Business context and reporting period
Entity note: The supplied filing is Susser Petroleum Partners LP’s Form 10-K, not a Sunoco LP filing. It covers the fiscal year ended December 31, 2012 and was filed March 29, 2013. Susser Petroleum Partners was formed in June 2012 and completed its IPO on September 25, 2012. Accordingly, 2012 results combine predecessor activity through September 24 with partnership activity thereafter; comparisons with prior years are affected by the IPO and changed fuel-pricing arrangements.
The partnership distributes motor fuel, primarily in Texas, to Susser Holdings Corporation (SUSS), its Stripes convenience stores, independent dealers, and other commercial customers. It also earns rental income and does not operate retail convenience stores. In 2012, it distributed approximately 1.450 billion gallons, including 889.8 million affiliated gallons and 560.2 million third-party gallons.
Financial and operating metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Total revenue | $4.277 billion | $3.820 billion |
| Gross profit | $51.5 million | $43.0 million |
| Income from operations | $23.4 million | $17.0 million |
| Net income | $17.6 million | $10.6 million |
| Adjusted EBITDA (non-GAAP) | $31.7 million | $24.0 million |
| Net cash provided by operating activities | $16.5 million | $14.7 million |
| Capital expenditures, including intangibles and before dispositions | $44.0 million | $19.4 million |
Revenue rose 12.0%, gross profit 19.7%, and net income 65.8% year over year. Fuel gallons sold increased 10.5%; reported volume-weighted fuel gross profit was 2.8 cents per gallon versus 2.4 cents in 2011. These reported comparisons are not fully like-for-like: before the IPO, fuel sold to SUSS was generally supplied at cost; afterward, the partnership generally earned a fixed three-cent-per-gallon margin under its distribution contract. On a pro forma basis reflecting the post-IPO agreements, 2012 gross profit would have been $56.8 million and average fuel gross profit 3.5 cents per gallon.
At year-end, cash and cash equivalents were $6.8 million and marketable securities were $148.3 million, pledged to secure the term loan. Total debt was $184.9 million, comprising a $148.2 million term loan, $35.6 million of revolver borrowings, and other debt. The $250 million revolver had $201.6 million of unused availability, including the facility’s treatment of outstanding letters of credit; the partnership reported covenant compliance. Operating cash flow was positive, but investing cash flow was a $190.9 million use, largely reflecting marketable securities transactions and capital spending. Distributable cash flow was $10.5 million for the post-IPO period only and is not comparable to full-year results.
The partnership declared a prorated $0.0285 per-unit distribution for the post-IPO portion of the third quarter and declared $0.4375 per unit for the fourth quarter, paid March 1, 2013. The stated minimum distribution target is $0.4375 per unit quarterly, but payment is not guaranteed.
Material changes, outlook, risks and unusual items
- IPO and related-party structure: The IPO, asset contributions, new SUSS commercial agreements, and formation of a stand-alone partnership materially changed reported economics and financing. SUSS retained approximately 50.1% ownership, all subordinated units and incentive distribution rights, and control of the general partner.
- Customer concentration: On a pro forma basis, SUSS represented approximately 65% of 2012 revenue, 50% of gross profit and 65% of gallons. The SUSS distribution contract has a 10-year term but imposes no minimum volume obligation.
- Growth plans: Management cited SUSS’s plan to build 29–35 Stripes stores in 2013 and anticipated selling 25–35 new stores to the partnership through sale-and-leaseback transactions. The partnership’s three-year option covers up to 75 stores. These are plans and expectations, not guaranteed results.
- Key operating risks: Fuel distribution is competitive and low-margin; the business is concentrated geographically and depends on SUSS for transportation and a substantial share of demand. Valero and Chevron supplied approximately 35% and 20% of 2012 fuel purchases, respectively. Supplier contract renewals, discounts, trade credit, fuel demand and pricing volatility may affect margins and liquidity.
- Financial and governance risks: Variable-rate debt exposes the partnership to interest-rate changes; management estimated a one-percentage-point rate increase would add about $1.8 million in annual interest expense at year-end debt levels. Credit-facility covenants, refinancing needs, related-party cost reimbursements and conflicts of interest may constrain distributions or growth. The minimum distribution is not assured.
- Environmental and other contingencies: The filing reports no environmental remediation reserve or known material litigation at year-end, and SUSS indemnifies the partnership for certain pre-IPO environmental conditions through September 2015. New releases, regulatory changes, storage-tank incidents, severe weather and uninsured losses remain risks. Potential dealer reimbursement obligations associated with debranding incentives are not recorded as liabilities.
- Reporting and controls: The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls were effective; the filing notes that, as a new public company, it did not include management’s internal-control assessment or auditor attestation for 2012.
No formal numerical financial guidance is provided. Management described Texas population, employment and energy-development trends and industry consolidation as potential supports for demand and growth, while cautioning that forward-looking expectations are subject to risks.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is for Susser Petroleum Partners LP, not Sunoco LP.
- Assess the effect of the post-IPO three-cent-per-gallon SUSS margin and distinguish actual 2012 results from pro forma figures.
- Review SUSS concentration, the absence of minimum purchase volumes, contract terms, and SUSS’s control of the general partner.
- Verify debt, pledged marketable securities, revolver availability, covenant headroom and the 2015 term-loan maturity.
- Track whether the 2013 store construction and sale-and-leaseback plans were completed on expected terms, and whether distributions were supported by cash generation.
- Review supplier renewals and discounts, environmental indemnity expiration, and unrecorded potential dealer debranding obligations.