Company Quick10K Filing
Sunoco
Price1.00 EPS-158,000,000
Shares-0 P/E-0
MCap-0 P/FCF-0
Net Debt3,087 EBIT297
TEV3,087 TEV/EBIT10
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-02-21
10-Q 2019-09-30 Filed 2019-11-07
10-Q 2019-06-30 Filed 2019-08-08
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-31 Filed 2019-02-22
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-02-23
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-09
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-02-24
10-Q 2016-09-30 Filed 2016-11-09
10-Q 2016-06-30 Filed 2016-08-04
10-Q 2016-03-31 Filed 2016-05-05
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-06
10-Q 2015-06-30 Filed 2015-08-06
10-Q 2015-03-31 Filed 2015-05-08
10-K 2014-12-31 Filed 2015-02-27
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-08
10-Q 2014-03-31 Filed 2014-05-09
10-K 2013-12-31 Filed 2014-03-14
10-Q 2013-09-30 Filed 2013-11-08
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-15
10-K 2012-12-31 Filed 2013-03-29
10-Q 2012-09-30 Filed 2012-11-14
8-K 2020-05-29
8-K 2020-05-11
8-K 2020-04-02
8-K 2020-03-24
8-K 2020-02-19
8-K 2020-01-27
8-K 2019-12-11
8-K 2019-11-06
8-K 2019-10-25
8-K 2019-08-07
8-K 2019-07-25
8-K 2019-05-08
8-K 2019-04-26
8-K 2019-03-11
8-K 2019-03-11
8-K 2019-03-05
8-K 2019-02-20
8-K 2019-01-25
8-K 2019-01-18
8-K 2018-12-20
8-K 2018-12-06
8-K 2018-11-27
8-K 2018-11-20
8-K 2018-11-16
8-K 2018-11-07
8-K 2018-10-29
8-K 2018-10-17
8-K 2018-08-08
8-K 2018-08-02
8-K 2018-07-27
8-K 2018-07-27
8-K 2018-07-13
8-K 2018-05-14
8-K 2018-05-10
8-K 2018-04-26
8-K 2018-04-03
8-K 2018-03-06
8-K 2018-02-21
8-K 2018-01-25
8-K 2018-01-23
8-K 2018-01-23
8-K 2018-01-23
8-K 2018-01-09
8-K 2018-01-08
8-K 2018-01-08
8-K 2018-01-04

SUN 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 sun-03312020xexx311.htm
EX-31.2 sun-03312020xexx312.htm
EX-32.1 sun-03312020xexx321.htm
EX-32.2 sun-03312020xexx322.htm
EX-99.1 sun-03312020xexx991.htm

Sunoco Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
4.83.72.61.60.5-0.62012201420172020
Rev, G Profit, Net Income
2.21.30.4-0.6-1.5-2.42012201420172020
Ops, Inv, Fin

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: March 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 001-35653
 
SUNOCO LP
(Exact name of registrant as specified in its charter) 
 
Delaware
 
30-0740483
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification Number)
8111 Westchester Drive, Suite 400, Dallas, Texas 75225
(Address of principal executive offices, including zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
 
 
 
Emerging Growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes       No  ý
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Units Representing Limited Partner Interests
SUN
New York Stock Exchange
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
The registrant had 83,030,290 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at May 7, 2020.
 



SUNOCO LP
FORM 10-Q
TABLE OF CONTENTS
 


i


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SUNOCO LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
 
March 31,
2020
 
December 31,
2019
Assets
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
31

 
$
21

Accounts receivable, net
 
162

 
399

Receivables from affiliates
 
11

 
12

Inventories, net
 
182

 
419

Other current assets
 
83

 
73

Total current assets
 
469

 
924

 
 
 
 
 
Property and equipment
 
2,170

 
2,134

Accumulated depreciation
 
(720
)
 
(692
)
Property and equipment, net
 
1,450

 
1,442

Other assets:
 
 
 
 
Finance lease right-of-use assets, net
 
27

 
29

Operating lease right-of-use assets, net
 
537

 
533

Goodwill
 
1,555

 
1,555

 
 
 
 
 
Intangible assets
 
905

 
906

Accumulated amortization
 
(274
)
 
(260
)
Intangible assets, net
 
631

 
646

Other noncurrent assets
 
173

 
188

Investment in unconsolidated affiliate
 
135

 
121

Total assets
 
$
4,977

 
$
5,438

Liabilities and equity
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
162

 
$
445

Accounts payable to affiliates
 
27

 
49

Accrued expenses and other current liabilities
 
171

 
219

Operating lease current liabilities
 
20

 
20

Current maturities of long-term debt
 
12

 
11

Total current liabilities
 
392

 
744

Operating lease noncurrent liabilities
 
535

 
530

Revolving line of credit
 
265

 
162

Long-term debt, net
 
2,896

 
2,898

Advances from affiliates
 
139

 
140

Deferred tax liability
 
109

 
109

Other noncurrent liabilities
 
95

 
97

Total liabilities
 
4,431

 
4,680

Commitments and contingencies (Note 10)
 


 


Equity:
 
 
 
 
Limited partners:
 
 
 
 
Common unitholders
(83,017,163 units issued and outstanding as of March 31, 2020 and
82,985,941 units issued and outstanding as of December 31, 2019)
 
546

 
758

Class C unitholders - held by subsidiaries
(16,410,780 units issued and outstanding as of March 31, 2020 and
December 31, 2019)
 

 

Total equity
 
546

 
758

Total liabilities and equity
 
$
4,977

 
$
5,438

 

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

1


SUNOCO LP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Dollars in millions, except per unit data)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Revenues:
 
 
 
 
Motor fuel sales
 
$
3,166

 
$
3,583

Non motor fuel sales
 
71

 
74

Lease income
 
35

 
35

Total revenues
 
3,272

 
3,692

Cost of sales and operating expenses:
 
 
 
 
Cost of sales
 
3,164

 
3,322

General and administrative
 
34

 
27

Other operating
 
95

 
84

Lease expense
 
14

 
14

Loss on disposal of assets and impairment charges
 
2

 
48

Depreciation, amortization and accretion
 
45

 
45

Total cost of sales and operating expenses
 
3,354

 
3,540

Operating income (loss)
 
(82
)
 
152

Other income (expense):
 
 
 
 
Interest expense, net
 
(44
)
 
(42
)
Other income (expense), net
 

 
(3
)
Equity in earnings of unconsolidated affiliate
 
1

 

Income (loss) before income taxes
 
(125
)
 
107

Income tax expense (benefit)
 
3

 
(2
)
Net income (loss) and comprehensive income (loss)
 
$
(128
)
 
$
109

 
 
 
 
 
Net income (loss) per common unit:
 
 
 
 
Common units - basic
 
$
(1.78
)
 
$
1.08

Common units - diluted
 
$
(1.78
)
 
$
1.07


 
 
 
 
Weighted average common units outstanding:
 
 
 
 
Common units - basic
 
83,013,768

 
82,711,188

Common units - diluted
 
83,013,768

 
83,380,167

 
 
 
 
 
Cash distributions per unit
 
$
0.8255

 
$
0.8255


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

2


SUNOCO LP
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in millions)
(unaudited)
 
 
 
Balance at December 31, 2019
 
$
758

Cash distribution to unitholders
 
(88
)
Unit-based compensation
 
4

Partnership net loss
 
(128
)
Balance at March 31, 2020
 
$
546

 
 
 
Balance at December 31, 2018
 
$
784

Cash distribution to unitholders
 
(87
)
Unit-based compensation
 
3

Partnership net income
 
109

Balance at March 31, 2019
 
$
809

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

3


SUNOCO LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:

 

Net income (loss)
$
(128
)
 
$
109

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation, amortization and accretion
45

 
45

Amortization of deferred financing fees
2

 
1

Loss on disposal of assets and impairment charge
2

 
48

Other non-cash, net

 
3

Non-cash unit-based compensation expense
4

 
3

Deferred income tax
1

 
(13
)
Inventory valuation adjustment
227

 
(93
)
Equity in earnings of unconsolidated affiliate
(1
)
 

Changes in operating assets and liabilities, net of acquisitions:

 

Accounts receivable
237

 
(116
)
Receivables from affiliates
1

 
35

Inventories
10

 
67

Other assets

 
9

Accounts payable
(282
)
 
74

Accounts payable to affiliates
(33
)
 
(62
)
Accrued expenses and other current liabilities
(48
)
 
(73
)
Other noncurrent liabilities
1

 

Net cash provided by operating activities
38

 
37

Cash flows from investing activities:
 
 
 
Capital expenditures
(41
)
 
(26
)
Contributions to unconsolidated affiliate
(4
)
 

Distributions from unconsolidated affiliate in excess of cumulative earnings
3

 

Cash paid for acquisitions

 
(5
)
Proceeds from disposal of property and equipment
2

 
6

Net cash used in investing activities
(40
)
 
(25
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of long-term debt

 
600

Payments on long-term debt
(3
)
 
(2
)
Revolver borrowings
453

 
693

Revolver repayments
(350
)
 
(1,243
)
Loan origination costs

 
(6
)
Distributions to unitholders
(88
)
 
(87
)
Net cash provided by (used in) financing activities
12

 
(45
)
Net increase (decrease) in cash and cash equivalents
10

 
(33
)
Cash and cash equivalents at beginning of period
21

 
56

Cash and cash equivalents at end of period
$
31

 
$
23

 
 
 
 
Supplemental disclosure of non-cash investing activities:
 
 
 
Change in note payable to affiliate
$
10

 
$

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

4


SUNOCO LP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(unaudited)
1.
Organization and Principles of Consolidation
As used in this document, the terms “Partnership,” “SUN,” “we,” “us,” and “our” should be understood to refer to Sunoco LP and our consolidated subsidiaries, unless the context clearly indicates otherwise.
We are a Delaware master limited partnership. We are managed by our general partner, Sunoco GP LLC (“General Partner”), which is owned by Energy Transfer Operating, L.P. (“ETO”), a consolidated subsidiary of Energy Transfer LP (“ET”). As of March 31, 2020, ETO and its subsidiaries owned 100% of the membership interests in our General Partner, all of our incentive distribution rights (“IDRs”) and approximately 34.3% of our common units, which constitutes a 28.6% limited partner interest in us.
The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, and our wholly‑owned subsidiaries.
Our primary operations are conducted by the following consolidated subsidiaries:
Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in 30 states throughout the East Coast, Midwest, South Central and Southeast regions of the United States. Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama, Texas, Arkansas and New York.
Sunoco Retail LLC (“Sunoco Retail”), a Pennsylvania limited liability company, owns and operates retail stores that sell motor fuel and merchandise primarily in New Jersey.
Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
Aloha Petroleum, Ltd. (“Aloha”), a Hawaii corporation, owns and operates retail stores on the Hawaiian Islands.

All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no material impact on income (loss) from operations, net income (loss) and comprehensive income (loss), the balance sheets or statements of cash flows.
2.
Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to Regulation S-X, certain information and disclosures normally included in the annual financial statements have been condensed or omitted. The interim consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.
Significant Accounting Policies
As of March 31, 2020, the only change in the Partnership's significant accounting policies from those described in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020, was the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, described below under Recently Adopted Accounting Pronouncement.
Motor Fuel and Sales Taxes
For bulk sales, certain motor fuel and sales taxes are collected from customers and remitted to governmental agencies either directly by the Partnership or through suppliers. The Partnership’s accounting policy for direct sales to dealer and commercial customers is to exclude the collected motor fuel tax from sales and cost of sales.
For other locations where the Partnership holds inventory, including commission agent arrangements and Partnership-operated retail locations, motor fuel sales and motor fuel cost of sales include motor fuel taxes. Such amounts were $80 million and $94 million for the three months ended March 31, 2020 and 2019, respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the accompanying consolidated statements of operations and comprehensive income (loss).

5


Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The Partnership adopted ASU 2016-13 on January 1, 2020. The impact of the adoption was not material; however, due to the global economic impacts of COVID-19, the Partnership recorded $16 million of current expected credit losses for the three months ended March 31, 2020.
3.
Accounts Receivable, net
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Partnership maintains allowances for expected credit losses. Following the adoption of ASU 2016-13, the allowances are based on the best estimate of the amount of expected credit losses in existing accounts receivable. The Partnership determines the allowances based on historical write-off experience by industry, economic data and current expectations of future credit losses. The Partnership reviews the allowances for expected credit losses quarterly.
Accounts receivable, net, consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Accounts receivable, trade
$
126

 
$
337

Credit card receivables
14

 
29

Vendor receivables for rebates and branding
22

 
19

Other receivables
18

 
16

Allowance for expected credit losses
(18
)
 
(2
)
Accounts receivable, net
$
162

 
$
399


4.
Inventories, net 
Due to changes in fuel prices, we recorded a inventory adjustment on the value of fuel inventory of $227 million at March 31, 2020.
Inventories, net, consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Fuel
$
174

 
$
412

Other
8

 
7

Inventories, net
$
182

 
$
419


5.
Accrued Expenses and Other Current Liabilities
Current accrued expenses and other current liabilities consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Wage and other employee-related accrued expenses
$
18

 
$
32

Accrued tax expense
27

 
42

Accrued insurance
27

 
27

Accrued interest expense
38

 
57

Dealer deposits
22

 
23

Accrued environmental expense
6

 
6

Other
33

 
32

Total
$
171

 
$
219



6


6.
Long-Term Debt 
Long-term debt consisted of the following:
 
March 31,
2020
 
December 31,
2019
 
(in millions)
Sale leaseback financing obligation
$
101

 
$
103

2018 Revolver
265

 
162

4.875% Senior Notes Due 2023
1,000

 
1,000

5.500% Senior Notes Due 2026
800

 
800

6.000% Senior Notes Due 2027
600

 
600

5.875% Senior Notes Due 2028
400

 
400

Finance leases
31

 
32

Total debt
3,197

 
3,097

Less: current maturities
12

 
11

Less: debt issuance costs
24

 
26

Long-term debt, net
$
3,161

 
$
3,060


Revolving Credit Agreement
The Partnership is party to an Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the “2018 Revolver”). As of March 31, 2020, the balance on the 2018 Revolver was $265 million, and $8 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at March 31, 2020 was $1.2 billion. The weighted average interest rate on the total amount outstanding at March 31, 2020 was 2.63%. The Partnership was in compliance with all financial covenants at March 31, 2020.
Fair Value of Debt
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of March 31, 2020 is estimated to be approximately $2.9 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities. 
7.
Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
 
March 31,
2020
 
December 31, 2019
 
(in millions)
Reserve for underground storage tank removal
$
68

 
$
67

Accrued environmental expense, long-term
22

 
23

Other
5

 
7

Total
$
95

 
$
97


8.
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 $135 million and $121 million as of March 31, 2020 and December 31, 2019, respectively. In addition, we recorded income on the unconsolidated joint venture of $1 million for the three months ended March 31, 2020.

7


Summary of Transactions
Significant affiliate balances and activity related to the consolidated balance sheets and consolidated statements of operations and comprehensive income (loss) are as follows:
Net advances from affiliates were $139 million and $140 million as of March 31, 2020 and December 31, 2019, respectively. Advances from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Sunoco (R&M), LLC and Sunoco Retail and Sunoco (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ETO.
Net accounts receivable from affiliates were $11 million and $12 million as of March 31, 2020 and December 31, 2019, respectively, which are primarily related to motor fuel sales to affiliates.
Net accounts payable to affiliates were $27 million and $49 million as of March 31, 2020 and December 31, 2019, respectively, which are related to operational expenses and bulk fuel purchases.
Motor fuel sales to affiliates were $12 million and $1 million for the three months ended March 31, 2020 and 2019, respectively.
Bulk fuel purchases from affiliates were $319 million and $171 million for the three months ended March 31, 2020 and 2019, respectively, which is included in cost of sales in our consolidated statements of operations and comprehensive income (loss).
9.
Revenue
Disaggregation of Revenue
We operate our business in two primary segments, Fuel Distribution and Marketing and All Other. We disaggregate revenue within the segments by channels.
The following table depicts the disaggregation of revenue by channel within each segment:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
(in millions)
Fuel Distribution and Marketing Segment
 
 
 
 
Dealer
 
$
661

 
$
778

Distributor
 
1,467

 
1,639

Unbranded wholesale
 
595

 
650

Commission agent
 
316

 
375

Non motor fuel sales
 
11

 
19

Lease income
 
30

 
32

Total
 
3,080

 
3,493

All Other Segment
 
 
 
 
Motor fuel
 
127

 
141

Non motor fuel sales
 
60

 
55

Lease income
 
5

 
3

Total
 
192

 
199

Total revenue
 
$
3,272

 
$
3,692


Contract Balances with Customers
The balances of receivables from contracts with customers listed in the table below include both current trade receivables and long-term receivables, net of allowance for expected credit losses. The allowance for expected credit losses represents our best estimate of the probable losses associated with potential customer defaults. We estimate the expected credit losses based on historical write-off experience by industry and current expectations of future credit losses.

8


The balances of the Partnership’s contract assets and contract liabilities as of March 31, 2020 and December 31, 2019 are as follows:
 
March 31, 2020
 
December 31, 2019
 
(in millions)
Contract balances
 
 
 
Contract asset
$
128

 
$
117

Accounts receivable from contracts with customers
$
140

 
$
366

Contract liability
$

 
$

The amount of revenue recognized in the three months ended March 31, 2020 and 2019 that was included in the contract liability balance at the beginning of each period was $0.1 million and $0.1 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.
Costs to Obtain or Fulfill a Contract
The Partnership recognizes an asset from the costs incurred to obtain a contract (e.g. sales commissions) only if it expects to recover those costs. On the other hand, the costs to fulfill a contract are capitalized if the costs are specifically identifiable to a contract, would result in enhancing resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. These capitalized costs are recorded as a part of other current assets and other noncurrent assets and are amortized as a reduction of revenue on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The amount of amortization on these capitalized costs that the Partnership recognized was $5 million and $4 million for the three months ended March 31, 2020 and 2019, respectively. The Partnership has also made a policy election of expensing the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
10.
Commitments and Contingencies
Litigation
We have at various points and may in the future become involved in various legal proceedings arising out of our operations in the normal course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows.
Lessee Accounting
The Partnership leases retail stores, other property, and equipment under non-cancellable operating leases whose initial terms are typically 5 to 15 years, with some having a term of 40 years or more, along with options that permit renewals for additional periods. At the inception of each, we determine if the arrangement is a lease or contains an embedded lease and review the facts and circumstances of the arrangement to classify leased assets as operating or finance 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 Topic 842. Operating leases are included in lease right-of-use (“ROU”) assets, operating lease current liabilities, and operating lease noncurrent 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 to 20 years or greater. The exercise of lease renewal options is typically at our discretion. Additionally many leases contain early termination clauses, however early termination typically requires the agreement of both parties to the lease. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. At this time, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term.
To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable. At this time, many of our leases do not provide an implicit rate, therefore to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at lease commencement date. The ROU assets also include any lease payments made on or before the commencement date and exclude lease incentives.

9


Minimum rent payments are expensed on a straight-line basis over the term of the lease. In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments we are typically responsible for include payment of real estate taxes, maintenance expenses and insurance.
The components of lease expense consisted of the following:
 
 
 
Three Months Ended March 31,
Lease cost
Classification
 
2020
 
2019
 
 
(in millions)
Operating lease cost
Lease expense
 
$
12

 
$
12

Finance lease cost
 
 
 
 
 
Amortization of leased assets
Depreciation, amortization, and accretion
 
1

 

Interest on lease liabilities
Interest expense
 

 

Short term lease cost
Lease expense
 
1

 
1

Variable lease cost
Lease expense
 
1

 
1

Sublease income
Lease income
 
(10
)
 
(10
)
Net lease cost
 
 
$
5

 
$
4

 
 
March 31,
Lease Term and Discount Rate
 
2020
 
2019
Weighted-average remaining lease term (years)
 
 
 
 
Operating leases
 
25

 
25

Finance leases
 
5

 
10

Weighted-average discount rate (%)
 
 
 
 
Operating leases
 
6
%
 
6
%
Finance leases
 
5
%
 
8
%
 
 
Three Months Ended March 31,
Other information
 
2020
 
2019
 
 
(in millions)
Cash paid for amount included in the measurement of lease liabilities
 
 
 
 
Operating cash flows from operating leases
 
$
(13
)
 
$
(12
)
Operating cash flows from finance leases
 
$

 
$

Financing cash flows from finance leases
 
$
(2
)
 
$

Leased assets obtained in exchange for new finance lease liabilities
 
$

 
$

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

 
$
8


Maturities of lease liabilities as of March 31, 2020 are as follows:
Maturity of lease liabilities
 
Operating leases
 
Finance leases
 
Total
 
 
(in millions)
2020 (remainder)
 
$
38

 
$
5

 
$
43

2021
 
48

 
7

 
55

2022
 
46

 
7

 
53

2023
 
45

 
7

 
52

2024
 
43

 
4

 
47

Thereafter
 
852

 
5

 
857

Total lease payment
 
1,072

 
35

 
1,107

Less: interest
 
517

 
4

 
521

Present value of lease liabilities
 
$
555

 
$
31

 
$
586



10


Lessor Accounting
The Partnership leases or subleases a portion of its real estate portfolio to third party companies as a stable source of long-term revenue. Our lessor and sublease portfolio consists mainly of operating leases with convenience store operators. At this time, most lessor agreements contain 5-year terms with renewal options to extend and early termination options based on established terms specific to the individual agreement.
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
(in millions)
Fuel Distribution and Marketing lease income
 
$
30

 
$
32

All Other lease income
 
5

 
3

Total lease income
 
$
35

 
$
35


Minimum future lease payments receivable are as follows:
 
 
March 31, 2020
 
 
(in millions)
2020 (remainder)
 
$
89

2021
 
96

2022
 
62

2023
 
7

2024
 
2

Thereafter
 
7

Total undiscounted cash flow
 
$
263

Goodwill
Goodwill is tested for impairment annually or more frequently if circumstances indicate that goodwill might be impaired. During the first quarter of 2020, due to the impacts of the COVID-19 pandemic and the decline in the Partnership’s market capitalization, we determined that interim impairment testing should be performed. We performed the interim impairment tests consistent with our approach for annual impairment testing, including using similar models, inputs and assumptions. As a result of the interim impairment test, no goodwill impairment was identified for the reporting units.
11.
Interest Expense, net
Components of net interest expense were as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
(in millions)
Interest expense
 
$
43

 
$
42

Amortization of deferred financing fees
 
2

 
1

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

 
$
42



11


12.
Income Tax Expense
As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes.
Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. A reconciliation of income tax expense from continuing operations at the U.S. federal statutory rate of 21% to net income tax expense is as follows:
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
(in millions)
Income tax expense (benefit) at statutory federal rate
 
$
(26
)
 
$
22

Partnership earnings not subject to tax
 
26

 
(26
)
State and local tax, net of federal benefit
 
2

 
2

Other
 
1

 

Net income tax expense (benefit)
 
$
3

 
$
(2
)

13.
Partners' Capital
As of March 31, 2020, ETO and its subsidiaries owned 28,463,967 common units, which constitutes 34.3% of our outstanding common units, and the public owned 54,553,196 common units. As of March 31, 2020, our consolidated subsidiaries owned all of the 16,410,780 Class C units representing limited partner interests in the Partnership (the “Class C Units”).
Common Units
The change in our outstanding common units for the three months ended March 31, 2020 is as follows: 
 
Number of Units
Number of common units at December 31, 2019
82,985,941

Phantom vested units exercised
31,222

Number of common units at March 31, 2020
83,017,163


Allocation of Net Income (Loss)
Our Partnership Agreement contains provisions for the allocation of net income and loss to the unitholders. For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect to incentive cash distributions, which are allocated 100% to ETO.
 
The calculation of net income (loss) allocated to the partners is as follows (in millions):
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Attributable to Common Units
 
 
 
 
Distributions
 
$
69

 
$
68

Distributions in excess of net income (loss)
 
(217
)
 
21

Limited partners' interest in net income (loss)
 
$
(148
)
 
$
89


Cash Distributions
Our Partnership Agreement sets forth the calculation used to determine the amount and priority of cash distributions that the common unitholders receive.

12


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

 
$
69

 
$
18

February 19, 2020
 
$
0.8255

 
$
69

 
$
18

 
14.
Unit-Based Compensation
A summary of our phantom unit award activity is as follows:
 
Number of Phantom Units
 
Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2018
2,124,012

 
$
29.15

Granted
655,630

 
30.70

Vested
(477,256
)
 
30.04

Forfeited
(189,064
)
 
28.16

Outstanding at December 31, 2019
2,113,322

 
29.21

Granted
17,235

 
29.77

Vested
(49,361
)
 
34.32

Forfeited
(5,816
)
 
28.96

Outstanding at March 31, 2020
2,075,380

 
$
29.10


15.
Segment Reporting
Our financial statements reflect two reportable segments, Fuel Distribution and Marketing and All Other.
We report Adjusted EBITDA by segment as a measure of segment performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense and depreciation, amortization and accretion expense, non-cash unit-based compensation expense, gains and losses on disposal of assets and impairment charges, unrealized gains and losses on commodity derivatives, inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations.
The following table presents financial information by segment for the three months ended March 31, 2020 and 2019: 

13


 
Three Months Ended March 31,
 
2020
 
2019
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
Fuel Distribution and Marketing
 
All Other
 
Intercompany Eliminations
 
Totals
 
(in millions)
Revenue
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel sales
$
3,039

 
$
127

 
 
 
$
3,166

 
$
3,442

 
$
141

 
 
 
$
3,583

Non motor fuel sales
11

 
60

 
 
 
71

 
19

 
55

 
 
 
74

Lease income
30

 
5

 
 
 
35

 
32

 
3

 
 
 
35

Intersegment sales
293

 

 
(293
)
 

 
364

 
32

 
(396
)
 

Total revenue
3,373

 
192

 
(293
)
 
3,272

 
3,857

 
231

 
(396
)
 
3,692

Gross profit (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Motor fuel
(6
)
 
27

 
 
 
21

 
258

 
27

 
 
 
285

Non motor fuel
11

 
41

 
 
 
52

 
17

 
33

 
 
 
50

Lease
30

 
5

 
 
 
35

 
32

 
3

 
 
 
35

Total gross profit
35

 
73

 
 
 
108

 
307

 
63

 
 
 
370

Total operating expenses
155

 
35

 
 
 
190

 
135

 
83

 
 
 
218

Operating income (loss)
(120
)
 
38

 
 
 
(82
)
 
172

 
(20
)
 
 
 
152

Interest expense, net
(38
)
 
(6
)
 
 
 
(44
)
 
(36
)
 
(6
)
 
 
 
(42
)
Other income (expense), net

 

 
 
 

 
3

 
(6
)
 
 
 
(3
)
Equity in earnings of unconsolidated affiliate
1

 

 
 
 
1

 

 

 
 
 

Income (loss) from operations before income taxes
(157
)
 
32

 
 
 
(125
)
 
139

 
(32
)
 
 
 
107

Income tax expense (benefit)