UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
FORM 10-K
_______________________________________________
(Mark One)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: December 31, 2017
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from           to          
Commission File Number: 001-35653
_______________________________________________
SUNOCO LP
(Exact name of registrant as specified in its charter)
_______________________________________________
Delaware
 
30-0740483
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
8020 Park Lane, Suite 200, Dallas, Texas 75231
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (832) 234-3600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Units Representing Limited Partner Interests
 
New York Stock Exchange (NYSE)
Securities registered pursuant to Section 12(g) of the Act: NONE
_______________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ý   No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ☐  No   ý
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý   No  ☐
Indicate by check mark whether the registrant has submitted electronically and posted to its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   ý No  ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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Accelerated filer
☐
Non-accelerated filer
☐
(Do not check if a smaller reporting company)
Smaller reporting company
☐
 
 
 
Emerging Growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐  No   ý
At June 30, 2017 , the aggregate market value of common units representing limited partner interests held by non-affiliates of the registrant was approximately $1.6 billion based upon the closing price of its common units on the New York Stock Exchange.
The registrant had 82,487,330 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at February 16, 2018.
Documents Incorporated by Reference: None



SUNOCO LP
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
 
 
 
Page
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
Item 16.
 
 

i


PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements.” All statements other than statements of historical fact contained in this report are forward-looking statements, including, without limitation, statements regarding our plans, strategies, prospects and expectations concerning our business, results of operations and financial condition. You can identify many of these statements by looking for words such as “believe,” “expect,” “intend,” “project,” “anticipate,” “estimate,” “continue” or similar words or the negative thereof.
Known material factors that could cause our actual results to differ from those in these forward-looking statements are described below, in Part I, Item 1A (“Risk Factors”) and Part II, Item 7 (“Management’s Discussion and Analysis of Financial Condition and Results of Operations”) of this report.
All forward-looking statements included in this report are based on information available to us on the date of this report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.
Item 1.
Business
General
As used in this document, the terms “Partnership,” “SUN,” “we,” “us,” or “our” should be understood to refer to Sunoco LP, known prior to October 27, 2014 as Susser Petroleum Partners LP, and our consolidated subsidiaries as applicable and appropriate.
Overview
We are a Delaware master limited partnership. We are managed by our general partner, Sunoco GP LLC (our “General Partner”), which is owned by Energy Transfer Equity, L.P., another publicly traded master limited partnership (“ETE”). The following simplified diagram depicts our organizational structure as of February 7, 2018.
A2017ORGCHART.JPG

1


We are engaged in the wholesale distribution of motor fuels to convenience stores, independent dealers, commercial customers and distributors, as well as the retail sale of motor fuels and merchandise through our company-operated convenience stores and retail fuel sites. Additionally, we are the exclusive wholesale supplier of the iconic Sunoco-branded motor fuel, supplying an extensive distribution network of 5,322 Sunoco-branded company and third-party operated locations.
Effective January 1, 2016, we completed the acquisition from ETP Retail Holdings, LLC (“ETP Retail”) of (i) the remaining 68.42% membership interest and 49.9% voting interest in Sunoco, LLC (“Sunoco LLC”) and (ii) 100% of the membership interest of Sunoco Retail LLC (“Sunoco Retail”), which immediately prior to the acquisition owned all of the retail assets previously owned by Sunoco, Inc. (R&M), an ethanol plant located in Fulton, NY, 100% of the interests in Sunmarks, LLC and all of the retail assets previously owned by Atlantic Refining and Marketing Corp. This acquisition was accounted for as a transaction between entities under common control. Specifically, the Partnership recognized acquired assets and assumed liabilities at their respective carrying values with no goodwill created. The Partnership’s results of operations include 100% of Sunoco LLC’s and Sunoco Retail’s results of operations beginning September 1, 2014, the date of common control. As a result, the Partnership retrospectively adjusted its financial statements to include the balances and operations of Sunoco LLC and Sunoco Retail from August 31, 2014.
During 2016, we completed other strategic acquisitions of businesses that operate complementary motor fuel distribution and convenience retail stores (see “Acquisitions” below). As a result of these and previously completed acquisitions, as of December 31, 2017 , we operated 1,348 convenience stores and fuel outlets in more than 20 states, offering merchandise, food service, motor fuel and other services. Our retail stores operate under several brands, including our proprietary convenience store brands Stripes, APlus, and Aloha Island Mart. We distributed approximately 7.9 billion gallons of motor fuel during 2017 through our convenience stores and commission agent locations, contracted independent convenience store operators, and other commercial customers.
On April 6, 2017, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with 7-Eleven, Inc., a Texas corporation (“7-Eleven”) and SEI Fuel Services, Inc., a Texas corporation and wholly-owned subsidiary of 7-Eleven (“SEI Fuel” and together with 7-Eleven, referred to herein collectively as “Buyers”). On January 23, 2018, we completed the disposition of certain assets pursuant to an Amended and Restated Asset Purchase Agreement (the “A&R Purchase Agreement”), by and among us, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the Asset Purchase Agreement to reflect certain commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the Asset Purchase Agreement. Under the A&R Purchase Agreement, we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions, together with ancillary businesses and related assets, including the proprietary Laredo Taco Company brand, for approximately $3.2 billion (the “7-Eleven Transaction”).
Operating Segments and Subsidiaries
We operate our business as two segments, which are primarily engaged in wholesale fuel distribution and retail fuel and merchandise sales, respectively. Our primary operations are conducted by the following consolidated subsidiaries:
Wholesale Subsidiaries
•
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 and the Greater Dallas, TX metroplex.
•
Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
Retail Subsidiaries (Also See Note 4 of the Notes to Consolidated Financial Statements included in Part II, Item 8)
•
Susser Petroleum Property Company LLC (“PropCo”), a Delaware limited liability company, primarily owns and leases convenience store properties.
•
Susser Holdings Corporation (“Susser”), a Delaware corporation, sells motor fuel and merchandise in Texas, New Mexico, and Oklahoma through Stripes-branded convenience stores.
•
Sunoco Retail, a Pennsylvania limited liability company, owns and operates convenience stores that sell motor fuel and merchandise primarily in Pennsylvania, New York, and Florida.
•
MACS Retail LLC (“MACS Retail”), a Virginia limited liability company, owns and operates convenience stores in Virginia, Maryland, and Tennessee.
•
Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates convenience stores on the Hawaiian Islands.

2


Acquisitions
On October 12, 2016, we completed the acquisition of the convenience store, wholesale motor fuel distribution, and commercial fuels distribution business serving East Texas and Louisiana from Denny Oil Company (“Denny”) for approximately $55 million. This acquisition includes six company-owned and operated locations, six company-owned and dealer operated locations, wholesale fuel supply contracts for a network of independent dealer-owned and dealer-operated locations, and a commercial fuels business in the Eastern Texas and Louisiana markets. As part of the acquisition, we acquired 13 fee properties, which included the six company operated locations, six dealer operated locations, a bulk plant and an office facility.
On August 31, 2016, we acquired the fuels business (the “Fuels Business”) from Emerge Energy Services LP (NYSE: EMES) (“Emerge”) for $171 million, inclusive of working capital and other adjustments. The Fuels Business comprises Dallas-based Direct Fuels LLC and Birmingham-based Allied Energy Company LLC, both wholly owned subsidiaries of Emerge, and engages in the processing of transmix and the distribution of refined fuels. As part of the acquisition, we acquired two transmix processing plants with attached refined product terminals. Combined, the plants can process over 10,000 barrels per day of transmix, and the associated terminals have over 800,000 barrels of storage capacity.
On June 22, 2016, we acquired 14 convenience stores and the wholesale fuel business in the Austin, Houston, and Waco, Texas markets from Kolkhorst Petroleum Inc. for $39 million. The convenience stores acquired include 5 fee properties and 9 leased properties, all of which are company operated. The Kolkhorst acquisition also included supply contracts with dealer-owned and operated sites.
On June 22, 2016, we acquired 18 convenience stores serving the upstate New York market from Valentine Stores, Inc. (“Valentine”) for $78 million. The acquisition included 19 fee properties (of which 18 are company operated convenience stores and one is a standalone Tim Hortons), one leased Tim Hortons property, and three raw tracts of land in fee for future store development.
See Note 3 of the Notes to Consolidated Financial Statements included in Part II, Item 8 for additional information on our acquisitions.
Recent Developments
On February 7, 2018, subsequent to the record date for SUN’s fourth quarter 2017 cash distributions, the Partnership repurchased 17,286,859 SUN common units owned by subsidiaries of Energy Transfer Partners, L.P. (“ETP”) for aggregate cash consideration of approximately $540 million. The repurchase price per common unit was $31.2376, which is equal to the volume-weighted average trading price of SUN common units on the New York Stock Exchange for the ten trading days ending on January 23, 2018. The Partnership funded the repurchase with cash on hand.
On January 25, 2018, the Partnership redeemed all outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million. The redemption amount includes the original consideration of $300 million and a 1% call premium plus accrued and unpaid quarterly distributions.
On January 23, 2018, we completed a private offering of $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. The Partnership used the proceeds from the private offering, along with proceeds from the 7-Eleven Transaction, to: 1) redeem in full our existing senior notes as of December 31, 2017, 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; 2) repay in full and terminate our $1.2 billion Term Loan; 3) pay all closing costs and taxes in connection with the 7-Eleven Transaction; 4) redeem the outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million; and 5) repurchase 17,286,859 SUN common units owned by subsidiaries of ETP for aggregate cash consideration of approximately $540 million. 
On April 6, 2017, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with 7-Eleven, Inc., a Texas corporation (“7-Eleven”) and SEI Fuel Services, Inc., a Texas corporation and wholly-owned subsidiary of 7-Eleven (“SEI Fuel” and together with 7-Eleven, referred to herein collectively as “Buyers”). On January 23, 2018, we completed the disposition of assets pursuant to an Amended and Restated Asset Purchase Agreement (the “A&R Purchase Agreement”), by and among us, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the Asset Purchase Agreement to reflect certain commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the Asset Purchase Agreement. Under the A&R Purchase Agreement, we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions, together with ancillary businesses and related assets, including the proprietary Laredo Taco Company brand, for approximately $3.2 billion.

3


We have signed definitive agreements with a commission agent to operate the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets, which were not included in the previously announced transaction with 7-Eleven, Inc. Conversion of these sites to the commission agent is expected to occur in the first quarter of 2018.
On March 30, 2017, the Partnership issued to ETE 12,000,000 Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership at a price per Preferred Unit of $25.00 (the “Offering”). The distribution rate for the Preferred Units was 10.00%, per annum, of the $25.00 liquidation preference per unit (the “Liquidation Preference”) (equal to $2.50 per Preferred Unit per annum) until March 30, 2022, at which point the distribution rate would become a floating rate of 8.00% plus three-month LIBOR of the Liquidation Preference. The Partnership received proceeds from the Offering of $300 million, which was used to repay indebtedness under the revolving credit facility. On January 25, 2018, the Partnership redeemed the Preferred Units for $313 million, including a 1% call premium plus accrued and unpaid quarterly distributions.
On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and sell 97 real estate assets. Real estate assets included in this process are company-owned locations, undeveloped greenfield sites and other excess real estate. Properties are located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The properties were marketed through a sealed-bid sale. Of the 97 properties, 40 have been sold, 5 are under contract to be sold, and 11 continue to be marketed by the third-party brokerage firm. Additionally, 32 were sold to 7-Eleven and 9 are part of the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets which will be operated by a commission agent.
Available Information
Our principal executive offices are located at 8020 Park Lane, Suite 200, Dallas, Texas 75231. Our telephone number is (832) 234-3600. Our Internet address is www.sunocolp.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission (the “SEC”). Information contained on our website is not part of this report. The SEC maintains an Internet site at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Our Relationship with Energy Transfer Equity, L.P. and Energy Transfer Partners, L.P.
ETE is a publicly traded master limited partnership that indirectly owns our general partner. ETE also directly and indirectly owns equity interests in ETP and the Partnership, all of which are also publicly traded master limited partnerships engaged in diversified energy-related businesses.
ETP is one of the largest publicly traded master limited partnerships in the U.S. in terms of equity market capitalization. ETP, through its wholly owned operating subsidiaries, is engaged primarily in natural gas and natural gas liquids transportation, storage and fractionation services. ETP is also engaged in refined product and crude oil operations including transportation and retail marketing of gasoline and middle distillates through its subsidiaries.
One of our principal strengths is our relationship with ETE and ETP. As of February 16, 2018, ETE owns 100% of the membership interest in our general partner, a 2.3% limited partner interest in us and all of our incentive distribution rights, and ETP owns a 26.5% limited partnership interest in us. Given the significant joint ownership, we believe ETE and ETP will be motivated to promote and support the successful execution of our business strategies. In particular, we believe it will be in the best interest of each of ETP and ETE to facilitate organic growth opportunities and accretive acquisitions from third parties, although neither ETE nor ETP is under any obligation to do so.

4


Commercial Agreements with Affiliates
We are party to the following fee-based commercial agreements with various subsidiaries or affiliates of ETP:
•
Philadelphia Energy Solutions Products Purchase Agreements – two related products purchase agreements, one with Philadelphia Energy Solutions Refining & Marketing (“PES”) and one with PES’s product financier Merrill Lynch Commodities; both purchase agreements contain 12 -month terms that automatically renew for consecutive 12 -month terms until either party cancels with notice. ETP Retail owns a noncontrolling interest in the parent of PES. PES Holdings, LLC (“PES Holdings”) and eight affiliates filed for Chapter 11 bankruptcy protection on January 21, 2018 in the United States Bankruptcy Court for the District of Delaware to implement a prepackaged reorganization plan that will allow its shareholders to retain a minority stake. PES Holdings’ Chapter 11 Plan (“Plan”) proposes to inject $260 million in new capital into PES Holdings, cut debt service obligations by about $35 million per year and remove debt maturities before 2022. Under that Plan, PES Holdings’ non-debtor parent, Philadelphia Energy Solutions, in which ETP holds an indirect 33% equity interest, will provide a $65 million cash contribution in in exchange for a 25% stake in the reorganized debtor. After the restructuring, the proportionate ownership of Carlyle Group, L.P. and ETP in PES Holdings will be 16.26% and 8.13%, respectively. Finally, Sunoco Logistics Partners Operations L.P. (“SXL Operating Partnership”), a subsidiary of ETP, is providing an additional $75 million exit loan ranked pari passu with the other debt. SXL Operating Partnership’s, PES Holdings’ and ETP’s current contracts will be assumed, without any impairments, in the Chapter 11, and business operations will continue uninterrupted. The financial reorganization is expected to complete in the first quarter of 2018.
•
Transportation and Terminalling Contracts – various agreements with subsidiaries of ETP for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETP for the purchase and sale of fuel.
For more information regarding the commercial agreements, please read “Item 13. Certain Relationships, Related Transactions and Director Independence.”
Our Business and Operations
Wholesale Operations Segment
We are a wholesale distributor of motor fuels and other petroleum products which we supply to third-party dealers and distributors, to independent operators of commission agent locations, other consumers of motor fuel and to our retail locations. Also included in the wholesale segment are transmix processing plants and refined products terminals. Transmix is the mixture of various refined products (primarily gasoline and diesel) created in the supply chain (primarily in pipelines and terminals) when various products interface with each other. Transmix processing plants separate this mixture and return it to salable products of gasoline and diesel.
We are the exclusive wholesale supplier of the iconic Sunoco-branded motor fuel, supplying an extensive distribution network of 5,322 Sunoco-branded company and third-party operated locations throughout the East Coast, Midwest, South Central and Southeast regions of the United States, including 245 company operated Sunoco-branded locations in Texas. We believe we are one of the largest independent motor fuel distributors by gallons in Texas and one of the largest distributors of Chevron, Exxon, and Valero branded motor fuel in the United States. In addition to distributing motor fuels, we also distribute other petroleum products such as propane and lubricating oil, and we receive rental income from real estate that we lease or sublease.
During 2017, we purchased motor fuel primarily from independent refiners and major oil companies and distributed 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:
•
1,348 convenience stores and fuel outlets;
•
153 independently operated consignment locations where we sell motor fuel to retail customers under commission agent arrangement with such operators;
•
5,501 convenience stores and retail fuel outlets operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and
•
2,222 other commercial customers, including unbranded convenience stores, other fuel distributors, school districts and municipalities and other industrial customers.
On January 23, 2018, we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions to 7-Eleven.

5


Dealer Incentives
In addition to motor fuel distribution, we offer dealers the opportunity to participate in merchandise purchasing and promotional programs arranged with vendors. We believe the vendor relationships we have established through our retail operations and our ability to develop programs provide us with an advantage over other distributors when recruiting new dealers into our network, as well as retaining current dealers. Our dealer incentives give our dealers access to discounted rates on products and services that they would likely not be able to obtain on their own.
Sales to Contracted Third Parties
We distribute fuel under long-term contracts to branded distributors, branded and unbranded convenience stores, and branded and unbranded retail fuel outlets operated by third parties. 7-Eleven is the only third party dealer or distributor which is material to our business.
Sunoco-branded supply contracts with distributors generally have both time and volume commitments that establish contract duration. These contracts have an initial term of approximately nine years, with an estimated, volume-weighted term remaining of approximately four years.
Distribution contracts with convenience stores and retail fuel outlets generally commit us to distribute branded (including, but not limited to, Sunoco branded) or unbranded motor fuel to a location or group of locations and arrange for all transportation and logistics. These contracts require, among other things, that dealers maintain the standards established by the applicable fuel brand, if any. The initial term of these contracts range from three to twenty years, with most contracts for ten years.
Our supply contracts and distribution contracts are typically constructed so that we receive either (i) a fee per gallon equal to the posted rack rate, less any applicable commercial discounts, plus transportation costs, taxes and a fixed, volume-based fee, which is usually expressed in cents per gallon, or (ii) receive a variable cent per gallon margin (“dealer tank wagon pricing”).
During 2017, our wholesale business distributed fuel to 153 commission agent locations. Under these arrangements, we generally provide and control motor fuel inventory and price at the site and receive actual retail selling price for each gallon sold, less a commission paid to the independent commission agents.
We continually seek to expand through the addition of new branded dealers, distributors and commission agent locations, new unbranded commercial customers, and through acquisitions of contracts for existing independently operated sites from other distributors. We evaluate potential independent site operators based on their creditworthiness and the quality of their site and operations, including the site’s size and location, projected monthly volumes of motor fuel, monthly merchandise sales, overall financial performance and previous operating experience. We may extend credit to certain dealers based on our credit evaluation process.
Sales to Other Commercial Customers
We distribute unbranded fuel to numerous other customers, including convenience stores, unattended fueling facilities and certain other commercial customers. These customers are primarily commercial, governmental and other parties who buy motor fuel by the load or in bulk and who do not generally enter into exclusive contractual relationships with us, if they enter into a contractual relationship with us at all. Sales to these customers are typically made at a quoted price based upon our cost plus taxes, cost of transportation and a margin determined at time of sale, and may provide for immediate payment or the extension of credit for up to 30 days. We also sell propane, lubricating oil and other petroleum products, such as heating fuels, to our commercial customers on both a spot and contracted basis. In addition, we receive income from the manufacture and wholesale sale of race fuels at our Marcus Hook, Pennsylvania manufacturing facility.
Fuel Supplier Arrangements
We distribute branded motor fuel under the Aloha, Chevron, Citgo, Conoco, Exxon, Mahalo, Mobil, Phillips 66, Shamrock, Shell, Texaco, Sunoco, and Valero brands. We purchase branded motor fuel from major oil companies and refiners under supply agreements. Our largest branded fuel suppliers in terms of volume are Chevron, Exxon, Phillips 66 and Valero. The branded fuel supply agreements generally have an initial term of three to five years. Each supply agreement typically contains provisions relating to payment terms, use of the supplier’s brand names, credit card processing, compliance with other of the supplier’s requirements, insurance coverage and compliance with legal and environmental requirements, among others.
We also distribute unbranded motor fuel, which we purchase on a bulk basis, on a rack basis based upon prices posted by the refiner at a fuel supply terminal, or on a contract basis with the price tied to one or more market indices.

6


As is typical in the industry, our suppliers generally can terminate the supply contract if we do not comply with any material condition of the contract, including our failure to make payments when due, fraud, criminal misconduct, bankruptcy or insolvency.
Bulk Fuel Purchases
We purchase motor fuel in bulk and hold it in inventory or transport it via pipeline. To mitigate inventory risk, we use commodity futures contracts or other derivative instruments which are matched in quantity and timing to the anticipated usage of the inventory. We also blend in various additives including ethanol and biomass-based diesel.
Terminals and Transmix
We operate two transmix processing facilities and eight refined product terminals (six in Hawaii and two associated with our transmix plants). Transmix is the mixture of various refined products (primarily gasoline and diesel) created in the supply chain (primarily in pipelines and terminals) when various products interface with each other. Transmix processing plants separate this mixture and return it to salable products of gasoline and diesel. Our refined product terminals provide storage and distribution services used to supply our own retail stations as well as third-party customers. In addition, we provide services at our terminals to various third-party throughput customers.
Transportation Logistics
We provide transportation logistics for most of our motor fuel deliveries through our own fleet of fuel transportation vehicles as well as third-party and affiliated transportation providers. We arrange for motor fuel to be delivered from the storage terminals to the appropriate sites in our distribution network at prices consistent with those historically charged to third parties for the delivery of fuel. We also deliver motor fuel, propane, and lubricating oils to commercial customers involved in petroleum exploration and production.
Technology
Technology is an important part of our wholesale operations. We utilize a proprietary web-based system that allows our wholesale customers to access their accounts at any time from a personal computer to obtain prices, place orders, and review invoices, credit card transactions and electronic funds transfer notifications. Substantially all of our customer payments are processed by electronic funds transfer. We use an Internet-based system to assist with fuel inventory management and procurement and an integrated wholesale fuel system for financial accounting, procurement, billing and inventory management .
Retail Operations Segment
As of December 31, 2017 (prior to the closing of the A&R Purchase Agreement with 7-Eleven, as discussed in Recent Developments), our retail segment operated 1,348 convenience stores and retail fuel outlets. Our retail convenience stores operate under several brands, including our proprietary brands Stripes, APlus, and Aloha Island Mart, and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuel and other services. We have company operated sites in more than 20 states, with a significant presence in Texas, Pennsylvania, New York, Florida, Virginia and Hawaii.
As of December 31, 2017 , we operated 746 Stripes convenience stores in Texas, New Mexico, Oklahoma and Louisiana. Each store offers a customized merchandise mix based on local customer demand and preferences. We built 266 large-format convenience stores from January 2000 through December 31, 2017 . We have implemented our proprietary, in-house Laredo Taco Company restaurant concept in 477 Stripes convenience stores. We also own and operate ATM and proprietary money order systems in most Stripes stores and provide other services such as lottery, prepaid telephone cards, wireless services and car washes.
As of December 31, 2017 , we operated 441 retail convenience stores and fuel outlets, primarily under our proprietary and iconic Sunoco fuel brand, and principally located in Pennsylvania, New York and Florida, including 404 APlus convenience stores. Sunoco Retail's convenience stores offer a broad selection of food, beverages, snacks, grocery, and non-food merchandise, as well as motor fuel and other services such as ATM's, money orders, lottery, prepaid telephone cards, and wireless services.
As of December 31, 2017 , we operated 161 MACS and Aloha convenience stores and fuel outlets in Virginia, Maryland, Tennessee, Georgia, and Hawaii offering merchandise, food service, motor fuel and other services. As of December 31, 2017 , MACS operated 107 retail convenience stores and Aloha operated 54 Aloha, Shell, and Mahalo branded fuel stations.
For further detail of our segment results refer to “Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 19 Segment Reporting” and “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”

7


Merchandise Suppliers
Our retail businesses purchase approximately 44% of total retail merchandise from McLane Company, Inc. We do not maintain additional product inventories other than what is in our stores.
Sale of Regulated Products
In certain areas where our convenience stores are located, state or local laws limit the hours of operation for the sale of alcoholic beverages and restrict the sale of alcoholic beverages and tobacco products to persons younger than a certain age. State and local regulatory agencies have the authority to approve, revoke, suspend or deny applications for and renewals of permits and licenses relating to the sale of alcoholic beverages, as well as to issue fines to convenience stores for the improper sale of alcoholic beverages and tobacco products. Failure to comply with these laws may result in the loss of necessary licenses and the imposition of fines and penalties on us. Such a loss or imposition could have a material adverse effect on our business, liquidity and results of operations.
Real Estate and Lease Arrangements
As of December 31, 2017 , our real estate and lease arrangements are as follows:
 
Owned
 
Leased
Wholesale dealer and commission agent sites
464
 
218
Company-operated convenience stores
852
 
496
Warehouses, offices and other
91
 
87
Total
1,407

 
801

Competition
In our wholesale fuel distribution business, we compete primarily with other independent motor fuel distributors. The markets for distribution of wholesale motor fuel and the large and growing convenience store industry are highly competitive and fragmented, which results in narrow margins. We have numerous competitors, some of which may have significantly greater resources and name recognition than we do. Significant competitive factors include the availability of major brands, customer service, price, range of services offered and quality of service, among others. We rely on our ability to provide value-added and reliable service and to control our operating costs in order to maintain our margins and competitive position.
In our retail business, we face strong competition in the market for the sale of retail gasoline and merchandise. Our competitors include service stations of large integrated oil companies, independent gasoline service stations, convenience stores, fast food stores, supermarkets, drugstores, dollar stores, club stores and other similar retail outlets, some of which are well-recognized national or regional retail systems. The number of competitors varies depending on the geographical area. It also varies with gasoline and convenience store offerings. The principal competitive factors affecting our retail marketing operations include gasoline and diesel acquisition costs, site location, product price, selection and quality, site appearance and cleanliness, hours of operation, store safety, customer loyalty and brand recognition. We compete by pricing gasoline competitively, combining our retail gasoline business with convenience stores that provide a wide variety of products, and using advertising and promotional campaigns.
Seasonality
Our business exhibits some seasonality due to our customers’ increased demand for motor fuel during the late spring and summer months as compared to the fall and winter months. Travel, recreation and construction activities typically increase in these months in the geographic areas in which we operate, increasing the demand for motor fuel. Therefore, the volume of motor fuel that we distribute is typically somewhat higher in the second and third quarters of our fiscal year. As a result, our results from operations may vary from period to period.
Working Capital Requirements
We maintain customary levels of fuel and merchandise inventories, and carry corresponding payables balances to suppliers of those inventories, relating to our convenience store operations. In addition, Sunoco LLC purchases a significant amount of unbranded fuel in bulk and stores it for an extended amount of time. We also have rental obligations relating to leased locations. Our working capital needs will typically fluctuate over the medium to long term with the price of crude oil, and over the short term due to the timing of motor fuel tax, sales tax, interest and rent payments.

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Environmental Matters
Environmental Laws and Regulations
We are subject to various federal, state and local environmental laws and regulations, including those relating to underground storage tanks; the release or discharge of hazardous materials into the air, water and soil; the generation, storage, handling, use, transportation and disposal of regulated materials; the exposure of persons to regulated materials; and the remediation of contaminated soil and groundwater.
Environmental laws and regulations can restrict or impact our business activities in many ways, such as:
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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;
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requiring capital expenditures to comply with environmental control requirements; and
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enjoining the operations of facilities deemed to be in noncompliance with environmental laws and regulations.
Failure to comply with environmental laws and regulations may trigger a variety of administrative, civil and criminal enforcement measures, including the assessment of monetary penalties, the imposition of remedial requirements and the issuance of orders enjoining or otherwise curtailing future operations. Certain environmental statutes impose strict, joint and several liability for costs required to clean up and restore sites where hydrocarbons, hazardous substances or wastes have been released or disposed of. Moreover, neighboring landowners and other third parties may file claims for personal injury and property damage allegedly caused by the release of hydrocarbons, hazardous substances or other wastes into the environment.
We believe we are in compliance in all material respects with applicable environmental laws and regulations, and we do not believe that compliance with federal, state or local environmental laws and regulations will have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders. Any future change in regulatory requirements could cause us to incur significant costs. We incorporate by reference into this section our disclosures included in Note 13 of the Notes to Consolidated Financial Statements included in Part II, Item 8.
Hazardous Substances and Releases
Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), impose strict, and under certain circumstances, joint and several, liability on the owner and operator as well as former owners and operators of properties for the costs of investigation, removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault. In addition, under CERCLA and similar state laws, as persons who arrange for the transportation, treatment or disposal of hazardous substances, we also may be subject to similar liability at sites where such hazardous substances come to be located. We may also be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from or in the vicinity of our current properties or off-site waste disposal sites.
We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for remediation or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems. We meet these requirements primarily by maintaining insurance which we purchase from private insurers.
Environmental Reserves
We are currently involved in the investigation and remediation of contamination at motor fuel storage and gasoline store sites where releases of regulated substances have been detected. We accrue for anticipated future costs and the related probable state reimbursement amounts for remediation activities. Accordingly, we have recorded estimated undiscounted liabilities for these sites totaling $22 million as of December 31, 2017 . As of December 31, 2017 , we have additional reserves of $41 million that represent our estimate for future asset retirement obligations for underground storage tanks.

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Underground Storage Tanks
We are required to make financial expenditures to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. Pursuant to the Resource Conservation and Recovery Act of 1976, as amended, the Environmental Protection Agency (“EPA”) has established a comprehensive regulatory program for the detection, prevention, investigation and cleanup of leaking underground storage tanks. State or local agencies are often delegated the responsibility for implementing the federal program or developing and implementing equivalent state or local regulations. We have a comprehensive program in place for performing routine tank testing and other compliance activities which are intended to promptly detect and investigate any potential releases. We believe we are in compliance in all material respects with requirements applicable to our underground storage tanks.
Air Emissions
The Federal Clean Air Act (the “Clean Air Act”) and similar state laws impose requirements on emissions to the air from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds to the air during the motor fueling process. Under the Clean Air Act and comparable state and local laws, permits are typically required to emit regulated air pollutants into the atmosphere. We believe that we currently hold or have applied for all necessary air permits and that we are in substantive compliance with applicable air laws and regulations. Although we can give no assurances, we are aware of no changes to air quality regulations that will have a material adverse effect on our financial condition, results of operations or cash available for distribution to our unitholders.
Various federal, state and local agencies have the authority to prescribe product quality specifications for the motor fuels that we sell, largely in an effort to reduce air pollution. Failure to comply with these regulations can result in substantial penalties. Although we can give no assurances, we believe we are currently in substantive compliance with these regulations.
Efforts at the federal and state level are currently underway to reduce the levels of greenhouse gas (“GHG”) emissions from various sources in the United States. At the federal level, Congress has considered legislation to reduce GHG emissions in the United States. Such federal legislation may impose a carbon emissions tax or establish a cap-and-trade program or regulation by the EPA. Even in the absence of new federal legislation, GHG emissions have begun to be regulated by the EPA pursuant to the Clean Air Act. For example, in April 2010, the EPA set a new emissions standard for motor vehicles to reduce GHG emissions. New federal or state restrictions on emissions of GHGs that may be imposed in areas of the United States in which we conduct business and that apply to our operations could adversely affect the demand for our products. In addition, in May 2016, the EPA issued final standards that would reduce methane emissions from new and modified oil and natural gas production by up to 45% from 2012 levels by 2025. Moreover, in August 2015, EPA issued final rules outlining the Clean Power Plan or CPP which was developed in accordance with President Obama’s Climate Action Plan announced the previous year. Under the CPP, carbon pollution from power plants must be reduced over 30% below 2005 levels by 2030. The current administration under President Trump has expressed an interest in a change in position on GHG initiatives.
Many studies have discussed the relationship between GHG emissions and climate change. One consequence of climate change noted in many of these reports is the increased severity of extreme weather, such as increased hurricanes and floods. Such events could adversely affect our operations through water damage, powerful winds or increased costs for insurance.
Other Government Regulation
The Petroleum Marketing Practices Act, or “PMPA,” is a federal law that governs the relationship between a refiner and a distributor, as well as between a distributor and branded dealer, pursuant to which the refiner or distributor permits a distributor or dealer to use a trademark in connection with the sale or distribution of motor fuel. Under the PMPA, we may not terminate or fail to renew a branded distributor contract unless certain enumerated preconditions or grounds for termination or nonrenewal are met and we also comply with the prescribed notice requirements. Additionally, we are subject to state petroleum franchise laws as well as laws specific to gasoline retailers and dealers, including state laws that regulate our relationships with third parties to whom we lease sites and supply motor fuels.
Employee Safety
We are subject to the requirements of the Occupational Safety and Health Act, or “OSHA,” and comparable state statutes that regulate the protection of the health and safety of workers. In addition, OSHA’s hazard communication standards require that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. We believe that we are in substantive compliance with the applicable OSHA requirements.

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Store Operations
Our remaining retail locations are subject to regulation by federal agencies and to licensing and regulations by state and local health, sanitation, safety, fire and other departments relating to the development and operation of convenience stores, including regulations relating to zoning and building requirements and the preparation and sale of food.
Our operations are also subject to federal and state laws governing such matters as wage rates, overtime, working conditions and citizenship requirements. At the federal level, there are proposals under consideration from time to time to increase minimum wage rates.
Title to Properties, Permits and Licenses
We believe we have all of the assets needed, including leases, permits and licenses, to operate our business in all material respects. With respect to any consents, permits or authorizations that have not been obtained, we believe that the failure to obtain these consents, permits or authorizations will not have a material adverse effect on our financial position, results of operations or cash available for distribution to our unitholders.
We believe we have satisfactory title to all of our assets. Title to property may be subject to encumbrances, including repurchase rights and use, operating and environmental covenants and restrictions, including restrictions on branded motor fuels that may be sold at such sites. We believe that none of these encumbrances will detract materially from the value of our sites or from our interest in these sites, nor will they interfere materially with the use of these sites in the operation of our business. These encumbrances may, however, impact our ability to sell the site to an entity seeking to use the land for alternative purposes.
Our Employees
We are managed and operated by the board of directors and executive officers of our General Partner, which has sole responsibility for providing us with the employees and other personnel necessary to conduct our operations. All of the employees that conduct our business are employed by our General Partner or its affiliates. As of January 31, 2018, our General Partner’s affiliates had approximately 6,513 employees, 318 of which are represented by labor unions or associations, performing services for our operations, with appropriate costs allocated to us. We believe that we and our General Partner and its affiliates have a satisfactory relationship with employees. Information concerning the executive officers of our General Partner is contained in “Item 10. Directors, Executive Officers and Corporate Governance.”
Item 1A.
Risk Factors
Risks Related to Our Business
Cash distributions are not guaranteed, and our financial leverage could increase, depending on our performance and other external factors.
Cash distributions to unitholders is principally dependent upon cash generated from operations. The amount of cash generated from operations will fluctuate from quarter to quarter based on a number of factors, some of which are beyond our control, which include, amongst others:
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demand for motor fuel in the markets we serve, including seasonal fluctuations in demand for motor fuel;
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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;
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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;
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supply, extreme weather and logistics disruptions; and
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volatility of margins for motor fuel.
In addition, the actual amount of cash we will have available for distribution will depend on other factors such as:
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the level and timing of capital expenditures we make;
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the cost of acquisitions, if any;
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our debt service requirements and other liabilities;
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fluctuations in our general working capital needs;

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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;
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our ability to borrow funds at favorable interest rates and access capital markets;
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restrictions contained in debt agreements to which we are a party;
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the level of costs related to litigation and regulatory compliance matters; and
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the amount of cash reserves established by our general partner in its discretion for the proper conduct of our business.
If our cash flow from operations is insufficient to satisfy our needs, we cannot be certain that we will be able to obtain bank financing or access the capital markets. Further, incurring additional debt may significantly increase our interest expense and financial leverage and issuing additional limited partner interests may result in significant unitholder dilution and would increase the aggregate amount of cash required to maintain the cash distribution rate which could materially decrease our ability to pay distributions. If additional capital resources are unavailable to us from third parties or from our sponsor, our business, financial condition, results of operations and ability to make distributions could be materially adversely affected.
General economic, financial, and political conditions may materially adversely affect our results of operations and financial condition.
General economic, financial, and political conditions may have a material adverse effect on our results of operations and financial condition. Declines in consumer confidence and/or consumer spending, changes in unemployment, significant inflationary or deflationary changes or disruptive regulatory or geopolitical events could contribute to increased volatility and diminished expectations for the economy and our markets, including the market for our goods and services, and lead to demand or cost pressures that could negatively and adversely impact our business. These conditions could affect both of our business segments.
Examples of such conditions could include:
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a general or prolonged decline in, or shocks to, regional or broader macro-economies;
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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
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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.
The nature of these types of risks, which are often unpredictable, makes them difficult to plan for, or otherwise mitigate, and they are generally uninsurable—which compounds their potential impact on our business.
Our financial condition and results of operations are influenced by changes in the prices of motor fuel, which may adversely impact our margins, our customers’ financial condition and the availability of trade credit.
Our operating results are influenced by prices for motor fuel. General economic and political conditions, acts of war or terrorism and instability in oil producing regions, particularly in the Middle East, South America, Russia and Africa could significantly impact crude oil supplies and refined product petroleum costs. Significant increases or high volatility in petroleum costs could impact consumer demand for motor fuel and convenience merchandise. Such volatility makes it difficult to predict the impact that future petroleum costs fluctuations may have on our operating results and financial condition. We are subject to dealer tank wagon pricing structures at certain locations further contributing to margin volatility. A significant change in any of these factors could materially impact both wholesale and retail fuel margins, the volume of motor fuel we distribute or sell, and overall customer traffic, each of which in turn could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Significant increases in wholesale motor fuel prices could impact us as some of our customers may have insufficient credit to purchase motor fuel from us at their historical volumes. Higher prices for motor fuel may also reduce our access to trade credit support or cause it to become more expensive.
A significant decrease in demand for motor fuel, including increased consumer preference for alternative motor fuels or improvements in fuel efficiency, in the areas we serve would reduce our ability to make distributions to our unitholders.
Sales of refined motor fuels account for approximately 93% of our total revenues and 62% of our continuing operations gross profit. A significant decrease in demand for motor fuel in the areas we serve could significantly reduce our revenues and our ability to make or increase distributions to our unitholders. Our revenues are dependent on various trends, such as trends in commercial truck traffic, travel and tourism in our areas of operation, and these trends can change. Regulatory action, including government imposed fuel efficiency standards, may also affect demand for motor fuel. Because certain of our operating costs and expenses are fixed and do not

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vary with the volumes of motor fuel we distribute, our costs and expenses might not decrease ratably or at all should we experience such a reduction. As a result, we may experience declines in our profit margin if our fuel distribution volumes decrease.
Any technological advancements, regulatory changes or changes in consumer preferences causing a significant shift toward alternative motor fuels could reduce demand for the conventional petroleum based motor fuels we currently sell. Additionally, a shift toward electric, hydrogen, natural gas or other alternative-power vehicles could fundamentally change our customers' shopping habits or lead to new forms of fueling destinations or new competitive pressures.
New technologies have been developed and governmental mandates have been implemented to improve fuel efficiency, which may result in decreased demand for petroleum-based fuel. Any of these outcomes could result in fewer visits to our convenience stores or independently operated commission agents and dealer locations, a reduction in demand from our wholesale customers, decreases in both fuel and merchandise sales revenue, or reduced profit margins, any of which could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
The industries in which we operate are subject to seasonal trends, which may cause our operating costs to fluctuate, affecting our cash flow.
We rely in part on consumer travel and spending patterns, and may experience more demand for gasoline in the late spring and summer months than during the fall and winter. Travel, recreation and construction are typically higher in these months in the geographic areas in which we or our commission agents and dealers operate, increasing the demand for motor fuel that we sell and distribute. Therefore, our revenues and cash flows are typically higher in the second and third quarters of our fiscal year. As a result, our results from operations may vary widely from period to period, affecting our cash flow.
The dangers inherent in the storage and transportation of motor fuel could cause disruptions in our operations and could expose us to potentially significant losses, costs or liabilities.
We store motor fuel in underground and aboveground storage tanks. We transport the majority of our motor fuel in our own trucks, instead of by third-party carriers. Our operations are subject to significant hazards and risks inherent in transporting and storing motor fuel. These hazards and risks include, but are not limited to, traffic accidents, fires, explosions, spills, discharges, and other releases, any of which could result in distribution difficulties and disruptions, environmental pollution, governmentally-imposed fines or clean-up obligations, personal injury or wrongful death claims, and other damage to our properties and the properties of others. Any such event not covered by our insurance could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Our fuel storage terminals are subject to operational and business risks which may adversely affect our financial condition, results of operations, cash flows and ability to make distributions to our unitholders.
Our fuel storage terminals are subject to operational and business risks, the most significant of which include the following:
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our inability to renew a ground lease for certain of our fuel storage terminals on similar terms or at all;
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our dependence on third parties to supply our fuel storage terminals;
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outages at our fuel storage terminals or interrupted operations due to weather-related or other natural causes;
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the threat that the nation’s terminal infrastructure may be a future target of terrorist organizations;
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the volatility in the prices of the products stored at our fuel storage terminals and the resulting fluctuations in demand for our storage services;
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the effects of a sustained recession or other adverse economic conditions;
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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
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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.
The occurrence of any of the above situations, amongst others, may affect operations at our fuel storage terminals and may adversely affect our business, financial condition, results of operations, cash flows and ability to make distributions to our unitholders.

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Negative events or developments associated with our branded suppliers could have an adverse impact on our revenues.
We believe that the success of our operations is dependent, in part, on the continuing favorable reputation, market value, and name recognition associated with the motor fuel brands sold at our convenience stores and at stores operated by our independent, branded dealers and commission agents. Erosion of the value of those brands could have an adverse impact on the volumes of motor fuel we distribute, which in turn could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our unitholders.
Severe weather could adversely affect our business by damaging our suppliers’ or our customers’ facilities or communications networks.
A substantial portion of our wholesale distribution and retail networks are located in regions susceptible to severe storms, including hurricanes. A severe storm could damage our facilities or communications networks, or those of our suppliers or our customers, as well as interfere with our ability to distribute motor fuel to our customers or our customers’ ability to operate their locations. If warmer temperatures, or other climate changes, lead to changes in extreme weather events, including increased frequency, duration or severity, these weather-related risks could become more pronounced. Any weather-related catastrophe or disruption could have a material adverse effect on our business, financial condition and results of operations, potentially causing losses beyond the limits of the insurance we currently carry.
The wholesale motor fuel distribution industry is characterized by intense competition and fragmentation. Failure to effectively compete could result in lower margins.
The market for distribution of wholesale motor fuel is highly competitive and fragmented, which results in narrow margins. We have numerous competitors, some of which may have significantly greater resources and name recognition than us. We rely on our ability to provide value-added, reliable services and to control our operating costs in order to maintain our margins and competitive position. If we fail to maintain the quality of our services, certain of our customers could choose alternative distribution sources and our margins could decrease. While major integrated oil companies have generally continued to divest retail sites and the corresponding wholesale distribution to such sites, such major oil companies could shift from this strategy and decide to distribute their own products in direct competition with us, or large customers could attempt to buy directly from the major oil companies. The occurrence of any of these events could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We expect to generate a significant portion of our motor fuel sales under the 7-Eleven Fuel Supply Agreement, and any loss, or change in the economic terms, of such arrangement could adversely affect our business, financial condition and results of operations.
We expect that the 7-Eleven Fuel Supply Agreement will represent a significant portion of our motor fuel sales in 2018. The 7-Eleven Fuel Supply Agreement is a 15-year fixed margin, “take or pay” fuel supply arrangement with certain affiliates of 7-Eleven. The loss or change in economics of such arrangement and the inability to enter into new contracts on similar economically acceptable terms could have a material adverse effect on our business, financial condition and results of operations.
The convenience store industry is highly competitive and impacted by new entrants. Failure to effectively compete could result in lower sales and lower margins.
The geographic areas in which we operate and supply independently operated commission agent and dealer locations are highly competitive and marked by ease of entry and constant change in the number and type of retailers offering products and services of the type we and our independently operated commission agents and dealers sell in our stores. We compete with other convenience store chains, independently owned convenience stores, motor fuel stations, supermarkets, drugstores, discount stores, dollar stores, club stores, mass merchants and local restaurants. Over the past two decades, several non-traditional retailers, such as supermarkets, hypermarkets, club stores and mass merchants, have impacted the convenience store industry, particularly in the geographic areas in which we operate and supply, by entering the motor fuel retail business. These non-traditional motor fuel retailers have captured a significant share of the motor fuels market, and we expect their market share will continue to grow.
In some of our markets, our competitors have been in existence longer and have greater financial, marketing, and other resources than we or our independently operated commission agents and dealers do. As a result, our competitors may be able to better respond to changes in the economy and new opportunities within the industry. To remain competitive, we must constantly analyze consumer preferences and competitors’ offerings and prices to ensure that we offer a selection of convenience products and services at competitive prices to meet consumer demand. We must also maintain and upgrade our customer service levels, facilities and locations to remain competitive and attract customer traffic to our stores. We may not be able to compete successfully against current and future competitors, and competitive pressures faced by us could have a material adverse effect on our business, results of operations and cash available for distribution to our unitholders.

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Wholesale cost increases in tobacco products, including excise tax increases on cigarettes, could adversely impact our revenues and profitability.
Significant increases in wholesale cigarette costs and tax increases on cigarettes may have an adverse effect on unit demand for cigarettes. Cigarettes are subject to substantial and increasing excise taxes at both a state and federal level. We cannot predict whether this trend will continue into the future. Increased excise taxes may result in declines in overall sales volume and reduced gross profit percent, due to lower consumption levels and to a shift in consumer purchases from the premium to the non-premium or discount segments or to other lower-priced tobacco products or to the import of cigarettes from countries with lower, or no, excise taxes on such items.
Currently, major cigarette manufacturers offer rebates to retailers. We include these rebates as a component of our gross margin from sales of cigarettes. In the event these rebates are no longer offered, or decreased, our wholesale cigarette costs will increase accordingly. In general, we attempt to pass price increases on to our customers. However, due to competitive pressures in our markets, we may not be able to do so. These factors along with a possible decline in cigarette demand, could materially impact our retail price of cigarettes, cigarette unit volume and revenues, merchandise gross profit and overall customer traffic, which could in turn have a material adverse effect on our business and results of operations.
Failure to comply with state laws regulating the sale of alcohol and cigarettes may result in the loss of necessary licenses and the imposition of fines and penalties on us, which could have a material adverse effect on our business.
State laws regulate the sale of alcohol and cigarettes. A violation of or change in these laws could adversely affect our business, financial condition and results of operations because state and local regulatory agencies have the power to approve, revoke, suspend or deny applications for, and renewals of, permits and licenses relating to the sale of these products and can also seek other remedies. Such a loss or imposition could have a material adverse effect on our business and results of operations.
We currently depend on a limited number of principal suppliers in each of our operating areas for a substantial portion of our merchandise inventory and our products and ingredients for our food service facilities. A disruption in supply or a change in either relationship could have a material adverse effect on our business.
We currently depend on a limited number of principal suppliers in each of our operating areas for a substantial portion of our merchandise inventory and our products and ingredients for our food service facilities. If any of our principal suppliers elect not to renew their contracts with us, we may be unable to replace the volume of merchandise inventory and products and ingredients we currently purchase from them on similar terms or at all in those operating areas. Further, a disruption in supply or a significant change in our relationship with any of these suppliers could have a material adverse effect on our business, financial condition and results of operations and cash available for distribution to our unitholders.
We may be subject to adverse publicity resulting from concerns over food quality, product safety, health or other negative events or developments that could cause consumers to avoid our retail locations or independently operated commission agent or dealer locations.
We may be the subject of complaints or litigation arising from food-related illness or product safety which could have a negative impact on our business. Negative publicity, regardless of whether the allegations are valid, concerning food quality, food safety or other health concerns, food service facilities, employee relations or other matters related to our operations may materially adversely affect demand for our food and other products and could result in a decrease in customer traffic to our retail stores or independently operated commission agent or dealer locations.
It is critical to our reputation that we maintain a consistent level of high quality at our food service facilities and other franchise or fast food offerings. Health concerns, poor food quality or operating issues stemming from one store or a limited number of stores could materially and adversely affect the operating results of some or all of our stores and harm our company-owned brands, continuing favorable reputation, market value and name recognition.
If we are unable to make acquisitions on economically acceptable terms from third parties, our future growth and ability to increase distributions to unitholders will be limited.
A portion of our strategy to grow our business and increase distributions to unitholders is dependent on our ability to make acquisitions that result in an increase in cash flow. The acquisition component of our growth strategy is based, in part, on our expectation of ongoing strategic divestitures of wholesale fuel distribution assets by industry participants. If we are unable to make acquisitions from third parties for any reason, including if we are unable to identify attractive acquisition candidates or negotiate acceptable purchase contracts, we are unable to obtain financing for these acquisitions on economically acceptable terms, we are outbid by competitors, or we or the seller are unable to obtain all necessary consents, our future growth and ability to increase distributions to unitholders will be limited. In addition, if we consummate any future acquisitions, our capitalization and results of operations may change significantly, and unitholders will not have the opportunity to evaluate the economic, financial, and other relevant information considered in determining

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the application of these funds and other resources. Finally, we may complete acquisitions which at the time of completion we believe will be accretive, but which ultimately may not be accretive. If any of these events were to occur, our future growth would be limited.
Any acquisitions are subject to substantial risks that could adversely affect our financial condition and results of operations and reduce our ability to make distributions to unitholders.
Any acquisitions involve potential risks, including, amongst others:
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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;
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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;
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a failure to realize anticipated benefits, such as increased available cash per unit, enhanced competitive position or new customer relationships;
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a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance the acquisition;
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the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges; and
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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.
Integration of assets acquired in past acquisitions or future acquisitions with our existing business will be a complex, time-consuming and costly process, particularly given that assets acquired to date significantly increased our size and diversified the geographic areas in which we operate. A failure to successfully integrate the acquired assets with our existing business in a timely manner may have a material adverse effect on our business, financial condition, results of operations or cash available for distribution to our unitholders.
The difficulties of integrating past and future acquisitions with our business include, among other things:
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operating a larger combined organization in new geographic areas and new lines of business;
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hiring, training or retaining qualified personnel to manage and operate our growing business and assets;
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integrating management teams and employees into existing operations and establishing effective communication and information exchange with such management teams and employees;
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diversion of management’s attention from our existing business;
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assimilation of acquired assets and operations, including additional regulatory programs;
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loss of customers or key employees;
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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
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integrating new technology systems for financial reporting.
If any of these risks or other unanticipated liabilities or costs were to materialize, then desired benefits from past acquisitions and future acquisitions resulting in a negative impact to our future results of operations. In addition, acquired assets may perform at levels below the forecasts used to evaluate their acquisition, due to factors beyond our control. If the acquired assets perform at levels below the forecasts, then our future results of operations could be negatively impacted.
Also, our reviews of proposed business or asset acquisitions are inherently imperfect because it is generally not feasible to perform an in-depth review of each such proposal given time constraints imposed by sellers. Even if performed, a detailed review of assets and businesses may not reveal existing or potential problems, and may not provide sufficient familiarity with such business or assets to fully assess their deficiencies and potential. Inspections may not be performed on every asset, and environmental problems, such as groundwater contamination, may not be observable even when an inspection is undertaken.
We do not own all of the land on which our retail service stations are located, and we lease certain facilities and equipment, and we are subject to the possibility of increased costs to retain necessary land use which could disrupt our operations.

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We do not own all of the land on which our retail service stations are located. We have rental agreements for approximately  35.2%  of the company, commission agent or dealer operated retail service stations where we currently control the real estate. We also have rental agreements for certain logistics facilities.  As such, we are subject to the possibility of increased costs under rental agreements with landowners, primarily through rental increases and renewals of expired agreements. We are also subject to the risk that such agreements may not be renewed. Additionally, certain facilities and equipment (or parts thereof) used by us are leased from third parties for specific periods. Our inability to renew leases or otherwise maintain the right to utilize such facilities and equipment on acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on our financial condition, results of operations and cash flows.
Our operations are subject to federal, state and local laws and regulations pertaining to environmental protection and operational safety that may require significant expenditures or result in liabilities that could have a material adverse effect on our business.
Our business is subject to various federal, state and local environmental laws and regulations, including those relating to terminals, underground storage tanks, the release or discharge of regulated materials into the air, water and soil, the generation, storage, handling, use, transportation and disposal of hazardous materials, the exposure of persons to regulated materials, and the health and safety of our employees. A violation of, liability under, or noncompliance with these laws and regulations, or any future environmental law or regulation, could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Regulations under the Federal Water Pollution Control Act of 1972 (the “Clean Water Act”), the Oil Pollution Act of 1990 (“OPA 90”) and state laws impose regulatory burdens on terminal operations. Spill prevention control and countermeasure requirements of federal and state laws require containment to mitigate or prevent contamination of waters in the event of a refined product overflow, rupture, or leak from above-ground pipelines and storage tanks. The Clean Water Act also requires us to maintain spill prevention control and countermeasure plans at our terminal facilities with above-ground storage tanks and pipelines. In addition, OPA 90 requires that most fuel transport and storage companies maintain and update various oil spill prevention and oil spill contingency plans. Facilities that are adjacent to water require the engagement of Federally Certified Oil Spill Response Organizations (“OSRO”s) to be available to respond to a spill on water from above ground storage tanks or pipelines.
Transportation and storage of refined products over and adjacent to water involves risk and potentially subjects us to strict, joint, and potentially unlimited liability for removal costs and other consequences of an oil spill where the spill is into navigable waters, along shorelines or in the exclusive economic zone of the United States. In the event of an oil spill into navigable waters, substantial liabilities could be imposed upon us. The Clean Water Act imposes restrictions and strict controls regarding the discharge of pollutants into navigable waters, with the potential of substantial liability for the violation of permits or permitting requirements.
Terminal operations and associated facilities are subject to the Clean Air Act as well as comparable state and local statutes. Under these laws, permits may be required before construction can commence on a new source of potentially significant air emissions, and operating permits may be required for sources that are already constructed. If regulations become more stringent, additional emission control technologies may be required at our facilities. Any such future obligation could require us to incur significant additional capital or operating costs.
Terminal operations are subject to additional programs and regulations under the Occupational Safety and Health Act (“OSHA”). Liability under, or a violation of compliance with, these laws and regulations, or any future laws or regulations, could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”), impose strict, and under certain circumstances, joint and several, liability on the current and former owners and operators of properties for the costs of investigation and removal or remediation of contamination and also impose liability for any related damages to natural resources without regard to fault. Under CERCLA and similar state laws, as persons who arrange for the transportation, treatment, and disposal of hazardous substances, we may also be subject to liability at sites where such hazardous substances come to be located. We may be subject to third-party claims alleging property damage and/or personal injury in connection with releases of or exposure to hazardous substances at, from, or in the vicinity of our current or former properties or off-site waste disposal sites. Costs associated with the investigation and remediation of contamination, as well as associated third party claims, could be substantial, and could have a material adverse effect on our business, financial condition, results of operations and our ability to service our outstanding indebtedness. In addition, the presence of, or failure to remediate, identified or unidentified contamination at our properties could materially and adversely affect our ability to sell or rent such property or to borrow money using such property as collateral.
We are required to make financial expenditures to comply with regulations governing underground storage tanks as adopted by federal, state and local regulatory agencies. Compliance with existing and future environmental laws regulating underground storage tank systems of the kind we use may require significant capital expenditures. For example, in July 2015, the EPA published rules that

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amended existing federal underground storage tank rules, requiring certain upgrades to underground storage tanks and related piping to further ensure the detection, prevention, investigation, and remediation of leaks and spills.
The Clean Air Act and similar state laws impose requirements on emissions from motor fueling activities in certain areas of the country, including those that do not meet state or national ambient air quality standards. These laws may require the installation of vapor recovery systems to control emissions of volatile organic compounds during the motor fueling process. While we believe we are in material compliance with all applicable regulatory requirements with respect to underground storage tank systems of the kind we use, regulatory requirements may become more stringent or apply to an increased number of underground storage tanks in the future, which would require additional, potentially material, expenditures.
We are required to comply with federal and state financial responsibility requirements to demonstrate that we have the ability to pay for cleanups or to compensate third parties for damages incurred as a result of a release of regulated materials from our underground storage tank systems. We seek to comply with these requirements by maintaining insurance that we purchase from private insurers and in certain circumstances, rely on applicable state trust funds, which are funded by underground storage tank registration fees and taxes on wholesale purchases of motor fuels. Coverage afforded by each fund varies and is dependent upon the continued maintenance and solvency of each fund.
We are responsible for investigating and remediating contamination at a number of our current and former properties. We are entitled to reimbursement for certain of these costs under various third-party contractual indemnities and insurance policies, subject to eligibility requirements, deductibles, per incident, annual and aggregate caps. To the extent third parties (including insurers) do not pay for investigation and remediation, and/or insurance is not available, we will be obligated to make these additional payments, which could materially adversely affect our business, liquidity, results of operations and cash available for distribution to our unitholders.
We believe we are in material compliance with applicable environmental requirements; however, we cannot ensure that violations of these requirements will not occur in the future. Although we have a comprehensive environmental, health, and safety program, we may not have identified all environmental liabilities at all of our current and former locations; material environmental conditions not known to us may exist; existing and future laws, ordinances or regulations may impose material environmental liability or compliance costs on us; or we may be required to make material environmental expenditures for remediation of contamination that has not been discovered at existing locations or locations that we may acquire.
The occurrence of any of the events described above could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We are subject to federal laws related to the Renewable Fuel Standard.
New laws, new interpretations of existing laws, increased governmental enforcement of existing laws or other developments could require us to make additional capital expenditures or incur additional liabilities. For example, certain independent refiners have initiated discussions with the EPA to change the way the Renewable Fuel Standard (RFS) is administered in an attempt to shift the burden of compliance from refiners and importers to blenders and distributors. Under the RFS, which requires an annually increasing amount of biofuels to be blended into the fuels used by U.S. drivers, refiners/importers are obligated to obtain renewable identification numbers (“RINS”) either by blending biofuel into gasoline or through purchase in the open market. If the obligation was shifted from the importer/refiner to the blender/distributor, the Partnership would potentially have to utilize the RINS it obtains through its blending activities to satisfy a new obligation and would be unable to sell RINS to other obligated parties, which may cause an impact on the fuel margins associated with the Partnership’s sale of gasoline.
The occurrence of any of the events described above could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We are subject to federal, state and local laws and regulations that govern the product quality specifications of refined petroleum products we purchase, store, transport, and sell to our distribution customers.
Various federal, state, and local government agencies have the authority to prescribe specific product quality specifications for certain commodities, including commodities that we distribute. Changes in product quality specifications, such as reduced sulfur content in refined petroleum products, or other more stringent requirements for fuels, could reduce our ability to procure product, require us to incur additional handling costs and/or require the expenditure of capital. If we are unable to procure product or recover these costs through increased selling price, we may not be able to meet our financial obligations. Failure to comply with these regulations could result in substantial penalties.

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Future litigation could adversely affect our financial condition and results of operations.
We are exposed to various litigation claims in the ordinary course of our wholesale business operations, including dealer litigation and industry-wide or class-action claims arising from the products we carry, the equipment or processes we use or employ or industry-specific business practices. If we were to become subject to any such claims, our defense costs and any resulting awards or settlement amounts may not be fully covered by our insurance policies. Additionally, our retail operations are characterized by a high volume of customer traffic and by transactions involving a wide array of product selections. These operations carry a higher exposure to consumer litigation risk when compared to the operations of companies operating in many other industries. Consequently, we are frequently party to individual personal injury, bad fuel, products liability and other legal actions in the ordinary course of our business. While we believe these actions are generally routine in nature, incidental to the operation of our business and immaterial in scope, if our assessment of any action or actions should prove inaccurate our financial condition and results of operations could be adversely affected.
Because we depend on our senior management’s experience and knowledge of our industry, we could be adversely affected were we to lose key members of our senior management team.
We are dependent on the expertise and continued efforts of our general partner’s senior management team. If, for any reason, our senior executives do not continue to be active, our business, financial condition, or results of operations could be adversely affected. We do not maintain key man life insurance for our senior executives or other key employees.
We compete with other businesses in our market with respect to attracting and retaining qualified employees.
Our continued success depends on our ability to attract and retain qualified personnel in all areas of our business. We compete with other businesses in our market with respect to attracting and retaining qualified employees. A tight labor market, increased overtime and a higher full-time employee ratio may cause labor costs to increase. A shortage of qualified employees may require us to enhance wage and benefits packages in order to compete effectively in the hiring and retention of such employees or to hire more expensive temporary employees. No assurance can be given that our labor costs will not increase, or that such increases can be recovered through increased prices charged to customers. We are especially vulnerable to labor shortages in oil and gas drilling areas when energy prices drive higher exploration and production activity.
We are not fully insured against all risks incident to our business.
We are not fully insured against all risks incident to our business. We may be unable to obtain or maintain insurance with the coverage that we desire at reasonable rates. As a result of market conditions, the premiums and deductibles for certain of our insurance policies have increased and could continue to do so. Certain insurance coverage could become unavailable or available only for reduced amounts of coverage. If we were to incur a significant liability for which we were not fully insured, it could have a material adverse effect on our business, financial condition, results of operations and ability to make distributions to our unitholders.
Terrorist attacks and threatened or actual war may adversely affect our business.
Our business is affected by general economic conditions and fluctuations in consumer confidence and spending, which can decline as a result of numerous factors outside of our control. Terrorist attacks or threats, whether within the United States or abroad, rumors or threats of war, actual conflicts involving the United States or its allies, or military or trade disruptions impacting our suppliers or our customers may adversely impact our operations. Specifically, strategic targets such as energy related assets (which could include refineries that produce the motor fuel we purchase or ports in which crude oil is delivered) may be at greater risk of future terrorist attacks than other targets in the United States. These occurrences could have an adverse impact on energy prices, including prices for motor fuels, and an adverse impact on our operations. Any or a combination of these occurrences could have a material adverse effect on our business, financial condition, results of operations and cash available for distribution to our unitholders.
We rely on our information technology systems to manage numerous aspects of our business, and a disruption of these systems could adversely affect our business.
We depend on our information technology (IT) systems to manage numerous aspects of our business transactions and provide analytical information to management. Our IT systems are an essential component of our business and growth strategies, and a serious disruption to our IT systems could significantly limit our ability to manage and operate our business efficiently. These systems are vulnerable to, among other things, damage and interruption from power loss or natural disasters, computer system and network failures, loss of telecommunications services, physical and electronic loss of data, security breaches and computer viruses, which could result in a loss of sensitive business information, systems interruption or the disruption of our business operations. To protect against unauthorized access or attacks, we have implemented infrastructure protection technologies and disaster recovery plans, but there can be no assurance that a technology systems breach or systems failure will not have a material adverse effect on our financial condition or results of operations.

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Our business and our reputation could be adversely affected by the failure to protect sensitive customer, employee or vendor data, whether as a result of cyber security attacks or otherwise, or to comply with applicable regulations relating to data security and privacy.
In the normal course of our business as a motor fuel, food service and merchandise retailer, we obtain large amounts of personal data, including credit and debit card information from our customers. In recent years several retailers have experienced data breaches resulting in exposure of sensitive customer data, including payment card information. While we have invested significant amounts in the protection of our IT systems and maintain what we believe are adequate security controls over individually identifiable customer, employee and vendor data provided to us, a breakdown or a breach in our systems that results in the unauthorized release of individually identifiable customer or other sensitive data could nonetheless occur and have a material adverse effect on our reputation, operating results and financial condition. Such a breakdown or breach could also materially increase the costs we incur to protect against such risks. Also, a material failure on our part to comply with regulations relating to our obligation to protect such sensitive data or to the privacy rights of our customers, employees and others could subject us to fines or other regulatory sanctions and potentially to lawsuits.
Cyber attacks are rapidly evolving and becoming increasingly sophisticated. A successful cyber attack resulting in the loss of sensitive customer, employee or vendor data could adversely affect our reputation, results of operations, financial condition and liquidity, and could result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to upgrade further the security measures that we employ to guard against cyber attacks.
We rely on our suppliers to provide trade credit terms to adequately fund our ongoing operations.
Our business is impacted by the availability of trade credit to fund fuel purchases. An actual or perceived downgrade in our liquidity or operations (including any credit rating downgrade by a rating agency) could cause our suppliers to seek credit support in the form of additional collateral, limit the extension of trade credit, or otherwise materially modify their payment terms. Any material changes in our payments terms, including early payment discounts, or availability of trade credit provided by our principal suppliers could impact our liquidity, results of operations and cash available for distribution to our unitholders.
Our future debt levels may impair our financial condition and our ability to make distributions to our unitholders.
We had $4.3 billion and $2.3 billion of debt outstanding as of December 31, 2017 and January 31, 2018, respectively. We have the ability to incur additional debt under our revolving credit facility and the indentures governing our senior notes. The level of our future indebtedness could have important consequences to us, including:
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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;
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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;
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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;
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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
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placing us at a competitive disadvantage compared with our competitors that have less debt.
In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet other cash needs. Our ability to service our debt depends upon, amongst other things, our financial and operating performance as impacted by prevailing economic conditions, and financial, business, regulatory and other factors, some of which are beyond our control. In addition, our ability to service our debt will depend on market interest rates, since the rates applicable to portion of our borrowings fluctuate. If we are not able to pay our debts as they become due, we will be required to pursue one or more alternative strategies, such as selling assets, refinancing or restructuring our indebtedness or selling additional debt or equity securities. We may not be able to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we must sell our assets, it may negatively affect our ability to generate revenues.
Increases in interest rates could reduce the amount of cash we have available for distributions as well as the relative value of those distributions to yield-oriented investors, which could cause a decline in the market value of our common units.
Approximately $2.0 billion of our outstanding indebtedness as of December 31, 2017 bears interest at variable interest rates. Should those rates rise, the amount of cash we would otherwise have available for distribution would ordinarily be expected to decline, which could impact our ability to maintain or grow our quarterly distributions. Additionally, an increase in interest rates in lower risk

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investment alternatives, such as United States treasury securities, could cause investors to demand a relatively higher distribution yield on our common units, which, unless we are able to raise our distribution, would imply a lower trading price for our common units. Consequently, rising interest rates could cause a significant decline in the market value of our common units. As of January 23, 2018, the $2.0 billion was paid off; however, we do expect to use floating rate debt in the future.
Our existing debt agreements have substantial restrictions and financial covenants that may restrict our business and financing activities and our ability to pay distributions to our unitholders.
We are dependent upon the earnings and cash flow generated by our operations in order to meet our debt service obligations and to allow us to make cash distributions to our unitholders. The operating and financial restrictions and covenants in our credit agreement, the indentures governing our senior notes and any future financing agreements may restrict our ability to finance future operations or capital needs, to engage in or expand our business activities or to pay distributions to our unitholders. For example, our credit agreement and the indentures governing our senior notes restrict our ability to, among other things:
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incur certain additional indebtedness;
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incur, permit, or assume certain liens to exist on our properties or assets;
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make certain investments or enter into certain restrictive material contracts; and
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merge or dispose of all or substantially all of our assets.
In addition, our credit agreement contains covenants requiring us to maintain certain financial ratios. See Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for additional information.
Our future ability to comply with these restrictions and covenants is uncertain and will be affected by the levels of cash flow from our operations and other events or circumstances beyond our control. If market or other economic conditions deteriorate, our ability to comply with these covenants may be impaired. If we violate any provisions of our credit agreement or the indentures governing our senior notes that are not cured or waived within the appropriate time period provided therein, a significant portion of our indebtedness may become immediately due and payable, our ability to make distributions to our unitholders will be inhibited and our lenders’ commitment to make further loans to us may terminate. We might not have, or be able to obtain, sufficient funds to make these accelerated payments.
We depend on cash flow generated by our subsidiaries.
We are a holding company with no material assets other than the equity interests in our subsidiaries. Our subsidiaries conduct all of our operations and own all of our assets. These subsidiaries are distinct legal entities and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries and our subsidiaries may not be able to, or be permitted to, make distributions to us. In the event that we do not receive distributions from our subsidiaries, we may be unable to meet our financial obligations or make distributions to our unitholders.
The swaps regulatory provisions of the Dodd-Frank Act and the rules adopted thereunder could have an adverse effect on our ability to use derivative instruments to mitigate the risks of changes in commodity prices and interest rates and other risks associated with our business.
Provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and rules adopted by the Commodity Futures Trading Commission (the “CFTC”), the SEC and other prudential regulators establish federal regulation of the physical and financial derivatives, including over-the-counter derivatives market and entities, such as us, participating in that market. While most of these regulations are already in effect, the implementation process is still ongoing and the CFTC continues to review and refine its initial rulemakings through additional interpretations and supplemental rulemakings. As a result, any new regulations or modifications to existing regulations could significantly increase the cost of derivative contracts, materially alter the terms of derivative contracts, reduce the availability and/or liquidity of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. Any of these consequences could have a material adverse effect on our financial condition, results of operations and cash available for distribution to our unitholders.
The CFTC has re-proposed speculative position limits for certain futures and option contracts in the major energy markets and for swaps that are their economic equivalents, although certain bona fide hedging transactions would be exempt from these position limits provided that various conditions are satisfied. The CFTC has also finalized a related aggregation rule that requires market participants to aggregate their positions with certain other persons under common ownership and control, unless an exemption applies, for purposes of determining whether the position limits have been exceeded. If adopted, the revised position limits rule and its finalized companion rule on aggregation may create additional implementation or operational exposure. In addition to the CFTC federal speculative position limit regime, designated contract markets (“DCMs”) also maintain speculative position limit and accountability regimes with respect to contracts listed on their platform as well as aggregation requirements similar to the CFTC’s final aggregation rule. Any speculative

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position limit regime, whether imposed at the federal-level or at the DCM-level may impose added operating costs to monitor compliance with such position limit levels, addressing accountability level concerns and maintaining appropriate exemptions, if applicable.
The Dodd-Frank Act requires that certain classes of swaps be cleared on a derivatives clearing organization and traded on a DCM or other regulated exchange, unless exempt from such clearing and trading requirements, which could result in the application of certain margin requirements imposed by derivatives clearing organizations and their members. The CFTC and prudential regulators have also adopted mandatory margin requirements for uncleared swaps entered into between swap dealers and certain other counterparties. We currently qualify for and rely upon an end-user exception from such clearing and margin requirements for the swaps we enter into to hedge our commercial risks. However, the application of the mandatory clearing and trade execution requirements and the uncleared swaps margin requirements to other market participants, such as swap dealers, may adversely affect the cost and availability of the swaps that we use for hedging.
In addition to the Dodd-Frank Act, the European Union and other foreign regulators have adopted and are implementing local reforms generally comparable with the reforms under the Dodd-Frank Act. Implementation and enforcement of these regulatory provisions may reduce our ability to hedge our market risks with non-U.S. counterparties and may make transactions involving cross-border swaps more expensive and burdensome. Additionally, the lack of regulatory equivalency across jurisdictions may increase compliance costs and make it more difficult to satisfy our regulatory obligations.
An impairment of goodwill and intangible assets could reduce our earnings.
As of  December 31, 2017 , our consolidated balance sheet reflected  $1.4 billion  of goodwill and  $768 million  of intangible assets. Goodwill is recorded when the purchase price of a business exceeds the fair value of the tangible and separately measurable intangible net assets. Generally accepted accounting principles (“GAAP”) require us to test goodwill for impairment on an annual basis or when events or circumstances occur, indicating that goodwill might be impaired. Long-lived assets such as intangible assets with finite useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If we determine that any of our goodwill or intangible assets were impaired, we would be required to take an immediate charge to earnings with a correlative effect on partners’ capital and balance sheet leverage as measured by debt to total capitalization. Impairment charges are currently removed from our debt covenant calculations.
During the year 2017, we recorded a goodwill impairment charge of $102 million  on our retail reporting unit . See Note 8 in the accompanying Notes to Consolidated Financial Statements for more information.
Risks Related To Our Structure
ETE owns and controls our general partner, which has sole responsibility for conducting our business and managing our operations. Our general partner and its affiliates, including ETE and ETP, have conflicts of interest with us and limited fiduciary duties and they may favor their own interests to the detriment of us and our unitholders.
ETE, through its wholly owned subsidiary, Energy Transfer Partners, L.L.C., owns and controls our general partner and appoints all of the officers and directors of our general partner. Although our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the executive officers and directors of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to ETE. Therefore, conflicts of interest may arise between ETE and its affiliates, including our general partner, on the one hand, and us and our unitholders, on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over the interests of our common unitholders. These conflicts include the following situations, among others:
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Our general partner’s affiliates, including ETE, ETP 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 ETE 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 ETE, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders.
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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.
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Affiliates of our general partner, including ETE, 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.
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Except in limited circumstances, our general partner has the power and authority to conduct our business without unitholder approval.
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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.
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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.
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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.
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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.
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Our general partner determines which costs incurred by it and its affiliates are reimbursable by us.
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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.
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Our general partner has limited its liability regarding our contractual and other obligations.
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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.
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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.
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ETE may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to ETE’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.
Our general partner has limited its liability regarding our obligations.
Our general partner has limited its liability under contractual arrangements so that the counterparties to such arrangements have recourse only against our assets, and not against our general partner or its assets. Our general partner may therefore cause us to incur indebtedness or other obligations that are nonrecourse to our general partner. Our partnership agreement provides that any action taken by our general partner to limit its liability is not a breach of our general partner’s fiduciary duties, even if we could have obtained more favorable terms without the limitation on liability. In addition, we are obligated to reimburse or indemnify our general partner to the extent that it incurs obligations on our behalf. Any such reimbursement or indemnification payments would reduce the amount of cash otherwise available for distribution to our unitholders.
Our general partner may, in its sole discretion, approve the issuance of partnership securities and specify the terms of such partnership securities.
Pursuant to our partnership agreement, our general partner has the ability, in its sole discretion and without the approval of our unitholders, to approve the issuance of securities by the Partnership at any time and to specify the terms and conditions of such securities. The securities authorized to be issued may be issued in one or more classes or series, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and series of partnership securities), as shall be determined by our general partner, including:
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the right to share in Partnership’s profits and losses;
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the right to share in the Partnership’s distributions;
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the rights upon dissolution and liquidation of the Partnership;

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whether, and the terms upon which, the Partnership may redeem the securities;
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whether the securities will be issued, evidenced by certificates and assigned or transferred; and
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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.
Our partnership agreement requires that we distribute all of our available cash, which could limit our ability to grow and make acquisitions.
Our partnership agreement requires that we distribute all of our available cash to our unitholders. As such, we rely primarily upon external financing sources, including borrowings under our revolving credit facility and the issuance of debt and equity securities, to fund our acquisitions and expansion capital requirements. To the extent we are unable to finance growth externally, our cash distribution policy may significantly impair our ability to grow.
In addition, because we distribute all of our available cash, our growth rate may not be as fast as that of businesses that reinvest their available cash to expand ongoing operations. To the extent we issue additional units in connection with any acquisitions or expansion capital expenditures, the payment of distributions on those additional units may increase the risk that we will be unable to maintain or increase our per unit distribution level. There are no limitations in our partnership agreement on our ability to issue additional units, including units ranking senior to existing common units. The incurrence of bank borrowings or other debt to finance our growth strategy may result in increased interest expense, which, in turn, may impact the available cash that we have to distribute to our unitholders.
Our partnership agreement limits the liability and duties of our general partner and restricts the remedies available to us and our common unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.
Our partnership agreement limits the liability and duties of our general partner, while also restricting the remedies available to our common unitholders for actions that, without these limitations, might constitute breaches of fiduciary duty. Delaware partnership law permits such contractual reductions of fiduciary duty. By purchasing common units, common unitholders consent to be bound by the partnership agreement, and pursuant to our partnership agreement, each common unitholder consents to various actions and conflicts of interest contemplated in our partnership agreement that might otherwise constitute a breach of fiduciary or other duties under Delaware law. For example:
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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 ETE, as the owner of our general partner, and not by the board of directors of our general partner. Examples of such decisions include:
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whether to exercise limited call rights;
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how to exercise voting rights with respect to any units it owns;
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whether to exercise registration rights; and
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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.
•
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

24


•
the board of directors of our general partner acted in good faith in taking any action or failing to act.
If an affiliate transaction or the resolution of a conflict of interest is not approved by our common unitholders or the conflicts committee then it will be presumed that, in making its decision, taking any action or failing to act, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption.
Cost reimbursements due to our general partner and its affiliates for services provided to us or on our behalf will reduce cash available for distribution to our unitholders. The amount and timing of such reimbursements will be determined by our general partner.
Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur and payments they make on our behalf pursuant to our partnership agreement. Our partnership agreement does not limit the amount of expenses for which our general partner and its affiliates may be reimbursed. Our partnership agreement provides that our general partner will determine in good faith the expenses that are allocable to us. Reimbursement of expenses and payment of fees to our general partner and its affiliates will reduce the amount of cash available to pay distributions to our unitholders.
ETE may elect to cause us to issue common units to it in connection with a resetting of the target distribution levels related to its incentive distribution rights, without the approval of the conflicts committee of our general partner’s board of directors or the holders of our common units. This could result in lower distributions to holders of our common units.
ETE has the right, at any time it has received incentive distributions at the highest level to which it is entitled (50%) for each of the prior four consecutive whole fiscal quarters (and the amount of each such did not exceed adjusted operating surplus for each such quarter), to reset the initial target distribution levels at higher levels based on our cash distributions at the time of the exercise of the reset election. Following a reset election by ETE, the minimum quarterly distribution will be adjusted to equal the reset minimum quarterly distribution, and the target distribution levels will be reset to correspondingly higher levels based on the same percentage increases above the reset minimum quarterly distribution reflected by the current target distribution levels.
If ETE elects to reset the target distribution levels, it will be entitled to receive a number of common units equal the number of common units which would have entitled their holder to an average aggregate quarterly cash distribution in the prior two quarters equal to the average of the distributions to ETE on the incentive distribution rights in the prior two quarters. We anticipate that ETE would exercise this reset right in order to facilitate acquisitions or internal growth projects that would not be sufficiently accretive to cash distributions per common unit without such conversion. It is possible, however, that ETE could exercise this reset election at a time when it is experiencing, or expects to experience, declines in the cash distributions it receives related to its incentive distribution rights and may, therefore, desire to be issued common units rather than retain the right to receive incentive distributions based on the initial target distribution levels. As a result, a reset election may cause our common unitholders to experience a reduction in the amount of cash distributions that they would have otherwise received had we not issued new common units to ETE in connection with resetting the target distribution levels.
Holders of our common units have limited voting rights and are not entitled to elect our general partner or its directors.
Unlike the holders of common stock in a corporation, our common unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Our common unitholders have no right on an annual or ongoing basis to elect our general partner or its board of directors. The board of directors of our general partner, including the independent directors, are chosen entirely by ETE due to its ownership of our general partner, and not by our common unitholders. Unlike a publicly traded corporation, we do not conduct annual meetings of our unitholders to elect directors or conduct other matters routinely conducted at annual meetings of stockholders of corporations. Our partnership agreement also contains provisions limiting the ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting our unitholders’ ability to influence the manner or direction of management.
Even if holders of our common units are dissatisfied, they cannot easily remove our general partner without its consent.
If our unitholders are dissatisfied with the performance of our general partner, they have limited ability to remove our general partner. Our general partner generally may not be removed except upon the vote of the holders of 66⅔% of our outstanding common units, including units owned by our general partner and its affiliates. As of December 31, 2017 , ETE and its affiliates held approximately 45.9% of our outstanding common units, which constitutes a 39.5% limited partner interest in us. As of February 7, 2018, subsequent to the partnership repurchase of 17,286,859 common units from ETP, ETE and its affiliates held approximately 34.5% of our outstanding common units, which constitutes a 28.8% limited partner interest in us.

25


Our general partner interest or the control of our general partner may be transferred to a third party without unitholder consent.
Our general partner may transfer its general partner interest to a third party without the consent of our unitholders in a merger, in a sale of all or substantially all of its assets or in other transactions so long as certain conditions are satisfied. Furthermore, our partnership agreement does not restrict the ability of ETE to transfer all or a portion of its interest in our general partner to a third party. Any new owner of our general partner or our general partner interest would then be in a position to replace the board of directors and executive officers of our general partner with its own designees without the consent of unitholders and thereby exert significant control over us, and may change our business strategy.
Our general partner has a limited call right that may require unitholders to sell their common units at an undesirable time or price.
If at any time our general partner and its affiliates own more than 80% of the common units, our general partner will have the right, which it may assign to any of its affiliates or to us, but not the obligation, to acquire all, but not less than all, of the common units held by unaffiliated persons at a price equal to the greater of (1) the average of the daily closing price of the common units over the 20 trading days preceding the date three days before notice of exercise of the call right is first mailed and (2) the highest per-unit price paid by our general partner or any of its affiliates for common units during the 90-day period preceding the date such notice is first mailed. As a result, unitholders may be required to sell their common units at an undesirable time or price and may not receive any return or a negative return on their investment. Unitholders may also incur a tax liability upon a sale of their units. Our general partner is not obligated to obtain a fairness opinion regarding the value of the common units to be repurchased by it upon exercise of the limited call right. There is no restriction in our partnership agreement that prevents our general partner from issuing additional common units and exercising its call right.
We may issue additional units without unitholder approval, which would dilute existing unitholder ownership interests.
Our partnership agreement does not limit the number of additional limited partner interests we may issue at any time without the approval of our unitholders. The issuance of additional common units or other equity interests of equal or senior rank will have the following effects:
•
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.
The market price of our common units could be adversely affected by sales of substantial amounts of our common units in the public or private markets, including sales by ETP or ETE.
As of December 31, 2017 , ETP owned 43,487,668 of our common units and ETE owned 2,263,158 of our common units. The sale or disposition of a substantial portion of these units in the public or private markets could reduce the market price of our outstanding common units. As of February 7, 2018, subsequent to the partnership repurchase of 17,286,859 common units from ETP, ETP owned 26,200,809 of our common units.
Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our outstanding common units.
Our partnership agreement restricts unitholders’ voting rights by providing that any units held by a person or group that owns 20% or more of any class of units then outstanding, other than our general partner and its affiliates, their transferees and persons who acquired such units with the prior approval of the board of directors of our general partner, cannot vote on any matter.
The amount of cash we have available for distribution to holders of our units depends primarily on our cash flow and not solely on profitability, which may prevent us from making cash distributions during periods when we record net income.
The amount of cash we have available for distribution depends primarily upon our cash flow, including cash flow from working capital or other borrowings, and not solely on profitability, which will be affected by non-cash items. As a result, we may pay cash distributions during periods when we record net losses for financial accounting purposes and may not pay cash distributions during periods when we record net income.

26


Unitholders may have liability to repay distributions.
Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, or the Delaware Act, we may not make a distribution to our unitholders if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of an impermissible distribution, limited partners who received the distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. A purchaser of units who becomes a limited partner is liable for the obligations of the transferring limited partner to make contributions to the partnership that are known to such purchaser at the time it became a limited partner and for unknown obligations if the liabilities could be determined from the partnership agreement. Liabilities to partners on account of their partnership interests and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.
The NYSE does not require a publicly traded partnership like us to comply with certain corporate governance requirements.
Because we are a publicly traded partnership, the NYSE does not require us to have a majority of independent directors on our general partner’s board of directors or to establish a compensation committee or a nominating and corporate governance committee. Accordingly, unitholders do not have the same protections afforded to stockholders of corporations that are subject to all of the corporate governance requirements of the applicable stock exchange.
Tax Risks to Common Unitholders
Our tax treatment depends on our status as a partnership for U.S. federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service (“IRS”) were to treat us as a corporation for U.S. federal income tax purposes or we were otherwise subject to a material amount of entity-level taxation, then our cash available for distribution to our unitholders would be substantially reduced.
The anticipated after-tax economic benefit of an investment in our common units depends largely on our being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we are organized as a limited partnership under Delaware law, we will be treated as a corporation for U.S. federal income tax purposes unless we satisfy a “qualifying income” requirement. Based upon our current operations, we believe we satisfy the qualifying income requirement. Failing to meet the qualifying income requirement or a change in current law could cause us to be treated as a corporation for U.S. federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for U.S. federal income tax purposes, we would pay U.S. federal income tax on our taxable income at the corporate tax rate, which is currently a maximum of 21%, and would likely pay state income tax at varying rates. Distributions to our unitholders who are treated as holders of corporate stock would generally be taxed again as corporate distributions, and no income, gains, losses, deductions or credits would flow through to our unitholders. Because a tax would be imposed upon us as a corporation, our cash available for distribution to our unitholders would be substantially reduced.
Our partnership agreement provides that if a law is enacted or existing law is modified or interpreted in a manner that subjects us to taxation as a corporation or otherwise subjects us to entity-level taxation for federal, state or local income tax purposes, the minimum quarterly distribution amount and the target distribution amounts may be adjusted to reflect the impact of that law on us.
In addition, changes in current state law may subject us to additional entity-level taxation by individual states. Several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, we are currently subject to the entity-level Texas franchise tax. Imposition of any such additional taxes on us or an increase in the existing tax rates would reduce the cash available for distribution to our unitholders. Therefore, if we were treated as a corporation for U.S. federal income tax purposes or otherwise subjected to a material amount of entity-level taxation, there would be a material reduction in the anticipated cash flow and after-tax return to our unitholders, likely causing a substantial reduction in the value of our common units.
The tax treatment of publicly traded partnerships or an investment in our common units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of publicly traded partnerships, including us, or an investment in our common units may be modified by administrative, legislative or judicial changes or differing interpretations at any time. For example, from time to time, members of Congress propose and consider substantive changes to the existing federal income tax laws that affect publicly traded partnerships.

27


In addition, on January 24, 2017, final regulations regarding which activities give rise to qualifying income within the meaning of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Final Regulations”) were published in the Federal Register. The Final Regulations are effective as of January 19, 2017, and apply to taxable years beginning on or after January 19, 2017. We do not believe the Final Regulations affect our ability to be treated as a partnership for U.S. federal income tax purposes.
However, any modification to the federal income tax laws may be applied retroactively and could make it more difficult or impossible for us to meet the exception for certain publicly traded partnerships to be treated as partnerships for federal income tax purposes. We are unable to predict whether any changes or other proposals will ultimately be enacted, including as a result of fundamental tax reform. Any such changes could negatively impact the value of an investment in our common units.
If the IRS makes audit adjustments to our income tax returns for tax years beginning after December 31, 2017, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our cash available for distribution to our Unitholders might be substantially reduced.
Pursuant to the Bipartisan Budget Act of 2015, for tax years beginning after December 31, 2017, if the IRS makes audit adjustments to our income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, our general partner may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised Schedule K-1 to each unitholder with respect to an audited and adjusted return. Although our general partner may elect to have our Unitholders take such audit adjustment into account in accordance with their interests in us during the tax year under audit, there can be no assurance that such election will be practical, permissible or effective in all circumstances. As a result, our current Unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such Unitholders did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and interest, our cash available for distribution to our Unitholders might be substantially reduced. These rules are applicable for tax years after December 31, 2017.
We have subsidiaries that are treated as corporations for U.S. federal income tax purposes and are subject to corporate-level income taxes.
Even though we (as a partnership for U.S. federal income tax purposes) are not subject to U.S. federal income tax, some of our operations are currently conducted through subsidiaries that are organized as corporations for U.S. federal income tax purposes. The taxable income, if any, of these subsidiaries is subject to corporate-level U.S. federal income taxes, which may reduce the cash available for distribution to us and, in turn, to our unitholders. If the IRS or other state or local jurisdictions were to successfully assert that these corporations have more tax liability than we anticipate or legislation is enacted that increases the corporate tax rate, then cash available for distribution could be further reduced. The income tax return filing positions taken by these corporate subsidiaries requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is also required in assessing the amounts of deductible and taxable items. Despite our belief that the income tax return positions taken by these subsidiaries are fully supportable, certain positions may be successfully challenged by the IRS, state or local jurisdictions.
Our unitholders will be required to pay taxes on their share of our income even if they do not receive any cash distributions from us.
Because our unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount than the cash we distribute, our unitholders will be required to pay U.S. federal income taxes and, in some cases, state and local income taxes on their share of our taxable income whether or not they receive cash distributions from us. Our unitholders may not receive cash distributions from us equal to their share of our taxable income or even equal to the actual tax liability that results from that income.
Tax gain or loss on the disposition of our common units could be more or less than expected.
If a unitholder sells its common units, it will recognize a gain or loss equal to the difference between the amount realized and its tax basis in those common units. Because distributions in excess of a unitholder’s allocable share of our net taxable income result in a decrease in its tax basis in its common units, the amount, if any, of such prior excess distributions with respect to the common units it sells will, in effect, become taxable income to the unitholder if it sells such common units at a price greater than its tax basis in those common units, even if the price the unitholder receives is less than its original cost. Furthermore, a substantial portion of the amount realized, whether or not representing gain, may be taxed as ordinary income due to potential recapture of depreciation deductions and certain other items. In addition, because the amount realized includes a unitholder’s share of our nonrecourse liabilities, if a unitholder sells its common units, the unitholder may incur a tax liability in excess of the amount of cash it receives from the sale.
Tax-exempt entities face unique tax issues from owning common units that may result in adverse tax consequences to them.
Investments in our units by tax-exempt entities, including employee benefit plans and individual retirement accounts (known as IRAs) raise issues unique to them. For example, virtually all of our income allocated to unitholders who are organizations exempt from

28


federal income tax, including IRAs and other retirement plans, will be “unrelated business taxable income” and will be taxable to them. Further, with respect to taxable years beginning after December 31, 2017, a tax-exempt entity with more than one unrelated trade or business (including by attribution from investment in a partnership such as ours that is engaged in one or more unrelated trade or business) is required to compute the unrelated business taxable income of such tax-exempt entity separately with respect to each such trade or business (including for purposes of determining any net operating loss deduction). As a result, for years beginning after December 31, 2017, it may not be possible for tax-exempt entities to utilize losses from an investment in our partnership to offset unrelated business taxable income from another unrelated trade or business and vice versa. Tax-exempt entities should consult a tax advisor before investing in our units.
If the IRS contests the U.S. federal income tax positions we take, the market for our common units may be adversely impacted and the cost of any IRS contest will reduce our cash available for distribution to our unitholders.
The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest by the IRS may materially and adversely impact the market for our common units and the price at which they trade. The costs of any contest by the IRS will be borne indirectly by our unitholders because the costs will reduce our cash available for distribution.
We treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.
Because we cannot match transferors and transferees of common units, we have adopted depreciation and amortization positions that may not conform to all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to a unitholder. It also could affect the timing of these tax benefits or the amount of gain from a unitholder’s sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to a unitholder’s tax returns.
We prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month, instead of on the basis of the date a particular common unit is transferred. The IRS may challenge this treatment, which could change the allocation of items of income, gain, loss and deduction among our unitholders.
We generally prorate our items of income, gain, loss and deduction between transferors and transferees of our common units each month based upon the ownership of our common units on the first day of each month (the “Allocation Date”), instead of on the basis of the date a particular common unit is transferred. Similarly, we generally allocate certain deductions for depreciation of capital additions, gain or loss realized on a sale or other disposition of our assets and, in the discretion of the general partner, any other extraordinary item of income, gain, loss or deduction based upon ownership on the Allocation Date. Treasury Regulations allow a similar monthly simplifying convention, but such regulations do not specifically authorize all aspects of the proration method we have currently adopted. If the IRS were to successfully challenge our proration method, we may be required to change the allocation of items of income, gain, loss and deduction among our unitholders.
A unitholder whose common units are the subject of a securities loan (e.g., a loan to a “short seller” to cover a short sale of common units) may be considered as having disposed of those common units. If so, the unitholder would no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan and may recognize gain or loss from the disposition.
Because there is no tax concept of loaning a partnership interest, a unitholder whose common units are the subject of a securities loan may be considered as having disposed of the loaned common units. In that case, he may no longer be treated for U.S. federal income tax purposes as a partner with respect to those common units during the period of the loan and the unitholder may recognize gain or loss from such disposition. Moreover, during the period of the loan, any of our income, gain, loss or deduction with respect to those common units may not be reportable by the unitholder and any cash distributions received by the unitholder as to those common units could be fully taxable as ordinary income. Unitholders desiring to assure their status as partners and avoid the risk of gain recognition from a loan of their common units should modify any applicable brokerage account agreements to prohibit their brokers from borrowing their common units.
We have adopted certain valuation methodologies in determining a unitholder’s allocations of income, gain, loss and deduction. The IRS may challenge these methods or the resulting allocations, and such a challenge could adversely affect the value of our common units.
In determining the items of income, gain, loss and deduction allocable to our unitholders, we must routinely determine the fair market value of our respective assets. Although we may from time to time consult with professional appraisers regarding valuation matters,

29


we make many fair market value estimates using a methodology based on the market value of our common units as a means to measure the fair market value of our respective assets. The IRS may challenge these valuation methods and the resulting allocations of income, gain, loss and deduction.
A successful IRS challenge to these methods or allocations could adversely affect the amount, character, and timing of taxable income or loss being allocated to our unitholders. It also could affect the amount of gain from our unitholders’ sale of common units and could have a negative impact on the value of the common units or result in audit adjustments to our unitholders’ tax returns without the benefit of additional deductions.
Unitholders will likely be subject to state and local taxes and return filing requirements in states where they do not live as a result of investing in our common units.
In addition to U.S. federal income taxes, unitholders may be subject to other taxes, including state and local income taxes, unincorporated business taxes, and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property now or in the future or in which the unitholder is a resident. We currently own property or do business in a substantial number of states, most of which impose a personal income tax and many impose an income tax on corporations and other entities. We may also own property or do business in other states in the future. Although an analysis of those various taxes is not presented here, each prospective unitholder should consider their potential impact on its investment in us.
Although you may not be required to file a return and pay taxes in some jurisdictions because your income from that jurisdiction falls below the filing and payment requirement, you will be required to file income tax returns and to pay income taxes in many of the jurisdictions in which we do business or own property and may be subject to penalties for failure to comply with those requirements. Some of the jurisdictions may require us, or we may elect, to withhold a percentage of income from amounts to be distributed to a unitholder who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular unitholder’s income tax liability to the jurisdiction, generally does not relieve a nonresident unitholder from the obligation to file an income tax return.
It is the responsibility of each unitholder to investigate the legal and tax consequences, under the laws of pertinent jurisdictions, of its investment in us. We strongly recommend that each prospective unitholder consult, and depend on, its own tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each unitholder to file all state, local, and non-U.S., as well as U.S. federal tax returns that may be required of it.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
A description of our properties is included in “Item 1. Business.” In addition, we own and lease warehouses and offices in Pennsylvania, Texas and Hawaii. While we may require additional warehouse and office space as our business expands, we believe that our existing facilities are adequate to meet our needs for the immediate future, and that additional facilities will be available on commercially reasonable terms as needed.
We believe that we have satisfactory title to or valid rights to use all of our material properties. Although some of our properties are subject to liabilities and leases, liens for taxes not yet due and payable, encumbrances securing payment obligations under non-competition agreements and immaterial encumbrances, easements and restrictions, we do not believe that any such burdens will materially interfere with our continued use of such properties in our business, taken as a whole. In addition, we believe that we have, or are in the process of obtaining, all required material approvals, authorizations, orders, licenses, permits, franchises and consents of, and have obtained or made all required material registrations, qualifications and filings with, the various state and local government and regulatory authorities which relate to ownership of our properties or the operations of our business.
Item 3.
Legal Proceedings
On July 14, 2017, our subsidiary Aloha Petroleum, Ltd. (“Aloha”) received a Notice of Violation and Order (“NOVO”) from the Hawaii Department of Health (“DOH”) relating to alleged leak detection and reporting deficiencies at Aloha’s AIM Diamond Head facility in Honolulu, Hawaii with proposed civil penalties of $0.2 million. While Aloha does not admit fault with regard to the alleged deficiencies at the Diamond Head facility, a civil settlement was reached with the DOH on December 6, 2017, under which Aloha agreed to pay a $0.12 million penalty.
Item 4.
Mine Safety Disclosures
Not applicable.

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Part II
Item 5.
Market for Our Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities
Our Partnership Interest
As of February 16, 2018, we had outstanding 82,487,330 common units, 16,410,780 Class C units representing limited partner interests in the Partnership (“Class C Units”), a non-economic general partner interest and incentive distribution rights (“IDRs”). As of February 16, 2018, ETP and ETE directly and indirectly owned approximately 34.5% of our outstanding common units, which constitutes a 28.8% limited partner ownership interest in us. Our general partner, Sunoco GP LLC, is 100% owned by ETE and owns a non-economic general partner interest in us. ETE also owns all of our IDRs. As discussed below, the IDRs represent the right to receive increasing percentages, up to a maximum of 50%, of the cash we distribute from operating surplus (as defined below) in excess of $0.503125 per unit per quarter. Our common units, which represent limited partner interests in us, are listed on the New York Stock Exchange (“NYSE”) under the symbol “SUN.”
Our common units have been traded on the NYSE since September 20, 2012. The following table sets forth high and low sales prices per common unit and cash distributions declared per common unit for the periods indicated. The last reported sales price for our common units on February 16, 2018 was $30.41.
 
Sales Price per Common Unit
 
Quarterly Cash Distribution
 
High
 
Low
 
per Unit (1)
Fiscal Year 2017:
 
 
 
 
 
Fourth Quarter
$
32.48

 
$
27.91

 
$
0.8255

Third Quarter
$
32.67

 
$
29.72

 
$
0.8255

Second Quarter
$
31.20

 
$
23.71

 
$
0.8255

First Quarter
$
30.47

 
$
23.09

 
$
0.8255

 
 
 
 
 
 
Fiscal Year 2016:
 
 
 
 
 
Fourth Quarter
$
29.62

 
$
21.01

 
$
0.8255

Third Quarter
$
31.50

 
$
27.11

 
$
0.8255

Second Quarter
$
37.25

 
$
28.21

 
$
0.8255

First Quarter
$
40.00

 
$
22.86

 
$
0.8173

__________________________________________________ 
(1)
Distributions are shown in the quarter with respect to which they relate. Please see “Distributions of Available Cash” below for a discussion of our policy regarding the payment of distributions.
Holders
At the close of business on February 16, 2018, we had thirteen holders of record of our common units and three holders of record of our Class C units. The number of record holders does not include holders of units in “street names” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depositories.
Distributions of Available Cash
Our partnership agreement requires that within 60 days after the end of each quarter, we distribute our available cash to unitholders of record on the applicable record date.
Definition of Available Cash
Available cash generally means, for any quarter, all cash and cash equivalents on hand at the end of the quarter; less , the amount of cash reserves established by our general partner at the date of determination of available cash for the quarter to:
•
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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plus , if our general partner so determines on the date of determination, all or any portion of the cash on hand immediately prior to the date of determination of available cash for the quarter, including cash on hand resulting from working capital borrowings made after the end of the quarter.
Minimum Quarterly Distributions
We intend to make a cash distribution to the holders of our common units and Class C units on a quarterly basis to the extent we have sufficient cash from our operations after the establishment of cash reserves and the payment of costs and expenses, including payments to our general partner and its affiliates. However, there is no guarantee that we will pay the minimum quarterly distribution, as described below, on our common units in any quarter. Even if our cash distribution policy is not modified or revoked, the amount of distributions paid under our policy and the decision to make any distribution is determined by our general partner, taking into consideration the terms of our partnership agreement.
Incentive Distribution Rights
The following table illustrates the percentage allocations of available cash from operating surplus, after the payment of distributions to the Class C unitholders, between our common unitholders and the holder of our IDRs based on the specified target distribution levels. The amounts set forth under “marginal percentage interest in distributions” are the percentage interests of the holder of our IDRs and the common unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “total quarterly distribution per unit target amount.” The percentage interests shown for our common unitholders and the holder of our IDRs for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. ETE has owned our IDRs effective July 1, 2015. ETP previously owned our IDRs from September 2014, and, prior to that period, the IDRs were owned by Susser.
 
 
 
Marginal percentage interest in distributions
 
Total quarterly distribution per
Common unit target amount
 
Common
Unitholders
 
IDR Holder
Minimum Quarterly Distribution
$0.4375
 
100
%
 
—

First Target Distribution
Above $0.4375 up to $0.503125
 
100
%
 
—

Second Target Distribution
Above $0.503125 up to $0.546875
 
85
%
 
15
%
Third Target Distribution
Above $0.546875 up to $0.656250
 
75
%
 
25
%
Thereafter
Above $0.656250
 
50
%
 
50
%
 
Series A Preferred Units
On March 30, 2017, the Partnership entered into a Series A Preferred Unit Purchase Agreement with ETE, relating to the issue and sale by the Partnership to ETE of 12,000,000 Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership at a price per Preferred Unit of $25.00 (the “Offering”). The distribution rate for the Preferred Units is 10.00%, per annum, of the $25.00 liquidation preference per unit (the “Liquidation Preference”) (equal to $2.50 per Preferred Unit per annum) until March 30, 2022, at which point the distribution rate will become a floating rate of 8.00% plus three-month LIBOR of the Liquidation Preference. The Preferred Units are redeemable at any time, and from time to time, in whole or in part, at the Partnership’s option at a price per Preferred Unit equal to the Liquidation Preference plus all accrued and unpaid distributions; provided that, if the Partnership redeems the Preferred Units prior to March 30, 2022, then the Partnership will redeem the Preferred Units at 101% of the Liquidation Preference, plus all accrued and unpaid distributions. The Preferred Units are not entitled to any redemption rights or conversion rights. Holders of Preferred Units will generally have no voting rights except in certain limited circumstances or as required by law. The Preferred Units were issued in a private transaction exempt from registration under section 4(a)(2) of the Securities Act.
On January 25, 2018, the Partnership redeemed all outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million. The redemption amount includes the original consideration of $300 million and a 1% call premium plus accrued and unpaid quarterly distributions.

Subordinated Units
Until the end of the subordination period on November 30, 2015, ETP owned, directly or indirectly, all of our subordinated units. The principal difference between our common units and subordinated units was that in any quarter during the subordination period, holders of the subordinated units were not entitled to receive any distribution until the common units had received the minimum quarterly distribution plus any arrearages in the payment of the minimum quarterly distribution from prior quarters.

32


The subordination period ended on November 30, 2015, the first business day after we earned and paid at least $1.75 (the minimum quarterly distribution on an annualized basis) on each outstanding common and subordinated unit for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date. Upon the ending of the subordination period, the 10,939,436 subordinated units owned by subsidiaries of ETP converted into 10,939,436 common units on a one-for-one basis.
Class A Units
Class A Units were entitled to receive distributions on a pro rata basis with common units, except that Class A Units did not share in distributions of cash to the extent such cash was derived from or attributable to any distribution received by the Partnership from PropCo, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries. Distributions made to holders of Class A Units were disregarded for purposes of determining distributions on the Partnership’s incentive distribution rights. The Class A Units were exchanged for Class C Units on January 1, 2016 as discussed below.
Class C Units
On January 1, 2016, we issued an aggregate of 16,410,780 Class C units (“Class C Units”) consisting of (i) 5,242,113 Class C Units that were issued to Aloha as consideration for the contribution by Aloha to an indirect wholly owned subsidiary of the Partnership of all of Aloha’s assets relating to the wholesale supply of fuel and lubricants, and (ii) 11,168,667 Class C Units that were issued to indirect wholly owned subsidiaries of the Partnership in exchange for all of the outstanding Class A Units held by such subsidiaries.
Class C Units are entitled to receive quarterly distributions at a rate of $0.8682 per Class C Unit. The distributions on the Class C Units are paid out of our available cash, except that the Class C Units do not share in distributions of available cash to the extent such cash is derived from or attributable to any distribution received by us from PropCo (our indirect wholly owned subsidiary that is subject to state and federal income tax), the proceeds of any sale of the membership interests in PropCo, or any interest or principal payments we receive with respect to indebtedness of PropCo or its subsidiaries. The Class C Units are entitled to receive distributions of available cash (other than available cash attributable to PropCo) prior to distributions of such cash being made on our common units. Any unpaid distributions on the Class C Units will accrue interest at a rate of 1.5% per annum until paid in full in cash. The Class C Units are perpetual, do not have any rights of redemption or conversion, do not have the right to vote on any matter except as otherwise required by any non-waivable provision of law, and are not traded on any public securities market.
Equity Compensation Plan
For disclosures regarding securities authorized for issuance under equity compensation plans, see Part III, Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters.”
Item 6.
Selected Financial Data
Selected financial data are presented for continuing operations and discontinued operations for all periods presented. The discontinued operations represent results from assets that were sold under an Amended and Restated Asset Purchase Agreement with 7-Eleven, and the real estate assets included in the portfolio optimization plan.
Financial data set forth below is presented for the period January 1, 2014 to August 31, 2014 (the “Predecessor”) prior to ETP's acquisition of Susser (the “ETP Merger”). From September 1, 2014 to December 31, 2014, financial data is presented for the Partnership after the ETP Merger and under the application of “push down” accounting that required its assets and liabilities to be adjusted to fair value on August 31, 2014 (“Successor”). The following tables set forth key operating metrics as of and for the periods indicated and have been derived from our audited historical consolidated financial statements. For the year ended December 31, 2014, we have combined the Predecessor period and the Successor period and presented the unaudited financial data on a combined basis for comparative purposes. This combination does not comply with generally accepted accounting principles, but is presented because we believe it provides the most meaningful comparison of our financial results. The impact from “push down” accounting related to the ETP Merger resulted in a $1.7 billion net change in the fair value of the Partnership’s assets and liabilities and a $4 million decrease in depreciation expense, offset by a $4 million increase in amortization expense.
The 2014 results also reflect the results of the Susser, Sunoco LLC, Sunoco Retail, and MACS acquisitions beginning on September 1, 2014, the initial date of common control, since these acquisitions were accounted for as transactions between entities under common control.
The selected financial data should be read in conjunction with the audited consolidated financial statements and related notes thereto, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included herein.

33


 
Successor
 
Combined
 
Predecessor
 
Year ended December 31, 2017
 
Year ended December 31, 2016
 
Year ended December 31, 2015
 
Year ended December 31, 2014 (1)
 
Year ended December 31, 2013
 
(in millions, except per unit data)
Statement of Income Data:
 
 
 
 
 
 
 
 
 
Total revenues
$
11,723

 
$
9,986

 
$
12,430

 
$
9,579

 
$
4,493

Operating income (loss)
$
229

 
$
145

 
$
252

 
$
37

 
$
41

Income (loss) from continuing operations
$
326

 
$
56

 
$
156

 
$
(26
)
 
$
37

Net income (loss) from continuing operations per common limited partner unit - basic
$
2.13

 
$
(0.32
)
 
$
0.91

 
$
1.75

 
$
1.69

Net income (loss) from continuing operations per common limited partner unit - diluted
$
2.12

 
$
(0.32
)
 
$
0.91

 
$
1.75

 
$
1.69

Cash distribution per unit
$
3.30

 
$
3.29

 
$
2.89

 
$
2.17

 
$
1.84

 
 
Successor
 
Predecessor
 
As of December 31,
 
2017
 
2016
 
2015
 
2014 (1)
 
2013
 
(in millions)
Balance Sheet Data (at period end):
 
 
 
 
 
 
 
 
 
Total assets
$
8,344

 
$
8,701

 
$
8,842

 
$
8,773

 
$
390

Long-term debt, less current maturities
$
4,284

 
$
4,509

 
$
1,953

 
$
1,092

 
$
186

Total equity
$
2,247

 
$
2,196

 
$
5,263

 
$
6,008

 
$
80

__________________________________________________ 
(1)
Reflects combined results of the Predecessor period from January 1, 2014 through August 31, 2014, and the Successor period from September 1, 2014 to December 31, 2014. The impact from “push down” accounting related to the ETP Merger resulted in a $1.7 billion net change in the fair value of the Partnership’s assets and liabilities and a $4 million decrease in depreciation expense, offset by a $4 million increase in amortization expense.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included elsewhere in this report.
EBITDA, Adjusted EBITDA, and distributable cash flow are non-GAAP financial measures of performance that have limitations and should not be considered as a substitute for net income or cash provided by (used in) operating activities. Please see “Key Operating Metrics Used to Evaluate and Assess Our Business” below for a discussion of our use of EBITDA, Adjusted EBITDA, and distributable cash flow in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and a reconciliation to net income for the periods presented.
Forward-Looking Statements
This report, including without limitation, our discussion and analysis of our financial condition and results of operations, and any information incorporated by reference, contains statements that we believe are “forward-looking statements.” These forward-looking statements generally can be identified by use of phrases such as “believe,” “plan,” “expect,” “anticipate,” “intend,” “forecast” or other similar words or phrases. 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:
•
the outcome of any legal proceedings that may be instituted against us following the completion of the 7-Eleven Transaction;
•
our ability to make, complete and integrate acquisitions from affiliates or third-parties;
•
business strategy and operations of Energy Transfer Partners, L.P. (“ETP”) and Energy Transfer Equity, L.P. (“ETE”) and ETP’s and ETE’s conflicts of interest with us;

34


•
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 convenience store industry;
•
changing customer preferences for alternate fuel sources or improvement in fuel efficiency;
•
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 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.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.
For a discussion of these and other risks and uncertainties, please refer to “Item 1A. Risk Factors” included herein. 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, while we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so 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 engaged in the wholesale distribution of motor fuels to convenience stores, independent dealers, commercial customers and distributors, as well as the retail sale of motor fuels and merchandise through our company-operated convenience stores and retail fuel sites. Additionally, we are the exclusive wholesale supplier of the iconic Sunoco branded motor fuel, supplying an extensive distribution network of 5,322 Sunoco-branded company and third-party operated locations throughout the East Coast, Midwest, South Central and Southeast regions of the United States including 245 company-operated Sunoco-branded Stripes locations in Texas.
We are managed by our General Partner. As of December 31, 2017 , ETE, a publicly traded master limited partnership, owns 100% of the membership interests in our General Partner, a 2.0% limited partner interest in us and all of our incentive distribution rights. ETP, another publicly traded master limited partnership which is also controlled by ETE, owns a 37.5% limited partner interest in us as of December 31, 2017 . Additional information is provided in Note 1 of our Notes to Consolidated Financial Statements.
In late 2015, we announced plans to open a corporate office in Dallas, Texas. Certain employees have relocated to Dallas from Philadelphia, Pennsylvania, Houston, Texas and Corpus Christi, Texas. The costs incurred in 2016 were $18 million and substantially reflects the total costs for the relocation. We did not incur any material costs related to the relocation during 2017.
On March 31, 2016 (effective January 1, 2016), we completed the acquisition from ETP Retail Holdings, LLC (“ETP Retail”), of (i) the remaining 68.42% membership interest and 49.9% voting interest in Sunoco LLC and (ii) 100% of the membership interest of Sunoco Retail, which immediately prior to the acquisition owned all of the retail assets previously owned by Sunoco, Inc. (R&M), an ethanol plant located in Fulton, NY, 100% of the interests in Sunmarks, LLC and all of the retail assets previously owned by Atlantic Refining and Marketing Corp. (See Note 3 in the accompanying Notes to Consolidated Financial Statements for more information).
We believe we are one of the largest independent motor fuel distributors by gallons in Texas 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, and we receive rental income from real estate that we lease or sublease. 
During 2017, we purchased motor fuel primarily from independent refiners and major oil companies and distributed 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:

35


•
1,348 convenience stores and fuel outlets;
•
153 independently operated consignment locations where we sell motor fuel to retail customers under commission agent arrangement with such operators;
•
5,501 convenience stores and retail fuel outlets operated by independent operators, which we refer to as “dealers” or “distributors,” pursuant to long-term distribution agreements; and
•
2,222 other commercial customers, including unbranded convenience stores, other fuel distributors, school districts, municipalities and other industrial customers.
As of December 31, 2017 , our retail segment operated 1,348 convenience stores and fuel outlets. Our retail convenience stores operated under several brands, including our proprietary brands Stripes, APlus, and Aloha Island Mart, and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuels and other services. We sold 2.5 billion retail gallons at these sites during the twelve months ended December 31, 2017 . We opened 12 new retail sites during the twelve months ended December 31, 2017 .
As of December 31, 2017 , we operated 746 Stripes convenience stores that carry a broad selection of food, beverages, snacks, grocery and non-food merchandise. Our proprietary, in-house Laredo Taco Company restaurant is implemented in 477 Stripes convenience stores. Additionally, we have 56 national branded restaurant offerings in our Stripes stores.
As of December 31, 2017 , we operated 441 retail convenience stores and fuel outlets under our proprietary and iconic Sunoco fuel brand, which are primarily located in Pennsylvania, New York, and Florida, including 404 APlus convenience stores.
As of December 31, 2017 , we operated 161 MACS and Aloha convenience stores and fuel outlets in Virginia, Maryland, Tennessee, Georgia, and Hawaii offering merchandise, foodservice, motor fuels and other services.
On January 23, 2018, we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions to 7-Eleven.
Recent Developments
On January 25, 2018, the Partnership redeemed all outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million. The redemption amount includes the original consideration of $300 million and a 1% call premium plus accrued and unpaid quarterly distributions.
On January 24, 2018, the Partnership entered into a Common Unit Repurchase Agreement with ETP, whereby the Partnership agreed to repurchase 17,286,859 SUN common units owned by ETP for aggregate cash consideration of approximately $540 million. The repurchase price per common unit is $31.2376, which is equal to the volume weighted average trading price of SUN common units on the New York Stock Exchange for the ten trading days ending on January 23, 2018. We funded the repurchase with cash on hand on February 7, 2018.
On January 23, 2018, we completed a private offering of $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. The Partnership used the proceeds from the private offering, along with proceeds from the 7-Eleven Transaction, to: 1) redeem in full our existing senior notes as of December 31, 2017, 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; 2) repay in full and terminate Term Loan; 3) pay all closing costs and taxes in connection with the 7-Eleven Transaction; 4) redeem the outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million; and 5) repurchase 17,286,859 SUN common units owned by ETP for aggregate cash consideration of approximately $540 million. 
On April 6, 2017, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with 7-Eleven, Inc., a Texas corporation (“7-Eleven”) and SEI Fuel Services, Inc., a Texas corporation and wholly-owned subsidiary of 7-Eleven (“SEI Fuel” and together with 7-Eleven, referred to herein collectively as “Buyers”). On January 23, 2018, we entered into certain Amended and Restated Asset Purchase Agreement (the “A&R Purchase Agreement”), by and among us, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the Asset Purchase Agreement to reflect certain commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the Asset Purchase Agreement. Under the A&R Purchase Agreement, we agreed to sell a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions, together with ancillary businesses and related assets, including the proprietary Laredo Taco Company brand, for approximately $3.2 billion. On January 23, 2018, we completed the disposition of assets pursuant to the A&R Purchase Agreement.

36


We have signed definitive agreements with a commission agent to operate the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets, which were not included in the previously announced transaction with 7-Eleven, Inc. Conversion of these sites to the commission agent is expected to occur in the first quarter of 2018.
On March 30, 2017, the Partnership entered into a Series A Preferred Unit Purchase Agreement with ETE, relating to the issue and sale by the Partnership to ETE of 12,000,000 Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership at a price per Preferred Unit of $25.00 (the “Offering”). The distribution rate for the Preferred Units will be 10.00%, per annum, of the $25.00 liquidation preference per unit (the “Liquidation Preference”) (equal to $2.50 per Preferred Unit per annum) until March 30, 2022, at which point the distribution rate will become a floating rate of 8.00% plus three-month LIBOR of the Liquidation Preference. The Offering closed on March 30, 2017, and the Partnership received proceeds from the Offering of $300 million, which was used to repay indebtedness under the revolving credit facility.
On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and sell 97 real estate assets. Real estate assets included in this process are company-owned locations, undeveloped greenfield sites and other excess real estate. Properties are located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The properties will be sold through a sealed-bid sale. The Partnership will review all bids before divesting any assets. As of December 31, 2017 , of the 97 properties, 40 have been sold, 5 are under contract to be sold and 11 continue to be marketed by the third-party brokerage firm. Additionally, 32 were sold to 7-Eleven and 9 are part of approximately 207 retail sites located in certain West Texas, Oklahoma, and New Mexico markets which will be operated by a commission agent.
The assets under the A&R Purchase Agreement, and the real estate assets subject to the portfolio optimization plan comprise the retail divestment presented as discontinued operations (“Retail Divestment”). See Note 4 to the Consolidated Financial Statements for more information of Retail Divestment.
Market and Industry Trends and Outlook
We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We base our expectations on information currently available to us and assumptions made by us. To the extent our underlying assumptions about or interpretation of available information prove to be incorrect, our actual results may vary materially from our expected results. Read “Item 1A. Risk Factors” included herein for additional information about the risks associated with purchasing our common units.
Seasonality
Our business exhibits some seasonality due to our customers’ increased demand for motor fuel during the late spring and summer months as compared to the fall and winter months. Travel, recreation, and construction activities typically increase in these months, driving up the demand for motor fuel and merchandise sales. Our revenues are typically somewhat higher in the second and third quarters of our fiscal years due to this seasonality. Results from operations may therefore vary from period to period.
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:
•
Wholesale and retail motor fuel gallons sold . One of the primary drivers of our business is the total volume of motor fuel sold through our wholesale and retail channels. Fuel distribution contracts with our wholesale 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, wholesale gross profit is directly tied to the volume of motor fuel that we distribute.
•
Gross profit per gallon . Gross profit per gallon is calculated as the gross profit on motor fuel (excluding non-cash fair value 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 club stores, supermarkets and other retail formats, which varies based on the market.
•
Merchandise gross profit and margin . Merchandise gross profit is calculated as the gross sales price of merchandise less direct cost of goods and shortages, including bad merchandise and theft. Merchandise margin is calculated as merchandise gross profit as a percentage of merchandise sales. We do not include gross profit from ancillary products and services in the calculation of merchandise gross profit. W e do not anticipate that merchandise gross profit and margin will be used by management as a key measure to analyze our future business performance as we have transitioned primarily into a wholesale fuel distribution business.

37


•
EBITDA, Adjusted EBITDA and distributable cash flow . EBITDA, as used throughout this document, is defined as earnings before net interest expense, income taxes, depreciation, amortization and accretion expense. Adjusted EBITDA is further adjusted to exclude allocated non-cash compensation expense, unrealized gains and losses on commodity derivatives and inventory fair value 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. We define distributable cash flow as Adjusted EBITDA less cash interest expense, including the accrual of interest expense related to our long-term debt which is paid on a semi-annual basis, current income tax expense, maintenance capital expenditures and other non-cash adjustments.
Adjusted EBITDA and distributable cash flow are not financial measures calculated in accordance with GAAP. For a reconciliation of Adjusted EBITDA and distributable cash flow to their most directly comparable financial measure calculated and presented in accordance with GAAP, read “Key Operating Metrics” below.
We believe EBITDA, Adjusted EBITDA and distributable cash flow are 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 such metrics as measures of financial performance, ability to make distributions to our unitholders and debt service capabilities;
•
our management uses them for internal planning purposes, including aspects of our consolidated operating budget, and capital expenditures; and
•
distributable cash flow provides useful information to investors as it is a widely accepted financial indicator used by investors to compare partnership performance, and as it provides investors an enhanced perspective of the operating performance of our assets and the cash our business is generating.
EBITDA, Adjusted EBITDA and distributable cash flow are not recognized terms under GAAP and do not purport to be alternatives to net income (loss) as measures of operating performance or to cash flows from operating activities as a measure of liquidity. EBITDA, Adjusted EBITDA and distributable cash flow have limitations as analytical tools, and one should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Some of these limitations include:
•
they do not reflect our total cash expenditures, or future requirements for capital expenditures or contractual commitments;
•
they do not reflect changes in, or cash requirements for, working capital;
•
they do 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 EBITDA and Adjusted EBITDA do not reflect cash requirements for such replacements; and
•
as not all companies use identical calculations, our presentation of EBITDA, Adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies.
Key Operating Metrics
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. We operate our business in two primary operating divisions, wholesale and retail, both of which are included as reportable segments.
Key operating metrics set forth below are presented for the years ended December 31, 2017 , 2016 and 2015 , and have been derived from our historical consolidated financial statements.

38


The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance:
 
Year Ended December 31,
 
2017
 
 
2016
 
Wholesale
 
Retail
 
Total
 
 
Wholesale
 
Retail
 
Total
 
(dollars and gallons in millions, except gross profit per gallon)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Retail motor fuel
$
—

 
$
1,577

 
$
1,577

 
 
$
—

 
$
1,338

 
$
1,338

Wholesale motor fuel sales to third parties
9,278

 
—

 
9,278

 
 
7,812

 
—

 
7,812

Wholesale motor fuel sale to affiliates
55

 
—

 
55

 
 
62

 
—

 
62

Merchandise
—

 
571

 
571

 
 
—

 
541

 
541

Rental income
77

 
12

 
89

 
 
76

 
12

 
88

Other
50

 
103

 
153

 
 
45

 
100

 
145

Total revenues
$
9,460

 
$
2,263

 
$
11,723

 
 
$
7,995

 
$
1,991

 
$
9,986

Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
Retail motor fuel
$
—

 
$
157

 
$
157

 
 
$
—

 
$
163

 
$
163

Wholesale motor fuel
535

 
—

 
535

 
 
596

 
—

 
596

Merchandise
—

 
185

 
185

 
 
—

 
178

 
178

Rental and other
116

 
115

 
231

 
 
110

 
109

 
219

Total gross profit
$
651

 
$
457

 
$
1,108

 
 
$
706

 
$
450

 
$
1,156

Net income (loss) and comprehensive income (loss) from continuing operations
167

 
159

 
326

 
 
252

 
(196
)
 
56

Net loss and comprehensive loss from discontinued operations
—

 
(177
)
 
(177
)
 
 
—

 
(462
)
 
(462
)
Net income (loss) and comprehensive income (loss)
$
167

 
$
(18
)
 
$
149

 
 
$
252

 
$
(658
)
 
$
(406
)
Net income (loss) and comprehensive income (loss) attributable to limited partners
$
167

 
$
(18
)
 
$
149

 
 
$
252

 
$
(658
)
 
$
(406
)
Adjusted EBITDA attributable to partners (2)
$
346

 
$
386

 
$
732

 
 
$
320

 
$
345

 
$
665

Distributable cash flow attributable to partners, as adjusted (2)
 
 
 
 
$
473

 
 
 
 
 
 
$
390

Operating Data:
 
 
 
 
 
 
 
 
 
 
 
 
Total motor fuel gallons sold:
 
 
 
 
 
 
 
 
 
 
 
 
Retail (3)
 
 
2,526

 
2,526

 
 
 
 
2,517

 
2,517

Wholesale
5,421

 
 
 
5,421

 
 
5,288

 
 
 
5,288

Motor fuel gross profit cents per gallon (1):
 
 
 
 
 
 
 
 
 
 
 
 
Retail (3)
 
 
25.5¢

 
25.5¢

 
 
 
 
24.0¢

 
24.0¢

Wholesale
10.5¢

 
 
 
10.5¢

 
 
9.8¢

 
 
 
9.8¢

Volume-weighted average for all gallons (3)
 
 
 
 
15.2¢

 
 
 
 
 
 
14.4¢

Retail merchandise margin (3)
 
 
31.6
%
 
 
 
 
 
 
31.5
%
 
 
_______________________________
(1)
Excludes the impact of inventory fair value adjustments consistent with the definition of Adjusted EBITDA.
(2)
We define EBITDA, Adjusted EBITDA and distributable cash flow as described above under “Key Measures Used to Evaluate and Assess Our Business.”
(3)
Includes amounts from discontinued operations.

39


The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and distributable cash flow for the years ended December 31, 2017 and 2016 :
 
Year Ended December 31,
 
2017
 
 
2016
 
Wholesale
 
Retail
 
Total
 
 
Wholesale
 
Retail
 
Total
 
(in millions)
Net income (loss) and comprehensive income (loss)
$
167

 
$
(18
)
 
$
149

 
 
$
252

 
$
(658
)
 
$
(406
)
Depreciation, amortization and accretion (1)
118

 
85

 
203

 
 
94

 
225

 
319

Interest expense, net (1)
88

 
157

 
245

 
 
59

 
130

 
189

Income tax expense (benefit) (1)
(10
)
 
(248
)
 
(258
)
 
 
5

 
(36
)
 
(31
)
EBITDA
$
363

 
$
(24
)
 
$
339

 
 
$
410

 
$
(339
)
 
$
71

Non-cash compensation expense (1)
2

 
22

 
24

 
 
6

 
7

 
13

Loss (gain) on disposal of assets & impairment charge (1)
8

 
392

 
400

 
 
(3
)
 
683

 
680

Unrealized (gains) losses on commodity derivatives (1)
(3
)
 
—

 
(3
)
 
 
5

 
—

 
5

Inventory adjustments (1)
(24
)
 
(4
)
 
(28
)
 
 
(98
)
 
(6
)
 
(104
)
Adjusted EBITDA attributable to partners
$
346

 
$
386

 
$
732

 
 
$
320

 
$
345

 
$
665

Cash interest expense (1)
 
 
 
 
231

 
 
 
 
 
 
178

Current income tax expense (1)
 
 
 
 
4

 
 
 
 
 
 
—

Maintenance capital expenditures (1)
 
 
 
 
48

 
 
 
 
 
 
106

Distributable cash flow attributable to partners
 
 
 
 
$
449

 
 
 
 
 
 
$
381

Transaction-related expenses (1)
 
 
 
 
47

 
 
 
 
 
 
9

Series A Preferred distribution
 
 
 
 
(23
)
 
 
 
 
 
 
—

Distributable cash flow attributable to partners, as adjusted
 
 
 
 
$
473

 
 
 
 
 
 
$
390

_______________________________
(1)
Includes amounts from discontinued operations.
Year Ended December 31, 2017 Compared to Year Ended December 31, 2016
The following discussion of results for 2017 compared to 2016 compares the operations for the years ended December 31, 2017 and 2016 , respectively.
Revenue . Total revenue for 2017 was $11.7 billion , an increase of $1.7 billion from 2016 . The increase is primarily attributable to the following changes in revenue:
•
an increase in wholesale motor fuel revenue of $1.5 billion due to a 15.6% , or a $0.23 , increase in the sales price per wholesale motor fuel gallon, and an increase in wholesale motor fuel gallons sold of approximately 133 million ; and
•
a net increase in retail motor fuel and merchandise revenue of $269 million.
Gross Profit . Gross profit for 2017 was $1.1 billion , a decrease of $48 million from 2016 . The decrease in gross profit is attributable to the following:
•
a decrease in the gross profit on wholesale motor fuel of $61 million primarily due to a $74 million unfavorable change in the inventory adjustment compared to the prior year. Excluding the inventory adjustment change, we had a 7% , or $0.007 increase in the gross profit per wholesale motor fuel gallon and an increase in wholesale motor fuel gallons of approximately 133 million ; and
•
a net increase in other gross profit consisting of merchandise, rental and other and retail motor fuel of $13 million.
Total Operating Expenses . Total operating expenses for 2017 were $879 million , a decrease of $132 million from 2016 . The decrease in total operating expenses is attributable to the following:
•
a decrease in loss on disposal of assets and impairment charges of $111 million caused by a decrease of $108 million in lower impairment charges on our retail reporting unit in 2017 compared to 2016 and loss on disposal of assets;
•
a decrease in general and administrative expenses of $15 million primarily due to higher costs in 2016 related to relocation, employee termination, and higher contract labor and professional fees as the Partnership transitioned offices in Philadelphia, Pennsylvania, Houston, Texas, and Corpus Christi, Texas to Dallas during 2016;

40


•
a decrease in depreciation, amortization and accretion expense of $7 million primarily due to lower depreciation expense over the past year; offset by
•
an increase of other operating expenses of $1 million .
Interest Expense . Interest expense was $209 million in 2017 , an increase of $48 million from 2016 . The increase is primarily attributable to the borrowings under our term loan agreement that we entered into on March 31, 2016 (“Term Loan”) and the issuance of our $800 million 6.250% senior notes due 2021 (the “2021 Senior Notes”) on April 7, 2016.
Income Tax Expense/(Benefit) . Income tax benefit was $306 million for 2017 , a change of $234 million from $72 million of income tax benefit for 2016 . The change is primarily attributable to the change of the statutory corporate tax rate from 35% to 21%.
Discontinued Operations. Net loss from discontinued operations decreased by $285 million , which was primarily attributable to an increase of $95 million in the gross profit, a decrease of $169 million in impairment charges for discontinued operations during the year ended December 31, 2017 and a decrease in depreciation expense of $109 million , which were offset by an increase of $54 million in general and administrative expense, an increase of $7 million in income tax expense, an increase of $22 million in other operating expenses and an increase of $8 million in interest expense. See Note 4 of the consolidated financial statements for the results from the discontinued operations.



41


The following table sets forth, for the periods indicated, information concerning key measures we rely on to gauge our operating performance:
 
Year Ended December 31,
 
2016
 
 
2015
 
Wholesale
 
Retail
 
Total
 
 
Wholesale
 
Retail
 
Total
 
(dollars and gallons in millions, except gross profit per gallon)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
Retail motor fuel
$
—

 
$
1,338

 
$
1,338

 
 
$
—

 
$
1,540

 
$
1,540

Wholesale motor fuel sales to third parties
7,812

 
—

 
7,812

 
 
10,104

 
—

 
10,104

Wholesale motor fuel sale to affiliates
62

 
—

 
62

 
 
20

 
—

 
20

Merchandise
—

 
541

 
541

 
 
—

 
544

 
544

Rental income
76

 
12

 
88

 
 
52

 
29

 
81

Other
45

 
100

 
145

 
 
28

 
113

 
141

Total revenues
$
7,995

 
$
1,991

 
$
9,986

 
 
$
10,204

 
$
2,226

 
$
12,430

Gross profit:
 
 
 
 
 
 
 
 
 
 
 
 
Retail motor fuel
$
—

 
$
163

 
$
163

 
 
$
—

 
$
200

 
$
200

Wholesale motor fuel
596

 
—

 
596

 
 
384

 
—

 
384

Merchandise
—

 
178

 
178

 
 
—

 
179

 
179

Rental and other
110

 
109

 
219

 
 
74

 
143

 
217

Total gross profit
$
706

 
$
450

 
$
1,156

 
 
$
458

 
$
522

 
$
980

Net income (loss) and comprehensive income (loss) from continuing operations
252

 
(196
)
 
56

 
 
68

 
88

 
156

Net income (loss) and comprehensive income (loss) from discontinued operations
—

 
(462
)
 
(462
)
 
 
—

 
38

 
38

Net income (loss) and comprehensive income (loss)
$
252

 
$
(658
)
 
$
(406
)
 
 
$
68

 
$
126

 
$
194

Net income (loss) and comprehensive income (loss) attributable to limited partners
$
252

 
$
(658
)
 
$
(406
)
 
 
$
(28
)
 
$
115

 
$
87

Adjusted EBITDA attributable to partners (2)
$
320

 
$
345

 
$
665

 
 
$
280

 
$
435

 
$
715

Distributable cash flow attributable to partners, as adjusted (2)
 
 
 
 
$
390

 
 
 
 
 
 
$
272

Operating Data:
 
 
 
 
 
 
 
 
 
 
 
 
Total motor fuel gallons sold:
 
 
 
 
 
 
 
 
 
 
 
 
Retail (3)
 
 
2,517

 
2,517

 
 
 
 
2,488

 
2,488

Wholesale
5,288

 
 
 
5,288

 
 
5,154

 
 
 
5,154

Motor fuel gross profit cents per gallon (1):
 
 
 
 
 
 
 
 
 
 
 
 
Retail (3)
 
 
24.0¢

 
24.0¢

 
 
 
 
26.4¢

 
26.4¢

Wholesale
9.8¢

 
 
 
9.8¢

 
 
9.4¢

 
 
 
9.4¢

Volume-weighted average for all gallons (3)
 
 
 
 
14.4¢

 
 
 
 
 
 
14.9¢

Retail merchandise margin (3)
 
 
31.5
%
 
 
 
 
 
 
31.2
%
 
 
_______________________________
(1)
Excludes the impact of inventory fair value adjustments consistent with the definition of Adjusted EBITDA.
(2)
We define EBITDA, Adjusted EBITDA and distributable cash flow as described above under “Key Measures Used to Evaluate and Assess Our Business.”
(3)
Includes amounts from discontinued operations.


42


The following table presents a reconciliation of net income to EBITDA, Adjusted EBITDA and distributable cash flow for the years ended December 31, 2016 and 2015 :
 
Year Ended December 31,
 
2016
 
 
2015
 
Wholesale
 
Retail
 
Total
 
 
Wholesale
 
Retail
 
Total
 
(in millions)
Net income (loss) and comprehensive income (loss)
$
252

 
$
(658
)
 
$
(406
)
 
 
$
68

 
$
126

 
$
194

Depreciation, amortization, and accretion (3)
94

 
225

 
319

 
 
68

 
210

 
278

Interest expense, net (3)
59

 
130

 
189

 
 
55

 
33

 
88

Income tax expense (benefit) (3)
5

 
(36
)
 
(31
)
 
 
4

 
48

 
52

EBITDA
$
410

 
$
(339
)
 
$
71

 
 
$
195

 
$
417

 
$
612

Non-cash compensation expense (3)
6

 
7

 
13

 
 
4

 
4

 
8

Loss (gain) on disposal of assets & impairment charge (3)
(3
)
 
683

 
680

 
 
1

 
(2
)
 
(1
)
Unrealized losses on commodity derivatives (3)
5

 
—

 
5

 
 
2

 
—

 
2

Inventory adjustments (2) (3)
(98
)
 
(6
)
 
(104
)
 
 
78

 
20

 
98

Adjusted EBITDA
$
320

 
$
345

 
$
665

 
 
$
280

 
$
439

 
$
719

Net income attributable to noncontrolling interest
—

 
—

 
—

 
 
—

 
4

 
4

Adjusted EBITDA attributable to partners
$
320

 
$
345

 
$
665

 
 
$
280

 
$
435

 
$
715

Cash interest expense (1) (3)
 
 
 
 
178

 
 
 
 
 
 
76

Current income tax benefit (3)
 
 
 
 
—

 
 
 
 
 
 
(18
)
Maintenance capital expenditures (3)
 
 
 
 
106

 
 
 
 
 
 
35

Preacquisition earnings
 
 
 
 
—

 
 
 
 
 
 
356

Distributable cash flow attributable to partners
 
 
 
 
$
381

 
 
 
 
 
 
$
266

Transaction-related expenses (3)
 
 
 
 
9

 
 
 
 
 
 
6

Distributable cash flow attributable to partners, as adjusted
 
 
 
 
$
390

 
 
 
 
 
 
$
272

_______________________________
(1)
Reflects the partnership’s cash interest less the cash interest paid on our VIE debt of $9 million during the year ended December 31, 2015.
(2)
Due to the change in fuel prices, we recorded a write-down on the value of fuel inventory of $98 million (including $20 million from discontinued operations) at December 31, 2015.
(3)
Includes amounts from discontinued operations.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
The following discussion of results for 2016 compared to 2015 compares the operations for the years ended December 31, 2016 and 2015 , respectively.
Revenue . Total revenue for 2016 was $10.0 billion , a decrease of $2.4 billion from 2015 . The decrease is primarily attributable to the following changes in revenue:
•
a decrease in wholesale motor fuel revenue of $2.3 billion , due to a 24.2% , or a $0.48 , decrease in the sales price per wholesale motor fuel gallon, slightly offset by an increase in wholesale motor fuel gallons sold of approximately 134 million ;
•
a decrease in retail motor fuel revenue of $202 million ; offset by
•
an increase in rental and other revenue of $11 million as a result of a $7 million increase in rental income and a $4 million increase in other income primarily related to increased other retail income such as car wash, ATM, and lottery income.
Gross Profit . Gross profit for 2016 was $1.2 billion , an increase of $176 million from 2015 . The increase in gross profit is attributable to the following:
•
an increase in the gross profit on wholesale motor fuel of $212 million primarily due to a 28.7% , or $0.55 , decrease in the cost per wholesale motor fuel gallon; offset by
•
a decrease in the gross profit on retail motor fuel of $37 million .

43


Total Operating Expenses . Total operating expenses for 2016 were $1.0 billion , an increase of $283 million from 2015 . The increase in total operating expenses is attributable to the following:
•
a goodwill impairment charge of $227 million on our retail segment was recorded in 2016;
•
an increase in general and administrative costs of $29 million primarily due to $18 million for the transition of employees from Houston, Texas, Corpus Christi, Texas and Philadelphia, Pennsylvania to Dallas, Texas, with the remaining increase primarily due to higher professional fees, acquisition costs and other administrative expenses, which includes salaries and wages; and
•
an increase in depreciation, amortization and accretion expense of $26 million primarily due to acquisitions completed in the last quarter of 2015 and throughout the year in 2016.
Interest Expense . Interest expense was $161 million in 2016 , an increase of $94 million from 2015 . The increase is primarily attributable to the borrowings under our Term Loan, the issuance of the 2021 Senior Notes and $800 million 6.375% senior notes due 2023 (the “2023 Senior Notes”) as the notes were issued in 2015, as well as the increase in borrowings under the 2014 Revolver.
Income Tax Expense . Income tax benefit for 2016 was $72 million , a change of $101 million from 2015 . The change is primarily attributable to lower earnings from the Partnership's consolidated corporate subsidiaries in 2016.
Discontinued Operations. Net income (loss) and comprehensive income (loss) from discontinued operations decreased by $500 million , which was primarily attributable to a goodwill impairment charge of $414 million on discontinued operations, an intangible asset impairment charge of $32 million on our Laredo Taco Company tradename, and an increase of $113 million in total operating expenses, interest and income tax expense (excluding impairment charge), which is offset by an increase in the gross profit of $59 million . See Note 4 of the consolidated financial statements for the results from the discontinued operations.
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 items discussed in detail under “Item 1A. Risk Factors” included in this Annual Report on Form 10-K may also significantly impact our liquidity.
As of December 31, 2017 , we had $28 million of cash and cash equivalents on hand and borrowing capacity of $726 million under the 2014 Revolver. Based on our current estimates, we expect to utilize capacity under the 2014 Revolver, along with cash from operations, to fund our announced growth capital expenditures and working capital needs for 2018; 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.

44


Cash Flows
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions)
Net cash provided by (used in)
 
 
 
 
 
Operating activities - continuing operations
$
303

 
$
466

 
$
349

Investing activities - continuing operations
(132
)
 
(331
)
 
(1,129
)
Financing activities - continuing operations
(339
)
 
2,501

 
1,953

Discontinued operations
93

 
(2,585
)
 
(1,250
)
Net increase (decrease) in cash
$
(75
)
 
$
51

 
$
(77
)
Cash Flows Provided by Operations - Continuing Operations. 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. Net cash provided by operations was $303 million and $466 million for 2017 and 2016 , respectively. The decrease in cash flows provided by operations was primarily impacted by changes in deferred income taxes of $300 million, changes in loss from discontinued operations of $285 million, and changes in impairment charges and losses on disposal of $111 million and changes in operating assets and liabilities of $103 million, partially offset by changes in net income of $555 million and changes in inventory valuation adjustments of $73 million.
Cash Flows Used in Investing Activities - Continuing Operations. Net cash used in investing activities was $132 million and $331 million for 2017 and 2016 , respectively, of which $171 million for 2016 was due to acquisitions. Capital expenditures, were $103 million and $119 million for 2017 and 2016 , respectively.
Cash Flows Provided by (Used in) Financing Activities - Continuing Operations. Net cash provided by (used in) financing activities was $(339) million and $2.5 billion for 2017 and 2016 , respectively. During year ended December 31, 2017 we:
•
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.
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 January 24, 2018, we declared a quarterly distribution totaling $82 million , or $0.8255 per common unit based on the results for the three months ended December 31, 2017 , excluding distributions to Class C unitholders. The distribution was paid on February 14, 2018 to all unitholders of record on February 6, 2018.
Cash Flows Provided by (Used in) Discontinued Operations.
Cash provided by (used in) discontinued operations was $93 million and $(2.6) billion for 2017 and 2016, respectively. Cash provided by discontinued operations for operating activities was $136 million for 2017 and $93 million for 2016. Cash used by discontinued operations for investing activities was $38 million for 2017 and $2.7 billion for 2016, of which $2.4 billion in 2017 were due to acquisitions. Changes in cash included in current assets held for sale was $(5) million for 2017 and $5 million 2016 .
Capital Expenditures
Included in our capital expenditures for 2017 was $48 million in maintenance capital and $129 million in growth capital. Growth capital relates primarily to new store construction and dealer supply contracts.
We currently expect to spend approximately $90 million on growth capital and $40 million on maintenance capital for the full year 2018.

45


Contractual Obligations and Commitments
Contractual Obligations . We have contractual obligations that are required to be settled in cash. As of December 31, 2017 , we had $765 million borrowed on the 2014 Revolver compared to $1.0 billion borrowed at December 31, 2016 . Further, as of December 31, 2017 , we had $2.2 billion outstanding under our Senior Notes and $1.2 billion outstanding under our Term Loan. See Note 10 in the accompanying Notes to Consolidated Financial Statements for more information on our debt transactions. Our contractual obligations as of December 31, 2017 were as follows:
 
Payments Due by Years
 
Total
 
Less than 1 Year
 
1-3 Years
 
3-5 Years
 
More than 5 Years
 
(in millions)
Long-term debt obligations, including current portion (1)
$
4,324

 
$
6

 
$
2,619

 
$
812

 
$
887

Interest payments (2)
760

 
230

 
332

 
161

 
37

Operating lease obligations (3)
812

 
74

 
123

 
101

 
514

Total
$
5,896

 
$
310

 
$
3,074

 
$
1,074

 
$
1,438

_______________________________
(1)
Payments include required principal payments on our debt, capital lease obligations and sale leaseback obligations (see Note 10 to our Consolidated Financial Statements). Assumes the balance of the 2014 Revolver, of which the balance at December 31, 2017 was $765 million , remains outstanding until the 2014 Revolver matures in September 2019.
(2)
Includes interest on outstanding debt, capital lease obligations and sale leaseback financing obligations. Includes interest on the 2014 Revolver balance as of December 31, 2017 and commitment fees on the unused portion of the facility through September 2019 using rates in effect at December 31, 2017 .
(3)
Includes minimum rental commitments under non-cancelable leases.
On January 23, 2018, we completed a private offering of $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. The Partnership used proceeds from the private offering to redeem our senior notes existing as of December 31, 2017, 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.
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. We had 53 positions, representing 2 million gallons, outstanding at December 31, 2017 with an aggregated unrealized loss of $1 million .
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions or other financial or investment purposes.
Impact of Inflation
The impact of inflation has minimal impact on our results of operations, as we generally are able to pass along energy cost increases in the form of increased sales prices to our customers. Inflation in energy prices impacts our sales and cost of motor fuel products and working capital requirements. Increased fuel prices may also require us to post additional letters of credit or other collateral if our fuel purchases exceed unsecured credit limits extended to us by our suppliers. Although we believe we have historically been able to pass on increased costs through price increases and maintain adequate liquidity to support any increased collateral requirements, there can be no
assurance that we will be able to do so in the future.
Recent Accounting Pronouncements
See “Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies” for information on recent accounting pronouncements impacting our business.
Application of Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of

46


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 materially different amounts being reported under different conditions or using different assumptions.
We believe the following policies will be the most critical in understanding the judgments that are involved in preparation of our consolidated financial statements.
Business Combinations and Intangible Assets, Including Goodwill and Push Down Accounting . We account for acquisitions using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values at the acquisition date. The excess of purchase price over fair value of net assets acquired, including the amount assigned to identifiable intangible assets, is recorded as goodwill. Given the time it takes to obtain pertinent information to finalize the acquired company’s balance sheet, it may be several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial estimates to be subsequently revised. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date.
Acquisitions of entities under common control are accounted for similar to a pooling of interests, in which the acquired assets and assumed liabilities are recognized at their historic carrying values. The results of operations of the affiliated business acquired are reflected in the Partnership’s consolidated results of operations beginning on the date of common control.
Our recorded identifiable intangible assets primarily include the estimated value assigned to certain customer related and contract-based assets. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which is the period over which the asset is expected to contribute directly or indirectly to our future cash flows. Supply agreements are amortized on a straight-line basis over the remaining terms of the agreements, which generally range from five to fifteen years. Favorable/unfavorable lease arrangements are amortized on a straight-line basis over the remaining lease terms. The determination of the fair market value of the intangible asset and the estimated useful life are based on an analysis of all pertinent factors including (1) the use of widely-accepted valuation approaches, the income approach or the cost approach, (2) the expected use of the asset by us, (3) the expected useful life of related assets, (4) any legal, regulatory or contractual provisions, including renewal or extension periods that would cause substantial costs or modifications to existing agreements, and (5) the effects of obsolescence, demand, competition, and other economic factors. Should any of the underlying assumptions indicate that the value of the intangible assets might be impaired, we may be required to reduce the carrying value and subsequent useful life of the asset. If the underlying assumptions governing the amortization of an intangible asset were later determined to have significantly changed, we may be required to adjust the amortization period of such asset to reflect any new estimate of its useful life. Any write-down of the value or unfavorable change in the useful life of an intangible asset would increase expense at that time.
Customer relations and supply agreements are amortized over a weighted average period of approximately 5 to 20 years. Favorable leasehold arrangements are amortized over an average period of approximately 15 years. Non-competition agreements are amortized over the terms of the respective agreements. Loan origination costs are amortized over the life of the underlying debt as an increase to interest expense.
At December 31, 2017 , we had goodwill recorded in conjunction with past business acquisitions and “push down” accounting totaling $1.4 billion . Under GAAP, goodwill is not amortized. Instead, goodwill is subject to annual reviews on the first day of the fourth fiscal quarter for impairment at a reporting unit level. The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. A reporting unit is an operating segment or a component that is one level below an operating segment. We have assessed the reporting unit definitions and determined that we have four reporting units that are appropriate for testing goodwill impairment.
Long-lived assets are required to be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill and intangibles with indefinite lives must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the related asset might be impaired. An impairment loss should be recognized only if the carrying amount of the asset/goodwill is not recoverable and exceeds its fair value.
During 2017, Sunoco LP announced the sale of a majority of the assets in its retail and Stripes reporting units. These reporting units include the retail operations in the continental United States but excludes the retail convenience store operations in Hawaii that comprise the Aloha reporting unit. Upon the classification of assets and related liabilities as held for sale, Sunoco LP’s management applied the measurement guidance in ASC 360, Property, Plant and Equipment , to calculate the fair value less cost to sell of the disposal group. In accordance with ASC 360-10-35-39, management first tested the goodwill included within the disposal group for impairment prior to measuring the disposal group’s fair value less the cost to sell. In the determination of the classification of assets held for sale and the related liabilities, management allocated a portion of the goodwill balance previously included in the Sunoco LP retail and Stripes

47


reporting units to assets held for sale based on the relative fair values of the business to be disposed of and the portion of the respective reporting unit that will be retained in accordance with ASC 350-20-40-3. The amount of goodwill allocated to assets held for sale was approximately $796 million and $1.1 billion as of December 31, 2017 and 2016 , respectively. The remainder of the goodwill was allocated to the retained portion of the retail and Stripes reporting units, which is comprised of Sunoco LP’s ethanol plant, credit card processing services, franchise royalties and retail stores the Partnership continues to operate in the continental United States. This amount, inclusive of the portion of the Aloha reporting unit that represents retail activities, was approximately $678 million and $780 million as of December 31, 2017 and 2016 , respectively.
During 2017 management performed goodwill impairment testing on its reporting units included in assets held for sale resulting in impairment charges of $387 million. Of this amount, $102 million was allocated to the sites reclassified to continuing operations in the fourth quarter within the retail and Stripes reporting units. Once allocated, management performed goodwill impairment tests on both reporting units to which the goodwill balances were allocated. No goodwill impairment was identified for the retail or Stripes reporting units as a result of these tests.
For goodwill included in the Aloha and Wholesale reporting units, which goodwill balances total $112 million and $732 million , respectively, and which were not classified as held for sale, no impairments were deemed necessary during 2017.
Additionally, we performed impairment tests on our indefinite-lived intangible assets during the fourth quarter of 2017 and recognized $13 million and $4 million of impairment charge on our contractual rights and liquor licenses primarily due to decreases in projected future revenues and cash flows from the date the intangible asset was originally recorded.
Management does not believe that any of these goodwill balances in its reporting units is at significant risk of impairment as of December 31, 2017 .
The Partnership determined the fair value of our reporting units using a weighted combination of the discounted cash flow method and the guideline company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Under the discounted cash flow method, the Partnership determined fair value based on estimated future cash flows of each reporting unit including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflect the overall level of inherent risk of the reporting unit. Cash flow projections are derived from one year budgeted amounts plus an estimate of later period cash flows, all of which are determined by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Under the guideline company method, the Partnership determined the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using a three year average. In addition, the Partnership estimated a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business.
Stock and Unit-Based Compensation. Our General Partner issues phantom unit awards to certain directors and employees under the Sunoco LP 2012 Long-Term Incentive Plan (see Note 18 to our Consolidated Financial Statements). Related expenses are included within general and administrative expenses in our consolidated statement of operations.
Income Taxes. As a limited partnership we are generally not subject to state and federal income tax and would therefore not recognize deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial statement carrying amounts and the related income tax basis. We are, however, subject to a statutory requirement that our non-qualifying income cannot exceed 10% of our total gross income, determined on a calendar year basis under the applicable income tax provisions. If the amount of our non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. Accordingly, certain activities that generate non-qualifying income are conducted through our wholly-owned taxable corporate subsidiary for which we have recognized deferred income tax liabilities and assets. These balances, as well as any income tax expense, are determined through management’s estimations, interpretation of tax laws of multiple jurisdictions and tax planning strategies. If our actual results differ from estimated results due to changes in tax laws, our effective tax rate and tax balances could be affected. As such, these estimates may require adjustments in the future as additional facts become known or as circumstances change.
The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. In determining the future tax consequences of events that have been recognized in our financial statements or tax returns, judgment is required. Differences

48


between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We had outstanding borrowings on the 2014 Revolver of $765 million and $1.2 billion under our Term Loan as of December 31, 2017 . The annualized effect of a one percentage point change in floating interest rates on our variable rate debt obligations outstanding at December 31, 2017 would be to change interest expense by approximately $20 million . 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 twelve months ended December 31, 2017 and 2016 .
Commodity Price Risk
Aloha has terminals on all four major Hawaiian Islands that hold purchased fuel until it is delivered to customers (typically over a two to three week period). Commodity price risks relating to this inventory are not currently hedged. The terminal inventory balance was $18 million at December 31, 2017 .
Sunoco LLC holds working inventories of refined petroleum products, renewable fuels, and gasoline blendstocks and transmix in storage. As of December 31, 2017 , Sunoco LLC held approximately $334 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 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. For the 2017 fiscal year, Sunoco LLC maintained an average thirteen day working inventory. While these derivative instruments represent economic hedges, they are not designated as hedges for accounting purposes.
On a consolidated basis, the Partnership had 53 positions representing 2 million gallons with an aggregated unrealized loss of $1 million outstanding at December 31, 2017 .
Item 8.
Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements at Part IV, Item 15.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act), that are designed to provide reasonable assurance that the information that we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. It should be noted that, because of inherent limitations, our disclosure controls and procedures, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the disclosure controls and procedures are met.

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As required by paragraph (b) of Rule 13a-15 under the Exchange Act, our management with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Form 10-K. Based on such evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, has concluded, as of December 31, 2017 , that our disclosure controls and procedures were effective at the reasonable assurance level for which they were designed in that the information required to be disclosed by the Partnership in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act. Our internal control over financial reporting is a process that is designed under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control over financial reporting includes those policies and procedures that:
•
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.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Management conducted its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2017 , based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management’s assessment included an evaluation of the design of its internal control over financial reporting and testing the operational effectiveness of its internal control over financial reporting. Management reviewed the results of the assessment with the Audit Committee of the board of directors. Based on its assessment, management determined that, as of December 31, 2017 , it maintained effective internal control over financial reporting.
Grant Thornton LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Partnership included in this Annual Report on Form 10-K, has issued an attestation report on the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2017 . The report, which expresses an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2017 , is included in this Item under the heading Report of Independent Registered Public Accounting Firm.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the fourth quarter of fiscal 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
From time to time, we make changes to our internal control over financial reporting that are intended to enhance its effectiveness and which do not have a material effect on our overall internal control over financial reporting. We will continue to evaluate the effectiveness of our disclosure controls and procedures and internal control over financial reporting on an ongoing basis and will take action as appropriate.


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors of Sunoco GP LLC and
Unitholders of Sunoco LP

Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Sunoco LP (a Delaware limited partnership) and subsidiaries (the“Partnership”) as of December 31, 2017 , based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017 , based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Partnership as of and for the year ended December 31, 2017 , and our report dated February 23, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP

Dallas, Texas
February 23, 2018

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Item 9B.
Other Information
None.


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Part III
Item 10.
Directors, Executive Officers and Corporate Governance
Board of Directors
Our general partner, Sunoco GP LLC (our “General Partner”), manages and directs our operations and activities. The membership interests in our General Partner are solely owned by Energy Transfer Partners, L.L.C. (“ETP LLC”), a wholly owned subsidiary of Energy Transfer Equity, L.P. (“ETE”). Prior to August 20, 2015, the membership interests in our General Partner were solely owned by Energy Transfer Partners, L.P. (“ETP”). As the sole member of our General Partner, ETP LLC is entitled under the limited liability company agreement of our General Partner to appoint all directors of our General Partner. Our General Partner's limited liability company agreement provides that our General Partner's Board of Directors (the “Board”) shall consist of between three and twelve persons, at least three of whom are required to qualify as independent directors. As of December 31, 2017 , the Board consisted of seven persons, three of whom qualify as “independent” under the listing standards of the New York Stock Exchange (“NYSE”) and our governance guidelines. Our Board has affirmatively determined that the directors who qualify as “independent” under the NYSE's listing standards, SEC rules and our governance guidelines are James W. Bryant, W. Brett Smith and K. Rick Turner.
As a limited partnership, we are not required by the rules of the NYSE to seek unitholder approval for the election of any of our directors. We do not have a formal process for identifying director nominees, nor do we have a formal policy regarding consideration of diversity in identifying director nominees. We believe, however, that the individuals appointed as directors have experience, skills and qualifications relevant to our business and have a history of service in senior leadership positions with the qualities and attributes required to provide effective oversight of the Partnership. Our Board met eleven times during fiscal year 2017 and each of our current directors, following their appointment, attended at least 75% of those meetings, and 75% of the meetings of any committees on which they served.
The Board’s Role in Risk Oversight
Our Board generally administers its risk oversight function as a whole. It does so in part through discussion and review of our business, financial and corporate governance practices and procedures, with opportunity for specific inquires of management. In addition, at each regular meeting of the Board, management provides a report of the Partnership’s operational and financial performance, which often prompts questions and feedback from the Board. The audit committee provides additional risk oversight through its quarterly meetings, where it discusses policies with respect to risk assessment and risk management, reviews contingent liabilities and risks that may be material to the Partnership and assesses major legislative and regulatory developments that could materially impact the Partnership’s contingent liabilities and risks. The audit committee is required to discuss any material violations of our policies brought to its attention on an ad hoc basis. Additionally, the compensation committee reviews our overall compensation program and its effectiveness at both linking executive pay to performance and aligning the interests of our executives and our unitholders.
Committees of the Board of Directors
The Board has established standing committees to consider designated matters. The standing committees of the Board are: the audit committee and the compensation committee. The listing standards of the NYSE do not require boards of directors of publicly traded limited partnerships to be composed of a majority of independent directors, nor are they required to have a standing nominating or compensation committee. Notwithstanding, the Board has elected to have a standing compensation committee. We do not have a nominating committee in view of the fact that ETP LLC, which owns our General Partner, appoints the directors to our Board. The Board has adopted governance guidelines for the Board and charters for each of the audit and compensation committees.
Audit Committee
We are required to have an audit committee of at least three members, and all its members are required to meet the independence and experience standards established by the NYSE and the Exchange Act. The current members of the audit committee are James W. Bryant, W. Brett Smith and K. Rick Turner, each of whom are independent under the NYSE’s standards and SEC’s rules for audit committee members. In addition, the Board has determined that Mr. Turner, who serves as chairman of the audit committee, has “accounting or related financial management expertise” and constitutes an “audit committee financial expert,” in accordance with SEC and NYSE rules and regulations.
The audit committee assists the Board in its oversight of the integrity of our consolidated financial statements and our compliance with legal and regulatory requirements and partnership policies and controls. The audit committee meets on a regularly-scheduled basis with our independent accountants at least four times each year and is available to meet at their request. Our independent registered public accounting firm has been given unrestricted access to the audit committee and our management, as necessary. The audit committee has the authority and responsibility to review our external financial reporting, to review our procedures for internal auditing and the adequacy of our internal accounting controls, to consider the qualifications and independence of our independent accountants, to engage and resolve

53


disputes with our independent accountants, including the letter of engagement and statement of fees relating to the scope of the annual audit work and special audit work that may be recommended or required by the independent accountants, and to engage the services of any other advisors and accountants as the audit committee deems advisable. The committee reviews and discusses the audited financial statements with management, discusses with our independent auditors matters and makes recommendations to the Board relating to our audited financial statements. In addition, the audit committee is authorized to recommend to the Board any changes or modifications to its charter that the committee believes may be required. The charter of the audit committee is publicly available on our website at http://www.sunocolp.com/investor-relations . The audit committee held four meetings during 2017 .
Compensation Committee
Although we are not required under NYSE rules to appoint a compensation committee because we are a limited partnership, the Board established a compensation committee to establish standards and make recommendations concerning the compensation of our officers and directors. The compensation committee is currently chaired by Mr. Turner and includes Mr. Smith. In addition, the compensation committee determines and establishes the standards for any awards to employees and officers providing services to us under the equity compensation plans adopted by our unitholders, including the performance standards or other restrictions pertaining to the vesting of any such awards. Pursuant to the charter of the compensation committee, a director serving as a member of the compensation committee may not be an officer of or employed by our General Partner, us or our subsidiaries. During 2017 , neither Mr. Turner nor Mr. Smith was an officer or employee of affiliates of ETE, or served as an officer of any company with respect to which any of our executive officers served on such company’s board of directors. In addition, neither Mr. Turner nor Mr. Smith is a former employee of affiliates of ETE. The charter of the compensation committee is publicly available on our website at http://www.sunocolp.com/investor-relations . The compensation committee held five meetings during 2017 .
Code of Ethics
The Board has approved a Code of Business Conduct and Ethics which is applicable to all directors, officers and employees of our General Partner and its affiliates, including the principal executive officer, the principal financial officer and the principal accounting officer. The Code of Business Conduct and Ethics is available on our website at http://www.sunocolp.com/investor-relations (under the ‘Investor Relations/Corporate Governance’ tab) and in print without charge to any unit holder who sends a written request to our secretary at our principal executive offices at 8020 Park Lane, Suite 200, Dallas, Texas 75231. We intend to post any amendments of this code, or waivers of its provisions applicable to directors or executive officers of our general partner, including its principal executive officer and principal financial officer, at this location on our website.
Corporate Governance Guidelines
The Board has adopted a set of Corporate Governance Guidelines to promote a common set of expectations as to how the Board and its committees should perform their functions. These principles are published on our website at http://www.sunocolp.com/investor-relations and reviewed by the Board annually or more often as the Board deems appropriate.
Meetings of Non-Management Directors and Communications with Directors
In accordance with our Corporate Governance Guidelines, the Board holds executive sessions of non-management directors not less than twice annually. These meetings are presided over, on a rotating basis, by the chairman of the audit and compensation committees of the Board. Interested parties may contact the chairman of our audit or compensation committee, or our independent or non-management directors individually or as a group, utilizing the contact information set forth on our website at http://www.sunocolp.com/investor-relations .
Note that the preceding Internet addresses are for information purposes only and are not intended to be hyperlinked. Accordingly, no information found or provided at those Internet addresses or at our website in general is intended or deemed to be incorporated by reference herein.
Executive Officers and Directors of our General Partner
The following table shows information about the current executive officers and directors of our General Partner. References to “our officers,” “our directors,” or “our board” refer to the officers, directors, and board of directors of our General Partner. Directors are appointed to hold office until their successors have been elected or qualified or until the earlier of their death, resignation, removal or disqualification. Executive officers serve at the discretion of the Board.
 

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Name
Age
Position With Our General Partner
Matthew S. Ramsey
62
Chairman of the Board
Joseph Kim
46
President & Chief Executive Officer and Director
Arnold D. Dodderer
50
General Counsel & Assistant Secretary
Karl R. Fails
43
Senior Vice President, Chief Commercial Officer
Brian A. Hand
50
Senior Vice President, Chief Development & Marketing Officer
S. Blake Heinemann
64
Senior Vice President, Chief Sales Officer
Thomas R. Miller
57
Chief Financial Officer
James W. Bryant
84
Director
Christopher R. Curia
62
Director and Executive Vice President, Human Resources
Thomas E. Long
61
Director
W. Brett Smith
58
Director
K. Rick Turner
59
Director
Matthew S. Ramsey - Chairman of the Board . Mr. Ramsey was appointed as the Chairman of the Board in April 2015, having previously been appointed to the Board in August 2014. Mr. Ramsey is the President and Chief Operating Officer and director of ETP’s general partner and has served in that capacity since November 2015. Mr. Ramsey has served as President and Chief Operating Officer and Chairman of the board of directors of PennTex Midstream Partners, LP’s general partner, November 2016. Mr. Ramsey has served on the Board of Directors of the general partner of ETE since July 2012. Prior to joining ETP in November 2015, Mr. Ramsey served as president of Houston-based RPM Exploration Ltd., a private oil and gas exploration partnership generating and drilling 3-D seismic prospects on the Gulf Coast of Texas. Mr. Ramsey is currently a director of RSP Permian, Inc. (NYSE: RSPP), where he serves as chairman of the compensation committee and as a member of the audit committee. Mr. Ramsey formerly served as President of DDD Energy, Inc. until its sale in 2002. From 1996 to 2000, Mr. Ramsey served as President and Chief Executive Officer of OEC Compression Corporation, Inc., a publicly traded oil field service company, providing gas compression services to a variety of energy clients. Previously, Mr. Ramsey served as Vice President of Nuevo Energy Company (“Nuevo Energy”), an independent energy company. Additionally, he was employed by Torch Energy Advisors, Inc. (“Torch Energy”), a company providing management and operations services to energy companies, including Nuevo Energy, last serving as Executive Vice President. Mr. Ramsey joined Torch Energy as Vice President of Land and was named Senior Vice President of Land in 1992. Mr. Ramsey holds a B.B.A. in Marketing from the University of Texas at Austin and a J.D. from South Texas College of Law. Mr. Ramsey is a graduate of Harvard Business School Advanced Management Program. Mr. Ramsey is licensed to practice law in the State of Texas. He is qualified to practice in the Western District of Texas and the United States Court of Appeals for the Fifth Circuit. Mr. Ramsey formerly served as a director of Southern Union Company. Mr. Ramsey was appointed to serve on our Board in recognition of his vast knowledge of the energy space and valuable industry, operational and management experience.
Joseph Kim -President and Chief Executive Officer and Director. Mr. Kim was appointed to the Board in January 2018 and has served as President and Chief Executive Officer of our General Partner since January 2018. From June 2017 through December 2017, he served as President and Chief Operating Officer and prior to that served as Executive Vice President and Chief Development Officer since October 2015. Prior to joining the Partnership in October 2015, Mr. Kim held various executive positions, including Chief Operating Officer for Pizza Hut and Senior Vice President - Retail Strategy and Growth for Valero Energy. Prior to his 18 years with Pizza Hut and Valero, Mr. Kim worked for Arthur Anderson within both the Audit and Consulting business units. He is a graduate of Trinity University with a bachelor’s degree in Business Administration.
Arnold D. Dodderer - General Counsel & Assistant Secretary. Mr. Dodderer has served as General Counsel & Assistant Secretary of our General Partner since April 2017, as General Counsel since April 2016 and as General Counsel and Assistant Secretary of our affiliate, Sunoco, Inc., since April 2013. Between June 2007 and April 2013, Mr. Dodderer served in various capacities for Sunoco, Inc., including Assistant General Counsel and Chief Compliance Officer. Prior to joining Sunoco, Mr. Dodderer began his legal career in 2000 as an associate at the international law firm of K&L Gates. Mr. Dodderer earned a B.A. from the University of Arkansas and a J.D. from the University of Michigan.
Karl R. Fails - Senior Vice President, Chief Commercial Officer. Mr. Fails has served as Senior Vice President, Chief Commercial Officer of our General Partner since February 2018. He is responsible for all aspects of the petroleum and renewable fuel supply chain, including supply and trading activities, fuel pricing, product quality, trucking transportation and is also responsible for operations at the Partnership’s ethanol plant and transmix processing facilities. Mr. Fails previously held the position of Executive Vice President - Supply & Trading from January 2017 to January 2018 and held various other leadership positions during his tenure at the Partnership and Sunoco, Inc. Prior to joining Sunoco, Inc. in 2010, Mr. Fails served in various operations and engineering roles in the refining business for both

55


Valero Energy and Exxon. He holds Bachelor’s degrees in Chemical Engineering and Math from Brigham Young University and a Master of Business Administration degree from the University of California, Berkeley.
Brian A. Hand - Senior Vice President, Chief Development & Marketing Officer . Mr. Hand has served as Senior Vice President, Chief Development & Marketing Officer of our General Partner since February 2018. He is responsible for mergers, acquisitions, strategic divestments, all aspects of marketing, integration, electronic payments, procurement and analytics. Mr. Hand previously held the position of Chief Procurement Officer at various Partnership subsidiaries and also held various other leadership positions during his tenure with the Partnership and Sunoco, Inc. Prior to joining Sunoco, Inc. in 2010, Mr. Hand served in various leadership positions at Hewlett Packard, Blockbuster, Inc. and Cingular Wireless (now AT&T Mobility). He holds a Bachelor’s degree in Accounting and Business Management from Lebanon Valley College and a Master of Business Administration degree from Widener University.
S. Blake Heinemann - Senior Vice President, Chief Sales Officer. Mr. Heinemann has served as Senior Vice President, Chief Sales Officer of our General Partner since February 2018. He is responsible for all branded/unbranded wholesale distribution, dealers, performance products and sales. Mr. Heinemann previously served as Executive Vice President, Operations East from April 2016 to February 2018 and as Executive Vice President, Retail Operations, East from April 2015 to April 2016. He joined Sunoco, Inc. in March 1997 as company operations division manager and has extensive experience in the retail petroleum and convenience store industry. Prior to joining Sunoco, Inc., Mr. Heinemann had both line and staff experience at Ultramar Corporation, Amerada Hess Corporation and Mobil Oil Corporation. He holds a B.S. in Business Administration from California State University and an M.B.A. from Loyola Marymount University.
Thomas R. Miller - Chief Financial Officer. Mr. Miller has served as Chief Financial Officer of our General Partner since May 2016. He was formerly the Senior Vice President, Chief Financial Officer and Treasurer of Cleco Corporation and Cleco Power LLC, a position he was appointed to in 2014. Prior to that, Mr. Miller served as Senior Vice President and Chief Financial Officer of Cleco from 2013 to 2014. Mr. Miller joined Cleco Corporation in 2012 as Vice President and Treasurer. Earlier, he served as Senior Vice President and Treasurer of Solar Trust of America from 2010 to 2012 and Vice President of Treasury as Exelon Corporation from 2002 to 2010. Mr. Miller holds a Bachelor of Arts degree from Indiana University and a Master of Business Administration degree from the University of Chicago.
James W. Bryant - Director . Mr. Bryant was appointed to the Board in April 2015. Mr. Bryant serves on our audit committee. Mr. Bryant is a chemical engineer and has more than 40 years of experience in all phases of the natural gas business, specifically in the engineering and management of midstream facilities. Mr. Bryant was a founder of, and currently serves as Chief Executive Officer of Producers Midstream LP, a position he has held since October 2016. Mr. Bryant previously served as a director of Regency GP LLC, the general partner of Regency Energy Partners LP, from July 2010 to April 2015 and was Chairman of the Regency board from April 2014 to April 2015. He also served as a partner and member of the board of directors for Cardinal Midstream, LLC from September 2008 until April 2013, and since then formed JWB Cardinal Investments. Prior to that, he was a co-founder of Cardinal Gas Solutions LP and Regency Gas Services, LLC. Mr. Bryant received a bachelor’s degree in chemical engineering from Louisiana Tech University. Mr. Bryant was selected to serve as a member of the Board based on his more than 40 years of experience in the energy industry as well as his experience as a director on the boards of other public companies.
Christopher R. Curia - Director and Executive Vice President-Human Resources . Mr. Curia was appointed to the Board in August 2014. Mr. Curia has served as Executive Vice President-Human Resources of our General Partner since April 2015. Mr. Curia joined ETP in July 2008 and was appointed the Executive Vice President and Chief Human Resources Officer of ETE in January 2015. Prior to joining ETP, Mr. Curia held HR leadership positions at both Valero Energy Corporation and Pennzoil and brings with him more than three decades of Human Resources experience in the oil and gas field. He also has several years’ experience in the retail sector of the energy industry. Mr. Curia earned a master’s degree in Industrial Relations from the University of West Virginia. Mr. Curia was selected to serve as a member of the Board due to the valuable perspective he brings from his extensive experience working as a human resources professional in the energy industry, and the insights he brings to the Board on matters such as succession planning, compensation, employee management and acquisition evaluation and integration.
Thomas E. Long - Director. Mr. Long was appointed to the Board in May 2016. Mr. Long has served as Group Chief Financial Officer of ETE’s general partner since February 2016. Mr. Long has served as the Chief Financial Officer and as a director of PennTex Midstream Partners, LP’s general partner, since November 2016. Mr. Long previously served as Chief Financial Officer of ETP’s general partner since April 2015 and as Executive Vice President and Chief Financial Officer of Regency Energy Partners LP’s general partner from November 2010 to April 2015. From May 2008 to November 2010, Mr. Long served as Vice President and Chief Financial Officer of Matrix Service Company. Prior to joining Matrix, he served as Vice President and Chief Financial Officer of DCP Midstream Partners, LP, a publicly traded natural gas and natural gas liquids midstream business company located in Denver, CO. In that position, he was responsible for all financial aspects of the company since its formation in December 2005. From 1998 to 2005, Mr. Long served in several executive positions with subsidiaries of Duke Energy Corp., one of the nation’s largest electric power companies. Mr. Long was selected to serve on our Board because of his understanding of energy-related corporate finance gained through his extensive experience in the energy industry.

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W. Brett Smith - Director . Mr. Smith was appointed to the Board in March 2016. Mr. Smith serves on our audit and compensation committees. He has served as President and Managing Partner of Rubicon Oil & Gas, LLC since October 2000. He has also served as President of Rubicon Oil & Gas II, LP since May 2005, President of Quientesa Royalty LP since February 2005 and President of Action Energy LP since October 2008. Mr. Smith was President of Rubicon Oil & Gas, LP from October 2000 to May 2005. Previously, he served as Vice President with Collins & Ware, Inc. from 1998 to September 2000 and was responsible for land and exploration since the firm’s inception. For more than 30 years Mr. Smith has been active in assembling exploration prospects in the Permian Basin, Oklahoma, New Mexico and the Rocky Mountain areas. Mr. Smith received a Bachelor of Science Degree from the University of Texas. Mr. Smith was selected to serve on our Board based on his extensive experience in the energy industry, including his past experiences as an executive with various energy companies.
K. Rick Turner - Director . Mr. Turner was appointed to the Board in August 2014. Mr. Turner chairs our audit and compensation committees. Mr. Turner is presently a managing director of Altos Energy Partners, LLC. Mr. Turner previously was a private equity executive with several groups after having retired from the Stephens’ family entities, which he had worked for since 1983. He first became a private equity principal in 1990 after serving as the Assistant to the Chairman, Jackson T. Stephens. His areas of focus have been the oil and gas exploration, natural gas gathering and processing industries, and power technology. Prior to joining Stephens, he was employed by Peat, Marwick, Mitchell and Company. Mr. Turner also serves on the board of directors of ETE, and AmeriGas Partners LP. Mr. Turner earned his B.S.B.A. from the University of Arkansas and is a non-practicing Certified Public Accountant. Mr. Turner was selected to serve as a member of the Board based on his industry knowledge, his background in corporate finance and accounting, and his experience as a director and audit committee member on the boards of several other companies.
Section 16(a) Beneficial Ownership Reporting Compliance
Each director and executive officer (and, for a specified period, certain former directors and executive officers) of our General Partner and each holder of more than 10 percent of a class of our equity securities is required to report to the SEC his or her pertinent position or relationship, as well as transactions in those securities, by specified dates. Based solely upon a review of reports on Forms 3 and 4 (including any amendments) furnished to us during our most recent fiscal year and reports on Form 5 (including any amendments) furnished to us with respect to our most recent fiscal year, and written representations from officers and directors of our General Partner that no Form 5 was required, we believe that all filings applicable to our General Partner’s officers and directors, and our beneficial owners, required by Section 16(a) of the Exchange Act were filed on a timely basis during 2017 , with the exception of a late filing of two Form 4s for Ms. McKinley.
Reimbursement of Expenses of our General Partner
Our General Partner does not receive any management fee or other compensation for its management of us. Our General Partner is reimbursed for all expenses incurred on our behalf. These expenses include all expenses necessary or appropriate to the conduct of our business and are allocable to us, as provided for in our partnership agreement. There is no cap on the amount that may be paid or reimbursed to our General Partner.

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Item 11.
Executive Compensation
As is commonly the case for many publicly traded limited partnerships, we do not have officers or directors. Instead, we are managed by the board of directors of our General Partner, and the executive officers of our General Partner perform all of our management functions. As a result, the executive officers of our General Partner are essentially our executive officers. ETE controls our General Partner and ETP owns a significant limited partner interest in us. References to “our officers” and “our directors” refer to the officers and directors of our General Partner.
Compensation Discussion and Analysis
Named Executive Officers
This Compensation Discussion and Analysis is focused on the total compensation of the executive officers of our General Partner as set forth below. The executive officers we refer to in this discussion as our “named executive officers,” or “NEOs,” for the 2017 fiscal year are the following officers of our General Partner:
Name
Principal Position
Robert W. Owens (1)
Chief Executive Officer
Joseph Kim
President and Chief Operating Officer (2)
Thomas R. Miller
Chief Financial Officer
S. Blake Heinemann
Executive Vice President, Operations — East
Cynthia A. Archer (3)
Executive Vice President and Chief Marketing Officer
R. Bradley Williams (4)
Executive Vice President, Operations — West
(1)
Mr. Owens, Chief Executive Officer of our General Partner, retired effective December 31, 2017. Mr. Owens entered into a consulting agreement with the Partnership which became effective January 1, 2018 whereby Mr. Owens shall provide consulting and advisory duties to the Partnership as requested by the Chairman on the Board of our General Partner.
(2)
Effective January 1, 2018, Mr. Kim was appointed President and Chief Executive Officer of our General Partner.
(3)
Ms. Archer, Executive Vice President and Chief Marketing Officer of our General Partner, retired effective December 31, 2017.
(4)
Mr. Williams, Executive Vice President, Operations — West of our General Partner, left the Partnership in connection with sale of our retail stores (the “Retail Divestiture”) to 7-Eleven Inc. (“7-Eleven”) in January 2018.

Effective December 31, 2017, Mr. Owens and Ms. Archer retired from our General Partner and terminated their respective employment. In recognition of their services to the Partnership and in consideration of certain covenants in favor of the Partnership, Mr. Owens entered into a Separation and Restricted Covenant Agreement and Full Release of Claims (the "Owens Separation Agreement") and Ms. Archer entered into a Separation Agreements and Full Release of Claims (the "Archer Separation Agreement"), which became effective in January 2018. The agreements provided for the following:
• Owens Separation Agreement:
•
A separation payment to Mr. Owens of a lump sum total gross amount equal to $636,480, less all required government payroll deductions, which is an amount equal to one year of Mr. Owens' base salary;
•
An additional lump sum payment to Mr. Owens of $795,600, less all required government payroll deductions, which is an amount intended to be equivalent to Mr. Owens' target bonus award for 2017;
•
Payment by the Partnership of the full cost of Mr. Owens' premium for continued health insurance coverage under Sunoco LP’s health insurance plan for a period of twelve months; and
•
Accelerated vesting of:
◦
91,540 Sunoco LP restricted phantom unit awards and 6,000 ETP restricted unit awards in January 2018;
◦
45,770 Sunoco LP restricted phantom unit awards and 6,000 ETP restricted unit awards in January 2019; and
◦
45,770 Sunoco LP restricted phantom unit awards in January 2020.
Mr. Owens will continue to receive DERs on the restricted phantom units and restricted units subject to accelerated vesting until such time as the units either accelerate in accordance with the Owens Separation Agreement or are forfeited as a result of breach of the Owens Separation Agreement by Owens. Future vesting of the restricted phantom units and the restricted units require compliance with the two (2) year non-compete and non-solicit restrictive covenants contained in the Owens Separation Agreement. In addition, we retain the right in the event of a breach of the restrictive covenants to terminate any future acceleration of units and to seek repayment of the units initially accelerated upon effectiveness of the Owens Separation Agreement.

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• Archer Separation Agreement:
•
Bi-weekly severance payments under the Sunoco GP LLC Severance Plan ("SUN Severance Plan") to Ms. Archer of total gross amount equal to $367,200, less all required government payroll deductions, which is an amount equal to one year of Ms. Archer's base salary;
•
An additional lump sum payment to Ms. Archer of $293,760, less all required government payroll deductions, which is an amount intended to be equivalent to Ms. Archer's target bonus award for 2017;
•
Payment by the Partnership of the full cost of Ms. Archer's premium for continued health insurance coverage under Sunoco LP’s health insurance plan and the Consolidated Omnibus Budget Reconciliation Act for a period of six months; and
•
Accelerated vesting of 31,064 Sunoco LP restricted phantom unit awards and 2,100 ETP restricted unit awards in January 2018.
The accelerated vesting of the restricted phantom units and the restricted units require compliance with the two (2) year non-compete and non-solicit restrictive covenants contained in the Archer Separation Agreement. In addition, we retain the right in the event of a breach of the restrictive covenants to seek repayment of the units initially accelerated upon effectiveness of the Archer Separation Agreement.
In connection with the Retail Divestiture, we entered into a Retention Agreement with Mr. Williams (“Williams Agreement”). We entered into the Williams Agreement in order to retain Mr. Williams as part of our leadership team through closing of the Retail Divestiture and in consideration of the benefits to the Partnership and our General Partner if Mr. Williams remains with 7-Eleven, including helping to ensure a smooth transition of the retail operations and implementation of the post-closing relationship with 7-Eleven. The Williams Agreement provided for certain payments and acceleration of outstanding restricted phantom units and restricted units provided that Williams remained employed through the closing of the Retail Divestiture and for a period of six (6) months after closing with 7-Eleven. Under the terms of the Williams Agreement, Mr. Williams, if he remained employed through closing of the Retail Divestiture, would receive:
(i)
an amount equivalent to his 2017 target bonus award;
(ii)
an amount equivalent to his target bonus award for 2018 pro-rated for the number of days in 2018 prior to the closing of the Retail Divestiture; and
(iii)
Acceleration of 15,000 Sunoco LP restricted phantom unit awards and 2,400 ETP restricted unit awards.
In addition, if Mr. Williams remains employed with 7-Eleven for a period of six (6) months after closing of the Retail Divestiture, he would be eligible to receive acceleration of an additional 10,000 Sunoco LP restricted phantom units. Mr. Williams will continue to receive DERs on the additional 10,000 restricted phantom units until such time as they either accelerate in accordance with the Williams Agreement or are forfeited as a result of breach of the Williams Agreement by Williams.
All remuneration to be received by Williams under the Williams Agreement was/is subject to execution and non-revocation of a Separation Agreement and Full Release of Claims (the “Williams Separation Agreement”) by Williams and a Supplemental Release at the time of the acceleration of the additional restricted phantom units after closing of the Retail Divestiture. At closing of the Retail Divestiture, Mr. Williams executed the Williams Separation Agreement and he received:
(i)
$266,506, less all required government payroll deductions, which is an amount intended to be equivalent to Mr. Williams’ target bonus award for 2017;
(ii)
$16,063, less all required government payroll deductions, which is an amount intended to be equivalent to Mr. Williams’ target bonus award for 2018 pro-rated for the number of days Mr. Williams was employed by us in 2018 prior to closing of the Retail Divestiture; and
(iii)
Accelerated vesting of 15,000 Sunoco LP restricted phantom unit awards and 2,400 ETP restricted unit awards in February 2018.
Immediately following the ETP Merger in 2014, our board of directors established a compensation committee to review and make decisions with respect to the compensation determinations of our officers and directors. However, our compensation committee continues to consult with and receive guidance and input, as appropriate, from ETE’s compensation committee, ETE’s Chairman of the board of directors, and ETE’s Executive Vice President and Chief Human Resources Officer to ensure compensation decisions are undertaken consistent with the compensation philosophy and objectives set by ETE.

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Compensation Philosophy and Objectives
Our compensation philosophy and objectives are consistent with those set by ETP and ETE and are based on the premise that a significant portion of each executive's total compensation should be incentive-based or “at-risk” compensation. We also share ETP and ETE's philosophy that executives' total compensation levels should be competitive in the marketplace for executive talent and abilities. Our General Partner seeks a total compensation program for our NEOs that provides for an annual base compensation rate slightly below the median market (i.e., approximately the fortieth percentile of market) but incentive-based compensation composed of a combination of compensation vehicles to reward both short- and long-term performance that are both targeted to pay out at approximately the top-quartile of market for similarly situated retail businesses. Our General Partner believes the incentive-based balance is achieved by (i) the payment of annual discretionary cash bonuses that consider the achievement of the financial performance objectives for a fiscal year set at the beginning of such fiscal year and the individual contributions of our NEOs to the success of the achievement of the annual financial performance objectives, and (ii) the annual grant of time-based restricted phantom unit awards under the LTIP, which awards are intended to provide a long-term incentive and retentive value to our key employees to focus their efforts on increasing the market price of our publicly traded units and to increase the cash distribution we pay to our unitholders.
Our compensation program is structured to achieve the following:
•
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.
Components of Executive Compensation
For the year ended December 31, 2017 , the compensation paid to our named executive officers consisted of the following components:
•
annual base salary;
•
non-equity incentive plan compensation consisting solely of discretionary cash bonuses;
•
time-vested restricted phantom unit awards under the equity incentive plan;
•
payment of distribution equivalent rights (“DERs”) on unvested time-based restricted phantom unit awards under our equity incentive plan;
•
vesting of previously issued time-based restricted unit awards issued pursuant to equity incentive plans of affiliates;
•
401(k) plan employer contributions; and
•
severance payments where applicable.
Methodology
Periodically, we engage a third-party consultant to provide the compensation committee of our General Partner with market information for compensation levels at peer companies in order to assist in the determination of compensation levels for executives, including the named executive officers. In 2015, Towers Watson was engaged to (i) provide market information for compensation levels at peer companies in order to assist our compensation committee in its determination of compensation levels for senior management, including our named executive officers; (ii) evaluate the market competitiveness of total compensation levels for certain members of senior management, including our named executive officers; (iii) assist in the determination of appropriate compensation levels for our senior management, including the named executive officers; and (iv) confirm that our compensation programs were yielding compensation packages consistent with our overall compensation philosophy during the year ended December 31, 2015. The Partnership was reviewed by Towers Watson through various metrics in order to recognize the Partnership’s unique structure, including the facts that (i) the Partnership receives certain shared-service support from ETE and ETP; and (ii) in other functions, the Partnership operates as an independent publicly-traded organization. As such, Towers Watson reviewed certain of our executive officers, including the named executive officers, in their specific functions to determine the appropriate benchmarking technique. In all circumstances, Towers Watson considered our annual revenues and market capitalization levels in its benchmarking. The compensation analysis provided by Towers Watson covered all major

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components of total compensation, including annual base salary, annual short-term cash bonus and long-term incentive awards for our named executive officers as compared to officers of companies similarly situated in terms of structure, annual revenues and market capitalization and made determinations with respect to such officers’ level (i.e. as a corporate, officer, subsidiary officer or shared service function) given the unique characteristics of our structure.
The compensation committee utilized the information provided by Towers Watson to compare the levels of annual base salary, annual short-term cash bonus and long-term equity incentive awards at these other companies with those of our named executive officers to ensure that the compensation of our named executive officers is both consistent with our compensation philosophy and competitive with the compensation of similarly situated retail industry executives. The compensation committee considered and reviewed the results of the study performed by Towers Watson to ensure the results indicated that our compensation programs were yielding a competitive total compensation model prioritizing incentive-based compensation and rewarding achievement of short and long-term performance objectives. The compensation committee also specifically evaluated benchmarked results for the annual base salary, annual short-term cash bonus or long-term equity incentive awards of the named executive officers to the compensation levels within both retail industry and general industry survey data. In certain cases, premiums or discounts were applied when an executive position match was appropriate but the position scope or surveyed company revenues differed meaningfully. The survey data used was derived from the following sources: Towers Watson’s 2014 Compensation Data Bank (CDB – General Industry), Towers Watson Retail/Wholesale Services Executive Database, Mercer 2014 Retail Survey, Mercer 2014 Executive Survey; and a Proprietary 2014 Retail Report. The compensation committee also reviewed peer group proxy data for certain NEO roles. However, as a result of limited sample size due the relatively small number of publicly traded convenience store competitors, the data was used as a reference point for the compensation committee rather than a primary data source. Proxy data was reviewed for Casey’s General Stores, CST Brands, Couche-Tard, Murphy USA and The Pantry.
For 2017, the compensation committee continued to use the results of the 2015 Towers Watson compensation analysis, adjusted to account for general inflation and information obtained from other sources, such as 2017 third party survey results, in its determination of compensation levels for executives, including our named executive officers, as appropriate prior to the announcement of the Retail Divestiture. After announcement of the Retail Divestiture and in connection with certain restructuring of the senior leadership team after the announced retirements of Mr. Owens and Ms. Archer, the compensation committee engaged Longnecker and Associates (“Longnecker”), the independent compensation advisor to ETE and ETP GP to provide targeted market review and benchmarking for the identified members of the senior leadership team after closing of the Retail Divestiture, including with respect to Messrs. Kim, Miller and Heinemann. The compensation committee relied on the results of the Longnecker benchmarking for determinations of bonus and long-term incentive targets for 2017 for Messrs. Kim, Miller and Heinemann and for an updated total compensation package for Mr. Kim in connection with his appointment as President and Chief Executive Officer, effective January 1, 2018.
Base salary . Base salary is designed to provide for a competitive fixed level of pay that attracts and retains executive officers and compensates them for their level of responsibility and sustained individual performance (including experience, scope of responsibility and results achieved). The salaries of our named executive officers are targeted as an annual base salary slightly below median level of market and are determined by the compensation committee. Base salaries also are influenced by internal pay equity (fair and consistent application of compensation practices). At the NEO level, the balance of compensation is weighted toward pay-at-risk compensation (annual bonuses and long-term incentives).
During the 2017 merit review process in July, the compensation committee approved base salary increases of 2.5% to Mr. Kim to $392,063 from his previous level of $382,500, 2.5% to Mr. Miller to $328,000 from his previous level of $320,000, and 2.5% to each of Messrs. Heinemann and Williams to $337,566 from their previous level of $329,332. As they had announced their planned retirements, neither Mr. Owens or Ms. Archer received a merit adjustment to their salary in 2017.
The 2.5% increase for the named executive officers discussed above reflects base salary increases consistent with the 2.5% annual merit increase pool set for all employees of the ETP GP, ETE and their affiliates for 2017 by the respective compensation committees.
In addition, the compensation committee, in recognition of his new role as President and Chief Executive Officer approved a base salary of $500,000 for Mr. Kim, effective as of January 1, 2018, which new base salary represented and approximately 27.5% increase from his prior level of $392,063. The adjustment of Mr. Kim’s base salary was approved after review of the Longnecker study and discussions with our General Partner.
Annual Bonus . In addition to base salary, the compensation committee makes a determination whether to award our named executive officers discretionary annual cash bonuses following the end of the year. These discretionary bonuses, if awarded, are intended to reward our named executive officers for the achievement of financial performance objectives during the year for which the bonuses are awarded in light of the contribution of each individual to our profitability and success during such year. These discretionary bonuses for our named executive officers are provided under the Energy Transfer Partners, L.L.C. Annual Bonus Plan (the “Bonus Plan”). Under the Bonus Plan, the compensation committee’s evaluation of performance and determination of an overall available bonus pool is based on the combined business segments internal earnings target generally based on targeted EBITDA (the “Earnings Target”) budget and the performance of each department compared to the applicable departmental budget (with such performance measured based on the specific dollar amount

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of general and administrative expenses set for each department). The two performance criteria are weighted 75 percent on internal Earnings Target budget criteria and 25 percent on internal department financial budget criteria. Internal Earnings Target is the primary performance factor in determining annual bonuses, while internal department financial budget criteria is considered to ensure that the Partnership is effectively managing general and administrative costs in a prudent manner. In determining bonuses for named executive officers, the compensation committee takes into account whether the Partnership achieved or exceeded its targeted performance objectives. In the case of our named executive officers, they have a bonus pool target ranging from 100% to 150% percent of their respective annual base earnings (which amount reflects the actual base salary earned during the calendar year to reflect periods before and after any base salary adjustment) with the ability to fund up to an additional 20% above each named executive officer’s target bonus pool upon achievement of 110% of the internal Earnings Target and 110% of the internal department financial budgets. For 2017, the short-term annual cash bonus pool targets for Messrs. Kim, Miller and Heinemann were as follows: for Mr. Kim, 105% which represents an increase from his previous target of 80%; and 100% for Messrs. Miller and Heinemann which represents an increase from their prior targets of 80%. The increase for Mr. Kim was based on and related to his additional responsibilities as the President and Chief Operating Officer during 2017. The increases for Messrs. Miller and Heinemann were based on the results of the Longnecker benchmarking.
Messrs. Owens and Williams and Ms. Archer did not participate under the Bonus Plan for 2017 as they entered into their respective agreements concerning their retirements and separations from the Partnership. Prior to 2017, Mr. Owens has a bonus pool target ranging from 125% to 150% percent of his respective annual base earnings with a target of 125% upon 100% funding of the bonus pool. In order to reach the top of his bonus target range of 150% the Internal Earnings result must exceed 120% of the target.
In February 2018, the compensation committee certified Partnership results to achieve a bonus payout of 100%, which reflected the achievement of approximately 100.6% of the internal Earnings Target and 100% of the budget criteria in respect of 2017 performance under the Bonus Plan. The cash bonuses approved for Messrs. Kim, Miller and Heinemann were $406,259, $323,692, and $333,132, respectively. In approving the 2017 bonuses of the named executive officers, the compensation committee took into account the achievement by the Partnership with respect to its targeted performance objectives for 2017 and the individual performances of the named executive officers.
Long-Term Equity Awards . The Sunoco LP 2012 Long-Term Incentive Plan (the “LTIP”) is designed to provide long-term incentive awards in order to promote achievement of our long-term strategic business objectives. The LTIP was designed to align the economic interests of the named executive officers, key employees and directors with those of our unitholders and to provide an incentive to management for continuous employment with the General Partner and its affiliates. Each of our named executive officers is eligible to participate in the LTIP. The LTIP provides us with the flexibility to grant unit options, restricted units, phantom units, unit appreciation rights, cash awards, distribution equivalent rights, substitute awards, and other unit-based awards, or any combination of the foregoing. These awards are intended to align the interests of plan participants (including our NEOs) with those of our unitholders and to give plan participants the opportunity to share in our long-term performance. Since the ETP Merger, all awards granted to our named executive officers under the LTIP have consisted of restricted phantom units awards that are subject to vesting over a specified period of time.
From time to time, the compensation committee may make grants under the plan to employees and/or directors containing such terms as the compensation committee shall determine under the LTIP. The compensation committee determines the conditions upon which the restricted units granted may become vested or forfeited, and whether or not any such restricted units will have distribution equivalent rights (“DERs”) entitling the grantee to distributions receive an amount in cash equal to cash distributions made by us with respect to a like number of our common units during the restricted period.
In December of 2017 , consistent with the Partnership’s compensation methodology, all of the restricted phantom units granted, including to the named executive officers, provided for the vesting of 60 percent of the units at the end of the third year from the date of the grant and the vesting of the remaining 40 percent of the units at the end of the fifth year, subject to continued employment of the named executive officers through each specified vesting date. These restricted phantom unit awards entitle the grantee of the unit awards to receive, with respect to each Partnership common unit subject to such restricted unit award that has not either vested or been forfeited, a DER cash payment promptly following each such distribution by us to our unitholders. In approving the grant of such unit awards, the compensation committee took into account a number of performance factors as well as the long-term objective of retaining such individuals as key drivers of the Partnership’s future success, the existing level of equity ownership of such individuals and the previous awards to such individuals of equity awards subject to vesting.
In December 2017 , the compensation committee granted restricted phantom units awards to Messrs. Kim, Miller and Heinemann 31,650 units, 18,500 units and 18,500 units, respectively. None of Messrs. Owens and Williams nor Ms. Archer received long-term incentive awards for 2017 as they entered in their respective agreements concerning their retirements and separations from the Partnership.
The issuance of common units pursuant to our equity incentive plans is intended to serve as a means of incentive compensation; therefore, no consideration will be payable by the plan participants upon vesting and issuance of the common units.

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As discussed below under “Potential Payments Upon a Termination or Change of Control,” certain equity awards automatically accelerate upon a change in control event, which means vesting automatically accelerates upon a change of control irrespective of whether the officer is terminated.
We believe that permitting the accelerated vesting of equity awards upon a change in control creates an important retention tool for us by enabling employees to realize value from these awards in the event that we undergo a change in control transaction. In addition, we believe permitting acceleration of vesting upon a change in control and the acceleration of vesting awards upon a termination without “cause” in the case of the awards to Mr. Owens creates a sense of stability in the course of transactions that could create uncertainty regarding their future employment and encourage these officers to remain focused on their job responsibilities.
Benefit Plans . Our NEOs are provided compensation in the form of other benefits, including medical, life, dental, and disability insurance in line with competitive market conditions in retail non-store plans sponsored by Sunoco GP LLC. Our NEOs receive the same benefits and are responsible to pay the same premiums, deductibles and out of pocket maximums as other employees participating in these plans.
Sunoco GP LLC 401(k) Plan . Effective January 1, 2015, Sunoco GP LLC adopted a new 401(k) benefit plan (“Sunoco GP LLC 401(k)”) for the benefit of corporate services employees, including our NEOs, who provide services on our behalf. Under the terms of the 401(k) plan, employees can contribute up to 75% of their wages, subject to IRS limitations, which, for 2017 was $18,000 on maximum compensation of $270,000. Under the terms of the Sunoco GP LLC 401(k), the Partnership provides a matching contribution equal to 50% on the first 10% of each participant’s elective salary deferrals. Participants age 50 or over at any time in 2017 could elect to make a catch-up contribution of up to $6,000. Catch-up contributions are not eligible for a matching contribution from the Partnership. The amounts deferred by the participant are fully vested at all times, and the amounts contributed by the Partnership become vested based on years of service. We provide this benefit as a means to incentivize employees and provide them with an opportunity to save for their retirement.
Sunoco GP LLC Severance Plan. In addition, Sunoco GP LLC has also adopted the SUN Severance Plan, which provides for payment of certain severance benefits in the event of Qualifying Termination (as that term is defined in the SUN Severance Plan). In general, the Severance Plan provides payment of one (1) week of annual base salary for each year or partial year of employment service, up to a maximum of fifty-two weeks or one year of annual base salary (with a minimum of eight weeks of annual base salary) and up to three months of continued group health insurance coverage. The SUN Severance Plan also provides that additional benefits in addition to those provided under the Severance Plan may be paid based on special circumstances, which additional benefits shall be unique and non-precedent setting. The Severance Plan is available to all salaried employees on a nondiscriminatory basis; therefore, amounts that would be payable to the named executive officers upon a Qualified Termination have been excluded from “Compensation Tables - Potential Payments Upon a Termination or Change of Control” below. In addition with respect to the Retail Divestiture, specific benefits were adopted for non-store employees not offered employment with 7-Eleven and terminated by us in connection with the Retail Divestiture under SUN Severance Plan.
The benefit levels are summarized below:
Employee Level
 
Minimum Severance Pay
 
Maximum Severance Pay
Senior Manager or below
 
8 weeks of Base Pay
 
26 weeks of Base Pay
Director or Senior Director
 
16 weeks of Base Pay
 
39 weeks of Base Pay
Vice President and above
 
26 weeks of Base Pay
 
52 weeks of Base Pay
In addition, for employees terminated in connection with the Retail Divestiture (and not continuing employment with 7-Eleven) the compensation committee approved certain accelerated vesting of awards long-term incentive awards under the LTIP as follows:
Employee Level
 
Accelerated Vesting of Outstanding LTIP Awards
Senior Manager or below
 
30% of the unvested outstanding LTIP awards
Director or Senior Director
 
40% of the unvested outstanding LTIP awards
Vice President and above
 
50% of the unvested outstanding LTIP awards
As described above, Ms. Archer received benefits under the SUN Severance Plan, including a total amount equal to $367,200, less all required government payroll deductions, which is an amount equal to one year of Ms. Archer's base salary, which will be paid in bi-weekly installments. Also, the Partnership will pay the full cost of Ms. Archer's premium for continued health insurance coverage under Sunoco LP’s health insurance plan for a period of six months. In addition, Ms. Archer received an additional lump sum payment of $293,760, less all required government payroll deductions, which is an amount intended to be equivalent to Ms. Archer's target bonus award for 2017. In addition, Ms. Archer became entitled to accelerated vesting of 31,064 Sunoco LP restricted phantom unit awards and 2,100 ETP restricted unit awarded to Ms. Archer under the LTIP and the Second Amended and Restarted Energy Transfer Partners, L.P.

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2008 Long-Term Incentive Plan (the “2008 ETP Plan”). The accelerated units represented consideration of Ms. Archer’s non-solicit/non-hire covenant in the Archer Separation Agreement after her termination of employment. As of her termination date, any other unvested restricted phantom units or restricted units not covered by the Archer Separation Agreement held by Ms. Archer were immediately forfeited.
Mr. Owens did not receive benefits under the SUN Severance Plan and in consideration for the remuneration provided under the Owens Separation Agreement waived and released the General Partner from any claims for benefits under the SUN Severance Plan.
Other ETP Sponsored Benefit Plans.
Our NEOs participate in certain retirement and deferred compensation plans sponsored by ETP or its affiliates as described below. The Partnership is not allocated any compensation expense nor does it make any contributions to the plans sponsored by ETP or its affiliates.
The Sunoco, Inc. Pension Restoration Plan . The Sunoco, Inc. Pension Restoration Plan is a non-qualified plan that provides for certain retirement benefits that otherwise would be provided under the SCIRP, except for the IRS limits. Effective June 30, 2010, Sunoco Inc. froze pension benefits (including accrued and vested benefits) payable under this plan for all salaried employees including our NEOs who participate in this plan (Ms. Archer and Mr. Heinemann). Ms. Archer’s retirement will trigger a payout of her balances under this plan. Her payment will be processed in July 2018 as Ms. Archer’s payout is subject to the deferred payment rule of IRC Section 409(a).
ETP Deferred Compensation Plan for Former Sunoco Executives . ETP established a deferred compensation plan in connection with its merger with Sunoco Inc. (the “Sunoco Executive DC Plan”). Pursuant to his offer letter from ETP, in connection with the Sunoco Merger, Mr. Owens waived any future rights or benefits to which he otherwise would have been entitled under both the Sunoco, Inc. Executive Retirement Plan (“SERP”), a non-qualified plan that provided supplemental pension benefits over and above benefits under both the SCIRP and the Pension Restoration Plan and the Sunoco Inc. Pension Restoration Plan, in return for which, the then present value, $6,655,750, of such deferred compensation benefits was credited to Mr. Owens’ account under the Sunoco Executive DC Plan. Mr. Owens’ account is 100% vested and was distributed in one lump sum payment upon his retirement. Mr. Owens’ account was credited with deemed earnings or losses based on hypothetical investment fund choices made by him among available funds. Mr. Owens was our only NEO eligible to participate in the Sunoco Executive DC Plan. Mr. Owens’ account balance will be paid out in July 2018 as Mr. Owens’ payout from the Sunoco Executive DC Plan is subject to the deferred payment rule of IRC Section 409(a).
ETP Non-Qualified Deferred Compensation Plan (the “ETP NQDC Plan”) is a deferred compensation plan, which permits eligible highly compensated employees to defer a portion of their salary, bonus and/or quarterly non-vested phantom unit distribution equivalent income until retirement, termination of employment or other designated distribution event. Each year under the ETP NQDC Plan, eligible employees are permitted to make an irrevocable election to defer up to 50 percent of their annual base salary, 50 percent of their quarterly non-vested phantom unit distribution income, and/or 50 percent of their discretionary performance bonus compensation during the following year. Pursuant to the ETP NQDC Plan, ETP may make annual discretionary matching contributions to participants’ accounts; however, ETP has not made any discretionary contributions to participants’ accounts and currently has no plans to make any discretionary contributions to participants’ accounts. All amounts credited under the ETP NQDC Plan (other than discretionary credits) are immediately 100% vested. Participant accounts are credited with deemed earnings or losses based on hypothetical investment fund choices made by the participants among available funds.
Participants may elect to have their account balances distributed in one lump sum payment or in annual installments over a period of three or five years upon retirement, and in a lump sum upon other termination events. Participants may also elect to take lump-sum in-service withdrawals five years or longer in the future, and such scheduled in-service withdrawals may be further deferred prior to the withdrawal date. Upon a change in control (as defined in the ETP NQDC Plan) of ETP, all ETP NQDC Plan accounts are immediately vested in full. However, distributions are not accelerated and, instead, are made in accordance with the ETP NQDC Plan’s normal distribution provisions unless a participant has elected to receive a change of control distribution pursuant to his deferral agreement. Ms. Archer participated in the ETP NQDC Plan and will receive a payout in connection with her retirement. Her payout will be processed in July 2018 as Ms. Archer’s payout from the ETP NQDC Plan is subject to the deferred payment rule of IRC Section 409(a).

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Risk Assessment Related to Our Compensation Structure
We believe our compensation plans and programs for our named executive officers, as well as the other employees who provide services to us, are appropriately structured and are not reasonably likely to result in material risk to us. We believe our compensation plans and programs are structured in a manner that does not promote excessive risk-taking that could harm our value or reward poor judgment. We also believe we have allocated our compensation among base salary and short and long-term compensation in such a way as to not encourage excessive risk-taking. We use restricted phantom units rather than unit options for equity awards because restricted phantom units retain value even in a depressed market so that employees are less likely to take unreasonable risks to get, or keep, options “in-the-money.” Finally, the time-based vesting over five years for our long-term incentive awards ensures that our employees’ interests align with those of our unitholders for our long-term performance.
Accounting and Tax Considerations
We account for the equity compensation expense for equity awards granted under our LTIP in accordance with U.S. generally accepted accounting principles (“GAAP”), which requires us to estimate and record an expense for each equity award over the vesting period of the award. For performance-based restricted phantom units that are paid out in the form of common units, the value of our common units on the date of grant is used for determining the expense, with an adjustment for the actual performance factors achieved. Thus, the expense for performance-based restricted phantom units payable in units generally is not adjusted for changes in the trading price of our common units after the date of grant. For market-based awards, the value is determined using a Monte Carlo simulation. The expense for restricted phantom units settled in common units is recognized ratably over the vesting period. For cash compensation, the accounting rules require us to record it as an expense at the time the obligation is accrued. Because we are a partnership, and our General Partner is a limited liability company, Internal Revenue Code (“Code”) Section 162(m) does not apply to the compensation paid to our NEOs and, accordingly, our compensation committee did not consider its impact in making the compensation recommendations discussed above.
Compensation Committee Interlocks and Insider Participation
Messrs. Turner and Smith are the only members of the compensation committee. During 2017 , neither Messrs. Turner nor Smith was an officer or employee of affiliates of ETE, or served as an officer of any company with respect to which any of our executive officers served on such company’s board of directors. In addition, neither Mr. Turner nor Smith is a former employee of affiliates of ETE.
Compensation Committee Report
The compensation committee of the board of directors of our General Partner has reviewed and discussed the section of this report entitled “Compensation Discussion and Analysis” with the management of the Partnership and approved its inclusion on this annual report on Form 10-K.
Compensation Committee
K. Rick Turner (Chairman)
W. Brett Smith
The foregoing report shall not be deemed to be incorporated by reference by any general statement or reference to this Annual Report on Form 10-K into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under those Acts.

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Summary Compensation Table
Name and Principal Position
Year
 
Salary ($) (1)
 
Bonus ($) (2)
 
Unit Awards ($) (3)
 
Non-Equity Incentive Plan
Compensation ($)
 
Change in Nonqualified Deferred Compensation Earnings ($)
 
All Other Compensation ($) (4)
 
Total ($)
Robert W. Owens
2017
 
$
636,480

 
$
—

 
$
—

 
$
—

 
$
62,912

 
$
5,619,491

 
$
6,318,883

Chief Executive Officer
2016
 
629,760

 
708,480

 
2,192,764

 
—

 
794,960

 
66,175

 
4,392,139

2015
 
611,077

 
763,846

 
4,446,828

 
—

 
—

 
10,543

 
5,832,294

Joseph Kim
2017
 
386,913

 
406,259

 
897,278

 
—

 
—

 
9,884

 
1,700,334

President and Chief Operating Officer
2016
 
378,462

 
272,492

 
607,425

 
—

 
—

 
3,797

 
1,262,176

Thomas M. Miller
2017
 
323,692

 
323,692

 
524,475

 
—

 
—

 
9,430

 
1,181,289

Chief Financial Officer
2016
 
196,923

 
230,400

 
1,021,650

 
—

 
—

 
22,208

 
1,471,181

S. Blake Heinemann
2017
 
333,132

 
333,132

 
524,475

 
—

 
—

 
12,294

 
1,203,033

Executive Vice President, Operations — East
2016
 
325,855

 
234,616

 
534,000

 
—

 
—

 
12,182

 
1,106,653

2015
 
318,635

 
254,908

 
976,596

 
—

 
—

 
11,128

 
1,561,267

Cynthia A. Archer
2017
 
367,200

 
—

 
—

 
—

 
34,919

 
1,599,345

 
2,001,464

Executive Vice President and Chief Marketing Officer
2016
 
363,323

 
261,593

 
587,400

 
—

 
5,703

 
12,592

 
1,230,611

2015
 
349,716

 
279,773

 
1,082,758

 
—

 
—

 
11,374

 
1,723,621

R. Bradley Williams
2017
 
333,132

 
—

 
—

 
—

 
—

 
9,000

 
342,132

Executive Vice President, Operations — West
2016
 
325,855

 
234,616

 
534,000

 
—

 
—

 
9,000

 
1,103,471

2015
 
318,937

 
255,150

 
1,053,953

 
—

 
—

 
9,000

 
1,637,040

_________________________________________________ 
(1)
For comparative purposes, the above table provides a summary of the total compensation for each NEO for each of 2015, 2016 and 2017. 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 2015, ETP and their affiliates allocated to us (i) 56%, 50%, 15% and 50% of the cash compensation expense associated with the services performed by Mr. Owens, Ms. Archer, Mr. Heinemann and Mr. Williams, respectively, and (ii) 100% of the grant date fair value of phantom unit awards made under the LTIP Plan to the NEOs and directors in 2015. The remainder of the compensation expense for Mr. Owens in 2015 and for the remainder of the named executive officers in 2015 was primarily allocated to the retail and wholesale businesses of ETP, which businesses were contributed to us in 2015 and 2016. For 2016 and 2017, 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 discretionary cash bonus amounts for our named executive officers for 2017 reflect cash bonuses approved by the Compensation Committee in February 2018 that are expected to be paid in March 2018. Mr. Owens and Ms. Archer each retired on December 31, 2017 and received a payment designed to be equivalent to 100% of their targeted bonus in accordance with their respective separation agreements. Mr. Williams left the Partnership upon completion of the 7-Eleven Retail Divestiture and received a payment designed to be equivalent to 100% of his target for 2017 and pro-rated for the portion of the year that he was employed by Sunoco in 2018 in accordance with his Retention Agreement.
(3)
The amounts reported for unit awards represent the full grant date fair value of phantom units granted to each of our NEOs, calculated in accordance with the accounting guidance on share-based payments.
(4)
The details of amounts listed as “All Other Compensation” are presented in the “All Other Compensation” table below. The amounts reflected for all periods exclude distribution payments in connection with distribution equivalent rights on unvested unit awards, because the dollar value of such distributions are factored into the grant date fair value reported in the “Unit Awards” column of the Summary Compensation Table at the time that the unit awards and distribution equivalent rights were originally granted. For 2017, distribution payments in connection with distribution equivalent rights totaled $851,774 for Mr. Owens, $197,856 for Mr. Kim, $113,919 for Mr. Miller, $239,560 for Mr. Heinemann, $254,551 for Ms. Archer and $197,889 for Mr. Williams.

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All Other Compensation
Name
 
Year
 
Perquisites
and Other
Personal
Benefits
($) (1)
 
Matching
Contributions
to 401(k) and
Deferred
Compensation
Plans
($) (2)
 
Severance Payments (3)
 
Other
($) (4)
 
Total
Robert W. Owens
 
2017
 
$
61,529

 
$
6,120

 
$
5,546,724

 
$
5,118

 
$
5,619,491

 
 
2016
 
54,861

 
6,000

 
—

 
5,314

 
66,175

 
 
2015
 
—

 
6,309

 
—

 
4,234

 
10,543

Joseph Kim
 
2017
 
—

 
9,000

 
—

 
884

 
9,884

 
 
2016
 
—

 
2,942

 
—

 
855

 
3,797

Thomas M. Miller
 
2017
 
2,331

 
5,023

 
—

 
2,077

 
9,431

 
 
2016
 
20,928

 
—

 
—

 
1,280

 
22,208

S. Blake Heinemann
 
2017
 
—

 
9,000

 
—

 
3,294

 
12,294

 
 
2016
 
—

 
9,000

 
—

 
3,182

 
12,182

 
 
2015
 
—

 
9,000

 
—

 
2,128

 
11,128

Cynthia A. Archer
 
2017
 
5,872

 
9,000

 
1,580,810

 
3,663

 
1,599,345

 
 
2016
 
—

 
9,000

 
—

 
3,592

 
12,592

 
 
2015
 
—

 
9,000

 
—

 
2,374

 
11,374

R. Bradley Williams
 
2017
 
—

 
9,000

 
 
 
—

 
9,000

 
 
2016
 
—

 
9,000

 
—

 
—

 
9,000

 
 
2015
 
—

 
9,000

 
—

 
—

 
9,000

 _________________________________________________
(1)
The amounts in this column reflect relocation costs for Mr. Owens and health insurance premiums in connection with their respective severance agreements of $11,160 and $5,046, respectively, for Mr. Owens and Ms. Archer.
(2)
The amounts in this column reflect the Partnership's matching contributions to the 401(k) plan. Each of our NEOs is eligible to participate in a 401(k) plan that is generally available to all employees. The amounts deferred by the executive officers under the 401(k) plan are fully vested at all times.
(3)
Mr. Owens and Ms. Archer retired as of December 31, 2017. Mr. Owens received a lump sum separation payment after his separation agreement became effective and Ms. Archer will receive bi-weekly payments of her severance amount and such payments began in January 2018 after her separation agreement became effective.  Each received/will receive accelerated vesting of Sunoco LP and ETP unit award contingent upon their compliance with a restrictive covenants described in their separation agreements, the fair value of as of December 31, 2017 is included above ($4,114,644 for Mr. Owens and $919,850 for Ms. Archer).  
(4)
The amounts in this column reflect the dollar value of life insurance premiums paid for the benefit of the named executive officers.
Grants of Plan-Based Awards
For Fiscal Year Ended December 31, 2017
The table below reflects awards granted to our NEOs under the LTIP during 2017 .
Name
 
Grant Date
 
Type of Award (1)
 
Approval Date
 
Estimated Future  Payouts
Under Equity Incentive Plan
Awards
 
All Other
Stock
Awards:
Number of
Shares of
Stock
(#) (1)
 
Grant Date
Fair Value of
Stock Awards
($) (1)
 
 
 
 
 
 
 
 
Threshold (#)
 
Target (#)
 
Maximum (#)
 
 
 
 

Joseph Kim
 
12/21/2017
 
Phantom units
 
12/21/2017
 
—

 
—

 
—

 
31,650

 
$
897,278

Thomas R. Miller
 
12/21/2017
 
Phantom units
 
12/21/2017
 
—

 
—

 
—

 
18,500

 
524,475

 S. Blake Heinemann
 
12/21/2017
 
Phantom units
 
12/21/2017
 
—

 
—

 
—

 
18,500

 
524,475

_________________________________________________ 
(1)
The restricted phantom units granted in December 2017 vest 60% in December 2020 and 40% in December 2022. 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 18–

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Unit-Based Compensation in our Notes to Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”
Outstanding Equity Awards at December 31, 2017
The following table reflects NEO equity awards granted under the LTIP Plan that were outstanding at December 31, 2017 .
 
 
 
 
Unit Awards (1)
Name
 
Grant Date (1)
 
Number
of Shares
or Units
of Stock
That
Have Not
Vested
(#)
 
Market
Value of
Shares or
Units
That
Have Not
Vested
($) (2)
 
Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
(#)
 
Equity
Incentive
Plan Awards:
Market or
Payout Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
Robert W. Owens (3)
 
12/29/2016
 
82,126

 
$
2,332,378

 
—

 
$
—

 
 
12/16/2015
 
65,290

 
1,854,236

 
—

 
—

 
 
1/26/2015
 
15,664

 
444,858

 
—

 
—

 
 
11/10/2014
 
20,000

 
568,000

 
—

 
—

Joseph Kim
 
12/21/2017
 
31,650

 
898,860

 
—

 
—

 
 
12/29/2016
 
22,750

 
646,100

 
—

 
—

 
 
12/16/2015
 
13,888

 
394,419

 
—

 
—

 
 
10/26/2015
 
20,000

 
568,000

 
—

 
—

Thomas R. Miller
 
12/21/2017
 
18,500

 
525,400

 
—

 
—

 
 
12/29/2016
 
19,500

 
553,800

 
—

 
—

 
 
5/26/2016
 
15,000

 
426,000

 
—

 
—

S. Blake Heinemann (4)
 
12/21/2017
 
18,500

 
525,400

 
—

 
—

 
 
12/29/2016
 
20,000

 
568,000

 
—

 
—

 
 
12/16/2015
 
14,780

 
419,752

 
—

 
—

 
 
1/26/2015
 
2,808

 
79,747

 
—

 
—

 
 
11/10/2014
 
10,000

 
284,000

 
—

 
—

Cynthia A. Archer (5)
 
12/29/2016
 
12,987

 
368,831

 
—

 
—

 
 
12/16/2015
 
9,888

 
280,819

 
—

 
—

 
 
1/26/2015
 
2,189

 
62,168

 
—

 
—

 
 
11/10/2014
 
6,000

 
170,400

 
—

 
—

R. Bradley Williams (6)
 
12/29/2016
 
20,000

 
568,000

 
—

 
—

 
 
12/16/2015
 
16,080

 
456,672

 
—

 
—

 
 
1/26/2015
 
3,540

 
100,536

 
—

 
—

 
 
11/10/2014
 
6,000

 
170,400

 
—

 
—

_________________________________________________ 
(1)
Common unit awards outstanding vest as follows:
• at a rate of 60% in December 2020 and 40% in December 2022 for awards granted in December 2017;
• at a rate of 60% in December 2019 and 40% in December 2021 for awards granted in December 2016;
• at a rate of 60% in December 2018 and 40% in December 2020 for awards granted in May 2016 and December 2015; and
• 100% in December 2019 for all other awards.
(2)
Based on the closing market price of our common units of $28.40 on December 29, 2017.
(3)
Mr. Owens also had 12,000 unvested ETP unit awards outstanding at December 31, 2017 with a market value of $215,040 based on the closing market price of ETP’s common units of $17.92 on December 29, 2017. In connection with the Owens Severance Agreement, certain units outstanding at December 31, 2017 will accelerate as follows:
◦
91,540 Sunoco LP unit awards and 6,000 ETP unit awards in January 2018;

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◦
45,770 Sunoco LP unit awards and 6,000 ETP unit awards in January 2019; and
◦
45,770 Sunoco LP unit awards in January 2020.
(4)
Mr. Heinemann also had 4,200 unvested ETP unit awards outstanding at December 31, 2017 with a market value of $75,264 based on the closing market price of ETP’s common units of $17.92 on December 29, 2017.
(5)
Ms. Archer also had 2,100 unvested ETP unit awards outstanding at December 31, 2017 with a market value of $37,632 based on the closing market price of ETP’s common units of $17.92 on December 29, 2017. In connection with the Archer Severance Agreement, accelerated vesting of 31,064 Sunoco LP unit awards and 2,100 ETP unit awards will occur in January 2018.
(6)
Mr. Williams also had 2,400 unvested ETP unit awards outstanding at December 31, 2017 with a market value of $43,008 based on the closing market price of ETP’s common units of $17.92 on December 29, 2017.
Units Vested
The following table provides information regarding the vesting of SUN restricted phantom units and ETP restricted units held by certain of our NEOs during 2017 . There are no options outstanding on our common units.  
 
Unit Awards
Name
Number of
Units
Acquired on
Vesting (#)
 
Value Realized on
Vesting ($) (1)
Sunoco LP restricted phantom unit vestings:
 
 
 
Robert W. Owens
53,496

 
$
1,592,576

S. Blake Heinemann
20,472

 
609,451

Cynthia A. Archer
20,472

 
609,451

R. Bradley Williams
14,310

 
426,009

Joseph Kim
3,282

 
97,705

ETP restricted phantom unit vestings:
 
 
 
S. Blake Heinemann
2,100

 
34,287

Robert W. Owens
18,000

 
293,886

Cynthia A. Archer
2,100

 
34,287

_________________________________________________ 
(1)
Amounts presented represent the number of unit awards vested during 2017 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 ETP’s respective common units upon the vesting date.
Non-Qualified Deferred Compensation
Our NEOs are eligible to participate, and do participate, in a non-qualified deferred compensation plan administered by ETP. The following table provides the voluntary salary deferrals made by the named executive officers in 2017 under the ETP NQDC Plan and Sunoco Executive DC Plan.
Name
Executive Contributions in Last FY ($)
 
Registrant Contributions in Last FY ($)
 
Aggregate Earnings in Last FY ($)
 
Aggregate Withdrawals/Distributions ($)
 
Aggregate Balance at Last FYE ($)
Robert W. Owens
$
—

 
$
—

 
$
62,912

 
$
—

 
$
6,193,463

Joseph Kim
—

 
—

 
—

 
—

 
—

Thomas R. Miller
—

 
—

 
—

 
—

 
—

S. Blake Heinemann
—

 
—

 
—

 
—

 
—

Cynthia A. Archer
—

 
—

 
34,919

 
—

 
159,673

R. Bradley Williams
—

 
—

 
—

 
—

 
—

Potential Payments upon Termination or Change of Control
Pursuant to the terms of the award agreements issued under the LTIP, in the event of a (i) Change of Control (as defined in the LTIP) or (ii) termination of employment due to death or disability, all phantom units shall vest. In the event of a termination of employment for any other reason, all phantom units that are still unvested shall be forfeited.

69


In addition, beginning in October 2014, all awards contain a partial acceleration of vesting for qualified retirement, whereby a recipient who voluntarily retires after at least ten years of service would be eligible for (i) vesting of 40% of the outstanding award, if the recipient retires at age 65 to 68, or (ii) vesting of 50% of the outstanding award, if the recipient is over the age of 68 upon retirement. Currently none of our NEOs are eligible for partial acceleration upon retirement. The acceleration of these awards at retirement is subject to the provisions of IRC Section 409(a) and such accelerated units shall not be delivered before the earlier of (i) the day that is six months plus one day after the date of separation from service or (ii) the tenth (10th) day after the date of the recipient’s death.
Under the LTIP, a “Change of Control” means, and shall be deemed to have occurred upon one or more of the following events: (i) any “person” or “group” within the meaning of those terms as used in Sections 13(d) and 14(d)(2) of the Exchange Act, other than members of the General Partner, the Partnership, or an affiliate of either the General Partner or the Partnership, shall become the beneficial owner, by way of merger, consolidation, recapitalization, reorganization or otherwise, of 50% or more of the voting power of the voting securities of the General Partner or the Partnership; (ii) the limited partners of the General Partner or the Partnership approve, in one transaction or a series of transactions, a plan of complete liquidation of the General Partner or the Partnership; (iii) the sale or other disposition by either the General Partner or the Partnership of all or substantially all of its assets in one or more transactions to any Person other than an affiliate; (iv) the General Partner or an affiliate of the General Partner or the Partnership ceases to be the General Partner of the Partnership; (v) any other event specified as a “Change of Control” in the equity incentive plan maintained by Susser at the time of such “Change of Control;” or (vi) any other event specified as a “Change of Control” in an applicable award agreement. Notwithstanding the above, with respect to a 409A award, a “Change of Control” shall not occur unless that Change of Control also constitutes a “change in the ownership of a corporation,” a “change in the effective control of a corporation,” or a “change in the ownership of a substantial portion of a corporation’s assets,” in each case, within the meaning of 1.409A-3(i)(5) of the 409A regulations, as applied to non-corporate entities.
The following table shows the amount of incremental value that would have been received by each of the NEOs upon certain events of termination or a change of control resulting in the accelerated vesting of the phantom units held by our NEOs on December 31, 2017 :  
Name
 
Benefit
 
Termination
Due to Death
or Disability
($) (1)
 
Termination
for any other reason
($)
 
Change of
Control
with or without Continued
Employment
($) (1)
 
Not for Cause Termination ($)
Robert W. Owens
 
Unit Vesting
 
$
5,199,472

 
$
—

 
$
5,199,472

 
$
444,858

Joseph Kim
 
Unit Vesting
 
2,507,379

 
—

 
2,507,379

 
—

Thomas R. Miller
 
Unit Vesting
 
1,505,200

 
—

 
1,505,200

 
—

S. Blake Heinemann
 
Unit Vesting
 
1,876,899

 
—

 
1,876,899

 
—

Cynthia A. Archer
 
Unit Vesting
 
882,218

 
—

 
882,218

 
—

R. Bradley Williams
 
Unit Vesting
 
1,295,608

 
—

 
1,295,608

 
—

 
_________________________________________________
(1)
The amounts reflected above represent the product of the number of phantom units that were subject to vesting/restrictions on December 29, 2017 multiplied by the closing price of our common units of $28.40 on that date.
CEO Pay Ratio
In accordance with Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u) of Regulation S-K, set forth below is information about the relationship of the annual total compensation of Mr. Owens, our Chief Executive Officer and the annual total compensation of our employees.
For the 2017 calendar year:
The annual total compensation of Mr. Owens, as reported in the Summary Compensation Tables of this Item 11was $ 6,318,883 ; and
The median total compensation of the employees supporting our Partnership (other than Mr. Owens) was $25,287.
Based on this information, for 2017 the ratio of the annual total compensation of Mr. Owens to the median of the annual total compensation of the 20,048 employees supporting us as of December 31, 2017 was approximately 250 to 1.
To identify the median of the annual total compensation of the employees supporting the Partnership, the following steps were taken:
1.
It was determined that, as of December 31, 2017, the applicable employee populations consisted of 20,048 with all of the identified individuals being employed in the United States. This population consisted of all of our full-time and part-time

70


employees. We did not engage any independent contractors in 2017 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 2017.
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 2017 resulting in an annual compensation of $25,287. 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 $5,452 and the employee’s 401(k) matching contribution and profit sharing contribution, as applicable estimated at $2,930 per employee).
5.
With respect to Mr. Owens, we used the amount reported in the “Total” column of our 2017 Summary Compensation Table under this Item 11.
Compensation of Directors
Our Board periodically reviews and determines the amounts payable to the members of our Board. In 2017 , the directors of the General Partner who were not employees of the General Partner or its affiliates received, as applicable: an annual cash retainer of $50,000; an annual cash retainer of $10,000 ($15,000 for the chair) for serving on our audit committee; an annual cash retainer of $5,000 ($7,500 for the chair) for serving on our compensation committee; a flat fee of $1,200 for each committee meeting attended; and a cash fee for the engagement of the special committee of the Board (the “Special Committee”), as determined by the Board at the time of such engagement. Such directors also received an annual grant of restricted phantom units under the LTIP equal to an aggregate of $100,000 divided by the closing price of SUN units on the date of grant. Directors appointed during the year, or who cease to be directors during a year, receive a pro-rated portion of any cash retainers. In addition, each non-employee director who is appointed to the Board is entitled to receive a pro-rated restricted phantom unit award. Unit awards granted to non-employee directors will vest 60% after the third year and the remaining 40% after the fifth year after the grant date.
Under the LTIP, the director will forfeit all unvested restricted phantom units upon a termination of his duties as a director for any reason. If the director ceases providing services due to death or disability (as defined by the LTIP) prior to the date all restricted phantom units have vested, then all restrictions lapse and all restricted phantom units become immediately vested. If a Change of Control (as defined under the LTIP) occurs, then all unvested restricted phantom units become fully vested as of the date of the Change of Control. In addition, our directors will be reimbursed for out-of-pocket expenses incurred in connection with attending meetings of the Board or its committees.
The following table provides a summary of compensation paid to each of our current and former non-employee directors (and Messrs. Curia and Long) for 2017 service:
Name
 
Fees
Earned or
Paid in
Cash
($) (1)
 
Unit
Awards
($) (2)
 
Option
Awards
($)
 
All Other
Compensation
($)
 
Total
($)
James W. Bryant
 
$
67,300

 
$
100,008

 
$
—

 
$
—

 
$
167,308

K. Rick Turner
 
82,100

 
100,008

 
—

 
—

 
182,108

W. Brett Smith
 
77,100

 
100,008

 
—

 
—

 
177,108

Thomas E. Long (3)
 
—

 
484,700

 
—

 
—

 
484,700

Christopher R. Curia (3)
 
—

 
338,811

 
—

 
—

 
338,811

____________________________________________
(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 2017 , 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 18–Unit-Based Compensation in our Notes to Consolidated Financial Statements. As of December 31, 2017 , Mr. Turner had 8,564 outstanding restricted phantom units, Mr. Bryant had 7,617 outstanding restricted phantom units, Mr.

71


Long had 53,432 outstanding restricted phantom units, Mr. Smith had 6,166 outstanding restricted phantom units, and Mr. Curia had 31,898 outstanding restricted phantom units.
(3)
Messrs. Long (ETE's Group Chief Financial Officer) and Curia (our EVP-Human Resources and EVP-Chief Human Resources Officer of ETE), are entitled to receive grants of restricted phantom units pursuant to the LTIP in recognition of their commitment and contribution to us and our unitholders. The restricted phantom units were granted in December 2017 and will vest 60% in December 2020 and 40% in December 2022, subject to the terms of the award agreement. The awards of restricted phantom units to Messrs. Curia and Long in respect of their contribution to us represent a portion of their total awards as executive officers of ETE and the allocation of such percentage to us is in recognition of the portion of their total time spent on our business.
For 2018, the Board has approved modifications to the compensation of non-employee directors of our Board. The directors will receive an annual retainer fee of $100,000 in cash an increase from $50,000 in 2017. In addition, the chairman of the audit committee will receive an annual fee of $25,000 an increase from $15,000 in 2017 and the members of the audit committee will receive an annual fee of $15,000 an increase from $10,000. The chairman of the compensation committee will receive an annual fee of $15,000 an increase from 7,500 in 2017 and the members of the compensation committee receive an annual fee of $7,500 an increase from $5,000 in 2017. The fees for membership on the Conflicts Committee will continue to be determined on a per instance basis for each Conflicts Committee assignment.
Additionally for 2018, annual grants of restricted phantom units will remain equal to an aggregate of $100,000 to be divided by the closing price of our Common Units on the date of grant, which will vest 60% after the third year and the remaining 40% after the fifth year after the grant date.
The proposed compensation changes for the non-employee directors for 2018 were developed in consultation with Mr. Warren after considering the results of a review of directors’ compensation by Longnecker during 2017
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of common units and Class C units of the Partnership that are issued and outstanding as of February 16, 2018 and held by:
•
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
•
all of our directors and executive officers of our general partner, as a group.

72


Name of Beneficial Owner (1)
 
Common Units Beneficially Owned (7)
 
Percentage of Commons Units Beneficially Owned
 
Class C Units Beneficially Owned
 
Percentage of
Class C Units Beneficially Owned
 
Percentage of Common and
Class C Units Beneficially Owned
ETP (2)
 
26,200,809

 
31.8%
 
—

 
—

 
26.5%
Oppenheimer Funds, Inc. (6)
 
13,398,674

 
16.2%
 
—

 
—

 
13.6%
Stripes LLC
 
—

 
—
 
5,624,527

 
34.3
%
 
5.7%
Stripes No. 1009 LLC
 
—

 
—
 
5,544,140

 
33.8
%
 
5.6%
Aloha Petroleum Ltd (4)
 
—

 
—
 
5,242,113

 
31.9
%
 
5.3%
Citigroup Inc. (3)
 
3,633,415

 
4.4%
 
—

 
—

 
3.7%
ETE (2)
 
2,263,158

 
2.7%
 
—

 
—

 
2.3%
Goldman Sachs Asset Management (5)
 
1,027,948

 
1.2%
 
—

 
—

 
1.0%
Robert W. Owens
 
86,571

 
*
 
—

 
—

 
*
R. Bradley Williams
 
21,742

 
*
 
—

 
—

 
*
Cynthia A. Archer
 
34,019

 
*
 
—

 
—

 
*
S. Blake Heinemann
 
13,374

 
*
 
—

 
—

 
*
Joseph Kim
 
8,718

 
*
 
—

 
—

 
*
K. Rick Turner (8)
 
3,669

 
*
 
—

 
—

 
*
Christopher R. Curia
 
1,539

 
*
 
—

 
—

 
*
Matthew S. Ramsey
 
1,118

 
*
 
—

 
—

 
*
James W. Bryant
 
832

 
*
 
—

 
—

 
*
Thomas E. Long
 
—

 
—
 
—

 
—

 
—
Thomas R. Miller
 
—

 
—
 
—

 
—

 
—
W. Brett Smith
 
—

 
—
 
—

 
—

 
—
All executive officers and directors as a group (fifteen persons)
 
184,698

 
*
 
—

 
—

 
*
____________________________________________
*
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 8020 Park Lane, Suite 200, Dallas, Texas 75231.
(2)
The address for ETE, ETP and ETP's subsidiaries is 8111 Westchester Drive, Suite 600, Dallas, Texas 75225.
(3)
The information contained in the table and this footnote with respect to Citigroup Inc. is based solely on a filing on Schedule 13G filed with the Securities and Exchange Commission on January 10, 2017. The business address of the reporting party is 388 Greenwich Street, New York, New York 10013.
(4)
The address for Aloha is 1132 Bishop St., Suite 1700, Honolulu, Hawaii 96813.
(5)
The information contained in the table and this footnote with respect to Goldman Sachs Asset Management LP is based solely on a filing on Schedule 13G/A filed with the Securities and Exchange Commission on February 7, 2017. The business address of the reporting party is 200 West Street, C/O Goldman Sachs & Co., New York, New York 10282.
(6)
The information contained in the table and this footnote with respect to Oppenheimer Funds, Inc. is based solely on a filing on Schedule 13G/A filed with the Securities and Exchange Commission on February 5, 2018. The business address of the reporting party is Two World Financial center, 225 Liberty Street, New York, New York 10281.
(7)
Does not include unvested phantom units that may not be voted or transferred prior to vesting. As of February 16, 2018, there were 82,487,330 common units and 16,410,780 Class C Units deemed to be beneficially owned for purposes of the above table.
(8)
Includes 1,000 common units held by the Turner Family Partnership. Mr. Turner disclaims beneficial ownership of these securities, except to the extent of his interest as the general partner of the partnership.

73


The following table sets forth, as of February 16, 2018, the number of common units of ETP and ETE owned by each of the directors and current executive officers of our General Partner and all directors and current executive officers of our General Partner as a group.
 
 
ETP Common Units Beneficially Owned†
 
ETE Common Units Beneficially Owned†
Name of Beneficial Owner (1)
 
Number of Common Units (2)
 
Percentage of Total Common Units (3)
 
Number of Common Units (2)
 
Percentage of Total Common Units (3)
Cynthia A. Archer
 
20,420

 
*
 
4,500

 
*
Robert W. Owens
 
73,147

 
*
 
—

 
—
Thomas R. Miller
 
—

 
—
 
—

 
—
S. Blake Heinemann
 
7,266

 
*
 
—

 
—
R. Bradley Williams
 
4,429

 
*
 
3,158

 
*
James W. Bryant
 
3,003

 
*
 
239,696

 
*
Christopher R. Curia
 
61,415

 
*
 
29,683

 
*
Matthew S. Ramsey
 
23,033

 
*
 
52,317

 
*
K. Rick Turner
 
10,651

 
*
 
452,072

(4)
*
Joseph Kim
 
6,500

 
*
 
—

 
—
W. Brett Smith
 
14,800

 
*
 
15,445

 
*
Thomas E. Long
 
51,869

 
*
 
—

 
—
All executive officers and directors as a group
(fifteen persons)
 
287,370

 
*
 
796,871

 
*
_________________________________________________
*
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 ETP, by virtue of owning common units in ETP or ETE, respectively, or based upon their simultaneous service as officers or directors of ETP or ETE. Any such deemed ownership is not reflected in the table.
(1)
Unless otherwise indicated, the address for all beneficial owners in this table is 8020 Park Lane, Suite 200, Dallas, Texas 75231.
(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 16, 2018, there were 1,164,024,480 common units of ETP and 1,079,152,668 common units of ETE deemed to be beneficially owned for purposes of the above table.
(4)
Includes (i) 39,408 common units held by Mr. Turner directly; (ii) 89,084 common units held in a partnership controlled by the Stephens Group, Mr. Turner’s former employer; (iii) 8,000 common units held by the Turner Family Partnership; and (iv) 157,790 common units held by the Turner Liquidating Trust. The voting and disposition of the common units held by the Stephens Group partnership is controlled by the board of directors of the Stephens Group. With respect to the common units held by the Turner Family Partnership, Mr. Turner exercises voting and dispositive power as the general partner of the partnership; however, he disclaims beneficial ownership of these common units, except to the extent of his interest in the partnership. With respect to the common units held by the Turner Liquidating Trust, Mr. Turner exercises one-third of the shared voting and dispositive power with the administrator of the liquidating trust and Mr. Turner’s ex-wife, who beneficially owns an additional 157,790 common units. Mr. Turner disclaims beneficial ownership of the common units owned by his ex-wife.

74


Equity Compensation Plan Information
As of December 31, 2017 , a total of 2,118,347 phantom units had been issued under the LTIP. Total securities remaining available for issuance under the LTIP as of December 31, 2017 were as follows:
Common Units Remaining Available for Issuance under Our Equity Compensation Plans
Plan Category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
 
Weighted-average exercise price of outstanding options, warrants and rights
 
Number of securities remaining available for future issuance under equity compensation plans (1)
Equity compensation plans approved by security holders
 
—

 
$
—

 
474,153

Equity compensation plans not approved by security holders
 
—

 
—

 
—

Total
 
—

 
$
—

 
474,153

 _________________________________________________
(1)
As of January 1, 2018, the number of units awarded for future issuances increased by 500,000 to 974,153 as the Partnership completed a qualifying equity issuance event during 2017 .
Item 13.
Certain Relationships, Related Transactions and Director Independence
Transactions with ETE and its Affiliates
The following table summarizes the distributions and payments made by us to ETE or its affiliates during 2017 .
Transaction
Explanation
Amount/Value
 
 
 
2017 quarterly distributions on limited partner interests and IDRs held by affiliates.
Represents the aggregate amount of distributions made to affiliates of our general partner in respect of Series A preferred units, common units and IDRs during 2017.
$251 million
 
 
 
Fuel sold to affiliates.
Total revenues we received for fuel gallons sold by us to affiliates of our general partner for 2017.
$55 million
 
 
 
Bulk purchases of motor fuel from ETP and its affiliates.
Represents payments made to ETP and its affiliates for bulk motor fuel purchases.
$2.4 billion
 
 
 
Reimbursement to our general partner for certain allocated overhead and other expenses.
Total payment to our general partner for reimbursement of overhead and other expenses, including employee compensation costs relating to employees supporting our operations, for 2017 pursuant to the Omnibus Agreement fiscal year.
$1 million

Other Transactions with Related Persons
Related Party Agreements
Sunoco LLC and Sunoco Retail LLC have administrative and support services agreements in place pursuant to which a subsidiary of Sunoco Inc. provided certain general and administrative services to Sunoco LLC and Sunoco Retail LLC during 2017. In addition, Sunoco LLC and Sunoco Retail LLC have a treasury services agreements for centralized cash management with Sunoco (R&M), LLC.
•
Philadelphia Energy Solutions Products Purchase Agreements – two related products purchase agreements, one with Philadelphia Energy Solutions Refining & Marketing (“PES”) and one with PES’s product financier Merrill Lynch Commodities; both purchase agreements contain 12 -month terms that automatically renew for consecutive 12 -month terms until either party cancels with notice. ETP Retail owns a noncontrolling interest in the parent of PES. PES Holdings, LLC (“PES Holdings”) and eight affiliates filed for Chapter 11 bankruptcy protection on January 21, 2018 in the United States Bankruptcy Court for the District of Delaware to implement a prepackaged reorganization plan that will allow its shareholders to retain a minority stake. PES Holdings’ Chapter 11 Plan (“Plan”) proposes to inject $260 million in new capital into PES Holdings, cut debt service obligations by about $35 million per year and remove debt maturities before 2022. Under that Plan, PES Holdings’ non-debtor parent, Philadelphia Energy Solutions, in which ETP holds an indirect 33% equity interest, will provide a $65 million cash contribution in in exchange for a 25% stake in the reorganized debtor. After the restructuring, the proportionate ownership of Carlyle Group, L.P. and ETP in PES Holdings will be 16.26% and 8.13%, respectively. Finally, Sunoco Logistics Partners Operations L.P. (“SXL Operating Partnership”), a subsidiary of ETP, is providing an additional $75

75


million exit loan ranked pari passu with the other debt. SXL Operating Partnership’s, PES Holdings’ and ETP’s current contracts will be assumed, without any impairments, in the Chapter 11, and business operations will continue uninterrupted. The financial reorganization is expected to complete in the first quarter of 2018.
•
ETP Transportation and Terminalling Contracts – various agreements with subsidiaries of ETP for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETP for the purchase and sale of fuel.
Financing Transactions with Affiliates
ETP provides credit support to certain of our suppliers under certain of our supply contracts.
Procedures for Review, Approval and Ratification of Transactions with Related Persons
For a discussion of director independence, see “Item 10. Directors, Executive Officers and Corporate Governance.”
As a policy matter, our Special Committee, comprised of our independent directors, generally reviews any proposed related-party transaction that may be material to the Partnership to determine whether the transaction is fair and reasonable to the Partnership. In determining materiality, our General Partner evaluates several factors including the terms of the transaction, the capital investment required, and the revenues expected from the transaction. While there are no written policies or procedures for the Board to follow in making these determinations, the Board makes those determinations in light of its contractually-limited fiduciary duties to the Partnership’s Unitholders. The Partnership Agreement provides that if the Board of Directors, through the Special Committee or otherwise, approves the resolution or course of action taken with respect to a conflict of interest, then it will be presumed that, in making its decision, the Board of Directors acted in good faith, and any proceeding brought by or on behalf of any limited partner or the Partnership, the person bringing or prosecuting such proceedings will have the burden of overcoming such presumption (see “Item 1A. Risk Factors - Risks Related to Conflicts of Interest” in this annual report).
Additionally, we have in place a Code of Business Conduct and Ethics that is applicable to all directors, officers and employees of the Partnership and its subsidiaries and affiliates, that requires the approval by designated executive officers prior to entering into any related party transaction that could present a potential conflict of interest.
Item 14.
Principal Accounting Fees and Services
Audit Fees
The following table presents fees for audit services rendered by Grant Thornton LLP (“Grant Thornton”) for the audit of our annual consolidated financial statements for 2017 and 2016 , and fees billed for services rendered by Grant Thornton during the corresponding periods (dollars in millions).
 
Fiscal 2017
 
Fiscal 2016
Audit Fees (1)
$
3.1

 
$
3.0

Audit-Related Fees (2)
—

 
0.2

Tax Fees
—

 
—

All Other Fees
—

 
—

Total
$
3.1

 
$
3.2

_______________________________
(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.
(2)
Included fees in 2016 for a prior year financial statement audit of a subsidiary in connection with a statutory requirement.
Policy for Approval of Audit and Non-Audit Services
Our audit committee charter requires that all services provided by our independent public accountants, both audit and non-audit, must be pre-approved by the audit committee. Pre-approval of audit and non-audit services may be given at any time up to a year before commencement of the specified service.
In determining whether to approve a particular audit or permitted non-audit service, the audit committee will consider, among other things, whether such service is consistent with maintaining the independence of the independent public accountants. The audit

76


committee will also consider whether the independent public accountants are best positioned to provide the most effective and efficient service to us and whether the service might be expected to enhance our ability to manage or control risk or improve audit quality.

77



ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Report :
(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 79 .

Item 16.
Form 10-K Summary
None.




78


EXHIBIT INDEX
Exhibit No.
 
Description
2.1

 
 
 
 
2.2

 
 
 
 
3.1

 
 
 
 
3.2

 
 
 
 
3.3

 
 
 
 
3.4

 
 
 
 
3.5

 
 
 
 
3.6

 
 
 
 
3.7

 
 
 
 
3.8

 
 
 
 
3.9

 
 
 
 
3.10

 
 
 
 
3.11

 
 
 
 
3.12

 
 
 
 
3.13

 
 
 
 
3.14

 
 
 
 
4.1

 
 
 
 
4.2

 
 
 
 
4.3

 
 
 
 
10.1

 
 
 
 
10.2

 
 
 
 

79


10.3

 
 
 
 
10.4

 
 
 
 
10.5

 
 
 
 
10.6

 
 
 
 
10.7

 
 
 
 
10.8

 
 
 
 
10.9

 
 
 
 
10.11

 
 
 
 
10.12

 
 
 
 
10.13

 
 
 
 
10.14

 
 
 
 
10.15

 
 
 
 
10.16

 
 
 
 
10.17

 
 
 
 
10.18

 
 
 
 
10.19

 
 
 
 
10.20

 
 
 
 
10.21

 
 
 
 
10.22

 
 
 
 
10.23

 
 
 
 
10.24

 
 
 
 

80


10.25

 
 
 
 
10.26

 
 
 
 
10.27

 
 
 
 
10.28

 
 
 
 
10.29

 
 
 
 
10.30

 
 
 
 
10.31

 
 
 
 
10.32

 
 
 
 
10.33

 

 
 
 
10.34

 
 
 
 
10.35

 
 
 
 
10.36

 
 
 
 
10.37

 
 
 
 
12.1

 
 
 
 
21.1

 
 
 
 
23.1

 
 
 
 
23.2

 
 
 
 
31.1

 
 
 
 
31.2

 
 
 
 
32.1

 
 
 
 
32.2

 
 
 
 
99.1

 
 
 
 
101.INS

 
XBRL Instance Document
 
 
 
101.SCH

 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL

 
XBRL Taxonomy Extension Calculation
 
 
 

81


101.DEF

 
XBRL Taxonomy Extension Definition
 
 
 
101.LAB

 
XBRL Taxonomy Extension Label Linkbase
 
 
 
101.PRE

 
XBRL Taxonomy Extension Presentation
 
*
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.

 

82


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Sunoco LP
By:
Sunoco GP LLC, its general partner
By:
/s/ Joseph Kim
 
Joseph Kim
 
President and Chief Executive Officer
 
(On behalf of the registrant, and in his capacity as principal executive officer)
 
 
Date:
February 23, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signature
 
Title
 
Date
 
 
 
 
 
/s/ Joseph Kim
 
Director, President and Chief Executive Officer
 
February 23, 2018
Joseph Kim
 
(Principal Executive Officer)
 
 
 
 
 
 
 
/s/ Thomas R. Miller
 
Chief Financial Officer
 
February 23, 2018
Thomas R. Miller
 
(Principal Financial Officer)
 
 
 
 
 
 
 
/s/ Leta G. McKinley
 
Vice President, Controller and Principal Accounting Officer
 
February 23, 2018
Leta G. McKinley
 
(Principal Accounting Officer)
 
 
 
 
 
 
 
/s/ Matthew S. Ramsey
 
Chairman of the Board
 
February 23, 2018
Matthew S. Ramsey
 
 
 
 
 
 
 
 
 
/s/ Thomas E. Long
 
Director
 
February 23, 2018
Thomas E. Long
 
 
 
 
 
 
 
 
 
/s/ James W. Bryant
 
Director
 
February 23, 2018
James W. Bryant
 
 
 
 
 
 
 
 
 
/s/ Christopher R. Curia
 
Director
 
February 23, 2018
Christopher R. Curia
 
 
 
 
 
 
 
 
 
/s/ K. Rick Turner
 
Director
 
February 23, 2018
K. Rick Turner
 
 
 
 
 
 
 
 
 
/s/ W. Brett Smith
 
Director
 
February 23, 2018
W. Brett Smith
 
 
 
 

83


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 


F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

Board of Directors of Sunoco GP LLC and
Unitholders of Sunoco LP
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Sunoco LP (a Delaware limited partnership) and subsidiaries (the “Partnership”) as of December 31, 2017 and 2016 , the related consolidated statements of operations and comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31, 2017 , and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and 2016 , and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 , in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Partnership’s internal control over financial reporting as of December 31, 2017 , based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 23, 2018 expressed an unqualified opinion thereon.
Basis for opinion
These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on the Partnership’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Partnership’s auditor since 2015.
Dallas, Texas
February 23, 2018





F-2


SUNOCO LP
CONSOLIDATED BALANCE SHEETS
 
December 31,
2017
 
December 31,
2016
 
(in millions, except units)
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
28

 
$
103

Accounts receivable, net
541

 
539

Receivables from affiliates
155

 
3

Inventories, net
426

 
423

Other current assets
81

 
73

Assets held for sale
3,313

 
177

Total current assets
4,544

 
1,318

Property and equipment, net
1,557

 
1,584

Other assets:
 
 
 
Goodwill
1,430

 
1,550

Intangible assets, net
768

 
775

Other noncurrent assets
45

 
63

Assets held for sale
—

 
3,411

Total assets
$
8,344

 
$
8,701

Liabilities and equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
559

 
$
616

Accounts payable to affiliates
206

 
109

Accrued expenses and other current liabilities
368

 
372

Current maturities of long-term debt
6

 
5

Liabilities associated with assets held for sale
75

 
—

Total current liabilities
1,214

 
1,102

Revolving line of credit
765

 
1,000

Long-term debt, net
3,519

 
3,509

Advances from affiliates
85

 
87

Deferred tax liability
389

 
643

Other noncurrent liabilities
125

 
116

Liabilities associated with assets held for sale
—

 
48

Total liabilities
6,097

 
6,505

Commitments and contingencies (Note 13)


 


Equity:
 
 
 
Limited partners:
 
 
 
Series A Preferred unitholders - affiliated
(12,000,000 units issued and outstanding as of December 31, 2017 and
no units issued and outstanding as of December 31, 2016)
300

 
—

Common unitholders
(99,667,999 units issued and outstanding as of December 31, 2017 and
98,181,046 units issued and outstanding as of December 31, 2016)
1,947

 
2,196

Class C unitholders - held by subsidiary
(16,410,780 units issued and outstanding as of December 31, 2017 and
December 31, 2016)
—

 
—

Total equity
2,247

 
2,196

Total liabilities and equity
$
8,344

 
$
8,701


The accompanying notes are an integral part of these consolidated financial statements.

F-3


SUNOCO LP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(dollars in millions, except unit and per unit amounts)
Revenues:
 

 
 

 
 
Retail motor fuel
$
1,577

 
$
1,338

 
$
1,540

Wholesale motor fuel sales to third parties
9,278

 
7,812

 
10,104

Wholesale motor fuel sales to affiliates
55

 
62

 
20

Merchandise
571

 
541

 
544

Rental income
89

 
88

 
81

Other
153

 
145

 
141

Total revenues
11,723

 
9,986

 
12,430

Cost of sales:
 
 
 
 
 
Retail motor fuel cost of sales
1,420

 
1,175

 
1,340

Wholesale motor fuel cost of sales
8,798

 
7,278

 
9,740

Merchandise cost of sales
386

 
363

 
365

Other
11

 
14

 
5

Total cost of sales
10,615

 
8,830

 
11,450

Gross profit
1,108

 
1,156

 
980

Operating expenses:
 
 
 
 
 
General and administrative
140

 
155

 
126

Other operating
375

 
374

 
372

Rent
81

 
81

 
79

Loss on disposal of assets and impairment charge
114

 
225

 
1

Depreciation, amortization and accretion
169

 
176

 
150

Total operating expenses
879

 
1,011

 
728

Operating income
229

 
145

 
252

Interest expense, net
209

 
161

 
67

Income (loss) from continuing operations before income taxes
20

 
(16
)
 
185

Income tax expense (benefit)
(306
)
 
(72
)
 
29

Income from continuing operations
326

 
56

 
156

Income (loss) from discontinued operations, net of income taxes
(177
)
 
(462
)
 
38

Net income (loss) and comprehensive income (loss)
149

 
(406
)
 
194

Less: Net income and comprehensive income attributable to noncontrolling interest
—

 
—

 
4

Less: Preacquisition income allocated to general partner
—

 
—

 
103

Net income (loss) and comprehensive income (loss) attributable to partners
$
149

 
$
(406
)
 
$
87





F-4


 
Year Ended December 31,
2017
 
Year Ended December 31,
2016
 
Year Ended December 31,
2015
 
(dollars in millions, except unit and per unit amounts)
Net income (loss) per limited partner unit - basic:
 
 
 
 
 
Continuing operations - common units
$
2.13

 
$
(0.32
)
 
$
0.91

Discontinued operations - common units
(1.78
)
 
(4.94
)
 
0.20

Net income (loss) - common units
$
0.35

 
$
(5.26
)
 
$
1.11

 
 
 
 
 
 
Continuing operations - subordinated units
$
—

 
$
—

 
$
1.17

Discontinued operations - subordinated units
—

 
—

 
0.23

Net income - subordinated units
$
—

 
$
—

 
$
1.40

 
 
 
 
 
 
Net income (loss) per limited partner unit - diluted:
 
 
 
 
 
Continuing operations - common units
$
2.12

 
$
(0.32
)
 
$
0.91

Discontinued operations - common units
(1.78
)
 
(4.94
)
 
0.20

Net income (loss) - common units
$
0.34

 
$
(5.26
)
 
$
1.11

 
 
 
 
 
 
Continuing operations - subordinated units
$
—

 
$
—

 
$
1.17

Discontinued operations - subordinated units
—

 
—

 
0.23

Net income - subordinated units
$
—

 
$
—

 
$
1.40

 
 
 
 
 
 
Weighted average limited partner units outstanding:
 
 
 
 
 
Common units - basic
99,270,120

 
93,575,530

 
40,253,913

Common units - diluted
99,728,354

 
93,603,835

 
40,275,651

Subordinated units - affiliated (basic and diluted)
—

 
—

 
10,010,333

 
 
 
 
 
 
Cash distribution per unit
$
3.30

 
$
3.29

 
$
2.89


The accompanying notes are an integral part of these consolidated financial statements.

F-5


SUNOCO LP
CONSOLIDATED STATEMENTS OF EQUITY
(in millions)
 
Preferred Units - Affiliated
 
Common Units
 
Subordinated Units - Affiliated
 
Predecessor
Equity
 
Noncontrolling Interest
 
Total Equity
Balance at December 31, 2014
$
—

 
$
902

 
$
—

 
$
5,112

 
$
(6
)
 
$
6,008

Contribution of Sunoco LLC from ETP
—

 
—

 
—

 
(775
)
 
—

 
(775
)
Contribution of Susser from ETP
—

 
—

 
—

 
(967
)
 
—

 
(967
)
Contribution of assets between entities under common control above historic cost
—

 
1

 
60

 
(1,069
)
 
—

 
(1,008
)
Cancellation of promissory note with ETP
—

 
255

 
—

 
—

 
—

 
255

Cash distribution to ETP
—

 
(25
)
 
—

 
(179
)
 
—

 
(204
)
Cash distribution to unitholders
—

 
(112
)
 
(8
)
 
—

 
—

 
(120
)
Equity issued to ETP
—

 
1,008

 
—

 
—

 
—

 
1,008

Public equity offering, net
—

 
899

 
—

 
—

 
—

 
899

Subordinated unit conversion
—

 
60

 
(60
)
 
—

 
—

 
—

Unit-based compensation
—

 
8

 
—

 
—

 
—

 
8

Other
—

 
(30
)
 
—

 
(7
)
 
2

 
(35
)
Partnership net income
—

 
79

 
8

 
103

 
4

 
194

Balance at December 31, 2015
—

 
3,045

 
—

 
2,218

 
—

 
5,263

Contribution of Sunoco Retail & Sunoco LLC from ETP
—

 
—

 
—

 
(2,200
)
 
—

 
(2,200
)
Equity issued to ETP
—

 
194

 
—

 
—

 
—

 
194

Equity issued to ETE, net of issuance costs
—

 
61

 
—

 
—

 
—

 
61

Equity issued under ATM, net
—

 
71

 
—

 
—

 
—

 
71

Contribution of assets between entities under common control above historic cost
—

 
(374
)
 
—

 
(18
)
 
—

 
(392
)
Cash distribution to unitholders
—

 
(386
)
 
—

 
—

 
—

 
(386
)
Cash distribution to ETP
—

 
(50
)
 
—

 
—

 
—

 
(50
)
Unit-based compensation
—

 
13

 
—

 
—

 
—

 
13

Other
—

 
28

 
—

 
—

 
—

 
28

Partnership net loss
—

 
(406
)
 
—

 
—

 
—

 
(406
)
Balance at December 31, 2016
—

 
2,196

 
—

 
—

 
—

 
2,196

Equity issued under ATM, net
—

 
33

 
—

 
—

 
—

 
33

Equity issued to ETE
300

 
—

 
—

 
—

 
—

 
300

Cash distribution to unitholders
—

 
(420
)
 
—

 
—

 
—

 
(420
)
Distribution to preferred units
(23
)
 
—

 
—

 
—

 
—

 
(23
)
Unit-based compensation
—

 
24

 
—

 
—

 
—

 
24

Other
—

 
(12
)
 
—

 
—

 
—

 
(12
)
Partnership net income
23

 
126

 
—

 
—

 
—

 
149

Balance at December 31, 2017
$
300

 
$
1,947

 
$
—

 
$
—

 
$
—

 
$
2,247


The accompanying notes are an integral part of these consolidated financial statements.

F-6


SUNOCO LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
 
Year Ended December 31,
 
2017
 
2016
 
2015
Cash flows from operating activities:
 

 
 

 
 

Net income (loss)
$
149

 
$
(406
)
 
$
194

Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
 
 
 
 
 
(Income) loss from discontinued operations
177

 
462

 
(38
)
Depreciation, amortization and accretion
169

 
176

 
150

Amortization of deferred financing fees
15

 
11

 
4

Loss on disposal of assets and impairment charge
114

 
225

 
1

Non-cash unit based compensation expense
24

 
13

 
8

Deferred income tax
(308
)
 
(8
)
 
31

Inventory valuation adjustment
(24
)
 
(97
)
 
78

Changes in operating assets and liabilities, net of acquisitions:
 
 
 
 
 
Accounts receivable
(1
)
 
(215
)
 
(4
)
Accounts receivable from affiliates
(131
)
 
5

 
(11
)
Inventories
21

 
18

 
(50
)
Other assets
7

 
(62
)
 
23

Accounts payable
(44
)
 
221

 
19

Accounts payable to affiliates
97

 
94

 
(42
)
Accrued liabilities
(16
)
 
56

 
(33
)
Other noncurrent liabilities
54

 
(27
)
 
19

Net cash provided by continuing operating activities
303

 
466

 
349

Cash flows from investing activities:
 
 
 
 
 
Capital expenditures
(103
)
 
(119
)
 
(178
)
Purchase of intangible assets
(39
)
 
(50
)
 
(61
)
Acquisition of Sunoco LLC
—

 
—

 
(775
)
Acquisition from Alta East
—

 
—

 
(57
)
Acquisition of VIE assets
—

 
—

 
(54
)
Acquisition of Emerge fuels business, net of cash acquired
—

 
(171
)
 
—

Other acquisitions
—

 
—

 
(8
)
Proceeds from disposal of property and equipment
10

 
9

 
4

Net cash used in investing activities
(132
)
 
(331
)
 
(1,129
)
Cash flows from financing activities:
 
 
 
 
 
Proceeds from issuance of long-term debt
—

 
2,835

 
1,400

Payments on long-term debt
(5
)
 
(808
)
 
(242
)
Revolver borrowings
2,653

 
2,811

 
1,471

Revolver repayments
(2,888
)
 
(2,261
)
 
(1,449
)
Loan origination costs
—

 
(30
)
 
(22
)
Advances from affiliates
3

 
255

 
221

Equity issued to ETE, net of issuance costs
300

 
61

 
—

Proceeds from issuance of common units, net of offering costs
33

 
71

 
899

Distributions to ETP
—

 
(50
)
 
(204
)
Other cash from financing activities, net
(4
)
 
3

 
(1
)
Distributions to unitholders
(431
)
 
(386
)
 
(120
)
Net cash provided by (used in) financing activities
(339
)
 
2,501

 
1,953

Cash flows from discontinued operations:
 
 
 
 
 
Operating activities
136

 
93

 
90

Investing activities
(38
)
 
(2,683
)
 
(1,327
)
Changes in cash included in current assets held for sale
(5
)
 
5

 
(13
)
Net increase (decrease) in cash and cash equivalents of discontinued operations
93

 
(2,585
)
 
(1,250
)
Net increase (decrease) in cash
(75
)
 
51

 
(77
)
Cash and cash equivalents at beginning of period
103

 
52

 
129

Cash and cash equivalents at end of period
$
28

 
$
103

 
$
52

 
Year Ended December 31,
 
2017
 
2016
 
2015
 
(in millions)
Supplemental disclosure of non-cash investing activities:
 
 
 
 
 
Non-cash distribution
$
—

 
$
—

 
$
(7
)
 
 
 
 
 
 
Supplemental disclosure of non-cash financing activities:
 
 
 
 
 
Cancellation of promissory note with ETP
$
—

 
$
—

 
$
255

Equity issued to ETP and ETE
$
—

 
$
255

 
$
1,008

 
 
 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
 
 
Interest paid
$
209

 
$
167

 
$
60

Income taxes paid (refunded), net
$
(1
)
 
$
(30
)
 
$
51


  The accompanying notes are an integral part of these consolidated financial statements.



F-7


SUNOCO LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Organization and Principles of Consolidation
The Partnership was formed in June 2012 by Susser Holdings Corporation (“Susser”) and its wholly owned subsidiary, Sunoco GP LLC (formerly known as Susser Petroleum Partners GP LLC), our general partner (“General Partner”). On September 25, 2012, we completed our initial public offering (“IPO”) of 10,925,000 common units representing limited partner interests.
On April 27, 2014, Susser entered into an Agreement and Plan of Merger with Energy Transfer Partners, L.P. (“ETP”) and certain other related entities, under which ETP acquired the outstanding common shares of Susser (the “ETP Merger”). The ETP Merger was completed on August 29, 2014. By acquiring Susser, ETP acquired 100% of the non-economic general partner interest and incentive distribution rights (“IDRs”) in the Partnership, which have subsequently been distributed to Energy Transfer Equity, L.P. (“ETE”).
Effective October 27, 2014, the Partnership changed its name from Susser Petroleum Partners LP (NYSE: SUSP) to Sunoco LP (“SUN,” NYSE: SUN). This change aligned the Partnership’s legal and marketing name with that of ETP’s iconic brand, Sunoco. As used in this document, the terms “Partnership,” “SUN,” “we,” “us,” and “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.
The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, our majority-owned subsidiaries, and the variable interest entities (“VIE”s) in which we were the primary beneficiary (through December 23, 2015). We distribute motor fuels across more than 30 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. We also operate convenience retail stores across more than 20 states, primarily in Texas, Pennsylvania, New York, Virginia, Florida, and Hawaii.
On October 1, 2014, we acquired 100% of the membership interest of Mid-Atlantic Convenience Stores, LLC (“MACS”). On April 1, 2015, we acquired a 31.58% membership interest and 50.1% voting interest in Sunoco, LLC (“Sunoco LLC”). On July 31, 2015, we acquired 100% of the issued and outstanding shares of capital stock of Susser. Finally, on March 31, 2016 (effective January 1, 2016), we acquired the remaining 68.42% membership interest and 49.9% voting interest in Sunoco LLC as well as 100% of the membership interest in Sunoco Retail LLC (“Sunoco Retail”).
Results of operations for the MACS, Sunoco LLC, Susser, and Sunoco Retail acquisitions, deemed transactions between entities under common control, have been included in our consolidated results of operations since September 1, 2014, the date of common control. See Note 3 for further information.
On April 6, 2017, certain subsidiaries of the Partnership (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “Purchase Agreement”) with 7-Eleven, Inc., a Texas corporation (“7-Eleven”) and SEI Fuel Services, Inc., a Texas corporation and wholly-owned subsidiary of 7-Eleven (“SEI Fuel,” and, together with 7-Eleven, referred to herein collectively as “Buyers”). On January 23, 2018, we completed the disposition of assets pursuant to the Amended and Restated Asset Purchase Agreement entered by and among Sellers, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the Purchase Agreement. On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and sell 97 real estate assets located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The results of these operations (collectively, the “Retail Divestment”) have been reported as discontinued operations for all periods presented in the consolidated financial statements. See Note 4 for more information related to the Purchase Agreement, the optimization plan, and the discontinued operations. All other footnotes present results of the continuing operations.
We have signed definitive agreements with a commission agent to operate the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets, which were not included in the previously announced transaction with 7-Eleven, Inc. Conversion of these sites to the commission agent is expected to occur in the first quarter of 2018. The Partnership determined that these sites no longer meet the accounting requirements to be classified as held for sale or reported as discontinued operations and are no longer considered part of the Retail Divestment.
Our primary operations are conducted by the following consolidated subsidiaries:
Wholesale Subsidiaries
•
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 and the Greater Dallas, Texas metroplex.

F-8


•
Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
Retail Subsidiaries (Also See Note 4)
•
Susser Petroleum Property Company LLC (“PropCo”), a Delaware limited liability company, primarily owns and leases convenience store properties.
•
Susser, a Delaware corporation, sells motor fuel and merchandise in Texas, New Mexico, and Oklahoma through Stripes-branded convenience stores.
•
Sunoco Retail, a Pennsylvania limited liability company, owns and operates convenience stores that sell motor fuel and merchandise primarily in Pennsylvania, New York, and Florida.
•
MACS Retail LLC, a Virginia limited liability company, owns and operates convenience stores, in Virginia, Maryland, and Tennessee.
•
Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates convenience stores on the Hawaiian Islands.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no impact on gross margin, income from operations, net income and comprehensive income, or the balance sheets or statements of cash flows.
2.
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value Measurements
The Partnership uses fair value measurements to measure, among other items, purchased assets and investments, leases, and derivative contracts. Fair value measurements are also used to assess impairment of properties, equipment, intangible assets, and goodwill.
Where available, fair value is based on observable market prices or parameters, or is derived from such prices or parameters. Where observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.
Segment Reporting
We operate our business in two primary operating segments, wholesale and retail, both of which are included as reportable segments. Our retail segment operates convenience stores selling a variety of merchandise, food items, services, and motor fuel. Our wholesale segment sells motor fuel to our retail segment and external customers.
Acquisition Accounting
Acquisitions of assets or entities that include inputs and processes and have the ability to create outputs are accounted for as business combinations. A purchase price is recorded for tangible and intangible assets acquired and liabilities assumed based on their fair value. The excess of fair value of consideration conveyed over fair value of net assets acquired is recorded as goodwill. The Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods presented include the results of operations for each acquisition from their respective dates of acquisition.
Acquisitions of entities under common control are accounted for similar to a pooling of interests, in which the acquired assets and assumed liabilities are recognized at their historic carrying values. The results of operations of affiliated businesses acquired are reflected in the Partnership’s consolidated results of operations beginning on the date of common control.

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Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits, and short-term investments with original maturities of three months or less.
Sunoco LLC and Sunoco Retail have treasury services agreements with Sunoco (R&M), LLC, an indirect wholly-owned subsidiary of ETP. Pursuant to these agreements, Sunoco LLC and Sunoco Retail participate in Sunoco (R&M), LLC’s centralized cash management program. Under this program, all cash receipts and cash disbursements are processed, together with those of Sunoco (R&M), LLC, through Sunoco (R&M), LLC’s cash accounts with a corresponding credit or charge to the advances to/from affiliates account. The net balance of Sunoco LLC and Sunoco Retail is reflected in either “Advances to affiliates” or “Advances from affiliates” on the Consolidated Balance Sheets.
Accounts Receivable
The majority of trade receivables are from wholesale fuel customers or from credit card companies related to retail credit card transactions. Wholesale customer credit is extended based on an evaluation of the customer’s financial condition. Receivables are recorded at face value, without interest or discount. The Partnership provides an allowance for doubtful accounts based on historical experience and on a specific identification basis. Credit losses are recorded against the allowance when accounts are deemed uncollectible.
Receivables from affiliates rise from increased fuel sales and other miscellaneous transactions with non-consolidated affiliates. These receivables are recorded at face value, without interest or discount.
Inventories
Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. Under this methodology, the cost of fuel sold consists of actual acquisition costs, which includes transportation and storage costs. Such costs are adjusted to reflect increases or decreases in inventory quantities which are valued based on changes in LIFO inventory layers.
Merchandise inventories are stated at the lower of average cost, as determined by the retail inventory method, or market. We record an allowance for shortages and obsolescence relating to merchandise inventory based on historical trends and any known changes. Shipping and handling costs are included in the cost of merchandise inventories.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were $24 million , $22 million and $22 million for the years ended December 31, 2017 , 2016 , and 2015 , respectively.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed on a straight-line basis over the useful lives of assets, estimated to be forty years for buildings, three to fifteen years for equipment and thirty years for storage tanks. Assets under capital leases are depreciated over the life of the corresponding lease.
Amortization of leasehold improvements is based upon the shorter of the remaining terms of the leases including renewal periods that are reasonably assured, or the estimated useful lives, which approximate twenty years . Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Maintenance and repairs are charged to operations as incurred. Gains or losses on the disposition of property and equipment are recorded in the period incurred.
Long-Lived Assets and Assets Held for Sale
Long-lived assets are tested for possible impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. If such indicators exist, the estimated undiscounted future cash flows related to the asset are compared to the carrying value of the asset. If the carrying value is greater than the estimated undiscounted future cash flow amount, an impairment charge is recorded within loss (gain) on disposal of assets and impairment charge in the Consolidated Statements of Operations and Comprehensive Income (Loss) for amounts necessary to reduce the corresponding carrying value of the asset to fair value. The impairment loss calculations require management to apply judgment in estimating future cash flows and discount rates that reflect the risk inherent in future cash flows.
Properties that have been closed and other excess real property are recorded as assets held and used, and are written down to the lower of cost or estimated net realizable value at the time we close such stores or determine that these properties are in excess and intend to offer them for sale. We estimate the net realizable value based on our experience in utilizing or disposing of similar assets and on

F-10


estimates provided by our own and third-party real estate experts. Although we have not experienced significant changes in our estimate of net realizable value, changes in real estate markets could significantly impact the net values realized from the sale of assets. When we have determined that an asset is more likely than not to be sold in the next twelve months, that asset is classified as assets held for sale and included in other current assets. As of December 31, 2017 and 2016 , we had $3.3 billion and $3.6 billion classified as assets held for sale, respectively.
Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of consideration paid over fair value of net assets acquired. Goodwill and intangible assets acquired in a purchase business combination are recorded at fair value as of the date acquired. Acquired intangible assets determined to have an indefinite useful life are not amortized, but are instead tested for impairment at least annually, or more frequently if events and circumstances indicate that the asset might be impaired. The annual impairment test of goodwill and indefinite lived intangible assets is performed as of the first day of the fourth quarter of each fiscal year.
The Partnership uses qualitative factors to determine whether it is more likely than not (likelihood of more than 50%) that the fair value of a reporting unit exceeds its carrying amount, including goodwill. Some of the qualitative factors considered in applying this test include consideration of macroeconomic conditions, industry and market conditions, cost factors affecting the business, overall financial performance of the business, and performance of the unit price of the Partnership.
If qualitative factors are not deemed sufficient to conclude that the fair value of the reporting unit more likely than not exceeds its carrying value, then a one-step approach is applied in making an evaluation. The evaluation utilizes multiple valuation methodologies, including a market approach (market price multiples of comparable companies) and an income approach (discounted cash flow analysis). The computations require management to make significant estimates and assumptions, including, among other things, selection of comparable publicly traded companies, the discount rate applied to future earnings reflecting a weighted average cost of capital, and earnings growth assumptions. A discounted cash flow analysis requires management to make various assumptions about future sales, operating margins, capital expenditures, working capital, and growth rates. If the evaluation results in the fair value of the goodwill for the reporting unit being lower than the carrying value, an impairment charge is recorded.
Indefinite-lived intangible assets are composed of certain tradenames, contractual rights, and liquor licenses which are not amortized but are evaluated for impairment annually or more frequently if events or changes occur that suggest an impairment in carrying value, such as a significant adverse change in the business climate. Indefinite-lived intangible assets are evaluated for impairment by comparing each asset's fair value to its book value. Management first determines qualitatively whether it is more likely than not that an indefinite-lived asset is impaired. If management concludes that it is more likely than not that an indefinite-lived asset is impaired, then its fair value is determined by using the discounted cash flow model based on future revenues estimated to be derived in the use of the asset.
Other Intangible Assets
Other finite-lived intangible assets consist of supply agreements, customer relations, favorable lease arrangements, non-competes, and loan origination costs. Separable intangible assets that are not determined to have an indefinite life are amortized over their useful lives and assessed for impairment only if and when circumstances warrant. Determination of an intangible asset's fair value and estimated useful life are based on an analysis of pertinent factors including (1) the use of widely-accepted valuation approaches, such as the income approach or the cost approach, (2) the expected use of the asset by the Partnership, (3) the expected useful life of related assets, (4) any legal, regulatory or contractual provisions, including renewal or extension period that would cause substantial costs or modifications to existing agreements, and (5) the effects of obsolescence, demand, competition, and other economic factors. Should any of the underlying assumptions indicate that the value of the intangible assets might be impaired, we may be required to reduce the carrying value and remaining useful life of the asset. If the underlying assumptions governing the amortization of an intangible asset were later determined to have significantly changed, we may be required to adjust its amortization period to reflect a new estimate of its useful life. Any write-down of the value or unfavorable change in the useful life of an intangible asset would increase expense at that time.
Customer relations and supply agreements are amortized on a straight-line basis over the remaining terms of the agreements, which generally range from five to twenty years . Favorable lease arrangements are amortized on a straight-line basis over the remaining lease terms. Non-competition agreements are amortized over the terms of the respective agreements, and loan origination costs are amortized over the life of the underlying debt as an increase to interest expense.

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Asset Retirement Obligations
The estimated future cost to remove an underground storage tank is recognized over the estimated useful life of the storage tank. We record a discounted liability for the future fair value of an asset retirement obligation along with a corresponding increase to the carrying value of the related long-lived asset at the time an underground storage tank is installed. We then depreciate the amount added to property and equipment and recognize accretion expense in connection with the discounted liability over the remaining life of the tank. We base our estimates of the anticipated future costs for tank removal on our prior experience with removals. We review assumptions for computing the estimated liability for tank removal on an annual basis. Any change in estimated cash flows are reflected as an adjustment to both the liability and the associated asset.
Environmental Liabilities
Environmental expenditures related to existing conditions, resulting from past or current operations, and from which no current or future benefit is discernible, are expensed. Expenditures that extend the life of the related property or prevent future environmental contamination are capitalized. We determine and establish a liability on a site-by-site basis when it is probable and can be reasonably estimated. A related receivable is recorded for estimable and probable reimbursements.
Revenue Recognition
Revenues from our two primary product categories, motor fuel and merchandise, are recognized either at the time fuel is delivered to the customer or at the time of sale. Shipment and delivery of motor fuel generally occurs on the same day. The Partnership charges wholesale customers for third-party transportation costs, which are recorded net in cost of sales. Through PropCo, our wholly-owned corporate subsidiary, we may sell motor fuel to customers on a commission agent basis, in which we retain title to inventory, control access to and sale of fuel inventory, and recognize revenue at the time the fuel is sold to the ultimate customer. In our wholesale segment, we derive other income from rental income, propane and lubricating oils, and other ancillary product and service offerings. In our retail segment, we derive other income from lottery ticket sales, money orders, prepaid phone cards and wireless services, ATM transactions, car washes, movie rentals, and other ancillary product and service offerings. We record revenue from other retail transactions on a net commission basis when a product is sold and/or services are rendered.
Rental Income
Rental income from operating leases is recognized on a straight line basis over the term of the lease.
Cost of Sales
We include in cost of sales all costs incurred to acquire fuel and merchandise, including the costs of purchasing, storing, and transporting inventory prior to delivery to our customers. Items are removed from inventory and are included in cost of sales based on the retail inventory method for merchandise and the LIFO method for motor fuel. Cost of sales does not include depreciation of property, plant, and equipment as amounts attributed to cost of sales would not be significant. Depreciation is classified within operating expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Motor Fuel and Sales Taxes
Certain motor fuel and sales taxes are collected from customers and remitted to governmental agencies either directly by the Partnership or through suppliers. The Partnership’s accounting policy for wholesale direct sales to dealers, distributors and commercial customers is to exclude the collected motor fuel tax from sales and cost of sales.
For retail locations where the Partnership holds inventory, including commission agent locations, motor fuel sales and motor fuel cost of sales include motor fuel taxes. Such amounts were $234 million , $243 million and $231 million , for the years ended December 31, 2017 , 2016 and 2015 , respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the Consolidated Statements of Operations and Comprehensive Income (Loss).
Deferred Branding Incentives
We receive payments for branding incentives related to fuel supply contracts. Unearned branding incentives are deferred and amortized on a straight line basis over the term of the agreement as a credit to cost of sales.

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Lease Accounting
The Partnership leases a portion of its properties under non-cancelable operating leases, whose initial terms are typically five to fifteen years, with options permitting renewal for additional periods. Minimum rent is expensed on a straight-line basis over the term of the lease, including renewal periods that are reasonably assured at the inception of the lease. The Partnership is typically responsible for payment of real estate taxes, maintenance expenses, and insurance. The Partnership also leases certain vehicles, and such leases are typically less than five years .
Fair Value of Financial Instruments
Cash, accounts receivable, certain other current assets, marketable securities, accounts payable, accrued expenses, and certain other current liabilities are reflected in the Consolidated Balance Sheets at fair value.
Earnings Per Unit
In addition to limited partner units, we have identified IDRs as participating securities and compute income per unit using the two-class method under which any excess of distributions declared over net income shall be allocated to the partners based on their respective sharing of income specified in the Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”). Net income per unit applicable to limited partners (including common and subordinated unitholders) is computed by dividing limited partners’ interest in net income, after deducting any incentive distributions, distributions on Series A Preferred Units and nonvested phantom unit awards, by the weighted-average number of outstanding limited partner units.
Stock and Unit-based Compensation
In connection with our IPO, our General Partner adopted the Susser Petroleum Partners LP 2012 Long-Term Incentive Plan (the “LTIP Plan,” or “Sunoco LP Plan”), under which various types of awards may be granted to employees, consultants, and directors of our General Partner who provide services for us. Compensation expense related to outstanding awards is recognized over the vesting period based on the grant-date fair value. The grant-date fair value is determined based on the market price of our common units on the grant date. We amortize the grant-date fair value of these awards over their vesting period using the straight-line method. Expenses related to unit-based compensation are included in general and administrative expenses.
Income Taxes
The Partnership is a publicly traded limited partnership and is not taxable for federal and most state income tax purposes. As a result, our earnings or losses, to the extent not included in a taxable subsidiary, for federal and most state purposes are included in the tax returns of the individual partners. Net earnings for financial statement purposes may differ significantly from taxable income reportable to Unitholders as a result of differences between the tax basis and financial basis of assets and liabilities, differences between the tax accounting and financial accounting treatment of certain items, and due to allocation requirements related to taxable income under our Partnership Agreement.
As a publicly traded limited partnership, we are subject to a statutory requirement that our “qualifying income” (as defined by the Internal Revenue Code, related Treasury Regulations, and IRS pronouncements) exceed 90% of our total gross income, determined on a calendar year basis. If our qualifying income were not to meet this statutory requirement, the Partnership would be taxed as a corporation for federal and state income tax purposes. For the years ended December 31, 2017 , 2016 , and 2015 , our qualifying income met the statutory requirement.
The Partnership conducts certain activities through corporate subsidiaries which are subject to federal, state and local income taxes. These corporate subsidiaries include PropCo, Susser, and Aloha. The Partnership and its corporate subsidiaries account for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in our financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing

F-13


authorities. When facts and circumstances change, we reassess these probabilities and record any changes through the provision for income taxes.
In November 2015, new federal partnership audit procedures were signed into law which are effective for tax years beginning after December 31, 2017. Under the new procedures, a partnership would be responsible for paying the imputed underpayment of tax resulting from audit adjustments in the adjustment year even though partnerships are “pass through entities.” However, as an alternative to paying the imputed underpayment of tax at the partnership level, a partnership may elect to provide audit adjustment information to the reviewed year partners, whom in turn would be responsible for paying the imputed underpayment of tax in the adjustment year. The Partnership is currently evaluating the impact, if any, this legislation has on our income taxes policies.
Recently Issued Accounting Pronouncements
FASB ASU No. 2014-09. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
In August 2015, the FASB deferred the effective date of ASU 2014-09, which is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method). The Partnership will adopt ASU 2014-09 in the first quarter of 2018 and will apply the cumulative catch-up transition method.
We have completed a detailed review of revenue contracts representative of our business segments and their revenue streams as of the adoption date; however, we continue to evaluate contract modifications and new contracts that have been or will be entered in the first quarter of 2018. As a result of the evaluation performed, we have determined that the timing and/or amount of revenue that we recognize on certain contracts will be impacted by the adoption of the new standard. We currently estimate the cumulative catch-up effect to Sunoco LP’s partners’ capital as of January 1, 2018 to be approximately $54 million. These adjustments are primarily related to the change in recognition of dealer incentives and rebates.
In addition to the evaluation performed, we have made appropriate design and implementation updates to our business processes, systems and internal controls to support recognition and disclosure under the new standard. We continue to monitor additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing our conclusions on specific interpretative issues to other peers in our industry, to the extent that such information is available to us.
FASB ASU No. 2016-02. In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “ Leases (Topic 842) ” which amends the FASB Accounting Standards Codification and creates Topic 842, Leases. This Topic requires Balance Sheet recognition of lease assets and lease liabilities for leases classified as operating leases under previous GAAP, excluding short-term leases of 12 months or less. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. In January 2018, the FASB proposed amending the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. We are currently evaluating the effect that the updated standard will have on our consolidated balance sheets and related disclosures.
We are in the process of evaluating our lease contracts to determine the potential impact of adopting the new standards. At this point in our evaluation process, we have determined that the timing and/or amount of lease assets and lease liabilities that we recognize on certain contracts will be impacted by the adoption of the new standard; however, we are still in the process of quantifying these impact. In addition, we are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard. We continue to monitor additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing our conclusions on specific interpretative issues to other peers in our industry, to the extent that such information is available to us.
FASB ASU No. 2016-15. In August 2016, the FASB issued ASU No. 2016-15 “ Statement of Cash Flows (Topic 230) ” which institutes a number of modifications to presentation and classification of certain cash receipts and cash payments in the statement of cash flows. These modifications include (a) debt prepayment or debt extinguishment costs, (b) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (c) contingent consideration payments made after a business combination, (d) proceeds received from the settlement of insurance claims, (e) proceeds from the settlement of corporate-owned life insurance policies, (f) distributions received from equity method investees, (g) beneficial interest obtained in a securitization of financial assets, (h) separately identifiable cash flows and application of the predominance principle. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after

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December 15, 2017, with early adoption permitted. We are currently evaluating the effect that the updated standard will have on our consolidated statements of cash flows and related disclosures.
FASB ASU No. 2016-16. In October 2016, the FASB issued ASU No. 2016-16 “Income Taxes (Topic 740): Intra-entity Transfers of Assets Other Than Inventory ” (“ASU 2016-16”), which requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update do not change GAAP for the pre-tax effects of an intra-entity asset transfer under Topic 810, Consolidation, or for an intra-entity transfer of inventory. ASU 2016-16 is effective for fiscal years beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The Partnership is currently evaluating the impact that adoption of this standard will have on the consolidated financial statements and related disclosures.
FASB ASU No. 2017-04. In January 2017, the FASB issued ASU No. 2017-04 “ Intangibles-Goodwill and other (Topic 350): Simplifying the test for goodwill impairment. ” The amendments in this update remove the second step of the two-step test currently required by Topic 350. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit's carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Partnership adopted this ASU on April 1, 2017. This accounting guidance was utilized in the goodwill impairment tests performed during fiscal year 2017, which are discussed in Note 4 and Note 8.
3.
Acquisitions
Sunoco LLC and Sunoco Retail LLC Acquisitions
On April 1, 2015, we acquired a 31.58% membership interest and 50.1% voting interest in Sunoco LLC from ETP Retail Holdings, LLC (“ETP Retail”), an indirect wholly-owned subsidiary of ETP, for total consideration of $775 million in cash (the “Sunoco Cash Consideration”) and 795,482 common units representing limited partner interests in the Partnership, pursuant to a Contribution Agreement dated March 23, 2015, among the Partnership, ETP Retail and ETP (the “Sunoco LLC Contribution Agreement”). The Sunoco Cash Consideration was financed through issuance by the Partnership and its wholly owned subsidiary, Sunoco Finance Corp. (“SUN Finance”), of 6.375% Senior Notes due 2023 on April 1, 2015. The common units issued to ETP Retail were issued and sold in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). Pursuant to the terms of the Sunoco LLC Contribution Agreement, ETP guaranteed all of the obligations of ETP Retail.
On November 15, 2015, we entered into a Contribution Agreement (the “ETP Dropdown Contribution Agreement”) with Sunoco LLC, Sunoco, Inc., ETP Retail, our General Partner and ETP. Pursuant to the terms of the ETP Dropdown Contribution Agreement, we agreed to acquire from ETP Retail, effective January 1, 2016, (a) 100% of the issued and outstanding membership interests of Sunoco Retail, an entity that was formed by Sunoco, Inc. (R&M), an indirect wholly owned subsidiary of Sunoco, Inc., prior to the closing of the ETP Dropdown Contribution Agreement, and (b) 68.42% of the issued and outstanding membership interests of Sunoco LLC (the “ETP Dropdown”). Pursuant to the terms of the ETP Dropdown Contribution Agreement, ETP agreed to guarantee all of the obligations of ETP Retail.
Immediately prior to the closing of the ETP Dropdown, Sunoco Retail owned all of the retail assets previously owned by Sunoco, Inc. (R&M), an ethanol plant located in Fulton, NY, 100% of the issued and outstanding membership interests in Sunmarks, LLC, and all the retail assets previously owned by Atlantic Refining & Marketing Corp., a wholly owned subsidiary of Sunoco, Inc.
Subject to the terms and conditions of the ETP Dropdown Contribution Agreement, at the closing of the ETP Dropdown, we paid to ETP Retail $2.2 billion in cash on March 31, 2016, which included working capital adjustments, and issued to ETP Retail 5,710,922 common units representing limited partner interests in the Partnership (the “ETP Dropdown Unit Consideration”). The ETP Dropdown was funded with borrowings under a term loan agreement. The ETP Dropdown Unit Consideration was issued in a private transaction exempt from registration under Section 4(a)(2) of the Securities Act.
The acquisitions of Sunoco LLC and Sunoco Retail were accounted for as transactions between entities under common control. Specifically, the Partnership recognized the acquired assets and assumed liabilities at their respective carrying values with no goodwill created. The Partnership’s results of operations include Sunoco LLC’s and Sunoco Retail’s results of operations beginning September 1, 2014, the date of common control. As a result, the Partnership retrospectively adjusted its financial statements to include the balances and operations of Sunoco LLC and Sunoco Retail from August 31, 2014. Accordingly, the Partnership retrospectively adjusted its consolidated statement of operations and comprehensive income to include $2.4 billion of Sunoco LLC revenues and $25 million of net income for the three months ended March 31, 2015, $1.5 billion of Sunoco Retail revenues and $11 million of net income for the twelve months ended December 31, 2015 as well as $5.5 billion of Sunoco LLC and Sunoco Retail revenues and $73 million of net loss

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for the period from September 1, 2014 through December 31, 2014. The equity of Sunoco LLC and Sunoco Retail prior to the respective acquisitions is presented as predecessor equity in our consolidated financial statements.
Susser Acquisition
On July 31, 2015, we acquired 100% of the issued and outstanding shares of capital stock of Susser from Heritage Holdings, Inc., a wholly owned subsidiary of ETP (“HHI”), and ETP Holdco Corporation, a wholly owned subsidiary of ETP (“ETP Holdco” and together with HHI, the “Contributors”), for total consideration of approximately $967 million in cash (the “Susser Cash Consideration”), subject to certain post-closing working capital adjustments, and issued to the Contributors 21,978,980 Class B Units representing limited partner interests of the Partnership (“Class B Units”) (the “Susser Acquisition”). The Class B Units were identical to the common units in all respects, except such Class B Units were not entitled to distributions payable with respect to the second quarter of 2015. The Class B Units converted, on a one -for-one basis, into common units on August 19, 2015.
Pursuant to the terms of the Contribution Agreement dated as of July 14, 2015 among Susser, HHI, ETP Holdco, our General Partner, and ETP (the “Susser Contribution Agreement”), (i) Susser caused its wholly owned subsidiary to exchange its 79,308 common units for 79,308 Class A Units representing limited partner interests in the Partnership (“Class A Units”) and (ii) the 10,939,436 subordinated units held by wholly owned subsidiaries of Susser were converted into 10,939,436 Class A Units. The Class A Units were entitled to receive distributions on a pro rata basis with the common units, except that the Class A Units (a) did not share in distributions of cash to the extent such cash was derived from or attributable to any distribution received by the Partnership from PropCo, the Partnership’s indirect wholly owned subsidiary, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries and (b) were subordinated to the common units during the subordination period for the subordinated units and were not entitled to receive any distributions until holders of the common units had received the minimum quarterly distribution plus any arrearages in payment of the minimum quarterly distribution from prior quarters.
In addition, the Partnership issued 79,308 common units and 10,939,436 subordinated units to the Contributors (together with the Class B Units, the “Susser Unit Consideration”) to restore the economic benefit of common units and subordinated units held by wholly owned subsidiaries of Susser that were exchanged or converted, as applicable, into Class A Units. The Susser Unit Consideration was issued and sold to the Contributors in private transactions exempt from registration under Section 4(a)(2) of the Securities Act. Pursuant to the terms of the Susser Contribution Agreement, ETP guaranteed all then existing obligations of the Contributors.
The Susser Acquisition was accounted for as a transaction between entities under common control. Specifically, the Partnership recognized acquired assets and assumed liabilities at their respective carrying values with no additional goodwill created. The Partnership’s results of operations include Susser’s results of operations beginning September 1, 2014, the date of common control. As a result, the Partnership retrospectively adjusted its financial statements to include the balances and operations of Susser from August 31, 2014. Accordingly, the Partnership retrospectively adjusted its Consolidated Statement of Operations and Comprehensive Income to include $2.6 billion of Susser revenues and $18 million of net income for the period from January 1, 2015 through July 31, 2015 as well as $742 million of Susser revenues and $15 million of net loss for the period from September 1, 2014 through December 31, 2014. Pre-Susser acquisition equity of Susser is presented as predecessor equity in our consolidated financial statements.
The following table summarizes the final recording of assets and liabilities at their respective carrying values as of the date presented (in millions): 
 
August 31, 2014
Current assets
$
217

Property and equipment
984

Goodwill
977

Intangible assets
541

Other noncurrent assets
38

Current liabilities
(246
)
Other noncurrent liabilities
(842
)
Net assets
1,669

Net deemed contribution
(702
)
Cash acquired
(64
)
Total cash consideration, net of cash acquired
$
903

Goodwill acquired in connection with the Susser acquisition is deductible for tax purposes.

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Emerge Fuels Business Acquisition
On August 31, 2016, we acquired the fuels business (the “Fuels Business”) from Emerge Energy Services LP (NYSE: EMES) (“Emerge”) for $171 million , inclusive of working capital and other adjustments, which was funded using amounts available under our revolving credit facility. The Fuels Business includes two transmix processing plants with attached refined product terminals located in the Birmingham, Alabama and the Greater Dallas, Texas metroplex and engages in the processing of transmix and the distribution of refined fuels. Combined, the plants can process over 10,000 barrels per day of transmix, and the associated terminals have over 800,000 barrels of storage capacity.
Management, with the assistance of a third party valuation firm, has determined fair value of assets and liabilities at the date of the Fuels Business acquisition. We determined the value of goodwill by giving consideration to the following qualitative factors:
•
synergies created through increased fuel purchasing advantages and integration with our existing wholesale business;
•
strategic advantages of owning transmix processing plants and increasing our terminal capacity; and
•
competitors processing transmix in the geographic region.
The following table summarizes the final recording of assets and liabilities at their respective carrying values as of the date presented (in millions):
 
 
August 31, 2016
Current assets
 
$
27

Property and equipment
 
51

Goodwill
 
53

Intangible assets
 
56

Current liabilities
 
(16
)
Net assets
 
171

Cash acquired
 
—

Total cash consideration, net of cash acquired
 
$
171

Goodwill acquired in connection with the Emerge acquisition is deductible for tax purposes.
Other Acquisitions
On October 12, 2016, we completed the acquisition of convenience store, wholesale motor fuel distribution, and commercial fuels distribution businesses serving East Texas and Louisiana from Denny Oil Company (“Denny”) for approximately $55 million . This acquisition included six company-owned and operated locations, six company-owned and dealer operated locations, wholesale fuel supply contracts for a network of independent dealer-owned and dealer-operated locations, and a commercial fuels business in the Eastern Texas and Louisiana markets. As part of the acquisition, we acquired 13 fee properties, which included the six company operated locations, six dealer operated locations, and a bulk plant and an office facility. This acquisition was funded using amounts available under our revolving credit facility with the total purchase consideration allocated to assets acquired based on the estimate of their respective fair values on the purchase date. Management, with the assistance of a third party valuation firm, has determined the fair value of the assets at the date of acquisition which has increased goodwill by $19 million .
On June 22, 2016, we acquired 14 convenience stores and the wholesale fuel business in the Austin, Houston, and Waco, Texas markets from Kolkhorst Petroleum Inc. (“Kolkhorst”) for $39 million . This acquisition include 5 fee properties and 9 leased properties, all of which are company operated. The acquisition also included supply contracts with dealer-owned and operated sites. This acquisition was funded using amounts available under our revolving credit facility with the total purchase consideration allocated to assets acquired based on the estimate of their respective fair values on the purchase date. Management, with the assistance of a third party valuation firm, has determined the fair value of the assets at the date of acquisition which has increased goodwill by $19 million .
On June 22, 2016, we acquired 18 convenience stores serving the upstate New York market from Valentine Stores, Inc. (“Valentine”) for $78 million . This acquisition included 19 fee properties (of which 18 are company operated convenience stores and one is a standalone Tim Hortons), one leased Tim Hortons property, and three raw tracts of land in fee for future store development. This acquisition was funded using amounts available under our revolving credit facility with the total purchase consideration allocated to assets acquired based on the estimate of their respective fair values on the purchase date. Management, with the assistance of a third party valuation firm, determined the fair value of the assets at the date of acquisition which has increased goodwill by $42 million .
On December 16, 2015, we acquired a wholesale motor fuel distribution business serving the Northeastern United States from Alta East, Inc. (“Alta East”) for approximately $57 million . This acquisition included 24 fee and 6 leased properties operated by third

F-17


party dealers or commission agents, and two non-operating surplus locations in fee. The acquisition also included supply contracts with the dealer-owned and operated sites. The acquisition was funded using amounts available under our revolving credit facility with the total purchase consideration allocated to assets acquired based on the estimate of their respective fair values at the purchase date. Management, with the assistance of a third party valuation firm, has determined the fair value of the assets at the date of acquisition which has increased goodwill by $19 million .
Additional acquisitions by the Partnership during 2015 totaled $66 million in consideration paid and increased goodwill by $13 million .
The other acquisitions, including Denny, Kolkhorst, Valentine and Alta East, were all assets acquisitions, and any goodwill created from these acquisitions is deductible for tax purposes.
4.
Discontinued Operations
Pursuant to the Purchase Agreement described in Note 1, Sellers have agreed to sell a portfolio of 1,030 company-operated retail outlets in 19 geographic regions, together with ancillary businesses and related assets, including the Laredo Taco Company (the “Business”), for an aggregate purchase price of $3.3 billion , payable in cash, plus the value of inventory at the closing of the transactions contemplated by the Purchase Agreement (the “Closing”) and the assumption of certain liabilities related to the Business by Buyers. The purchase price is subject to certain adjustments, including (i) those relating to specified items that arise during post-signing due diligence and inspections and (ii) individual properties not ultimately being acquired by Buyers due to the failure to obtain necessary third party consents or waivers or because either Buyers or Sellers exercise their respective rights, under certain circumstances, to cause a specific property to be excluded from the transaction. In addition, both the Partnership and Sunoco LLC have guaranteed Sellers’ obligations under the Purchase Agreement and related ancillary agreements pursuant to a guarantee agreement (the “Guarantee Agreement”) entered into in connection with the Purchase Agreement. In connection with the Closing, Sellers and Buyers and their respective affiliates will enter into a number of ancillary agreements, including a 15-year “take-or-pay” fuel supply agreement.
On January 23, 2018, we completed the disposition of assets pursuant to the Amended and Restated Asset Purchase Agreement entered by and among Sellers, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the Purchase Agreement. As a result of the Purchase Agreement and subsequent closing, previously eliminated wholesale motor fuel sales to the Partnership's retail locations will be reported as wholesale motor fuel sales to third parties. Also, the related accounts receivable from such sales will cease to be eliminated from the consolidated balance sheets and will be reported as accounts receivable.
On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and
sell 97 real estate assets. Real estate assets included in this process are company-owned locations, undeveloped greenfield sites and other excess real estate. Properties are located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The properties will be sold through a sealed-bid sale. Of the 97 properties, 40 have been sold, 5 are under contract to be sold and 11 continue to be marketed by the third-party brokerage firm. Additionally, 32 were sold to 7-Eleven and 9 are part of the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets which will be operated by a commission agent.
The Partnership has concluded that it meets the accounting requirements for reporting the financial position, results of operations and cash flows of the Retail Divestment as discontinued operations. See Note 1 for further information regarding the Retail Divestment.

F-18


The following tables present the aggregate carrying amounts of assets and liabilities classified as held for sale in the Consolidated Balance Sheets:
 
 
December 31,
2017
 
December 31,
2016
 
 
(in millions)
Carrying amount of assets held for sale:
 
 
 
 
Cash
 
$
21

 
$
16

Inventories
 
149

 
150

Other current assets
 
16

 
11

Property and equipment, net
 
1,851

 
1,860

Goodwill
 
796

 
1,068

Intangible assets, net
 
477

 
480

Other noncurrent assets
 
3

 
3

Total assets held for sale
 
$
3,313

 
$
3,588

 
 
 
 
 
Carrying amount of liabilities associated with assets held for sale:
 
 
 
 
Long term debt
 
$
21

 
$
—

Other current and noncurrent liabilities
 
54

 
48

Total liabilities associated with assets held for sale
 
$
75

 
$
48

Upon the classification of assets and related liabilities as held for sale, Sunoco LP’s management applied the measurement guidance in ASC 360, Property, Plant and Equipment , to calculate the fair value less cost to sell of the disposal group. In accordance with ASC 360-10-35-39, management first tested the goodwill included within the disposal group for impairment prior to measuring the disposal group’s fair value less the cost to sell. In the determination of the classification of assets held for sale and the related liabilities, management allocated a portion of the goodwill balance previously included in the Sunoco LP retail and Stripes reporting units to assets held for sale based on the relative fair values of the business to be disposed of and the portion of the respective reporting unit that will be retained in accordance with ASC 350-20-40-3. The amount of goodwill allocated to assets held for sale was approximately $796 million and $1.1 billion as of December 31, 2017 and 2016 , respectively. The remainder of the goodwill was allocated to the retained portion of the retail and Stripes reporting units, which is comprised of Sunoco LP’s ethanol plant, credit card processing services, franchise royalties and retail stores the Partnership continues to operate in the continental United States. This amount, inclusive of the portion of the Aloha reporting unit that represents retail activities, was approximately $678 million and $780 million as of December 31, 2017 and 2016 , respectively.
During 2017 management performed goodwill impairment testing on its reporting units included in assets held for sale resulting in impairment charges of $387 million . Of this amount, $102 million was allocated to the sites reclassified to continuing operations in the fourth quarter within the retail and Stripes reporting units. Once allocated, management performed goodwill impairment tests on both reporting units to which the goodwill balances were allocated. No goodwill impairment was identified for the retail or Stripes reporting units as a result of these tests.
The Partnership recorded transaction costs of $37 million and unit-based compensation of $6 million during 2017, as a result of the 7-Eleven Transaction.
The Partnership recorded a $4 million impairment charge to property and equipment during 2017, as a result of the effects of Hurricane Harvey on the Partnership’s retail operations within discontinued operations.

F-19


The results of operations associated with discontinued operations are presented in the following table:
 
Year Ended December 31,
2017
 
Year Ended December 31,
2016
 
Year Ended December 31,
2015
 
(in millions)
Revenues:
 
 
 
 
 
Motor fuel sales
$
5,137

 
$
3,923

 
$
4,351

Merchandise
1,762

 
1,731

 
1,634

Rental income
3

 
2

 
—

Other
62

 
56

 
45

Total revenues
6,964

 
5,712

 
6,030

Cost of sales:
 
 
 
 
 
Motor fuel cost of sales
4,590

 
3,458

 
3,893

Merchandise cost of sales
1,210

 
1,193

 
1,133

Other
6

 
(2
)
 
—

Total cost of sales
5,806

 
4,649

 
5,026

Gross profit
1,158

 
1,063

 
1,004

Operating expenses:
 
 
 
 
 
General and administrative
168

 
114

 
91

Other operating
707

 
685

 
644

Rent
56

 
59

 
61

Loss on disposal of assets and impairment charge
286

 
455

 
(2
)
Depreciation, amortization and accretion expense
34

 
143

 
128

Total operating expenses
1,251

 
1,456

 
922

Operating income (loss)
(93
)
 
(393
)
 
82

Interest expense, net
36

 
28

 
21

Income (loss) from discontinued operations before income taxes
(129
)
 
(421
)
 
61

Income tax expense
48

 
41

 
23

Net income (loss) from discontinued operations
$
(177
)
 
$
(462
)
 
$
38

5.
Accounts Receivable, net
Accounts receivable, net, consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Accounts receivable, trade
$
285

 
$
361

Credit card receivables
160

 
133

Vendor receivables for rebates, branding, and other
29

 
21

Other receivables
69

 
27

Allowance for doubtful accounts
(2
)
 
(3
)
Accounts receivable, net
$
541

 
$
539


F-20


6.
Inventories, net
Inventories consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Fuel
$
387

 
$
383

Merchandise
30

 
29

Other
9

 
11

Inventories, net
$
426

 
$
423

 
7.
Property and Equipment, net
Property and equipment, net consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Land
$
516

 
$
547

Buildings and leasehold improvements
714

 
666

Equipment
623

 
544

Construction in progress
159

 
185

Total property and equipment
2,012

 
1,942

Less: accumulated depreciation
455

 
358

Property and equipment, net
$
1,557

 
$
1,584

Depreciation expense on property and equipment was $102 million , $111 million and $113 million for the years ended December 31, 2017 , December 31, 2016 , and December 31, 2015 , respectively.
8.
Goodwill and Other Intangible Assets
Goodwill
Goodwill balances and activity for the years ended December 31, 2017 and 2016 consisted of the following:
 
Segment
 
 
 
Wholesale
 
Retail
 
Consolidated
 
(in millions)
Balance at December 31, 2015
$
687

 
$
1,007

 
$
1,694

Goodwill adjustment related to Alta East acquisition
2

 
—

 
2

Goodwill related to Kolkhorst acquisition
3

 
—

 
3

Goodwill related to Emerge acquisition
78

 
—

 
78

Goodwill impairment charge
—

 
(227
)
 
(227
)
Balance at December 31, 2016
770

 
780

 
1,550

Goodwill adjustment related to Emerge acquisition
(25
)
 
—

 
(25
)
Goodwill adjustment related to Denny acquisition
7

 
—

 
7

Goodwill impairment charge
—

 
(102
)
 
(102
)
Balance at December 31, 2017
$
752

 
$
678

 
$
1,430

Goodwill represents the excess of the purchase price of an acquired entity over the amounts allocated to the assets acquired and liabilities assumed in a business combination. During the year ended December 31, 2017 , we completed our evaluation of the Denny, Emerge, Kolkhorst and Valentine acquisitions' purchase accounting analysis with the assistance of a third party valuation firm.
Goodwill is recorded at the acquisition date based on a preliminary purchase price allocation and generally may be adjusted when the purchase price allocation is finalized. In accordance with ASC 350-20-35 “ Goodwill - Subsequent Measurements ”. During 2017,

F-21


management performed goodwill impairment testing on its reporting units included in assets held for sale resulting in impairment charges of $387 million . Of this amount, $102 million was allocated to the sites reclassified to continuing operations in the fourth quarter within the retail and Stripes reporting units. Once allocated, management performed goodwill impairment tests on both reporting units to which the goodwill balances were allocated. No goodwill impairment was identified for the retail or Stripes reporting units as a result of these tests.
In connection with the reclassification of the retail assets as held-for-sale, Sunoco LP performed interim goodwill impairment testing on the remaining goodwill balance in the retail reporting unit. See Note 4 for more information on the balances reclassified as held-for-sale and the related impairment testing.
The Partnership determined the fair value of our reporting units using a weighted combination of the discounted cash flow method and the guideline company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Under the discounted cash flow method, the Partnership determined fair value based on estimated future cash flows of each reporting unit including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflect the overall level of inherent risk of the reporting unit. Cash flow projections are derived from one year budgeted amounts plus an estimate of later period cash flows, all of which are determined by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Under the guideline company method, the Partnership determined the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then averaging that estimate with similar historical calculations using a three year average. In addition, the Partnership estimated a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business.
Other Intangibles
Gross carrying amounts and accumulated amortization for each major class of intangible assets, excluding goodwill, consisted of the following:
 
December 31, 2017
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book Value
 
(in millions)
Indefinite-lived
 

 
 

 
 

 
 

 
 

 
 

Tradenames
$
295

 
$
—

 
$
295

 
$
288

 
$
—

 
$
288

Contractual rights
30

 
—

 
30

 
43

 
—

 
43

Liquor licenses
12

 
—

 
12

 
16

 
—

 
16

Finite-lived
 
 
 
 
 
 
 
 
 
 
 
Customer relations including supply agreements
674

 
256

 
418

 
611

 
198

 
413

Favorable leasehold arrangements, net
12

 
5

 
7

 
10

 
3

 
7

Loan origination costs (1)
10

 
6

 
4

 
10

 
4

 
6

Other intangibles
5

 
3

 
2

 
3

 
1

 
2

Intangible assets, net
$
1,038

 
$
270

 
$
768

 
$
981

 
$
206

 
$
775

_______________________________
(1)
Loan origination costs are associated with the 2014 Revolver, see Note 10 for further information of the debt.
We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. We review non-amortizable intangible assets for impairment annually, or more frequently if circumstances dictate.
During the fourth quarter of 2017, the Partnership performed the annual impairment tests on our indefinite-lived intangible assets and recognized $13 million and $4 million of impairment charge on our contractual rights and liquor licenses, respectively, primarily due to decreases in projected future revenues and cash flows from the date the intangible asset was originally recorded.

F-22


Total amortization expense on finite-lived intangibles included in depreciation, amortization and accretion was $61 million , $61 million and $37 million for the years ended December 31, 2017 , December 31, 2016 , and December 31, 2015 , respectively.
Customer relations and supply agreements have a remaining weighted-average life of approximately 11 years. Favorable leasehold arrangements have a remaining weighted-average life of approximately 14 years. Non-competition agreements and other intangible assets have a remaining weighted-average life of approximately 13 years. Loan origination costs have a remaining weighted-average life of approximately 2 years.
As of December 31, 2017 , the Partnership’s estimate of amortization includable in amortization expense and interest expense for each of the five succeeding fiscal years and thereafter for finite-lived intangibles is as follows (in millions):
 
Amortization
 
Interest
2018
$
58

 
$
2

2019
57

 
2

2020
55

 
—

2021
48

 
—

2022
28

 
—

Thereafter
181

 
—

Total
$
427

 
$
4

9.
Accrued Expenses and Other Current Liabilities
Current accrued expenses and other current liabilities consisted of the following:
 
December 31, 2017
 
December 31, 2016
 
(in millions)
Wage and other employee-related accrued expenses
$
72

 
$
42

Accrued tax expense
180

 
154

Accrued insurance
26

 
23

Accrued interest expense
43

 
39

Dealer deposits
16

 
16

Accrued capital expenditures
—

 
14

Others
31

 
84

Total
$
368

 
$
372


F-23


10.
Long-Term Debt
Long-term debt consisted of the following:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Term Loan (1)
$
1,243

 
$
1,243

Sale leaseback financing obligation
113

 
117

2014 Revolver
765

 
1,000

6.375% Senior Notes Due 2023 (2)
800

 
800

5.500% Senior Notes Due 2020 (2)
600

 
600

6.250% Senior Notes Due 2021 (2)
800

 
800

Other
3

 
1

Total debt
4,324

 
4,561

Less: current maturities
6

 
5

Less: debt issuance costs
34

 
47

Long-term debt, net of current maturities
$
4,284

 
$
4,509

 
_______________________________
(1)
The Term Loan was repaid in full and terminated on January 23, 2018.
(2)
The Senior Notes were redeemed on January 23, 2018.
At December 31, 2017 , scheduled future debt principal maturities are as follows (in millions):
2018
$
6

2019
2,013

2020
606

2021
806

2022
6

Thereafter
887

Total
$
4,324

Term Loan
On March 31, 2016, we entered into a senior secured term loan agreement (the “Term Loan”) to finance a portion of the costs associated with the ETP Dropdown. The Term Loan provides secured financing in an aggregate principal amount of up to $2.035 billion , which we borrowed in full. The Partnership used the proceeds to fund a portion of the ETP Dropdown and to pay fees and expenses incurred in connection with the ETP Dropdown and Term Loan.
Obligations under the Term Loan are secured equally and ratably with the 2014 Revolver (as defined below) by substantially all tangible and intangible assets of the Partnership and certain of our subsidiaries, subject to certain exceptions and permitted liens. Obligations under the Term Loan are guaranteed by certain of the Partnership’s subsidiaries. In addition, ETP Retail, a wholly owned subsidiary of ETP, provided a limited contingent guaranty of collection with respect to the payment of the principal amount of the Term Loan. The maturity date of the Term Loan is October 1, 2019. The Partnership is not required to make any amortization payments with respect to the loans under the Term Loan. Amounts borrowed under the Term Loan bear interest at either LIBOR or base rate plus an applicable margin based on the election of the Partnership for each interest period. Until the Partnership first receives an investment grade rating, the applicable margin for LIBOR rate loans ranges from 1.500% to 3.000% and the applicable margin for base rate loans ranges from 0.500% to 2.000% , in each case based on the Partnership’s Leverage Ratio (as defined in the Term Loan). The Term Loan requires the Partnership to maintain a leverage ratio of not more than (i) as of the last day of each fiscal quarter through December 31, 2017, 6.75 to 1.0, (ii) as of March 31, 2018, 6.5 to 1.0, (iii) as of June 30, 2018, 6.25 to 1.0, (iv) as of September 30, 2018, 6.0 to 1.0, (v) as of December 31, 2018, 5.75 to 1.0 and (vi) thereafter, 5.5 to 1.0 (in the case of the quarter ending March 31, 2019 and thereafter, subject to increases to 6.0 to 1.0 in connection with certain specified acquisitions in excess of $50 million , as permitted under the Term Loan).
On January 31, 2017, the Partnership entered into a limited waiver to the Term Loan (the “Term Loan Waiver”). Under the Term Loan Waiver, the Agents and lenders party thereto waived and deemed remedied, among other matters, the miscalculations of the Partnership’s leverage ratio as set forth in its previously delivered compliance certificates and the resulting failure to pay incremental

F-24


interest owed under the Term Loan from December 21, 2016 through the effective date of the Term Loan Waiver. The incremental interest owed was remedied prior to the effectiveness of the Term Loan Waiver. As a result of the restatement of the compliance certificates for the fiscal quarter ended September 30, 2016 delivered in connection with the Term Loan Waiver, the margin applicable to the obligations under the Term Loan increased from (i) 2.75% in respect of LIBOR rate loans and 1.75% in respect of base rate loans to (ii) 3.00% in respect of LIBOR rate loans and 2.00% in respect of base rate loans, until the delivery of the next compliance certificates.
The Partnership may voluntarily prepay borrowings under the Term Loan at any time without premium or penalty, subject to any applicable breakage costs for loans bearing interest at LIBOR. Under certain circumstances, the Partnership is required to repay borrowings under the Term Loan in connection with the issuance by the Partnership of certain types of indebtedness for borrowed money. The Term Loan also includes certain (i) representations and warranties, (ii) affirmative covenants, including delivery of financial and other information to the administrative agent, notice to the administrative agent upon the occurrence of certain material events, preservation of existence, payment of material taxes and other claims, maintenance of properties and insurance, access to properties and records for inspection by administrative agent and lenders, further assurances and provision of additional guarantees and collateral, (iii) negative covenants, including restrictions on the Partnership and our restricted subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make loans, advances or investments, pay dividends, sell or otherwise transfer assets or enter into transactions with shareholders or affiliates, and (iv) events of default, in each case substantively similar to the representations and warranties, affirmative and negative covenants and events of default in the Partnership’s 2014 Revolver (as defined below). During the continuance of an event of default, the lenders under the Term Loan may take a number of actions, including declaring the entire amount then outstanding under the Term Loan due and payable.
As of December 31, 2017 , the balance on the Term Loan was $1.2 billion . The Partnership was in compliance with all financial covenants at December 31, 2017 .
The Term Loan was repaid in full and terminated on January 23, 2018. See 2018 Private Offerings of Senior Notes below.

6.250% Senior Notes Due 2021
On April 7, 2016, we and certain of our wholly owned subsidiaries, including SUN Finance (together with the Partnership, the “2021 Issuers”), completed a private offering of $800 million 6.250% senior notes due 2021 (the “2021 Senior Notes”). The terms of the 2021 Senior Notes are governed by an indenture dated April 7, 2016, among the 2021 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2021 Guarantors”) and U.S. Bank National Association, as trustee. The 2021 Senior Notes will mature on April 15, 2021 and interest is payable semi-annually on April 15 and October 15 of each year, commencing October 15, 2016. The 2021 Senior Notes are senior obligations of the 2021 Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries and certain of its future subsidiaries. The 2021 Senior Notes and guarantees are unsecured and rank equally with all of the 2021 Issuers’ and each 2021 Guarantor’s existing and future senior obligations. The 2021 Senior Notes and guarantees are effectively subordinated to the 2021 Issuers’ and each 2021 Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver (as defined below), to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2021 Senior Notes. ETC M-A Acquisition LLC (“ETC M-A”), a subsidiary of ETP Retail, guarantees collection to the 2021 Issuers with respect to the payment of the principal amount of the 2021 Senior Notes. ETC M-A is not subject to any of the covenants under the 2021 Indenture.
Net proceeds of approximately $789 million were used to repay a portion of the borrowings outstanding under our Term Loan.
The 2021 Senior Notes were redeemed and the indenture governing the 2021 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of $800 million and $32 million call premium plus accrued and unpaid interest. See 2018 Private Offerings of Senior Notes below.

5.500% Senior Notes Due 2020
On July 20, 2015, we and our wholly owned subsidiary, SUN Finance (together with the Partnership, the “2020 Issuers”), completed a private offering of $600 million 5.500% senior notes due 2020 (the “2020 Senior Notes”). The terms of the 2020 Senior Notes are governed by an indenture dated July 20, 2015 (the “2020 Indenture”), among the 2020 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2020 Guarantors”) and U.S. Bank National Association, as trustee (the “2020 Trustee”). The 2020 Senior Notes will mature on August 1, 2020 and interest is payable semi-annually on February 1 and August 1 of each year, commencing February 1, 2016. The 2020 Senior Notes are senior obligations of the 2020 Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries. The 2020 Senior Notes and guarantees are unsecured and rank equally with all of the 2020 Issuers’ and each 2020 Guarantor’s existing and future senior obligations. The 2020 Senior Notes and guarantees are effectively subordinated to the 2020 Issuers’ and each 2020 Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver (as defined below), to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2020 Senior Notes.

F-25


Net proceeds of approximately $593 million were used to fund a portion of the cash consideration of the Susser Acquisition, through which we acquired 100% of the issued and outstanding shares of capital stock of Susser from Heritage Holdings, Inc., a wholly owned subsidiary of ETP, and ETP Holdco Corporation, a wholly owned subsidiary of ETP, on July 31, 2015.
The 2020 Senior Notes were redeemed and the indenture governing the 2020 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of $600 million and $17 million call premium plus accrued and unpaid interest. See 2018 Private Offerings of Senior Notes below.
6.375% Senior Notes Due 2023
On April 1, 2015, we and our wholly owned subsidiary, SUN Finance (together with the Partnership, the “2023 Issuers”), completed a private offering of $800 million 6.375% senior notes due 2023 (the “2023 Senior Notes”). The terms of the 2023 Senior Notes are governed by an indenture dated April 1, 2015 (the “2023 Indenture”), among the 2023 Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “2023 Guarantors”) and U.S. Bank National Association, as trustee (the “2023 Trustee”). The 2023 Senior Notes will mature on April 1, 2023 and interest is payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2015. The 2023 Senior Notes are senior obligations of the 2023 Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries. The 2023 Senior Notes and guarantees are unsecured and rank equally with all of the 2023 Issuers’ and each 2023 Guarantor’s existing and future senior obligations. The 2023 Senior Notes and guarantees are effectively subordinated to the 2023 Issuers’ and each 2023 Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver (as defined below), to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the 2023 Senior Notes. ETC M-A guarantees collection to the 2023 Issuers with respect to the payment of the principal amount of the 2023 Senior Notes. ETC M-A is not subject to any of the covenants under the 2023 Indenture.
Net proceeds of approximately $787 million were used to fund the Sunoco Cash Consideration and to repay borrowings under our 2014 Revolver (as defined below).
The 2023 Senior Notes were redeemed and the indenture governing the 2023 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of $800 million and $44 million call premium plus accrued and unpaid interest. See 2018 Private Offerings of Senior Notes below.

2018 Private Offering of Senior Notes
On January 23, 2018, we and certain of our wholly owned subsidiaries, including SUN Finance (together with the Partnership, the “2023 Issuers”) completed a private offering of $2.2 billion of senior notes, comprised of $1.0 billion in aggregate principal amount of 4.875% senior notes due 2023 (the “2023 Notes”), $800 million in aggregate principal amount of 5.500% senior notes due 2026 (the “2026 Notes”) and $400 million in aggregate principal amount of 5.875% senior notes due 2028 (the “2028 Notes” and, together with the 2023 Notes and the 2026 Notes, the “Notes”).
The terms of the Notes are governed by an indenture dated January 23, 2018, among the Issuers, our General Partner, and certain other subsidiaries of the Partnership (the “Guarantors”) and U.S. Bank National Association, as trustee. The 2023 Notes will mature on January 15, 2023 and interest is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2018. The 2026 Notes will mature on February 15, 2026 and interest is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2018.  The 2028 Notes will mature on March 15, 2028 and interest is payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2018. The Notes are senior obligations of the Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries and certain of its future subsidiaries. The Notes and guarantees are unsecured and rank equally with all of the Issuers’ and each Guarantor’s existing and future senior obligations. The Notes and guarantees are effectively subordinated to the Issuers’ and each Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver (as defined below), to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the Notes. ETC M-A guarantees collection to the Issuers with respect to the payment of the principal amount of the Notes. ETC M-A is not subject to any of the covenants under the Indenture.
In connection with our issuance of the Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the Notes for an issue of registered notes with terms substantively identical to each series of Notes and evidencing the same indebtedness as the Notes on or before January 23, 2019.  

F-26


The Partnership used the proceeds from the private offering, along with proceeds from the 7-Eleven Transaction, to: 1) redeem in full our existing senior notes as of December 31, 2017, 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; 2) repay in full and terminate the Term Loan; 3) pay all closing costs and taxes in connection with the 7-Eleven Transaction; 4) redeem the outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million ; and 5) repurchase 17,286,859 SUN common units owned by subsidiaries of ETP for aggregate cash consideration of approximately $540 million . 
Revolving Credit Agreement
On September 25, 2014, we entered into a $1.25 billion revolving credit facility (the “2014 Revolver”) 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 an LC issuer. Proceeds from the revolving credit facility were used to pay off the Partnership’s then-existing revolving credit facility entered into on September 25, 2012. On April 10, 2015, we received a $250 million increase in commitments under the 2014 Revolver and, as a result, we are permitted to borrow up to $1.5 billion on a revolving credit basis.
The 2014 Revolver expires on September 25, 2019 (which date may be extended in accordance with the terms of the 2014 Revolver). Borrowings under the 2014 Revolver bear interest at a base rate (a rate based off of the higher of (i) the Federal Funds Rate (as defined in the revolving credit facility) plus 0.500% , (ii) Bank of America’s prime rate or (iii) one-month LIBOR (as defined in the 2014 Revolver) plus 1.000% ) or LIBOR, in each case plus an applicable margin ranging from 1.500% to 3.000% , in the case of a LIBOR loan, or from 0.500% to 2.000% , in the case of a base rate loan (determined with reference to the Partnership’s Leverage Ratio (as defined in the 2014 Revolver)). Upon the first achievement by the Partnership of an investment grade credit rating, the applicable margin will decrease to a range of 1.125% to 2.000% , in the case of a LIBOR loan, or from 0.125% to 1.000% , in the case of a base rate loan (determined with reference to the credit rating for the Partnership’s senior, unsecured, non-credit enhanced long-term debt). Interest is payable quarterly if the base rate applies, at the end of the applicable interest period if LIBOR applies and at the end of the month if daily floating LIBOR applies. In addition, the unused portion of the revolving credit facility will be subject to a commitment fee ranging from 0.250% to 0.500% , based on the Partnership’s Leverage Ratio. Upon the first achievement by the Partnership of an investment grade credit rating, the commitment fee will decrease to a range of 0.125% to 0.275% , based on the Partnership’s credit rating as described above.
On January 31, 2017, the Partnership entered into a limited waiver (the “Revolver Waiver”) of the 2014 Revolver. Under the Revolver Waiver, the Agents and lenders party thereto waived and deemed remedied, among other matters, the miscalculations of the Partnership’s leverage ratio as set forth in its previously delivered compliance certificates and the resulting failure to pay incremental interest owed under the 2014 Revolver from December 21, 2016 through the effective date of the Revolver Waiver. The incremental interest owed was remedied prior to the effectiveness of the Revolver Waiver. As a result of the restatement of the compliance certificates for the fiscal quarter ended September 30, 2016 delivered in connection with the Revolver Waiver, the margin applicable to the obligations under the 2014 Revolver increased from (i) 2.75% in respect of LIBOR rate loans and 1.75% in respect of base rate loans to (ii) 3.00% in respect of LIBOR rate loans and 2.00% in respect of base rate loans, until the delivery of the next compliance certificates.
Indebtedness under the 2014 Revolver is secured by a security interest in, among other things, all of the Partnership’s present and future personal property and all of the present and future personal property of its guarantors, the capital stock of its material subsidiaries (or 66% of the capital stock of material foreign subsidiaries), and any intercompany debt. Upon the first achievement by the Partnership of an investment grade credit rating, all security interests securing borrowings under the revolving credit facility will be released. Indebtedness incurred under the 2014 Revolver is secured on a pari passu basis with the indebtedness incurred under the Term Loan pursuant to a collateral trust arrangement whereby a financial institution agrees to act as common collateral agent for all pari passu indebtedness.
On October 16, 2017, the Partnership entered into the Fifth Amendment to the Credit Agreement with the lenders party thereto and Bank of America, N.A., in its capacity as a letter of credit issuer, as swing line lender, and as administrative agent (the “Fifth Amendment”). The Fifth Amendment amended the agreement to (i) permit the dispositions contemplated by the Retail Divestment, (ii) extend the interest coverage ratio covenant of 2.25x through maturity, (iii) modify the definition of consolidated EBITDA to include projected margins from the minimum gallons to be purchased under any fuel supply contract entered into in connection with the 7-Eleven transaction, and (iv) modify the leverage ratio covenants. In the event no disposition has been consummated, the Partnership must maintain a leverage ratio of not more than (i) as of the last day of each fiscal quarter through September 30, 2017, 6.75 to 1.0, (ii) as of December 31, 2017, 6.75 to 1.0, (iii) as of March 31, 2018, 6.50 to 1.0, (iv) as of June 30, 2018, 6.25 to 1.0, (v) as of September 30, 2018, 6.00 to 1.0, (vi) as of December 31, 2018, 5.75 to 1.0 and (vii) thereafter, 5.50 to 1.0. In the event either the disposition of the 7-Eleven Assets or the disposition of the West Texas Assets (but not both of them) has been consummated, the Partnership must maintain a leverage ratio of not more than (i) as of the last day of each fiscal quarter through September 30, 2017, 6.75 to 1.0, (ii) as of December 31, 2017, 6.00 to 1.0, (iii) as of March 31, 2018, 5.75 to 1.0, (iv) as of June 30, 2018, 5.50 to 1.0, (v) as of September 30, 2018, 5.50 to 1.0, (vi) as of December 31, 2018, 5.50 to 1.0 and (vii) thereafter, 5.50 to 1.0. In the event both the dispositions of the 7-Eleven Assets and the disposition of the West Texas Assets have been consummated, the Partnership must maintain a leverage ratio of not more than (i) as of the last day

F-27


of each fiscal quarter through September 30, 2017, 6.75 to 1.0, (ii) as of December 31, 2017, 5.75 to 1.0, (iii) as of March 31, 2018, 5.75 to 1.0, (iv) as of June 30, 2018, 5.50 to 1.0, (v) as of September 30, 2018, 5.50 to 1.0, (vi) as of December 31, 2018, 5.50 to 1.0 and (vii) thereafter, 5.50 to 1.0. Notwithstanding the foregoing, if a specified acquisition period is in effect at any time that the maximum leverage ratio would otherwise be 5.50 to 1.0, such maximum leverage ratio shall be 6.00 to 1.0.
As of December 31, 2017 , the balance on the 2014 Revolver was $765 million , and $9 million in standby letters of credit were outstanding. The unused availability on the 2014 Revolver at December 31, 2017 was $726 million . The Partnership was in compliance with all financial covenants at December 31, 2017 .
Sale Leaseback Financing Obligation
On April 4, 2013, Southside completed a sale leaseback transaction with two separate companies for 50 of its dealer operated sites. As Southside did not meet the criteria for sale leaseback accounting, this transaction was accounted for as a financing arrangement over the course of the lease agreement. The obligations mature in varying dates through 2033, require monthly interest and principal payments, and bear interest at 5.125% . The obligation related to this transaction is included in long-term debt and the balance outstanding as of December 31, 2017 was $113 million .
Fair Value Measurements
We use fair value measurements to measure, among other items, purchased assets, investments, leases and derivative contracts. We also use them to assess impairment of properties, equipment, intangible assets and goodwill. An asset's fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or is derived from such prices or parameters. Where observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.
ASC 820 “ Fair Value Measurements and Disclosures ” prioritizes the inputs used in measuring fair value into the following hierarchy:
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.
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of December 31, 2017 , is estimated to be approximately $4.4 billion , based on outstanding balances as of the end of the period using current interest rates for similar securities.
11.
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
 
December 31, 2017
 
December 31, 2016
 
(in millions)
Accrued straight-line rent
$
13

 
$
10

Reserve for underground storage tank removal
41

 
34

Reserve for environmental remediation, long-term
23

 
35

Unfavorable lease liability
10

 
12

Aloha acquisition contingent consideration
15

 
15

Others
23

 
10

Total
$
125

 
$
116


F-28


We record an asset retirement obligation for the estimated future cost to remove underground storage tanks. Revisions to the liability could occur due to changes in tank removal costs, tank useful lives or if federal and/or state regulators enact new guidance on the removal of such tanks. Changes in the carrying amount of asset retirement obligations for the years ended December 31, 2017 and 2016 were as follows:
 
Year Ended December 31,
 
2017
 
2016
 
(in millions)
Balance at beginning of year
$
34

 
$
34

Liabilities incurred
3

 
3

Liabilities settled
(2
)
 
(1
)
Accretion expense
6

 
4

Revision of estimated cash flows
—

 
(6
)
Balance at end of year
$
41

 
$
34

12.
Related-Party Transactions
We are party to the following fee-based commercial agreements with various affiliates of ETP:
•
Philadelphia Energy Solutions Products Purchase Agreements – two related products purchase agreements, one with Philadelphia Energy Solutions Refining & Marketing (“PES”) and one with PES's product financier Merrill Lynch Commodities; both purchase agreements contain 12 -month terms that automatically renew for consecutive 12 -month terms until either party cancels with notice. ETP Retail owns a noncontrolling interest in the parent of PES. PES Holdings, LLC (“PES Holdings”) and eight affiliates filed for Chapter 11 bankruptcy protection on January 21, 2018 in the United States Bankruptcy Court for the District of Delaware to implement a prepackaged reorganization plan that will allow its shareholders to retain a minority stake. PES Holdings’ Chapter 11 Plan (“Plan”) proposes to inject $260 million in new capital into PES Holdings, cut debt service obligations by about $35 million per year and remove debt maturities before 2022. Under that Plan, PES Holdings’ non-debtor parent, Philadelphia Energy Solutions, in which ETP holds an indirect 33% equity interest, will provide a $65 million cash contribution in in exchange for a 25% stake in the reorganized debtor. After the restructuring, the proportionate ownership of Carlyle Group, L.P. and ETP in PES Holdings will be 16.26% and 8.13% , respectively. Finally, Sunoco Logistics Partners Operations L.P. (“SXL Operating Partnership”), a subsidiary of ETP, is providing an additional $75 million exit loan ranked pari passu with the other debt. SXL Operating Partnership’s, PES Holdings’ and ETP’s current contracts will be assumed, without any impairments, in the Chapter 11, and business operations will continue uninterrupted. The financial reorganization is expected to complete in the first quarter of 2018.
•
ETP Transportation and Terminalling Contracts – various agreements with subsidiaries of ETP for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETP for the purchase and sale of fuel.
We are party to the Susser Distribution Contract, a 10 -year agreement under which we are the exclusive distributor of motor fuel at cost (including tax and transportation costs), plus a fixed profit margin per gallon to Susser’s existing Stripes convenience stores and independently operated commission agent locations. This profit margin is eliminated through consolidation from the date of common control, September 1, 2014, and thereafter, in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
We are party to the Sunoco Distribution Contract, a 10 -year agreement under which we are the exclusive distributor of motor fuel to Sunoco Retail’s convenience stores. Pursuant to the agreement, pricing is cost plus a fixed margin per gallon. This profit margin is eliminated through consolidation from the date of common control, September 1, 2014, and thereafter, in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
In connection with the closing of our IPO on September 25, 2012, we also entered into an Omnibus Agreement with Susser (the “Omnibus Agreement”). Pursuant to the Omnibus Agreement, among other things, the Partnership received a three -year option to purchase from Susser up to 75 of Susser's new or recently constructed Stripes convenience stores at Susser's cost and lease the stores back to Susser at a specified rate for a 15 -year initial term. The Partnership is the exclusive distributor of motor fuel to such stores for a period of 10 years from the date of purchase. During 2015, we completed all 75 sale-leaseback transactions under the Omnibus Agreement.

F-29


Summary of Transactions
Related party transactions with affiliates for the years ended December 31, 2017 , 2016 , and 2015 were as follows (in millions):  
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
Motor fuel sales to affiliates
$
55

 
$
62

 
$
20

Bulk fuel purchases from affiliates
$
2,416

 
$
1,867

 
$
2,449

Included in the bulk fuel purchases above are purchases from PES, which constitutes 19.6% , 20.3% and 20.8% of our total cost of sales for the years ended December 31, 2017 , 2016 and 2015 , respectively.
Additional significant affiliate activity related to the Consolidated Balance Sheets are as follows:
•
Net advances from affiliates were $85 million and $87 million at December 31, 2017 and 2016 , 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.
•
Net accounts receivable from affiliates were $155 million and $3 million at December 31, 2017 and 2016 , respectively, which are primarily related to motor fuel purchases from us.
•
Net accounts payable to affiliates was $206 million and $109 million as of December 31, 2017 and 2016 , respectively, attributable to operational expenses.
13.
Commitments and Contingencies
Leases
The Partnership leases certain convenience store and other properties under non-cancellable operating leases whose initial terms are typically 5 to 15 years , with some having a term of 40 years or more, along with options that permit renewals for additional periods. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition, certain leases require additional contingent payments based on sales or motor fuel volumes. We typically are responsible for payment of real estate taxes, maintenance expenses and insurance. These properties are either sublet to third parties or used for our convenience store operations.
Net rent expense consisted of the following:
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions)
Cash rent:
 

 
 

 
 
Store base rent (1)(2)
$
66

 
$
66

 
$
67

Equipment and other rent (3)
14

 
14

 
12

Total cash rent
80

 
80

 
79

Non-cash rent:
 

 
 
 
 
Straight-line rent
1

 
1

 
—

Net rent expense
$
81

 
$
81

 
$
79

________________________________________________ 
(1)
Store base rent includes the Partnership's rent expense for leased convenience store properties which are subleased to third-party operators. The sublease income from these sites is recorded in rental income on the statement of operations and totaled $25 million , $25 million and $26 million for the years ended December 31, 2017 , December 31, 2016 , and December 31, 2015 , respectively.
(2)
Store base rent includes contingent rent expense totaling $16 million , $18 million , and $20 million for the years ending December 31, 2017 , December 31, 2016 , and December 31, 2015 , respectively.
(3)
Equipment and other rent consists primarily of vehicles and marine transportation vessels.

F-30


Future minimum lease payments, excluding sale-leaseback financing obligations (see Note 10), for future fiscal years are as follows (in millions):
2018
$
74

2019
64

2020
59

2021
53

2022
48

Thereafter
514

Total
$
812

 
Environmental Remediation
We are subject to various federal, state and local environmental laws and make financial expenditures in order to comply with regulations governing underground storage tanks adopted by federal, state and local regulatory agencies. In particular, at the federal level, the Resource Conservation and Recovery Act of 1976, as amended, requires the EPA to establish a comprehensive regulatory program for the detection, prevention, and cleanup of leaking underground storage tanks (e.g. overfills, spills, and underground storage tank releases).
Federal and state regulations require us to provide and maintain evidence that we are taking financial responsibility for corrective action and compensating third parties in the event of a release from our underground storage tank systems. In order to comply with these requirements, we have historically obtained private insurance in the states in which we operate. These policies provide protection from third-party liability claims. During 2017 , our coverage was $10 million per occurrence and in the aggregate. Our sites continue to be covered by these policies.
We are currently involved in the investigation and remediation of contamination at motor fuel storage and gasoline store sites where releases of regulated substances have been detected. We accrue for anticipated future costs and the related probable state reimbursement amounts for remediation activities. Accordingly, we have recorded estimated undiscounted liabilities for these sites totaling $22 million and $40 million as of December 31, 2017 and 2016 , respectively, which are classified as accrued expenses and other current liabilities and other noncurrent liabilities. As of December 31, 2017 , we had $1 million in an escrow account to satisfy environmental claims related to the MACS acquisition and $8 million in two escrow accounts to satisfy environmental claims related to the Emerge acquisition.
Deferred Branding Incentives
We receive deferred branding incentives and other incentive payments from a number of our fuel suppliers. A portion of the deferred branding incentives may be passed on to our wholesale branded dealers under the same terms as required by our fuel suppliers. Many of the agreements require repayment of all or a portion of the amount received if we or our branded dealers elect to discontinue selling the specified brand of fuel at certain locations. As of December 31, 2017 , the estimated amount of deferred branding incentives that would have to be repaid upon de-branding at these locations was $1.4 million . Of this amount, approximately $0.3 million would be the responsibility of the Partnership’s branded dealers under reimbursement agreements with the dealers. In the event a dealer were to default on this reimbursement obligation, we would be required to make this payment. No liability is recorded for the amount of dealer obligations which would become payable upon de-branding as no such dealer default is considered probable as of December 31, 2017 . We have recorded $1.1 million and $1 million for deferred branding incentives, net of accumulated amortization, as of December 31, 2017 and 2016 , respectively, under other non-current liabilities on our Consolidated Balance Sheets. The Partnership amortizes its retained portion of the incentives to income on a straight-line basis over the term of the agreements.
Contingent Consideration related to Aloha Acquisition
Pursuant to an earnout agreement associated with the Aloha Acquisition, we have recorded $15 million and $15 million , as of December 31, 2017 and 2016 , respectively, under non-current liabilities on our Consolidated Balance Sheets. Earnout objectives achieved under this agreement during the period of December 16, 2014 through December 31, 2022 are paid annually in arrears. The fair value measurement of such future earnouts is categorized within Level 3 of the fair value hierarchy.

F-31


14.
Rental Income under Operating Leases
The balances of property and equipment that are being leased to third parties for rental income were as follows:
 
December 31,
2017
 
December 31,
2016
 
(in millions)
Land
$
354

 
$
303

Buildings and improvements
254

 
224

Equipment
53

 
137

Total property and equipment
661

 
664

Less: accumulated depreciation
(90
)
 
(121
)
Property and equipment, net
$
571

 
$
543

 
Rental income for the years ended December 31, 2017 , December 31, 2016 , and December 31, 2015 was $89 million , $88 million and $81 million , respectively.
Minimum future rental income under non-cancelable operating leases as of December 31, 2017 is as follows (in millions):
2018
$
56

2019
41

2020
23

2021
11

2022
7

Thereafter
6

Total minimum future rentals
$
144

15.
Interest Expense, net
Components of net interest expense were as follows:
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions)
Interest expense
$
195

 
$
153

 
$
65

Amortization of deferred financing fees
15

 
11

 
4

Interest income
(1
)
 
(3
)
 
(2
)
Interest expense, net
$
209

 
$
161

 
$
67


F-32


16.
Income Tax Expense
As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes. The components of the federal and state income tax expense (benefit) are summarized as follows:
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions)
Current:
 

 
 

 
 

Federal
$
—

 
$
(65
)
 
$
(3
)
State
2

 
1

 
1

Total current income tax expense
2

 
(64
)
 
(2
)
Deferred:
 

 
 
 
 
Federal
(302
)
 
(12
)
 
12

State
(6
)
 
4

 
19

Total deferred tax expense (benefit)
(308
)
 
(8
)
 
31

Net income tax expense (benefit)
$
(306
)
 
$
(72
)
 
$
29

Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. The completion of the acquisition of Susser on July 31, 2015 (see Note 3) significantly increased the activities conducted through corporate subsidiaries. A reconciliation of income tax expense at the U.S. federal statutory rate to net income tax expense (benefit) is as follows: 
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions)
Tax at statutory federal rate of 35 percent
$
7

 
$
(6
)
 
$
65

Partnership earnings not subject to tax
(126
)
 
(127
)
 
(55
)
Goodwill impairment
36

 
55

 
—

Revaluation of investments in affiliates
—

 
—

 
9

State and local tax, net of federal benefit
(6
)
 
4

 
1

Statutory rate change
(225
)
 
—

 
8

Other
8

 
2

 
1

Net income tax expense (benefit)
$
(306
)
 
$
(72
)
 
$
29

In December 2017, the “Tax Cuts and Jobs Act” was signed into law.  Among other provisions, the highest corporate federal income tax rate was reduced from 35% to 21% for taxable years beginning after December 31, 2017.  As noted above, the effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.  As such, a deferred tax benefit in the amount of $225 million was realized in 2017.

F-33



Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax basis of existing assets and liabilities. Principal components of deferred tax assets and liabilities are as follows:
 
December 31, 2017
 
December 31, 2016
 
(in millions)
Deferred tax assets:
 

 
 

Environmental, asset retirement obligations, and other reserves
$
20

 
$
28

Inventories
(1
)
 
12

Net operating loss carry forwards
79

 
92

Other
78

 
61

Total deferred tax assets
176

 
193

Deferred tax liabilities:
 
 
 
Fixed assets
324

 
506

Trademarks and other intangibles
169

 
272

Investments in affiliates
72

 
58

Total deferred tax liabilities
565

 
836

Net deferred income tax liabilities
$
389

 
$
643

Our corporate subsidiaries have federal net operating loss carryforwards of $349 million as of December 31, 2017 which expire in 2033, 2034, 2035 and 2036. Our corporate subsidiaries also have state net operating loss benefits of $5 million , net of federal tax, most of which expire between 2029 and 2036. We have determined that it is more likely than not that all federal and state net operating losses will be utilized, and accordingly, no valuation allowance is required as of December 31, 2017 .
The Partnership and its subsidiaries do not have any unrecognized tax benefits for uncertain tax positions as of December 31, 2017 or 2016 . The Partnership believes that all tax positions taken or to be taken will more likely than not be sustained under audit, and accordingly, we do not have any unrecognized tax benefits.
Our policy is to accrue interest and penalties on income tax underpayments (overpayments) as a component of income tax expense. We did not have any material interest and penalties in the periods presented.
The Partnership and its subsidiaries are no longer subject to examination by the Internal Revenue Service (“IRS”) for 2013 and prior years. In the first quarter of 2017, the IRS closed an income tax audit of Susser Holdings Corporation (“SHC”)’s 2014 tax year, and SHC completed the appeal of its 2010 and 2012 Texas margin tax years. The State of Pennsylvania is currently conducting an income tax audit of Sunoco LLC’s 2014 and 2015 tax years.
17.
Partners’ Capital
On July 21, 2015, we completed an equity offering of 5,500,000 of our common units for gross proceeds of approximately $214 million . On November 30, 2015, pursuant to the terms of the Partnership Agreement, 10,939,436 subordinated units held by subsidiaries of ETP were exchanged for 10,939,436 common units. On December 3, 2015, we completed a private placement of 24,052,631 of our common units for gross proceeds of approximately $685 million .
As of December 31, 2017 , ETE and ETP or their subsidiaries owned 45,750,826 common units, which constitute a 39.4% limited partner ownership interest in us. As of December 31, 2017 , our fully consolidating subsidiaries owned 16,410,780 Class C units representing limited partner interests in the Partnership (the “Class C Units”) and the public owned 53,917,173 common units.
Series A Preferred Units
On March 30, 2017, the Partnership entered into a Series A Preferred Unit Purchase Agreement with ETE, relating to the issue and sale by the Partnership to ETE of 12,000,000 Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership at a price per Preferred Unit of $25.00 (the “Offering”). The distribution rate for the Preferred Units is 10.00% , per annum, of the $25.00 liquidation preference per unit (the “Liquidation Preference”) (equal to $2.50 per Preferred Unit per annum) until March 30, 2022, at which point the distribution rate will become a floating rate of 8.00% plus three-month LIBOR of the Liquidation Preference. The Preferred Units are redeemable at any time, and from time to time, in whole or in part, at the Partnership’s option at a price per Preferred Unit equal to the Liquidation Preference plus all accrued and unpaid distributions; provided that, if the Partnership redeems the Preferred Units prior to March 30, 2022, then the Partnership will redeem the Preferred Units at 101% of the Liquidation

F-34


Preference, plus all accrued and unpaid distributions. The Preferred Units are not entitled to any redemption rights or conversion rights. Holders of Preferred Units will generally have no voting rights except in certain limited circumstances or as required by law. The Preferred Units were issued in a private transaction exempt from registration under section 4(a)(2) of the Securities Act.
Distributions on Preferred Units are cumulative beginning March 30, 2017, and payable quarterly in arrears, within 60 days, after the end of each quarter, commencing with the quarter ended June 30, 2017. The distribution payable as of December 31, 2017 was $8 million .
The Offering closed on March 30, 2017, and the Partnership received proceeds from the Offering of $300 million , which it used to repay indebtedness under its revolving credit facility.
On January 25, 2018, the Partnership redeemed all outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $ 313 million . The redemption amount includes the original consideration of $300 million and a 1% call premium plus accrued and unpaid quarterly distributions.
Common Units
On March 31, 2016, the Partnership completed a private placement of 2,263,158 common units to ETE (the “PIPE Transaction”). ETE owns the general partner interests and incentive distribution rights in the Partnership.
On October 4, 2016, the Partnership entered into an equity distribution agreement for an at-the-market (“ATM”) offering with RBC Capital Markets, LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Mizuho Securities USA Inc., Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., Natixis Securities Americas LLC, SMBC Nikko Securities America, Inc., TD Securities (USA) LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Managers”). Pursuant to the terms of the equity distribution agreement, the Partnership may sell from time to time through the Managers the Partnership’s common units representing limited partner interests having an aggregate offering price of up to $400 million . The Partnership issued 1,268,750 common units from January 1, 2017 through December 31, 2017 in connection with the ATM for $33 million , net of commissions of $0.3 million . As of December 31, 2017 , $295 million of our common units remained available to be issued under the equity distribution agreement.
Common unit activity for the years ended December 31, 2017 and 2016 was as follows:
 
Number of Units

Number of common units at December 31, 2015
87,365,706

Common units issued in connection with ETP Dropdown
5,710,922

Common units issued in connection with the PIPE Transaction
2,263,158

Common units issued in connection with the ATM
2,840,399

Phantom unit vesting
861

Number of common units at December 31, 2016
98,181,046

Common units issued in connection with the ATM
1,268,750

Phantom unit vesting
195,813

Other
22,390

Number of common units at December 31, 2017
99,667,999

On February 7, 2018, subsequent to the record date for SUN’s fourth quarter 2017 distribution, the Partnership repurchased 17,286,859 SUN common units owned by ETP for aggregate cash consideration of approximately $540 million . The repurchase price per common unit was $31.2376 , which is equal to the volume weighted average trading price of SUN common units on the New York Stock Exchange for the ten trading days ending on January 23, 2018. The Partnership funded the repurchase with cash on hand.
Allocation of Net Income
Our Partnership Agreement contains provisions for the allocation of net income and loss to the unitholders. For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect, if any, to priority income allocations in an amount equal to incentive cash distributions allocated 100% to ETE.

F-35


The calculation of net income allocated to the partners is as follows (in millions, except per unit amounts):
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
Attributable to Common Units
 

 
 

 
 

Distributions (a)
$
328

 
$
317

 
$
156

Distributions in excess of net income
(293
)
 
(809
)
 
(112
)
Limited partners' interest in net income (loss)
$
35

 
$
(492
)
 
$
44

Attributable to Subordinated Units
 

 
 

 
 

Distributions (a)
$
—

 
$
—

 
$
23

Distributions in excess of net income
—

 
—

 
(12
)
Limited partners' interest in net income
$
—

 
$
—

 
$
11

(a) Distributions declared per unit
to unitholders as of record date
$
3.3020

 
$
3.2938

 
$
2.8851

Class C Units
Pursuant to the terms of the Susser Contribution Agreement on July 31, 2015, (i) 79,308 common units held by a wholly owned subsidiary of Susser were exchanged for 79,308 Class A Units and (ii) 10,939,436 subordinated units held by wholly owned subsidiaries of Susser were converted into 10,939,436 Class A units.
All Class A Units were exchanged for Class C Units on January 1, 2016.
On January 1, 2016, the Partnership issued an aggregate of 16,410,780 Class C Units consisting of (i) 5,242,113 Class C Units that were issued to Aloha as consideration for the contribution by Aloha to an indirect wholly owned subsidiary of the Partnership of all of Aloha’s assets relating to the wholesale supply of fuel and lubricants, and (ii) 11,168,667 Class C Units that were issued to indirect wholly owned subsidiaries of the Partnership in exchange for all outstanding Class A Units held by such subsidiaries. The Class C Units were valued at $38.5856 per Class C Unit (the “Class C Unit Issue Price”), based on the volume-weighted average price of the Partnership’s Common Units for the five -day trading period ending on December 31, 2015. The Class C Units were issued in private transactions exempt from registration under section 4(a)(2) of the Securities Act.
Class C Units (i) are not convertible or exchangeable into Common Units or any other units of the Partnership and are non-redeemable; (ii) are entitled to receive distributions of available cash of the Partnership (other than available cash derived from or attributable to any distribution received by the Partnership from PropCo, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries) at a fixed rate equal to $0.8682 per quarter for each Class C Unit outstanding, (iii) do not have the right to vote on any matter except as otherwise required by any non-waivable provision of law, (iv) are not allocated any items of income, gain, loss, deduction or credit attributable to the Partnership’s ownership of, or sale or other disposition of, the membership interests of PropCo, or the Partnership’s ownership of any indebtedness of PropCo or any of its subsidiaries (“PropCo Items”), (v) will be allocated gross income (other than from PropCo Items) in an amount equal to the cash distributed to the holders of Class C Units and (vi) will be allocated depreciation, amortization and cost recovery deductions as if the Class C Units were Common Units and 1% of certain allocations of net termination gain (other than from PropCo Items).
Pursuant to the terms described above, these distributions do not have an impact on the Partnership’s consolidated cash flows and as such, are excluded from total cash distributions and allocation of limited partners’ interest in net income.
Incentive Distribution Rights
The following table illustrates the percentage allocations of available cash from operating surplus between our common unitholders and the holder of our IDRs based on the specified target distribution levels, after the payment of distributions to Class C unitholders. The amounts set forth under “marginal percentage interest in distributions” are the percentage interests of our IDR holder and the common unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “total quarterly distribution per unit target amount.” The percentage interests shown for our common unitholders and our IDR holder for the minimum quarterly distribution are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution. Effective July 1, 2015, ETE exchanged 21 million ETP common units, owned by ETE, the owner of ETP’s general partner interest, for 100% of the general partner interest and all of the IDRs of Sunoco LP. ETP had previously owned our IDRs since September 2014, prior to that date the IDRs were owned by Susser.

F-36


 
 
 
Marginal percentage interest in distributions
 
Total quarterly distribution per Common unit
target amount
 
Common
Unitholders
 
Holder of IDRs
Minimum Quarterly Distribution
$0.4375
 
100
%
 
—

First Target Distribution
Above $0.4375 up to $0.503125
 
100
%
 
—

Second Target Distribution
Above $0.503125 up to $0.546875
 
85
%
 
15
%
Third Target Distribution
Above $0.546875 up to $0.656250
 
75
%
 
25
%
Thereafter
Above $0.656250
 
50
%
 
50
%
 
Cash Distributions
Our Partnership Agreement sets forth the calculation used to determine the amount and priority of cash distributions that the common unitholders receive.
Cash distributions paid were as follows:  
 
 
Limited Partners
 
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
 
Distribution to IDR Holders
 
 
(in millions, except per unit amounts)
February 14, 2018
 
$
0.8255

 
$
82

 
$
21

November 14, 2017
 
$
0.8255

 
$
82

 
$
22

August 15, 2017
 
$
0.8255

 
$
82

 
$
21

May 16, 2017
 
$
0.8255

 
$
82

 
$
21

February 16, 2017
 
$
0.8255

 
$
81

 
$
21

November 15, 2016
 
$
0.8255

 
$
79

 
$
20

August 15, 2016
 
$
0.8255

 
$
79

 
$
20

May 16, 2016
 
$
0.8173

 
$
78

 
$
20

February 16, 2016
 
$
0.8013

 
$
70

 
$
17

November 27, 2015
 
$
0.7454

 
$
47

 
$
8

August 28, 2015
 
$
0.6934

 
$
29

 
$
3

May 29, 2015
 
$
0.6450

 
$
23

 
$
1

February 27, 2015
 
$
0.6000

 
$
21

 
$
1


 
 
Series A Preferred Unit Holder
Payment Date
 
Total Cash Distribution
 
 
(in millions)
February 14, 2018
 
$
8

November 14, 2017
 
$
7

August 15, 2017
 
$
8

18.
Unit-Based Compensation
The Partnership has issued phantom units to its employees and non-employee directors, which vest 60% after three years and 40% after five years . Phantom units have the right to receive distributions prior to vesting. The fair value of these units is the market price of our common units on the grant date, and is amortized over the five-year vesting period using the straight-line method. Unit-based compensation expense related to the Partnership included in our Consolidated Statements of Operations and Comprehensive Income was $24 million , $13 million and $8 million for the years ended December 31, 2017 , 2016 and 2015 , respectively. The total fair value of phantom units vested for the years ended December 31, 2017 , 2016 and 2015 , was $9 million , $0 million and $0 million , respectively, based on the market price of SUN’s common units as of the vesting date. Unrecognized compensation expenses related to our nonvested phantom units totaled $27 million as of December 31, 2017 , which are expected to be recognized over a weighted average period of 3.7 years. The fair value of nonvested phantom units outstanding as of December 31, 2017 and December 31, 2016 , totaled $57 million and $69 million , respectively.

F-37


Phantom unit award activity for the years ended December 31, 2017 and December 31, 2016 consisted of the following:
 
Number of Phantom Common Units
 
Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2015
1,147,048

 
$
41.19

Granted
966,337

 
26.95

Vested
(1,240
)
 
36.98

Forfeited
(98,511
)
 
39.77

Outstanding at December 31, 2016
2,013,634

 
34.43

Granted
203,867

 
28.31

Vested
(289,377
)
 
45.48

Forfeited
(150,823
)
 
34.71

Outstanding at December 31, 2017
1,777,301

 
$
31.89

  The Partnership previously granted cash restricted units, which vested in cash. As of December 31, 2017 , no such awards remained outstanding.
19.
Segment Reporting
Segment information is prepared on the same basis that our Chief Operating Decision Maker (“CODM”) reviews financial information for operational decision-making purposes. We operate our business in two primary operating segments, wholesale and retail, both of which are included as reportable segments. No operating segments have been aggregated in identifying the two reportable segments.
We allocate shared revenues and costs to each segment based on the way our CODM measures segment performance. Partnership overhead costs, interest and other expenses not directly attributable to a reportable segment are allocated based on segment gross profit.
We report EBITDA and Adjusted EBITDA by segment as a measure of segment performance. We define EBITDA as net income before net interest expense, income tax expense and depreciation, amortization and accretion expense. We define Adjusted EBITDA to include adjustments for non-cash compensation expense, gains and losses on disposal of assets, unrealized gains and losses on commodity derivatives and inventory fair value adjustments.
Wholesale Segment
Our wholesale segment purchases motor fuel primarily from independent refiners and major oil companies and supplies it to our retail segment, to independently-operated dealer stations under long-term supply agreements, and to distributors and other consumers of motor fuel. Also included in the wholesale segment are motor fuel sales to commission agent locations and sales and costs related to processing transmix. We distribute motor fuels across more than 30 states throughout the East Coast and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. Sales of fuel from our wholesale segment to our retail segment are delivered at cost plus a profit margin. These amounts are reflected in intercompany eliminations of motor fuel revenue and motor fuel cost of sales. Also included in our wholesale segment is rental income from properties that we lease or sublease.
Retail Segment
Our retail segment primarily operates branded retail convenience stores across more than 20 states throughout the East Coast and Southeast regions of the United States with a significant presence in Texas, Pennsylvania, New York, Florida, and Hawaii. These stores offer motor fuel, merchandise, foodservice, and a variety of other services including car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. The operations of the Retail Divestment are included in discontinued operations in the following segment information. The remaining retail segment includes the Partnership’s ethanol plant, credit card services, franchise royalties, and its retail operations in Hawaii and the continental United States.
The following tables present financial information by segment for the years ended December 31, 2017 , December 31, 2016 and December 31, 2015 .

F-38


Segment Financial Data for the Year Ended December 31, 2017
 
Wholesale 
Segment
 
Retail 
Segment
 
Intercompany
Eliminations
 
Totals
 
(in millions)
Revenue
 

 
 

 
 

 
 

Retail motor fuel
$
—

 
$
1,577

 
 

 
$
1,577

Wholesale motor fuel sales to third parties
9,278

 
—

 
 

 
9,278

Wholesale motor fuel sales to affiliates
55

 
—

 
 

 
55

Merchandise
—

 
571

 
 

 
571

Rental income
77

 
12

 
 

 
89

Other
50

 
103

 
 

 
153

Intersegment sales
1,472

 
125

 
(1,597
)
 
—

Total revenue
10,932

 
2,388

 
(1,597
)
 
11,723

Gross profit
 
 
 
 
 

 
 
Retail motor fuel
—

 
157

 
 

 
157

Wholesale motor fuel
535

 
—

 
 

 
535

Merchandise
—

 
185

 
 

 
185

Rental and other
116

 
115

 
 

 
231

Total gross profit
651

 
457

 
 
 
1,108

Total operating expenses
406

 
473

 
 

 
879

Operating income
245

 
(16
)
 
 

 
229

Interest expense, net
88

 
121

 
 

 
209

Income (loss) from continuing operations before income taxes
157

 
(137
)
 
 

 
20

Income tax benefit
(10
)
 
(296
)
 
 

 
(306
)
Income from continuing operations
167

 
159

 
 
 
326

Loss from discontinued operations, net of income taxes
—

 
(177
)
 
 
 
(177
)
Net income and comprehensive income
$
167

 
$
(18
)
 
 

 
$
149

Depreciation, amortization and accretion (1)
118

 
85

 
 

 
203

Interest expense, net (1)
88

 
157

 
 

 
245

Income tax benefit (1)
(10
)
 
(248
)
 
 

 
(258
)
EBITDA
363

 
(24
)
 
 

 
339

Non-cash compensation expense (1)
2

 
22

 
 

 
24

Loss on disposal of assets and impairment charges (1)
8

 
392

 
 

 
400

Unrealized gain on commodity derivatives (1)
(3
)
 
—

 
 

 
(3
)
Inventory fair value adjustments (1)
(24
)
 
(4
)
 
 

 
(28
)
Adjusted EBITDA
$
346

 
$
386

 
 

 
$
732

Capital expenditures (1)
$
71

 
$
106

 
 

 
$
177

Total assets (1)
$
3,130

 
$
5,214

 
 

 
$
8,344

________________________________
(1)
Includes amounts from discontinued operations.


F-39


Segment Financial Data for the Year Ended December 31, 2016
 
Wholesale
Segment
 
Retail
Segment
 
Intercompany
Eliminations
 
Totals
 
(in millions)
Revenue
 

 
 

 
 

 
 

Retail motor fuel
$
—

 
$
1,338

 
 
 
$
1,338

Wholesale motor fuel sales to third parties
7,812

 
—

 
 
 
7,812

Wholesale motor fuel sales to affiliates
62

 
—

 
 
 
62

Merchandise
—

 
541

 
 
 
541

Rental income
76

 
12

 
 
 
88

Other
45

 
100

 
 
 
145

Intersegment sales
1,195

 
133

 
(1,328
)
 
—

Total revenue
9,190

 
2,124

 
(1,328
)
 
9,986

Gross profit
 
 
 
 
 
 
 
Retail motor fuel
—

 
163

 
 
 
163

Wholesale motor fuel
596

 
—

 
 
 
596

Merchandise
—

 
178

 
 
 
178

Rental and other
110

 
109

 
 
 
219

Total gross profit
706

 
450

 
 
 
1,156

Total operating expenses
390

 
621

 
 
 
1,011

Operating income (loss)
316

 
(171
)
 
 
 
145

Interest expense, net
59

 
102

 
 
 
161

Income (loss) from continuing operations before income taxes
257

 
(273
)
 
 
 
(16
)
Income tax expense (benefit)
5

 
(77
)
 
 
 
(72
)
Income (loss) from continuing operations
252

 
(196
)
 
 
 
56

Loss from discontinued operations, net of income taxes
—

 
(462
)
 
 
 
(462
)
Net income (loss) and comprehensive income (loss)
$
252

 
$
(658
)
 
 
 
$
(406
)
Depreciation, amortization and accretion (1)
94

 
225

 
 
 
319

Interest expense, net (1)
59

 
130

 
 
 
189

Income tax expense (benefit) (1)
5

 
(36
)
 
 
 
(31
)
EBITDA
410

 
(339
)
 
 
 
71

Non-cash compensation expense (1)
6

 
7

 
 
 
13

Loss (gain) on disposal of assets (1)
(3
)
 
683

 
 
 
680

Unrealized gain on commodity derivatives (1)
5

 
—

 
 
 
5

Inventory fair value adjustments (1)
(98
)
 
(6
)
 
 
 
(104
)
Adjusted EBITDA
$
320

 
$
345

 
 
 
$
665

Capital expenditures (1)
$
112

 
$
327

 
 
 
$
439

Total assets (1)
$
3,201

 
$
5,500

 
 
 
$
8,701

________________________________
(1)
Includes amounts from discontinued operations.


F-40


Segment Financial Data for the Year Ended December 31, 2015
 
Wholesale
Segment
 
Retail
Segment
 
Intercompany
Eliminations
 
Totals
 
(in millions)
Revenue
 

 
 

 
 

 
 

Retail motor fuel
$
—

 
$
1,540

 
 
 
$
1,540

Wholesale motor fuel sales to third parties
10,104

 
—

 
 
 
10,104

Wholesale motor fuel sales to affiliates
20

 
—

 
 
 
20

Merchandise
—

 
544

 
 
 
544

Rental income
52

 
29

 
 
 
81

Other
28

 
113

 
 
 
141

Intersegment sales
1,407

 
124

 
(1,531
)
 
—

Total revenue
11,611

 
2,350

 
(1,531
)
 
12,430

Gross profit
 
 
 
 
 
 
 
Retail motor fuel
—

 
200

 
 
 
200

Wholesale motor fuel
384

 
—

 
 
 
384

Merchandise
—

 
179

 
 
 
179

Rental and other
74

 
143

 
 
 
217

Total gross profit
458

 
522

 
 
 
980

Total operating expenses
332

 
396

 
 
 
728

Operating income
126

 
126

 
 
 
252

Interest expense, net
54

 
13

 
 
 
67

Income from continuing operations before income taxes
72

 
113

 
 
 
185

Income tax expense
4

 
25

 
 
 
29

Income from continuing operations
68

 
88

 
 
 
156

Income from discontinued operations, net of income taxes
—

 
38

 
 
 
38

Net income and comprehensive income
$
68

 
$
126

 
 
 
$
194

Depreciation, amortization and accretion (1)
68

 
210

 
 
 
278

Interest expense, net (1)
55

 
33

 
 
 
88

Income tax expense (1)
4

 
48

 
 
 
52

EBITDA
195

 
417

 
 
 
612

Non-cash compensation expense (1)
4

 
4

 
 
 
8

Loss (gain) on disposal of assets (1)
1

 
(2
)
 
 
 
(1
)
Unrealized gain on commodity derivatives (1)
2

 
—

 
 
 
2

Inventory fair value adjustments (1)
78

 
20

 
 
 
98

Adjusted EBITDA
$
280

 
$
439

 
 
 
$
719

Capital expenditures (1)
$
65

 
$
426

 
 
 
$
491

Total assets (1)
$
2,926

 
$
5,916

 
 
 
$
8,842

________________________________
(1)
Includes amounts from discontinued operations.
20.
Net Income per Unit
Net income per unit applicable to limited partners (including subordinated unitholders prior to the conversion of our subordinated units on November 30, 2015) is computed by dividing limited partners’ interest in net income by the weighted-average number of outstanding common and subordinated units. Our net income is allocated to limited partners in accordance with their respective partnership percentages, after giving effect to any priority income allocations for incentive distributions and distributions on employee unit awards. Earnings in excess of distributions are allocated to limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.

F-41


In addition to the common and subordinated units, we identify the IDRs as participating securities and use the two-class method when calculating net income per unit applicable to limited partners, which is based on the weighted-average number of common units outstanding during the period. Diluted net income per unit includes the effects of potentially dilutive units on our common units, consisting of unvested phantom units. Basic and diluted net income per unit applicable to subordinated limited partners are the same as there were no potentially dilutive subordinated units outstanding.
A reconciliation of the numerators and denominators of the basic and diluted per unit computations is as follows:
 
Year Ended December 31, 2017
 
Year Ended December 31, 2016
 
Year Ended December 31, 2015
 
(in millions, except units and per unit amounts)
Income from continuing operations
$
326

 
$
56

 
$
156

Less: Net income and comprehensive income attributable to noncontrolling interest
—

 
—

 
4

Less: Preacquisition income allocated to general partner
—

 
—

 
75

Income from continuing operations attributable to partners
326

 
56

 
77

Less:
 
 
 
 
 
Series A Preferred units
23

 
—

 
—

Incentive distribution rights
85

 
81

 
30

Distributions on nonvested phantom unit awards
6

 
5

 
2

Limited partners' interest in net income (loss) from continuing operations
$
212

 
$
(30
)
 
$
45

 
 
 
 
 
 
Income (loss) from discontinued operations
$
(177
)
 
$
(462
)
 
$
38

Less: Preacquisition income allocated to general partner
—

 
—

 
28

Limited partners' interest in net income (loss) from discontinued operations
$
(177
)
 
$
(462
)
 
$
10

Weighted average limited partner units outstanding:
 

 
 

 
 

Common - basic
99,270,120

 
93,575,530

 
40,253,913

Common - equivalents
458,234

 
28,305

 
21,738

Common - diluted
99,728,354

 
93,603,835

 
40,275,651

Subordinated - (basic and diluted)
—

 
—

 
10,010,333

Income (loss) from continuing operations per limited partner unit:
 

 
 

 
 

Common - basic
$
2.13

 
$
(0.32
)
 
$
0.91

Common - diluted
$
2.12

 
$
(0.32
)
 
$
0.91

Subordinated - basic and diluted (1)
$
—

 
$
—

 
$
1.17

Income (loss) from discontinued operations per limited partner unit:
 
 
 
 
 
Common - basic
$
(1.78
)
 
$
(4.94
)
 
$
0.20

Common - diluted
$
(1.78
)
 
$
(4.94
)
 
$
0.20

Subordinated - basic and diluted (1)
$
—

 
$
—

 
$
0.23

___________________________
(1)
The subordination period ended on November 30, 2015, at which time outstanding subordinated units were converted to common units. Distributions and the partners' interest in net income were allocated to the subordinated units through November 30, 2015.

F-42


21.
Selected Quarterly Financial Data (unaudited)
The following table sets forth certain unaudited financial and operating data for each quarter during 2017 and 2016 . The unaudited quarterly information includes all normal recurring adjustments that we consider necessary for a fair presentation of the information shown.
 
2017
 
2016
 
4th
QTR
 
3rd
QTR
 
2nd
QTR
 
1st
QTR
 
4th
QTR
 
3rd
QTR
 
2nd
QTR
 
1st
QTR
Motor fuel sales
$
2,758

 
$
2,849

 
$
2,685

 
$
2,618

 
$
2,634

 
$
2,415

 
$
2,367

 
$
1,796

Merchandise sales
142

 
151

 
147

 
131

 
133

 
142

 
138

 
128

Rental and other income
59

 
64

 
60

 
59

 
57

 
62

 
58

 
56

Total revenues
$
2,959

 
$
3,064

 
$
2,892

 
$
2,808

 
$
2,824

 
$
2,619

 
$
2,563

 
$
1,980

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel gross profit
$
176

 
$
203

 
$
155

 
$
158

 
$
197

 
$
182

 
$
206

 
$
174

Merchandise gross profit
45

 
49

 
48

 
43

 
44

 
46

 
46

 
42

Other gross profit
56

 
64

 
56

 
55

 
55

 
54

 
56

 
54

Total gross profit
$
277

 
$
316

 
$
259

 
$
256

 
$
296

 
$
282

 
$
308

 
$
270

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from operations
$
65

 
$
128

 
$
(20
)
 
$
56

 
$
(140
)
 
$
76

 
$
120

 
$
89

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income (loss)
$
232

 
$
138

 
$
(222
)
 
$
1

 
$
(585
)
 
$
45

 
$
72

 
$
62

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) from continuing operations per limited partner unit:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Common (basic)
$
1.91

 
$
0.92

 
$
(0.58
)
 
$
(0.11
)
 
$
(1.51
)
 
$
0.09

 
$
0.60

 
$
0.56

Common (diluted)
$
1.90

 
$
0.91

 
$
(0.59
)
 
$
(0.11
)
 
$
(1.51
)
 
$
0.09

 
$
0.60

 
$
0.56

Income (loss) from discontinued operations per limited partner unit:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common (basic)
$
0.11

 
$
0.17

 
$
(1.94
)
 
$
(0.11
)
 
$
(4.81
)
 
$
0.15

 
$
(0.07
)
 
$
(0.09
)
Common (diluted)
$
0.11

 
$
0.17

 
$
(1.94
)
 
$
(0.11
)
 
$
(4.81
)
 
$
0.15

 
$
(0.07
)
 
$
(0.09
)

F-43


Exhibit 10.37

REDACTED VERSION

Region: National
Contract Number:

DISTRIBUTOR MOTOR FUEL AGREEMENT
PART 1
COVER PROVISIONS
This Distributor Motor Fuel Agreement (this “ Agreement ”) is made and executed as of January 23, 2018, by and between Sunoco, LLC ( “ Company ” ) whose address is 3801 West Chester Pike, Newtown Square, Pennsylvania 19073, and 7-Eleven, Inc. and SEI Fuel Services, Inc. ( collectively, “ Distributor ” ), whose address is 3200 Hackberry Road, Irving, Texas 76063, and states the terms and conditions under which Company will sell, and Distributor will purchase, Company's branded and unbranded gasoline (regular, plus and premium grades, and E-85 where applicable), diesel and kerosene.

1.1
GENERAL :
(a)
The term “Motor Fuel” as used in this Agreement means both branded and unbranded gasoline (regular, plus and premium grades, and E-85 where applicable), diesel and kerosene that is supplied and delivered by Company to Distributor for purposes of resale. To the extent such Motor Fuel is sold under branded trademarks, trade names, and trade dress owned by Company or branded trademarks, trade names and trade dress for which Company has the license to use and sublicense (the “Authorized Marks”), such Motor Fuel shall be deemed “Branded Motor Fuel” for purposes of this Agreement. Distributor's purchase and resale of Motor Fuel to Distributor's Locations (as defined below) consistent with Company's standards and image requirements and Authorized Marks, is the essence of this Agreement. In addition, Company may also make available to Distributor Company's branded motor oils, automotive lubricants and other products for resale by Distributor to its customers. For purposes of this Agreement, any supplier of Branded Motor Fuels, other than Company, shall be a “Branded Supplier.”
(b)
Each Distributor motor fuel station added or substituted as a location or a substituted location in accordance with this Agreement, or as otherwise mutually agreed to be added as a location by Company and Distributor, shall be hereinafter referred to individually as a “Location” and collectively as the “Locations.” The initial list of Locations subject to this Agreement is set forth on Schedule 1.1 hereto.
(c)
All Locations listed on Schedule 1.1 hereto on the date of this Agreement shall be “Base Locations.” Any Location added to Schedule 1.1 in substitution of a Base Location being removed from this Agreement shall be a “Substitute Location” and shall be considered as a Base Location upon being added to Schedule 1.1. Each Location is located in one of specific geographic regions as indicated on Schedule 1.1.
(d)
Distributor is required to add Locations anticipated to contribute [***] gallons of Motor Fuel for the 2018 Contract Year, [***] additional gallons of Motor Fuel for the 2019 Contract Year, [***] additional gallons of Motor Fuel for the 2020 Contract Year and [***] additional gallons of Motor Fuel for the 2021 Contract Year. Each such Location added in fulfillment of such obligation shall be deemed a “Growth Location” and shall not be considered a “Base Location.”
(e)
Schedule 1.1 shall also list the primary and secondary terminals (each, a “Terminal”) from which Motor Fuel will be supplied to a particular Location.

1.2
TERM:
The initial term of this Agreement shall be for a period of fifteen (15) contract years commencing April 1, 2018 (the “Effective Date”), and ending March 31, 2033 (the “Term”). “Contract Year” shall mean the period beginning on April 1 of each year and ending on March 31 of the following year during the Term. Contract Years shall be designated by the calendar in which the Contract Year commences; for example, the Contract Year commencing on April 1, 2018, shall be the 2018 Contract Year. During the period between the date of this Agreement and the Effective Date, all of the terms and conditions of this Agreement shall apply, except for the provisions of Sections 1.4(c), 1.5(b), 1.5(c), 1.6(b), 1.7 and 1.8.





1.3
BRAND REQUIREMENTS:
(a)
Distributor acknowledges and agrees that, with respect to certain Locations covered by this Agreement, Company has obligations to its suppliers that require such Locations to sell specific Branded Motor Fuels. Distributor agrees to continue to maintain the brands at Base Locations selling Branded Motor Fuels as shown on Schedule 1.1 through the Term, subject to Distributor’s right to substitute and remove Locations from this Agreement as provided herein. Distributor further acknowledges that any change of the brand of such Location or the removal of such Location from this Agreement (unless approved by Company or resulting from Company's breach of this Agreement) may cause Company to become obligated to pay reimbursement, damages or penalties to its suppliers with respect to such debranded or removed Location. The parties acknowledge and agree that the Branded Motor Fuel sold at any Location may not be changed during the Term without the mutual agreement of Company and Distributor, subject to removal and substitution of Locations from this Agreement as provided herein. The parties also acknowledge and agree that during the Term Company will not increase its capital reimbursement obligations to Branded Suppliers without the approval of Distributor, which approval will not be unreasonably withheld, delayed or conditioned.
(b)
Distributor shall indemnify, defend, and hold harmless Company from and against, for and in respect of the full amounts of, and shall pay and reimburse Company for, any and all losses, damages, claims, and penalties incurred or required to be paid, to the extent based upon, arising out of or resulting from Distributor debranding a Location prior to the expiration of the term of the applicable branding commitment for such Location to the extent such branding commitment is effective and all work has been completed prior to the closing (the “Closing”) under the Amended and Restated Asset Purchase Agreement dated January 23, 2018, by and among Distributor and certain affiliates of Company (the “Asset Purchase Agreement”), unless such debranding is in accordance with Distributor’s right to remove Locations in accordance with Section 1.5(c) hereof.

1.4
PRICES:
(a)
During the Term, the prices to be paid by Distributor for Motor Fuel purchased hereunder shall be determined in accordance with the applicable formula price that is specified in Schedule 1.4 hereto for each type and grade of Motor Fuel and delivery point (each, a "Formula Price"). The Formula Price for each gallon of Motor Fuel purchased hereunder shall be equal to the Base Cost plus the Supply Margin for the applicable geographic region plus the Transportation Freight Charge (to the extent freight is supplied by Company or its affiliates). A “Supply Margin” shall be as shown in Section 1.4(b) below for a particular geographic region, except that the Supply Margin for all Growth Locations shall be [***] per gallon without regard for a Growth Location’s particular geographic region. The “Transportation Freight Charge” shall be [***]. Distributor shall be responsible for all taxes and surcharges on the Motor Fuel purchased pursuant to this Agreement. For the avoidance of doubt, the Formula Price and Transportation Freight Charge shall not include any fees, mark-up, expense or other costs associated with Company’s or its affiliates’ breach of any agreement, including the Transportation Agreement (defined below), or surcharges, expenses or other cost imposed on Company or its affiliates due to its failure to meet any of its contractual obligations. The Formula Price and Transportation Freight Charges will not reflect other credits to the account of Distributor, including, without limitation, mystery shop, image capital and other incentives typically passed through to distributors, which such incentives shall be paid separately to Distributor.
(b)
The “Base Cost” shall be modeled on [***], and for unbranded bulk supplied Motor Fuel supplied to any Location, the Base Cost shall include the relevant index plus [***] minus the Distributor RINS Share set forth in the table below for the applicable Region, multiplied by the corresponding RINS Value (the “Applicable RINS Shares). For unbranded Motor Fuel supplied at the terminal rack to any Location, the Base Cost shall include the relevant index plus [***] minus the Applicable RINS Share. For all Branded Motor Fuel supplied at the terminal rack, the Base Cost shall include the relevant index plus [***] minus [***]% of the portion of the daily assessed value for the RINS (the “RINS Value”)[***]. For the avoidance of doubt, Sunoco, Stripes and 7-Eleven “branded” fuels are all deemed to be unbranded for purposes of this Section 1.4. The “Index” basis shall be the [***], mutually agreed upon by Company and Distributor) quote for the specific regions as shown below, and the applicable Supply Margin shall be the amount per gallon as shown below:





REGION
INDEX PRICE
SUPPLY MARGIN
DISTRIBUTOR
RINS SHARE*
Central Texas / San Antonio
[***]
$[***] / gallon
[***]%
Corpus Christi / Valley
[***]
$[***] / gallon
[***]%
Houston / East Texas / Louisiana
[***]
$[***] / gallon
[***]%
Eastern New York
[***]
$[***] / gallon
[***]%
New England
[***]
$[***] / gallon
[***]%
New Jersey
[***]
$[***] / gallon
[***]%
Philadelphia / Pennsylvania / Delaware
[***]
$[***] / gallon
[***]%
Pittsburgh / Ohio / Indiana
[***]
$[***] / gallon
[***]%
Tennessee (Exxon and Shell)**
      [***]***
$[***] / gallon
[***]%
Maryland/Northern Virginia / DC
      [***]***
$[***] / gallon
[***]%
Southern Virginia / Richmond
      [***]***
$[***] / gallon
[***]%
Carolinas Waterborne
[***]
$[***] / gallon
[***]%
Carolinas Pipe
      [***]***
$[***] / gallon
[***]%
Northeast Florida
[***]
$[***] / gallon
[***]%
Southeast Florida
[***]
$[***] / gallon
[***]%
Western Florida
[***]
$[***] / gallon
[***]%
Growth Volume (Contracts Year 1 -4)
Per Region
$[***] / gallon
Per Region
* [***]
** [***].
*** [***].
(c)
Company and Distributor agree that in markets where [***] mutually agreed upon by Company and Distributor) provides more than one price quote for a particular grade of gasoline (CBOB or RBOB) relating to different RVP levels, the following schedule will be used to determine which price quote shall be used. For completeness, the following schedule also includes the general price quotes to be used by region:





                    DATES
RELEVANT ARGUS QUOTE
NYH CBOB
[***]
[***]
[***]
[***]
[***]
[***]
NYH RBOB
[***]
[***]
[***]
[***]
USGC CBOB
[***]
[***]
 
[***]
[***]
Summer 7.8# dates set per CPL schedule
[***]
[***]
 
 
USGC RBOB
[***]
[***]
 
[***]
CHICAGO CBOB
[***]
[***]
 
[***]
CHICAGO RBOB
[***]
[***]
 
[***]
GROUP 3 CBOB
[***]
[***]
 
[***]
(d)
Company and Distributor acknowledge and agree that the Formula Price and the components thereof may need to be adjusted to meet Distributor’s Expected Annual Supply Margin and Adjusted Expected Annual Supply Margin (as those terms are defined in Section 1.5 below) commitments to Company when changes in regulatory environment (e.g., RINS) or other market conditions impact the Expected Annual Supply Margin and Adjusted Expected Annual Supply Margin in either direction. Company will provide monthly updates to Formula Price, as necessary.
(e)
Sunoco Retail LLC, an affiliate of Company will initially provide dispatch and delivery of Motor Fuels to all Locations pursuant to a Transportation Agreement dated as of the date of this Agreement and entered into between Distributor and Sunoco Retail LLC, provided that Distributor, by providing at least [***] days' notice to Sunoco Retail LLC (or such longer notice to align with requirements under third-party carrier agreements), may assume the obligation to take delivery of Motor Fuels from Company's designated delivery points for any one or more geographic regions; provided that any such transportation by Distributor or its carriers shall comply with and be subject to all other provisions of this Agreement.
(f)
Subject to Section 2.3, payments by Distributor to Company will be made on a net [***] day basis, payable by electronic funds transfer ("EFT"), and the parties shall cooperate in establishing the necessary EFT channel of payment.

1.5
MOTOR FUEL VOLUMES:
(a)
There will be no volume requirements during the period between the date of this Agreement and the Effective Date.
(b)
Distributor shall purchase the sufficient volumes of Motor Fuel from Company pursuant to this Agreement as shall be necessary to produce the Expected Annual Supply Margin in each Contract Year as set forth in Section 1.6 below and as adjusted pursuant




to Section 1.7. “Expected Annual Supply Margin” has been calculated by multiplying anticipated geographic region volume purchases by Distributor for Base Locations by the Market Supply Margin for the applicable geographic regions and adding to that the Distributor’s volume commitments for Growth Locations multiplied by [***]. The annual contract volume that Distributor is obligated to purchase during any Contract Year of this Agreement shall be subject to change as agreed to by the parties.
(c)
Removal of Location Annual Supply Margin.
[***]
(d)
To the extent that any Base Location is not fully operational as of the Effective Date, whether due to construction, repairs or otherwise, the Location Annual Supply Margin for such Base Location shall be reduced pro rata for the amount of time between the Effective Date and the date such Location is fully operational, and the Expected Annual Supply Margin shall be reduced accordingly until such time as the Base Location is fully operational.

1.6
EXPECTED ANNUAL SUPPLY MARGIN
(a)
There will be no Expected Annual Supply Margin requirements during the period between the date of this Agreement and the Effective Date.
(b)
Company and Distributor acknowledge and agree that this Agreement is a “take or pay” agreement, and that the intent of the pricing structure described in this Agreement is to ensure that Company realizes the Expected Annual Supply Margin during each Contract Year, as adjusted pursuant to Section 1.5(c), Section 1.7 and Section 1.9. During the initial Contract Year hereof, the Expected Annual Supply Margin shall be [***] for Base Locations and [***] for Growth Locations. In the second Contract Year hereof, [***] for Base Locations and [***] for Growth Locations. In the third Contract Year hereof, [***] for Base Locations and [***] for Growth Locations. For each Contract Year thereafter, [***] for Base Locations and [***] for Growth Locations. During the full Term of this Agreement, the aggregate Expected Annual Supply Margin for Base Locations and Growth Locations is [***] (the “Aggregate Expected Supply Margin”). The above Expected Annual Supply Margins are all subject to adjustment pursuant to Section 1.5(c), Section 1.7 and Section 1.9.

1.7
SHORTFALLS:
(a)
To the extent that Distributor fails to purchase sufficient Motor Fuel from Company to provide to Company at least [***]% of the Expected Annual Supply Margin for a Contract Year, (i) Distributor will be required to pay to Company an amount of cash which, when added to the Annual Supply Margin actually attained by Company in such Contract Year, would equal the Guaranteed Minimum Payment for such Contract Year (such payment, a “Make-Up Payment”) and (ii) any Shortfall (defined below) will be added to Expected Annual Supply Margin for the following Contract Year to create an Adjusted Expected Annual Supply Margin for the following Contract Year. The “Guaranteed Minimum Payment” for any Contract Year shall be an amount equal to [***]% of the Expected Annual Supply Margin for such Contract Year plus any Shortfall of Adjusted Expected Annual Supply Margin from the previous Contract Year. The “Annual Supply Margin” attained by Company for any Contract Year shall be the amount calculated by multiplying the number of gallons of Motor Fuel (per type and grade) purchased by Distributor in a Contract Year by the applicable supply margin cents-per-gallon amount paid to Company for each such gallon of purchased Motor Fuel in such Contract Year. The difference between (A) the Adjusted Expected Annual Supply Margin for a Contract Year and (B) the sum of the amounts received by Company from the actual Annual Supply Margin for such Contract Year, plus any Make-Up Payment for such Contract Year shall be a “Shortfall.” Make-Up Payments will be paid no later than sixty (60) days following the end of a Contract Year. At the end of the Term, all Shortfall from the current Contract Year shall be required to be paid at such time, so that Company shall have received at least the Aggregate Expected Supply Margin by such date.
(b)
As an example, if, in the initial Contract Year of the Term, the total Expected Annual Supply Margin is $109,254,266, the Guaranteed Minimum Payment for the initial Contract Year would be $[***]. If the Annual Supply Margin attained by Company for the initial Contract Year is $105,000,000, Distributor would be required to pay to Company a Make-Up Payment of $[***]. After giving effect to the Make-Up Payment, the Shortfall for the initial Contract Year would be $[***]. This Shortfall would be carried forward to increase the succeeding year’s Guaranteed Minimum Payment and Adjusted Expected Annual Supply Margin.
For the second Contract Year, the total Expected Annual Supply Margin is $[***] and the Adjusted Expected Annual Supply Margin is $[***]. The Guaranteed Minimum Payment for the second Contract Year would be $[***] plus the $[***] Shortfall from the previous year). If the Annual Supply Margin attained by Company for the second Contract Year is $[***], Distributor would be required to pay to Company a Make-Up Payment of $[***]. After giving effect to the Make-Up Payment, the Shortfall for the second Contract Year would be $[***]. This Shortfall will be carried forward to increase the succeeding year’s Guaranteed Minimum Payment and Adjusted Expected Annual Supply Margin.




If, on the other hand, Company’s Annual Supply Margin was $[***] in the initial Contract Year, and thus exceeded the Guaranteed Minimum Payment, no Make-Up Payment would be required, and the Shortfall in that case of $[***] would be added to the Guaranteed Minimum Payment for the second Contract Year and used to calculate the Adjusted Expected Annual Supply Margin.

1.8
OVERLIFTING AND PRICE ADJUSTMENTS:
(a)
To the extent that Distributor purchases Motor Fuel from Company in any Contract Year sufficient to provide to Company more than 100% of the Expected Annual Supply Margin for such Contract Year (as adjusted for any Shortfall from the previous Contract Years pursuant to Section 1.7), Company will rebate to Distributor an amount determined by calculating the difference between the actual Annual Supply Margin attained for such Contract Year and the Annual Supply Margin that would have been attained if each gallon of Motor Fuel purchased after 100% of the Expected Annual Supply Margin had been attained in a Contract Year had a Supply Margin of [***] per gallon rather than the supply margin for the applicable geographic region for such purchased gallon. Such rebates will be paid no later than sixty (60) days following the end of a Contract Year, and may be paid by offsetting rebate amounts against amounts owed by Distributor to Company under this Agreement. Notwithstanding the foregoing, Company agrees that, to the extent 100% of the Expected Annual Supply Margin has been attained in a Contract Year, it will use commercially reasonable efforts to adjust current invoices and bills of lading to Distributor at such time, so that the effective Supply Margin charged going forward per gallon would be [***] per gallon rather than the Supply Margin for the Base Locations in an applicable geographic region for such purchased gallon through the end of the Contract Year.
(b)
Company will provide to Distributor a quarterly certification of Motor Fuel volumes purchased and progress toward Expected Annual Supply Margin and Adjusted Expected Annual Supply Margin no later than thirty (30) days following the end of each quarter. Within thirty (30) days of the end of each year, Company will provide to Distributor a certification of Adjusted Expected Supply Margin for the then current year. The quarterly and annual certifications shall be subject to review pursuant to Section 1.13.

1.9
SUBSTITUTION OF LOCATIONS; GROWTH LOCATIONS:
(a)
Except as otherwise provide in, and in addition to the removal rights contained in, Section 1.5(c), Distributor, upon ninety (90) days’ prior written notice to Company, shall have the right to remove from this Agreement, in its sole discretion, any one or more Locations then covered under this Agreement, due to: (i) a sale of the Location to an unrelated third party; (ii) the expiration or termination of a lease with an unrelated third party, except for Locations shown on Schedule 1.1 hereto that that were not leased from a third party prior to the Effective Date, and/or (iii) a permanent removal of the Location from use as a retail gasoline facility. Except as otherwise provided in Section 1.5(c), the removal of a Location shall not affect the Expected Annual Supply Margin due to Company. Distributor acknowledges its obligations pursuant to Section 1.3(b) to the extent the removal of a Location, other than in accordance with Section 1.5(c), causes Company to become obligated to pay reimbursement, damages or penalties to its suppliers with respect to such removed Location.
(b)
Except as provided in Section 1.5(c), upon the removal of a Base Location from this Agreement, Distributor shall be obligated to promptly replace the removed Base Location with a substituted Location (a “Substituted Location”) that meets with Company’s approval, which approval will not be unreasonably withheld, delayed or conditioned. Company will consider the following criteria (among other matters): (i) the brand of the Substituted Location; (ii) the anticipated Annual Supply Margin contribution of the Substituted Location; (iii) the geographic region and primary delivery point of the Substituted Location; (iv) the existing brand image of the Substituted Location; and (v) whether the Substituted Location will create a potential conflict with any other existing Company supplied branded retail gasoline station. Any Substituted Location will have the Supply Margin of its applicable geographic region.
(c)
If Distributor sells a Base Location that is subject to Company’s branded supply obligations to an unrelated third party free of such brand supply obligations, Distributor shall indemnify Company as required by Section 1.3(b), and the Location Annual Supply Margin obligation attributable to such sold Base Location shall not be removed from the Expected Annual Supply Margin. If Distributor sells a Base Location to an unrelated third party subject to Company’s branded supply obligations, Distributor’s obligations under Section 1.3(a) shall continue to apply, and the Location Annual Supply Margin obligation attributable of such sold Base Location shall not be removed from the Expected Annual Supply Margin; however, any supply margin earned by Company with respect to such sold Base Location following such sale shall be credited toward the Distributor’s Expected Annual Supply Margin obligation.
(d)
Distributor upon thirty (30) days’ prior written notice to Company, shall have the right, but not the obligation, to add any one or more new Growth Locations, subject to the consent of Company, which consent shall not be unreasonably withheld, conditioned or delayed. Any new Growth Location will have a Supply Margin of [***] per gallon. If Company rejects the addition of a Growth Location for any reason other than that (i) such Location will create a potential conflict with any other existing Company supplied retail gasoline station or (ii) Company is unable to supply such proposed Growth Locations on a commercially reasonable basis,




then Expected Annual Supply Margin and Adjusted Expected Annual Supply Margin shall be reduced by the anticipated Location Annual Supply Margin proposed for such rejected Growth Location for the duration of the term of this Agreement effective as of the thirtieth (30 th ) day after such notice.
(e)
The parties acknowledge and agree that Distributor intends to remove from this Agreement the Locations identified as belonging to the [***]geographic region. At the time of such removal, Distributor shall assume any reimbursement or other obligations relating to unamortized image or incentive monies and any liquidated damages or other monetary obligations that may arise with respect to branding commitments applicable to the [***] Locations in [***] geographic region. Distributor shall not assume, and Company will remain liable for, any such obligations to [***] in excess of $[***], the estimated amount of such damages as of December 20, 2017. Company will retain any obligations relating to any reimbursement or other obligations relating to unamortized image or incentive monies and any liquidated damages or other monetary obligations that may arise with respect to branding commitments applicable to the [***] Locations in the [***] geographic region. At the time of such removal, such Locations shall no longer be deemed “Locations” hereunder.
(f)
Notwithstanding anything in this Agreement to the contrary, Distributor will be permitted to sell the Base Location located at [***] (the “[***] Site”). In the event of such sale, the Supply Margin of the [***]Site will be removed from the Expected Annual Supply Margin due to Company, unless such sale occurs before [***], in which case the Supply Margin attributable to the [***]Site will remain in Expected Annual Supply Margin until and be removed from Expected Annual Supply Margin as of, October 1, 2025, although the parties may agree to allocate the Expected Annual Supply Margin for the [***]Site over a longer period.
(g)
Upon the removal, substitution or addition of any Locations in accordance herewith, the applicable Schedules hereto shall be adjusted accordingly.

1.10
STATE OF EMERGENCY:
During any State of Emergency declared by the President of the United States or any similar declaration made by any federal, state or local governmental authority, Company may elect, with Distributor’s consent, which is not to be unreasonably withheld, conditioned or delayed, to suspend on a temporary basis the application of pricing terms of this Agreement in the affected area and to charge instead the then published Branded Motor Fuel rack price in effect at the time and place of delivery. The duration of time this suspension of the Formula Price construct remains in effect shall be determined by Company, but in no case will exceed a period of six (6) months. Company shall not treat Distributor materially different than other customers of Company affected by the State of Emergency

1.11
RIGHT OF FIRST OFFER:
Distributor and Company acknowledge that Distributor intends to add sites to its base during the term of this Agreement. To the extent permitted by Distributor’s contractual obligations, whether existing or arising from future acquisitions during the first two years of the term of this Agreement, Distributor will endeavor to notify Company of the addition of sites and grant Company the right to propose volumes and pricing for retail fuel supply to such new sites, but not on a "take or pay" basis. Distributor will consider such proposals, but will not be obligated to accept such proposals if Distributor determines, in its good faith business judgment, that the proposal is not in Distributor's best interest.

1.12
CREDIT AND DEBIT CARD REQUIREMENTS:
Company shall make available to Distributor, and Distributor shall use Company's credit and debit card program consistent with all requirements of this Agreement. All fees associated with Company’s credit and debit card program, shall be on terms described in Part 3. In addition, Distributor is required to participate in Company's Electronic Point of Sale ("EPOS") program as described in PART 3.
[***]

1.13
QUARTERLY REVIEWS:
Company and Distributor shall hold quarterly meetings to review dealings pursuant to this Agreement. The parties shall attempt to settle any disputes concerning costs, pricing, volumes, Expected Annual Supply Margin, Adjusted Expected Annual Supply Margin, Shortfalls and Make-Up Payments using commercially reasonable efforts. Other matters of review shall be supply cost, allocation issues, the addition and removal of Locations, Supply Margins and Growth Locations, quarterly estimated payments, RINS share, interchange fees, terminal charges, fuel branding and all applicable incentives.





1.14
CERTAIN OFFSET RIGHTS:
Pursuant to a guarantee dated as of the date of this Agreement (the “Guarantee”), Company is a co-guarantor of the obligations of its affiliates that are sellers (the “Affiliated Sellers”) under the Asset Purchase Agreement. In the event of a Claim Subject to Escrow, the Affiliated Sellers are obligated to deposit into the Indemnity Escrow Account the amounts so required by Section 8.15 of the Asset Purchase Agreement. To the extent such obligations are unsatisfied for one Business Day, Company shall deposit with the Escrow Agent the amounts required to be deposited by Affiliated Sellers pursuant to Section 8.15(b) of the Asset Purchase Agreement.
Additionally, for any indemnification claim made by a Buyer Indemnified Party under the Asset Purchase Agreement, in the event (a) of any decision, judgment, arbitration award or other award rendered by a Governmental Entity of competent jurisdiction (which decision, judgment, arbitration award or other award need not be final and non-appealable) in respect of such indemnification claim, (b) of a settlement, adjustment or compromise in respect of such indemnification claim agreed to by the parties to the Asset Purchase Agreement (or, in respect of a third party claim for which Affiliated Sellers acknowledge their indemnification obligations, a settlement made in accordance with the parameters set forth in the Asset Purchase Agreement), or (c) the Buyers and Affiliated Sellers arrive at a mutually binding agreement in respect of such indemnification claim, Affiliated Sellers shall be obligated to pay such amounts to Distributor and the other Buyers. If this payment obligation is not satisfied, Distributor shall have the right to deliver to Company a demand pursuant to the Guarantee for such amounts. If this demand is not satisfied after one Business day, Distributor shall have the right to give a further notice to Company of its election to off-set all Losses due, owing and unpaid by Affiliated Sellers in respect of such indemnification claim against amounts owed by Distributor to Company under this Agreement. If Distributor so elects to off-set such Losses, Company shall, within three Business Days following receipt of such off-set notice, refund the full amount of such Losses to Buyers from funds paid to Company under this Agreement. Notwithstanding the foregoing, to the extent there are funds in the Indemnity Escrow Account in respect of such indemnification claim, Buyers shall first satisfy Losses in respect of such claim with such funds in the Indemnity Escrow Account prior to seeking to off-set remaining Losses against amounts owed to Company under this Agreement in accordance with the above.
Capitalized terms used, but not defined herein, have the meanings ascribed to such terms in the Asset Purchase Agreement.








Parts of Distributor Motor Fuel Agreement:

Part 1     Cover Provisions
Part 2     General Provisions
Part 3     Credit and Debit Card Acceptance Provisions
Part 4     Standards and Image Provisions
Part 5     Cooperative Advertising Allowance Program
Part 6     Survivorship

Schedule 1.1
Base Locations, Geographic Regions, Primary & Secondary Terminals and Brands
Schedule 1.4
Formula Price per type and grade of fuel
Schedule 1.5
Base Location Annual Supply Margin (volumes x supply margin)
Schedule 2.1
Initial Casualty Sites
Schedule 2.8
EPOS Equipment Rental Rates
Schedule 3.9
EPOS Program and Credit Card Fees
Schedule 4.5
Combined Branding Standards
        
The parts listed above constitute provisions of this Agreement, and are incorporated herein and made a part hereof for all purposes.







Note to Distributor: This is a binding legal document containing several Parts. You should carefully read each Part before signing in the space provided below.




Executed as of January 23, 2018.

DISTRIBUTOR:     7-ELEVEN, INC.

By:     /s/Bentley Tison ________________________

Title:     Senior Vice President Acquisition Integration

SEI FUEL SERVICES, INC.

By:     /s/ Marc Clough ________________________

Title:     President _____________________________


COMPANY:     SUNOCO, LLC


By:     /s/ Joseph Kim ________________________
Chief Executive Officer _______________







    
DISTRIBUTOR MOTOR
FUEL AGREEMENT

PART 2

GENERAL PROVISIONS








































Copyright Sunoco, LLC





Table of Contents
PART 1     
 
1
1.1
GENERAL
1
1.2
TERM
2
1.3
BRAND REQUIREMENTS
2
1.4
PRICES
2
1.5
MOTOR FUEL VOLUMES
5
1.6
EXPECTED ANNUAL SUPPLY MARGIN
5
1.7
SHORTFALLS
6
1.8
OVERLIFTING AND PRICE ADJUSTMENTS
7
1.9
SUBSTITUTION OF LOCATIONS; GROWTH LOCATIONS
7
1.10
STATE OF EMERGENCY
9
1.11
RIGHT OF FIRST OFFER
9
1.12
CREDIT AND DEBIT CARD REQUIREMENTS
9
1.13
QUARTERLY REVIEWS
9
1.14
CERTAIN OFFSET RIGHTS
9
PART 2
 
12
2.1
MOTOR FUEL CONTRACT VOLUME
15
2.2
DELIVERY AND RECEIPT OF PRODUCTS
16
2.3
TERMS AND METHODS OF PAYMENT
17
2.4
RIGHT OF OFFSET: SECURITY INTEREST
19
2.5
RIGHT OF RECOUPMENT
19
2.6
TRADEMARKS, TRADE NAMES AND TRADE DRESS
19
2.7
RETAIL LOCATIONS AND COMPANY'S EQUIPMENT
20
2.8
ELECTRONIC-POINT-OF-SALE , PAYMENT METHODS & PROCESSING EQUIPMENT
21
2.9
PRODUCT SPECIFICATIONS AND WARRANTY
23
2.10
MAINTENANCE OF QUALITY AND BRAND
23
2.11
TAXES, LICENSES AND PERMITS
24
2.12
COMPLIANCE WITH LAWS
24
2.13
MOTOR FUEL SAFETY REQUIREMENTS
25
2.14
HAZARDOUS SUBSTANCE
25
2.15
RELATIONSHIP OF THE PARTIES
26
2.16
LIABILITY OF THE PARTIES; INDEMNIFICATION
26
2.17
INSURANCE
27
2.18
ENFORCEMENT; APPLICABLE LAW; RENEWAL, NON RENEWAL AND TERMINATION
28
2.19
ASSIGNMENT
29
2.20
REPRESENTATIONS OF DISTRIBUTOR
30
2.21
MISCELLANEOUS
31
2.22
BILLBOARD LEASES
32
PART 3
 
33
3.1
CREDIT AND DEBIT CARD SALES
33
3.2
ACCEPTANCE OF CARDS AND OTHER PAYMENT METHODS
34
3.3
COLLECTION OF CARD SALES
35




3.4
REJECTED CREDIT CARD SALES
35
3.5
REPRESENTATIONS AND INDEMNIFICATION
35
3.6
REMEDIES OF COMPANY
35
3.7
ASSIGNMENT OF CARD SALES TO THIRD PARTY
35
3.8
PCI COMPLIANCE
36
3.9
EPOS PROGRAM AND CREDIT CARD FEES
36
PART 4
 
37
4.1
IMAGE
37
4.2
MINIMUM STANDARDS AND REQUIREMENTS
37
4.3
TREATMENT OF DEFICIENCIES
39
4.4
STANDARDS AND REQUIREMENTS CHANGES
39
4.5
COMBINED BRANDING STANDARDS
39






DISTRIBUTOR MOTOR FUEL AGREEMENT

PART 2

GENERAL PROVISIONS


2.1
MOTOR FUEL CONTRACT VOLUME
(a)
Company shall make available for sale to Distributor and Distributor shall purchase from Company at least the sufficient volumes of Motor Fuel as specified in Part 1, Section 1.5, to achieve the Expected Annual Supply Margin subject to any adjustments made pursuant to other provisions of this Agreement. Such purchases shall be subject to and in accordance with Section 1.5 of this Agreement.
(b)
The volumes of Motor Fuel specified in Part 1, Section 1.5 may be allocated, or the availability thereof may be temporarily reduced, suspended, or delayed by Company or other Branded Suppliers, all without liability to Distributor for any resulting losses, when and to the extent Company or its Branded Suppliers, in their sole judgment determine that events, circumstances, or conditions necessitate allocation, reduction, suspension, or delay, such as those classified as, or resulting in, commercial impracticability to Company or its Branded Suppliers, or impossibility of performance by Company or its Branded Suppliers. The types of events, circumstances, and conditions that will give rise to allocation, reduction, suspension or delay by Company or its Branded Suppliers, include, but are not limited to the following: changes that take place with respect to anticipated sources of raw materials, product supplies, or manufacturing, transportation, storage, or loading facilities (including cost increases to Company for same that cannot be satisfactorily included in the price of Motor Fuel covered by this Agreement, or otherwise passed on to Distributor); non-availability, loss, disruption, or breakdown in facilities; environmental protection, health, safety, or other regulatory obligations imposed with respect to products or facilities; labor disputes; weather conditions; or acts or omissions of other customers of Company. Company may, but is under no obligation to Distributor, to correct and remedy such events, circumstances, and conditions, and their effects upon Company's performance of this Agreement. Company shall notify Distributor of the nature of any temporary reduction, suspension, or delay, when reasonable to do so. Notwithstanding the foregoing, Company agrees that it will not discriminate against Distributor in the event of any allocation, reduction, suspension or delay pursuant to this paragraph.

In addition, Distributor’s required purchase of Motor Fuel as specified in Part 1, Section 1.5, and Company’s Expected Annual Supply Margin will be adjusted as agreed for any period of allocation, reduction, suspension or delay in Company’s delivery of Motor Fuel to Distributor.
(c)
Company reserves the right, exercisable as and when Company may determine, to alter (which includes rights of all suppliers, the right to add, to reduce, discontinue, modify, or otherwise change, as suppliers may determine and implement) the number, quality, grade, type, composition, color and specifications of Motor Fuels; to alter dispensing and storage equipment used in connection with Motor Fuels purchased hereunder, and to alter or withdraw Distributor’s right to use any Authorized Marks relating to Branded Motor Fuels, all without liability to Company for losses and damages resulting therefrom; provided that no such modifications or changes shall result in Motor Fuels that do not comply with Section 2.9, Section 2.12(a) or with then-current industry and governmental specifications.
(d)
Notwithstanding any other provision of this Agreement, upon not less than thirty (30) days’ prior written notice to Distributor, Company in its sole discretion shall have the right to discontinue the manufacture or sale of any particular type and/or grade of Motor Fuel. In such event this Agreement shall terminate as to such Motor Fuel so discontinued, but shall remain effective for all other types and grades of Motor Fuel. Distributor’s required purchase of Motor Fuel as specified in Part 1, Section 1.5, and Company’s Expected Annual Supply Margin will be adjusted as agreed to account for any such discontinuation.
(e)
In addition, notwithstanding any other provision of this Agreement, Distributor’s required purchase of Motor Fuel as specified in Part 1, Section 1.5, and Company’s Expected Annual Supply Margin will be adjusted as agreed for any period of allocation, reduction, suspension or delay in Company’s delivery of Motor Fuel to Distributor sites, or in Distributor’s ability to receive delivery of Motor Fuel to Distributor sites or to sell Motor Fuel to the public, due to casualty, including, as of the date hereof, with respect to those sites set forth on Schedule 2.1.





2.2
DELIVERY AND RECEIPT OF PRODUCTS
(a)
At such time as Distributor assumes delivery obligations for purchases of Motor Fuel pursuant to this Agreement, all deliveries of Motor Fuel shall be made to Distributor from Company at the primary or secondary delivery points shown on Schedule 1.1, subject to the following:

(i)
Distributor shall strictly comply with all applicable rules and regulations of terminals and facilities at which Distributor receives Motor Fuel from Company.
(ii)
Any special delivery equipment required to make deliveries to Distributor shall, at Company's option, be provided by Distributor or by Company, at Distributor's expense. Distributor shall not affix or store equipment at Company's delivery facilities without prior written approval of, and upon terms and conditions required by Company. All such equipment shall be removed upon request by Company.
(iii)
Distributor shall ensure that all: (i) Distributor's employees, agents and or employees of contract carriers, or others hired by Distributor to deliver Motor Fuel purchased herein are fully qualified to operate and load vehicles used in the transportation and delivery of Motor Fuel. Distributor shall be responsible for any failure of such employees, agents or contract carriers to comply with applicable laws and follow safe practices and to observe Company's rules and regulations while at Company's or exchange terminals; (ii) trucks, tank trailers and lines are clean and ready to receive Motor Fuel, so that such fuel is not mixed, blended, or adulterated with any other substance or product.
(iv)
To the extent Distributor does not utilize Company for delivery of fuel to Locations, Distributor shall provide and maintain suitable equipment (trucks, tank trailers and lines) for purposes of receiving Motor Fuel at the point of delivery, based on that terminal or facility's requirements, certifying that such equipment is safe to accept Motor Fuel. Company may refuse to deliver Motor Fuel to Distributor when Company, in its sole judgment, believes Distributor's equipment is not suitable.
(v)
Title and risk of loss on all products and Motor Fuel covered by this Agreement shall pass to Distributor at time and place of delivery. Motor Fuel shall be deemed delivered when it reaches the flange connecting the hose of the delivery facility with the intake pipe of Distributor's equipment used for receiving such Motor Fuel. If Company or its affiliates are transporting Motor Fuel to Locations, title and risk of Loss shall pass to Distributor at the time such Motor Fuel reaches the flange connecting the hose to the delivery vehicle with the intake pipe at the Location.
(vi)
Terminal owner’s and operator’s meters and other measuring devices shall be deemed conclusive as to quantities delivered to Distributor, unless either party notifies the other within twenty-four (24) hours after delivery.
(vii)
Company, upon giving Distributor reasonable written notice, may discontinue making deliveries of Motor Fuel at the delivery points as shown on Schedule 1.1 or any other delivery points agreed to hereunder by Company and Company shall make Motor Fuel available for delivery to Distributor at Company's terminal or other supply points as designated by Company.
(viii)
Distributor, upon giving Company one hundred eighty (180) days’ written notice, or such longer notice as required under the applicable third-party carrier agreement, may cause Company to discontinue making deliveries of Motor Fuel at the delivery points as shown on Schedule 1.1 or any other delivery points agreed to hereunder by Company, to any geographic region , and Company shall make Motor Fuel available for delivery to Distributor at Company's terminal or other supply points as designated by Company.
(b)
Distributor agrees that its personnel will not, and will ensure that its common carriers (if any) will not, enter any delivery point set forth on Schedule 1.1 of this Agreement under the influence of alcohol or any controlled substance. Furthermore, Distributor will comply and will cause any common carriers to comply with all applicable drug and alcohol related federal, state and local law, codes and ordinances.
(c)
Distributor acknowledges and agrees that the primary and secondary terminals or supply points shown for a Location on Schedule 1.1 shall not be changed without Company’s prior consent, and the applicable Market Supply Margins and site specific charges for a Location shall apply with respect to such Location unless Company has expressly agreed otherwise in writing.

2.3
TERMS AND METHODS OF PAYMENT
(a)
Unless Company has established other terms and methods of payment, Distributor will pay Company for all Motor Fuel when purchased at delivery points, on [***] day credit terms. Upon a material degradation in Distributor’s credit or recurring late payments by Distributor, Company may, upon written notice to Distributor, make reasonable adjustments to such three day credit




terms in accordance with such terms provided to Distributor in writing; provided, however, that Company must first provide Distributor with a default notice specifying in reasonable detail the nature of such degradation or recurring failure and provide Distributor with a period of ten (10) days after receipt of such written notice to cure such degradation.
(b)
All terms and methods of payment shall be deemed a part of this Agreement. If Distributor does not comply with credit terms or methods of payment, upon three (3) days prior written notice to Distributor, Company may suspend availability of Motor Fuel and other products at delivery points to Distributor without having liability to Distributor, and without releasing Distributor hereunder. Notwithstanding the foregoing, no such prior written notice shall be required by Company if Distributor fails to pay amounts due to Company hereunder as and when due. The right to change terms and methods of payment and suspend availability of Motor Fuel and other products at delivery point to Distributor shall be in addition to and not in substitution for, other rights and remedies available to Company.
(c)
Distributor hereby authorizes Company as evidenced by Distributor's signature on Company's “EFT/DTC Authorization Form" or other Company provided Electronic Funds Transfer Authorization Forms, to draw product purchases and other such charges as mutually agreed upon, directly from Distributor's designated bank account consistent with Company's credit guidelines. If insufficient funds are in Distributor's designated bank account to pay in full sums owed by Distributor to Company upon draft presentation during the term of this Agreement, Company reserves the right to require Distributor to make such payments (product and others) in full on the required payment date by wire transfer or by such other methods as Company in its sole discretion requires.
(d)
Company will make diligent efforts to invoice accurately, to provide an account statement, and to correct errors when discovered. In the event an over-billing occurs, Company will promptly, within ten (10) days, barring third party delays, credit Distributor's account and if an under-billing occurs, Distributor shall pay Company additional amounts that are due within ten (10) days of receipt of corrected invoices or statements of account or by such other date as mutually agreed upon by Company and Distributor. Distributor has sole responsibility to insure proper use of terminal product authorization numbers, loading cards, or other customer specific terminal access numbers issued to Distributor, by Distributor's drivers or designated common carriers. In the event improper use of terminal access numbers cause an incorrect billing, Distributor may be charged a reasonable processing fee as established by Company from time to time.
(e)
All unpaid accounts owing to Company by Distributor shall bear interest from the due date until paid, at rates established by Company or by law. Company's right to collect a finance charge does not operate as a waiver against Company's right of termination herein for Distributor's failure to pay sums owed when due. Checks or drafts returned unpaid by Distributor's bank for any reason shall be assessed, and Distributor shall pay a returned check charge based upon a percentage of the amount or face value of the check or draft as such percentage may be established by Company from time to time, not to exceed maximum fees as established by applicable state usury laws. Company and Distributor agree that such percentage will be [***]% as of the date of this Agreement, but may be changed at the discretion of Company pursuant to the foregoing. All payments shall be made by Distributor without offset or counterclaim. In the event suit is brought to collect unpaid accounts or other sums owed to Company by Distributor, the prevailing party shall be entitled to recover its reasonable attorney's fees and costs of litigation in full from the other party, which fees and costs shall be added to or deducted from accounts owed by Distributor.
(f)
Distributor shall provide Company its most recent annual audited financial statements, accompanying footnotes and other information relative to Distributor's credit standing, as may be reasonably requested in writing by Company. Distributor agrees to provide Company with such financial statements within thirty (30) days after receipt of Company's request. Distributor acknowledges and agrees that Company may rely upon such financial statements in extending credit to Distributor. If Company reasonably determines that Distributor’s credit has suffered a material degradation, Company may require Distributor to provide an Irrevocable Letter of Credit in an amount, form and from a bank reasonably acceptable to Company or an alternate form of security in an amount and form reasonably satisfactory to Company. Any material breach by Distributor of the obligation to provide such financial statements or letter of credit or security as set forth above, will be considered noncompliance with a material provision of this Agreement and may also result, at Company's option, in Distributor being placed on wire-in-advance terms.

2.4
RIGHT OF OFFSET: SECURITY INTEREST
(a)
Company shall have the right to offset or apply sums held by Company under this Agreement and owing to Distributor if Distributor fails to pay any and all sums not disputed in good faith and owed to Company or Sunoco Retail LLC when due under this Agreement. This includes any cost incurred by Company as a result of Distributor’s default of any obligation set forth herein. This offset right and application of funds shall be in addition to, and not in substitution for other rights and remedies available to Company by law and other provisions of this Agreement, including, but not limited to, Company’s rights of setoff and recoupment under this Agreement and as otherwise provided by law.
(b)
Company, at its sole discretion, as a condition of this Agreement, may require Distributor, from time to time, to execute and deliver financing statements, security agreements, or other documents, evidencing Company’s secured interest in Motor Fuel or equipment




supplied to Distributor by Company.

2.5
RIGHT OF RECOUPMENT
Company and its affiliates have no right to recoup or offset any monies owed to Distributor or a third party by Company or its affiliates against any outstanding liability to Company or its affiliates by Distributor. Company and Distributor agree that all transactions contemplated by this Agreement, including, but not limited to, all deliveries and sales of product and all credit card sales, are considered to be one, integrated transaction.

2.6
TRADEMARKS, TRADE NAMES AND TRADE DRESS
(a)
Authorized Marks, when used in connection with the performance of this Agreement, are for the purpose of identifying the source of Branded Motor Fuel covered hereby. Authorized Marks shall include a Branded Motor Fuel supplier’s (including Company's) logos, brand identification, product and service advertising, credit, debit and cash cards, and product names as well as trademarks and service marks. "Trade dress" refers to the manner and style of presentation of advertising material for products and services, including color, graphics, layout and artwork, used on product labels and point-of- sale material on buildings, signs, dispensers / pumps and other equipment. Distributor may use and display Authorized Marks for the limited purpose of advertising that Distributor sell Branded Motor Fuel and other products associated with Branded Motor Fuel suppliers’ (including Company’s) and accepts credit cards associated with such Branded Motor Fuel suppliers. Company may, at any time, upon notice to Distributor, change, alter, substitute, or discontinue use of any of Authorized Marks without having liability to Distributor. Distributor shall, in accordance with notice from Company, change, alter, substitute or discontinue use of such Authorized Marks.
(b)
Distributor shall conduct all business pursuant to this Agreement under Distributor's name, and Distributor shall not use Authorized Marks as part of Distributor's corporate, partnership or trade name.
(c)
Distributor shall not use Authorized Marks except for displaying, promoting or selling Branded Motor Fuel and other products associated with such marks, and such identification shall be discontinued when this Agreement is terminated, or when such equipment and facilities are no longer used for the purposes of selling to consumers Branded Motor Fuel purchased hereunder, whichever shall first occur. Distributor does not, and shall not have, any claim, right, ownership, or other proprietary interest in the Authorized Marks.
(d)
Upon termination, non-renewal or mutual cancellation of this Agreement, Distributor shall cease and desist its use of the Authorized Marks at the Locations. As soon as possible after such termination non-renewal or cancellation, Distributor shall completely remove brand-related branding and identification, including, but not limited to, all logos and trademarks, point of sale and promotional signage, dispenser graphics and fuel island canopy signage and graphics, credit card materials and any other Branded Supplier’s identification, from Locations and return or, at either Distributor’s or Company’s election, destroy, such materials and certify to Company as to such destruction. If Distributor does not return or destroy Company’s branding and identification items within thirty (30) days after termination, non-renewal or mutual cancellation, together with a photograph of such de-branded Location, Company shall have the right to remove such from Distributor’s branded Locations, at Distributor’s expense.

2.7
RETAIL LOCATIONS AND COMPANY'S EQUIPM ENT
(a)
Retail Locations:
(i)
Distributor shall use commercially reasonable efforts to purchase, actively promote, market and have available for sale, Motor Fuel at the Locations, consistent with Part 4, "Standards and Image Provisions" of this Agreement, and such other standards and specifications as may be published and adopted by Company from time to time. Company shall notify Distributor as to the requirements of such publications, and Distributor shall comply to comply with such requirements. Distributor may utilize Authorized Marks and the applicable credit and debit card program (as described in Section 2.8) at the Locations, for the purpose of indicating to the public that Motor Fuel is available for sale at such Locations. Upon request by Company, Distributor shall submit Motor Fuel delivery records for each Location. Schedule 1.1 shall be deemed an integral and material part of this Agreement and may be periodically revised only upon prior approval of Company and Distributor. Distributor shall use Authorized Marks and the applicable credit and debit card program only in connection with the sale of Motor Fuel, and only at those Locations authorized by Company and listed on Schedule 1.1. Distributor shall operate the Locations identified with Authorized Marks in accordance with the applicable minimum requirements as to product offering, image, appearance and service as specified in Part 4.
(ii)
Should Distributor fail to comply with Company's minimum requirements as specified in Part 4, or other requirements of this Agreement, Company shall have the right to withdraw Company's authorization to use the Authorized Marks, and the applicable credit and debit card program at such Locations, pending correction of such noncompliance. If such




noncompliance continues beyond a reasonable cure period after Company has issued a warning, Distributor, at Distributor's expense, shall promptly debrand such Locations and remove the Authorized Marks. Company shall have the right to remove the Authorized Marks at Distributor's expense including reasonable legal fees. Company reserves the right to withdraw authorization to use the Authorized Marks and debrand any or all Locations, in the event of such noncompliance.
(iii)
Distributor must obtain prior written authorization to use the Authorized Marks and Company’s credit and debit card program at any additional retail locations not included as a Location on Schedule 1.1. Such authorization shall be contingent upon Company's approval, at its sole discretion, of the location as an additional retail outlet and subject to compliance with Part 4, and all other provisions of this Agreement. Distributor acknowledges and agrees that Company will not approve any prospective locations which are or may be encumbered by liens or contractual obligations with other motor fuel suppliers. If any prospective location is approved, Distributor agrees to purchase Motor Fuel from Company for this additional Location. Distributor shall immediately notify Company of any decision to remove the Authorized Marks and credit and debit card program at any Location using the Authorized Marks.
(iv)
Distributor shall use, in accordance with all applicable laws, regulations and ordinances, the SunocoNet website (“SunocoNet”) and any updates, revisions, replacements, or other systems furnished by Company, its contractors or agents to Distributor, which Distributor agrees, is Company’s primary method for providing, among other things, Distributor product price notifications, marketing program information, invoices, and all credit card, debit and other payment method communications, including but not limited to, transaction summaries, fees and chargeback notifications. Company may, in its sole discretion, communicate with Distributor via alternative methods, however, Distributor acknowledges and agrees that Distributor is obligated to review SunocoNet for Company communications. Distributor agrees that Distributor shall be responsible for providing access to and use of SunocoNet by Distributor’s employees, agents, contractors, and subcontractors.
(b)
Distributor shall comply with Part 4, and with all written operating procedures established and updated by Company and provided to Distributor from time to time.
(c)
Distributor permits Company to enter Locations premises from time to time, to ensure each Location's compliance with Part 4, and other requirements of this Agreement.

2.8
ELECTRONIC-POINT-OF-SALE, PAYMENT METHODS AND PROCESSING
EQUIPMENT
(a)
Company has developed the Electronic-Point-of-Sale Credit Card Program (the “EPOS Credit Card Program”) as an essential and mandatory element of this Agreement to assist Distributor to increase sales of Motor Fuels at Company branded Locations hereunder. The EPOS Credit Card Program, including its credit and debit card acceptance provisions, is an integral and material part of this Agreement and Company’s relationship with Distributor at Company branded locations.
(b)
Pursuant to this EPOS Credit Card Program, Company will approve for use various types and models of credit and debit card equipment to be used at branded locations (“EPOS Card Equipment”) to Distributor to facilitate the use of such cards by customers of Distributor.
(c)
Because of continuing technological improvements, the EPOS Card Equipment leased or loaned to Distributor may be updated, changed, modified and added to during the Term.
(d)
The EPOS Card Equipment leased or loaned to Distributor at the commencement of this Agreement shall be as specified in Schedule 2.8 hereto. Any changes, additions, or deletions to such EPOS Card Equipment during the Term will be provided on SunocoNet and Distributor shall be obligated to access SunocoNet for such updates periodically.
(e)
EPOS Card Equipment used by Distributor for Company's EPOS Credit Card Program may, in some circumstances, be purchased by Distributor, or equipment previously owned by Distributor may, in some circumstances, be converted for use by Distributor for Company's EPOS Credit Card Program, subject to Company's prior approval. Company at its sole discretion may approve such purchase or conversion based on Company's evaluation that such EPOS Card Equipment satisfactorily complies with all Company's specifications and requirements. In the event Company does approve such purchase or conversion, Company requires Distributor to maintain compliance with Company's current specifications for EPOS Card Equipment at all times.
(f)
The provision and usage of the EPOS Card Equipment shall be as set forth below:
(i)
Distributor shall pay rental to Company for EPOS Card Equipment leased from Company at rates set forth on Schedule 2.8 . Such rental shall be prorated for periods less than one month.




(ii)
Distributor acknowledges that the leased EPOS Card Equipment shall remain the property of Company.
(iii)
Distributor shall use and train Distributor’s personnel to use the EPOS Card Equipment in strict compliance with all rules, policies, procedures and instructions as contained in the Credit Card Sales Guide developed by Company and provided to Distributor on SunocoNet. Such guides and procedures shall be deemed an integral and material part of this Agreement. Company reserves the right to update, change, add to, amend or terminate the Credit Card Sales Guide and any other payment guides at any time upon notification to Distributor, and Distributor shall be responsible for accessing such updates, changes, additions or amendments through SunocoNet.
(iv)
Distributor shall maintain the EPOS Card Equipment in good order and condition during the term of this Agreement. Distributor acknowledges that such EPOS Card Equipment shall remain the property of Company where it is leased. As an acknowledgment of receipt of such EPOS Card Equipment, Distributor shall execute "Sunoco’s Distributor EPOS Terminal Profile".
(v)
Distributor shall not make any changes, modifications, additions, or alterations to the EPOS Card Equipment without Company’s prior written consent. This prohibition specifically includes, but is not limited to, the EPOS Card Equipment interface, as applicable, with other systems or components.
(vi)
Distributor is responsible for informing Company in a timely manner of the EPOS Card Equipment’s failure and need for repair, or the EPOS Card Equipment’s destruction or removal from a Location.
(vii)
In the event that any leased or loaned EPOS Card Equipment is damaged beyond repair, destroyed, removed by Distributor or lost or stolen, Distributor shall reimburse Company for its then current cost to replace the EPOS Card Equipment with like-kind equipment.
(viii)
Company reserves the right, upon ninety (90) days’ prior notice, to remove any leased or loaned EPOS Card Equipment during the term of this Agreement without having liability to Distributor for trespass or damages. In such event Company shall refund a prorated amount of any prepaid rental for the EPOS Card Equipment.
(g)
Notwithstanding anything to the contrary herein, the terms of the terms and conditions of this Agreement related to the EPOS Credit Card Program and EPOS Card Equipment shall only be applicable to branded Locations.
 
2.9
PRODUCT SPECIFICAT IONS AND WARRANTY
(a)
Motor Fuel sold by Company to Distributor shall comply in all respects with applicable federal and state requirements, including but not limited to regulations promulgated by the U.S. Environmental Protection Agency (the “EPA”) under the Clean Air Act. Such Motor Fuel meets Company’s or the Branded Supplier’s product specification at time and place of delivery by Company to Distributor.
(b)
This warranty is in lieu of all other warranties, express or implied, including, but not limited to, fitness for a particular purpose and merchantability. Company shall, at its option, correct a nonconformity of products specification, refund purchase price or replace product, and reimburse Distributor for direct damage settlements paid to customers directly caused by Motor Fuel that was out-of-spec at the time of delivery to a Location, which shall constitute fulfillment of all Company liabilities, whether based on contract negligence or otherwise.
(c)
SPECIAL OR CONSEQUENTIAL DAMAGES ARE EXPRESSLY EXCLUDED FROM THIS AGREEMENT, EXCEPT TO THE EXTENT ANY SUCH DAMAGES ARE ACTUALLY PAID OR AWARDED TO THIRD PARTIES.

2.10
MAINTENANCE OF QUALITY AND BRAND
(a)
Distributor shall continuously exercise commercially reasonable efforts to promote and sell to the public all grades of authorized Branded Motor Fuels available for purchase at each Location by Distributor.
(b)
Motor Fuel sold by Distributor under the Authorized Marks shall adhere to blend ratios and octane requirements as specified by Company or the Branded Supplier from time-to-time and, shall not be adulterated, mixed, or blended by Distributor with any other product or substance. Distributor hereby authorizes Company to enter Distributor's premises from time to time to take samples of Motor Fuel sold under the Authorized Marks. Distributor agrees further to obtain and deliver to Company prior to branding of additional locations and at renewal all necessary consents in form set forth below from any of its retailers. Such form shall contain substantially the following language: "Company, or its representative, is hereby granted permission to enter the premises to take samples of Motor Fuel sold under the Authorized Marks and conduct or arrange for tests in order to insure compliance with all state and federal regulations, including Reid Vapor Pressure (RVP), and oxygenated fuels.” Failure on the part of Distributor to




permit Company to enter Distributor’s premises to take test samples shall be considered a material breach of this Agreement. In the event samples taken by Company of Motor Fuel sold under the Authorized Marks are found to be contaminated, adulterated, commingled or misbranded, immediate corrective action will be taken. In such an event Company may, in its sole discretion, take additional test samples of Motor Fuel for three (3) subsequent months following Company's determination of contamination, commingling, adulteration or misbranding. The cost of taking such additional test samples shall be charged to Distributor's account at the current market rate as determined by Company per test sample. Company reserves the right, however, based on a determination of adulteration, commingling or misbranding of any Motor Fuel sold under an Authorized Mark, to immediately terminate Distributor's Agreement. Company shall determine specifications of its Motor Fuel sold hereunder to Distributor, based on availability at the terminal or other delivery points from which Motor Fuel is shipped to, or received by, Distributor.
(c)
Provided that all Motor Fuel continually complies with Section 2.9 and Section 2.12(a), Company reserves the right, exercisable from time-to-time as and when Company may solely determine, to alter, add to, reduce, discontinue, modify, or otherwise change, the number, quality, grade, type, composition, color, and specifications, including without limitation, blending components, adding octane enhancers and fuel extenders, or both, such as oxygenates of Motor Fuel and Motor Fuel Blend ratios, and other products, without having liability to Distributor for losses and damages resulting therefrom, excepting only losses and damages occasioned by Company's sole negligence. Company shall have no obligation to sell or deliver such discontinued grades(s) of Motor Fuel or other products to Distributor. If Company shall market any other grade(s) of Motor Fuel or other products in lieu of that discontinued, this Agreement shall cover such new grade of Motor Fuel or other products; provided that Locations comply with all requirements for the sale of such new grade of Motor Fuel.
In addition, Distributor’s required purchase of Motor Fuel as specified in Part 1, Section 1.5, and Company’s Expected Annual Supply Margin will be adjusted as agreed for any alteration, addition, reduction, discontinuation, modification, or change of Motor Fuel and Motor Fuel Blend ratios, and other products.

2.11
TAXES, LICENSES AND PERMITS
Distributor is solely responsible for all taxes, licenses, and permits required to be paid or collected by Distributor in connection with Distributor's business, including but not limited to registrations, permits and certifications for underground storage systems, and motor fuel dispensing equipment. Distributor shall pay to Company on demand any and all taxes, duties, charges, and fees, and any and all increases thereon which are now or hereafter lawfully imposed on, or required to be paid or collected by, Company, directly or indirectly, by any governing authority or agency on, against, in respect of, or measured by the Motor Fuel, or any material contained in the Motor Fuel, or the inspection, production, manufacture, sale, purchase, storage, transportation, delivery, or other handling of the Motor Fuel or material contained in the Motor Fuel, or any feature thereof, or otherwise relating to this Agreement.

2.12
COMPLIANCE WITH LAWS
(a)
Motor Fuels sold by Company hereunder shall comply in all respects with applicable Federal and State requirements and regulations for all motor fuels including Reid Vapor Pressure (RVP) and oxygenated fuels at the time and place title to such product passes from Company to Distributor.
(b)
Distributor is solely responsible for its compliance with all laws, ordinances, rules, regulations and orders and other legal requirements of all governmental authorities (Federal, state, municipal or other) including, but not limited to, those relating to receiving, loading, transporting, unloading, storing, pricing, labeling, posting and certifying, selling, and distributing Motor Fuel and other products covered hereunder as well as the proper disposal of waste materials generated at Locations.
(c)
Without limiting Distributor's obligations under Section 2.12(b), Distributor shall adhere to the following requirements:
(i)
Not permit commingling of any Motor Fuel.
(ii)
Permit Company, or its authorized representative, the right to enter upon any Location to take samples and conduct or arrange for tests to determine compliance with such regulations. Distributor agrees further to obtain and deliver to Company, prior to branding of additional locations and at renewal, all necessary consents in form set forth below from its retailers. Such form shall contain substantially the following language: "Company, or its representative, is hereby granted permission to enter the premises to take samples and conduct or arrange for tests in order to insure compliance with motor fuel regulations promulgated by the EPA. However, Distributor retains primary responsibility for verification and sampling of motor fuel in all storage facilities and Locations operated or franchised by Distributor.
(iii)
Provide instructions to delivery employees as to correct handling of Motor Fuel, including proper flushing of delivery truck tanks and related equipment, to ensure no contamination of motor fuel.
(iv)
Properly identify all product storage facilities, including correct color coding of bulk plant piping, fittings, and




underground tank fills.
(v)
Upon reasonable notice, permit Company, during normal business hours, to inspect Distributor's books, records, equipment, and facilities used in connection with the purchase, sale, or handling of motor fuel, when Company has cause to believe a motor fuel violation has occurred.
(vi)
Comply with Federal and State oxygenated fuel requirements.

2.13
MOTOR FUEL SAFETY REQUIREMENTS
Distributor shall implement reasonable safety procedures for Motor Fuel sold to the public at Locations to reasonably protect all parties, and to reasonably eliminate the possibility of gasoline and/or diesel being mistakenly sold for other products. Company and Distributor shall cooperate in the dissemination of any health and safety information from Company or other source, regarding products sold hereunder.
In addition, with respect to any diesel purchases hereunder, Distributor is responsible for ensuring the type of diesel (whether low sulfur diesel, ultra-low sulfur diesel or otherwise) being resold by Distributor is properly identified to Distributor’s customers, and for ensuring timely compliance with respect to EPA's diesel pump labeling requirements (as set forth in 40 CFR 80.570) with respect to Locations providing Company’s authorized branded diesel under the terms of this Agreement.

2.14
HAZARDOUS SUBSTANCE
(a)
Distributor is hereby informed that the materials used to produce Company’s authorized motor fuels, and motor oils covered herein are crude oils or by-products of crude oils, containing, or which may be found to contain, substances hazardous to the health and safety of persons and property.
(b)
Distributor shall reasonably undertake and assume the duty and responsibility to maintain, observe and communicate to Distributor’s agents, employees, customers and contractors any and all safety warnings, procedures, standards, rules and regulations supplied to Distributor by any governmental authority or as Distributor may deem necessary in connection with Distributor’s business and as part of Distributor purchase, storage and sale of Motor Fuels and other products and materials which may be found to contain substances hazardous to the health and safety of persons and property.

2.15
RELATIONSHIP OF THE PARTIES
(a)
Distributor are independent contractors free to set their own selling prices and terms of sale and are not authorized to act as an agent or employee of Company, or to make any commitment, or incur any expense or obligations of any kind on behalf of Company, except those having the specific written approval of Company, and Company has the right to terminate and withdraw its approval therefore, at any time upon written notice to Distributor. Except as otherwise provided in this Agreement, all costs and expenses incurred by Distributor, and all equipment, facilities, and personnel employed by Distributor in the performance of this Agreement and the conduct of Distributor's business, are Distributor’s sole responsibility. This Agreement is exclusively between Distributor and Company. Nothing contained herein shall be deemed to independently create a relationship between any other person.
(b)
Nothing in this Agreement shall be construed to give Distributor any exclusive rights to sell the Motor Fuel in any specific geography or market area. Company acknowledges and affirms its obligations under Section 5.11 of the Asset Purchase Agreement. Distributor acknowledges and agrees that Company may continue to own and operate a wholesale fuel distribution business which includes, without limitation, the sale of motor fuels to other distributors, dealers and franchisees.

2.16
LIABILITY OF THE PARTIES; INDEMNIFICATION
(a)
Company is not responsible to Distributor or to anyone else for any losses, damages, claims, fines, assessments, penalties, suits and costs, litigation, or actions of any kind, (including without limitation disease, injury, or death of persons, or damage to or loss of property), occurring in connection with the operation of Distributor's business, the hazardous nature of Motor Fuel and other products involved, or as caused by the acts or omissions of Distributor. Distributor is in total control of Distributor's business and the purchase and sale of Motor Fuel and other products covered hereunder and hereby agrees to protect, indemnify and hold harmless Company from any and all losses, damages, claims, fines, assessments, penalties, suits, and costs, including reasonable attorneys' fees, which arise out of any violation of law by, and all acts and omissions of, Distributor, agents, employees, customers, and contractors, including but not limited to all parties authorized by Distributor to enter Delivery Point(s) as specified in Part 1 to receive Motor Fuel. Distributor, nevertheless, will not be responsible for (i) violations of Law by Company, (ii) failure of Company to comply with its express representations and warranties under this Agreement or (iii) acts or omissions arising from the comparative negligence of Company, its agents, or employees.




(b)
Notwithstanding the foregoing, for matters occurring within terminals operated by Company's employees or at and by third parties, to the extent that any losses, damages, claims, fines, assessments, penalties, suits and costs, litigation, or action of any kind is directly caused by the negligence of Company, Distributor's duty to indemnify, and hold Company harmless shall be proratably reduced. This limitation shall not apply to loss or damage caused by anyone who gains entry into the Terminal by means of the misappropriation, misrepresentation, unauthorized use or duplication of any terminal access cards issued by Company to Distributor. In all respects, not expressly provided for in this paragraph (b), the Terminal Access Agreement shall take priority over this Agreement for all Terminal matters.
(c)
Except to the extent resulting from a prior breach of this Agreement by Company, all costs, expenses (including reasonable attorneys' fees and costs of litigation), taxes, fines, penalties, settlements and judgments incurred or paid by Company by reason of violation of law by Distributor, or incurred or paid by Company to correct or take legal action to correct a failure by Distributor to comply with Distributor's obligations under this Agreement, shall be due and payable by Distributor to Company upon demand as a part of Distributor's account with Company.
Except to the extent resulting from a prior breach of this Agreement by Distributor, all costs, expenses (including reasonable attorneys' fees and costs of litigation), taxes, fines, penalties, settlements and judgments incurred or paid by Distributor by reason of violation of law by Company, or incurred or paid by Distributor to correct or take legal action to correct a failure by Company to comply with Company’s obligations under this Agreement, shall be due and payable by Company to Distributor upon demand as a part of Company’s account with Distributor.
(d)
This Section 2.16 shall survive termination, nonrenewal, or expiration of this Agreement.

2.17
INSURANCE
(a)
Distributor at its sole cost and expense, through the duration of the term of Distributor’s relationship with Company, shall obtain, keep and maintain in full force and effect for the mutual benefit of Distributor and Company insurance through a financially responsible carrier (with a rating of “A-” or better by A.M. Best) acceptable to Company, such policies of insurance shall be written on an occurrence basis and primary to any other valid and collectible insurance. Company must be included as an additional insured as its interests may appear on all policies listed in sub paragraphs (2) and (3) below. Company is entitled to all coverage limits equal to or greater than the minimum requirements.
(b)
Such insurance at a minimum shall include:
(1)
Worker’s Compensation (Coverage A) and Employer’s Liability (Coverage B) Insurance
(a)
Coverage A - [***]
(b)
Coverage B - [***]
(2)
Commercial General Liability Insurance, including contractual liability, products liability and products completed operations liability, explosion, and collapse liability, as well as coverage on all contractor’s equipment (other than motor vehicles, licensed for highway use) owned, hired, or used in performance of this Agreement.
All of the above with a minimum combined single limit of $[***] each occurrence (or the equivalent) for bodily injury and property damage, including personal injury, or as required by the U. S. Department of Transportation whichever is greater.
(3)
Automobile Liability Insurance, including contractual liability covering all motor vehicles owned, hired, or used in the performance of this Agreement, with a minimum combined single limit per occurrence of $[***] for property damage and bodily injury, and in full compliance with the U.S. Department of Transportation requirements, whichever is greater.
(c)
Distributor shall provide to Company prior to commencement of this Agreement a certificate or other appropriate evidence of insurance coverage as above required, satisfactory to Company, and a renewal certificate of such policy shall be furnished to Company prior to each policy renewal date. Distributor shall endeavor to obtain coverage permitting such certificates to include a provision that such policies may not be canceled or materially changed without at least thirty (30) days’ prior written notice to Company. All insurance coverages shall include a waiver of subrogation in favor of Company, its parent, subsidiaries and affiliates and their respective officers, directors and employees. Distributor shall keep such insurance coverage in full force and effect during the term of this Agreement.
(d)
Distributor’s failure to effectuate any and all such insurance and renewal policies of insurance required as aforesaid, and to pay the premiums and renewal premiums of all such policies of insurance as they become due and payable, and to deliver all such certificates of insurance and renewals thereof or duplicate originals to Company within the time herein above specified, shall constitute a material default by Distributor under the terms of this Agreement. Additionally, if, after written notice from Company,




the required certificates of insurance are not provided within the time set forth in the notice, Company may immediately suspend deliveries of motor fuel to Distributor until such certificates of insurance are received by Company.
(e)
The insurance requirements set forth herein shall not limit Distributor’s liability hereunder and shall survive termination of this Agreement.
(f)
Distributor may self-insure for the insurance coverage required under this Section.

2.18
ENFORCEMENT; APPLICABLE LAW; RENEWAL, NONRENEWAL AND TERM INATION
(a)
This Agreement is subject to and governed by the Petroleum Marketing Practices Act, 15 U.S.C. §2801 et. seq., (the Act) and Title 1 of that Act is made part of this Agreement for purposes of expressing the grounds upon which this Agreement may be terminated and non-renewed by Company. Company's right to terminate or non-renew under the Act shall be in addition to, and not in extinguishment of, all other rights and remedies provided in favor of Company by applicable law and this Agreement. Company may terminate this Agreement in accordance with the Act should Distributor fail to comply with or violate any material provision contained in this Agreement, including but not limited to Distributor's failure to:
(i)
Pay all sums owed to Company, when due;
(ii)
Debrand and de-identify the Authorized Marks or credit and debit card program from Location and equipment operated or serviced by Distributor which is in noncompliance with Company's then current retail image and product offering standards;
(iii)
Maintain the specifications, quality and integrity of Motor Fuels and other products sold hereunder;
(iv)
Comply with all requirements of Company's credit and debit card program;
(v)
Comply with all applicable laws, ordinances, regulations and all legal requirements of any governmental authority pertaining to the loading, transporting, unloading, storing, pricing, labeling, posting and certifying, selling and distributing of all products covered herein;
(vi)
Obtain Company's prior written consent of any sale or assignment of this Agreement;
(vii)
Secure and maintain valid insurance coverage as required herein.
(b)
In the event Company should violate any materially substantive provision of this Agreement and not promptly correct same after receipt of written notice from Distributor and a reasonable opportunity to cure, Distributor may terminate this Agreement with Company any time upon ninety (90) days' prior written notice to Company. Such written notice must specify particular reason(s) which give rise to such termination in order to be effective.
(c)
In the event (i) Company fails to comply in any respect with its obligations contained in Section 1.14 of Part I of this Agreement or (ii) any Affiliated Seller fails to comply in any respect with its indemnification obligations pursuant to Article VIII of the Asset Purchase Agreement, including by failing to fund or to fully fund the Indemnity Escrow Account as required by the Asset Purchase Agreement, Distributor may terminate this Agreement if Company or any Affiliated Seller has failed to cure such noncompliance within thirty(30) days after written notice to Company. Such written notice must specify particular reason(s) which give rise to such termination in order to be effective.
(d)
Upon the effective date of termination or non-renewal hereof,
(i)
All unpaid accounts owed by Distributor to Company shall be due and payable in full, and shall bear interest at rates established by Company's credit terms with Distributor from such date until paid.
(i)
Distributor shall cease the use of the Authorized Marks and credit and debit card program, and shall forthwith debrand each Location and return all of Company's equipment, in good order and condition, at Distributor's expense.
(e)
Company shall have the right, after termination or non-renewal of this Agreement, to debrand such Locations and take possession of, and remove Company's authorized [loaned and] leased equipment, without having liability to Distributor for trespass or damages, and at Distributor's expense.


2.19
ASSIGNMENT




(a)
This Agreement is personal in nature and the performance of Distributor's duties cannot be assigned by Distributor to any party without the prior written consent of Company, which consent shall not be unreasonably withheld. Any such purported sale, assignment or disposition of Distributor's interest in this Agreement, in whole, or in part, without such written consent shall be null and void, and not binding upon Company. Notwithstanding the foregoing, Distributor may assign this Agreement without consent to an Affiliate that has the right to operate the Locations so long as Distributor provides to Company its guaranty of the obligations of the assignee in the form of the Guarantee Agreement, dated as of January 23, 2018, by Sunoco LP in favor of Distributor, with only those ministerial changes necessary to implement changes to parties and dates (the “Assignee Guarantee”). Additionally, the transfer of a majority of the equity of Distributor to a third party shall not be deemed to be an assignment requiring Company’s consent. For purposes of this Agreement, “Affiliate” shall mean, any individual, corporation, partnership, limited liability company, joint venture, trust, unincorporated organization, or other legal entity that directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with Distributor. For purposes of this definition, control means the power, direct or indirect, to direct or cause the direction of the management and policies of such legal entity whether by contract or otherwise.
(b)
Notice of such proposed assignment or sale shall be provided to Company at least sixty (60) days prior to the proposed date of assignment. Company will thereafter evaluate the proposed assignment or transfer of Distributor's business by conducting an examination of the proposed purchaser's credit standing, financial condition and business suitability to perform the requirements of this Agreement. If, in Company's opinion based on objective and accepted business practices, such proposed purchaser does not have sufficient credit standing or business experience to function as required by this Agreement, then Company shall notify Distributor in writing of its opinion, and may refuse to approve the proposed sale, or by such writing may condition its approval upon a revision of credit terms and/or execution by such party of additional requirements to this Agreement. Such refusal by Company shall be deemed to be reasonable.
(c)
No assignment of this Agreement by Distributor shall reduce or eliminate Distributor's continuing obligations hereunder to Company, except as may be otherwise agreed upon in writing by Company.
(d)
This Agreement is personal in nature and the performance of Company’s duties cannot be assigned by Company to any party without the prior written consent of Distributor, which consent shall not be unreasonably withheld. Any such purported sale, assignment or disposition of Company’s interest in this Agreement, in whole, or in part, without such written consent shall be null and void, and not binding upon Distributor. Notwithstanding the foregoing, Company may assign this Agreement without consent to an Affiliate that has the right to distribute Motor Fuel to the Locations so long as Company provides to Distributor its guaranty of the obligations of the assignee in the form of the Assignee Guarantee. Additionally, Company may assign this Agreement to any distributor, jobber, refiner, or other “franchisor”, as that word is used in the Act, subject to the following:
(i)
Assignee shall agree in writing with Company to perform and comply with all of Company's obligations hereunder.
(i)
Company shall notify Distributor in writing of the name and the address of assignee and the effective date of assignment.
(i)
Company shall provide to Distributor its guaranty of the obligations of the assignee in the form of the Assignee Guarantee.

2.20
REPRESENTATIONS OF DISTRIBUTOR
(a)
There have been no promises, claims, or representations made by Company or its representatives to Distributor, including promises concerning price, quality or quantity of Motor Fuel and other products and services sold or supplied by Company, or present or future market conditions and competitive activities which are not contained in this Agreement.
(b)
Distributor has employed, or has had sufficient opportunity to employ legal counsel for the purposes of examining and explaining this Agreement to Distributor.
(c)
Distributor has carefully read and examined this Agreement, has had sufficient opportunity to do so, and understands Distributor's obligations and responsibilities hereunder.
(d)
Distributor is signing this Agreement for purposes of purchasing from Company and reselling Motor Fuel in quantities not less than the minimum volume specified herein to achieve the Expected Annual Supply Margin.
(e)
There are no other persons who have any interest in Distributor's business, or who will act in the capacity of a Distributor hereunder, who are not named herein as a Distributor, except as disclosed in writing to Company.
(f)
Distributor has, and will maintain, sufficient capital and financing to operate Distributor's business consistent with all requirements of this Agreement.
(g)
Distributor has no intention or plan at the time of signing this Agreement to transfer or otherwise assign this Agreement or




Distributor’s business.
(h)
Company, in entering into, and performing this Agreement, is relying upon the foregoing representations of Distributor, which representations shall be continuing, and shall survive termination, nonrenewal or expiration of this Agreement.

2.21
MISCELLANEOUS
(a)
Except as provided in the Asset Purchase Agreement, all prior contracts between the parties concerning the purchase and sale of Motor Fuel and other products covered hereby are canceled as of the date the term of this Agreement commences; provided, however, that the existing Distributor Motor Fuel Agreement dated ______, between SEI Fuel Services, Inc. and Sunoco, LLC, as successor in interest to Sunoco, Inc. (R&M) shall not be cancelled hereby. Both parties fully release each other from all liability arising out of such prior contracts, except with respect to any unpaid accounts owed by either party to the other, or any security agreement providing Company with a security interest in Distributor's equipment, inventory, and accounts receivable, or proceeds therefrom; or relating to Company's equipment and personal property in Distributor's possession.
All representations, understanding, and promises with respect to the subject matter covered by this Agreement are fully set forth herein. The person negotiating this Agreement on behalf of Company is without authority to make any promise or agreement with Distributor which is not set forth herein, or made a part of this Agreement, and executed by a duly authorized representative of Company.
(b)
Except as otherwise expressly set forth herein, no modifications, amendments or supplements to this Agreement, whether by course of conduct or otherwise, shall be valid and binding unless set forth in a written agreement executed and delivered by the Parties.
(c)
All notices required by, or otherwise given in connection with this Agreement, shall be in writing and signed by an authorized representative of the party giving such notice. Notices directed to Company shall be mailed or delivered to Company's address stated herein; and notices directed to Distributor shall be mailed or delivered to Distributor's address stated herein.
(d)
This Agreement shall be binding upon the parties hereto, their respective heirs, successors, and assigns when properly executed as herein required.
(e)
Paragraph headings and titles used in this Agreement are for reference purposes only, and shall not otherwise constitute a part of this Agreement.
(f)
Should Company at any time temporarily waive any of the terms or provisions of this Agreement, including credit terms, whether made expressly or by reason of Company's performance hereunder, such waiver shall not cancel or eliminate the terms or provisions so waived, but the same shall remain in full force and effect notwithstanding such waiver. The waiver of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach.
(g)
This Agreement shall be governed by and interpreted according to the laws (exclusive of the conflicts of laws rules) of the Commonwealth of Pennsylvania applicable to contracts entered into in the Commonwealth of Pennsylvania, except to the extent governed by the PMPA (as defined in Section 2.1(b) of this Agreement, United States Trademark Act of 1946 (Lanham Act), the Copyright Act, and the Patent Act. By agreeing to the application of Pennsylvania law, the parties do not intend to make this Agreement or their relationship subject to any franchise, dealership, distributorship, business opportunity, or similar statute, rule, or regulation of the Commonwealth of Pennsylvania to which this Agreement or the parties’ relationship would not otherwise be subject. Distributor and Company each acknowledges and agrees that the choice of applicable state law set forth in this paragraph provides each of the parties with the mutual benefit of uniform interpretation of this Agreement or the parties’ relationship created by this Agreement. Distributor and Company further acknowledge the receipt and sufficiency of mutual consideration for such benefit, and that each party’s agreement regarding applicable state law has been negotiated in good faith and is part of the benefit of the bargain reflected in this Agreement.
(h)
If any provision, section, sentence or clause of this Agreement, or combination of same, is in violation of any law, such provision, section, sentence, clause or combination of same shall be inoperative and the remainder of the Agreement shall remain binding upon the parties hereto.

2.22 BILLBOARD LEASE MATTERS
Capitalized terms used in this Section 2.22 but not otherwise defined in this Agreement shall have the meanings given to them in the Asset Purchase Agreement. With respect to any billboard lease that is related to a Base Location (other than an Assumed Billboard Lease) (a “Delayed Billboard Lease”), Company shall, and shall cause its applicable Affiliates who are parties to any such Delayed Billboard Lease to, maintain such Delayed Billboard Leases in the ordinary course of business. Within ten (10) Business Days following the removal of any Base Location from Schedule 1.5, Company shall, or shall cause its applicable Affiliate




to, assign the applicable Delayed Billboard Lease associated with such removed Base Location to Distributor; provided, that Company or its Affiliates shall remain liable for all obligations under such Delayed Billboard Lease relating to periods prior to the date such Delayed Billboard Lease is assigned to Distributor. Upon termination of this Agreement, Company shall, or shall cause its applicable Affiliate to, assign all remaining Delayed Billboard Leases to Distributor as provided herein. Notwithstanding the foregoing, if a Delayed Billboard Lease also specifically relates to a billboard associated with a retail fuel outlet (other than a Base Location or Growth Location) selling Sunoco-branded fuel, then Company shall not be obligated to assign such Delayed Billboard Lease to Distributor hereunder. Prior to Company electing not to renew, electing to terminate or otherwise electing not to continue to perform, under any Delayed Billboard Lease, Company shall offer Distributor the opportunity to assume such Delayed Billboard Lease for no additional consideration.





PART 3

CREDIT AND DEBIT CARD ACCEPTANCE; OTHER PAYMENT PROVISIONS
Definitions for Part 3:
“Card Processing Services” means the Transaction Card routing, authorization, processing, settlement, promotion and card program services Company provides to Distributor for the Locations.
“Distributor EPOS” means the Terminals (both hardware and software) owned by or licensed to Distributor and located at Locations that are used to process Transaction Cards.
“Sunoco Network” means the Sunoco transaction processing network used to process the Transaction Cards, including any hardware and software used in such networks and systems maintained by Company, the Terminal Specifications, and all other components necessary to manage and run the Sunoco Network.
“Terminal” means each automated point-of-sale authorization unit, which is located at a particular Location and communicates with the Sunoco Network.
“Terminal Specification” means the Terminal specifications and data communication protocol as agreed to by Company and Distributor, which enables the Terminal to communicate to the Sunoco Network.
“Transaction Cards” means those credit cards, debit cards, pre-paid cards or other transaction authorization cards as authorized from time to time by Company in Company credit card sales guidelines on SunocoNet.

3.1
CREDIT AND DEBIT CARD SALES
(a)
Distributor is hereby required to honor (i) all Transaction Cards, and (ii) all payment methods associated with the Authorized Marks, and such bank, travel, entertainment, commercial and other credit, debit, gift cards or other payment method as may be offered by or through Company pursuant to this Agreement, for purposes of making retail card sales to Distributor's direct retail customers for authorized Motor Fuel and other products and services. Company shall be an assignee of such card sales, with recourse against Distributor. Distributor is required to participate in the EPOS Card Programs as established and amended from time to time, for which such amendments Distributor will be given advance notice. In the event of any conflict between the terms of this Agreement and the EPOS Card Program, the terms of this Agreement shall control.
(b)
[***]
(c)
Distributor agrees that Company shall have the right to test and approve any proprietary point-of-sale processing cards for use on Company’s credit card network.
(d)
Distributor desires to simplify the process in which the Locations can deploy a unified gas/merchandise credit card acceptance and processing solution (the “ Card Processing Solution ”). Company will collaborate with Distributor to certify the Distributor Card Processing Solution. Company will collaborate with Distributor to ensure continuity and execution of the identified phases of the implementation. Company will provide support for pre-certification and certification procedures during the time between the Effective Date of this Agreement and the completion of the project in accordance with mutually agreed upon terms. Company agrees to cooperate with Distributor during Distributor’s conversion of the Card Processing Services from Company to Distributor, including providing electronic files, batches and reports, and to provide assistance as reasonably requested by Distributor. Distributor shall bear all costs in connection with such Card Processing Solution and the conversion of Card Processing Services from Company to Distributor.

(e)
For purposes of this Agreement, the Card Processing Solution shall mean the integration of Distributor’s Retail Information System (“RIS”), including any EDH implementation, with the applicable electronic payment servers (“EPS”). This integration enables the RIS to support electronic payments on Company’s payment network via Company’s payment processor for all transactions originating at the fuel island and all transactions for Company proprietary payments, while continuing to process transactions originating inside the store and transactions for non-Company proprietary payments through Distributor’s payment processor. In addition to enhanced payment processing, this integration will enable the RIS to support Company retailers with fuel dispensers on a range of devices including car wash systems, electronic price signs and Automatic Tank Gauges




(f)
Required Processing and Support During Transition Period:
(i)
Until a Location has a Distributor EPOS terminal installed and certified for use, Distributor agrees to process all electronic payments for all transactions on Company’s credit card network or in accordance with the requirements of the particular Branded Supplier. After the installation and certification of a Distributor EPOS at a Location, transactions will be processed in accordance with Section 3.1(b) above.
(ii)
Company will accept all transactions generated as a result of purchases made with authorized Transaction Cards and Company cards processed in accordance with the Sunoco credit card sales guidelines on SunocoNet.
(iii)
Company will work with Distributor’s project resources to certify the Distributor Card Processing Solution. Company will work with Distributor’s project team resources to ensure continuity and execution of the identified phases of the implementation. Based on the mutually agreed upon level of involvement in each area, Company will provide support for pre-certification and certification procedures.
(g)
Reporting Requirements for Transactions through Sunoco Network.
(i)
Through its normal reporting procedures and as available on SunocoNet, Company shall provide Distributor with a daily report that includes the gross and net amounts for each daily settlement, with details provided in accordance with Company’s normal practices or as may be provided to Company from other fuel suppliers at Locations selling fuel under other major brand names. In addition, Company shall provide reporting on a monthly basis of transactions and fees by card type.
(ii)
The chargeback process will follow Company’s then-current processes and policies. Through SunocoNet Company will provide daily reporting regarding chargeback activity in accordance with its normal practices.

3.2
ACCEPTANCE OF CARDS AND OTHER PAYMENT METHODS

Company agrees to accept, for collection purposes, card sales for authorized products sold and services performed solely in conjunction with the operation by Distributor of Distributor's retail business, under the Authorized Marks, subject to the following conditions:
(a)
All card sales must be made in compliance with instructions supplied in advance to Distributor by or through Company via written or electronic means, including but not limited to, SunocoNet, all of which are an integral and material part of this Agreement, and Distributor acknowledges receipt of such instructions.
(b)
Company may amend such written instructions, and Distributor shall be bound by such amendments upon notice to Distributor.
(c)
Company may, upon at least ten (10) days’ notice to Distributor, cease to accept one or more types of card sales, or refuse to accept card sales from Distributor.
(d)
Company may refuse to accept any card sale prepared using card acceptance equipment which does not meet Company's specifications and that does not perform to Company's requirement level; provided that Company gives Distributor at least ten (10) days’ advance notice of any change in specifications or performance requirements.
If necessary to confirm validity of any sale, Company may require Distributor to provide signed copies of electronically-processed card sales upon request. Provided that Company will not require Distributor to maintain such records to the extent no longer mandated by the card brand. Failure to provide requested signed copies for all transactions that require signatures (which transactions shall expressly exclude CRIND, PIN debit and transactions less than $25.00) as provided in the credit card sales guidelines on SunocoNet (currently fourteen (14) days) may result in rejected credit card sales to Distributor for such card sales. Rejected credit card sales include charge-backs, billing adjustments and other items as may be established by Company from time to time, provided that no transactions shall be rejected due to any processing error by Company, its processor or its affiliates.

(e)
After assignment to Company of valid card sales in compliance with instructions, Company or its designated third party shall pay Distributor the face amount thereof, less applicable discounts and charges then in effect, if any, as reasonably determined by Company. Company shall have the right to impose, eliminate and change amounts and rates of discounts and charges at any time, upon reasonable notice to Distributor. Company may, within its sole discretion, and in lieu of payment to Distributor, apply the face amount of card sales accepted by Company, less applicable discounts and charges then in effect, to Distributor's bank account.
(f)
Company and Distributor agree that all transactions contemplated by this Agreement, including, but not limited to, all deliveries and sales of product and all credit card sales, are considered to be one, integrated transaction




(g)
Company shall use commercially reasonable efforts to settle all credit / debit transactions within two (2) business days. Company shall provide access to daily credit/debit settlements through a mutually agreed channel.

3.3
COLLECTION OF CARD SALES

Upon acceptance by Company of card sales as herein provided, Company may proceed to collect, or transfer for collection, from Distributor's customers, the face amount of such card sales.

3.4
REJECTED CREDIT CARD SALES

Company may reject card sales to Distributor if such sales do not comply with written instructions, and Company, or its transferee, does not fully collect the same from Distributor's customers. Upon return to Distributor of uncollected card sales, Distributor shall promptly pay Company the uncollected amount thereof and any applicable costs and fees.

3.5
REPRES ENTATIONS AND INDEMNIFICATION

Distributor represents to Company and to its transferee that all card sales assigned to Company represent actual authorized sales of Motor Fuel to Distributor's customers by Distributor only, in the manner and to the extent set forth in such card sales. Excluding claims resulting from breaches by Company of its Motor Fuel quality representations hereunder, Distributor hereby exonerates, indemnifies and holds harmless Company, and its transferees, of and from all claims, demands, and actions whatsoever, arising in connection with card sales assigned by Distributor to Company, including, but not limited to, claims, demands, and actions brought by Distributor's customers for alleged losses and damages relating to Motor Fuel and other products sold, and/or services performed by Distributor. Distributor shall reimburse Company and its transferees, upon demand, for all documented costs, expenses, settlements, fines, judgments, and reasonable attorney’s fees incurred by reason of such claims, demands, and actions, or by reason of enforcing any provision of the Agreement. For purposes of this Agreement, wherever the term “reasonable attorneys’ fees” is used in connection with a hold harmless obligation, such term shall only refer to reasonable attorneys’ fees which are incurred by the party to be held harmless (the “Obligee”) by reason of the other party’s (the “Obligor’s”) failure to assume the Obligee’s defense in a timely manner. Attorneys’ fees that are incurred by the Obligee after the Obligor has agreed to assume the Obligees’ defense are not included.

3.6
REMEDIES OF COMPANY

Company may suspend its acceptance of card sales in addition to all other rights provided by law and this Agreement, without having liability to Distributor when Company has reason to believe that written instructions are not being complied with by Distributor, or when Company receives notice of a levy of execution on card sales from a court or a governmental agency. Also, in the event Company has reason to believe that Distributor is abusing usage of Company's card program, Company reserves the right to reasonably surcharge those card sales which are not in compliance with all requirements contained herein. Company may terminate these credit card acceptance provisions immediately upon written notice to Distributor without having liability to Distributor. Such termination of these credit card acceptance provisions is not Company's exclusive remedy for any such breach, and Company specifically reserves its right, dependent upon the circumstances to terminate its relationship with Distributor consistent with applicable law.

3.7
ASSIGNMENT OF CARD SALES TO THIRD PARTY

Company may arrange with a third party, such as a bank, to accept the direct assignment of certain cards, and/or for such third party to reimburse Distributor directly. In this case, the word “Company”, when used in this part, also means such authorized third party. Any such assignments shall be subject to the terms and conditions of the Agreement.

3.8
PCI COMPLIANCE

As Distributor have access to customer credit card information, including, but not limited to, the credit card number assigned by the card issuer that identifies the cardholder’s account or other cardholder personal information (the “Cardholder Data”), Distributor hereby acknowledges, and agrees to comply with the following obligations with respect to the security of such Cardholder Data:
(a)
Distributor shall comply with those certain card acceptance requirements set forth at the website referenced below (the “PCI-DSS Requirements”), as may be periodically updated, and the requirements set forth herein (or as periodically specified by Company) for the handling of Cardholder Data, including but not limited to submission of any relevant documentation and participation in audits with respect to compliance with PCI-DSS Requirements. Distributor hereby agrees to access the PCI-DSS Requirements at http://www.pcisecuritystandards.org ; and periodically review such site for any updates to the PCI Requirements. Notwithstanding




the foregoing, Company shall provide to Distributor copies of any PCI-DSS Requirements information provided to Company’s other customers.
(b)
Distributor acknowledges and agrees that Cardholder Data may only be used for assisting completing a card transaction, for fraud control services, for loyalty programs, or as specifically agreed to by card associations, Company, or as required by applicable law.
(c)
In the event of a breach or intrusion of or otherwise unauthorized access to Cardholder Data stored at or for Distributor, Distributor shall immediately notify Company, in manner required in PCI-DSS Requirements, and provide the applicable institution and their respective designees access to Distributor’s Locations and all pertinent records to conduct a review of Distributor’s compliance with these requirements. Distributor shall fully cooperate with any reviews of Distributor’s facilities and records provided for in this paragraph.
(d)
Distributor shall maintain appropriate business continuity procedures and systems to ensure security of Cardholder Data in the event of a disruption, disaster or failure of Distributor’s primary data systems. Distributor shall provide access to its security systems and procedures, as reasonably requested by Company.
(e)
To the extent Distributor’s conversion of the Card Processing Services from Company to Distributor or Distributor’s implementation of the Card Processing Solution may impact Company’s compliance with PCI-DSS Requirements, Distributor will submit such intended action to Company prior to institution of such action. Company will submit such intended action to its Qualified Security Assessor for review. Distributor will follow the guidance of such Qualified Security Assessor in the implementation of such action.
(f)
During the 24-month transition period, initial PCI obligations of the parties and PCI cooperation obligations are set forth in the TSA.

3.9
EPOS PROGRAM AND CREDIT CARD FEES

Distributor shall pay to Company the EPOS Program fees and charges as shown on Schedule 3.9, as such fees and charges are adjusted for all of Company’s distributor network and consistent with past practices. Distributor shall pay to Company the credit card fees and charges as shown on Schedule 3.9, as such fees and charges are adjusted for all of Company’s distributor network and consistent with past practices.





PART 4
STANDARDS AND IMAGE PROVISIONS
4.1
IMAGE
Distributor understands the importance of the image conveyed to the public at Locations authorized to display the Authorized Marks and to use Company's credit and debit card program in the sale of Motor Fuels under this Agreement. To maintain and further promote this image, Distributor shall professionally conduct its business in a manner at least consistent with minimum standards applicable to the Authorized Marks so as to reflect favorably and promote public acceptance of the Authorized Marks, and Company’s credit and debit card program as a specific condition of this Agreement. Except as has been disclosed to Distributor prior to the date hereof, all branded Locations on Schedule 1.1 shall be deemed to have met the applicable brand image requirements during the initial Contract Year of the Term.
To the extent image capital is related to refresh Locations or if related to Distributor’s rebranding one of Distributor’s legacy sites in order to meet supply volume obligations, Distributor shall pay for such reimaging. Notwithstanding the foregoing, during the 2018 Contract year, Company shall be responsible for costs relating to imaging upgrades to the extent required by Company’s Branded Suppliers during such period.
To the extent image capital is needed for sites providing growth volume, Distributor will provide such image capital. To the extent image capital is related to new sites (excluding growth requirement sites), Company shall provide investment capital in amounts up to what is typically provided to distributors in the applicable market.

4.2
MINIMUM STANDARDS AND REQUIREMENTS
Company or the applicable Branded Supplier has established minimum standards and requirements for each Distributor Location authorized to be identified with the Authorized Marks. These requirements are an integral and material part of this Agreement and will be updated from time-to-time by Company or the Branded Supplier and provided to Distributor in order to ensure that Locations identified with the Authorized Marks portray uniformly high standards of Motor Fuel product offering, as well as high standards of image, and cleanliness while serving the public.
Distributor, as a specific condition of being authorized to use the Authorized Marks, and Company's credit and debit card program, shall minimally comply with the following at the applicable Location(s) using the associated Authorized Marks:
(a)
Shall have an illuminated brand identification sign, illuminated price sign, and perimeter pole advertising sign in good condition (e.g. no cracked or broken faces or unpainted poles) prominently displayed on the premises. Company may allow alternative sign configurations as required by local restrictions.
(b)
Shall offer to the public Motor Fuel in grades as specified by Company from time-to-time, through modern electronic Motor Fuel dispensers with card readers, at self-serve, correct and current graphics and valances applicable to the particular Authorized Marks at a Location.
(c)
Shall follow Company’s or its Branded Supplier’s brand image installation process (including the use of approved contractors) as may be applicable at the time a new or substituted retail location is being rebranded.
(d)
Shall have each Location’s canopy columns, poles, island curbs painted with approved colors relating to the Authorized Marks.
(e)
Shall ensure that each Location’s driveway is paved and public areas properly maintained.
(f)
Shall prominently display the applicable brand identification signs applicable to the Authorized Marks being used at each Location, as permitted by applicable law and governmental regulations.
(g)
Shall be required to have a canopy as required by the standards of Company or the Branded Supplier associated with the applicable Authorized Marks at each Location, subject to any local zoning ordinances prohibiting it.
(h)
Shall purchase, at the lowest price charged to all distributors within Company’s network, and prominently display Motor Fuel gasoline point-of-sale advertising materials as required by Company at all Locations.
(i)
Shall promptly remove any out-of-date or soiled advertising signs or point-of-sale material.
(j)
Shall keep all Location premises clean, attractive and healthful at all times. Where applicable provide the public with clean, operable




restrooms.
(k)
Shall employ, train, and manage enough qualified personnel, in full Company or Distributor approved uniform, to operate the Location, as the case may be, and treat customers in a friendly, courteous and professional manner.
(l)
Shall project an ongoing image of clean, wholesome facilities, where quality products are available for sale to the public, and shall participate at Distributor’s expense in Company’s Customer Best program, if applicable, or such comparable mystery shop program associated with other Authorized Marks.
(m)
Shall not accept or honor Company's credit card for the purchase of any motor fuel which is not Company's Branded Motor Fuel (unless otherwise permitted by Company), nor use any storage or dispensing equipment identified with Company's trademarks and trade names to dispense non-Company motor fuels.
(n)
Shall not engage in any activity which would deceive, confuse, or mislead the public as to the brand name of the motor fuel offered for sale.
(o)
Shall correct and promptly resolve any complaints or inquiries from customers, received by Distributor or Company regarding Distributor's operation or supply of Company's Branded Motor Fuel to Locations covered by this Agreement.
(p)
Shall not display or sell any adult/sophisticate magazines and/or materials at Branded Fuel Locations. Company, in its sole discretion, reserves the right to restrict and/or prohibit the display and sale of certain periodicals, drug paraphernalia and other merchandise which may be offensive to the general public.
(q)
Shall not display, offer for sale, distribute, promote, give away any illicit drug paraphernalia or other goods or items that alone or in combination may enable or promote use of illicit drugs at Locations selling Branded Motor Fuels.
(r)
Company's or the applicable Branded Supplier’s requirements are meant as a minimum standard for Distributor's operation and shall be reviewed from time-to-time by Company for Distributor compliance. If a Distributor Location does not meet such standards, Distributor will be provided thirty (30) days written notice to gain compliance at such Location. Failure by Distributor to maintain compliance with such minimum image standards and requirements shall be considered noncompliance with a material provision of this Agreement for which Company shall have the right to require the removal of all branding related to such Location.
(s)
Distributor agrees to replace, at Company’s expense, Company’s trademarks, tradenames, signage and advertising materials, as the case may be, in the event of a material change in such trademarks, tradenames, signage and advertising materials, upon Company’s request.
Notwithstanding the foregoing, Company and Distributor have agreed that, for a period ending on the first anniversary of the date of Closing, all of the Locations listed on Schedule 1.1 shall be deemed to be in compliance with the requirements of Section 4.2(a), (b), (c), (d), (e), (f) and (r), but only to the extent that such Locations have not been modified by Distributor during such period.

4.3
TREATMENT OF DEFICIENCIES
Company may require that a Location be notified and be debranded consistent with applicable law and the requirements of Section 4.2. If a Location is to be debranded, all trademarks, trade names, trade dress associated with the Authorized Marks and Company’s credit and debit card program materials must be removed from such Location.

4.4
STANDARDS AND REQUIREMEMENTS CHANGES
These Standards and Image Provisions are subject to change from time-to-time based on Company's experience and the requirements of the motoring public. Distributor shall comply with such required changes upon reasonable advance notice from Company.

4.5
COMBINED BRANDING STANDARDS
In each instance where Company Authorized Marks and Distributor’s trademarks, tradenames, signage and advertising materials shall be displayed in a combined manner at the Locations, Company and Distributor shall comply with the combined branding standards set forth in Schedule 4.5.






SCHEDULE 1.1
LOCATIONS, REGIONS, TERMINALS & BRANDS

[***]













SCHEDULE 1.4
FORMULA PRICES PER TYPE AND GRADE OF FUEL

[***]







SCHEDULE 1.5
EXPECTED ANNUAL SUPPLY MARGIN FOR EACH BASE LOCATION

[***]

















SCHEDULE 2.1
INITIAL CASUALTY AND CONSTRUCTION SITES


[***]












SCHEDULE 2.8
EPOS CARD EQUIPMENT RENTAL RATES

No equipment is being leased.






SCHEDULE 3.9
EPOS PROGRAM AND CREDIT CARD FEES

EPOS Program Fees And Charges (Monthly, per Store) : These fees cover connection cost to secure payment card network, PCI compliance, settlement file updates, card table changes, maintaining network pre-authorization table and maintaining and upgrading network software.

EPOS Information Fee: [***]

EPOS Software Fee (ASM/HD, depending upon POS system)*

Gilbarco:   [***]
Verifone:   [***]
Radiant:     [***]
Adder for sites with Radiant or Gilbarco Food Service Equipment: [***]
Fiscal (Varies by Site Type):  [***]

SageNet Network Communication Fee:

Type 2A - Managed BB w/ VSAT backup: [***]
Type 2E - Managed BB/VSAT Dedicated Credit: [***]
Type 3A - Managed BB w/ Dial Backup: [***]
Type 3E - Managed BB Only (Valero or Chevron Sagenet): [***]
Type 4 - PRYSM Only: [***]

Branded Supplier and Branded Supplier Partner Fees:  Pass Through

* Distributor may discontinue Company’s program with respect to any or all of the EPOS software providers, in which case Company and its affiliates, solely to the extent that Company and its affiliates are unable to provide the relevant services because of Distributor’s failure to pay the discontinued provider, will have no further obligations to Distributor with respect to such services under the Transition Services Agreement or this Agreement.

Credit Card Fees:

CARD TYPE
% of SALES
PER
TRANSACTION
Visa Credit
[***]
[***]
Visa Debit
[***]
[***]
MasterCard Credit
[***]
[***]
MasterCard Debit
[***]
[***]
American Express
[***]
[***]
Discover
[***]
[***]
Pin Debit
[***]
[***]
Stripes Gift Card
[***]
[***]
Sunoco Consumer Card
[***]
[***]
Sunoco Corporate Card
[***]
[***]
SunTrak
[***]
[***]
WEX
[***]
[***]
Voyager
[***]
[***]
Universal
[***]
[***]






SCHEDULE 4.5
COMBINED BRANDING STANDARDS
SCHEDULE45PAGE1.JPG




SCHEDULE45PAGE2.JPG




SCHEDULE45PAGE3.JPG










Exhibit 12.1


STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)

 
Year Ended December 31,
 
2017
 
2016
 
2015
 
2014 (1)
 
2013
 
(in millions, except ratios)
Fixed charges:
 
 
 
 
 
 

 

Interest cost and debt expense
$
249

 
$
191

 
$
89

 
$
17

 
$
3

Interest allocable to rental expense (2)
46

 
47

 
47

 
14

 
1

Total
$
295

 
$
238

 
$
136

 
$
31

 
$
4

 
 
 
 
 
 
 
 
 
 
Earnings:
 
 
 
 
 
 
 
 
 
Consolidated pretax income (loss) from continuing operations
$
20

 
$
(16
)
 
$
185

 
$
22

 
$
37

Fixed charges
295

 
238

 
136

 
31

 
4

Interest capitalized
(4
)
 
(2
)
 
(1
)
 
(1
)
 
—

Total
$
311

 
$
220

 
$
320

 
$
52

 
$
41

 
 
 
 
 
 
 
 
 
 
Ratio of Earnings to Fixed Charges (3)
1.05

 
Ÿ
 
2.35

 
1.68

 
10.25

_______________________________
(1)
For the year ended December 31, 2014, we have combined the Predecessor Period and the Successor Period and presented the unaudited financial data on a combined basis for comparative purposes.
(2)
Represents one-third of the total operating lease rental expense, which is that portion deemed to be interest.
(3)
The ratio of coverage in 2016 was less than 1:1. The Partnership would have needed to generate additional earnings from continuing operations of $18 million to achieve a coverage of 1:1 in 2016.






Exhibit 21.1

List of Subsidiaries


Aloha Petroleum LLC, a Delaware limited liability company
Aloha Petroleum, Ltd., a Hawaii corporation
Applied Petroleum Technologies, Ltd., a Texas limited partnership
APT Management Company, LLC, a Texas limited liability company
C&G Investments, LLC, a Delaware limited liability company
Corpus Christi Reimco, LLC, a Texas limited liability company
GoPetro Transport LLC, a Texas limited liability company
Mid-Atlantic Convenience Stores, LLC, a Delaware limited liability company
MACS Retail LLC, a Virginia limited liability company
Quick Stuff of Texas, Inc., a Texas corporation
SCL GP Interests LLC, a Delaware limited liability company
SSP BevCo I, LLC, a Texas limited liability company
SSP BevCo II, LLC, a Texas limited liability company
SSP Beverage, LLC, a Texas limited liability company
Stripes LLC, a Texas limited liability company
Stripes Acquisition LLC, a Texas limited liability company
Stripes Holdings LLC, a Delaware limited liability company
Stripes No. 1009 LLC, a Texas limited liability company
Sunoco Finance Corp., a Delaware corporation
Sunoco, LLC, a Delaware limited liability company
Susser Company, Ltd., a Texas limited partnership
Susser Finance Corporation, a Delaware corporation
Susser Financial Services LLC, a Texas limited liability company
Susser Holdings, L.L.C., a Delaware limited liability company
Susser Holdings Corporation, a Delaware corporation
Susser Petroleum Company LLC, a Texas limited liability company
Susser Petroleum Property Company LLC, a Delaware limited liability company
TCFS Holdings, Inc., a Texas corporation
Town & Country Food Stores, Inc., a Texas corporation
TND Beverage, LLC, a Texas limited liability company
Allied Energy Company LLC, an Alabama limited liability company
Direct Fuels LLC, a Delaware limited liability company
Sunmarks LLC, a Delaware limited liability company
Sunoco Retail LLC, a Pennsylvania limited liability company





Exhibit 23.1


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



We have issued our reports dated February 23, 2018 , with respect to the consolidated financial statements and internal control over financial reporting included in the Annual Report of Sunoco LP on Form 10-K for the year ended December 31, 2017 . We consent to the incorporation by reference of said reports in the Registration Statements of Sunoco LP on Forms S-3 (File No. 333-213057, File No. 333-210494, and File No. 333-203965) and on Form S-8 (File No. 333-184035).

/s/ GRANT THORNTON LLP

Dallas, Texas
February 23, 2018





Exhibit 23.2


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



We have issued our report dated February 23, 2018 , with respect to the consolidated and combined financial statements of ETC M-A Acquisition LLC as of December 31, 2017 and 2016 , and for each of the three years in the period ended December 31, 2017 , included in the Annual Report of Sunoco LP on Form 10-K for the year ended December 31, 2017 . We consent to the incorporation by reference of said report in the Registration Statements of Sunoco LP on Forms S-3 (File No. 333-213057, File No. 333-210494, and File No. 333-203965) and on Form S-8 (File No. 333-184035).

/s/ GRANT THORNTON LLP

Dallas, Texas
February 23, 2018





Exhibit 31.1
CERTIFICATION
I, Joseph Kim, certify that:
1.
I have reviewed this annual report on Form 10-K of Sunoco LP;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: February 23, 2018
/s/ Joseph Kim
 
Joseph Kim
 
President and Chief Executive Officer of Sunoco GP LLC, the general partner of Sunoco LP
 





Exhibit 31.2
CERTIFICATION
I, Thomas R. Miller, certify that:
1.
I have reviewed this annual report on Form 10-K of Sunoco LP;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
 
Date: February 23, 2018
/s/ Thomas R. Miller
 
Thomas R. Miller
 
Chief Financial Officer of Sunoco GP LLC, the general partner of Sunoco LP
 





Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with this Annual Report on Form 10-K of Sunoco LP (the “Partnership”) for the year ended December 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph Kim, as President and Chief Executive Officer of Sunoco GP LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 
Date: February 23, 2018
/s/ Joseph Kim
 
Joseph Kim
 
President and Chief Executive Officer of Sunoco GP LLC, the general partner of Sunoco LP
 
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.





Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with this Annual Report on Form 10-K of Sunoco LP (the “Partnership”) for the year ended December 31, 2017 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Thomas R. Miller, as Chief Financial Officer of Sunoco GP LLC, the general partner of Sunoco LP, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002 that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

 
Date: February 23, 2018
/s/ Thomas R. Miller
 
Thomas R. Miller
 
Chief Financial Officer of Sunoco GP LLC, the general partner of Sunoco LP
 
This certification accompanies this Report on Form 10-K pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.





Exhibit 99.1















ETC M-A Acquisition LLC
Consolidated and Combined Financial Statements
As of December 31, 2017 and 2016
Years Ended December 31, 2017, 2016 and 2015










ETC M-A Acquisition LLC
Table of Contents

 
Page
Report of Independent Registered Public Accounting Firm
i
Balance Sheets
1
Consolidated and Combined Statements of Operations
2
Consolidated and Combined Statement of Equity
3
Consolidated and Combined Statements of Cash Flows
4
Notes to Consolidated and Combined Financial Statements
5





Report of Independent Registered Public Accounting Firm

Board of Directors of Energy Transfer Partners, L.L.C. and
Member of ETC M-A Acquisition LLC
Opinion on the financial statements
We have audited the accompanying balance sheets of ETC M-A Acquisition LLC (a Delaware limited liability company) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, and the related consolidated and combined statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2014.
Dallas, Texas
February 23, 2018

i


ETC M-A Acquisition LLC
Balance Sheets
(Dollars in millions)

 
December 31,
 
2017
 
2016
ASSETS
 
 
 
Current Assets:
 
 
 
Cash
$
—

 
$
—

Advances to affiliated companies
52

 
17

Total current assets
52

 
17

 
 
 
 
Investments in unconsolidated affiliates
282

 
313

Total assets
$
334

 
$
330

 
 
 
 
LIABILITIES AND EQUITY
 
 
 
Current Liabilities:
 
 
 
Accrued and other current liabilities
$
3

 
$
3

Total current liabilities
3

 
3

 
 
 
 
Commitments and contingencies
 
 
 
 
 
 
 
Equity:
 
 
 
Members’ equity
331

 
327

Total equity
331

 
327

Total liabilities and equity
$
334

 
$
330


The accompanying notes are an integral part of these consolidated and combined financial statements.
1



ETC M-A Acquisition LLC
Consolidated and Combined Statements of Operations
(Dollars in millions)

 
Years Ended December 31,
 
2017
 
2016
 
2015
Revenues:
 
 
 
 
 
Sales and other operating revenue
$
—

 
$
—

 
$
1,960

Sales to affiliates
—

 
—

 
424

Other
—

 
—

 
10

Total revenues
—

 
—

 
2,394

Costs and expenses:
 
 
 
 
 
Cost of products sold
—

 
—

 
1,636

Purchases from affiliates
—

 
—

 
685

Operating expenses
—

 
—

 
20

Selling, general and administrative
—

 
—

 
17

Depreciation and amortization
—

 
—

 
13

Total costs and expenses
—

 
—

 
2,371

Operating income
—

 
—

 
23

Other income:
 
 
 
 
 
Income (loss) from unconsolidated affiliates
4

 
(53
)
 
269

Other, net
—

 
—

 
1

Income (loss) before income tax expense
4

 
(53
)
 
293

Income tax expense
—

 
—

 
3

Net income (loss)
$
4

 
$
(53
)
 
$
290














The accompanying notes are an integral part of these consolidated and combined financial statements.
2


ETC M-A Acquisition LLC
Consolidated and Combined Statement of Equity
(Dollars in millions)

 
Total
Balance, December 31, 2014
$
1,024

Sunoco LLC Transaction
(179
)
Distributions to ETP
(775
)
Net income
290

Balance, December 31, 2015
360

Sunoco Retail Transaction
2,297

Distributions to ETP
(77
)
R&M and Atlantic Distribution
(2,200
)
Net loss
(53
)
Balance, December 31, 2016
327

Net income
4

Balance, December 31, 2017
$
331


The accompanying notes are an integral part of these consolidated and combined financial statements.
3



ETC M-A Acquisition LLC
Consolidated and Combined Statements of Cash Flows
(Dollars in millions)
 
Years Ended December 31,
 
2017
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
 
Net income (loss)
$
4

 
$
(53
)
 
$
290

Reconciliation of net income to net cash provided by (used in) operating activities:
 
 
 
 
 
Depreciation and amortization
—

 
—

 
13

Deferred income taxes
—

 
—

 
—

Inventory valuation adjustments
—

 
—

 
(3
)
(Income) loss from unconsolidated affiliates
(4
)
 
53

 
(269
)
Distributions from unconsolidated affiliates
35

 
30

 
12

Net change in operating assets and liabilities:
 
 
 
 
 
Accounts receivable, net
—

 
—

 
7

Inventories
—

 
—

 
73

Accounts payable
—

 
—

 
(48
)
Accrued and other current liabilities
—

 
—

 
(28
)
Other, net
—

 
—

 
(14
)
Net cash provided by operating activities
35

 
30

 
33

Cash flows from investing activities:
 
 
 
 
 
Cash paid for acquisitions, net of cash acquired
—

 
—

 
—

Capital expenditures
—

 
—

 
(16
)
Proceeds from Sunoco Retail Transaction
—

 
2,200

 
—

Contribution from ETP
—

 
—

 
—

Proceeds from Sunoco LLC Transaction
—

 
—

 
775

Proceeds from MACS Transaction
—

 
—

 
—

Purchase of intangibles
—

 
—

 
(28
)
Proceeds from dispositions
—

 
—

 
2

Net cash provided by investing activities
—

 
2,200

 
733

Cash flows from financing activities:
 
 
 
 
 
Advances (to) from Sunoco, Inc.
(35
)
 
(30
)
 
188

Distributions to ETP
—

 
—

 
(954
)
R&M and Atlantic Distribution
—

 
(2,200
)
 
—

Other
—

 
—

 
—

Net cash used in financing activities
(35
)
 
(2,230
)
 
(766
)
Change in cash and cash equivalents
—

 
—

 
—

Cash and cash equivalents, beginning of period
—

 
—

 
—

Cash and cash equivalents, end of period
$
—

 
$
—

 
$
—


 
Years Ended December 31,
 
2017
 
2016
 
2015
Non-Cash Financing Activities:
 
 
 
 
 
Non-cash distribution to members
$
—

 
$
(77
)
 
$
—





The accompanying notes are an integral part of these consolidated and combined financial statements.
4


ETC M-A Acquisition LLC
Notes to Consolidated and Combined Financial Statements
(Dollars in millions)
1.
Operations and Organization:
ETC M-A Acquisition LLC, a Delaware limited liability company formed in August 2013, (the “Company”) is an indirect wholly-owned subsidiary of Energy Transfer, LP. Prior to December 2, 2016, the Company’s membership interests were owned 99% by ETP Retail Holdings, LLC (“Retail Holdings”), an indirect wholly-owned subsidiary of Energy Transfer Partners, L.P. (“ETP”), and 1% by another indirect wholly-owned subsidiary of ETP. On December 2, 2016, the 1% membership interest was contributed to Retail Holdings; therefore, the Company is now a direct wholly-owned subsidiary of Retail Holdings.
Retail Holdings was formed in May 2014. In June 2014, the equity interests in multiple entities were contributed to Retail Holdings, including (a) the 99% membership interest in the Company and (b) 100% of the membership interests in Sunoco, LLC (“Sunoco LLC”). Sunoco LLC was formed by Sunoco, Inc. (“Sunoco”) in June 2014, at which time Sunoco contributed certain retail assets (the “Contributed Assets”) of its subsidiaries to Sunoco LLC. Pursuant to the contribution agreement, Sunoco contributed substantially all of its wholesale motor fuel distribution business which included:
•
dealer, distributor and fuel supply agreements,
•
fuel supply agreements to distribute motor fuel to Sunoco convenience stores and other retail fuel outlets,
•
real property owned in fee,
•
leases and subleases under which it was a tenant, and
•
leases and subleases under which it was a landlord.
All of the Contributed Assets were recorded at book value as this transaction was considered to be a reorganization of entities under common control. As discussed above, Sunoco contributed its interest in Sunoco LLC to Retail Holdings in June 2014. Sunoco was acquired by ETP in October 2012.
In April 2015, Sunoco LP acquired a 31.58% membership interest and 50.1% voting interest in Sunoco, LLC (“Sunoco LLC”) from Retail Holdings (the “Sunoco LLC Transaction”) in exchange for $775 million in cash and 795,482 Sunoco LP common units. As a result of the Sunoco LLC Transaction, Retail Holdings no longer had a controlling interest in Sunoco LLC, therefore all of the Sunoco LLC operations were deconsolidated by Retail Holdings as of April 1, 2015.
Sunoco Retail LLC (“Sunoco Retail”) was formed in December 2015 as an indirect wholly-owned subsidiary of ETP. On March 31, 2016, 100% of the equity interests in Sunoco Retail were contributed to Retail Holdings. Immediately prior to this contribution, Sunoco Retail’s assets included (i) the retail assets and the ethanol plant located in Fulton, NY formerly owned by Sunoco, Inc. (R&M), (ii) the retail assets formerly owned by Atlantic Refining & Marketing Corp; and (iii) 100% of the membership interests in Sunmarks LLC.
Effective January 1, 2016, Retail Holdings contributed to Sunoco LP the remaining 68.42% membership interest and 49.9% voting interest in Sunoco LLC and 100% of the membership interest in Sunoco Retail for $2.2 billion in cash (including working capital) and the issuance to Retail Holdings of 5,710,922 Sunoco LP common units (the “Sunoco Retail Transaction”). Concurrently with the execution of the transaction, Retail Holdings distributed the $2.2 billion in cash to Sunoco, Inc. (R&M) and Atlantic Refining & Marketing Corp in the amount of $2 billion and $0.2 billion, respectively (the “R&M and Atlantic Distribution”).
In connection with the Sunoco LLC Transaction and the Sunoco Retail Transaction, Retail Holdings entered into guarantees of collection on an aggregate $1.6 billion of senior notes issued by Sunoco LP (the “Guarantees”). On December 2, 2016, Retail Holdings contributed to the Company 6,506,404 Sunoco LP common units (consisting of 795,482 Sunoco LP common units received in the Sunoco LLC Transaction and 5,710,922 Sunoco LP common units received in the Sunoco Retail Transaction) and assigned to the Company the Guarantees.
In April 2017, ETP merged with a subsidiary of Sunoco Logistics Partners L.P., at which time ETP changed its name from “Energy Transfer Partners, L.P.” to “Energy Transfer, LP” and Sunoco Logistics Partners L.P. changed its name to “Energy Transfer Partners, L.P.” References to “ETP” refer to the entity named Energy Transfer Partners, L.P. prior to the close of the merger, and Energy Transfer, LP subsequent to the close of the merger.


5


2.
Summary of Significant Accounting Policies:
Basis of Presentation and Principles of Consolidation
The consolidated and combined financial statements have been prepared on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated and combined financial statements of the Company include accounts of all wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
The transactions discussed in Note 1 were between entities under common control, and the historical consolidated and combined financial statements reflect the combined financial position and results of operations of the entities discussed above from the beginning of the first accounting period presented.
For purposes of these consolidated and combined financial statements the Contributed Assets are presented as the predecessor on a combined basis. Given that no change in cost basis occurred with respect to the common control transactions, predecessor and successor periods are not separately presented herein.
Accordingly, the consolidated and combined financial statements reflect the following:
•
prior to April 2015, the consolidation of Sunoco LLC and an equity method investment in Sunoco LP (representing 3,983,540 Sunoco LP common units);
•
from April 2015 until December 2015, an equity method investment in Sunoco LLC (representing 68.42% of Sunoco LLC) and an equity method investment in Sunoco LP (representing 4,779,022 Sunoco LP common units); and
•
from January 2016 through December 2017, an equity method investment in Sunoco LP (representing 10,489,944 Sunoco LP common units).
Sunoco allocated various corporate overhead expenses to the Contributed Assets based on percentage of property, plant and equipment, cost of goods sold, margin and headcount. These allocations are not necessarily indicative of the cost that the Contributed Assets would have incurred by operating as an independent stand-alone entity. As such, the consolidated financial statements may not fully reflect what the Contributed Assets’ financial position, results of operations and cash flows would have been had the Contributed Assets operated as a stand-alone company during the periods presented.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
Cash
The Company considers cash and cash equivalents to include investments with original maturities of three months or less.
Investments in Unconsolidated Affiliates
The Company owns an interest in Sunoco LP which is accounted for by the equity method for which the Company exercises significant influence over, but does not control, the investee’s operating and financial policies.
Revenue Recognition
During the periods presented, the Company derived revenue from the sale of fuel. Revenue was recognized at the time of sale or when fuel was delivered to the customer. Refined product exchange transactions, which are entered into primarily to acquire refined products of a desired quantity or at a desired location, are netted in cost of products sold in the consolidated and combined statements of operations.
Motor Fuel Taxes
Consumer excise taxes on sales of refined products are excluded from both revenues and costs and expenses in the consolidated and combined statements of operations, with no effect on net income.

6


Income Taxes
Income taxes are accounted for under the asset and liability method as if the Company were a separate taxpayer during the period that its operations were included as part of a federal consolidated tax return filing group with its parent company. Under this method, deferred tax assets and liabilities of the Company are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in earnings in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized. The determination of the provision for income taxes requires significant judgment, use of estimates, and the interpretation and application of complex tax laws. Significant judgment is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefits of uncertain tax positions are recorded in the financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing authorities. Then, the tax benefit recognized is the largest amount of benefit, determined on a cumulative probability basis, which is more likely than not to be realized upon ultimate settlement. When facts and circumstances change, the Company reassesses these probabilities and records any changes through the provision for income taxes.
Under the separate entity method, the Company is assumed to file a separate return with the taxing authority, thereby reporting its taxable income or loss and paying the applicable tax to or receiving the appropriate refund from its parent. However, since there is no tax-sharing agreement in place between the Company and its parent, any taxes payable or receivable on current taxable income or loss at the end of each reporting date is treated as a capital contribution or dividend.
On June 1, 2014, the Company’s investment in Sunoco LLC was restructured to be treated as a partnership for federal and state income tax purposes. No income taxes are reflected in the financial statements for Sunoco LLC’s operations conducted subsequent to this date.
Fair Value of Financial Instruments
The carrying amounts recorded for advances to affiliated companies and accrued and other current liabilities in the consolidated and combined financial statements approximate fair value because of the short-term maturity of the instruments.
3. Investments in Unconsolidated Affiliates:
Sunoco LP
At December 31, 2017, the Company’s investment in Sunoco LP consists of 10,489,944 Sunoco LP common units that were issued to the Company as part of the consideration for various transactions. The Company’s investment represented approximately 11% of the total outstanding Sunoco LP common units at December 31, 2017. The Company’s investment in Sunoco LP is accounted for in our consolidated and combined financial statements using the equity method, because the Company is presumed to have significant influence over Sunoco LP due to the affiliate relationship resulting from both entities being under the common control of Energy Transfer Equity, L.P.
The income from unconsolidated affiliates of $4 million on the Company’s statement of operations for the year ended December 31, 2017 includes the impact of non-cash impairments recorded by Sunoco LP, which reduced the Company’s income from unconsolidated affiliates by $42.5 million during the period.
The loss from unconsolidated affiliates of $53 million on the Company’s statement of operations for the year ended December 31, 2016 includes the impact of non-cash impairments recorded by Sunoco LP, which impacted the Company’s loss from unconsolidated affiliates by $67 million during the period.

7


4.
Property, Plant and Equipment:
Depreciation is computed by straight-line method over the shorter of estimated useful asset lives or lease terms of the respective assets. Total depreciation expense on property, plant and equipment included in depreciation and amortization for the years ended December 31, 2017, 2016 and 2015 was $0, $0 and $6, respectively.
5.
Intangible Assets:
Amortization is computed over the respective lives of the agreement or over the period of time the assets are expected to contribute directly or indirectly to the Company’s future cash flows. Total amortization expense on finite-lived intangibles included in depreciation and amortization for the years ended December 31, 2017, 2016 and 2015 was $0, $0 and $7, respectively.    
6.
Income Taxes:
The components of the federal and state income tax expense (benefit) were summarized as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Current expense:
 
 
 
 
 
     Federal
$
—

 
$
—

 
$
—

     State
—

 
—

 
3

        Total
—

 
—

 
3

 
 
 
 
 
 
Deferred expense:
 
 
 
 
 
     Federal
$
—

 
$
—

 
$
—

     State
—

 
—

 
—

        Total
—

 
—

 
—

 
 
 
 
 
 
Total income tax expense
$
—

 
$
—

 
$
3

A reconciliation of income tax expense (benefit) at the U.S. statutory rate to the income tax expense (benefit) is as follows:
 
Years Ended December 31,
 
2017
 
2016
 
2015
Income tax (benefit) expense at US statutory rate of 35%
$
1

 
$
(19
)
 
$
116

 
 
 
 
 
 
Increase (reduction) in income taxes resulting from:
 
 
 
 
 
State income taxes (net of federal income tax effects)
—

 
—

 
3

Partnership loss (income) not subject to tax
(1
)
 
19

 
(116
)
 
 
 
 
 
 
Income tax expense
$
—

 
$
—

 
$
3

Deferred taxes result from the temporary differences between financial reporting carrying amounts and the tax basis of existing assets and liabilities. The Company had no deferred taxes as of December 31, 2017 and 2016.
The Company’s parent has been examined by the IRS for tax years through 2012. However, statutes remain open for tax years 2007 and forward due to carryback of net operating losses and/or claims regarding government incentive payments discussed above. All other issues are resolved. Though we believe the tax years are closed by statute, tax years 2004 through 2006 are impacted by the carryback of net operating losses and under certain circumstances may be impacted by adjustments for government incentive payments. As discussed above, the Company has no obligations to or claims against its parent with respect to any audit adjustments resulting from audit since there is no tax-sharing agreement in place.

8


The Company’s parent also has various state and local income tax returns in the process of examination or administrative appeal in various jurisdictions. We believe the appropriate accruals or unrecognized tax benefits have been recorded for any potential assessment with respect to these examinations for the period represented in these financial statements. However, as described above, the Company has no obligations to or claims against its parent with respect to any audit adjustments resulting from audit since there is no tax-sharing agreement in place.
7.
Related Party Transactions:
Related party transactions in 2015 reflected Sunoco LLC’s transactions between ETP, Sunoco LP and certain of their subsidiaries and affiliates prior to the Company’s deconsolidation of Sunoco LLC in April 2015. Purchases and sales under various agreements were included in purchases from and sales to affiliates for the year ended December 31, 2015. Sunoco LLC had a treasury service agreement with Sunoco, Inc. (R&M). Pursuant to this agreement, Sunoco LLC participated in Sunoco, Inc. (R&M)’s centralized cash management program. Under this program, all of Sunoco LLC’s cash receipts and cash disbursements were processed, together with those of Sunoco and its other subsidiaries, through Sunoco’s cash accounts with a corresponding credit or charge to the affiliated account.
8.
Commitments and Contingencies:
In connection with previous transactions between Sunoco LP, Retail Holdings and the Company, the Company previously guaranteed $1.6 billion of Sunoco LP’s senior notes. On January 23, 2018, Sunoco LP redeemed the previously guaranteed senior notes and issued the following senior notes, for which the Company has guaranteed collection with respect to the payment of principal amounts:
•
$1 billion of 4.875% senior notes due 2023;
•
$800 million of 5.50% senior notes due 2026; and
•
$400 million of 5.875% senior notes due 2028.
Under the guarantee of collection, ETC M-A would have the obligation to pay the principal of each series of notes once all remedies, including in the context of bankruptcy proceedings, have first been fully exhausted against Sunoco LP with respect to such payment obligation, and holders of the notes are still owed amounts in respect of the principal of such notes. ETC M-A will not otherwise be subject to the covenants of the indenture governing the notes.



9