SUNOCO LP, 10-Q filed on 8/6/2020
Quarterly Report
v3.20.2
Document And Entity Information - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Document Information [Line Items]    
Document Transition Report false  
Document Quarterly Report true  
Entity Registrant Name SUNOCO LP  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Shell Company false  
Entity Central Index Key 0001552275  
Current Fiscal Year End Date --12-31  
Entity Filer Category Large Accelerated Filer  
Document Type 10-Q  
Document Period End Date Jun. 30, 2020  
Entity File Number 001-35653  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
Title of 12(b) Security Common Units Representing Limited Partner Interests  
Entity Emerging Growth Company false  
Entity Small Business false  
Trading Symbol SUN  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 30-0740483  
Entity Address, Address Line One 8111 Westchester Drive  
Entity Address, Address Line Two Suite 400  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75225  
City Area Code 214  
Local Phone Number 981-0700  
Common Units [Member]    
Document Information [Line Items]    
Entity Partnership Units Outstanding   83,051,624
Common Class C [Member]    
Document Information [Line Items]    
Entity Partnership Units Outstanding   16,410,780
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 33 $ 21
Accounts receivable, net 270 399
Receivables from affiliates 6 12
Inventories, net 283 419
Other current assets 50 73
Total current assets 642 924
Property and equipment 2,188 2,134
Accumulated depreciation (749) (692)
Property and equipment, net 1,439 1,442
Other assets:    
Finance lease right-of-use assets, net 26 29
Operating lease right-of-use assets, net 522 533
Goodwill 1,555 1,555
Intangible assets 906 906
Accumulated amortization (289) (260)
Intangible assets, net 617 646
Other noncurrent assets 184 188
Investment in unconsolidated affiliate 136 121
Total assets 5,121 5,438
Current liabilities:    
Accounts payable 296 445
Accounts payable to affiliates 29 49
Accrued expenses and other current liabilities 242 219
Operating lease current liabilities 19 20
Current maturities of long-term debt 12 11
Total current liabilities 598 744
Operating lease noncurrent liabilities 524 530
Revolving line of credit 158 162
Long-term debt, net 2,894 2,898
Advances from affiliates 138 140
Deferred tax liability 94 109
Other noncurrent liabilities 97 97
Total liabilities 4,503 4,680
Commitments and contingencies (Note 10)
Equity:    
Total equity 618 758
Total liabilities and equity 5,121 5,438
Common Units [Member]    
Equity:    
Total equity 618 758
Class C Units [Member]    
Equity:    
Total equity $ 0 $ 0
v3.20.2
Consolidated Balance Sheets (Parenthetical) - shares
Jun. 30, 2020
Dec. 31, 2019
Common Units [Member]    
Equity:    
Limited Partners' Capital Account, Units Issued 83,040,781  
Limited Partners' Capital Account, Units Outstanding 83,040,781 82,985,941
Class C Units [Member]    
Equity:    
Limited Partners' Capital Account, Units Issued 16,410,780 16,410,780
Limited Partners' Capital Account, Units Outstanding 16,410,780 16,410,780
v3.20.2
Consolidated Statements of Operations and Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenues:        
Revenues $ 2,080 $ 4,475 $ 5,352 $ 8,167
Cost of sales and operating expenses:        
Cost of sales 1,722 4,206 4,886 7,528
General and administrative 25 34 59 61
Other operating 56 73 151 157
Lease expense 16 16 30 30
Loss on disposal of assets and impairment charges 6 2 8 50
Depreciation, amortization and accretion 47 47 92 92
Total cost of sales and operating expenses 1,872 4,378 5,226 7,918
Operating income 208 97 126 249
Interest expense, net (44) (43) (88) (85)
Other income (expense), net 0 6 0 3
Equity in earnings of unconsolidated affiliate 1 0 2 0
Income before income taxes 165 60 40 167
Income tax expense 8 5 11 3
Net income and comprehensive income $ 157 $ 55 $ 29 $ 164
Net income (loss) per common unit:        
Common units - basic $ 1.65 $ 0.44 $ (0.12) $ 1.51
Common units - diluted $ 1.64 $ 0.43 $ (0.12) $ 1.50
Weighted average common units outstanding:        
Common units - basic 83,030,286 82,742,323 83,022,027 82,726,842
Common units - diluted 83,598,730 83,509,987 83,022,027 83,455,021
Cash distributions per unit $ 0.8255 $ 0.8255 $ 1.6510 $ 1.6510
Common Units [Member]        
Weighted average common units outstanding:        
Common units - basic 83,030,286 82,742,323 83,022,027 82,726,842
Common units - diluted 83,598,730 83,509,987 83,022,027 83,455,021
Motor Fuel Sales [Member]        
Revenues:        
Revenues $ 1,992 $ 4,366 $ 5,158 $ 7,949
Non Motor Fuel Sales [Member]        
Revenues:        
Revenues 54 74 125 148
Lease Income [Member]        
Revenues:        
Revenues $ 34 $ 35 $ 69 $ 70
v3.20.2
Consolidated Statement of Equity
$ in Millions
USD ($)
Beginning balance at Dec. 31, 2018 $ 784
Cash distribution to unitholders (87)
Unit-based compensation 3
Partnership net income (loss) 109
Ending balance at Mar. 31, 2019 809
Beginning balance at Dec. 31, 2018 784
Partnership net income (loss) 164
Ending balance at Jun. 30, 2019 779
Beginning balance at Mar. 31, 2019 809
Cash distribution to unitholders (88)
Unit-based compensation 3
Partnership net income (loss) 55
Ending balance at Jun. 30, 2019 779
Beginning balance at Dec. 31, 2019 758
Cash distribution to unitholders (88)
Unit-based compensation 4
Partnership net income (loss) (128)
Ending balance at Mar. 31, 2020 546
Beginning balance at Dec. 31, 2019 758
Partnership net income (loss) 29
Ending balance at Jun. 30, 2020 618
Beginning balance at Mar. 31, 2020 546
Cash distribution to unitholders (88)
Unit-based compensation 3
Partnership net income (loss) 157
Ending balance at Jun. 30, 2020 $ 618
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net income $ 29 $ 164
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation, amortization and accretion 92 92
Amortization of deferred financing fees 3 3
Loss on disposal of assets and impairment charges 8 50
Other non-cash, net 0 (3)
Non-cash unit-based compensation expense 7 6
Deferred income tax 5 13
Inventory valuation adjustment 137 (97)
Equity in earnings of unconsolidated affiliate (2) 0
Changes in operating assets and liabilities, net of acquisitions:    
Accounts receivable 129 (194)
Receivables from affiliates 6 35
Inventories (1) 53
Other assets 36 31
Accounts payable (155) 124
Accounts payable to affiliates (33) (68)
Accrued expenses and other current liabilities 23 8
Other noncurrent liabilities (19) (7)
Net cash provided by operating activities 255 184
Cash flows from investing activities:    
Capital expenditures (59) (57)
Contributions to unconsolidated affiliate (5) 0
Distributions from unconsolidated affiliate in excess of cumulative earnings 4 0
Proceeds from disposal of property and equipment 3 22
Net cash used in investing activities (57) (35)
Cash flows from financing activities:    
Proceeds from issuance of long-term debt 0 600
Payments on long-term debt (6) (4)
Revolver borrowings 663 1,064
Revolver repayments (667) (1,647)
Loan origination costs 0 (6)
Advances from (to) affiliates 0 1
Distributions to unitholders (176) (175)
Net cash used in financing activities (186) (169)
Net increase (decrease) in cash and cash equivalents 12 (20)
Cash and cash equivalents at beginning of period 21 56
Cash and cash equivalents at end of period 33 36
Supplemental disclosure of non-cash investing activities:    
Change in note payable to affiliate $ 11 $ 0
v3.20.2
Organization and Principles of Consolidation
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Principles of Consolidation
Organization and Principles of Consolidation
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.
We are a Delaware master limited partnership. We are managed by our general partner, Sunoco GP LLC (“General Partner”), which is owned by Energy Transfer Operating, L.P. (“ETO”), a consolidated subsidiary of Energy Transfer LP (“ET”). As of June 30, 2020, ETO and its subsidiaries owned 100% of the membership interests in our General Partner, all of our incentive distribution rights (“IDRs”) and approximately 34.3% of our common units, which constitutes a 28.6% limited partner interest in us.
The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, and our wholly‑owned subsidiaries.
Our primary operations are conducted by the following consolidated subsidiaries:
Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in 30 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States. Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama, Texas, Arkansas and New York.
Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey.
Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands.

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 material impact on income from operations, net income and comprehensive income, the balance sheets or statements of cash flows.
v3.20.2
Summary of Significant Accounting Policies
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to Regulation S-X, certain information and disclosures normally included in the annual financial statements have been condensed or omitted. The interim consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.
Significant Accounting Policies
As of June 30, 2020, the only change in the Partnership's significant accounting policies from those described in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020, was the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, described below under Recently Adopted Accounting Pronouncement.
Motor Fuel and Sales Taxes
For bulk sales, 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 direct sales to dealer and commercial customers is to exclude the collected motor fuel tax from sales and cost of sales.
For other locations where the Partnership holds inventory, including commission agent arrangements and Partnership-operated retail locations, motor fuel sales and motor fuel cost of sales include motor fuel taxes. Such amounts were $64 million and $100 million for the three months ended June 30, 2020 and 2019, respectively, and $144 million and $194 million for the six months ended June 30, 2020 and 2019, respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the accompanying consolidated statements of operations and comprehensive income.
Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The Partnership adopted ASU 2016-13 on January 1, 2020. The impact of the adoption was not material; however, due to the global economic impacts of COVID-19, the Partnership recorded $16 million of current expected credit losses for the six months ended June 30, 2020.
v3.20.2
Accounts Receivable, net
6 Months Ended
Jun. 30, 2020
Accounts Receivable, after Allowance for Credit Loss [Abstract]  
Accounts Receivable, net
Accounts Receivable, net
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Partnership maintains allowances for expected credit losses. Following the adoption of ASU 2016-13, the allowances are based on the best estimate of the amount of expected credit losses in existing accounts receivable. The Partnership determines the allowances based on historical write-off experience by industry, economic data and current expectations of future credit losses. The Partnership reviews the allowances for expected credit losses quarterly.
Accounts receivable, net, consisted of the following:
 
June 30,
2020
 
December 31,
2019
 
(in millions)
Accounts receivable, trade
$
208

 
$
337

Credit card receivables
55

 
29

Vendor receivables for rebates and branding
21

 
19

Other receivables
4

 
16

Allowance for expected credit losses
(18
)
 
(2
)
Accounts receivable, net
$
270

 
$
399


v3.20.2
Inventories, net
6 Months Ended
Jun. 30, 2020
Inventory Disclosure [Abstract]  
Inventories, net
Inventories, net 
Due to changes in fuel prices, we recorded an inventory adjustment on the value of fuel inventory of $137 million for the six months ended June 30, 2020.
Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of June 30, 2020 and December 31, 2019, the carrying value of the Partnership’s fuel inventory included lower of cost or market reserves of $372 million and $229 million, respectively, and the inventory carrying value equaled or exceeded its replacement cost. For the three and six months ended June 30, 2020 and 2019, the Partnership’s consolidated income statements did not include any material amounts of income from the liquidation of LIFO fuel inventory.
Inventories, net, consisted of the following:
 
June 30,
2020
 
December 31,
2019
 
(in millions)
Fuel
$
276

 
$
412

Other
7

 
7

Inventories, net
$
283

 
$
419


v3.20.2
Accrued Expenses and Other Current Liabilities
6 Months Ended
Jun. 30, 2020
Accrued Expenses And Other Current Liabilities [Abstract]  
Accrued Expenses and Other Current Liabilities
Accrued Expenses and Other Current Liabilities
Current accrued expenses and other current liabilities consisted of the following:
 
June 30,
2020
 
December 31,
2019
 
(in millions)
Wage and other employee-related accrued expenses
$
26

 
$
32

Accrued tax expense
80

 
42

Accrued insurance
25

 
27

Accrued interest expense
57

 
57

Dealer deposits
22

 
23

Accrued environmental expense
7

 
6

Other
25

 
32

Total
$
242

 
$
219


v3.20.2
Long-Term Debt
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt
Long-Term Debt 
Long-term debt consisted of the following:
 
June 30,
2020
 
December 31,
2019
 
(in millions)
Sale leaseback financing obligation
$
100

 
$
103

2018 Revolver
158

 
162

4.875% Senior Notes Due 2023
1,000

 
1,000

5.500% Senior Notes Due 2026
800

 
800

6.000% Senior Notes Due 2027
600

 
600

5.875% Senior Notes Due 2028
400

 
400

Finance leases
29

 
32

Total debt
3,087

 
3,097

Less: current maturities
12

 
11

Less: debt issuance costs
23

 
26

Long-term debt, net
$
3,052

 
$
3,060


Revolving Credit Agreement
The Partnership is party to an Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the “2018 Revolver”). As of June 30, 2020, the balance on the 2018 Revolver was $158 million, and $8 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at June 30, 2020 was $1.3 billion. The weighted average interest rate on the total amount outstanding at June 30, 2020 was 2.19%. The Partnership was in compliance with all financial covenants at June 30, 2020.
2018 Private Offering of Senior Notes
Effective May 1, 2020, all of Sunoco LP common units owned by ETC M-A Acquisition LLC ("ETC M-A") and the related guarantees of Sunoco LP’s $1 billion principal amount of 4.875% senior notes due 2023, $800 million principal amount of 5.5% senior notes due 2026 and $400 million principal amount of 5.875% senior notes due 2028 were assigned to ETO.
Fair Value of Debt
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of June 30, 2020 is estimated to be approximately $3.1 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities.
v3.20.2
Other Noncurrent Liabilities (Notes)
6 Months Ended
Jun. 30, 2020
Other Liabilities Disclosure [Abstract]  
Other Liabilities Disclosure [Text Block]
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
 
June 30,
2020
 
December 31,
2019
 
(in millions)
Reserve for underground storage tank removal
$
69

 
$
67

Accrued environmental expense, long-term
18

 
23

Other
10

 
7

Total
$
97

 
$
97


v3.20.2
Related-Party Transactions
6 Months Ended
Jun. 30, 2020
Related Party Transactions [Abstract]  
Related-Party Transactions
Related-Party Transactions
We are party to fee-based commercial agreements with various affiliates of ETO for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETO for the purchase and sale of fuel.
On July 1, 2019, we entered into a 50% owned joint venture on the J.C. Nolan diesel fuel pipeline to West Texas. ETO operates the J.C. Nolan pipeline for the joint venture, which transports diesel fuel from Hebert, Texas to a terminal in the Midland, Texas area. Our investment in this unconsolidated joint venture was $136 million and $121 million as of June 30, 2020 and December 31, 2019, respectively. In addition, we recorded income on the unconsolidated joint venture of $1 million and $2 million for the three and six months ended June 30, 2020, respectively.
Summary of Transactions
Related party transactions with affiliates for the three and six months ended June 30, 2020 and 2019 were as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Motor fuel sales to affiliates
$
37

 
$

 
$
49

 
$
1

Bulk fuel purchases from affiliates
$
120

 
$
103

 
$
439

 
$
282


Significant affiliate balances and activity related to the consolidated balance sheets are as follows:
Net advances from affiliates were $138 million and $140 million as of June 30, 2020 and December 31, 2019, respectively. Advances from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Sunoco (R&M), LLC and Sunoco Retail and Sunoco (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ETO.
Net accounts receivable from affiliates were $6 million and $12 million as of June 30, 2020 and December 31, 2019, respectively, which are primarily related to motor fuel sales to affiliates.
Net accounts payable to affiliates were $29 million and $49 million as of June 30, 2020 and December 31, 2019, respectively, which are related to operational expenses and bulk fuel purchases.
v3.20.2
Revenue (Notes)
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenue from Contract with Customer [Text Block]
Revenue
Disaggregation of Revenue
We operate our business in two primary segments, Fuel Distribution and Marketing and All Other. We disaggregate revenue within the segments by channels.
The following table depicts the disaggregation of revenue by channel within each segment:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in millions)
Fuel Distribution and Marketing Segment
 
 
 
 
 
 
 
Dealer
$
374

 
$
989

 
$
1,035

 
$
1,767

Distributor
645

 
2,142

 
2,112

 
3,781

Unbranded wholesale
548

 
623

 
1,143

 
1,273

Commission agent
363

 
439

 
679

 
814

Non motor fuel sales
20

 
16

 
31

 
35

Lease income
29

 
31

 
59

 
63

Total
1,979

 
4,240

 
5,059

 
7,733

All Other Segment
 
 
 
 
 
 
 
Motor fuel
62

 
173

 
189

 
314

Non motor fuel sales
34

 
58

 
94

 
113

Lease income
5

 
4

 
10

 
7

Total
101

 
235

 
293

 
434

Total revenue
$
2,080

 
$
4,475

 
$
5,352

 
$
8,167


Contract Balances with Customers
The balances of receivables from contracts with customers listed in the table below include both current trade receivables and long-term receivables, net of allowance for expected credit losses. The allowance for expected credit losses represents our best estimate of the probable losses associated with potential customer defaults. We estimate the expected credit losses based on historical write-off experience by industry and current expectations of future credit losses.
The balances of the Partnership’s contract assets and contract liabilities as of June 30, 2020 and December 31, 2019 are as follows:
 
June 30, 2020
 
December 31, 2019
 
(in millions)
Contract balances
 
 
 
Contract asset
$
128

 
$
117

Accounts receivable from contracts with customers
$
263

 
$
366

Contract liability
$

 
$

The amount of revenue recognized in the three and six months ended June 30, 2020 that was included in the contract liability balance at the beginning of each period was $0.1 million and $0.2 million, respectively, and $0.1 million and $0.2 million in the three and six months ended June 30, 2019, respectively. This amount of revenue is a result of changes in the transaction price of the Partnership’s contracts with customers. The difference in the opening and closing balances of the contract asset and contract liability primarily results from the timing difference between the Partnership’s performance and the customer’s payment.
Costs to Obtain or Fulfill a Contract
The Partnership recognizes an asset from the costs incurred to obtain a contract (e.g. sales commissions) only if it expects to recover those costs. On the other hand, the costs to fulfill a contract are capitalized if the costs are specifically identifiable to a contract, would result in enhancing resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. These capitalized costs are recorded as a part of other current assets and other noncurrent assets and are amortized as a reduction of revenue on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The amount of amortization on these capitalized costs that the Partnership recognized was $5 million and $10 million for the three and six months ended June 30, 2020, respectively, and $4 million and $8 million for the three and six months ended June 30, 2019, respectively. The Partnership has also made a policy election of expensing the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
v3.20.2
Commitments And Contingencies
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Commitments and Contingencies
Litigation
We have at various points and may in the future become involved in various legal proceedings arising out of our operations in the normal course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows.
Lessee Accounting
The Partnership leases retail stores, other property, and equipment 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. At the inception of each, we determine if the arrangement is a lease or contains an embedded lease and review the facts and circumstances of the arrangement to classify leased assets as operating or finance. The Partnership has elected not to record any leases with terms of 12 months or less on the balance sheet.
At this time, the majority of active leases within our portfolio are classified as operating leases. Operating leases are included in lease right-of-use (“ROU”) assets, operating lease current liabilities, and operating lease noncurrent liabilities in our consolidated balance sheets. Finance leases represent a small portion of the active lease agreements and are included in ROU assets and long-term debt in our consolidated balance sheets. The ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease for the duration of the lease term.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 20 years or greater. The exercise of lease renewal options is typically at our discretion. Additionally, many leases contain early termination clauses; however, early termination typically requires the agreement of both parties to the lease. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. At this time, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term.
To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable. At this time, many of our leases do not provide an implicit rate; therefore, to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at lease commencement date. The ROU assets also include any lease payments made on or before the commencement date and exclude lease incentives.
Minimum rent payments are expensed on a straight-line basis over the term of the lease. In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments we are typically responsible for include payment of real estate taxes, maintenance expenses and insurance.
The components of lease expense consisted of the following:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Lease cost
Classification
2020
 
2019
 
2020
 
2019
 
 
(in millions)
Operating lease cost
Lease expense
$
14

 
$
14

 
$
26

 
$
26

Finance lease cost
 
 
 
 
 
 
 
 
Amortization of leased assets
Depreciation, amortization, and accretion
2

 

 
3

 

Interest on lease liabilities
Interest expense

 

 
1

 

Short term lease cost
Lease expense
1

 
1

 
2

 
2

Variable lease cost
Lease expense
1

 
1

 
2

 
2

Sublease income
Lease income
(10
)
 
(11
)
 
(20
)
 
(21
)
Net lease cost
 
$
8

 
$
5

 
$
14

 
$
9

 
June 30,
Lease Term and Discount Rate
2020
 
2019
Weighted-average remaining lease term (years)
 
 
 
Operating leases
24

 
24

Finance leases
5

 
10

Weighted-average discount rate (%)
 
 
 
Operating leases
6
%
 
6
%
Finance leases
5
%
 
8
%
 
Six Months Ended June 30,
Other information
2020
 
2019
 
(in millions)
Cash paid for amount included in the measurement of lease liabilities
 
 
 
Operating cash flows from operating leases
$
(26
)
 
$
(28
)
Operating cash flows from finance leases
$

 
$

Financing cash flows from finance leases
$
(3
)
 
$

Leased assets obtained in exchange for new finance lease liabilities
$

 
$

Leased assets obtained in exchange for new operating lease liabilities
$
9

 
$
14


Maturities of lease liabilities as of June 30, 2020 are as follows:
Maturity of lease liabilities
 
Operating leases
 
Finance leases
 
Total
 
 
(in millions)
2020 (remainder)
 
$
25

 
$
4

 
$
29

2021
 
48

 
7

 
55

2022
 
46

 
7

 
53

2023
 
45

 
7

 
52

2024
 
44

 
4

 
48

Thereafter
 
840

 
5

 
845

Total lease payment
 
1,048

 
34

 
1,082

Less: interest
 
505

 
5

 
510

Present value of lease liabilities
 
$
543

 
$
29

 
$
572


Lessor Accounting
The Partnership leases or subleases a portion of its real estate portfolio to third party companies as a stable source of long-term revenue. Our lessor and sublease portfolio consists mainly of operating leases with convenience store operators. At this time, most lessor agreements contain 5-year terms with renewal options to extend and early termination options based on established terms specific to the individual agreement.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in millions)
Fuel Distribution and Marketing lease income
$
29

 
$
31

 
$
59

 
$
63

All Other lease income
5

 
4

 
10

 
7

Total lease income
$
34

 
$
35

 
$
69

 
$
70


Minimum future lease payments receivable are as follows:
 
 
June 30, 2020
 
 
(in millions)
2020 (remainder)
 
$
59

2021
 
96

2022
 
62

2023
 
8

2024
 
2

Thereafter
 
7

Total undiscounted cash flow
 
$
234


v3.20.2
Interest Expense, net
6 Months Ended
Jun. 30, 2020
Interest Income (Expense), Net [Abstract]  
Interest Expense, net
Interest Expense, net
Components of net interest expense were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in millions)
Interest expense
$
43

 
$
41

 
$
87

 
$
83

Amortization of deferred financing fees
2

 
2

 
3

 
3

Interest income
(1
)
 

 
(2
)
 
(1
)
Interest expense, net
$
44

 
$
43

 
$
88

 
$
85


v3.20.2
Income Tax Expense
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Income Tax Expense
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.
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. A reconciliation of income tax expense from continuing operations at the U.S. federal statutory rate of 21% to net income tax expense is as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
 
(in millions)
Income tax expense at statutory federal rate
$
35

 
$
13

 
$
8

 
$
35

Partnership earnings not subject to tax
(28
)
 
(10
)
 
(2
)
 
(36
)
State and local tax, net of federal benefit
1

 

 
3

 

Other

 
2

 
2

 
4

Net income tax expense
$
8

 
$
5

 
$
11

 
$
3


v3.20.2
Partners' Capital
6 Months Ended
Jun. 30, 2020
Partners' Capital [Abstract]  
Partners' Capital
Partners' Capital
As of June 30, 2020, ETO and its subsidiaries owned 28,463,967 common units, which constitutes 34.3% of our outstanding common units, and the public owned 54,576,814 common units. As of June 30, 2020, our consolidated subsidiaries owned all of the 16,410,780 Class C units representing limited partner interests in the Partnership (the “Class C Units”).
Common Units
The change in our outstanding common units for the six months ended June 30, 2020 is as follows: 
 
Number of Units
Number of common units at December 31, 2019
82,985,941

Phantom vested units exercised
54,840

Number of common units at June 30, 2020
83,040,781


Allocation of Net Income (Loss)
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 to incentive cash distributions, which are allocated 100% to ETO.
 
The calculation of net income (loss) allocated to the partners is as follows (in millions):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Attributable to Common Units
 
 
 
 
 
 
 
Distributions
$
69

 
$
68

 
$
137

 
$
136

Distributions in excess of net income (loss)
69

 
(32
)
 
(147
)
 
(12
)
Limited partners' interest in net income (loss)
$
138

 
$
36

 
$
(10
)
 
$
124


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 or declared during 2020 were as follows:
 
 
Limited Partners
 
 
Payment Date
 
Per Unit Distribution
 
Total Cash Distribution
 
Distribution to IDR Holders
 
 
(in millions, except per unit amounts)
 
 
 
 
 
 
 
August 19, 2020
 
$
0.8255

 
$
69

 
$
18

May 19, 2020
 
$
0.8255

 
$
69

 
$
18

February 19, 2020
 
$
0.8255

 
$
69

 
$
18

v3.20.2
Unit-Based Compensation
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement, Noncash Expense [Abstract]  
Unit-Based Compensation
Unit-Based Compensation
A summary of our phantom unit award activity is as follows:
 
Number of Phantom Units
 
Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2018
2,124,012

 
$
29.15

Granted
655,630

 
30.70

Vested
(477,256
)
 
30.04

Forfeited
(189,064
)
 
28.16

Outstanding at December 31, 2019
2,113,322

 
29.21

Granted
17,235

 
29.77

Vested
(83,544
)
 
32.07

Forfeited
(72,608
)
 
29.01

Outstanding at June 30, 2020
1,974,405

 
$
29.10


v3.20.2
Segment Reporting
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Segment Reporting Disclosure [Text Block]
Segment Reporting
Our financial statements reflect two reportable segments, Fuel Distribution and Marketing and All Other.
We report Adjusted EBITDA by segment as a measure of segment performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense and depreciation, amortization and accretion expense, non-cash unit-based compensation expense, gains and losses on disposal of assets and impairment charges, unrealized gains and losses on commodity derivatives, inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations. Inventory adjustments that are excluded from the calculation of Adjusted EBITDA represent changes in lower of cost or market reserves on the Partnership's inventory. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period.
The following table presents financial information by segment for the three and six months ended June 30, 2020 and 2019:
 
Three Months Ended June 30,
 
2020
 
2019
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
(in millions)
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel sales
$
1,930

 
$
62

 
 
 
$
1,992

 
$
4,193

 
$
173

 
 
 
$
4,366

Non motor fuel sales
20

 
34

 
 
 
54

 
16

 
58

 
 
 
74

Lease income
29

 
5

 
 
 
34

 
31

 
4

 
 
 
35

Intersegment sales
152

 

 
(152
)
 

 
463

 
16

 
(479
)
 

Total revenue
2,131

 
101

 
(152
)
 
2,080

 
4,703

 
251

 
(479
)
 
4,475

Gross profit (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel
275

 
19

 
 
 
294

 
171

 
19

 
 
 
190

Non motor fuel
13

 
17

 
 
 
30

 
13

 
31

 
 
 
44

Lease
29

 
5

 
 
 
34

 
31

 
4

 
 
 
35

Total gross profit
317

 
41

 
 
 
358

 
215

 
54

 
 
 
269

Total operating expenses
117

 
33

 
 
 
150

 
139

 
33

 
 
 
172

Operating income
200

 
8

 
 
 
208

 
76

 
21

 
 
 
97

Interest expense, net
(37
)
 
(7
)
 
 
 
(44
)
 
(35
)
 
(8
)
 
 
 
(43
)
Other income (expense), net

 

 
 
 

 

 
6

 
 
 
6

Equity in earnings of unconsolidated affiliate
1

 

 
 
 
1

 

 

 
 
 

Income from operations before income taxes
164

 
1

 
 
 
165

 
41

 
19

 
 

60

Income tax expense
3

 
5

 
 
 
8

 
2

 
3

 
 
 
5

Net income (loss) and comprehensive income (loss)
$
161

 
$
(4
)
 
 
 
$
157

 
$
39

 
$
16

 
 
 
$
55

Depreciation, amortization and accretion
36

 
11

 
 
 
47

 
37

 
10

 
 
 
47

Interest expense, net
37

 
7

 
 
 
44

 
35

 
8

 
 
 
43

Income tax expense
3

 
5

 
 
 
8

 
2

 
3

 
 
 
5

Non-cash unit-based compensation expense
3

 

 
 
 
3

 
3

 

 
 
 
3

Loss on disposal of assets and impairment charges

 
6

 
 
 
6

 

 
2

 
 
 
2

Unrealized loss on commodity derivatives

 

 
 
 

 
3

 

 
 
 
3

Inventory adjustments
(87
)
 
(3
)
 
 
 
(90
)
 
(4
)
 

 
 
 
(4
)
Equity in earnings of unconsolidated affiliate
(1
)
 

 
 
 
(1
)
 

 

 
 
 

Adjusted EBITDA related to unconsolidated affiliate
3

 

 
 
 
3

 

 

 
 
 

Other non-cash adjustments
5

 

 
 
 
5

 
4

 
(6
)
 
 
 
(2
)
Adjusted EBITDA
$
160

 
$
22

 
 
 
$
182

 
$
119

 
$
33

 
 
 
$
152

Capital expenditures
$
15

 
$
3

 
 
 
$
18

 
$
28

 
$
3

 
 
 
$
31

Total assets as of June 30, 2020 and
December 31, 2019, respectively
$
4,014

 
$
1,107

 
 
 
$
5,121

 
$
4,189

 
$
1,249

 
 
 
$
5,438


________________________________
(1)
Excludes depreciation, amortization and accretion.
 
Six Months Ended June 30,
 
2020
 
2019
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
(in millions)
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel sales
$
4,969

 
$
189

 
 
 
$
5,158

 
$
7,635

 
$
314

 
 
 
$
7,949

Non motor fuel sales
31

 
94

 
 
 
125

 
35

 
113

 
 
 
148

Lease income
59

 
10

 
 
 
69

 
63

 
7

 
 
 
70

Intersegment sales
445

 

 
(445
)
 

 
827

 
48

 
(875
)
 

Total revenue
5,504

 
293

 
(445
)
 
5,352

 
8,560

 
482

 
(875
)
 
8,167

Gross profit (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel
269

 
46

 
 
 
315

 
429

 
46

 
 
 
475

Non motor fuel
24

 
58

 
 
 
82

 
30

 
64

 
 
 
94

Lease
59

 
10

 
 
 
69

 
63

 
7

 
 
 
70

Total gross profit
352

 
114

 
 
 
466

 
522

 
117

 
 
 
639

Total operating expenses
272

 
68

 
 
 
340

 
274

 
116

 
 
 
390

Operating income
80

 
46

 
 
 
126

 
248

 
1

 
 
 
249

Interest expense, net
(75
)
 
(13
)
 
 
 
(88
)
 
(71
)
 
(14
)
 
 
 
(85
)
Other income (expense), net