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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to
Commission File Number: 001-35653
SUNOCO LP
(Exact name of registrant as specified in its charter) 
Delaware30-0740483
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
8111 Westchester Drive, Suite 400, Dallas, Texas 75225
(Address of principal executive offices, including zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Units Representing Limited Partner InterestsSUNNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
ý
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging Growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):    Yes       No  ý
The registrant had 83,089,063 common units representing limited partner interests and 16,410,780 Class C units representing limited partner interests outstanding at October 30, 2020.



SUNOCO LP
FORM 10-Q
TABLE OF CONTENTS
 
Page

i


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
SUNOCO LP
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
September 30,
2020
December 31,
2019
Assets
Current assets:
Cash and cash equivalents$63 $21 
Accounts receivable, net252 399 
Receivables from affiliates6 12 
Inventories, net327 419 
Other current assets39 73 
Total current assets687 924 
Property and equipment2,192 2,134 
Accumulated depreciation(776)(692)
Property and equipment, net1,416 1,442 
Other assets:
Finance lease right-of-use assets, net3 29 
Operating lease right-of-use assets, net527 533 
Goodwill1,555 1,555 
Intangible assets900 906 
Accumulated amortization(298)(260)
Intangible assets, net602 646 
Other noncurrent assets196 188 
Investment in unconsolidated affiliate137 121 
Total assets$5,123 $5,438 
Liabilities and equity
Current liabilities:
Accounts payable$286 $445 
Accounts payable to affiliates124 49 
Accrued expenses and other current liabilities225 219 
Operating lease current liabilities19 20 
Current maturities of long-term debt6 11 
Total current liabilities660 744 
Operating lease noncurrent liabilities528 530 
Revolving line of credit87 162 
Long-term debt, net2,877 2,898 
Advances from affiliates135 140 
Deferred tax liability96 109 
Other noncurrent liabilities105 97 
Total liabilities4,488 4,680 
Commitments and contingencies (Note 10)
Equity:
Limited partners:
Common unitholders
(83,089,063 units issued and outstanding as of September 30, 2020 and
82,985,941 units issued and outstanding as of December 31, 2019)
635 758 
Class C unitholders - held by subsidiaries
(16,410,780 units issued and outstanding as of September 30, 2020 and
December 31, 2019)
  
Total equity635 758 
Total liabilities and equity$5,123 $5,438 
 
The accompanying notes are an integral part of these consolidated financial statements.
1


SUNOCO LP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions, except per unit data)
(unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Revenues:
Motor fuel sales
$2,711 $4,225 $7,869 $12,174 
Non motor fuel sales
60 69 185 217 
Lease income
34 37 103 107 
Total revenues2,805 4,331 8,157 12,498 
Cost of sales and operating expenses:
Cost of sales
2,497 4,039 7,383 11,567 
General and administrative
28 40 87 101 
Other operating
68 79 219 236 
Lease expense
16 15 46 45 
Loss (gain) on disposal of assets and impairment charges
(1)(4)7 46 
Depreciation, amortization and accretion
50 45 142 137 
Total cost of sales and operating expenses2,658 4,214 7,884 12,132 
Operating income147 117 273 366 
Other income (expense):
Interest expense, net(43)(45)(131)(130)
Other income (expense), net   3 
Equity in earnings of unconsolidated affiliate1  3  
Income before income taxes105 72 145 239 
Income tax expense5 6 16 9 
Net income and comprehensive income$100 $66 $129 $230 
Net income per common unit:
Common units - basic
$0.97 $0.57 $0.85 $2.09 
Common units - diluted
$0.96 $0.57 $0.84 $2.07 
Weighted average common units outstanding:
Common units - basic
83,056,365 82,749,644 83,033,556 82,734,526 
Common units - diluted
83,770,034 83,649,898 83,668,835 83,512,121 
Cash distributions per unit$0.8255 $0.8255 $2.4765 $2.4765 

The accompanying notes are an integral part of these consolidated financial statements.
2


SUNOCO LP
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in millions)
(unaudited)
Balance at December 31, 2019$758 
Cash distribution to unitholders
(88)
Unit-based compensation
4 
Partnership net loss
(128)
Balance at March 31, 2020546 
Cash distribution to unitholders
(88)
Unit-based compensation
3 
Partnership net income
157 
Balance at June 30, 2020618 
Cash distribution to unitholders
(88)
Unit-based compensation
4 
Other1 
Partnership net income
100 
Balance at September 30, 2020$635 
Balance at December 31, 2018$784 
Cash distribution to unitholders
(87)
Unit-based compensation
3 
Partnership net income
109 
Balance at March 31, 2019809 
Cash distribution to unitholders
(88)
Unit-based compensation
3 
Partnership net income
55 
Balance at June 30, 2019779 
Cash distribution to unitholders
(87)
Unit-based compensation
4 
Partnership net income
66 
Balance at September 30, 2019$762 
 
The accompanying notes are an integral part of these consolidated financial statements.
3


SUNOCO LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
Nine Months Ended September 30,
20202019
Cash flows from operating activities:
Net income$129 $230 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion142 137 
Amortization of deferred financing fees5 5 
Loss on disposal of assets and impairment charge7 46 
Other non-cash, net (3)
Non-cash unit-based compensation expense11 10 
Deferred income tax(3)(10)
Inventory valuation adjustment126 (71)
Equity in earnings of unconsolidated affiliate(3) 
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable147 (70)
Receivables from affiliates6 33 
Inventories(34)15 
Other assets22 (33)
Accounts payable(150)68 
Accounts payable to affiliates62 (22)
Accrued expenses and other current liabilities6 (68)
Other noncurrent liabilities(11)27 
Net cash provided by operating activities462 294 
Cash flows from investing activities:
Capital expenditures(80)(103)
Contributions to unconsolidated affiliate(8)(37)
Distributions from unconsolidated affiliate in excess of cumulative earnings9  
Other acquisition (5)
Proceeds from disposal of property and equipment6 29 
Net cash used in investing activities(73)(116)
Cash flows from financing activities:
Proceeds from issuance of long-term debt 600 
Payments on long-term debt(8)(6)
Revolver borrowings952 1,797 
Revolver repayments(1,027)(2,343)
Loan origination costs (6)
Advances from (to) affiliates (1)
Distributions to unitholders(264)(262)
Net cash used in financing activities(347)(221)
Net increase (decrease) in cash and cash equivalents42 (43)
Cash and cash equivalents at beginning of period21 56 
Cash and cash equivalents at end of period$63 $13 
Supplemental disclosure of non-cash investing activities:
Change in note payable to affiliate$8 $75 

The accompanying notes are an integral part of these consolidated financial statements.
4


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

All significant intercompany accounts and transactions have been eliminated in consolidation.
Certain items have been reclassified for presentation purposes to conform to the accounting policies of the consolidated entity. These reclassifications had no material impact on income from operations, net income and comprehensive income, the balance sheets or statements of cash flows.
2.Summary of Significant Accounting Policies
Interim Financial Statements
The accompanying interim consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Pursuant to Regulation S-X, certain information and disclosures normally included in the annual financial statements have been condensed or omitted. The interim consolidated financial statements and notes included herein should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020.
Significant Accounting Policies
As of September 30, 2020, the only change in the Partnership's significant accounting policies from those described in the Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 21, 2020, was the adoption of Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, described below under Recently Adopted Accounting Pronouncement.
Motor Fuel and Sales Taxes
For bulk sales, certain motor fuel and sales taxes are collected from customers and remitted to governmental agencies either directly by the Partnership or through suppliers. The Partnership’s accounting policy for direct sales to dealer and commercial customers is to exclude the collected motor fuel tax from sales and cost of sales.
For other locations where the Partnership holds inventory, including commission agent arrangements and Partnership-operated retail locations, motor fuel sales and motor fuel cost of sales include motor fuel taxes. Such amounts were $82 million and $101 million for the three months ended September 30, 2020 and 2019, respectively, and $226 million and $295 million for the nine months ended September 30, 2020 and 2019, respectively. Merchandise sales and cost of merchandise sales are reported net of sales tax in the accompanying consolidated statements of operations and comprehensive income.
5


Recently Adopted Accounting Pronouncement
In June 2016, the Financial Accounting Standards Board issued ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments." ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss ("CECL") model to estimate its lifetime "expected credit loss" and record an allowance that, when deducted from the amortized cost basis of the financial asset, presents the net amount expected to be collected on the financial asset. The CECL model is expected to result in more timely recognition of credit losses. The Partnership adopted ASU 2016-13 on January 1, 2020. The impact of the adoption was not material; however, due to the global economic impacts of COVID-19, the Partnership recorded $16 million of current expected credit losses for the nine months ended September 30, 2020.
3.Accounts Receivable, net
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Partnership maintains allowances for expected credit losses. Following the adoption of ASU 2016-13, the allowances are based on the best estimate of the amount of expected credit losses in existing accounts receivable. The Partnership determines the allowances based on historical write-off experience by industry, economic data and current expectations of future credit losses. The Partnership reviews the allowances for expected credit losses quarterly.
Accounts receivable, net, consisted of the following:
September 30,
2020
December 31,
2019
(in millions)
Accounts receivable, trade$213 $337 
Credit card receivables25 29 
Vendor receivables for rebates and branding23 19 
Other receivables4 16 
Allowance for expected credit losses(13)(2)
Accounts receivable, net$252 $399 
4.Inventories, net 
Due to changes in fuel prices, we recorded an inventory adjustment on the value of fuel inventory of $126 million for the nine months ended September 30, 2020.
Fuel inventories are stated at the lower of cost or market using the last-in-first-out (“LIFO”) method. As of September 30, 2020 and December 31, 2019, the carrying value of the Partnership’s fuel inventory included lower of cost or market reserves of $360 million and $229 million, respectively, and the inventory carrying value equaled or exceeded its replacement cost. For the three and nine months ended September 30, 2020 and 2019, the Partnership’s consolidated income statements did not include any material amounts of income from the liquidation of LIFO fuel inventory.
Inventories, net, consisted of the following:
September 30,
2020
December 31,
2019
(in millions)
Fuel$319 $412 
Other8 7 
Inventories, net$327 $419 
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5.Accrued Expenses and Other Current Liabilities
Current accrued expenses and other current liabilities consisted of the following:
September 30,
2020
December 31,
2019
(in millions)
Wage and other employee-related accrued expenses$28 $32 
Accrued tax expense88 42 
Accrued insurance24 27 
Accrued interest expense38 57 
Dealer deposits22 23 
Accrued environmental expense9 6 
Other16 32 
Total$225 $219 
6.Long-Term Debt 
Long-term debt consisted of the following:
September 30,
2020
December 31,
2019
(in millions)
Sale leaseback financing obligation $99 $103 
2018 Revolver87 162 
4.875% Senior Notes Due 20231,000 1,000 
5.500% Senior Notes Due 2026800 800 
6.000% Senior Notes Due 2027600 600 
5.875% Senior Notes Due 2028400 400 
Finance leases6 32 
Total debt2,992 3,097 
Less: current maturities6 11 
Less: debt issuance costs22 26 
Long-term debt, net$2,964 $3,060 
Revolving Credit Agreement
The Partnership is party to an Amended and Restated Credit Agreement among the Partnership, as borrower, the lenders from time to time party thereto and Bank of America, N.A., as administrative agent, collateral agent, swingline lender and a line of credit issuer (the “2018 Revolver”). As of September 30, 2020, the balance on the 2018 Revolver was $87 million, and $8 million in standby letters of credit were outstanding. The unused availability on the 2018 Revolver at September 30, 2020 was $1.4 billion. The weighted average interest rate on the total amount outstanding at September 30, 2020 was 2.15%. The Partnership was in compliance with all financial covenants at September 30, 2020.
2018 Private Offering of Senior Notes
Effective May 1, 2020, all of the Sunoco LP common units owned by ETC M-A Acquisition LLC ("ETC M-A") and the related guarantees of Sunoco LP’s $1 billion principal amount of 4.875% senior notes due 2023, $800 million principal amount of 5.5% senior notes due 2026 and $400 million principal amount of 5.875% senior notes due 2028 were assigned to ETO.
Fair Value of Debt
The estimated fair value of debt is calculated using Level 2 inputs. The fair value of debt as of September 30, 2020 is estimated to be approximately $3.0 billion, based on outstanding balances as of the end of the period using current interest rates for similar securities. 
7


7.Other Noncurrent Liabilities
Other noncurrent liabilities consisted of the following:
September 30,
2020
December 31,
2019
 (in millions)
Reserve for underground storage tank removal$74 $67 
Accrued environmental expense, long-term15 23 
Other16 7 
Total$105 $97 
8.Related-Party Transactions
We are party to fee-based commercial agreements with various affiliates of ETO for pipeline, terminalling and storage services. We also have agreements with subsidiaries of ETO for the purchase and sale of fuel.
On July 1, 2019, we entered into a 50% owned joint venture on the J.C. Nolan diesel fuel pipeline to West Texas. ETO operates the J.C. Nolan pipeline for the joint venture, which transports diesel fuel from Hebert, Texas to a terminal in the Midland, Texas area. Our investment in this unconsolidated joint venture was $137 million and $121 million as of September 30, 2020 and December 31, 2019, respectively. In addition, we recorded income on the unconsolidated joint venture of $1.0 million and $3.0 million for the three and nine months ended September 30, 2020, respectively. For the three and nine months ended September 30, 2019, we recorded income on the unconsolidated joint venture of $0.1 million.
Summary of Transactions
Related party transactions with affiliates for the three and nine months ended September 30, 2020 and 2019 were as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Motor fuel sales to affiliates$4 $3 $53 $4 
Bulk fuel purchases from affiliates$222 $177 $661 $459 
Significant affiliate balances and activity related to the consolidated balance sheets are as follows:
Net advances from affiliates were $135 million and $140 million as of September 30, 2020 and December 31, 2019, respectively. Advances from affiliates are primarily related to the treasury services agreements between Sunoco LLC and Sunoco (R&M), LLC and Sunoco Retail and Sunoco (R&M), LLC, which are in place for purposes of cash management and transactions related to the diesel fuel pipeline joint venture with ETO.
Net accounts receivable from affiliates were $6 million and $12 million as of September 30, 2020 and December 31, 2019, respectively, which are primarily related to motor fuel sales to affiliates.
Net accounts payable to affiliates were $124 million and $49 million as of September 30, 2020 and December 31, 2019, respectively, which are related to operational expenses and bulk fuel purchases.
9.Revenue
Disaggregation of Revenue
We operate our business in two primary segments, Fuel Distribution and Marketing and All Other. We disaggregate revenue within the segments by channels.
8


The following table depicts the disaggregation of revenue by channel within each segment:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Fuel Distribution and Marketing Segment
Dealer$586 $928 $1,621 $2,695 
Distributor1,316 2,027 3,428 5,808 
Unbranded wholesale426 667 1,569 1,940 
Commission agent272 419 951 1,233 
Non motor fuel sales14 14 45 49 
Lease income30 31 89 94 
Total2,644 4,086 7,703 11,819 
All Other Segment
Motor fuel
111 184 300 498 
Non motor fuel sales46 55 140 168 
Lease income4 6 14 13 
Total161 245 454 679 
Total revenue$2,805 $4,331 $8,157 $12,498 
Contract Balances with Customers
The balances of receivables from contracts with customers listed in the table below include both current trade receivables and long-term receivables, net of allowance for expected credit losses. The allowance for expected credit losses represents our best estimate of the probable losses associated with potential customer defaults. We estimate the expected credit losses based on historical write-off experience by industry and current expectations of future credit losses.
The balances of the Partnership’s contract assets and contract liabilities as of September 30, 2020 and December 31, 2019 are as follows:
September 30, 2020 December 31, 2019
(in millions)
Contract balances
Contract asset$123 $117 
Accounts receivable from contracts with customers$225 $366 
Contract liability$ $ 
The amount of revenue recognized in the three and nine months ended September 30, 2020 that was included in the contract liability balance at the beginning of each period was $0.1 million and $0.3 million, respectively, and $0.1 million and $0.3 million in the three and nine months ended September 30, 2019, respectively. This amount of revenue is a result of changes in the transaction price of the Partnership’s contracts with customers. The difference in the opening and closing balances of the contract asset and contract liability primarily results from the timing difference between the Partnership’s performance and the customer’s payment.
Costs to Obtain or Fulfill a Contract
The Partnership recognizes an asset from the costs incurred to obtain a contract (e.g. sales commissions) only if it expects to recover those costs. On the other hand, the costs to fulfill a contract are capitalized if the costs are specifically identifiable to a contract, would result in enhancing resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. These capitalized costs are recorded as a part of other current assets and other noncurrent assets and are amortized as a reduction of revenue on a systematic basis consistent with the pattern of transfer of the goods or services to which such costs relate. The amount of amortization on these capitalized costs that the Partnership recognized was $4 million and $14 million for the three and nine months ended September 30, 2020, respectively, and $4 million and $12 million for the three and nine months ended September 30, 2019, respectively. The Partnership has also made a policy election of expensing the costs to obtain a contract, as and when they are incurred, in cases where the expected amortization period is one year or less.
9


10.Commitments and Contingencies
Litigation
We have at various points and may in the future become involved in various legal proceedings arising out of our operations in the normal course of business. These proceedings would be subject to the uncertainties inherent in any litigation, and we regularly assess the need for accounting recognition or disclosure of these contingencies. We would expect to defend ourselves vigorously in all such matters. Based on currently available information, we believe it is unlikely that the outcome of known matters would have a material adverse impact on our financial condition, results of operations or cash flows.
Lessee Accounting
The Partnership leases retail stores, other property, and equipment under non-cancellable operating leases whose initial terms are typically 5 to 15 years, with some having a term of 40 years or more, along with options that permit renewals for additional periods. At the inception of each, we determine if the arrangement is a lease or contains an embedded lease and review the facts and circumstances of the arrangement to classify leased assets as operating or finance. The Partnership has elected not to record any leases with terms of 12 months or less on the balance sheet.
At this time, the majority of active leases within our portfolio are classified as operating leases. Operating leases are included in lease right-of-use (“ROU”) assets, operating lease current liabilities, and operating lease noncurrent liabilities in our consolidated balance sheets. Finance leases represent a small portion of the active lease agreements and are included in ROU assets and long-term debt in our consolidated balance sheets. The ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make minimum lease payments arising from the lease for the duration of the lease term.
Most leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 20 years or greater. The exercise of lease renewal options is typically at our discretion. Additionally, many leases contain early termination clauses; however, early termination typically requires the agreement of both parties to the lease. At lease inception, all renewal options reasonably certain to be exercised are considered when determining the lease term. At this time, the Partnership does not have leases that include options to purchase or automatic transfer of ownership of the leased property to the Partnership. The depreciable life of property and equipment under finance leases are limited by the expected lease term.
To determine the present value of future minimum lease payments, we use the implicit rate when readily determinable. At this time, many of our leases do not provide an implicit rate; therefore, to determine the present value of minimum lease payments we use our incremental borrowing rate based on the information available at lease commencement date. The ROU assets also include any lease payments made on or before the commencement date and exclude lease incentives.
Minimum rent payments are expensed on a straight-line basis over the term of the lease. In addition, some leases may require additional contingent or variable lease payments based on factors specific to the individual agreement. Variable lease payments we are typically responsible for include payment of real estate taxes, maintenance expenses and insurance.
The components of lease expense consisted of the following:
Three Months Ended
September 30,
Nine Months Ended
September 30,
Lease costClassification2020201920202019
(in millions)
Operating lease costLease expense$15 $13 $41 $39 
Finance lease cost
Amortization of leased assetsDepreciation, amortization, and accretion 2 3 2 
Interest on lease liabilitiesInterest expense 1  1 
Short term lease costLease expense 1 2 3 
Variable lease costLease expense1 1 3 3 
Sublease incomeLease income(10)(12)(30)(33)
Net lease cost$6 $6 $19 $15 
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September 30,
Lease Term and Discount Rate20202019
Weighted-average remaining lease term (years)
Operating leases2424
Finance leases96
Weighted-average discount rate (%)
Operating leases6 %6 %
Finance leases8 %5 %
Nine Months Ended September 30,
Other information20202019
(in millions)
Cash paid for amount included in the measurement of lease liabilities
Operating cash flows from operating leases$(39)$(39)
Operating cash flows from finance leases$ $(1)
Financing cash flows from finance leases$(3)$(2)
Leased assets obtained in exchange for new finance lease liabilities$ $37 
Leased assets obtained in exchange for new operating lease liabilities$11 $22 
For the nine months ended September 30, 2020, $23 million of finance leases were terminated with no cash impact.
Maturity of lease liabilities (as of September 30, 2020)
Operating leasesFinance leasesTotal
(in millions)
2020 (remainder)$12 $ $12 
202150 1 51 
202248 1 49 
202346 1 47 
202445 1 46 
Thereafter847 5 852 
Total lease payment1,048 9 1,057 
Less: interest501 3 504 
Present value of lease liabilities$547 $6 $553 
Lessor Accounting
The Partnership leases or subleases a portion of its real estate portfolio to third party companies as a stable source of long-term revenue. Our lessor and sublease portfolio consists mainly of operating leases with convenience store operators. At this time, most lessor agreements contain 5-year terms with renewal options to extend and early termination options based on established terms specific to the individual agreement. The below table is a summary of lease income by segment.
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Fuel Distribution and Marketing lease income$30 $31 $89 $94 
All Other lease income4 6 14 13 
Total lease income$34 $37 $103 $107 
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Minimum future lease payments receivable are as follows:
September 30, 2020
(in millions)
2020 (remainder)$29 
202197 
202263 
20238 
20243 
Thereafter7 
Total undiscounted cash flow$207 
11.Interest Expense, net
Components of net interest expense were as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Interest expense$41 $43 $128 $126 
Amortization of deferred financing fees2 3 5 5 
Interest income (1)(2)(1)
Interest expense, net$43 $45 $131 $130 
12.Income Tax Expense
As a partnership, we are generally not subject to federal income tax and most state income taxes. However, the Partnership conducts certain activities through corporate subsidiaries which are subject to federal and state income taxes.
Our effective tax rate differs from the statutory rate primarily due to Partnership earnings that are not subject to U.S. federal and most state income taxes at the Partnership level. A reconciliation of income tax expense from continuing operations at the U.S. federal statutory rate of 21% to net income tax expense is as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
(in millions)
Income tax expense at statutory federal rate$22 $15 $31 $50 
Partnership earnings not subject to tax(18)(10)(20)(46)
State and local tax, net of federal benefit1  4  
Other 1 1 5 
Net income tax expense$5 $6 $16 $9 
13.Partners' Capital
As of September 30, 2020, ETO and its subsidiaries owned 28,463,967 common units, which constitutes 34.3% of our outstanding common units, and the public owned 54,625,096 common units. As of September 30, 2020, our consolidated subsidiaries owned all of the 16,410,780 Class C units representing limited partner interests in the Partnership (the “Class C Units”).
Common Units
The change in our outstanding common units for the nine months ended September 30, 2020 is as follows: 
Number of Units
Number of common units at December 31, 201982,985,941 
Phantom vested units exercised103,122 
Number of common units at September 30, 202083,089,063 
12


Allocation of Net Income
Our Partnership Agreement contains provisions for the allocation of net income and loss to the unitholders. For purposes of maintaining partner capital accounts, the Partnership Agreement specifies that items of income and loss shall be allocated among the partners in accordance with their respective percentage interest. Normal allocations according to percentage interests are made after giving effect to incentive cash distributions, which are allocated 100% to ETO.
 
The calculation of net income allocated to the partners is as follows (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Attributable to Common Units
Distributions $69 $68 $206 $205 
Distributions in excess of (less than) net income12 (21)(135)(33)
Limited partners' interest in net income$81 $47 $71 $172 
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 declared during 2020 were as follows:
Limited Partners
Payment DatePer Unit DistributionTotal Cash DistributionDistribution to IDR Holders
(in millions, except per unit amounts)
November 19, 2020$0.8255 $69 $18 
August 19, 2020$0.8255 $69 $18 
May 19, 2020$0.8255 $69 $18 
February 19, 2020$0.8255 $69 $18 
 
14.Unit-Based Compensation
A summary of our phantom unit award activity is as follows:
Number of Phantom UnitsWeighted-Average Grant Date Fair Value
Outstanding at December 31, 20182,124,012 $29.15 
Granted
655,630 30.70 
Vested
(477,256)30.04 
Forfeited
(189,064)28.16 
Outstanding at December 31, 20192,113,322 29.21 
Granted
17,235 29.77 
Vested
(155,655)30.67 
Forfeited
(122,706)29.13 
Outstanding at September 30, 20201,852,196 $29.10 
15.Segment Reporting
Our financial statements reflect two reportable segments, Fuel Distribution and Marketing and All Other.
We report Adjusted EBITDA by segment as a measure of segment performance. We define Adjusted EBITDA as net income before net interest expense, income tax expense and depreciation, amortization and accretion expense, non-cash unit-based compensation expense, gains and losses on disposal of assets and impairment charges, unrealized gains and losses on commodity derivatives, inventory adjustments, and certain other operating expenses reflected in net income that we do not believe are indicative of ongoing core operations. Inventory adjustments that are excluded from the calculation of Adjusted EBITDA represent changes in lower of cost or market reserves on the Partnership's inventory. These amounts are unrealized valuation adjustments applied to fuel volumes remaining in inventory at the end of the period.
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The following table presents financial information by segment for the three and nine months ended September 30, 2020 and 2019: 
Three Months Ended September 30,
20202019
Fuel Distribution and MarketingAll OtherIntercompany EliminationsTotalsFuel Distribution and MarketingAll OtherIntercompany EliminationsTotals
(in millions)
Revenue
Motor fuel sales$2,600 $111 $2,711 $4,041 $184 $4,225 
Non motor fuel sales14 46 60 14 55 69 
Lease income30 4 34 31 6 37 
Intersegment sales259  (259)— 430  (430)— 
Total revenue2,903 161 (259)2,805 4,516 245 (