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 managed by Sunoco GP LLC, our general partner (“General Partner”). As of
June 30, 2018
, Energy Transfer Equity, L.P. (“ETE”), a publicly traded master limited partnership, owns 100% of the membership interests in our General Partner, a
2.3%
limited partner interest in us and all of our incentive distribution rights. Energy Transfer Partners, L.P. (“ETP”), another publicly traded master limited partnership which is also controlled by ETE, owns a
26.5%
limited partner interest in us as of
June 30, 2018
.
The consolidated financial statements are composed of Sunoco LP, a publicly traded Delaware limited partnership, and our wholly-owned subsidiaries. We distribute motor fuels across more than
30
states throughout the East Coast, Midwest, South Central and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. We also operate retail stores in Hawaii, New Jersey and Texas.
On April 6, 2017, certain subsidiaries of the Partnership (collectively, the “Sellers”) entered into an Asset Purchase Agreement (the “7-Eleven Purchase Agreement”) with 7-Eleven, Inc., a Texas corporation (“7-Eleven”) and SEI Fuel Services, Inc., a Texas corporation and wholly-owned subsidiary of 7-Eleven (“SEI Fuel,” and, together with 7-Eleven, referred to herein collectively as “Buyers”). On January 23, 2018, we completed the disposition of assets pursuant to the Amended and Restated Asset Purchase Agreement entered by and among Sellers, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the 7-Eleven Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the 7-Eleven Purchase Agreement. Under the 7-Eleven Purchase Agreement, as amended and restated, we sold a portfolio of
1,030
company operated retail fuel outlets, together with ancillary businesses and related assets to Buyers for approximately
$3.2 billion
(the “7-Eleven Transaction”). On January 18, 2017, with the assistance of a third-party brokerage firm, we launched a portfolio optimization plan to market and sell
97
real estate assets located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The results of these operations (the real estate optimization assets, together with the 7-Eleven Transaction, the “Retail Divestment”) have been reported as discontinued operations for all periods presented in the consolidated financial statements. See Note 4 for more information related to the 7-Eleven Purchase Agreement, the optimization plan, and the discontinued operations.
On April 1, 2018, the Partnership completed the conversion of
207
retail sites located in certain West Texas, Oklahoma and New Mexico markets to a single commission agent.
Our primary operations are conducted by the following consolidated subsidiaries:
|
|
•
|
Sunoco, LLC (“Sunoco LLC”), a Delaware limited liability company, primarily distributes motor fuel in
30
states throughout the East Coast, Midwest, South Central and Southeast regions of the United States. Sunoco LLC also processes transmix and distributes refined product through its terminals in Alabama and the Greater Dallas, Texas metroplex.
|
|
|
•
|
Aloha Petroleum LLC, a Delaware limited liability company, distributes motor fuel and operates terminal facilities on the Hawaiian Islands.
|
|
|
•
|
Susser Petroleum Property Company LLC (“PropCo”), a Delaware limited liability company, primarily owns and leases retail store properties. On July 1, 2018, PropCo contributed all of its assets to Sunoco Retail LLC and became a pure holding company. PropCo changed its name to Sunoco Property Company LLC on July 1, 2018.
|
|
|
•
|
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, 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, 2017
filed with the SEC on February 23, 2018.
Significant Accounting Policies
As of
June 30, 2018
, 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, 2017
, was the adoption of Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts with Customers,
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
$122 million
and
$135 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$181 million
and
$211 million
for the
six months ended June 30, 2018
and
2017
, 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).
Recently Issued Accounting Pronouncements
FASB
ASU No. 2016-02.
In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02,
Leases (Topic 842),
which amends the FASB Accounting Standards Codification and creates Topic 842, Leases. This Topic requires Balance Sheet recognition of lease assets and lease liabilities for leases classified as operating leases under previous GAAP, excluding short-term leases of 12 months or less. This ASU is effective for financial statements issued for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. In January 2018, the FASB proposed amending the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. We are currently evaluating the effect that the updated standard will have on our consolidated balance sheets and related disclosures.
We are in the process of evaluating our lease contracts to determine the potential impact of adopting the new standard. At this point in our evaluation process, we have determined that the timing and/or amount of lease assets and lease liabilities that we recognize on certain contracts will be impacted by the adoption of the new standard; however, we are still in the process of quantifying this impact. In addition, we are in the process of implementing appropriate changes to our business processes, systems and controls to support recognition and disclosure under the new standard. We continue to monitor additional authoritative or interpretive guidance related to the new standard as it becomes available, as well as comparing our conclusions on specific interpretative issues to other peers in our industry, to the extent that such information is available to us.
In January 2018, the FASB issued Accounting Standards Update No. 2018-01, which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under Topic 840. The Partnership expects to adopt ASU 2016-02 and elect the practical expedient under ASU 2018-01 in the first quarter of 2019 and is currently evaluating the impact that adopting this new standard will have on the consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncement
FASB ASU No. 2014-09.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers
, as a new Topic, Accounting Standards Codification (“ASC”) Topic 606. On January 1, 2018 we adopted ASC Topic 606, which is effective for interim and annual reporting periods beginning on or after December 15, 2017. The new standard requires us to recognize revenue when a customer obtains control rather than when we have transferred substantially all risks and rewards of a good or service and requires expanded disclosures. It also outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers and supersedes ASC 605 - Revenue Recognition and industry-specific guidance.
We have completed a detailed review of revenue contracts representative of our business segments and their revenue streams as of the adoption date. As a result of the evaluation performed, we have determined that the timing and amount of revenue that we recognize
on certain contracts is impacted by the adoption of the new standard. These adjustments are primarily related to the change in recognition of dealer incentives and rebates. In addition to the evaluation performed, we have made appropriate design and implementation updates to our business processes, systems and internal controls to support recognition and disclosure under the new standard.
The Partnership has elected to apply the modified retrospective method to adopt the new standard. The implementation of the new standard has an impact on the measurement of recognition of revenue. The cumulative and ongoing effects of the adoption impact the Consolidated Balance Sheet, the Consolidated Statement of Operations and Comprehensive Income (Loss), and the Statement of Equity. Additionally, new disclosures have been added in accordance with ASC Topic 606.
Utilizing the practical expedients allowed under the modified retrospective adoption method, ASC Topic 606 was only applied to existing contracts for which the Partnership has remaining performance obligations as of January 1, 2018, and new contracts entered into after January 1, 2018. ASC Topic 606 was not applied to contracts that were completed prior to January 1, 2018.
For contracts in scope of the new revenue standard as of January 1, 2018, we recognized a cumulative effect adjustment to retained earnings to account for the differences in timing of revenue recognition. The comparative information has not been restated under the modified retrospective method and continues to be reported under the accounting standards in effect for those periods.
The material adjustments to the opening balance sheet primarily relate to a change in timing of revenue recognition for variable consideration, such as incentives paid to customers, as well as a change in timing of revenue recognition for franchise fee revenue. Historically, an asset was recognized related to the contract incentives which was amortized over the life of the agreement. Under the new standard, the timing of the recognition of incentives changed due to application of the expected value method to estimate variable consideration. Additionally, under the new standard the change in timing of franchise fee revenue is due to the treatment of revenue recognition from the symbolic license over the term of the agreement.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASU No. 2014-09 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
December 31, 2017
|
|
Adjustments Due to
ASC 606
|
|
Balance at
January 1, 2018
|
|
(in millions)
|
Assets
|
|
|
|
|
|
Other current assets
|
$
|
81
|
|
|
$
|
8
|
|
|
$
|
89
|
|
Property and Equipment, net
|
1,557
|
|
|
—
|
|
|
1,557
|
|
Intangible assets, net
|
768
|
|
|
(100
|
)
|
|
668
|
|
Other noncurrent assets
|
45
|
|
|
39
|
|
|
84
|
|
Liabilities and Equity
|
|
|
|
|
|
Other noncurrent liabilities
|
125
|
|
|
1
|
|
|
126
|
|
Common unitholders
|
1,947
|
|
|
(54
|
)
|
|
1,893
|
|
The adoption of the new revenue standard resulted in reclassifications to/from revenue, cost of sales, and operating expenses. Additionally, changes in timing of revenue recognition have required the creation of contract asset or contract liability balances, as well as certain balance sheet reclassifications. In accordance with the requirements of Topic 606, the disclosure below shows the impact of adopting the new standard on the statement of operations and comprehensive income (loss) and the balance sheet.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
|
For the Six Months Ended June 30, 2018
|
|
As
Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change Higher/(Lower)
|
|
As
Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change
Higher/(Lower)
|
|
(in millions)
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
$
|
4,507
|
|
|
$
|
4,520
|
|
|
$
|
(13
|
)
|
|
$
|
8,058
|
|
|
$
|
8,081
|
|
|
$
|
(23
|
)
|
Rental income
|
34
|
|
|
34
|
|
|
—
|
|
|
56
|
|
|
56
|
|
|
—
|
|
Other
|
66
|
|
|
66
|
|
|
—
|
|
|
242
|
|
|
242
|
|
|
—
|
|
Costs of Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
17
|
|
|
18
|
|
|
(1
|
)
|
|
124
|
|
|
126
|
|
|
(2
|
)
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
Other Operating
|
86
|
|
|
88
|
|
|
(2
|
)
|
|
184
|
|
|
188
|
|
|
(4
|
)
|
Depreciation, amortization and accretion
|
41
|
|
|
48
|
|
|
(7
|
)
|
|
90
|
|
|
103
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
As
Reported
|
|
Balances Without Adoption of ASC 606
|
|
Effect of Change
Higher/(Lower)
|
|
(in millions)
|
Assets
|
|
|
|
|
|
Other current assets
|
$
|
62
|
|
|
$
|
53
|
|
|
$
|
9
|
|
Property and Equipment, net
|
1,520
|
|
|
1,520
|
|
|
—
|
|
Intangible assets, net
|
659
|
|
|
771
|
|
|
(112
|
)
|
Other noncurrent assets
|
123
|
|
|
77
|
|
|
46
|
|
Liabilities and Equity
|
|
|
|
|
|
Other noncurrent liabilities
|
136
|
|
|
135
|
|
|
1
|
|
Common unitholders
|
916
|
|
|
974
|
|
|
(58
|
)
|
On August 1, 2018, our subsidiary, Sunoco LLC, completed the acquisition of the equity interests of Sandford Energy, LLC, Sandford Transportation, LLC and their respective subsidiaries for approximately
$66 million
plus working capital adjustments. The acquired wholesale fuels business distributes approximately 115 million gallons of fuel annually to exploration, drilling and oil field services customers, primarily in basins in Central and West Texas and Oklahoma.
On April 3, 2018, our subsidiary, Sunoco LLC, entered into an Asset Purchase Agreement with Superior Plus Energy Services, Inc. (“Superior”), a New York corporation, pursuant to which it agreed to acquire certain wholesale fuel distribution assets and related terminal assets from Superior for approximately
$40 million
plus working capital adjustments of
$18 million
. The assets consist of a network of approximately 100 dealers, several hundred commercial contracts and
three
terminals, which are connected to major pipelines serving the Upstate New York market. The transaction closed on April 25, 2018. Management, with the assistance of a third party valuation firm, is in the process of evaluating the initial purchase price allocation. As a result, material adjustments to this preliminary allocation may occur in the future. The acquisition preliminarily increased goodwill by
$9 million
.
On January 4, 2018, certain subsidiaries of the Partnership entered into an Asset Purchase Agreement with 7-Eleven and SEI Fuel, pursuant to which they agreed to acquire
26
retail fuel outlets from 7-Eleven and SEI Fuel for approximately
$54 million
. The transaction closed on April 2, 2018. We subsequently converted the acquired stations from company-operated sites to commission agent locations. Management, with the assistance of a third party valuation firm, is in the process of evaluating the initial purchase price allocation. As a result, material adjustments to this preliminary allocation may occur in the future. The acquisition preliminarily increased goodwill by
$30 million
.
|
|
4.
|
Discontinued Operations
|
On January 23, 2018, we completed the disposition of assets pursuant to the Amended and Restated Asset Purchase Agreement entered by and among Sellers, Buyers and certain other named parties for the limited purposes set forth therein, pursuant to which the parties agreed to amend and restate the 7-Eleven Purchase Agreement to reflect commercial agreements and updates made by the parties in connection with consummation of the transactions contemplated by the 7-Eleven Purchase Agreement. Subsequent to the closing of the 7-Eleven Transaction, previously eliminated wholesale motor fuel sales to the Partnership's retail locations are reported as wholesale motor fuel sales to third parties. Also, the related accounts receivable from such sales 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 (the “Supply Agreement”), with 7-Eleven and SEI Fuel. The Supply Agreement consists of a 15-year take-or-pay fuel supply arrangement under which we have agreed to supply approximately 2.0 billion gallons of fuel annually plus additional aggregate growth volumes of up to 500 million gallons to be added incrementally over the first four years. For the period from January 1, 2018 through January 22, 2018, the
three and six
months ended
June 30, 2017
, we recorded sales to the sites that were subsequently sold to 7-Eleven of
$199 million
,
$757 million
, and
$1.5 billion
, respectively, that were eliminated in consolidation. We recorded payments on trade receivables from 7-Eleven of
$979 million
and
$1.6 billion
in the
three and six
months ended
June 30, 2018
, 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,
47
have been sold,
three
are under contract to be sold and
six
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 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. See Note 1 for further information regarding the Retail Divestment.
The following tables present the aggregate carrying amounts of assets and liabilities classified as held for sale in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
|
(in millions)
|
Carrying amount of assets held for sale:
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
21
|
|
Inventories
|
|
—
|
|
|
149
|
|
Other current assets
|
|
—
|
|
|
16
|
|
Property and equipment, net
|
|
6
|
|
|
1,851
|
|
Goodwill
|
|
—
|
|
|
796
|
|
Intangible assets, net
|
|
—
|
|
|
477
|
|
Other noncurrent assets
|
|
—
|
|
|
3
|
|
Total assets held for sale
|
|
$
|
6
|
|
|
$
|
3,313
|
|
|
|
|
|
|
Carrying amount of liabilities associated with assets held for sale:
|
|
|
|
|
Long term debt
|
|
$
|
—
|
|
|
$
|
21
|
|
Other current and noncurrent liabilities
|
|
—
|
|
|
54
|
|
Total liabilities associated with assets held for sale
|
|
$
|
—
|
|
|
$
|
75
|
|
The Partnership recorded transaction costs of
$6 million
during the
six months ended June 30, 2018
, as a result of the 7-Eleven Transaction.
The results of operations associated with discontinued operations are presented in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Revenues:
|
|
|
|
|
|
|
|
Motor fuel sales
|
$
|
—
|
|
|
$
|
1,280
|
|
|
$
|
256
|
|
|
$
|
2,442
|
|
Other (1)
|
—
|
|
|
477
|
|
|
93
|
|
|
901
|
|
Total revenues
|
—
|
|
|
1,757
|
|
|
349
|
|
|
3,343
|
|
Cost of sales:
|
|
|
|
|
|
|
|
Motor fuel cost of sales
|
—
|
|
|
1,139
|
|
|
240
|
|
|
2,196
|
|
Other
|
—
|
|
|
314
|
|
|
65
|
|
|
596
|
|
Total cost of sales
|
—
|
|
|
1,453
|
|
|
305
|
|
|
2,792
|
|
Gross profit
|
—
|
|
|
304
|
|
|
44
|
|
|
551
|
|
Operating expenses:
|
|
|
|
|
|
|
|
General and administrative
|
5
|
|
|
36
|
|
|
7
|
|
|
69
|
|
Other operating
|
—
|
|
|
184
|
|
|
57
|
|
|
356
|
|
Rent
|
—
|
|
|
14
|
|
|
4
|
|
|
28
|
|
Loss on disposal of assets and impairment charges
|
38
|
|
|
234
|
|
|
61
|
|
|
239
|
|
Depreciation, amortization and accretion expense
|
—
|
|
|
3
|
|
|
—
|
|
|
36
|
|
Total operating expenses
|
43
|
|
|
471
|
|
|
129
|
|
|
728
|
|
Operating loss
|
(43
|
)
|
|
(167
|
)
|
|
(85
|
)
|
|
(177
|
)
|
Interest expense, net
|
—
|
|
|
4
|
|
|
2
|
|
|
8
|
|
Loss on extinguishment of debt and other
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
Loss from discontinued operations before income taxes
|
(43
|
)
|
|
(171
|
)
|
|
(107
|
)
|
|
(185
|
)
|
Income tax expense (benefit)
|
(17
|
)
|
|
22
|
|
|
156
|
|
|
19
|
|
Loss from discontinued operations, net of income taxes
|
$
|
(26
|
)
|
|
$
|
(193
|
)
|
|
$
|
(263
|
)
|
|
$
|
(204
|
)
|
________________________________
|
|
(1)
|
Other revenue includes merchandise sales totaling
$461 million
for the
three months ended June 30, 2017
, and
$89 million
and
$870 million
for the
six months ended June 30, 2018
and
2017
, respectively.
|
|
|
5.
|
Accounts Receivable, net
|
Accounts receivable, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Accounts receivable, trade
|
$
|
388
|
|
|
$
|
285
|
|
Credit card receivables
|
99
|
|
|
160
|
|
Vendor receivables for rebates, branding, and other
|
7
|
|
|
29
|
|
Other receivables
|
37
|
|
|
69
|
|
Allowance for doubtful accounts
|
(2
|
)
|
|
(2
|
)
|
Accounts receivable, net
|
$
|
529
|
|
|
$
|
541
|
|
Inventories, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Fuel
|
$
|
439
|
|
|
$
|
387
|
|
Merchandise
|
6
|
|
|
30
|
|
Other
|
11
|
|
|
9
|
|
Inventories, net
|
$
|
456
|
|
|
$
|
426
|
|
|
|
7.
|
Property and Equipment, net
|
Property and equipment, net, consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Land
|
$
|
529
|
|
|
$
|
516
|
|
Buildings and leasehold improvements
|
716
|
|
|
714
|
|
Equipment
|
722
|
|
|
623
|
|
Construction in progress
|
77
|
|
|
159
|
|
Total property and equipment
|
2,044
|
|
|
2,012
|
|
Less: accumulated depreciation
|
524
|
|
|
455
|
|
Property and equipment, net
|
$
|
1,520
|
|
|
$
|
1,557
|
|
|
|
8.
|
Goodwill and Intangible Assets, net
|
Goodwill
Goodwill represents the excess of the purchase price of an acquired entity over the amounts allocated to the assets acquired and liabilities assumed in a business combination. At
June 30, 2018
and
December 31, 2017
, we had
$1.5 billion
and
$1.4 billion
, respectively, of goodwill recorded in conjunction with past business combinations.
As of
June 30, 2018
, we evaluated potential impairment indicators. We believe no impairment events occurred during the
six months ended June 30, 2018
, and we believe the assumptions used in the analysis performed in 2017 are still relevant and indicative of our current operating environment. As a result, no impairment was recorded to goodwill during the period from January 1, 2018 through
June 30, 2018
.
Other Intangible Assets
Gross carrying amounts and accumulated amortization for each major class of intangible assets, excluding goodwill, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
|
Gross Carrying
Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Book Value
|
|
(in millions)
|
Indefinite-lived
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
295
|
|
|
$
|
295
|
|
|
$
|
—
|
|
|
$
|
295
|
|
Contractual rights
|
30
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
—
|
|
|
30
|
|
Liquor licenses
|
12
|
|
|
—
|
|
|
12
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Finite-lived
|
|
|
|
|
|
|
|
|
|
|
|
Customer relations including supply agreements (1)
|
561
|
|
|
251
|
|
|
310
|
|
|
674
|
|
|
256
|
|
|
418
|
|
Favorable leasehold arrangements, net
|
12
|
|
|
5
|
|
|
7
|
|
|
12
|
|
|
5
|
|
|
7
|
|
Loan origination costs (2)
|
10
|
|
|
7
|
|
|
3
|
|
|
10
|
|
|
6
|
|
|
4
|
|
Other intangibles
|
5
|
|
|
3
|
|
|
2
|
|
|
5
|
|
|
3
|
|
|
2
|
|
Intangible assets, net
|
$
|
925
|
|
|
$
|
266
|
|
|
$
|
659
|
|
|
$
|
1,038
|
|
|
$
|
270
|
|
|
$
|
768
|
|
_______________________________
|
|
(1)
|
Decrease in gross carrying amount is mainly due to the adoption of ASU No. 2014-09,
Revenue from Contracts with Customers,
see Note 2.
|
|
|
(2)
|
Loan origination costs are associated with the 2014 Revolver, see Note 10 for further information on the 2014 Revolver.
|
We review amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of amortizable intangible assets is not recoverable, we reduce the carrying amount of such assets to fair value. We review non-amortizable intangible assets for impairment annually, or more frequently if circumstances dictate.
Customer relations and supply agreements have a remaining weighted-average life of approximately
11
years. Favorable leasehold arrangements have a remaining weighted-average life of approximately
14
years. Non-competition agreements and other intangible assets have a remaining weighted-average life of approximately
10
years. Loan origination costs have a remaining weighted-average life of approximately
1
year.
|
|
9.
|
Accrued Expenses and Other Current Liabilities
|
Current accrued expenses and other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Wage and other employee-related accrued expenses
|
$
|
28
|
|
|
$
|
72
|
|
Accrued tax expense
|
323
|
|
|
180
|
|
Accrued insurance
|
29
|
|
|
26
|
|
Accrued interest expense
|
55
|
|
|
43
|
|
Dealer deposits
|
18
|
|
|
16
|
|
Reserve for environmental remediation
|
11
|
|
|
—
|
|
Other
|
80
|
|
|
31
|
|
Total
|
$
|
544
|
|
|
$
|
368
|
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
|
(in millions)
|
Term Loan (1)
|
$
|
—
|
|
|
$
|
1,243
|
|
Sale leaseback financing obligation
|
110
|
|
|
113
|
|
2014 Revolver
|
320
|
|
|
765
|
|
4.875% Senior Notes Due 2023
|
1,000
|
|
|
—
|
|
5.500% Senior Notes Due 2026
|
800
|
|
|
—
|
|
5.875% Senior Notes Due 2028
|
400
|
|
|
—
|
|
6.375% Senior Notes Due 2023 (2)
|
—
|
|
|
800
|
|
5.500% Senior Notes Due 2020 (2)
|
—
|
|
|
600
|
|
6.250% Senior Notes Due 2021 (2)
|
—
|
|
|
800
|
|
Other
|
2
|
|
|
3
|
|
Total debt
|
2,632
|
|
|
4,324
|
|
Less: current maturities
|
5
|
|
|
6
|
|
Less: debt issuance costs
|
25
|
|
|
34
|
|
Long-term debt, net of current maturities
|
$
|
2,602
|
|
|
$
|
4,284
|
|
_______________________________
|
|
(1)
|
The Term Loan was repaid in full and terminated on January 23, 2018.
|
|
|
(2)
|
The Senior Notes were redeemed on January 23, 2018.
|
Term Loan
The senior secured term loan agreement (the “Term Loan”) provided secured financing in an aggregate principal amount of up to
$2.035 billion
, which we borrowed in full.
The Term Loan was repaid in full and terminated on January 23, 2018. See 2018 Private Offering of Senior Notes below.
2018 Private Offering of Senior Notes
On January 23, 2018, we and certain of our wholly owned subsidiaries, including Sunoco Finance Corp. (together with the Partnership, the “Issuers”) completed a private offering of
$2.2 billion
of senior notes, comprised of
$1.0 billion
in aggregate principal amount of
4.875%
senior notes due 2023 (the “2023 Notes”),
$800 million
in aggregate principal amount of
5.500%
senior notes due 2026 (the “2026 Notes”) and
$400 million
in aggregate principal amount of
5.875%
senior notes due 2028 (the “2028 Notes” and, together with the 2023 Notes and the 2026 Notes, the “Notes”).
The terms of the Notes are governed by an indenture dated January 23, 2018, among the Issuers, and certain other subsidiaries of the Partnership (the “Guarantors”) and U.S. Bank National Association, as trustee. The 2023 Notes will mature on January 15, 2023 and interest is payable semi-annually on January 15 and July 15 of each year, commencing July 15, 2018. The 2026 Notes will mature on February 15, 2026 and interest is payable semi-annually on February 15 and August 15 of each year, commencing August 15, 2018. The 2028 Notes will mature on March 15, 2028 and interest is payable semi-annually on March 15 and September 15 of each year, commencing September 15, 2018. The Notes are senior obligations of the Issuers and are guaranteed on a senior basis by all of the Partnership’s existing subsidiaries and certain of its future subsidiaries. The Notes and guarantees are unsecured and rank equally with all of the Issuers’ and each Guarantor’s existing and future senior obligations. The Notes and guarantees are effectively subordinated to the Issuers’ and each Guarantor’s secured obligations, including obligations under the Partnership’s 2014 Revolver (as defined below), to the extent of the value of the collateral securing such obligations, and structurally subordinated to all indebtedness and obligations, including trade payables, of the Partnership’s subsidiaries that do not guarantee the Notes. ETC M-A Acquisition LLC (“ETC M-A”), a subsidiary of ETP, guarantees collection to the Issuers with respect to the payment of the principal amount of the Notes. ETC M-A is not subject to any of the covenants under the Indenture.
In connection with our issuance of the Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the Notes for an issue of registered notes with terms substantively identical to each series of Notes and evidencing the same indebtedness as the Notes on or before January 23, 2019.
The Partnership used the proceeds from the private offering, along with proceeds from the 7-Eleven Transaction, to: 1) redeem in full our existing senior notes as of December 31, 2017, comprised of
$800 million
in aggregate principal amount of
6.250%
senior notes due 2021,
$600 million
in aggregate principal amount of
5.500%
senior notes due 2020, and
$800 million
in aggregate principal amount of
6.375%
senior notes due 2023; 2) repay in full and terminate the Term Loan; 3) pay all closing costs in connection with the 7-Eleven Transaction; 4) redeem the outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately
$313 million
; and 5) repurchase
17,286,859
SUN common units owned by subsidiaries of ETP for aggregate cash consideration of approximately
$540 million
.
6.250% Senior Notes Due 2021
The 2021 Senior Notes were redeemed and the indenture governing the 2021 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of
$800 million
and a
$32 million
call premium plus accrued and unpaid interest. See 2018 Private Offering of Senior Notes above.
5.500% Senior Notes Due 2020
The 2020 Senior Notes were redeemed and the indenture governing the 2020 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of
$600 million
and a
$17 million
call premium plus accrued and unpaid interest. See 2018 Private Offering of Senor Notes above.
6.375% Senior Notes Due 2023
The 2023 Senior Notes were redeemed and the indenture governing the 2023 Senior Notes was discharged on January 23, 2018. The redemption amount includes the original consideration of
$800 million
and a
$44 million
call premium plus accrued and unpaid interest. See 2018 Private Offerings of Senior Notes above.
Revolving Credit Agreement
On July 27, 2018, we entered into a new Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the “2018 Revolver”).Borrowings under the 2018 Revolver were used to pay off the Partnership’s existing revolving credit facility entered into on September 25, 2014 (the “2014 Revolver”).
The 2018 Revolver is a
$1.50 billion
revolving credit facility, expiring
July 27, 2023
(which date may be extended in accordance with the terms of the 2018 Revolver). The facility can be increased from time to time upon the Partnership’s written request, subject to certain conditions, up to an additional
$750 million
. Borrowings under the revolving credit facility will bear interest at a base rate (a rate based off of the higher of (a) the Federal Funds Rate (as defined in the 2018 Revolver) plus
0.5%
, (b) Bank of America’s prime rate and (c) one-month LIBOR (as defined therein) plus
1.00%
) or LIBOR, in each case plus an applicable margin ranging from
1.25%
to
2.25%
, in the case of a LIBOR loan, or from
0.250%
to
1.25%
, in the case of a base rate loan (determined with reference to the Partnership’s Net Leverage Ratio (as defined in the 2018 Revolver)). Upon the first achievement by the Partnership of an investment grade credit rating, the applicable margin will decrease to a range of
1.125%
to
1.75%
, in the case of a LIBOR loan, or from
0.125%
to
0.750%
, in the case of a base rate loan (determined with reference to the credit rating for the Partnership’s senior, unsecured, non-credit enhanced long-term debt and the Partnership’s corporate issuer rating). Interest is payable quarterly if the base rate applies, at the end of the applicable interest period if LIBOR applies and at the end of the month if daily floating LIBOR applies. In addition, the unused portion of the Partnership’s revolving credit facility will be subject to a commitment fee ranging from
0.250%
to
0.350%
, based on the Partnership’s Leverage Ratio. Upon the first achievement by the Partnership of an investment grade credit rating, the commitment fee will decrease to a range of
0.125%
to
0.350%
, based on the Partnership’s credit rating as described above.
The 2018 Revolver requires the Partnership to maintain a Net Leverage Ratio of not more than
5.50
to 1.00. The maximum Net Leverage Ratio is subject to upwards adjustment of not more than
6.00
to 1.00 for a period not to exceed three fiscal quarters in the event the Partnership engages in certain specified acquisitions of not less than
$50 million
(as permitted under the 2018 Revolver). The 2018 Revolver also requires the Partnership to maintain an Interest Coverage Ratio (as defined in the 2018 Revolver) of not less than
2.25
to 1.00.
Indebtedness under the 2018 Revolver is secured by a security interest in, among other things, all of the Partnership’s present and future personal property and all of the present and future personal property of its guarantors, the capital stock of its material subsidiaries (or
66%
of the capital stock of material foreign subsidiaries), and any intercompany debt. Upon the first achievement by the Partnership of an investment grade credit rating, all security interests securing the 2018 Revolver will be released.
As of
June 30, 2018
, the balance on the 2014 Revolver was
$320 million
, and
$8 million
in standby letters of credit were outstanding. The unused availability on the 2014 Revolver at
June 30, 2018
was
$1.2 billion
. The Partnership was in compliance with all financial covenants at
June 30, 2018
.
Sale Leaseback Financing Obligation
On April 4, 2013, Southside Oil, LLC (“Southside”) completed a sale leaseback transaction with
two
separate companies for
50
of its dealer operated sites. As Southside did not meet the criteria for sale leaseback accounting, this transaction was accounted for as a financing arrangement over the course of the lease agreement. The obligations mature in varying dates through 2033, require monthly interest and principal payments, and bear interest at
5.125%
. The obligation related to this transaction is included in long-term debt and the balance outstanding as of
June 30, 2018
was
$110 million
.
Fair Value Measurements
We use fair value measurements to measure, among other items, purchased assets, investments, leases and derivative contracts. We also use them to assess impairment of properties, equipment, intangible assets and goodwill. An asset's fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters, or is derived from such prices or parameters. Where observable prices or inputs are not available, unobservable prices or inputs are used to estimate the current fair value, often using an internal valuation model. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the item being valued.
ASC 820 “
Fair Value Measurements and Disclosures”
prioritizes the inputs used in measuring fair value into the following hierarchy:
|
|
Level 1
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities;
|
|
|
Level 2
|
Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable;
|
|
|
Level 3
|
Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing.
|
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of
June 30, 2018
, is estimated to be approximately
$2.5 billion
, based on outstanding balances as of the end of the period using current interest rates for similar securities.
|
|
11.
|
Other Noncurrent Liabilities
|
Other noncurrent liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31, 2017
|
|
(in millions)
|
Accrued straight-line rent
|
$
|
12
|
|
|
$
|
13
|
|
Reserve for underground storage tank removal
|
50
|
|
|
41
|
|
Reserve for environmental remediation
|
28
|
|
|
23
|
|
Unfavorable lease liability
|
17
|
|
|
10
|
|
Aloha acquisition contingent consideration
|
11
|
|
|
15
|
|
Other
|
18
|
|
|
23
|
|
Total
|
$
|
136
|
|
|
$
|
125
|
|
|
|
12.
|
Related-Party Transactions
|
We are party to the following fee-based commercial agreements with various affiliates of ETP:
|
|
•
|
Philadelphia Energy Solutions Products Purchase Agreements –
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 ETP, owns a noncontrolling interest in the parent of PES.
|
|
|
•
|
ETP Transportation and Terminalling Contracts – various agreements with subsidiaries of ETP for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETP for the purchase and sale of fuel.
|
We are party to the Stripes Distribution Contract, a
10
-year agreement under which we are the exclusive distributor of motor fuel at cost (including tax and transportation costs), plus a fixed profit margin per gallon to certain independently operated commission agent locations including
207
Stripes retail sites recently converted to the commission agent model.
We are party to the Sunoco Distribution Contract, a
10
-year agreement under which we are the exclusive distributor of motor fuel to Sunoco Retail’s retail stores. Pursuant to the agreement, pricing is cost plus a fixed margin per gallon. This profit margin is eliminated through consolidation from the date of common control, September 1, 2014, and thereafter, in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).
In connection with the closing of our IPO on September 25, 2012, we also entered into an Omnibus Agreement with Susser Holding Corporation (“Susser”) (the “Omnibus Agreement”). Pursuant to the Omnibus Agreement, among other things, the Partnership received a
three
-year option to purchase from Susser up to
75
of Susser's new or recently constructed Stripes retail stores at Susser's cost and lease the stores back to Susser at a specified rate for a
15
-year initial term. During 2015, we completed all
75
sale-leaseback transactions under the Omnibus Agreement.
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
$85 million
and
$85 million
as of
June 30, 2018
and
December 31, 2017
, 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
$163 million
and
$155 million
as of
June 30, 2018
and
December 31, 2017
, respectively, which are primarily related to motor fuel purchases from us.
|
|
|
•
|
Net accounts payable to affiliates were
$167 million
and
$206 million
as of
June 30, 2018
and
December 31, 2017
, respectively, which are related to operational expenses and fuel pipeline purchases.
|
|
|
•
|
Motor fuel sales to affiliates were
$10 million
and
$6 million
for the
three months ended June 30, 2018
and
2017
, respectively.
|
|
|
•
|
Motor fuel sales to affiliates were
$22 million
and
$28 million
for the
six months ended June 30, 2018
and
2017
, respectively.
|
|
|
•
|
Bulk fuel purchases from affiliates were
$887 million
and
$545 million
for the
three months ended June 30, 2018
and
2017
, respectively, which is included in motor fuel cost of sales in our Consolidated Statements of Operations and Comprehensive Income (Loss).
|
|
|
•
|
Bulk fuel purchases from affiliates were
$1.7 billion
and
$1.1 billion
for the
six months ended June 30, 2018
and
2017
, respectively, which is included in motor fuel cost of sales in our Consolidated Statements of Operations and Comprehensive Income (Loss).
|
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:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30, 2018
|
|
For the Six Months Ended June 30, 2018
|
|
(in millions)
|
Fuel Distribution and Marketing Segment
|
|
|
|
Dealer
|
$
|
983
|
|
|
$
|
1,783
|
|
Distributor
|
2,207
|
|
|
3,830
|
|
Unbranded Wholesale
|
687
|
|
|
1,249
|
|
Commission Agent
|
427
|
|
|
548
|
|
Rental income
|
31
|
|
|
50
|
|
Other
|
15
|
|
|
29
|
|
Total
|
4,350
|
|
|
7,489
|
|
All Other Segment
|
|
|
|
Motor Fuel
|
203
|
|
|
648
|
|
Rental income
|
3
|
|
|
6
|
|
Other
|
51
|
|
|
213
|
|
Total
|
257
|
|
|
867
|
|
Total Revenue
|
$
|
4,607
|
|
|
$
|
8,356
|
|
Fuel Distribution and Marketing Revenue
The Partnership’s fuel distribution and marketing operations earn revenue from the following channels: sales to Dealers, sales to Distributors, Unbranded Wholesale Revenue, Commission Agent Revenue, Rental Income and Other Income. Motor fuel revenue consists primarily of the sale of motor fuel under supply agreements with third party customers and affiliates. Fuel supply contracts with our customers generally provide that we distribute motor fuel at a formula price based on published rates, volume-based profit margin, and other terms specific to the agreement. The customer is invoiced the agreed-upon price with most payment terms ranging less than 30 days. If the consideration promised in a contract includes a variable amount, the Partnership estimates the variable consideration amount and factors in such an estimate to determine the transaction price under the expected value method.
Revenue is recognized under the motor fuel contracts at the point in time the customer takes control of the fuel. At the time control is transferred to the customer the sale is considered final, because the agreements do not grant customers the right to return motor fuel. Under the new standard, to determine when control transfers to the customer, the shipping terms of the contract are assessed as shipping terms are considered a primary indicator of the transfer of control. For FOB shipping point terms, revenue is recognized at the time of shipment. The performance obligation with respect to the sale of goods is satisfied at the time of shipment since the customer gains control at this time under the terms. Shipping and/or handling costs that occur before the customer obtains control of the goods are deemed to be fulfillment activities and are accounted for as fulfillment costs. Once the goods are shipped, the Partnership is precluded from redirecting the shipment to another customer and revenue is recognized.
Commission agent revenue consists of sales from commission agent agreements between the Partnership and select operators. The Partnership supplies motor fuel to sites operated by commission agents and sells the fuel directly to the end customer. In commission agent arrangements, control of the product is transferred at the point in time when the goods are sold to the end customer. To reflect the transfer of control, the Partnership recognizes commission agent revenue at the point in time fuel is sold to the end customer.
The Partnership receives rental income from leased or subleased properties. Revenues from leasing arrangements for which we are the lessor are recognized ratably over the term of the underlying lease.
All Other Revenue
The Partnership’s all other operations earn revenue from the following channels: Motor Fuel Sales, Rental Income and Other Income. Motor Fuel Sales consist of fuel sales to consumers at company-operated retail stores. Other Income includes merchandise revenue that comprises the in-store merchandise and foodservice sales at company-operated retail stores, and other revenue that represents a variety of other services within our all other segment including credit card processing, car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. Revenue from all other operations is recognized when (or as) the performance obligations are satisfied (i.e. when the customer obtains control of the good).
Contract Balances with Customers
The Partnership satisfies its obligations by transferring goods or services in exchange for consideration from customers. The timing of performance may differ from the timing the associated consideration is paid to or received from the customer, thus resulting in the recognition of a contract asset or a contract liability.
The Partnership recognizes a contract asset when making upfront consideration payments to certain customers. The upfront considerations represent a pre-paid incentive, as these payments are not made for distinct goods or services provided by the customer. The pre-payment incentives are recognized as a contract asset upon payment and amortized as a reduction of revenue over the term of the specific agreement.
The Partnership recognizes a contract liability if the customer's payment of consideration precedes the entity's fulfillment of the performance obligations. We maintain some franchise agreements requiring dealers to make one-time upfront payments for long term license agreements. The Partnership recognizes a contract liability when the upfront payment is received and recognizes revenue over the term of the license.
The balances of receivables from contracts with customers listed in the table below include both current trade receivables and long-term receivables, net of allowance for doubtful accounts. The allowance for receivables represents our best estimate of the probable losses associated with potential customer defaults. We determine the allowance based on historical experience and on a specific identification basis.
The opening and closing balances of the Partnership’s contract assets and contract liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
January 1, 2018
|
|
Balance at June 30, 2018
|
|
Increase/ (Decrease)
|
|
(in millions)
|
Contract Balances
|
|
|
|
|
|
Contract Asset
|
$
|
51
|
|
|
$
|
59
|
|
|
$
|
8
|
|
Accounts receivable from contracts with customers
|
$
|
445
|
|
|
$
|
487
|
|
|
$
|
42
|
|
Contract Liability
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
The amount of revenue recognized in the
three and six
months ended
June 30, 2018
that was included in the opening contract liability balance was
$0.2 million
and
$0.3 million
. 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 entity's performance and the customer’s payment.
Performance Obligations
At contract inception, the Partnership assesses the goods and services promised in its contracts with customers and identifies a performance obligation for each promise to transfer a good or service (or bundle of goods or services) that is distinct. To identify the performance obligations, the Partnership considers all the goods or services promised in the contract, whether explicitly stated or implied based on customary business practices. For a contract that has more than one performance obligation, the Partnership allocates the total contract consideration to each distinct performance obligation on a relative standalone selling price basis. Revenue is recognized when (or as) the performance obligations are satisfied, that is, when the customer obtains control of the good or service.
The Partnership distributes fuel under long-term contracts to branded distributors, branded and unbranded third party dealers, and branded and unbranded retail fuel outlets. Sunoco-branded supply contracts with distributors generally have both time and volume commitments that establish contract duration. These contracts have an initial term of approximately nine years, with an estimated, volume-weighted term remaining of approximately four years.
As part of the 7-Eleven Purchase Agreement, the Partnership and 7-Eleven and SEI Fuel (collectively, the “Distributor”) have entered into a 15-year take-or-pay fuel supply agreement in which the Distributor is required to purchase a minimum volume of fuel annually. We expect to recognize this revenue in accordance with the contract as we transfer control of the product to the customer. However, in case of annual shortfall we will recognize the amount payable by the Distributor at the sooner of the time at which the Distributor makes up the shortfall or becomes contractually or operationally unable to do so. The transaction price of the contract is variable in nature, fluctuating based on market conditions. The Partnership has elected to take the practical expedient not to estimate the amount of variable consideration allocated to wholly unsatisfied performance obligations.
In some contractual arrangements, the Partnership grants dealers a franchise license to operate the Partnership’s retail stores over the life of a franchise agreement. In return for the grant of the retail store license, the dealer makes a one-time nonrefundable franchise fee payment to the Partnership plus sales based royalties payable to the Partnership at a contractual rate during the period of the franchise agreement. Under the requirements of ASC Topic 606, the franchise license is deemed to be a symbolic license for which recognition of
revenue over time is the most appropriate measure of progress toward complete satisfaction of the performance obligation. Revenue from this symbolic license is recognized evenly over the life of the franchise agreement.
As of
June 30, 2018
, the aggregate amount of revenue expected to be recognized related to unsatisfied or partially satisfied franchise fee performance obligations (contract liabilities) is approximately
$0.3 million
for the remainder of 2018,
$0.4 million
in 2019,
$0.2 million
in 2020, 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 noncurrent assets and are amortized on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The amount of amortization expense that the Partnership recognized for the
three and six
months ended
June 30, 2018
were
$3 million
and
$6 million
, respectively. The Partnership has also made a policy election of expensing the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
Practical Expedients Selected by the Partnership
For the period ended
June 30, 2018
, the Partnership elected the following practical expedients in accordance with ASC 606:
|
|
•
|
Significant financing component
- The Partnership elected not to adjust the promised amount of consideration for the effects of significant financing component if the Partnership expects at contract inception that the period between the transfer of a promised good or service to a customer and when the customer pays for that good or service will be one year or less.
|
|
|
•
|
Incremental costs of obtaining a contract
- The Partnership generally expenses sales commissions when incurred because the amortization period would have been less than one year. We record these costs within general and administrative expenses. The Partnership elected to expense the incremental costs of obtaining a contract when the amortization period for such contracts would have been one year or less.
|
|
|
•
|
Shipping and handling costs
- The Partnership elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities (i.e., an expense) rather than as a promised service.
|
|
|
•
|
Measurement of transaction price
- The Partnership has elected to exclude from the measurement of transaction price all taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Partnership from a customer (i.e., sales tax, value added tax, etc).
|
|
|
•
|
Variable consideration of wholly unsatisfied performance obligations
-
The Partnership has elected to exclude the estimate of variable consideration to the allocation of wholly unsatisfied performance obligations.
|
|
|
14.
|
Commitments and Contingencies
|
Leases
The Partnership leases certain retail store and other properties 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. Minimum rent is expensed on a straight-line basis over the term of the lease. In addition, certain leases require additional contingent payments based on sales or motor fuel volumes. We typically are responsible for payment of real estate taxes, maintenance expenses and insurance. These properties are either sublet to third parties or used for our retail store operations.
Net rent expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Cash rent:
|
|
|
|
|
|
|
|
Store base rent (1) (2)
|
$
|
18
|
|
|
$
|
19
|
|
|
$
|
33
|
|
|
$
|
35
|
|
Equipment and other rent (3)
|
1
|
|
|
2
|
|
|
1
|
|
|
6
|
|
Total cash rent
|
19
|
|
|
21
|
|
|
34
|
|
|
41
|
|
Non-cash rent:
|
|
|
|
|
|
|
|
Straight-line rent
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Net rent expense
|
$
|
19
|
|
|
$
|
22
|
|
|
$
|
34
|
|
|
$
|
42
|
|
________________________________
|
|
(1)
|
Store base rent includes the Partnership's rent expense for leased retail store properties which are subleased to third-party operators. The sublease income from these sites is recorded in rental income on the statement of operations and totaled
$11 million
and
$6 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$17 million
and
$12 million
for the
six months ended June 30, 2018
and
2017
, respectively.
|
|
|
(2)
|
Store base rent includes contingent rent expense totaling
$1 million
and
$6 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$2 million
and
$10 million
for the
six months ended June 30, 2018
and
2017
, respectively.
|
|
|
(3)
|
Equipment and other rent consists primarily of vehicles and store equipment.
|
|
|
15.
|
Interest Expense, net
|
Components of net interest expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions)
|
Interest expense
|
$
|
36
|
|
|
$
|
57
|
|
|
$
|
70
|
|
|
$
|
112
|
|
Amortization of deferred financing fees
|
1
|
|
|
4
|
|
|
3
|
|
|
8
|
|
Interest income
|
(1
|
)
|
|
(7
|
)
|
|
(3
|
)
|
|
(8
|
)
|
Interest expense, net
|
$
|
36
|
|
|
$
|
54
|
|
|
$
|
70
|
|
|
$
|
112
|
|
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 to net income tax expense (benefit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in million)
|
Tax at statutory federal rate (1)
|
$
|
18
|
|
|
$
|
(25
|
)
|
|
$
|
8
|
|
|
$
|
(26
|
)
|
Partnership earnings not subject to tax
|
(10
|
)
|
|
(43
|
)
|
|
(1
|
)
|
|
(56
|
)
|
Goodwill impairment
|
—
|
|
|
31
|
|
|
—
|
|
|
31
|
|
State and local tax, net of federal benefit
|
1
|
|
|
(6
|
)
|
|
1
|
|
|
(6
|
)
|
Statutory tax rate changes
|
(10
|
)
|
|
—
|
|
|
19
|
|
|
—
|
|
Other
|
(1
|
)
|
|
(2
|
)
|
|
2
|
|
|
(2
|
)
|
Net income tax expense (benefit)
|
$
|
(2
|
)
|
|
$
|
(45
|
)
|
|
$
|
29
|
|
|
$
|
(59
|
)
|
________________________________
|
|
(1)
|
In December 2017, the “Tax Cuts and Jobs Act” was signed into law. Among other provisions, the highest corporate federal income tax rate was reduced from 35% to 21% for tax years beginning after December 31, 2017.
|
As of
June 30, 2018
, ETE and ETP or their subsidiaries owned
28,463,967
common units, which constitutes
34.5%
of our outstanding common units. As of
June 30, 2018
, our consolidated subsidiaries owned
16,410,780
Class C units representing limited partner interests in the Partnership (the “Class C Units”) and the public owned
54,034,882
common units.
Series A Preferred Units
On March 30, 2017, the Partnership entered into a Series A Preferred Unit Purchase Agreement with ETE, relating to the issue and sale by the Partnership to ETE of
12,000,000
Series A Preferred Units (the “Preferred Units”) representing limited partner interests in the Partnership at a price per Preferred Unit of
$25.00
(the “Offering”). The Offering closed on March 30, 2017, and the Partnership received proceeds from the Offering of
$300 million
, which it used to repay indebtedness under its revolving credit facility.
On January 25, 2018, the Partnership redeemed all outstanding Series A Preferred Units held by ETE for an aggregate redemption amount of approximately
$313 million
. The redemption amount includes the original consideration of
$300 million
and a 1% call premium plus accrued and unpaid quarterly distributions.
Common Units
On February 7, 2018, subsequent to the record date for SUN’s fourth quarter 2017 distribution, the Partnership repurchased
17,286,859
SUN common units owned by ETP for aggregate cash consideration of approximately
$540 million
. The repurchase price per common unit was
$31.2376
, which is equal to the volume weighted average trading price of SUN common units on the New York Stock Exchange for the ten trading days ending on January 23, 2018. The Partnership funded the repurchase with cash on hand.
Activity of our common units for the
six months ended June 30, 2018
is as follows:
|
|
|
|
|
Number of Units
|
Number of common units at December 31, 2017
|
99,667,999
|
|
Common units repurchase
|
(17,286,859
|
)
|
Phantom unit vesting
|
117,709
|
|
Number of common units at June 30, 2018
|
82,498,849
|
|
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, if any, to priority income allocations in an amount equal to incentive cash distributions allocated
100%
to ETE.
The calculation of net income allocated to the partners is as follows (in millions, except per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Attributable to Common Units
|
|
|
|
|
|
|
|
Distributions (a)
|
$
|
68
|
|
|
$
|
82
|
|
|
$
|
136
|
|
|
$
|
164
|
|
Distributions in excess of net income
|
(19
|
)
|
|
(334
|
)
|
|
(423
|
)
|
|
(438
|
)
|
Limited partners' interest in net income (loss)
|
$
|
49
|
|
|
$
|
(252
|
)
|
|
$
|
(287
|
)
|
|
$
|
(274
|
)
|
|
|
|
|
|
|
|
|
(a) Distributions declared per unit to unitholders as of record date
|
$
|
0.8255
|
|
|
$
|
0.8255
|
|
|
$
|
1.6510
|
|
|
$
|
1.6510
|
|
Class C Units
Class C Units (i) are not convertible or exchangeable into Common Units or any other units of the Partnership and are non-redeemable; (ii) are entitled to receive distributions of available cash of the Partnership (other than available cash derived from or attributable to any distribution received by the Partnership from PropCo, the proceeds of any sale of the membership interests of PropCo, or any interest or principal payments received by the Partnership with respect to indebtedness of PropCo or its subsidiaries) at a fixed rate equal to
$0.8682
per quarter for each Class C Unit outstanding, (iii) do not have the right to vote on any matter except as otherwise required by any non-waivable provision of law, (iv) are not allocated any items of income, gain, loss, deduction or credit attributable to the Partnership’s ownership of, or sale or other disposition of, the membership interests of PropCo, or the Partnership’s ownership of any indebtedness of PropCo or any of its subsidiaries (“PropCo Items”), (v) will be allocated gross income (other than from PropCo Items) in an amount equal to the cash distributed to the holders of Class C Units and (vi) will be allocated depreciation, amortization and cost recovery deductions as if the Class C Units were Common Units and
1%
of certain allocations of net termination gain (other than from PropCo Items).
Pursuant to the terms described above, these distributions do not have an impact on the Partnership’s consolidated cash flows and as such, are excluded from total cash distributions and allocation of limited partners’ interest in net income. For the
six months ended June 30, 2018
, Class C distributions declared totaled
$28 million
.
Incentive Distribution Rights
The following table illustrates the percentage allocations of available cash from operating surplus between our common unitholders and the holder of our incentive distribution rights (“IDRs”) based on the specified target distribution levels, after the payment of distributions to Class C unitholders. The amounts set forth under “marginal percentage interest in distributions” are the percentage interests of our IDR holder and the common unitholders in any available cash from operating surplus we distribute up to and including the corresponding amount in the column “total quarterly distribution per unit target amount.” The percentage interests shown for our common unitholders and our IDR holder for the minimum quarterly distribution per common unit are also applicable to quarterly distribution amounts that are less than the minimum quarterly distribution.
|
|
|
|
|
|
|
|
|
|
|
|
Marginal percentage interest
in distributions
|
|
Total quarterly distribution per Common Unit target amount
|
|
Common Unitholders
|
|
Holder of IDRs
|
Minimum Quarterly Distribution
|
$0.4375
|
|
100
|
%
|
|
—
|
|
First Target Distribution
|
Above $0.4375 up to $0.503125
|
|
100
|
%
|
|
—
|
|
Second Target Distribution
|
Above $0.503125 up to $0.546875
|
|
85
|
%
|
|
15
|
%
|
Third Target Distribution
|
Above $0.546875 up to $0.656250
|
|
75
|
%
|
|
25
|
%
|
Thereafter
|
Above $0.656250
|
|
50
|
%
|
|
50
|
%
|
Cash Distributions
Our Partnership Agreement sets forth the calculation used to determine the amount and priority of cash distributions that the common unitholders receive.
Cash distributions paid or payable during
2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited Partners
|
|
|
Payment Date
|
|
Per Unit Distribution
|
|
Total Cash Distribution
|
|
Distribution to IDR Holders
|
|
|
(in millions, except per unit amounts)
|
August 15, 2018
|
|
$
|
0.8255
|
|
|
$
|
68
|
|
|
$
|
17
|
|
May 15, 2018
|
|
$
|
0.8255
|
|
|
$
|
68
|
|
|
$
|
18
|
|
February 14, 2018
|
|
$
|
0.8255
|
|
|
$
|
82
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
Series A Preferred Unit Holder
|
Payment Date
|
|
Total Cash Distribution
|
|
|
(in millions)
|
January 25, 2018 (1)
|
|
$
|
10
|
|
________________________________
|
|
(1)
|
$10 million cash distribution paid on January 25, 2018 includes $8 million cash distribution for the three months ended December 31, 2017 and $2 million cash distribution for the period from January 1, 2018 through January 25, 2018.
|
|
|
18.
|
Unit-Based Compensation
|
The Partnership has issued phantom units to its employees and non-employee directors, which vest
60%
after three years and
40%
after five years. Phantom units have the right to receive distributions prior to vesting. The fair value of these units is the market price of our common units on the grant date, and is amortized over the five-year vesting period using the straight-line method. Unit-based compensation expense related to the Partnership included in our Consolidated Statements of Operations and Comprehensive Income was
$3 million
and
$5 million
for the
three months ended June 30, 2018
and
2017
, respectively, and
$6 million
and
$9 million
for the
six months ended June 30, 2018
and
2017
, respectively. The total fair value of phantom units vested during the
six months ended June 30, 2018
and
2017
, was
$5 million
and
$1 million
, respectively, based on the market price of SUN’s common units as of the vesting date. Unrecognized compensation cost related to our nonvested restricted phantom units totaled
$24 million
as of
June 30, 2018
, which is expected to be recognized over a weighted average period of
3.57
years. The fair value of nonvested phantom units outstanding as of
June 30, 2018
totaled
$54 million
.
A summary of our phantom unit award activity is as follows:
|
|
|
|
|
|
|
|
|
Number of Phantom Common Units
|
|
Weighted-Average Grant Date Fair Value
|
Outstanding at December 31, 2016
|
2,013,634
|
|
|
$
|
34.43
|
|
Granted
|
203,867
|
|
|
28.31
|
|
Vested
|
(289,377
|
)
|
|
45.48
|
|
Forfeited
|
(150,823
|
)
|
|
34.71
|
|
Outstanding at December 31, 2017
|
1,777,301
|
|
|
31.89
|
|
Granted
|
420,300
|
|
|
28.86
|
|
Vested
|
(179,262
|
)
|
|
28.43
|
|
Forfeited
|
(284,536
|
)
|
|
31.77
|
|
Outstanding at June 30, 2018
|
1,733,803
|
|
|
$
|
30.93
|
|
Our financial statements reflect
two
reportable segments, fuel distribution & marketing and all other. After the Retail Divestment and the conversion of
207
retail sites to commission agent sites, the Partnership has renamed the former Wholesale segment to Fuel Distribution and Marketing and the former Retail segment is renamed to 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 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.
Fuel Distribution and Marketing Segment
Our Fuel Distribution and Marketing segment purchases motor fuel primarily from independent refiners and major oil companies and supplies it to independently-operated dealer stations under long-term supply agreements, to distributors and other consumers of motor fuel, and to Partnership-operated stations included in our All Other segment. Also included in the Fuel Distribution and Marketing segment are motor fuel sales to commission agent locations and sales and costs related to processing transmix. We distribute motor fuels across more than
30
states throughout the East Coast, Midwest, South Central and Southeast regions of the United States from Maine to Florida and from Florida to New Mexico, as well as Hawaii. Sales of fuel from our Fuel Distribution and Marketing segment to Partnership-operated stations included in our All Other segment are delivered at cost plus a profit margin. These amounts are reflected in intercompany eliminations of motor fuel revenue and motor fuel cost of sales. Also included in our Fuel Distribution and Marketing segment is rental income from properties that we lease or sublease.
All Other Segment
Prior to the completion of the Retail Divestment, our All Other segment primarily operated branded retail stores across more than
20
states throughout the East Coast and Southeast regions of the United States with a significant presence in Texas, Pennsylvania, New York, Florida, and Hawaii. These stores offered motor fuel, merchandise, foodservice, and a variety of other services including car washes, lottery, automated teller machines, money orders, prepaid phone cards and wireless services. The operations of the Retail Divestment are included in discontinued operations in the following segment information. Subsequent to the completion of the Retail Divestment, the remaining All Other segment includes the Partnership's ethanol plant, credit card services, franchise royalties, and its retail operations in Hawaii, New Jersey and Texas.
The following tables present financial information by segment for the
three and six
months ended
June 30, 2018
and
2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
2018
|
|
2017
|
|
Fuel Distribution and Marketing
|
|
All Other
|
|
Intercompany Eliminations
|
|
Totals
|
|
Fuel Distribution and Marketing
|
|
All Other
|
|
Intercompany Eliminations
|
|
Totals
|
|
(in millions)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
$
|
4,304
|
|
|
$
|
203
|
|
|
|
|
$
|
4,507
|
|
|
$
|
2,287
|
|
|
$
|
398
|
|
|
|
|
$
|
2,685
|
|
Rental income
|
31
|
|
|
3
|
|
|
|
|
34
|
|
|
19
|
|
|
3
|
|
|
|
|
22
|
|
Other
|
15
|
|
|
51
|
|
|
|
|
66
|
|
|
12
|
|
|
173
|
|
|
|
|
185
|
|
Intersegment sales
|
453
|
|
|
30
|
|
|
(483
|
)
|
|
—
|
|
|
350
|
|
|
25
|
|
|
(375
|
)
|
|
—
|
|
Total revenue
|
4,803
|
|
|
287
|
|
|
(483
|
)
|
|
4,607
|
|
|
2,668
|
|
|
599
|
|
|
(375
|
)
|
|
2,892
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
204
|
|
|
23
|
|
|
|
|
227
|
|
|
102
|
|
|
53
|
|
|
|
|
155
|
|
Rental
|
31
|
|
|
3
|
|
|
|
|
34
|
|
|
19
|
|
|
3
|
|
|
|
|
22
|
|
Other
|
18
|
|
|
31
|
|
|
|
|
49
|
|
|
8
|
|
|
74
|
|
|
|
|
82
|
|
Total gross profit
|
253
|
|
|
57
|
|
|
|
|
310
|
|
|
129
|
|
|
130
|
|
|
|
|
259
|
|
Total operating expenses
|
128
|
|
|
54
|
|
|
|
|
182
|
|
|
112
|
|
|
167
|
|
|
|
|
279
|
|
Operating income (loss)
|
125
|
|
|
3
|
|
|
|
|
128
|
|
|
17
|
|
|
(37
|
)
|
|
|
|
(20
|
)
|
Interest expense, net
|
27
|
|
|
9
|
|
|
|
|
36
|
|
|
13
|
|
|
41
|
|
|
|
|
54
|
|
Income (loss) from continuing operations before income taxes
|
98
|
|
|
(6
|
)
|
|
|
|
92
|
|
|
4
|
|
|
(78
|
)
|
|
|
|
(74
|
)
|
Income tax expense (benefit)
|
(3
|
)
|
|
1
|
|
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(44
|
)
|
|
|
|
(45
|
)
|
Income (loss) from continuing operations
|
101
|
|
|
(7
|
)
|
|
|
|
94
|
|
|
5
|
|
|
(34
|
)
|
|
|
|
(29
|
)
|
Loss from discontinued operations, net of income taxes (See Note 4)
|
—
|
|
|
(26
|
)
|
|
|
|
(26
|
)
|
|
—
|
|
|
(193
|
)
|
|
|
|
(193
|
)
|
Net income (loss) and comprehensive income (loss)
|
$
|
101
|
|
|
$
|
(33
|
)
|
|
|
|
$
|
68
|
|
|
$
|
5
|
|
|
$
|
(227
|
)
|
|
|
|
$
|
(222
|
)
|
Depreciation, amortization and accretion (1)
|
35
|
|
|
6
|
|
|
|
|
41
|
|
|
37
|
|
|
2
|
|
|
|
|
39
|
|
Interest expense, net (1)
|
27
|
|
|
9
|
|
|
|
|
36
|
|
|
14
|
|
|
44
|
|
|
|
|
58
|
|
Income tax benefit (1)
|
(3
|
)
|
|
(16
|
)
|
|
|
|
(19
|
)
|
|
(1
|
)
|
|
(22
|
)
|
|
|
|
(23
|
)
|
EBITDA
|
160
|
|
|
(34
|
)
|
|
|
|
126
|
|
|
55
|
|
|
(203
|
)
|
|
|
|
(148
|
)
|
Non-cash compensation expense (1)
|
1
|
|
|
2
|
|
|
|
|
3
|
|
|
1
|
|
|
4
|
|
|
|
|
5
|
|
Loss on disposal of assets and impairment charges (1)
|
—
|
|
|
40
|
|
|
|
|
40
|
|
|
2
|
|
|
324
|
|
|
|
|
326
|
|
Unrealized loss on commodity derivatives (1)
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
|
|
5
|
|
Inventory fair value adjustments (1)
|
(32
|
)
|
|
—
|
|
|
|
|
(32
|
)
|
|
30
|
|
|
2
|
|
|
|
|
32
|
|
Other non-cash adjustments
|
3
|
|
|
—
|
|
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Adjusted EBITDA
|
$
|
132
|
|
|
$
|
8
|
|
|
|
|
$
|
140
|
|
|
$
|
93
|
|
|
$
|
127
|
|
|
|
|
$
|
220
|
|
Capital expenditures (1)
|
$
|
11
|
|
|
$
|
2
|
|
|
|
|
$
|
13
|
|
|
$
|
14
|
|
|
$
|
19
|
|
|
|
|
$
|
33
|
|
Total assets as of June 30, 2018 and December 31, 2017, respectively
|
$
|
3,900
|
|
|
$
|
1,106
|
|
|
|
|
$
|
5,006
|
|
|
$
|
3,130
|
|
|
$
|
5,214
|
|
|
|
|
$
|
8,344
|
|
________________________________
|
|
(1)
|
Includes amounts from discontinued operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
Fuel Distribution and Marketing
|
|
All Other
|
|
Intercompany Eliminations
|
|
Totals
|
|
Fuel Distribution and Marketing
|
|
All Other
|
|
Intercompany Eliminations
|
|
Totals
|
|
(in millions)
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel sales
|
$
|
7,410
|
|
|
$
|
648
|
|
|
|
|
$
|
8,058
|
|
|
$
|
4,553
|
|
|
$
|
750
|
|
|
|
|
$
|
5,303
|
|
Rental income
|
50
|
|
|
6
|
|
|
|
|
56
|
|
|
38
|
|
|
6
|
|
|
|
|
44
|
|
Other
|
29
|
|
|
213
|
|
|
|
|
242
|
|
|
24
|
|
|
329
|
|
|
|
|
353
|
|
Intersegment sales
|
811
|
|
|
64
|
|
|
(875
|
)
|
|
—
|
|
|
679
|
|
|
60
|
|
|
(739
|
)
|
|
—
|
|
Total revenue
|
8,300
|
|
|
931
|
|
|
(875
|
)
|
|
8,356
|
|
|
5,294
|
|
|
1,145
|
|
|
(739
|
)
|
|
5,700
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Motor fuel
|
365
|
|
|
67
|
|
|
|
|
432
|
|
|
225
|
|
|
88
|
|
|
|
|
313
|
|
Rental
|
50
|
|
|
6
|
|
|
|
|
56
|
|
|
38
|
|
|
6
|
|
|
|
|
44
|
|
Other
|
28
|
|
|
90
|
|
|
|
|
118
|
|
|
17
|
|
|
141
|
|
|
|
|
158
|
|
Total gross profit
|
443
|
|
|
163
|
|
|
|
|
606
|
|
|
280
|
|
|
235
|
|
|
|
|
515
|
|
Total operating expenses
|
247
|
|
|
135
|
|
|
|
|
382
|
|
|
203
|
|
|
276
|
|
|
|
|
479
|
|
Operating income (loss)
|
196
|
|
|
28
|
|
|
|
|
224
|
|
|
77
|
|
|
(41
|
)
|
|
|
|
36
|
|
Interest expense, net
|
46
|
|
|
24
|
|
|
|
|
70
|
|
|
33
|
|
|
79
|
|
|
|
|
112
|
|
Loss on extinguishment of debt and other
|
109
|
|
|
—
|
|
|
|
|
109
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Income (loss) from continuing operations before income taxes
|
41
|
|
|
4
|
|
|
|
|
45
|
|
|
44
|
|
|
(120
|
)
|
|
|
|
(76
|
)
|
Income tax expense (benefit)
|
(2
|
)
|
|
31
|
|
|
|
|
29
|
|
|
—
|
|
|
(59
|
)
|
|
|
|
(59
|
)
|
Income (loss) from continuing operations
|
43
|
|
|
(27
|
)
|
|
|
|
16
|
|
|
44
|
|
|
(61
|
)
|
|
|
|
(17
|
)
|
Loss from discontinued operations, net of income taxes (See Note 4)
|
—
|
|
|
(263
|
)
|
|
|
|
(263
|
)
|
|
—
|
|
|
(204
|
)
|
|
|
|
(204
|
)
|
Net income (loss) and comprehensive income (loss)
|
$
|
43
|
|
|
$
|
(290
|
)
|
|
|
|
$
|
(247
|
)
|
|
$
|
44
|
|
|
$
|
(265
|
)
|
|
|
|
$
|
(221
|
)
|
Depreciation, amortization and accretion (1)
|
63
|
|
|
27
|
|
|
|
|
90
|
|
|
59
|
|
|
67
|
|
|
|
|
126
|
|
Interest expense, net (1)
|
46
|
|
|
26
|
|
|
|
|
72
|
|
|
33
|
|
|
87
|
|
|
|
|
120
|
|
Income tax expense (benefit) (1)
|
(2
|
)
|
|
187
|
|
|
|
|
185
|
|
|
—
|
|
|
(40
|
)
|
|
|
|
(40
|
)
|
EBITDA
|
150
|
|
|
(50
|
)
|
|
|
|
100
|
|
|
136
|
|
|
(151
|
)
|
|
|
|
(15
|
)
|
Non-cash compensation expense (1)
|
1
|
|
|
5
|
|
|
|
|
6
|
|
|
1
|
|
|
8
|
|
|
|
|
9
|
|
Loss on disposal of assets and impairment charges (1)
|
3
|
|
|
63
|
|
|
|
|
66
|
|
|
4
|
|
|
329
|
|
|
|
|
333
|
|
Loss on extinguishment of debt and other (1)
|
109
|
|
|
20
|
|
|
|
|
129
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Inventory fair value adjustments (1)
|
(57
|
)
|
|
(1
|
)
|
|
|
|
(58
|
)
|
|
43
|
|
|
5
|
|
|
|
|
48
|
|
Other non-cash adjustments
|
6
|
|
|
—
|
|
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
Adjusted EBITDA
|
$
|
212
|
|
|
$
|
37
|
|
|
|
|
$
|
249
|
|
|
$
|
184
|
|
|
$
|
191
|
|
|
|
|
$
|
375
|
|
Capital expenditures (1)
|
$
|
23
|
|
|
$
|
9
|
|
|
|
|
$
|
32
|
|
|
$
|
26
|
|
|
$
|
73
|
|
|
|
|
$
|
99
|
|
Total assets as of June 30, 2018 and December 31, 2017, respectively
|
$
|
3,900
|
|
|
$
|
1,106
|
|
|
|
|
$
|
5,006
|
|
|
$
|
3,130
|
|
|
$
|
5,214
|
|
|
|
|
$
|
8,344
|
|
________________________________
|
|
(1)
|
Includes amounts from discontinued operations.
|
Net income per unit applicable to limited partners is computed by dividing limited partners’ interest in net income by the weighted‑average number of outstanding common units. Our net income is allocated to the limited partners in accordance with their respective partnership percentages, after giving effect to any priority income allocations for incentive distributions and distributions on employee unit awards. Earnings in excess of distributions are allocated to the limited partners based on their respective ownership interests. Payments made to our unitholders are determined in relation to actual distributions declared and are not based on the net income allocations used in the calculation of net income per unit.
In addition to the common units, we identify the IDRs as participating securities and use the two-class method when calculating net income per unit applicable to limited partners, which is based on the weighted-average number of common units outstanding during
the period. Diluted net income per unit includes the effects of potentially dilutive units on our common units, consisting of unvested phantom units.
A reconciliation of the numerators and denominators of the basic and diluted per unit computations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
(in millions, except units and per unit amounts)
|
Income (loss) from continuing operations
|
$
|
94
|
|
|
$
|
(29
|
)
|
|
$
|
16
|
|
|
$
|
(17
|
)
|
Less:
|
|
|
|
|
|
|
|
Distributions on Series A Preferred units
|
—
|
|
|
8
|
|
|
2
|
|
|
8
|
|
Incentive distribution rights
|
17
|
|
|
21
|
|
|
35
|
|
|
42
|
|
Distributions on nonvested phantom unit awards
|
2
|
|
|
1
|
|
|
3
|
|
|
3
|
|
Limited partners' interest in net income (loss) from continuing operations
|
$
|
75
|
|
|
$
|
(59
|
)
|
|
$
|
(24
|
)
|
|
$
|
(70
|
)
|
Loss from discontinued operations
|
$
|
(26
|
)
|
|
$
|
(193
|
)
|
|
$
|
(263
|
)
|
|
$
|
(204
|
)
|
Weighted average limited partner units outstanding:
|
|
|
|
|
|
|
|
Common - basic
|
82,494,976
|
|
|
99,466,424
|
|
|
86,104,411
|
|
|
99,040,383
|
|
Common - equivalents
|
452,693
|
|
|
433,583
|
|
|
464,961
|
|
|
265,662
|
|
Common - diluted
|
82,947,669
|
|
|
99,900,007
|
|
|
86,569,372
|
|
|
99,306,045
|
|
Income (loss) from continuing operations per limited partner unit:
|
|
|
|
|
|
|
|
Common - basic
|
$
|
0.91
|
|
|
$
|
(0.58
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.70
|
)
|
Common - diluted
|
$
|
0.90
|
|
|
$
|
(0.59
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.70
|
)
|
Loss from discontinued operations per limited partner unit:
|
|
|
|
|
|
|
|
Common - basic
|
$
|
(0.32
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(2.07
|
)
|
Common - diluted
|
$
|
(0.32
|
)
|
|
$
|
(1.94
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(2.07
|
)
|