SUNOCO LP The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes to audited consolidated financial statements included elsewhere in this report. Adjusted EBITDA is a non-GAAP financial measure of performance that has limitations and should not be considered as a substitute for net income or cash provided by (used in) operating activities. Please see "Key Measures Used to Evaluate and Assess Our Business" below for a discussion of our use of Adjusted EBITDA in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" and a reconciliation to net income for the periods presented. Forward-Looking Statements This report, including without limitation, our discussion and analysis of our financial condition and results of operations, and any information incorporated by reference, contains statements that we believe are "forward-looking statements." These forward-looking statements generally can be identified by use of phrases such as "believe," "plan," "expect," "anticipate," "intend," "forecast" or other similar words or phrases. Descriptions of our objectives, goals, targets, plans, strategies, costs, anticipated capital expenditures, expected cost savings and benefits are also forward-looking statements. These forward-looking statements are based on our current plans and expectations and involve a number of risks and uncertainties that could cause actual results and events to vary materially from the results and events anticipated or implied by such forward-looking statements, including: • our ability to make, complete and integrate acquisitions from affiliates
or third-parties;
• business strategy and operations of Energy Transfer Operating, L.P. and
Energy Transfer LP and their respective conflicts of interest with us;
• changes in the price of and demand for the motor fuel that we distribute
and our ability to appropriately hedge any motor fuel we hold in
inventory;
• our dependence on limited principal suppliers;
• competition in the wholesale motor fuel distribution and retail store
industry;
• changing customer preferences for alternate fuel sources or improvement
in fuel efficiency;
• changes in our credit rating, as assigned by rating agencies;
• a deterioration in the credit and/or capital market;
• environmental, tax and other federal, state and local laws and regulations;
• the fact that we are not fully insured against all risk incidents to our
business;
• dangers inherent in the storage and transportation of motor fuel;
• our ability to manage growth and/or control costs;
• our reliance on senior management, supplier trade credit and information
technology; and
• our partnership structure, which may create conflicts of interest between
us and Sunoco GP LLC , our general partner ("General Partner"), and its
affiliates, and limits the fiduciary duties of our General Partner and
its affiliates.
All forward-looking statements are expressly qualified in their entirety by the
foregoing cautionary statements.
For a discussion of these and other risks and uncertainties, please refer to
"Item 1A. Risk Factors" included herein. The list of factors that could affect
future performance and the accuracy of forward-looking statements is
illustrative but by no means exhaustive. Accordingly, all forward-looking
statements should be evaluated with the understanding of their inherent
uncertainty. The forwardlooking statements included in this report are based
on, and include, our estimates as of the filing of this report. We anticipate
that subsequent
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events and market developments will cause our estimates to change. However,
while we may elect to update these forward-looking statements at some point in
the future, we specifically disclaim any obligation to do so except as required
by law, even if new information becomes available in the future.
Overview
As used in this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the terms "Partnership," "SUN," "we," "us," or "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 primarily engaged in the
distribution of motor fuels to independent dealers, distributors, and other
customers and the distribution of motor fuels to end customers at retail sites
operated by commission agents. In addition, we receive lease income through the
leasing or subleasing of real estate used in the retail distribution of motor
fuel. We also operate 75 retail stores located in Hawaii and New Jersey .
We are managed by our General Partner . As of December 31, 2019 , Energy Transfer
Operating, L.P. ("ETO") owns 100% of the membership interests in our General
Partner , all of our incentive distribution rights and approximately 34.3% of our
common units, which constitutes a 28.6% limited partner interest in us. In
October 2018 , Energy Transfer Equity, L.P. ("ETE") and Energy Transfer Partners,
L.P. ("ETP") completed the previously announced merger of ETP with a
whollyowned subsidiary of ETE in a unit-for-unit exchange. Following the
closing of the merger, ETE changed its name to "Energy Transfer LP " ("ET") and
its common units began trading on the New York Stock Exchange under the "ET"
ticker symbol on October 19, 2018 . In addition, ETP changed its name to "Energy
Transfer Operating, L.P. "
In connection with the transaction, immediately prior to closing, ETE
contributed 2,263,158 of our common units to ETP in exchange for 2,874,275 ETP
common units, and contributed 100% of the limited liability company interests in
our General Partner and all of our incentive distribution rights to ETP in
exchange for 42,812,389 ETP common units. Additional information is provided in
Note 1 of our Notes to Consolidated Financial Statements.
We believe we are one of the largest independent motor fuel distributors by
gallons in the United States and one of the largest distributors of Chevron ,
Exxon, and Valero branded motor fuel in the United States . In addition to
distributing motor fuel, we also distribute other petroleum products such as
propane and lubricating oil.
We purchase motor fuel primarily from independent refiners and major oil
companies and distribute it across more than 30 states throughout the East
Coast , Midwest, South Central and Southeast regions of the United States , as
well as Hawaii , to:
• 75 company-owned and operated retail stores;
• 537 independently operated commission agent locations where we sell motor
fuel to retail customers under commission agent arrangement with such
operators;
• 6,742 retail stores operated by independent operators, which we refer to
as "dealers" or "distributors," pursuant to long-term distribution
agreements; and
• 2,581 other commercial customers, including unbranded retail stores,
other fuel distributors, school districts, municipalities and other
industrial customers.
OnJanuary 23, 2018 , we sold a portfolio of 1,030 company-operated retail fuel outlets in 19 geographic regions to 7-Eleven. As ofDecember 31, 2019 , we operate 75 retail stores. Our retail stores operate under several brands, including our proprietary brands APlus andAloha Island Mart , and offer a broad selection of food, beverages, snacks, grocery and non-food merchandise, motor fuels and other services. Recent Developments OnJuly 1, 2019 , we entered into a 50% owned joint venture on the J.C. Nolan diesel fuel pipeline toWest Texas and the J.C. Nolan terminal. ETO operates the pipeline for the joint venture, which transports diesel fuel from Hebert,Texas to a terminal in theMidland, Texas area. The pipeline had an initial capacity of 30,000 barrels per day and was successfully commissioned inAugust 2019 . Our investment in this unconsolidated joint venture was$121 million as ofDecember 31, 2019 . In addition, we recorded income on the unconsolidated joint venture of$2 million for the year endedDecember 31, 2019 . OnMay 31, 2019 , we completed the previously announced divestiture to Attis Industries Inc. (NASDAQ: ATIS) ("Attis") for the sale of our ethanol plant, including the grain malting operation, inFulton, New York . As part of the transaction, we entered into a 10- 32 -------------------------------------------------------------------------------- year ethanol offtake agreement with Attis. Total consideration for the divestiture was$20 million in cash plus certain working capital adjustments. OnMarch 14, 2019 , we completed a private offering of$600 million in aggregate principal amount of 6.000% senior notes due 2027. We used the proceeds to repay a portion of the outstanding borrowings under our 2018 Revolver. In connection with our issuance of the 2027 Notes, we entered into a registration rights agreement with the initial purchasers pursuant to which we agreed to complete an offer to exchange the 2027 Notes for an issue of registered notes with terms substantively identical to the 2027 Notes and evidencing the same indebtedness as the 2027 Notes on or beforeMarch 14, 2020 . The exchange offer was completed onJuly 17, 2019 . Acquisition OnJanuary 18, 2019 , we acquired certain convenience store locations fromSpeedway LLC for approximately$5 million plus working capital adjustments. We subsequently converted the acquired convenience store locations to commission agent locations. Market and Industry Trends and Outlook We expect that certain trends and economic or industry-wide factors will continue to affect our business, both in the short-term and long-term. We base our expectations on information currently available to us and assumptions made by us. To the extent our underlying assumptions about or interpretation of available information prove to be incorrect, our actual results may vary materially from our expected results. Read "Item 1A. Risk Factors" included herein for additional information about the risks associated with purchasing our common units. Seasonality Our business exhibits some seasonality due to our customers' increased demand for motor fuel during the late spring and summer months, as compared to the fall and winter months. Travel, recreation, and construction activities typically increase in these months, driving up the demand for motor fuel sales. Our gallons sold are typically somewhat higher in the second and third quarters of our fiscal years due to this seasonality. Results of operations may therefore vary from period to period.Key Measures Used to Evaluate and Assess Our Business Management uses a variety of financial measurements to analyze business performance, including the following key measures: • Motor fuel gallons sold. One of the primary drivers of our business is the total volume of motor fuel sold through our channels. Fuel distribution contracts with our customers generally provide that we distribute motor fuel at a fixed, volume-based profit margin or at an
agreed upon level of price support. As a result, gross profit is directly
tied to the volume of motor fuel that we distribute. Total motor fuel
gross profit dollars earned from the product of gross profit per gallonand motor fuel gallons sold are used by management to evaluate business
performance.
• Gross profit per gallon. Gross profit per gallon is calculated as thegross profit on motor fuel (excluding non-cash inventory adjustments)
divided by the number of gallons sold, and is typically expressed as
cents per gallon. Our gross profit per gallon varies amongst our
third-party relationships and is impacted by the availability of certain
discounts and rebates from suppliers. Retail gross profit per gallon is
heavily impacted by volatile pricing and intense competition from retail
stores, supermarkets, club stores and other retail formats, which varies
based on the market.
• Adjusted EBITDA. Adjusted EBITDA, as used throughout this document, is
defined as earnings before net interest expense, income taxes,
depreciation, amortization and accretion expense, allocated non-cash
unit-based compensation expense, unrealized gains and losses on commodity
derivatives and inventory adjustments, and certain other operating
expenses reflected in net income that we do not believe are indicative of
ongoing core operations, such as gain or loss on disposal of assets and
non-cash impairment charges.
Adjusted EBITDA is a non-GAAP financial measure. For a reconciliation of
Adjusted EBITDA to the most directly comparable financial measure calculated and
presented in accordance with GAAP, read "Key Operating Metrics" below.
We believe Adjusted EBITDA is useful to investors in evaluating our operating
performance because:
• Adjusted EBITDA is used as a performance measure under our revolving
credit facility;
• securities analysts and other interested parties useAdjusted EBITDA
as a measure of financial performance; and
• our management uses Adjusted EBITDA for internal planning purposes,
including aspects of our consolidated operating budget and capital
expenditures;
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Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income (loss) as a measure of operating performance. Adjusted EBITDA has limitations as an analytical tool, and one should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations include: •
it does not reflect interest expense or the cash requirements
necessary to service interest or principal payments on our revolving
credit facility or term loan;
• although depreciation and amortization are non-cash charges, the
assets being depreciated and amortized will often have to be
replaced in the future, and Adjusted EBITDA does not reflect cash
requirements for such replacements; and
• as not all companies use identical calculations, ourpresentation of
Adjusted EBITDA may not be comparable to similarly titled measures
of other companies.
Adjusted EBITDA reflects amounts for the unconsolidated affiliate based on the
same recognition and measurement methods used to record equity in earnings of
unconsolidated affiliate. Adjusted EBITDA related to unconsolidated affiliate
excludes the same items with respect to the unconsolidated affiliate as those
excluded from the calculation of Adjusted EBITDA, such as interest, taxes,
depreciation, depletion, amortization and other non-cash items. Although these
amounts are excluded from Adjusted EBITDA related to unconsolidated affiliate,
such exclusion should not be understood to imply that we have control over the
operations and resulting revenues and expenses of such affiliate. We do not
control our unconsolidated affiliate; therefore, we do not control the earnings
or cash flows of such affiliate. The use of Adjusted EBITDA or Adjusted EBITDA
related to unconsolidated affiliate as an analytical tool should be limited
accordingly.
Key Operating Metrics
The following information is intended to provide investors with a reasonable
basis for assessing our historical operations, but should not serve as the only
criteria for predicting our future performance.
Key operating metrics set forth below are presented for the years ended
December 31, 2019 , 2018 and 2017, and have been derived from our historical
consolidated financial statements.
Year Ended December 31,
2019 2018
Fuel Distribution Fuel Distribution
and Marketing All Other Total and Marketing All Other Total
(dollars and gallons in millions, except gross profit per gallon)
Revenues:
Motor fuel sales $ 15,522 $ 654 $ 16,176 $ 15,466 $ 1,038 $ 16,504
Non motor fuel sales 62 216 278 48 312 360
Lease income 131 11 142 118 12 130
Total revenues $ 15,715 $ 881 $ 16,596 $ 15,632 $ 1,362 $ 16,994
Gross profit (1):
Motor fuel sales $ 817 $ 89 $ 906 $ 673 $ 123 $ 796
Non motor fuel sales 53 115 168 40 156 196
Lease 131 11 142 118 12 130
Total gross profit $ 1,001 $ 215 $ 1,216 $ 831 $ 291 $ 1,122
Net income (loss) and comprehensive
income (loss) from continuing
operations 290 23 313 80 (22 ) 58
Loss from discontinued operations,
net of taxes - - - - (265 ) (265 )
Net income (loss) and comprehensive
income (loss) $ 290 $ 23 $ 313 $ 80 $ (287 ) $ (207 )
Adjusted EBITDA (2) $ 545 $ 120 $ 665 $ 554 $ 84 $ 638
Operating data:
Motor fuel gallons sold (3) 8,193 7,859
Motor fuel gross profit cents per
gallon (3) (4) 10.1 ¢ 11.4 ¢
_______________________________
(1) Excludes depreciation, amortization and accretion.
(2) We define Adjusted EBITDA as described above under "
Evaluate and Assess Our Business."
(3) Includes amounts from discontinued operations in 2018.
(4) Includes other non-cash adjustments and excludes the impact of inventory
adjustments consistent with the definition of Adjusted EBITDA.
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The following table presents a reconciliation of Adjusted EBITDA to net income
(loss) for the years ended
Year Ended December 31,
2019 2018 Change
(in millions)
Adjusted EBITDA
Fuel Distribution and Marketing $ 545 $ 554 $ (9 )
All Other 120 84 36
Total Adjusted EBITDA 665 638 27
Depreciation, amortization and accretion (183 ) (182 ) (1 )
Interest expense, net (1) (173 ) (146 ) (27 )
Non-cash unit-based compensation expense (1) (13 ) (12 ) (1 )
Loss on disposal of assets and impairment charges (1) (68 ) (80 ) 12
Loss on extinguishment of debt and other, net (1) - (129 ) 129
Unrealized gain (loss) on commodity derivatives (1) 5 (6 ) 11
Inventory adjustments (1) 79 (84 ) 163
Equity in earnings of unconsolidated affiliate 2 - 2
Adjusted EBITDA related to unconsolidated affiliate (4 ) - (4 )
Other non-cash adjustments (14 ) (14 ) -
Income tax (expense) benefit (1) 17 (192 ) 209
Net income (loss) and comprehensive income (loss) $ 313 $
(207 )
_______________________________
(1) Includes amounts from discontinued operations in 2018.
Year Ended
the divestment of 1,030 company-operated fuel sites to 7-Eleven on
sites during
and administrative expense and lease expense; and
• an increase in unconsolidated affiliate adjusted EBITDA of
partially offset by
• a decrease in non-motor fuel sales gross profit of
related to lower merchandise gross profit as a result of the divestment
of 1,030 company-operated fuel sites to 7-Eleven on
the conversion of 207 retail sites to commission agent sites during April
2018 ; and
• a decrease in the gross profit on motor fuel sales of
primarily due to lower fuel margins, a one-time benefit of approximately
for the year ended December 31, 2018 and a $8 million one-time charge
related to a reserve for an open contractual dispute recorded for the
year ended December 31, 2019 ; partially offset by a 4.2% increase in
gallons sold for the year ended December 31, 2019 compared to the year
ended December 31, 2018 .
Depreciation, Amortization and Accretion. Depreciation, amortization and
accretion was $183 million in 2019, a slight increase of $1 million from 2018.
Interest Expense. Interest expense was $173 million in 2019, an increase of $27
million from 2018. The increase is primarily attributable to an increase in
total long-term debt.
Non-Cash Unit-Based Compensation Expense. Non-cash unit-based compensation
expense was $13 million in 2019, a slight increase of $1 million from 2018.
Loss on Disposal of Assets and Impairment Charges. Loss on disposal of assets
and impairment charges was $68 million in 2019, a decrease of $12 million from
2018. The 2019 amount is primarily attributable to a $47 million write-down on
assets held for sale and a $21 million loss on disposal of assets related to our
ethanol plant in Fulton, New York . The 2018 amount is primarily attributable to
the loss on fixed assets driven by the 7-Eleven sale and the $30 million
impairment on our contractual rights intangible asset.
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Income Tax Expense/(Benefit). Income tax benefit for 2019 was $17 million , a
change of $209 million from 2018. The change is primarily due to the taxable
gain recognized on the sales of assets to 7-Eleven in 2018.
The following table sets forth, for the periods indicated, information
concerning key measures we rely on to gauge our operating performance:
Year Ended December 31,
2018 2017
Fuel Distribution Fuel Distribution
and Marketing All Other Total and Marketing All Other Total
(dollars and gallons in millions, except gross profit per gallon)
Revenues:
Motor fuel sales $ 15,466 $ 1,038 $ 16,504 $ 9,333 $ 1,577 $ 10,910
Non motor fuel sales 48 312 360 50 674 724
Lease income 118 12 130 77 12 89
Total revenues $ 15,632 $ 1,362 $ 16,994 $ 9,460 $ 2,263 $ 11,723
Gross profit (1):
Motor fuel sales $ 673 $ 123 $ 796 $ 535 $ 157 $ 692
Non motor fuel sales 40 156 196 39 288 327
Lease 118 12 130 77 12 89
Total gross profit $ 831 $ 291 $ 1,122 $ 651 $ 457 $ 1,108
Net income (loss) from
continuing operations 80 (22 ) 58 167 159 326
Loss from discontinued
operations, net of taxes - (265 ) (265 ) - (177 ) (177 )
Net income (loss) and
comprehensive income (loss) $ 80 $ (287 ) $ (207 ) $ 167 $ (18 ) $ 149
Adjusted EBITDA (2) $ 554 $ 84 $ 638 $ 346 $ 386 $ 732
Operating data:
Motor fuel gallons sold (3) 7,859 7,947
Motor fuel gross profit cents
per gallon (3)(4) 11.4 ¢ 15.2 ¢
_______________________________
(1) Excludes depreciation, amortization and accretion.
(2) We define Adjusted EBITDA as described above under "
Evaluate and Assess Our Business."
(3) Includes amounts from discontinued operations.
(4) Excludes the impact of inventory adjustments consistent with the definition
of Adjusted EBITDA.
The following table presents a reconciliation of Adjusted EBITDA to net income
(loss) for the years ended
Year Ended December 31,
2018 2017 Change
(in millions)
Adjusted EBITDA
Fuel Distribution and Marketing $ 554 $ 346 $ 208
All Other 84 386 (302 )
Total Adjusted EBITDA 638 732 (94 )
Depreciation, amortization and accretion (182 ) (203 ) 21
Interest expense, net (1) (146 ) (245 ) 99
Non-cash unit-based compensation expense (1) (12 ) (24 ) 12
Loss on disposal of assets and impairment charges (1) (80 ) (400 ) 320
Loss on extinguishment of debt and other, net (1) (129 ) - (129 )
Unrealized gain (loss) on commodity derivatives (1) (6 ) 3 (9 )
Inventory fair value adjustment (1) (84 ) 28 (112 )
Other non-cash adjustment (14 ) - (14 )
Income tax (expense) benefit (1) (192 ) 258 (450 )
Net income (loss) and comprehensive income (loss) $ (207 ) $
149
_______________________________
(1) Includes amounts from discontinued operations.
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Year Ended
primarily due to a 25.2%, or
as a result of the change in mix of gallons sold from higher gross profit
company-operated fuel sites to supplying lower gross profit Fuel
Distribution and Marketing gallons as a result of the divestment of 1,030
company-operated fuel sites to 7-Eleven on
• a decrease in other gross profit of
lower merchandise gross profit as a result of the divestment of 1,030
company-operated fuel sites to 7-Eleven on January 23, 2018 ; offset by
• a decrease in operating costs of $871 million , as a result of thedivestment of 1,030 company-operated fuel sites to 7-Eleven on January
23, 2018. These expenses include other operating expense, general and
administrative expense and rent expense.
Depreciation, Amortization and Accretion. Depreciation, amortization and
accretion was $182 million in 2018, a decrease of $21 million from 2017. The
decrease is primarily due to the divestment of 1,030 company-operated fuel sites
to 7-Eleven on January 23, 2018 .
Interest Expense. Interest expense was $146 million in 2018, a decrease of $99
million from 2017. The decrease is primarily attributable to the repayment in
full of the Term Loan and a reduction in interest rates from the refinancing of
our Senior Notes in January 2018 .
Non-Cash Unit-Based Compensation Expense. Non-cash compensation expense was $12
million in 2018, a decrease of $12 million from 2017. The decrease is primarily
attributable to additional grants outstanding during the 2017 and severance
accrual for certain employees related to the 7-Eleven Transaction recorded in
the prior year.
Loss on Disposal of Assets and Impairment Charges. Loss on disposal of assets
and impairment charges was $80 million in 2018, a decrease of $320 million from
2017. The 2018 amount is primarily attributable to loss on fixed assets driven
by the 7-Eleven sale and the $30 million impairment on our contractual rights
intangible. The 2017 amount is primarily attributable to goodwill impairments of
$387 million related to assets held for sale.
Income Tax Expense/(Benefit). Income tax expense for 2018 was $192 million , a
change of $450 million from 2017. The change is primarily due to the taxable
gain recognized on the sales of assets to 7-Eleven and a reduction in the
federal corporate income rate per the "Tax Cuts and Jobs Act" recorded in 2017.
Liquidity and Capital Resources
Liquidity
Our principal liquidity requirements are to finance current operations, to fund
capital expenditures, including acquisitions from time to time, to service our
debt and to make distributions. We expect our ongoing sources of liquidity to
include cash generated from operations, borrowings under our revolving credit
facility and the issuance of additional long-term debt or partnership units as
appropriate given market conditions. We expect that these sources of funds will
be adequate to provide for our short-term and long-term liquidity needs.
Our ability to meet our debt service obligations and other capital requirements,
including capital expenditures and acquisitions, will depend on our future
operating performance which, in turn, will be subject to general economic,
financial, business, competitive, legislative, regulatory and other conditions,
many of which are beyond our control. As a normal part of our business,
depending on market conditions, we will from time to time consider opportunities
to repay, redeem, repurchase or refinance our indebtedness. Changes in our
operating plans, lower than anticipated sales, increased expenses, acquisitions
or other events may cause us to seek additional debt or equity financing in
future periods. There can be no guarantee that financing will be available on
acceptable terms or at all. Debt financing, if available, could impose
additional cash payment obligations and additional covenants and operating
restrictions. In addition, any of the items discussed in detail under "Item 1A.
Risk Factors" included in this Annual Report on Form 10-K may also significantly
impact our liquidity.
As of December 31, 2019 , we had $21 million of cash and cash equivalents on hand
and borrowing capacity of $1.3 billion under the 2018 Revolver. Based on our
current estimates, we expect to utilize capacity under the 2018 Revolver, along
with cash from operations, to fund our announced growth capital expenditures and
working capital needs for 2019; however, we may issue debt or equity securities
prior to that time as we deem prudent to provide liquidity for new capital
projects or other partnership purposes.
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Cash Flows
Year Ended December 31, Year Ended December 31, Year Ended December 31,
2019 2018 2017
(in millions)
Net cash provided by (used in)
Operating activities - continuing operations $ 435 $ 447 $ 303
Investing activities - continuing operations (164 ) (469 ) (132 )
Financing activities - continuing operations (306 ) (2,684 ) (339 )
Discontinued operations - 2,734 93
Net increase (decrease) in cash and cash
equivalents $ (35 ) $ 28 $ (75 )
Cash Flows Provided by Operations - Continuing Operations. Our daily working
capital requirements fluctuate within each month, primarily in response to the
timing of payments for motor fuels, motor fuels tax and rent. Net cash provided
by operations was $435 million , $447 million , and $303 million for 2019, 2018,
and 2017, respectively.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
The decrease in cash flows provided by operations was primarily due to decreases
in operating assets and liabilities of $41 million , partially offset by, a $29
million increase in cash basis net income compared to the prior year.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
The increase in cash flows provided by operations was primarily due to a $161
million increase in cash basis net income compared to the prior year, partially
offset by, changes in operating assets and liabilities of $17 million .
Cash Flows Used in Investing Activities - Continuing Operations. Net cash used
in investing activities was $164 million , $469 million , and $132 million for
2019, 2018, and 2017, respectively.
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Net cash used in investing activities included $5 million and $401 million of
cash paid for acquisitions in 2019 and 2018, respectively. Capital expenditures
were $148 million and $103 million for 2019 and 2018, respectively.
Contributions to unconsolidated affiliate were $41 million and $0 million in
2019 and 2018, respectively. Proceeds from disposal of property and equipment
were $30 million and $37 million in 2019 and 2018, respectively.
Year Ended December 31, 2018 Compared to Year Ended December 31, 2017
Net cash used in investing activities included $401 million and $0 million of
cash paid for acquisitions in 2018 and 2017, respectively. Capital expenditures
were $103 million and $103 million for 2018 and 2017, respectively. Proceeds
from disposal of property and equipment were $37 million and $10 million in 2018
and 2017, respectively.
Cash Flows Used in Financing Activities - Continuing Operations. Net cash used
in financing activities was $306 million , $2,684 million , and $339 million for
2019, 2018, and 2017, respectively.
Year Ended December 31, 2019
During year ended December 31, 2019 we:
• issued $600 million of 6.000% senior notes due 2027;
• borrowed $2.4 billion and repaid 3.0 billion under our 2018 Revolver
to fund daily operations;
• paid $353 million in distributions to our unitholders, of which $165
million was paid to ETO.
Year Ended December 31, 2018
During year ended December 31, 2018 we:
• issued $2.2 billion of Senior Notes, comprised of $1.0 billion in
aggregate principal amount of 4.875% senior notes due 2023, $800
million in aggregate principal amount of 5.500% senior notes due
2026 and $400 million in aggregate principal amount of 5.875% senior
notes due 2028;
• borrowed $2.8 billion and repaid $2.9 billion under our 2014
Revolver and 2018 Revolver to fund daily operations; redeemed $2.2
billion of our existing senior notes, 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;
38--------------------------------------------------------------------------------
• repaid the$1.2 billion Term Loan in full and terminated it; redeemed the outstanding Series A Preferred Units held by ETE for$300 million and a call premium of$3 million ; repurchased 17,286,859 SUN common units owned by ETP for aggregate cash consideration of approximately$540 million ; and • paid$383 million in distributions to our unitholders, of which$192 million was paid to ETO and ET collectively. Year EndedDecember 31, 2017 During year endedDecember 31, 2017 we: • received$300 million proceeds from issuance of Series A Preferred Units; • borrowed$2.7 billion and repaid$2.9 billion under our 2014 Revolver to fund daily operations; • paid$431 million in distributions to our unitholders, of which$251 million was paid to ETP and ETE collectively. We intend to pay cash distributions to the holders of our common units and Class C units representing limited partner interests in the Partnership ("ClassC Units ") on a quarterly basis, to the extent we have sufficient cash from our operations after establishment of cash reserves and payment of fees and expenses, including payments to ourGeneral Partner and its affiliates. Class C unitholders receive distributions at a fixed rate equal to$0.8682 per quarter for each ClassC Unit outstanding. There is no guarantee that we will pay a distribution on our units. OnJanuary 27, 2020 , we declared a quarterly distribution totaling$69 million , or$0.8255 per common unit based on the results for the three months endedDecember 31, 2019 , excluding distributions to Class C unitholders. The distribution was paid onFebruary 19, 2020 to all unitholders of record onFebruary 7, 2020 . Cash Flows Provided by (Used in) Discontinued Operations. Cash provided by discontinued operations was$2.7 billion and$93.0 million for 2018 and 2017, respectively. Cash provided by (used in) discontinued operations for operating activities was$(484) million for 2018 and$136 million for 2017. Cash provided by (used in) discontinued operations for investing activities was$3.2 billion for 2018 (related to proceeds from 7-Eleven Transaction) and$(38.0) million for 2017. The change in cash included in current assets held for sale was$11 million for 2018 and$(5) million for 2017. Capital Expenditures Included in our capital expenditures for 2019 was$40 million in maintenance capital and$108 million in growth capital. Growth capital relates primarily to new store construction and dealer supply contracts. We currently expect to spend approximately$45 million in maintenance capital and$130 million in growth capital for the full year 2020. Contractual Obligations and Commitments Contractual Obligations. We have contractual obligations that are required to be settled in cash. As ofDecember 31, 2019 , we had$162 million borrowed on the 2018 Revolver and$2.8 billion outstanding under our Senior Notes. See Note 10 in the accompanying Notes to Consolidated Financial Statements for more information on our debt transactions. Our contractual obligations as ofDecember 31, 2019 were as follows: Payments Due by Years More than 5 Total Less than 1 Year 1-3 Years 3-5 Years Years (in millions) Long-term debt obligations, including current portion (1)$ 3,097 $ 11$ 25 $ 1,185 $ 1,876 Interest payments (2) 954 168 336 226 224 Operating lease obligations (3) 1,072 51 94 87 840 Service concession arrangement (4) 379 15 30 32 302 Total$ 5,502 $ 245$ 485 $ 1,530 $ 3,242
_______________________________
(1) Payments include required principal payments on our debt, finance lease
obligations and sale leaseback obligations (see Note 10 to our Consolidated
Financial Statements). Assumes the balance of the 2018 Revolver at
matures in
(2) Includes interest on outstanding debt, finance lease obligations and sale
leaseback financing obligations. Includes interest on the 2018 Revolver
balance as of
the facility through
(3) Includes minimum rental commitments under non-cancelable leases.
(4) Includes minimum guaranteed payments under service concession arrangements
with New Jersey Turnpike Authority and New York Thruway Authority .
39-------------------------------------------------------------------------------- We periodically enter into derivatives, such as futures and options, to manage our fuel price risk on inventory in the distribution system. Fuel hedging positions are not significant to our operations. On a consolidated basis, the Partnership had a position of 0.9 million barrels with an aggregated unrealized gain of$0.6 million outstanding atDecember 31, 2019 . Off-Balance Sheet Arrangements We do not maintain any off-balance sheet arrangements for the purpose of credit enhancement, hedging transactions or other financial or investment purposes. Impact of Inflation The impact of inflation has minimal impact on our results of operations, as we generally are able to pass along energy cost increases in the form of increased sales prices to our customers. Inflation in energy prices impacts our sales and cost of motor fuel products and working capital requirements. Increased fuel prices may also require us to post additional letters of credit or other collateral if our fuel purchases exceed unsecured credit limits extended to us by our suppliers. Although we believe we have historically been able to pass on increased costs through price increases and maintain adequate liquidity to support any increased collateral requirements, there can be no assurance that we will be able to do so in the future. Recent Accounting Pronouncements See "Item 8. Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2. Summary of Significant Accounting Policies" for information on recent accounting pronouncements impacting our business, if applicable. Application of Critical Accounting Policies We prepare our consolidated financial statements in conformity with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting policies are those we believe are both most important to the portrayal of our financial condition and results of operations, and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions. We believe the following policies will be the most critical in understanding the judgments that are involved in preparation of our consolidated financial statements. Business Combinations and Intangible Assets, Including Goodwill and Push Down Accounting. We account for acquisitions using the purchase method of accounting. Accordingly, assets acquired and liabilities assumed are recorded at their estimated fair values at the acquisition date. The excess of purchase price over fair value of net assets acquired, including the amount assigned to identifiable intangible assets, is recorded as goodwill. Given the time it takes to obtain pertinent information to finalize the acquired company's balance sheet, it may be several quarters before we are able to finalize those initial fair value estimates. Accordingly, it is not uncommon for the initial estimates to be subsequently revised. The results of operations of acquired businesses are included in the consolidated financial statements from the acquisition date. Acquisitions of entities under common control are accounted for similar to a pooling of interests, in which the acquired assets and assumed liabilities are recognized at their historic carrying values. The results of operations of the affiliated business acquired are reflected in the Partnership's consolidated results of operations beginning on the date of common control. Our recorded identifiable intangible assets primarily include the estimated value assigned to certain customer related and contract-based assets. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which is the period over which the asset is expected to contribute directly or indirectly to our future cash flows. Supply agreements are amortized on a straight-line basis over the remaining terms of the agreements, which generally range from five to fifteen years. The determination of the fair market value of the intangible asset and the estimated useful life are based on an analysis of all pertinent factors including (1) the use of widely-accepted valuation approaches, the income approach or the cost approach, (2) the expected use of the asset by us, (3) the expected useful life of related assets, (4) any legal, regulatory or contractual provisions, including renewal or extension periods that would cause substantial costs or modifications to existing agreements, and (5) the effects of obsolescence, demand, competition, and other economic factors. Should any of the underlying assumptions indicate that the value of the intangible assets might be impaired, we may be required to reduce the carrying value and subsequent useful life of the asset. If the underlying assumptions governing the amortization of an intangible asset were later determined to have significantly changed, we may be required to adjust the amortization period of such asset to reflect any new estimate of its useful life. Any write-down of the value or unfavorable change in the useful life of an intangible asset would increase expense at that time. 40 -------------------------------------------------------------------------------- Customer relations and supply agreements are amortized over a weighted average period of approximately 5 to 20 years. Non-competition agreements are amortized over the terms of the respective agreements. Loan origination costs are amortized over the life of the underlying debt as an increase to interest expense. AtDecember 31, 2019 , we had goodwill recorded in conjunction with past business acquisitions and "push down" accounting totaling$1.6 billion . Under GAAP, goodwill is not amortized. Instead, goodwill is subject to annual reviews on the first day of the fourth fiscal quarter for impairment at a reporting unit level. The reporting unit or units used to evaluate and measure goodwill for impairment are determined primarily from the manner in which the business is managed or operated. A reporting unit is an operating segment or a component that is one level below an operating segment. We have assessed the reporting unit definitions and determined that we have four reporting units that are appropriate for testing goodwill impairment. Long-lived assets are required to be tested for recoverability whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.Goodwill and intangibles with indefinite lives must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the related asset might be impaired. An impairment loss should be recognized only if the carrying amount of the asset/goodwill is not recoverable and exceeds its fair value. During the fourth quarter of 2019, management performed the annual impairment tests on our indefinite-lived intangible assets and goodwill for its reporting units. Impairment testing involved a quantitative assessment for one reporting unit and qualitative assessments for the remaining reporting units. No impairments were identified for the reporting units as a result of these tests. The Partnership determined the fair value of our reporting units using a weighted combination of the discounted cash flow method and the guideline company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates and assumptions include revenue growth rates, operating margins, weighted average costs of capital and future market conditions, among others. The Partnership believes the estimates and assumptions used in our impairment assessments are reasonable and based on available market information, but variations in any of the assumptions could result in materially different calculations of fair value and determinations of whether or not an impairment is indicated. Under the discounted cash flow method, the Partnership determined fair value based on estimated future cash flows of each reporting unit including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflect the overall level of inherent risk of the reporting unit. Cash flow projections are derived from one year budgeted amounts plus an estimate of later period cash flows, all of which are determined by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Under the guideline company method, the Partnership determined the estimated fair value of each of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit's projected EBITDA and then averaging that estimate with similar historical calculations using a three year average. In addition, the Partnership estimated a reasonable control premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of the business. Income Taxes. As a limited partnership, we are generally not subject to state and federal income tax and would therefore not recognize deferred income tax liabilities and assets for the expected future income tax consequences of temporary differences between financial statement carrying amounts and the related income tax basis. We are, however, subject to a statutory requirement that our non-qualifying income cannot exceed 10% of our total gross income, determined on a calendar year basis under the applicable income tax provisions. If the amount of our non-qualifying income exceeds this statutory limit, we would be taxed as a corporation. Accordingly, certain activities that generate non-qualifying income are conducted through our wholly-owned taxable corporate subsidiary for which we have recognized deferred income tax liabilities and assets. These balances, as well as any income tax expense, are determined through management's estimations, interpretation of tax laws of multiple jurisdictions and tax planning strategies. If our actual results differ from estimated results due to changes in tax laws, our effective tax rate and tax balances could be affected. As such, these estimates may require adjustments in the future as additional facts become known or as circumstances change. The benefit of an uncertain tax position can only be recognized in the financial statements if management concludes that it is more likely than not that the position will be sustained with the tax authorities. For a position that is likely to be sustained, the benefit recognized in the financial statements is measured at the largest amount that is greater than 50 percent likely of being realized. In determining the future tax consequences of events that have been recognized in our financial statements or tax returns, judgment is required. Differences between the anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated results of operations or financial position. Item 7A. Quantitative and Qualitative Disclosures about Market Risk Interest Rate Risk We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We had outstanding borrowings on the 2018 Revolver of$162 million as ofDecember 31, 2019 . The annualized effect of a one percentage point change in floating interest rates on our variable rate debt obligations outstanding atDecember 31, 2019 would be to change interest expense by approximately$1.6 million . Our primary exposure relates to: 41 --------------------------------------------------------------------------------
• interest rate risk on short-term borrowings; and
• the impact of interest rate movements on our ability to obtain adequate
financing to fund future acquisitions.
While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, management evaluates our financial position on an ongoing basis. From time to time, we may enter into interest rate swaps to reduce the impact of changes in interest rates on our floating rate debt. We had no interest rate swaps in effect during the twelve months endedDecember 31, 2019 and 2018. Commodity Price Risk Aloha has terminals on all four major Hawaiian Islands that hold purchased fuel until it is delivered to customers (typically over a two to three week period). Commodity price risks relating to this inventory are not currently hedged. The terminal inventory balance was$24 million atDecember 31, 2019 .Sunoco LLC holds working inventories of refined petroleum products, renewable fuels, and gasoline blendstocks and transmix in storage. As ofDecember 31, 2019 ,Sunoco LLC held approximately$361 million of such inventory. While in storage, volatility in the market price of stored motor fuel could adversely impact the price at which we can later sell the motor fuel. However,Sunoco LLC uses futures, forwards and other derivative instruments (collectively, "positions") to hedge a variety of price risks relating to deviations in that inventory from a target base operating level established by management. Derivative instruments utilized consist primarily of exchange-traded futures contracts traded on the NYMEX, CME, and ICE, as well as over-the-counter transactions (including swap agreements) entered into with established financial institutions and other credit-approved energy companies.Sunoco LLC's policy is generally to purchase only products for which there is a market and to structure sales contracts so that price fluctuations do not materially affect profit.Sunoco LLC also engages in controlled trading in accordance with specific parameters set forth in a written risk management policy. For the 2019 fiscal year,Sunoco LLC maintained an average ten day working inventory. While these derivative instruments represent economic hedges, they are not designated as hedges for accounting purposes. On a consolidated basis, the Partnership had a position of 0.9 million barrels with an aggregated unrealized gain of$0.6 million outstanding atDecember 31, 2019 . Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements at Page F-1.
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