UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended: September 30, 2021

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)

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 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 (Section 232.405 of this chapter) 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

The registrant had 83,352,123 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at October 29, 2021.

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	18
Item 3. Quantitative and Qualitative Disclosures about Market Risk	28
Item 4. Controls and Procedures	29
PART II – OTHER INFORMATION
Item 1. Legal Proceedings	30
Item 1A. Risk Factors	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3. Defaults Upon Senior Securities	30
Item 4. Mine Safety Disclosures	30
Item 5. Other Information	30
Item 6. Exhibits	30

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

SUNOCO LP

CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

(unaudited)

	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	88	$	97
Accounts receivable, net	540		295
Receivables from affiliates	9		11
Inventories, net	493		382
Other current assets	126		62
Total current assets	1,256		847
Property and equipment	2,275		2,231
Accumulated depreciation	(888)		(806)
Property and equipment, net	1,387		1,425
Other assets:
Finance lease right-of-use assets, net	9		3
Operating lease right-of-use assets, net	515		536
Goodwill	1,568		1,564
Intangible assets	894		894
Accumulated amortization	(349)		(306)
Intangible assets, net	545		588
Other noncurrent assets	172		168
Investment in unconsolidated affiliate	133		136
Total assets	$	5,585	$	5,267
Liabilities and equity
Current liabilities:
Accounts payable	$	611	$	267
Accounts payable to affiliates	63		79
Accrued expenses and other current liabilities	306		282
Operating lease current liabilities	19		19
Current maturities of long-term debt	6		6
Total current liabilities	1,005		653
Operating lease noncurrent liabilities	519		538
Revolving line of credit	250		—
Long-term debt, net	2,672		3,106
Advances from affiliates	127		125
Deferred tax liability	108		104
Other noncurrent liabilities	104		109
Total liabilities	4,785		4,635
Commitments and contingencies (Note 10)
Equity:
Limited partners:
Common unitholders (83,352,123 units issued and outstanding as of September 30, 2021 and 83,333,631 units issued and outstanding as of December 31, 2020)	800		632
Class C unitholders - held by subsidiaries (16,410,780 units issued and outstanding as of September 30, 2021 and December 31, 2020)	—		—
Total equity	800		632
Total liabilities and equity	$	5,585	$	5,267

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

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SUNOCO LP

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Dollars in millions, except per unit data)

(unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Motor fuel sales	$	4,666	$	2,711	$	12,321	$	7,869
Non motor fuel sales	79		60		218		185
Lease income	34		34		103		103
Total revenues	4,779		2,805		12,642		8,157
Cost of sales and operating expenses:
Cost of sales	4,472		2,497		11,631		7,383
General and administrative	28		28		79		87
Other operating	70		68		192		219
Lease expense	15		16		44		46
(Gain) loss on disposal of assets	(4)		(1)		(12)		7
Depreciation, amortization and accretion	45		50		135		142
Total cost of sales and operating expenses	4,626		2,658		12,069		7,884
Operating income	153		147		573		273
Other income (expense):
Interest expense, net	(40)		(43)		(124)		(131)
Equity in earnings of unconsolidated affiliate	1		1		3		3
Loss on extinguishment of debt	—		—		(7)		—
Income before income taxes	114		105		445		145
Income tax expense	10		5		21		16
Net income and comprehensive income	$	104	$	100	$	424	$	129
Net income per common unit:
Basic	$	1.01	$	0.97	$	4.38	$	0.85
Diluted	$	1.00	$	0.96	$	4.33	$	0.84
Weighted average common units outstanding:
Basic	83,352,123		83,056,365		83,348,540		83,033,556
Diluted	84,549,277		83,770,034		84,364,321		83,668,835
Cash distributions per unit	$	0.8255	$	0.8255	$	2.4765	$	2.4765

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

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SUNOCO LP

CONSOLIDATED STATEMENTS OF EQUITY

(Dollars in millions)

(unaudited)

Balance at December 31, 2020	$	632
Cash distribution to unitholders	(88)
Unit-based compensation	4
Other	(4)
Net income	154
Balance at March 31, 2021	698
Cash distribution to unitholders	(88)
Unit-based compensation	3
Net income	166
Balance at June 30, 2021	779
Cash distribution to unitholders	(88)
Unit-based compensation	5
Net income	104
Balance at September 30, 2021	$	800
Balance at December 31, 2019	$	758
Cash distribution to unitholders	(88)
Unit-based compensation	4
Net loss	(128)
Balance at March 31, 2020	546
Cash distribution to unitholders	(88)
Unit-based compensation	3
Net income	157
Balance at June 30, 2020	618
Cash distribution to unitholders	(88)
Unit-based compensation	4
Other	1
Net income	100
Balance at September 30, 2020	$	635

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

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SUNOCO LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(unaudited)

	Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities:
Net income	$	424	$	129
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	135		142
Amortization of deferred financing fees	6		5
(Gain) loss on disposal of assets	(12)		7
Loss on extinguishment of debt	7		—
Non-cash unit-based compensation expense	12		11
Deferred income tax	3		(3)
Inventory valuation adjustment	(168)		126
Equity in earnings of unconsolidated affiliate	(3)		(3)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable, net	(245)		147
Receivables from affiliates	2		6
Inventories, net	57		(34)
Other assets	(79)		22
Accounts payable	379		(150)
Accounts payable to affiliates	(16)		62
Accrued expenses and other current liabilities	24		6
Other noncurrent liabilities	(14)		(11)
Net cash provided by operating activities	512		462
Cash flows from investing activities:
Capital expenditures	(92)		(80)
Contributions to unconsolidated affiliate	—		(8)
Distributions from unconsolidated affiliate in excess of cumulative earnings	6		9
Cash paid for acquisition	(6)		—
Proceeds from disposal of property and equipment	27		6
Net cash used in investing activities	(65)		(73)
Cash flows from financing activities:
Payments on long-term debt	(442)		(8)
Revolver borrowings	878		952
Revolver repayments	(628)		(1,027)
Distributions to unitholders	(264)		(264)
Net cash used in financing activities	(456)		(347)
Net increase (decrease) in cash and cash equivalents	(9)		42
Cash and cash equivalents at beginning of period	97		21
Cash and cash equivalents at end of period	$	88	$	63
Supplemental disclosure of non-cash investing activities:
Change in note payable to affiliate	$	5	$	8

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

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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 LP (“ET”). Prior to April 1, 2021, Energy Transfer Operating, L.P. (“ETO”) owned our General Partner. On April 1, 2021, ETO merged into ET with ET surviving the merger. As of September 30, 2021, ET and its subsidiaries owned 100% of the membership interests in our General Partner, all of our incentive distribution rights (“IDRs”) and approximately 34.1% of our common units, which constitutes a 28.5% 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, Maryland 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. Sunoco Retail also leases owned sites to commission agents who sell motor fuels to the motoring public on Sunoco Retail's behalf for a commission.

•Aloha Petroleum LLC (“Aloha 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 operating income, net income and comprehensive income, 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, 2020 filed with the Securities and Exchange Commission ("SEC") on February 19, 2021.

Significant Accounting Policies

As of September 30, 2021, there have been no changes in the Partnership's significant accounting policies from those described in the Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 19, 2021.

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 $88 million and $82 million for the three months ended September 30, 2021 and 2020, respectively, and $252 million and $226 million for the nine months ended September 30, 2021 and 2020, respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the accompanying consolidated statements of operations and comprehensive income.

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3.Accounts Receivable, net

Accounts receivable, net, consisted of the following:

	September 30, 2021		December 31, 2020
	(in millions)
Accounts receivable, trade	$	436	$	239
Credit card receivables	39		24
Vendor receivables for rebates and branding	33		26
Other receivables	34		13
Allowance for expected credit losses	(2)		(7)
Accounts receivable, net	$	540	$	295

4.Inventories, net 

Due to changes in fuel prices, we recorded an inventory adjustment on the value of fuel inventory of $168 million for the nine months ended September 30, 2021.

Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of September 30, 2021 and December 31, 2020, the carrying value of the Partnership’s fuel inventory included lower of cost or market reserves of $143 million and $311 million, respectively, and the inventory carrying value equaled or exceeded its replacement cost. For the three and nine months ended September 30, 2021 and 2020, the Partnership’s consolidated statements of operations and comprehensive income did not include any material amounts of income from the liquidation of LIFO fuel inventory.

Inventories, net, consisted of the following:

	September 30, 2021		December 31, 2020
	(in millions)
Fuel	$	485	$	374
Other	8		8
Inventories, net	$	493	$	382

5.Accrued Expenses and Other Current Liabilities

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

	September 30, 2021		December 31, 2020
	(in millions)
Wage and other employee-related accrued expenses	$	23	$	23
Accrued tax expense	146		135
Accrued insurance	22		24
Accrued interest expense	41		49
Dealer deposits	21		22
Accrued environmental expense	6		4
Other	47		25
Total	$	306	$	282

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6.Long-Term Debt 

Long-term debt consisted of the following:

	September 30, 2021		December 31, 2020
	(in millions)
Sale leaseback financing obligation	$	92	$	97
2018 Revolver	250		—
4.875% Senior Notes Due 2023 (1)	—		436
5.500% Senior Notes Due 2026 (2)	800		800
6.000% Senior Notes Due 2027	600		600
5.875% Senior Notes Due 2028 (2)	400		400
4.500% Senior Notes Due 2029 (3)	800		800
Finance leases	9		6
Total debt	2,951		3,139
Less: current maturities	6		6
Less: debt issuance costs	23		27
Long-term debt, net	$	2,922	$	3,106

(1) On January 15, 2021, we used proceeds from borrowings on our 2018 Revolver (described below) to repurchase the remaining $436 million outstanding principal amount of our 4.875% senior notes due 2023.

(2) In connection with the merger of ETO into ET on April 1, 2021, as discussed in Note 1, the guarantees of the Partnership's senior notes due 2026 and 2028 have been assumed by ET. On October 20, 2021, the Partnership completed a private offering of $800 million in aggregate principal amount of 4.500% senior notes due 2030. The Partnership used the proceeds from the private offering to fund a tender offer and repurchase all of the 2026 senior notes. In connection with our issuance of the 2030 Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2030 Notes for an issue of registered notes with terms substantively identical to the 2030 Notes and evidencing the same indebtedness as the 2030 Notes on or before October 20, 2022.

(3) In connection with our issuance of the 2029 Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2029 Notes for an issue of registered notes with terms substantively identical to the 2029 Notes and evidencing the same indebtedness as the 2029 Notes on or before November 9, 2021. The exchange offer was completed on July 6, 2021.

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 September 30, 2021, the balance on the 2018 Revolver was $250 million, and $6 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at September 30, 2021 was $1.2 billion. The weighted average interest rate on the total amount outstanding at September 30, 2021 was 2.09%. The Partnership was in compliance with all financial covenants at September 30, 2021.

Fair Value of Debt

The estimated fair value of debt is calculated using Level 2 inputs. The estimated fair value of debt as of September 30, 2021 was approximately $3.0 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities. 

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7.Other Noncurrent Liabilities

Other noncurrent liabilities consisted of the following:

	September 30, 2021		December 31, 2020
	(in millions)
Reserve for underground storage tank removal	$	77	$	75
Accrued environmental expense, long-term	12		16
Other	15		18
Total	$	104	$	109

8.Related-Party Transactions

We are party to fee-based commercial agreements with various affiliates of ET for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ET 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. ET 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. The carrying value of our investment in this unconsolidated joint venture was $133 million and $136 million as of September 30, 2021 and December 31, 2020, respectively. In addition, we recorded income on the unconsolidated joint venture of $1 million and $1 million for the three months ended September 30, 2021 and 2020, respectively, and $3 million and $3 million for the nine months ended September 30, 2021 and 2020, respectively.

Summary of Transactions

Related party transactions with affiliates for the three and nine months ended September 30, 2021 and 2020 were as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Motor fuel sales to affiliates	$	7	$	4	$	16	$	53
Bulk fuel purchases from affiliates	$	461	$	222	$	1,213	$	661

Significant affiliate balances and activity related to the consolidated balance sheets are as follows:

•Net advances from affiliates were $127 million and $125 million as of September 30, 2021 and December 31, 2020, respectively. Advances from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Energy Transfer (R&M), LLC and between Sunoco Retail and Energy Transfer (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ET.

•Net accounts receivable from affiliates were $9 million and $11 million as of September 30, 2021 and December 31, 2020, respectively, which are primarily related to motor fuel sales to affiliates.

•Net accounts payable to affiliates were $63 million and $79 million as of September 30, 2021 and December 31, 2020, respectively, which are related to operational expenses and bulk fuel purchases.

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.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Fuel Distribution and Marketing Segment
Distributor	$	2,328	$	1,316	$	6,066	$	3,428
Dealer	983		586		2,565		1,621
Unbranded wholesale	804		426		2,216		1,569
Commission agent	384		272		1,043		951
Non motor fuel sales	21		14		51		45
Lease income	33		30		98		89
Total	4,553		2,644		12,039		7,703
All Other Segment
Motor fuel	167		111		431		300
Non motor fuel sales	58		46		167		140
Lease income	1		4		5		14
Total	226		161		603		454
Total revenue	$	4,779	$	2,805	$	12,642	$	8,157

Contract Balances with Customers

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

The balances of the Partnership’s contract assets and contract liabilities as of September 30, 2021 and December 31, 2020 were as follows:

	September 30, 2021		December 31, 2020
	(in millions)
Contract balances
Contract asset	$	148	$	121
Accounts receivable from contracts with customers	$	473	$	256
Contract liability	$	—	$	—

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 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 $6 million and $15 million for the three and nine months ended September 30, 2021, respectively, and $4 million and $14 million for the three and nine months ended September 30, 2020, 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.

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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. The Partnership has elected not to record any leases with terms of 12 months or less on the balance sheet.

At this time, the majority of active leases within our portfolio are classified as operating leases. Operating leases are included in lease right-of-use (“ROU”) assets, operating lease current liabilities, and operating lease noncurrent liabilities in our consolidated balance sheets. Finance leases represent a small portion of the active lease agreements and are included in ROU assets and long-term debt in our consolidated balance sheets. The ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease for the duration of the lease term.

Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 20 years or greater. The exercise of lease renewal options is typically at our discretion. Additionally, many leases contain early termination clauses; however, early termination typically requires the agreement of both parties to the lease. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. At this time, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of leased assets and leasehold improvements are limited by the expected lease term.

To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable. At this time, many of our leases do not provide an implicit rate; therefore, to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at lease commencement date. The ROU assets also include any lease payments made on or before the commencement date and exclude lease incentives.

Minimum rent payments are expensed on a straight-line basis over the term of the lease. In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments we are typically responsible for include payment of real estate taxes, maintenance expenses and insurance.

The details of the Partnership's operating and finance lease liabilities are as follows:

	September 30,
Lease Term and Discount Rate	2021		2020
Weighted-average remaining lease term (years)
Operating leases	22		24
Finance leases	29		9
Weighted-average discount rate (%)
Operating leases	6	%	6	%
Finance leases	4	%	8	%

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	Nine Months Ended September 30,
Other information	2021		2020
	(in millions)
Cash paid for amount included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(37)	$	(39)
Operating cash flows from finance leases	$	(1)	$	—
Financing cash flows from finance leases	$	(1)	$	(3)
Leased assets obtained in exchange for new finance lease liabilities	$	9	$	—
Leased assets obtained in exchange for new operating lease liabilities	$	1	$	11

Maturity of lease liabilities (as of September 30, 2021)	Operating leases		Finance leases		Total
	(in millions)
2021 (remainder)	$	12	$	—	$	12
2022	48		—		48
2023	47		—		47
2024	46		—		46
2025	46		—		46
Thereafter	812		16		828
Total lease payment	1,011		16		1,027
Less: interest	473		7		480
Present value of lease liabilities	$	538	$	9	$	547

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.

11.Interest Expense, net

Components of net interest expense were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Interest expense	$	38	$	41	$	118	$	128
Amortization of deferred financing fees	2		2		6		5
Interest income	—		—		—		(2)
Interest expense, net	$	40	$	43	$	124	$	131

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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 September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(in millions)
Income tax expense at statutory federal rate	$	24	$	22	$	94	$	31
Partnership earnings not subject to tax	(18)		(18)		(79)		(20)
State and local tax, net of federal benefit	2		1		5		4
Other	2		—		1		1
Net income tax expense	$	10	$	5	$	21	$	16

13.Partners' Capital

As of September 30, 2021, ET and its subsidiaries owned 28,463,967 common units, which constitutes 34.1% of our outstanding common units, and the public owned 54,888,156 common units. As of September 30, 2021, 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 nine months ended September 30, 2021 is as follows: 

	Number of Units
Number of common units at December 31, 2020	83,333,631
Phantom vested units exercised	18,492
Number of common units at September 30, 2021	83,352,123

Allocation of Net Income

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 ET.

The calculation of net income allocated to the partners is as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Attributable to Common Units
Distributions	$	68	$	69	$	206	$	206
Distributions (in excess of) less than net income	16		12		159		(135)
Limited partners' interest in net income	$	84	$	81	$	365	$	71

Cash Distributions

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

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Cash distributions paid or declared during 2021 were as follows:

	Limited Partners
Payment Date	Per Unit Distribution		Total Cash Distribution		Distribution to IDR Holders
	(in millions, except per unit amounts)
November 19, 2021	$	0.8255	$	69	$	18
August 19, 2021	$	0.8255	$	69	$	18
May 19, 2021	$	0.8255	$	69	$	18
February 19, 2021	$	0.8255	$	69	$	18

14.Segment Reporting

Our consolidated 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 earnings 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 non-cash impairment charges, unrealized gains and losses on commodity derivatives, inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations. Inventory adjustments that are excluded from the calculation of Adjusted EBITDA represent changes in lower of cost or market reserves on the Partnership's inventory. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period.

The following table presents financial information by segment for the three and nine months ended September 30, 2021 and 2020: 

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	Three Months Ended September 30,
	2021							2020
	Fuel Distribution and Marketing		All Other		Intercompany Eliminations	Totals		Fuel Distribution and Marketing		All Other		Intercompany Eliminations	Totals
	(in millions)
Revenue
Motor fuel sales	$	4,499	$	167		$	4,666	$	2,600	$	111		$	2,711
Non motor fuel sales	21		58			79		14		46			60
Lease income	33		1			34		30		4			34
Intersegment sales	407		—		(407)	—		259		—		(259)	—
Total revenue	4,960		226		(407)	4,779		2,903		161		(259)	2,805
Gross profit (1)
Motor fuel	216		15			231		224		13			237
Non motor fuel	12		30			42		11		26			37
Lease	33		1			34		30		4			34
Total gross profit	261		46			307		265		43			308
Total operating expenses	115		39			154		122		39			161
Operating income	146		7			153		143		4			147
Interest expense, net	(34)		(6)			(40)		(37)		(6)			(43)
Equity in earnings of unconsolidated affiliate	1		—			1		1		—			1
Income (loss) from operations before income taxes	113		1			114		107		(2)			105
Income tax expense	9		1			10		—		5			5
Net income (loss) and comprehensive income (loss)	$	104	$	—		$	104	$	107	$	(7)		$	100
Depreciation, amortization and accretion	38		7			45		44		6			50
Interest expense, net	34		6			40		37		6			43
Income tax expense	9		1			10		—		5			5
Non-cash unit-based compensation expense	5		—			5		4		—			4
Gain on disposal of assets	(2)		(2)			(4)		—		(1)			(1)
Unrealized loss (gain) on commodity derivatives