SUNOCO LP, 10-K filed on 2/21/2020
Annual Report
v3.19.3.a.u2
Cover Page - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2019
Feb. 14, 2020
Jun. 30, 2019
Document Information [Line Items]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-35653    
Entity Registrant Name SUNOCO LP    
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    
Title of 12(b) Security Common Units Representing Limited Partner Interests    
Trading Symbol SUN    
Security Exchange Name NYSE    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 1.7
Documents Incorporated by Reference None    
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001552275    
Current Fiscal Year End Date --12-31    
Common Units [Member]      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   83,017,163  
Common Class C [Member]      
Document Information [Line Items]      
Entity Common Stock, Shares Outstanding   16,410,780  
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 21 $ 56
Accounts receivable, net 399 374
Receivables from affiliates 12 37
Inventories, net 419 374
Other current assets 73 64
Total current assets 924 905
Property and equipment 2,134 2,133
Accumulated depreciation (692) (587)
Property and equipment, net 1,442 1,546
Finance lease right-of-use assets, net 29 0
Operating lease right-of-use assets, net 533 0
Other assets:    
Goodwill 1,555 1,559
Accumulated amortization (260) (207)
Intangible assets, net 646 708
Other noncurrent assets 188 161
Investment in unconsolidated affiliate 121 0
Total assets 5,438 4,879
Current liabilities:    
Accounts payable 445 412
Accounts payable to affiliates 49 149
Accrued expenses and other current liabilities 219 299
Operating lease current liabilities 20 0
Current maturities of long-term debt 11 5
Total current liabilities 744 865
Operating lease non-current liabilities 530 0
Revolving line of credit 162 700
Long-term Debt 2,898 2,280
Advances from affiliates 140 24
Deferred tax liability 109 103
Other noncurrent liabilities 97 123
Total liabilities 4,680 4,095
Commitments and contingencies (Note 14)
Equity:    
Total equity 758 784
Total liabilities and equity 5,438 4,879
Common Units [Member]    
Equity:    
Total equity 758 784
Class C Units Subsidiary [Member]    
Equity:    
Total equity $ 0 $ 0
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - shares
Dec. 31, 2019
Dec. 31, 2018
Partners' capital:    
Limited partner interest, units issued (in shares) 82,985,941 82,665,057
Limited partner interest, units outstanding (in shares) 82,985,941 82,665,057
Common Units - Public [Member]    
Partners' capital:    
Limited partner interest, units outstanding (in shares) 54,521,974  
Class C Units Subsidiary [Member]    
Partners' capital:    
Limited partner interest, units issued (in shares) 16,410,780 16,410,780
Limited partner interest, units outstanding (in shares) 16,410,780 16,410,780
v3.19.3.a.u2
Consolidated Statements of Operations and Comprehensive (Loss) Income - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Revenues:      
Total revenues $ 16,596 $ 16,994 $ 11,723
Cost of sales and operating expenses:      
Cost of sales 15,380 15,872 10,615
General and administrative 136 141 140
Other operating 304 363 375
Lease expense 61    
Lease expense   72 81
Loss on disposal of assets and impairment charges (68) (19) (114)
Depreciation, amortization and accretion 183 182 169
Total cost of sales and operating expenses 16,132 16,649 11,494
Operating income 464 345 229
Interest expense, net 173 144 209
Other expense (income), net (3) 0 0
Equity in earnings of unconsolidated affiliate (2) 0 0
Loss on extinguishment of debt and other, net 0 109 0
Income from continuing operations before income taxes 296 92 20
Income tax expense (benefit) (17) 34 (306)
Income from continuing operations 313 58 326
Loss from discontinued operations, net of income taxes 0 (265) (177)
Net income (loss) and comprehensive income (loss) $ 313 $ (207) $ 149
Weighted average limited partner units outstanding:      
Cash distribution per unit $ 3.30 $ 3.30 $ 3.30
Common Units [Member]      
Cost of sales and operating expenses:      
Net income (loss) and comprehensive income (loss) $ 313 $ (209) $ 126
Net income (loss) per common unit - basic:      
Continuing operations $ 2.84 $ (0.25) $ 2.13
Discontinued operations 0 (3.14) (1.78)
Net income (loss) 2.84 (3.39) 0.35
Net income (loss) per common unit - diluted:      
Continuing operations 2.82 (0.25) 2.12
Discontinued operations 0 (3.14) (1.78)
Net income (loss) $ 2.82 $ (3.39) $ 0.34
Weighted average limited partner units outstanding:      
Common units - basic 82,755,520 84,299,893 99,270,120
Common units - diluted 83,551,962 84,820,570 99,728,354
Motor Fuel Sales [Member]      
Revenues:      
Total revenues $ 16,176 $ 16,504 $ 10,910
Non Motor Fuel Sales [Member]      
Revenues:      
Total revenues 278 360 724
Lease income [Member]      
Revenues:      
Total revenues $ 142 $ 130 $ 89
v3.19.3.a.u2
Consolidated Statement of Equity - USD ($)
$ in Millions
Total
Series A Preferred Units
Common Units [Member]
Beginning balance at Dec. 31, 2016 $ 2,196 $ 0 $ 2,196
Increase (Decrease) in Partners' Capital [Roll Forward]      
Equity issued under ATM, net 33 0 33
Equity issued to ETE 300 300 0
Cash distribution to unitholders (420) 0 (420)
Unit-based compensation 24 0 24
Distribution to preferred units 23 23 0
Other (12) 0 (12)
Partnership net income 149 23 126
Ending balance at Dec. 31, 2017 2,247 300 1,947
Increase (Decrease) in Partners' Capital [Roll Forward]      
Common unit repurchase (540) 0 (540)
Cash distribution to unitholders (369) 0 (369)
Unit-based compensation 12 0 12
Distribution to preferred units 2 2 0
Redemption of preferred units (300) (300) 0
Other (3) 0 (3)
Partnership net income (207) 2 (209)
Ending balance at Dec. 31, 2018 784 0 784
Increase (Decrease) in Partners' Capital [Roll Forward]      
Cumulative effect of change in revenue recognition accounting principle (54) 0 (54)
Cash distribution to unitholders (353) 0 (353)
Unit-based compensation 13 0 13
Other 1 0 1
Partnership net income 313 0 313
Ending balance at Dec. 31, 2019 $ 758 $ 0 $ 758
v3.19.3.a.u2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income (loss) $ 313 $ (207) $ 149
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:      
Loss from discontinued operations, net of income taxes 0 265 177
Depreciation, amortization and accretion 183 182 169
Amortization of deferred financing fees 7 6 15
Loss on disposal of assets and impairment charges 68 19 114
Loss on extinguishment of debt and other, net 0 109 0
Other Operating Activities, Cash Flow Statement (3) 0 0
Non-cash unit-based compensation expense 13 12 24
Deferred Income Tax Expense (Benefit) 6 6 (308)
Inventory, LIFO Reserve, Period Charge (79) 85 (24)
Equity in earnings of unconsolidated affiliate (2) 0 0
Equity in earnings of unconsolidated affiliate      
Accounts receivable (44) 201 (1)
Receivables from affiliates (25) (15) 131
Inventories (26) 11 (21)
Other assets (28) (45) 7
Accounts payable 72 (123) (44)
Accounts payable to affiliates (46) (15) 97
Accrued expenses and other current liabilities (92) (55) (16)
Other noncurrent liabilities 16 3 54
Net Cash Provided by (Used in) Operating Activities, Continuing Operations 435 447 303
Net cash provided by continuing operating activities      
Payments for Capital Improvements (148) (103) (103)
Payments for Advance to Affiliate (41) 0 0
Payments to Acquire Intangible Assets 0 (2) (39)
Payments to acquire business (5) (401) 0
Proceeds from disposal of property and equipment 30 37 10
Net Cash Provided by (Used in) Investing Activities (164) (469) (132)
Cash flows from financing activities:      
Proceeds from issuance of long-term debt 600 2,200 0
Payments on long-term debt (9) (3,450) (5)
Payment for Debt Extinguishment or Debt Prepayment Cost 0 (93) 0
Proceeds from Lines of Credit 2,443 2,790 2,653
Repayments of Lines of Credit 2,981 2,855 2,888
Payments of Loan Costs (6) (35) 0
Proceeds (Payments) from Advances from (to) Affiliate 0 0 3
Equity issued to ETE     300
Payments for Repurchase of Common Stock 0 540 0
Payments for Repurchase of Preferred Stock and Preference Stock 0 (303)  
Proceeds from issuance of common units, net of offering costs 0 0 33
Proceeds from (Payments for) Other Financing Activities 0 (15) (4)
Distribution Made to Limited Partner, Cash Distributions Paid 353 383 431
Net Cash Provided by (Used in) Financing Activities (306) (2,684) (339)
Cash Provided by (Used in) Operating Activities, Discontinued Operations 0 (484) 136
Cash Provided by (Used in) Investing Activities, Discontinued Operations 0 3,207 (38)
Change in cash included in current assets held for sale 0 11 (5)
Net Cash Provided by (Used in) Discontinued Operations 0 2,734 93
Net increase (decrease) in cash and cash equivalents (35) 28 (75)
Cash and cash equivalents at beginning of period 56 28 103
Cash and cash equivalents at end of period 21 56 28
Supplemental disclosure of cash flow information:      
Increase (Decrease) in Notes Payable, Related Parties 75 0 0
Supplemental disclosure of cash flow information: 161 140 209
Income Taxes Paid $ 38 $ 501  
Proceeds from Income Tax Refunds     $ (1)
v3.19.3.a.u2
Organization and Principles of Consolidation
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Principles of Consolidation
Organization and Principles of Consolidation
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 Operating, L.P. (“ETO”), a consolidated subsidiary of Energy Transfer LP. In October 2018, Energy Transfer Equity, L.P. (“ETE”) and Energy Transfer Partners, L.P. (“ETP”) completed the previously announced merger of ETP with a wholly-owned subsidiary of ETE in a unit-for-unit exchange. Following the closing of the merger, ETE changed its name to “Energy Transfer LP” (“ET”) and its common units began trading on the New York Stock Exchange under the “ET” ticker symbol on October 19, 2018. In addition, ETP changed its name to “Energy Transfer Operating, L.P.”
In connection with the transaction, immediately prior to closing, ETE contributed 2,263,158 of our common units to ETP in exchange for 2,874,275 ETP common units, and contributed 100% of the limited liability company interests in our General Partner and all of our incentive distribution rights to ETP in exchange for 42,812,389 ETP common units. As a result, following the transaction, ETO directly owns our non-economic general partner interest, 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 as of December 31, 2019.
Effective October 27, 2014, the Partnership changed its name from Susser Petroleum Partners LP (NYSE: SUSP) to Sunoco LP (“SUN,” NYSE: SUN). 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, and our wholly‑owned subsidiaries. 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 retail stores in Hawaii and New Jersey.
On April 6, 2017, certain subsidiaries of the Partnership (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “7-Eleven 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 7-Eleven Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the 7-Eleven Purchase Agreement. Under the 7-Eleven Purchase Agreement, as amended and restated, we sold a portfolio of 1,030 company operated retail fuel outlets, together with ancillary businesses and related assets to Buyers for approximately $3.2 billion (the “7-Eleven Transaction”). 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 (the real estate optimization assets, together with the 7-Eleven Transaction, the “Retail Divestment”) have been reported as discontinued operations in the consolidated financial statements. See Note 4 for more information related to the 7-Eleven Purchase Agreement and discontinued operations. All other footnotes present results of the continuing operations.
On April 1, 2018, the Partnership completed the conversion of 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets to a single commission agent.
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 impact on gross margin, income from operations, net income (loss) and comprehensive income (loss), or the balance sheets or statements of cash flows.
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Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
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
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.
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 carrying amounts, which approximate the fair value due to their short term nature.
Segment Reporting
We operate our business in two primary operating segments, Fuel Distribution and Marketing and All Other, both of which are included as reportable segments. Our Fuel Distribution and Marketing segment sells motor fuel to our All Other segment and external customers. Our All Other segment includes the Partnership’s credit card services, franchise royalties, and its retail operations in Hawaii and New Jersey.
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.
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 ETO for certain cash management activities. The net balance of Sunoco LLC and Sunoco Retail activity  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 arise from 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 for the years ended December 31, 2019, 2018, and 2017.
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 finance 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 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.
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 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. We had no assets classified as assets held for sale as of December 31, 2019 or 2018.
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 reporting unit being lower than the carrying value, an impairment charge is recorded.
Indefinite-lived intangible assets are composed of certain tradenames, 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, 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. 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.
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.
Long-lived assets related to Asset Retirement Obligations aggregated $20 million and $11 million, and were reflected as property and equipment, net on our Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively.
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 motor fuel is 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 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 end customer. In our Fuel Distribution and Marketing segment, we derive additional income from lease income, propane and lubricating oils, and other ancillary product and service offerings. In our All Other segment, we derive other income from merchandise, lottery ticket sales, money orders, prepaid phone cards and wireless services, ATM transactions, car washes, 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.
Lease Income
Lease 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 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 $386 million, $370 million and $234 million, for the years ended December 31, 2019, 2018 and 2017, 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.
Lease Accounting
At the inception of each lease arrangement, we determine if the arrangement is a lease or contains an embedded lease and review the facts and circumstances of the arrangement to classify lease assets as operating or finance leases under Topic 842. The Partnership has elected not to record any leases with terms of 12 months or less on the balance sheet.
Balances related to operating leases are included in operating lease ROU assets, accrued and other current liabilities, operating lease current liabilities and non-current operating lease liabilities in our consolidated balance sheets. Finance leases represent a small portion of the active lease agreements and are included in finance lease ROU assets, current maturities of long-term debt and long-term debt, less current maturities in our consolidated balance sheets. The ROU assets represent the Partnership’s right to use an underlying asset for the lease term and lease liabilities represent the obligation of the Partnership to make minimum lease payments arising from the lease for the duration of the lease term.
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. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 20 years or greater. The exercise of lease renewal options is typically at the sole discretion of the Partnership and lease extensions are evaluated on a lease-by-lease basis. Leases containing early termination clauses typically require the agreement of both parties to the lease. At the inception of a lease, all renewal options reasonably certain to be exercised are considered when determining the lease term. The depreciable life of lease 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. Presently, because many of our leases do not provide an implicit rate, the Partnership applies its incremental borrowing rate based on the information available at the lease commencement date to determine the present value of minimum lease payments. The operating and finance lease ROU assets include any lease payments made and exclude lease incentives.
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.
For short-term leases (leases that have term of twelve months or less upon commencement), lease payments are recognized on a straight-line basis and no ROU assets are recorded.
Earnings Per Unit
In addition to limited partner units, we have identified incentive distribution rights (“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 First Amended and Restated Agreement of Limited Partnership, as amended (the “Partnership Agreement”). Net income per unit applicable to limited partners 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 common units.
Unit-based Compensation
Under the LP 2012 Long-Term Incentive Plan (the “2012 LTIP”) and the Sunoco LP 2018 Long-Term Incentive Plan (the “2018 LTIP”), 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, 2019, 2018, and 2017, 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 Sunoco Property Company LLC (“PropCo”) 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 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.
Change in Accounting Principles
FASB ASU No. 2016-02. In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842), which amends the FASB Accounting Standards Codification (“ASC”) and creates Topic 842, Leases. On January 1, 2019, we adopted ASC Topic 842, which is effective for interim and annual reporting periods beginning on or after December 15, 2018. This Topic requires balance sheet recognition of lease assets and lease liabilities for leases classified as operating leases under previous GAAP. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Partnership elected the modified retrospective approach to adopt Topic 842. This approach involved recognition of an opening cumulative catch-up adjustment to the balance sheet in the period of adoption, January 1, 2019. We have completed a detailed review of contracts representative of our business and assessed the terms under the new standard. Adoption of the standard had a material impact on our consolidated balance sheet, but did not have a material impact on our consolidated statements of operations and comprehensive income or consolidated cash flows. The most significant impact was the recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged.
As a result of the evaluation performed, we have recorded adjustments resulting in a net increase to assets and liabilities of approximately $547 million as of January 1, 2019. In addition to the evaluation performed, we have made appropriate design and implementation updates to our business processes, systems, and internal controls to support the on-going reporting requirements under the new standard.
Topic 842 provides for certain practical expedients that companies can elect to apply for purposes of adoption and implementation of the new standard. The practical expedients utilized by the Partnership are as follows: 1) no reassessment of whether existing contracts contain a lease, 2) no reassessment of the classification of existing leases, 3) no reassessment of initial direct costs for existing leases, 4) exclusion of leases with terms of 12 months or less from evaluation, 5) use of the portfolio approach to determine discount rates, 6) election to not separate non-lease components from lease components in existing lease agreements, and 7) election to not apply the use of hindsight to the active lease population.
The cumulative effect of the changes made to our consolidated January 1, 2019 balance sheet for the adoption of ASU No. 2016-02 was as follows:
Classification
 
Balance at
December 31, 2018
 
Adjustments Due to
Topic 842
 
Balance at
January 1, 2019
 
 
(in millions) 
Assets
 
 
 
 
 
 
Property and equipment, net
 
$
1,546

 
$
(1
)
 
$
1,545

Lease right-of-use assets
 

 
548

 
548

Liabilities
 
 
 
 
 
 
Accrued expenses and other current liabilities
 
299

 
(1
)
 
298

Current maturities of long term debt
 
5

 
1

 
6

Operating lease current liabilities
 

 
25

 
25

Long term debt, net
 
2,280

 
6

 
2,286

Operating lease non-current liabilities
 

 
528

 
528

Other non-current liabilities
 
123

 
(12
)
 
111


v3.19.3.a.u2
Mergers and Acquisitions
12 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Mergers, Acquisitions and Dispositions Disclosures [Text Block]
Acquisitions and Divestment
Speedway Acquisition
On January 18, 2019, we acquired certain convenience store locations from Speedway LLC for approximately $5 million plus working capital adjustments. We subsequently converted the acquired convenience store locations to commission agent locations.
Fulton Divestment
On May 31, 2019, we completed the previously announced divestiture to Attis Industries Inc. (NASDAQ: ATIS) (“Attis”) for the sale of our ethanol plant, including the grain malting operation, in Fulton, New York. As part of the transaction, we entered into a 10-year ethanol offtake agreement with Attis. Total consideration for the divestiture was $20 million in cash plus certain working capital adjustments. Pursuant to the offtake agreement wherein Attis sells ethanol to Sunoco, Attis is responsible for remitting taxes related to such sales to the state of New York. Should Attis fail to remit such taxes, under New York law, we could be held jointly and severally
liable for any unremitted portions for sales that occurred through February 4, 2020. Our current estimate of the net cash exposure for the potential liability is $8 million as of December 31, 2019, which was expensed during the year ended December 31, 2019.
Other Acquisitions
The following is a summary of the allocation of the purchase price paid to the fair values of the net assets, net of cash acquired, of our acquisitions during 2018 (in millions):
 
 
AMID
 
Schmitt
 
BRENCO
 
Sandford
 
Superior
 
7-Eleven
Current assets
 
$
3

 
$
4

 
$
2

 
$
37

 
$
19

 
$
4

Property and equipment
 
41

 
20

 
7

 
13

 
20

 
20

Intangible assets
 
40

 
16

 
12

 
36

 
12

 

Goodwill
 
43

 
6

 
5

 
31

 
10

 
30

Other noncurrent assets
 
2

 

 

 

 

 

Current liabilities
 
(2
)
 

 

 
(13
)
 
(1
)
 

Deferred tax liabilities
 

 

 

 
(11
)
 

 

Other noncurrent liabilities
 

 

 

 

 
(2
)
 

Total

$
127

 
$
46

 
$
26

 
$
93

 
$
58

 
$
54


On December 20, 2018, we completed the acquisition of the refined products terminalling business from American Midstream Partners, LP (NYSE: AMID) for approximately $127 million inclusive of working capital adjustments. The refined products terminalling business consists of terminals located in Texas and Arkansas with a combined 21 tanks, approximately 1.3 million barrels of storage capacity and approximately 77,500 barrels per day of total throughput capacity. The acquisition increased goodwill by $43 million, which is deductible for tax purposes.
On December 18, 2018, we completed the acquisition of the wholesale fuel distribution business from Schmitt Sales, Inc. (“Schmitt”) for approximately $46 million inclusive of working capital adjustments. The acquired wholesale fuels business distributes approximately 180 million gallons of fuel annually across a network of dealer and commission agent-operated locations in the Upstate New York and Pennsylvania markets. The acquisition increased goodwill by $6 million.
On October 16, 2018, we completed the acquisition of BRENCO Marketing Corporation’s fuel distribution business (“BRENCO”) for approximately $26 million inclusive of working capital adjustments. The acquired wholesale fuels business distributes approximately 95 million gallons of fuel annually across a network of approximately 160 dealer and commission agent-operated locations and 100 commercial accounts in Central and East Texas. The acquisition increased goodwill by $5 million.
On August 1, 2018, we completed the acquisition of the equity interests of Sandford Energy, LLC, Sandford Transportation, LLC and their respective subsidiaries (“Sandford”) for approximately $93 million inclusive of working capital and other adjustments. The acquired wholesale fuels business distributes approximately 115 million gallons of fuel annually to exploration, drilling and oil field services customers, primarily in basins in Central and West Texas and Oklahoma. The acquisition increased goodwill by $31 million, which is not deductible for tax purposes.
On April 25, 2018, we completed the acquisition of wholesale fuel distribution assets and related terminal assets from Superior Plus Energy Services, Inc. (“Superior”) for approximately $58 million inclusive of working capital adjustments. The assets consist of a network of approximately 100 dealers, several hundred commercial contracts and three terminals, which are connected to major pipelines serving the Upstate New York market. The acquisition increased goodwill by $10 million.
On April 2, 2018, we completed the acquisition of 26 retail fuel outlets from 7-Eleven and SEI Fuel (“7-Eleven Purchase”) for approximately $54 million, inclusive of working capital adjustment. We subsequently converted the acquired stations from company-operated sites to commission agent locations. The acquisition increased goodwill by $30 million.
v3.19.3.a.u2
Discontinued Operations (Notes)
12 Months Ended
Dec. 31, 2019
Discontinued Operations and Disposal Groups [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
Discontinued Operations
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 7-Eleven Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the 7-Eleven Purchase Agreement. Subsequent to the closing of the 7-Eleven Transaction, previously eliminated wholesale motor fuel sales to the Partnership’s retail locations are reported as wholesale motor fuel sales to third parties. Also, the related accounts receivable from such sales ceased to be eliminated from the Consolidated Balance Sheets and are reported as accounts receivable.
In connection with the closing of the transactions contemplated by the 7-Eleven Purchase Agreement, we entered into a Distributor Motor Fuel Agreement dated as of January 23, 2018 (the “Supply Agreement”), with 7-Eleven and SEI Fuel. The Supply Agreement
consists of a 15-year take-or-pay fuel supply arrangement. For the period from January 1, 2018 through January 22, 2018, and the year ended December 31, 2017, we recorded sales to the sites that were subsequently sold to 7-Eleven of $199 million and $3.2 billion, respectively, that were eliminated in consolidation. We received payments on trade receivables from 7-Eleven of $3.7 billion and $3.4 billion during the years ended December 31, 2019 and 2018, respectively, subsequent to the closing of the sale.
The Partnership 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.
As a result of the 7-Eleven Transaction, the Partnership recorded transaction costs of $3 million during 2018, and recorded transaction costs of $37 million and unit-based compensation of $6 million during 2017.
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.
The Partnership had no assets or liabilities associated with discontinued operations as of December 31, 2019 or 2018. There were no results of operations associated with discontinued operations for the year ended December 31, 2019.
The results of operations associated with discontinued operations are presented in the following table:
 
Year Ended December 31,
 
2018
 
2017
 
(in millions)
Revenues:
 
 
 
Motor fuel sales
$
256

 
$
5,137

Non motor fuel sales (1)
93

 
1,827

Total revenues
349

 
6,964

Cost of sales and operating expenses:
 
 
 
Cost of sales
305

 
5,806

General and administrative
7

 
168

Other operating
57

 
707

Rent
4

 
56

Loss on disposal of assets and impairment charge
61

 
286

Depreciation, amortization and accretion expense

 
34

Total cost of sales and operating expenses
434

 
7,057

Operating loss
(85
)
 
(93
)
Interest expense, net
2

 
36

Loss on extinguishment of debt and other, net
20

 

Loss from discontinued operations before income taxes
(107
)
 
(129
)
Income tax expense
158

 
48

Loss from discontinued operations, net of income taxes
$
(265
)
 
$
(177
)

_______________________________
(1)
Non motor fuel sales includes merchandise sales totaling $89 million and $1.8 billion for the years ended December 31, 2018 and 2017, respectively.
v3.19.3.a.u2
Accounts Receivable
12 Months Ended
Dec. 31, 2019
Accounts Receivable, after Allowance for Credit Loss [Abstract]  
Accounts Receivable, net
Accounts Receivable, net
Accounts receivable, net, consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Accounts receivable, trade
$
337

 
$
299

Credit card receivables
29

 
49

Vendor receivables for rebates and branding
19

 
1

Other receivables
16

 
27

Allowance for doubtful accounts
(2
)
 
(2
)
Accounts receivable, net
$
399

 
$
374


v3.19.3.a.u2
Inventories, net
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Inventories, net
Inventories, net
Inventories, net consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Fuel
$
412

 
$
363

Other
7

 
11

Inventories, net
$
419

 
$
374


v3.19.3.a.u2
Property and Equipment, net
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment, net
Property and Equipment, net
Property and equipment, net consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Land
$
515

 
$
518

Buildings and leasehold improvements
754

 
727

Equipment
830

 
810

Construction in progress
35

 
78

Total property and equipment
2,134

 
2,133

Less: accumulated depreciation
692

 
587

Property and equipment, net
$
1,442

 
$
1,546


Depreciation expense on property and equipment was $121 million, $129 million and $102 million for the years ended December 31, 2019, 2018 and 2017, respectively.
v3.19.3.a.u2
Goodwill and Other Intangible Assets
12 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
Goodwill
Goodwill balances and activity for the years ended December 31, 2019 and 2018 consisted of the following:
 
Segment
 
 
 
Fuel Distribution and Marketing
 
All Other
 
Consolidated
 
(in millions)
Balance at December 31, 2017
$
752

 
$
678

 
$
1,430

Goodwill related to 7-Eleven Purchase
30

 

 
30

Goodwill related to Superior acquisition
10

 

 
10

Goodwill related to Sandford acquisition
31

 

 
31

Goodwill related to BRENCO Acquisition
5

 

 
5

Goodwill related to AMID acquisition
44

 

 
44

Goodwill related to Schmitt acquisition
9

 

 
9

Balance at December 31, 2018
881

 
678

 
1,559

Goodwill adjustment related to AMID acquisition
(1
)
 

 
(1
)
Goodwill adjustment related to Schmitt acquisition
(3
)
 

 
(3
)
Balance at December 31, 2019
$
877

 
$
678

 
$
1,555


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, 2019, we performed our final evaluation of the 7-Eleven Purchase, AMID, Schmitt, BRENCO, Sandford and Superior acquisitions’ purchase accounting analyses 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, 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. During 2018 and 2019, management performed goodwill impairment testing on its reporting units. No goodwill impairment was identified for the reporting units as a result of these tests.
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, 2019
 
December 31, 2018
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book Value
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Book Value
 
(in millions)
Indefinite-lived
 

 
 

 
 

 
 

 
 

 
 

Tradenames
$
295

 
$

 
$
295

 
$
295

 
$

 
$
295

Liquor licenses
12

 

 
12

 
12

 

 
12

Finite-lived
 
 
 
 
 
 
 
 
 
 
 
Customer relations including supply agreements
580

 
252

 
328

 
579

 
198

 
381

Favorable leasehold arrangements, net (1)

 

 

 
10

 
3

 
7

Loan origination costs (2)
9

 
3

 
6

 
9

 
1

 
8

Other intangibles
10

 
5

 
5

 
10

 
5

 
5

Intangible assets, net
$
906

 
$
260

 
$
646

 
$
915

 
$
207

 
$
708


_______________________________
(1)
As a part of ASC 842, favorable leasehold arrangements were reclassed to adjust the operating lease right-of-use asset.
(2)
Loan origination costs are associated with the Revolving Credit Agreement, see Note 10 for further information.
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, 2018 and 2019, we performed the annual impairment tests on our indefinite-lived intangible assets. We recognized impairment charges of $13 million and $4 million on our contractual rights and liquor licenses, respectively, in 2017; $30 million of impairment charge on our contractual rights in 2018, primarily due to decreases in projected future revenues and cash flows from the date the intangible asset was originally recorded; and no impairment in 2019.
Total amortization expense on finite-lived intangibles included in depreciation, amortization and accretion was $56 million, $43 million and $61 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Customer relations and supply agreements have a remaining weighted-average life of approximately 9 years. Other intangible assets have a remaining weighted-average life of approximately 5 years. Loan origination costs have a remaining weighted-average life of approximately 4 years.
As of December 31, 2019, 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
2020
$
57

 
$
2

2021
53

 
2

2022
44

 
1

2023
38

 
1

2024
28

 

Thereafter
113

 

Total
$
333

 
$
6


v3.19.3.a.u2
Accrued Expenses and Other Current Liabilities
12 Months Ended
Dec. 31, 2019
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:
 
December 31, 2019
 
December 31, 2018
 
(in millions)
Wage and other employee-related accrued expenses
$
32

 
$
41

Accrued tax expense
42

 
91

Accrued insurance
27

 
31

Accrued interest expense
57

 
47

Dealer deposits
23

 
18

Accrued environmental expense
6

 
6

Other
32

 
65

Total
$
219

 
$
299


v3.19.3.a.u2
Long-Term Debt
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Long-Term Debt
Long-Term Debt
Long-term debt consisted of the following:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Sale leaseback financing obligation
$
103

 
$
107

2018 Revolver
162

 
700

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

 

5.875% Senior Notes Due 2028
400

 
400

Finance leases
32

 
1

Total debt
3,097

 
3,008

Less: current maturities
11

 
5

Less: debt issuance costs
26

 
23

Long-term debt, net of current maturities
$
3,060

 
$
2,980


At December 31, 2019, scheduled future debt principal maturities are as follows (in millions):
2020
$
11

2021
12

2022
13

2023
1,175

2024
10

Thereafter
1,876

Total
$
3,097


2018 Private Offering of Senior Notes
On January 23, 2018, we and certain of our wholly owned subsidiaries, including Sunoco Finance Corp. (together with the Partnership, the “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, 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 2018 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 Acquisition LLC (“ETC M-A”), a subsidiary of ET, 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. The exchange offer was completed on December 3, 2018.
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 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.
2019 Private Offering of Senior Notes
On March 14, 2019, we, our General Partner and Sunoco Finance Corp. (together with the Partnership, the “2027 Notes Issuers”) completed a private offering of $600 million in aggregate principal amount of 6.000% senior notes due 2027 (the “2027 Notes”).
The terms of the 2027 Notes are governed by an indenture dated March 14, 2019, among the 2027 Notes Issuers, certain subsidiaries of the Partnership (the “2027 Notes Guarantors”) and U.S. Bank National Association, as trustee. The 2027 Notes will mature on April 15, 2027, and interest on the 2027 Notes is payable semi-annually on April 15 and October 15 of each year, commencing October 15, 2019. The 2027 Notes are senior obligations of the 2027 Notes Issuers and are guaranteed on a senior basis by all of the Partnership’s current subsidiaries (other than Sunoco Finance Corp.) that guarantee its obligations under the 2018 Revolver (as defined below) and certain of its future subsidiaries. The 2027 Notes and guarantees are unsecured and rank equally with all of the 2027 Notes Issuers’ and each 2027 Notes Guarantor’s existing and future senior obligations. The 2027 Notes and guarantees are effectively subordinated to the 2027 Notes Issuers’ and each 2027 Notes Guarantor’s secured obligations, including obligations under the 2018 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 2027 Notes.
In connection with our issuance of the 2027 Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2027 Notes for an issue of registered notes with terms substantively identical to the 2027 Notes and evidencing the same indebtedness as the 2027 Notes on or before March 14, 2020. The exchange offer was completed on July 17, 2019.
The Partnership used the proceeds from the private offering to repay a portion of the outstanding borrowings under our 2018 Revolver (as defined below).
Revolving Credit Agreement
On July 27, 2018, we entered into a new 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”). Borrowings under the 2018 Revolver were used to pay off the Partnership’s existing revolving credit facility entered into on September 25, 2014 (the “2014 Revolver”).
The 2018 Revolver is a $1.50 billion revolving credit facility, expiring July 27, 2023 (which date may be extended in accordance with the terms of the 2018 Revolver). The facility can be increased from time to time upon the Partnership’s written request, subject to certain conditions, up to an additional $750 million. Borrowings under the revolving credit facility will bear interest at a base rate (a rate based off of the higher of (a) the Federal Funds Rate (as defined in the 2018 Revolver) plus 0.5%, (b) Bank of America’s prime rate and (c) one-month LIBOR (as defined therein) plus 1.00%) or LIBOR, in each case plus an applicable margin ranging from 1.25% to 2.25%, in the case of a LIBOR loan, or from 0.250% to 1.25%, in the case of a base rate loan (determined with reference to the Partnership’s Net Leverage Ratio as defined in the 2018 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 1.75%, in the case of a LIBOR loan, or from 0.125% to 0.750%, 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 and the Partnership’s corporate issuer rating). 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 Partnership’s revolving credit facility will be subject to a commitment fee ranging from 0.250% to 0.350%, 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 0.350%, based on the Partnership’s credit rating as described above.
The 2018 Revolver requires the Partnership to maintain a Net Leverage Ratio of not more than 5.50 to 1.00. The maximum Net Leverage Ratio is subject to upwards adjustment of not more than 6.00 to 1.00 for a period not to exceed three fiscal quarters in the event the Partnership engages in certain specified acquisitions of not less than $50 million (as permitted under the 2018 Revolver). The 2018 Revolver also requires the Partnership to maintain an Interest Coverage Ratio (as defined in the 2018 Revolver) of not less than 2.25 to 1.00.
Indebtedness under the 2018 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 the 2018 Revolver will be released.
As of December 31, 2019, the balance on the 2018 Revolver was $162 million, and $8 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at December 31, 2019 was $1.33 billion. The weighted average interest rate on the total amount outstanding at December 31, 2019 was 3.75%. The Partnership was in compliance with all financial covenants at December 31, 2019.
Sale Leaseback Financing Obligation
On April 4, 2013, Southside Oil, LLC (“Southside”), a subsidiary of the Partnership, 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 current and long-term debt and the balance outstanding as of December 31, 2019 was $103 million.
Fair Value of Debt
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of December 31, 2019, is estimated to be approximately $3.2 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities.
v3.19.3.a.u2
Other Noncurrent Liabilities
12 Months Ended
Dec. 31, 2019
Other Liabilities Disclosure [Abstract]  
Other Noncurrent Liabilities
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
 
December 31, 2019
 
December 31, 2018
 
(in millions)
Reserve for underground storage tank removal
$
67

 
$
54

Accrued environmental expense, long-term
23

 
29

Unfavorable lease liability (1)

 
16

Others
7

 
24

Total
$
97

 
$
123


_______________________________
(1)
As a part of ASC 842, unfavorable lease liabilities were reclassed to adjust the operating lease right-of-use asset.
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, 2019 and 2018 were as follows:
 
Year Ended December 31,
 
2019
 
2018
 
(in millions)
Balance at beginning of year
$
54

 
$
41

Liabilities incurred
12

 
4

Liabilities settled
(1
)
 
(1
)
Accretion expense
2

 
10

Balance at end of year
$
67

 
$
54


v3.19.3.a.u2
Related-Party Transactions
12 Months Ended
Dec. 31, 2019
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 $121 million as of December 31, 2019. In addition, we recorded income on the unconsolidated joint venture of $2 million for the year ended December 31, 2019.
Summary of Transactions
Related party transactions with affiliates for the years ended December 31, 2019, 2018, and 2017 were as follows (in millions): 
 
Year Ended December 31,
 
2019
 
2018
 
2017
Motor fuel sales to affiliates
$
7

 
$
33

 
$
55

Bulk fuel purchases from affiliates
$
821

 
$
1,947

 
$
2,416


Included in the bulk fuel purchases above are purchases from PES, which constituted 8.3% and 19.6% of our total cost of sales for the years ended December 31, 2018 and 2017, respectively.
Additional significant affiliate activity related to the Consolidated Balance Sheets are as follows:
Net advances from affiliates were $140 million and $24 million at December 31, 2019 and 2018, respectively. Advances to and from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Sunoco (R&M), LLC and Sunoco Retail and Sunoco (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ETO.
Net accounts receivable from affiliates were $12 million and $37 million at December 31, 2019 and 2018, respectively, which are primarily related to motor fuel sales to affiliates.
Net accounts payable to affiliates were $49 million and $149 million as of December 31, 2019 and 2018, respectively, attributable to operational expenses and bulk fuel purchases.
v3.19.3.a.u2
Revenue (Notes)
12 Months Ended
Dec. 31, 2019
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:
 
 
Year Ended December 31,
 
 
2019
 
2018
 
 
(in millions)
Fuel Distribution and Marketing Segment
 
 
 
 
Dealer
 
$
3,542

 
$
3,639

Distributor
 
7,645

 
7,873

Unbranded Wholesale
 
2,729

 
2,577

Commission Agent
 
1,606

 
1,377

Non motor fuel sales
 
62

 
48

Lease income
 
131

 
118

Total
 
15,715

 
15,632

All Other Segment
 
 
 
 
Motor fuel
 
654

 
1,038

Non motor fuel sales
 
216

 
312

Lease income
 
11

 
12

Total
 
881

 
1,362

Total Revenue
 
$
16,596

 
$
16,994


Fuel Distribution and Marketing Revenue
The Partnership’s Fuel Distribution and Marketing operations earn revenue from the following channels: sales to Dealers, sales to Distributors, Unbranded Wholesale revenue, Commission Agent revenue, Non motor fuel sales, and Lease income. Motor fuel revenue consists primarily of the sale of motor fuel under supply agreements with third party customers and affiliates. Fuel supply contracts with our customers generally provide that we distribute motor fuel at a formula price based on published rates, volume-based profit margin, and other terms specific to the agreement. The customer is invoiced the agreed-upon price with most payment terms ranging less than 30 days. If the consideration promised in a contract includes a variable amount, the Partnership estimates the variable consideration amount and factors in such an estimate to determine the transaction price under the expected value method.
Revenue is recognized under the motor fuel contracts at the point in time the customer takes control of the fuel. At the time control is transferred to the customer the sale is considered final, because the agreements do not grant customers the right to return motor fuel. Under the new standard, to determine when control transfers to the customer, the shipping terms of the contract are assessed as shipping terms are considered a primary indicator of the transfer of control. For FOB shipping point terms, revenue is recognized at the time of shipment. The performance obligation with respect to the sale of goods is satisfied at the time of shipment since the customer gains control at this time under the terms. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. Once the goods are shipped, the Partnership is precluded from redirecting the shipment to another customer and revenue is recognized.
Commission agent revenue consists of sales from commission agent agreements between the Partnership and select operators. The Partnership supplies motor fuel to sites operated by commission agents and sells the fuel directly to the end customer. In commission agent arrangements, control of the product is transferred at the point in time when the goods are sold to the end customer. To reflect the transfer of control, the Partnership recognizes commission agent revenue at the point in time fuel is sold to the end customer.
The Partnership receives lease income from leased or subleased properties. Revenues from leasing arrangements for which we are the lessor are recognized ratably over the term of the underlying lease.
All Other Revenue
The Partnership’s All Other operations earn revenue from the following channels: Motor fuel sales, Non motor fuel sales, and Lease income. Motor fuel sales consist of fuel sales to consumers at company-operated retail stores. Non motor fuel sales includes merchandise revenue that comprises the in-store merchandise and foodservice sales at company-operated retail stores, and other revenue that represents a variety of other services within our All Other segment including credit card processing, car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. Revenue from All Other operations is recognized when (or as) the performance obligations are satisfied (i.e. when the customer obtains control of the good or the service is provided).
Contract Balances with Customers
The Partnership satisfies its obligations by transferring goods or services in exchange for consideration from customers. The timing of performance may differ from the timing the associated consideration is paid to or received from the customer, thus resulting in the recognition of a contract asset or a contract liability.
The Partnership recognizes a contract asset when making upfront consideration payments to certain customers. The upfront considerations represent a pre-paid incentive, as these payments are not made for distinct goods or services provided by the customer. The pre-payment incentives are recognized as a contract asset upon payment and amortized as a reduction of revenue over the term of the specific agreement.
The Partnership recognizes a contract liability if the customer’s payment of consideration precedes the Partnership’s fulfillment of the performance obligations. We maintain some franchise agreements requiring dealers to make one-time upfront payments for long-term license agreements. The Partnership recognizes a contract liability when the upfront payment is received and recognizes revenue over the term of the license.
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 doubtful accounts. The allowance for receivables represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience and on a specific identification basis.
The balances of the Partnership’s contract assets and contract liabilities as of December 31, 2019 and 2018 are as follows:
 
December 31, 2019
 
December 31, 2018
 
Increase/ (Decrease)
 
(in millions)
Contract Balances
 
 
 
 
 
Contract Asset
$
117

 
$
75

 
$
42

Accounts receivable from contracts with customers
$
366

 
$
348

 
$
18

Contract Liability
$

 
$
1

 
$
(1
)

The amount of revenue recognized in the years ended December 31, 2019 and 2018 that was included in the contract liability balance at the beginning of each period was $0.4 million and $0.6 million, 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.
Performance Obligations
At contract inception, the Partnership assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Partnership considers all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. For a contract that has more than one performance obligation, the Partnership allocates the total contract consideration to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when (or as) the performance obligations are satisfied, that is, when the customer obtains control of the good or the service is provided.
The Partnership distributes fuel under long-term contracts to branded distributors, branded and unbranded third party dealers, and branded and unbranded retail fuel outlets. 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 ten years, with an estimated, volume-weighted term remaining of approximately four years.
As part of the 7-Eleven Purchase Agreement, the Partnership and 7-Eleven and SEI Fuel (collectively, the “Distributor”) have entered into a 15-year take-or-pay fuel supply agreement in which the Distributor is required to purchase a volume of fuel that provides the Partnership a minimum amount of gross profit annually. We expect to recognize this revenue in accordance with the contract as we transfer control of the product to the customer. However, in case of annual shortfall we will recognize the amount payable by the Distributor
at the sooner of the time at which the Distributor makes up the shortfall or becomes contractually or operationally unable to do so. The transaction price of the contract is variable in nature, fluctuating based on market conditions. The Partnership has elected to take the practical expedient not to estimate the amount of variable consideration allocated to wholly unsatisfied performance obligations.
In some contractual arrangements, the Partnership grants dealers a franchise license to operate the Partnership’s retail stores over the life of a franchise agreement. In return for the grant of the retail store license, the dealer makes a one-time nonrefundable franchise fee payment to the Partnership plus sales based royalties payable to the Partnership at a contractual rate during the period of the franchise agreement. Under the requirements of ASC Topic 606, the franchise license is deemed to be a symbolic license for which recognition of revenue over time is the most appropriate measure of progress toward complete satisfaction of the performance obligation. Revenue from this symbolic license is recognized evenly over the life of the franchise agreement.
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 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 in the years ended December 31, 2019 and 2018 was $17 million and $14 million, 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.
Practical Expedients Selected by the Partnership
The Partnership elected the following practical expedients in accordance with ASC 606:
Significant financing component - The Partnership elected not to adjust the promised amount of consideration for the effects of significant financing component if the Partnership expects at contract inception that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
Incremental costs of obtaining a contract - The Partnership generally expenses sales commissions when incurred because the amortization period would have been less than one year. We record these costs within general and administrative expenses. The Partnership elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.
Shipping and handling costs - The Partnership elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.
Measurement of transaction price - The Partnership has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Partnership from a customer (i.e., sales tax, value added tax, etc.).
Variable consideration of wholly unsatisfied performance obligations - The Partnership has elected to exclude the estimate of variable consideration to the allocation of wholly unsatisfied performance obligations.
v3.19.3.a.u2
Commitments and Contingencies (Notes)
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Disclosure [Text Block]
Commitments and Contingencies
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 under Topic 842. 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 under the new standard. Operating leases are included in lease right-of-use (“ROU”) assets, operating lease current liabilities, and operating lease non-current liabilities in our consolidated balance sheet. 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 sheet. 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 year 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 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:
Lease cost
Classification
Year Ended December 31, 2019
 
 
(in millions)
Operating lease cost
Lease expense
$
53

Finance lease cost
 
 
Amortization of leased assets
Depreciation, amortization, and accretion
4

Interest on lease liabilities
Interest expense
1

Short term lease cost
Lease expense
3

Variable lease cost
Lease expense
5

Sublease income
Lease income
(43
)
Net lease cost
 
$
23


Lease Term and Discount Rate
 
December 31, 2019
Weighted-average remaining lease term (years)
 
 
Operating leases
 
25
Finance leases
 
5
Weighted-average discount rate (%)
 
 
Operating leases
 
6%
Finance leases
 
5%
Other information
 
Year Ended December 31, 2019
 
 
(in millions)
Cash paid for amount included in the measurement of lease liabilities
 
 
Operating cash flows from operating leases
 
$
(52
)
Operating cash flows from finance leases
 
$
(1
)
Financing cash flows from finance leases
 
$
(4
)
Leased assets obtained in exchange for new finance lease liabilities
 
$
28

Leased assets obtained in exchange for new operating lease liabilities
 
$
20


Maturities of lease liabilities as of December 31, 2019 are as follows:
Maturity of lease liabilities
 
Operating leases
 
Finance leases
 
Total
 
 
(in millions)
2020
 
$
51

 
$
7

 
$
58

2021
 
48

 
7

 
55

2022
 
46

 
7

 
53

2023
 
44

 
7

 
51

2024
 
43

 
4

 
47

Thereafter
 
840

 
5

 
845

Total lease payment
 
1,072

 
37

 
1,109

Less: interest
 
522

 
5

 
527

Present value of lease liabilities
 
$
550

 
$
32

 
$
582


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.
 
 
Year Ended December 31, 2019
 
 
(in millions)
Fuel Distribution & Marketing lease income
 
$
131

All Other lease income
 
11

Total lease income
 
$
142


Minimum future lease payments receivable are as follows:
 
 
December 31, 2019
 
 
(in millions)
2020
 
$
119

2021
 
96

2022
 
62

2023
 
7

2024
 
2

Thereafter
 
7

Total undiscounted cash flow
 
$
293


Litigation and Contingencies
We may, from time to time, be involved in litigation and claims arising out of our operations in the normal course of business. In the ordinary course of business, we are sometimes threatened with or named as a defendant in various lawsuits seeking actual and punitive damages for personal injury and property damage. We maintain liability insurance with insurers in amounts and with coverage and deductibles management believes are reasonable and prudent, and which are generally accepted in the industry. However, there can be no assurance that the levels of insurance protection currently in effect will continue to be available at reasonable prices or that such levels will remain adequate to protect us from material expenses related to personal injury or property damage in the future. In addition, various regulatory agencies - such as tax authorities, environmental agencies, or other such agencies - may perform audits or reviews to ensure proper compliance with regulations. We are not fully-insured for any claims that may arise from these various agencies and there can be no assurance that any claims arising from these activities would not have an adverse, material effect on our financial statements.
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 2019, 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 $29 million and $35 million as of December 31, 2019 and 2018, respectively, which are classified as accrued expenses and other current liabilities and other noncurrent liabilities. As of December 31, 2019, we had $1 million in an escrow account to satisfy environmental claims related to the acquisition of Mid-Atlantic Convenience Stores, LLC (“MACS”), $8 million in two escrow accounts available to satisfy claims related to the Emerge acquisition, including environmental claims, and $3 million in one escrow account to satisfy claims related to the Sandford acquisition, including environmental claims.
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, 2019, 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, 2019. We have recorded $1.1 million and $1.2 million for deferred branding incentives, net of accumulated amortization, as of December 31, 2019 and 2018, 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.
v3.19.3.a.u2
Rental Income under Operating Leases
12 Months Ended
Dec. 31, 2019
Rental Income Under Operating Leases [Abstract]  
Rental Income under Operating Leases
Lease Income under Operating Leases
The balances of property and equipment that are being leased to third parties for lease income were as follows:
 
December 31,
2019
 
December 31,
2018
 
(in millions)
Land
$
410

 
$
414

Buildings and improvements
481

 
506

Equipment
368

 
306

Total property and equipment
1,259

 
1,226

Less: accumulated depreciation
(375
)
 
(321
)
Property and equipment, net
$
884

 
$
905