Financial Statements). Assumes the balance of the 2018 Revolver at December 31, 2019 of $162 million remains outstanding until the 2018 Revolver matures in July 2023.

(2)	Includes interest on outstanding debt, finance lease obligations and sale leaseback financing obligations. Includes interest on the 2018 Revolver balance as of December 31, 2019 and commitment fees on the unused portion of the facility through July 2023 using rates in effect at December 31, 2019.

(3)	Includes minimum rental commitments under non-cancelable leases.

(4)	Includes minimum guaranteed payments under service concession arrangements with New Jersey Turnpike Authority and New York Thruway Authority.

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Item 7A.	Quantitative and Qualitative Disclosures about Market Risk

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•	interest rate risk on short-term borrowings; and

•	the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions.

Item 8.	Financial Statements and Supplementary Data

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A.	Controls and Procedures

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•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures recorded by us are being made only in accordance with authorizations of our management and board of directors; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

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Item 9B.	Other Information

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Item 10.	Directors, Executive Officers and Corporate Governance

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Item 11.	Executive Compensation

•	reward executives with an industry-competitive total compensation package of competitive base salaries and significant incentive opportunities yielding a total compensation package approaching the top-quartile of the market;

•	attract, retain and reward talented executive officers and key management employees by providing total compensation competitive with that of other executive officers and key management employees employed by publicly traded limited partnerships of similar size and in similar lines of business;

•	motivate executive officers and key employees to achieve strong financial and operational performance;

•	emphasize performance-based or “at-risk” compensation; and

•	reward individual performance.

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•	annual base salary;

•	non-equity incentive plan compensation consisting solely of discretionary cash bonuses;

•	time-vested restricted unit and/or restricted phantom unit awards under the equity incentive plan;

•	payment of distribution equivalent rights (“DERs”) on unvested time-based restricted unit and/or restricted phantom unit awards under our equity incentive plan;

•	vesting of previously issued time-based restricted unit and/or restricted phantom unit awards issued pursuant to equity incentive plans of affiliates; and

•	401(k) plan employer contributions.

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(1)

For comparative purposes, the above table provides a summary of the total compensation for each NEO for each of 2017, 2018 and 2019. In accordance with the terms of our partnership agreement, we reimburse our General Partner and its affiliates for compensation related expenses attributable to the portion of the named executive officer’s time dedicated to providing services to us. For the periods presented, amounts reported herein reflect (i) 100% of the cash compensation expense associated with the NEO’s services and (iii) 100% grant date value of phantom unit awards associated with the services performed by each of the NEOs and directors. Cash compensation expenses for each NEO were allocated on the basis of total cash compensation earned by the NEO during the period.

(2)	The amounts reported for unit awards represent the full grant date fair value of restricted units and/or restricted phantom units granted to each of our NEOs, calculated in accordance with the accounting guidance on share-based payments.

(3)	Sunoco LP maintains the Bonus Plan which provides for discretionary bonuses. Awards of discretionary bonuses are tied to achievement of targeted performance objectives and described in the Compensation Discussion and Analysis.

(4)

The amounts reflected for 2019 in this column include (i) 401(k) Plan matching contributions made on behalf of the named executive officers of $11,885 for Mr. Kim, $13,239 for Mr. Hand, $12,304 for Mr. Dodderer and $14,000 each for Messrs. Miller and Fails, (ii) health savings account contributions made on behalf of the named executive officers of $2,000 each for Messrs. Kim, Fails, Hand and Dodderer and $1,000 for Mr. Miller, and (iii) the dollar value of life insurance premiums paid for the benefit of the named executive officers of $1,260 for Mr. Kim, $2,401 for Mr. Miller, $825 for Mr. Fails, $1,163 for Mr. Hand and $1,120 for Mr. Dodderer. Additionally, Mr. Fails received $122,253 of relocation costs for the year ended December 31, 2019.

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(1)

The restricted units granted in December and January 2019 vest 60% in December 2022 and 2021, respectively, and 40% in December 2024 and 2023, respectively. The reported grant date fair value of stock awards was determined in compliance with FASB ASC Topic 718 and are more fully described in Note 19–Unit-Based Compensation in our Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

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(1)	Common unit awards outstanding vest as follows:

(2)	Based on the closing market price of our common units of $30.60 on December 31, 2019.

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(1)	Amounts presented represent the number of unit awards vested during 2019 and the value realized upon vesting of these awards, which is calculated as the number of units vested multiplied by the closing price of Sunoco LP or ET’s respective common units upon the vesting date.

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(1)	The amounts reflected above represent the product of the number of restricted units and/or restricted phantom units that were subject to vesting/restrictions on December 31, 2019 multiplied by the closing price of our common units of $30.60 on that date.

•	The annual total compensation of Mr. Kim, as reported in the Summary Compensation Tables of this Item 11 was $3,348,212; and

•	The median total compensation of the employees supporting our Partnership (other than Mr. Kim) was $92,035.

1.

It was determined that, as of December 31, 2019, the applicable employee populations consisted of 2,613 with all of the identified individuals being employed in the United States. This population consisted of all of our full-time and part-time employees. We did not engage any independent contractors in 2019 that are required to be included in our employee population for the CEO pay ratio evaluation.

2.	To identify the “median employee” from our employee population, we compared the total earnings of our employees as reflected in our payroll records as reported on Form W-2 for 2019.

3.	We identified our median employee using W-2 reporting and applied this compensation measure consistently to all of our employees required to be included in the calculation. We did not make any cost of living adjustments in identifying the “median employee”.

4.

Once we identified our median employee, we combined all elements of the employee’s compensation for 2019 resulting in an annual compensation of $92,035. The difference between such employee’s total earnings and the employee’s total compensation represents the estimated value of the employee’s health care benefits (estimated for the employee and such employee’s eligible dependents at $9,983 and the employee’s 401(k) matching contribution and profit sharing contribution, as applicable estimated at $4,610 per employee).

5.	With respect to Mr. Kim, we used the amount reported in the “Total” column of our 2019 Summary Compensation Table under this Item 11.

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(1)	The amounts in this column reflect the aggregate dollar amount of fees earned or paid in cash including the annual retainer fee.

(2)

The amounts reported for unit awards represent the full grant date fair value of the awards granted in 2019, calculated in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that may be recognized by the recipient upon any disposition of vested units and do not give effect to any decline or increase in the trading price of our common units since the date of grant. For a discussion of the assumptions and methodologies used in calculating the grant date fair value of the unit awards reported above, see Note 19–Unit-Based Compensation in our Notes to Consolidated Financial Statements. As of December 31, 2019, Mr. Alvarez had 6,187 outstanding restricted phantom units, Mr. Anbouba had 6,187 outstanding restricted phantom units, Mr. Bryant had 12,420 outstanding restricted phantom units, Mr. Long had 70,456 outstanding restricted phantom units, Mr. Curia had 64,111 outstanding restricted phantom units and Mr. Ramsey had 47,239 outstanding restricted phantom units.

(3)

Messrs. Long (ET's Chief Financial Officer), Curia (ET's EVP-Chief Human Resources Officer) and Ramsey (ET's Chief Operating Officer), are entitled to receive grants of restricted units and/or restricted phantom units pursuant to the LTIP in recognition of their commitment and contribution to us and our unitholders. The restricted units granted in December 2019 will vest 60% in December 2022 and 40% in December 2024, subject to the terms of the award agreement. The awards of restricted units to Messrs. Long, Curia and Ramsey in respect of their contribution to us represent a portion of their total awards as executive officers of ET and the allocation of such percentage to us is in recognition of the portion of their total time spent on our business.

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters

•	each person or group of persons known by us to be beneficial owners of 5% or more of our common or Class C units;

•	each director, director nominee and named executive officer of our general partner; and

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•	all of our directors and executive officers of our general partner, as a group.

*	Represents less than 1%.

(1)	As of the date set forth above, there are no arrangements for any listed beneficial owner to acquire within 60 days common units from options, warrants, rights, conversion privileges or similar obligations. Unless otherwise indicated, the address for all beneficial owners in this table is 8111 Westchester Drive, Suite 400, Dallas, Texas 75225.

(2)	The address for ETO and ETO’s subsidiaries is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225.

(3)	The information contained in the table and this footnote with respect to Invesco Ltd. is based solely on a filing on Schedule 13G/A filed with the Securities and Exchange Commission on February 7, 2020. The business address of the reporting party is 1555 Peachtree Street NE, Suite 1800, Atlanta, GA 30309.

(4)	The address for Aloha is 1001 Bishop Street, Suite 1300, Honolulu, Hawaii 96813.

(5)	Does not include unvested phantom units that may not be voted or transferred prior to vesting. As of February 14, 2020, there were 83,017,163 common units and 16,410,780 Class C Units deemed to be beneficially owned for purposes of the above table.

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*	Represents less than 1%.

†	Officers and directors of our General Partner may be deemed to indirectly beneficially own certain limited partnership interests in us or ETO, by virtue of owning common units in ETO or ET, respectively, or based upon their simultaneous service as officers or directors of ETO or ET. Any such deemed ownership is not reflected in the table.

(1)	Unless otherwise indicated, the address for all beneficial owners in this table is 8111 Westchester Drive, Suite 400, Dallas, Texas 75225.

(2)

Beneficial ownership for the purposes of the above table is determined in accordance with the rules and regulation of the Securities and Exchange Commission. These rules generally provide that a person is the beneficial owner of securities if they have or share the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof, or have the right to acquire such powers with sixty (60) days.

(3)	As of February 14, 2020, there were 2,689,897,793 common units of ET deemed to be beneficially owned for purposes of the above table.

Item 13.	Certain Relationships, Related Transactions and Director Independence

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Item 14.	Principal Accounting Fees and Services

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(1)

Includes fees for audits of annual financial statements of our companies, reviews of the related quarterly financial statements, and services that are normally provided by the independent accountants in connection with statutory and regulatory filings or engagements, including reviews of documents filed with the SEC and services related to the audit of our internal control over financial reporting.

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(1)	Financial Statements - see Index to Consolidated Financial Statements appearing on page F-1.

(2)	Financial Statement Schedules - None.

(3)	Exhibits - see Exhibit Index set forth on page 72.

Item 16.	Form 10-K Summary

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*	Filed herewith.

**

Filed herewith. Pursuant to SEC Release No. 33-8212, this certification will be treated as “accompanying” this Annual Report on Form 10-K and not “filed” as part of such report for purposes of Section 18 of the Securities Exchange Act, as amended, or otherwise subject to the liability of Section 18 of the Securities Exchange Act, as amended, and this certification will not be deemed to be incorporated by reference into any filing under the Securities Exchange Act of 1933, as amended, except to the extent that the registrant specifically incorporates it by reference.

+	Denotes a management contract or compensatory plan or arrangement.

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•	Utilized an internal valuation specialist to evaluate:

◦	The methodologies used and whether they were acceptable for the underlying assets or operations and being applied correctly by performing independent calculations,

◦	The calculation of the discount rate by recalculating the weighted average cost of capital, and

◦	The qualifications of the third party firm engaged by the Partnership based on their credentials and experience.

•	Tested the forecasted cash flows by comparing such items to historical operating results of the reporting unit and by assessing the likelihood or capability of the retail reporting unit to undertake activities or initiatives underpinning significant drivers of growth in the forecasted period.

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1.	Organization and Principles of Consolidation

•	Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in 30 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States. Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama, Texas, Arkansas and New York.

•	Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey.

•	Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.

•	Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands.

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2.	Summary of Significant Accounting Policies

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;

Level 3	Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.

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3.	Acquisitions and Divestment

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4.	Discontinued Operations

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(1)	Non motor fuel sales includes merchandise sales totaling $89 million and $1.8 billion for the years ended December 31, 2018 and 2017, respectively.

5.	Accounts Receivable, net

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6.	Inventories, net

7.	Property and Equipment, net

8.	Goodwill and Other Intangible Assets

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(1)	As a part of ASC 842, favorable leasehold arrangements were reclassed to adjust the operating lease right-of-use asset.

(2)	Loan origination costs are associated with the Revolving Credit Agreement, see Note 10 for further information.

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9.	Accrued Expenses and Other Current Liabilities

10.	Long-Term Debt

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11.	Other Noncurrent Liabilities

(1)	As a part of ASC 842, unfavorable lease liabilities were reclassed to adjust the operating lease right-of-use asset.

12.	Related-Party Transactions

•

Net advances from affiliates were $140 million and $24 million at December 31, 2019 and 2018, respectively. Advances to and from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Sunoco (R&M), LLC and Sunoco Retail and Sunoco (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ETO.

•	Net accounts receivable from affiliates were $12 million and $37 million at December 31, 2019 and 2018, respectively, which are primarily related to motor fuel sales to affiliates.

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•	Net accounts payable to affiliates were $49 million and $149 million as of December 31, 2019 and 2018, respectively, attributable to operational expenses and bulk fuel purchases.

13.	Revenue

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•	Significant financing component - The Partnership elected not to adjust the promised amount of consideration for the effects of significant financing component if the Partnership expects at contract inception that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

•

Incremental costs of obtaining a contract - The Partnership generally expenses sales commissions when incurred because the amortization period would have been less than one year. We record these costs within general and administrative expenses. The Partnership elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.

•	Shipping and handling costs - The Partnership elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.

•	Measurement of transaction price - The Partnership has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Partnership from a customer (i.e., sales tax, value added tax, etc.).

•	Variable consideration of wholly unsatisfied performance obligations - The Partnership has elected to exclude the estimate of variable consideration to the allocation of wholly unsatisfied performance obligations.

14.	Commitments and Contingencies

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15.	Lease Income under Operating Leases

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16.	Interest Expense, net

17.	Income Tax Expense

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18.	Partners’ Capital

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(1)	$10 million cash distribution paid on January 25, 2018 includes $8 million cash distribution for the three months ended December 31, 2017 and $2 million cash distribution for the period from January 1, 2018 through January 25, 2018.

19.	Unit-Based Compensation

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20.	Segment Reporting

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(1)	Excludes depreciation, amortization and accretion.

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(1)	Excludes depreciation, amortization and accretion.

(2)	Includes amounts from discontinued operations.

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(1)	Excludes depreciation, amortization and accretion.

(2)	Includes amounts from discontinued operations.

21.	Net Income per Unit

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22.	Selected Quarterly Financial Data (unaudited)