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: June 30, 2019

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 82,749,333 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at August 2, 2019.

SUNOCO LP

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3. Quantitative and Qualitative Disclosures about Market Risk	29
Item 4. Controls and Procedures	30
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3. Defaults Upon Senior Securities	31
Item 4. Mine Safety Disclosures	31
Item 5. Other Information	31
Item 6. Exhibits	31

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SUNOCO LP

CONSOLIDATED BALANCE SHEETS

(unaudited)

	June 30, 2019			December 31, 2018
	(in millions, except units)
Assets
Current assets:
Cash and cash equivalents	$	36		$	56
Accounts receivable, net	573			374
Receivables from affiliates	2			37
Inventories, net	410			374
Other current assets	77			64
Total current assets	1,098			905
Property and equipment	2,074			2,133
Accumulated depreciation	(635		)	(587		)
Property and equipment, net	1,439			1,546
Other assets:
Lease right-of-use assets, net	536			—
Goodwill	1,558			1,559
Intangible assets	914			915
Accumulated amortization	(235		)	(207		)
Intangible assets, net	679			708
Other non-current assets	160			161
Total assets	$	5,470		$	4,879
Liabilities and equity
Current liabilities:
Accounts payable	$	530		$	412
Accounts payable to affiliates	24			149
Accrued expenses and other current liabilities	306			299
Operating lease current liabilities	21			—
Current maturities of long-term debt	6			5
Total current liabilities	887			865
Operating lease non-current liabilities	520			—
Revolving line of credit	117			700
Long-term debt, net	2,878			2,280
Advances from affiliates	80			24
Deferred tax liability	90			103
Other non-current liabilities	119			123
Total liabilities	4,691			4,095
Commitments and contingencies (Note 12)
Equity:
Limited partners:
Common unitholders (82,749,333 units issued and outstanding as of June 30, 2019 and 82,665,057 units issued and outstanding as of December 31, 2018)	779			784
Class C unitholders - held by subsidiaries (16,410,780 units issued and outstanding as of June 30, 2019 and December 31, 2018)	—			—
Total equity	779			784
Total liabilities and equity	$	5,470		$	4,879

 

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

1

SUNOCO LP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in millions, except unit and per unit amounts)
Revenues:
Motor fuel sales	$	4,366		$	4,507		$	7,949		$	8,058
Non motor fuel sales	74			66			148			242
Lease income	35			34			70			56
Total revenues	4,475			4,607			8,167			8,356
Cost of sales and operating expenses:
Cost of sales	4,206			4,297			7,528			7,750
General and administrative	34			34			61			69
Other operating	73			86			157			184
Lease expense	16			19			30			34
Loss on disposal of assets and impairment charges	2			2			50			5
Depreciation, amortization and accretion	47			41			92			90
Total cost of sales and operating expenses	4,378			4,479			7,918			8,132
Operating income	97			128			249			224
Other expenses:
Interest expense, net	43			36			85			70
Loss on extinguishment of debt and other, net	(6		)	—			(3		)	109
Income from continuing operations before income taxes	60			92			167			45
Income tax expense (benefit)	5			(2		)	3			29
Income from continuing operations	55			94			164			16
Loss from discontinued operations, net of income taxes	—			(26		)	—			(263		)
Net income (loss) and comprehensive income (loss)	$	55		$	68		$	164		$	(247	)
Net income (loss) per common unit - basic:
Continuing operations - common units	$	0.44		$	0.91		$	1.51		$	(0.29	)
Discontinued operations - common units	0.00			(0.32		)	0.00			(3.05		)
Net income (loss) - common units	$	0.44		$	0.59		$	1.51		$	(3.34	)
Net income (loss) per common unit - diluted:
Continuing operations - common units	$	0.43		$	0.90		$	1.50		$	(0.29	)
Discontinued operations - common units	0.00			(0.32		)	0.00			(3.05		)
Net income (loss) - common units	$	0.43		$	0.58		$	1.50		$	(3.34	)
Weighted average limited partner units outstanding:
Common units - basic	82,742,323			82,494,976			82,726,842			86,104,411
Common units - diluted	83,509,987			82,947,669			83,455,021			86,569,372
Cash distributions per unit	$	0.8255		$	0.8255		$	1.6510		$	1.6510

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

2

SUNOCO LP

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in millions)

	Preferred Units-Affiliated			Common Units			Total Equity
Balance at December 31, 2018	$	—		$	784		$	784
Cash distribution to unitholders	—			(87		)	(87		)
Unit-based compensation	—			3			3
Partnership net income	—			109			109
Balance at March 31, 2019	—			809			809
Cash distribution to unitholders	—			(88		)	(88		)
Unit-based compensation	—			3			3
Partnership net income	—			55			55
Balance at June 30, 2019	$	—		$	779		$	779
Balance at December 31, 2017	$	300		$	1,947		$	2,247
Common unit repurchase	—			(540		)	(540		)
Redemption of preferred units	(300		)	—			(300		)
Cash distribution to unitholders	—			(107		)	(107		)
Dividend to preferred units	(2		)	—			(2		)
Unit-based compensation	—			3			3
Cumulative effect of change in revenue recognition accounting principle	—			(54		)	(54		)
Partnership net income (loss)	2			(317		)	(315		)
Balance at March 31, 2018	—			932			932
Cash distribution to unitholders	—			(87		)	(87		)
Unit-based compensation	—			3			3
Partnership net income	—			68			68
Balance at June 30, 2018	$	—		$	916		$	916

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

3

SUNOCO LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Six Months Ended June 30,
	2019			2018
	(in millions)
Cash flows from operating activities:
Net income (loss)	$	164		$	(247	)
Adjustments to reconcile net income (loss) to net cash provided by continuing operating activities:
Loss from discontinued operations	—			263
Depreciation, amortization and accretion	92			90
Amortization of deferred financing fees	3			3
Loss on disposal of assets and impairment charges	50			5
Loss on extinguishment of debt and other,net	(3		)	109
Non-cash unit based compensation expense	6			6
Deferred income tax	(13		)	21
Inventory valuation adjustment	(97		)	(57		)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable	(194		)	12
Receivable from affiliates	35			(8		)
Inventories	53			47
Other assets	31			(12		)
Accounts payable	124			(130		)
Accounts payable to affiliates	(68		)	(39		)
Accrued expenses and other current liabilities	8			189
Other non-current liabilities	(7		)	3
Net cash provided by continuing operating activities	184			255
Cash flows from investing activities:
Capital expenditures	(57		)	(32		)
Purchase of intangible assets	—			(2		)
Acquisition from Superior	—			(58		)
Sites purchased from 7-Eleven	—			(54		)
Proceeds from disposal of property and equipment	22			3
Net cash used in investing activities	(35		)	(143		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	600			2,200
Payments on long-term debt	(4		)	(3,448		)
Payments for debt extinguishment costs	—			(93		)
Revolver borrowings	1,064			1,410
Revolver repayments	(1,647		)	(1,855		)
Loan origination costs	(6		)	(24		)
Advances to/from affiliates	(1		)	—
Common unit repurchase	—			(540		)
Redemption of preferred units from ETE	—			(303		)
Distributions to unitholders	(175		)	(208		)
Net cash used in financing activities	(169		)	(2,861		)
Cash flows from discontinued operations:
Operating activities	—			(478		)
Investing activities	—			3,207
Changes in cash included in current assets held for sale	—			11
Net increase in cash and cash equivalents of discontinued operations	—			2,740
Net decrease in cash	(20		)	(9		)
Cash and cash equivalents at beginning of period	56			28
Cash and cash equivalents at end of period	$	36		$	19

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 June 30, 2019, ETO and its subsidiaries owned 100% of the membership interests in our General Partner, all of our incentive distribution rights (“IDRs”) and approximately 34.4% of our common units, which constitutes a 28.7% 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 gross profit, income 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 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, 2018 filed with the SEC on February 22, 2019.

Significant Accounting Policies

As of June 30, 2019, the only material change in the Partnership’s significant accounting policies, as compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2018, was the adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842), described under Change in Accounting Principle.

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 $100 million and $122 million for the three months ended June 30, 2019 and 2018, respectively, and $194 million and $181 million for the six months ended June 30, 2019 and 2018, 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

Change in Accounting Principle

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 involves recognition of an opening cumulative catch-up adjustment to the 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 statement 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

3. Acquisitions

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.

4. Discontinued Operations

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. (“7-Eleven”) and SEI Fuel Services, Inc., a 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

6

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”). 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 are no longer 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, as amended (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, we recorded sales to the sites that were subsequently sold to 7-Eleven of $199 million that were eliminated in consolidation. We received payments on trade receivables from 7-Eleven of $1.1 billion and $1.9 billion during the three and six months ended June 30, 2019, respectively, and $979 million and $1.6 billion during the three and six months ended June 30, 2018, respectively, subsequent to the closing of the sale.

On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and

sell 97 real estate assets. Real estate assets included in this process are company-owned locations, undeveloped greenfield sites and other excess real estate. Properties are located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The properties will be sold through a sealed-bid sale. Of the 97 properties, 51 have been sold and five continue to be marketed by the third-party brokerage firm. Additionally, 32 were sold to 7-Eleven and nine are part of the approximately 207 retail sites located in certain West Texas, Oklahoma and New Mexico markets which are operated by a commission agent. 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 for all periods presented in the consolidated financial statements. All other footnotes present results of the continuing operations.

The Partnership has concluded that it meets the accounting requirements for reporting the financial position, results of operations and cash flows of the Retail Divestment as discontinued operations.

The Partnership had no assets or liabilities associated with discontinued operations as of June 30, 2019 or December 31, 2018.

The results of operations associated with discontinued operations are presented in the following table:

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
	(in millions)
Revenues:
Motor fuel sales	$	—	$	—		$	—	$	256
Non motor fuel sales (1)	—		—			—		93
Total revenues	—		—			—		349
Cost of sales and operating expenses:
Cost of sales	—		—			—		305
General and administrative	—		5			—		7
Other operating	—		—			—		57
Lease expense	—		—			—		4
Loss on disposal of assets	—		38			—		61
Total cost of sales and operating expenses	—		43			—		434
Operating loss	—		(43		)	—		(85		)
Interest expense, net	—		—			—		2
Loss on extinguishment of debt	—		—			—		20
Loss from discontinued operations before income taxes	—		(43		)	—		(107		)
Income tax expense (benefit)	—		(17		)	—		156
Loss from discontinued operations, net of income taxes	$	—	$	(26	)	$	—	$	(263	)

________________________________

(1) Non motor fuel sales includes merchandise sales totaling $89 million for the six months ended June 30, 2018.

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5. Accounts Receivable, net

Accounts receivable, net, consisted of the following:

	June 30, 2019			December 31, 2018
	(in millions)
Accounts receivable, trade	$	400		$	299
Credit card receivables	133			49
Other receivables	42			28
Allowance for doubtful accounts	(2		)	(2		)
Accounts receivable, net	$	573		$	374

6. Inventories, net 

Inventories, net, consisted of the following:

	June 30, 2019		December 31, 2018
	(in millions)
Fuel	$	402	$	363
Other	8		11
Inventories, net	$	410	$	374

7. Accrued Expenses and Other Current Liabilities

Current accrued expenses and other current liabilities consisted of the following:

	June 30, 2019		December 31, 2018
	(in millions)
Wage and other employee-related accrued expenses	$	29	$	41
Accrued tax expense	81		91
Accrued insurance	33		31
Accrued interest expense	61		47
Dealer deposits	18		18
Accrued environmental expense	6		6
Other	78		65
Total	$	306	$	299

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8. Long-Term Debt 

Long-term debt consisted of the following:

	June 30, 2019		December 31, 2018
	(in millions)
Sale leaseback financing obligation	$	105	$	107
2018 Revolver	117		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
Other	7		1
Total debt	3,029		3,008
Less: current maturities	6		5
Less: debt issuance costs	28		23
Long-term debt, net of current maturities	$	2,995	$	2,980

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 previous revolving credit facility.

As of June 30, 2019, the balance on the 2018 Revolver was $117 million, and $8 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at June 30, 2019 was $1.4 billion. The weighted average interest rate on the total amount outstanding at June 30, 2019 was 4.41%. The Partnership was in compliance with all financial covenants at June 30, 2019.

Fair Value of Debt

 The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of June 30, 2019 is estimated to be approximately $3.1 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities. 

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9. Other Non-current Liabilities

Other non-current liabilities consisted of the following:

	June 30, 2019		December 31, 2018
	(in millions)
Reserve for underground storage tank removal	$	67	$	54
Reserve for environmental remediation	25		29
Unfavorable lease liability	15		16
Accrued straight-line rent	—		12
Other	12		12
Total	$	119	$	123

10. 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. In addition, we are party to two related products purchase agreements, one with Philadelphia Energy Solutions Refining & Marketing (“PES”) and one with PES’s product financier, Merrill Lynch Commodities; both purchase agreements contain 12-month terms that automatically renew for consecutive 12-month terms until either party cancels with notice. ETP Retail Holdings, LLC, a subsidiary of ETO, owns a noncontrolling interest in the parent of PES. Beginning in the third quarter of 2018, PES was no longer considered an affiliate of ETO as ETO was no longer considered to have any significant influence over PES’s management or operations. In June 2019, an explosion occurred at the PES refinery complex. On July 21, 2019, PES Holdings, LLC and seven of its subsidiaries, including PES (collectively, the "Debtors") filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware seeking relief under the provisions of Chapter 11 of the United States Bankruptcy Code, as a result of the explosion and fire at the Philadelphia refinery complex. The Debtors have announced an intent to temporarily cease refinery operations. The Debtors have expressed an intent to rebuild the refinery with the proceeds of insurance claims while concurrently running a sale process for its assets and operations. We have been successful at acquiring alternative supplies to replace fuel volume lost from PES and do not anticipate any material impact to our business going forward.

Summary of Transactions

Significant affiliate balances and activity related to the Consolidated Balance Sheets and Statements of Operations and Comprehensive Income (Loss) are as follows:

• Net advances from affiliates were $80 million and $24 million as of June 30, 2019 and December 31, 2018, 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.

• Net accounts receivable from affiliates were $2 million and $37 million as of June 30, 2019 and December 31, 2018, respectively, which are primarily related to motor fuel sales to affiliates.

• Net accounts payable to affiliates were $24 million and $149 million as of June 30, 2019 and December 31, 2018, respectively, which are related to operational expenses.

• Motor fuel sales to affiliates were $0.3 million and $10 million for the three months ended June 30, 2019 and 2018, respectively.

• Motor fuel sales to affiliates were $1 million and $22 million for the six months ended June 30, 2019 and 2018, respectively.

• Bulk fuel purchases from affiliates were $103 million and $887 million for the three months ended June 30, 2019 and 2018, respectively, which is included in the cost of sales in our Consolidated Statements of Operations and Comprehensive Income (Loss).

• Bulk fuel purchases from affiliates were $282 million and $1.7 billion for the six months ended June 30, 2019 and 2018, respectively, which is included in the cost of sales in our Consolidated Statements of Operations and Comprehensive Income (Loss).

11. 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.

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The following table depicts the disaggregation of revenue by channel within each segment:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in millions)
Fuel Distribution and Marketing Segment
Dealer	$	989	$	983	$	1,767	$	1,783
Distributor	2,142		2,207		3,781		3,830
Unbranded wholesale	623		687		1,273		1,249
Commission agent	439		427		814		548
Non motor fuel sales	16		15		35		29
Lease income	31		31		63		50
Total	4,240		4,350		7,733		7,489
All Other Segment
Motor fuel	173		203		314		648
Non motor fuel sales	58		51		113		213
Lease income	4		3		7		6
Total	235		257		434		867
Total revenue	$	4,475	$	4,607	$	8,167	$	8,356

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 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 June 30, 2019 and December 31, 2018 are as follows:

	June 30, 2019		December 31, 2018
	(in millions)
Contract balances
Contract asset	$	95	$	75
Accounts receivable from contracts with customers	$	533	$	348
Contract liability	$	1	$	1

The amount of revenue recognized in the three and six months ended June 30, 2019 that was included in the contract liability balance at the beginning of each period was $0.1 million and $0.2 million, respectively, and $0.2 million and $0.3 million in the three and six months ended June 30, 2018, 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

As of June 30, 2019, the aggregate amount of revenue expected to be recognized related to unsatisfied or partially satisfied franchise fee performance obligations (contract liabilities) is approximately $0.1 million for the remainder of 2019, $0.2 million in 2020, $0.1 million in 2021, and $0.1 million thereafter.

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 non-current 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 $4 million and $8 million for the three and six months ended June 30, 2019, respectively, and $3 million and $6 million for the three and six months ended June 30, 2018, respectively. The Partnership has also made

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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.

12. 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 the new standard. Operating leases are included in lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our consolidated balance sheet. Finance leases represent a small portion of the active lease agreements and are included in ROU assets, other current liabilities, and other long-term liabilities 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 one 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.

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The components of lease expense consisted of the following:

Lease cost	Classification	Three Months Ended June 30, 2019			Six Months Ended June 30, 2019
		(in millions)
Operating lease cost	Lease expense	$	14		$	26
Finance lease cost
Amortization of leased assets	Depreciation, amortization, and accretion	—			—
Interest on lease liabilities	Interest expense	—			—
Short term lease cost	Lease expense	1			2
Variable lease cost	Lease expense	1			2
Sublease income	Lease income	(11		)	(21		)
Net lease cost		$	5		$	9

Lease Term and Discount Rate	June 30, 2019
Weighted-average remaining lease term (years)
Operating leases	24
Finance leases	10
Weighted-average discount rate (%)
Operating leases	6%
Finance leases	8%

Other information	Six Months Ended June 30, 2019
	(in millions)
(Gain) Loss on sale and leaseback transactions, net	$	—
Cash paid for amount included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(28	)
Operating cash flows from finance leases	$	—
Financing cash flows from finance leases	$	—
Leased assets obtained in exchange for new finance lease liabilities	$	—
Leased assets obtained in exchange for new operating lease liabilities	$	14

Maturities of lease liabilities as of June 30, 2019 are as follows:

Maturity of lease liabilities	Operating leases		Finance leases		Total
	(in millions)
2019 (remainder)	$	26	$	—	$	26
2020	49		1		50
2021	46		1		47
2022	44		1		45
2023	43		1		44
Thereafter	838		6		844
Total lease payment	1,046		10		1,056
Less: interest	505		3		508
Present value of lease liabilities	$	541	$	7	$	548

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

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agreements contain 5-year terms with renewal options to extend and early termination options based on established terms specific to the individual agreement.

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
	(in millions)
Fuel Distribution & Marketing lease income	$	31	$	63
All Other lease income	4		7
Total lease income	$	35	$	70

Minimum future lease payments receivable are as follows:

	June 30, 2019
	(in millions)
2019 (remainder)	$	46
2020	72
2021	59
2022	53
2023	4
Thereafter	5
Total undiscounted cash flow