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Operations And Organization | 3 Months Ended
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Mar. 31, 2018
Operations And Organization [Abstract] |
Operations And Organization | ORGANIZATION AND BASIS OF PRESENTATION Organization Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer Equity, L.P. and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer Equity, L.P. on a stand-alone basis. The consolidated financial statements of ETE presented herein include the results of operations of:
• | the Parent Company;
• | our controlled subsidiaries, ETP and Sunoco LP;
• | consolidated subsidiaries of our controlled subsidiaries and our wholly-owned subsidiaries that own general partner interests and IDRs in ETP and Sunoco LP; and
• | our wholly-owned subsidiary, Lake Charles LNG.
Our subsidiaries also own varying undivided interests in certain pipelines. Ownership of these pipelines has been structured as an ownership of an undivided interest in assets, not as an ownership interest in a partnership, limited liability company, joint venture or other forms of entities. Each owner controls marketing and invoices separately, and each owner is responsible for any loss, damage or injury that may occur to their own customers. As a result, we apply proportionate consolidation for our interests in these entities. On March 31, 2018, subsequent to Sunoco LP’s repurchase of the 12 million Sunoco LP Series A Preferred Units held by ETE, our interests in ETP and Sunoco LP consisted of 100% of the respective general partner interests and IDRs, as well as approximately 27.5 million ETP common units, and approximately 2.3 million Sunoco LP common units. Additionally, ETE owns 100 ETP Class I Units, which are currently not entitled to any distributions. Business Operations The Parent Company’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP and Sunoco LP and cash flows from the operations of Lake Charles LNG. The Parent Company’s primary cash requirements are for general and administrative expenses, debt service requirements and distributions to its partners. Parent Company-only assets are not available to satisfy the debts and other obligations of ETE’s subsidiaries. In order to understand the financial condition of the Parent Company on a stand-alone basis, see Note 15 for stand-alone financial information apart from that of the consolidated partnership information included herein. Our financial statements reflect the following reportable business segments:
• | Investment in ETP, including the consolidated operations of ETP;
• | Investment in Sunoco LP, including the consolidated operations of Sunoco LP;
• | Investment in Lake Charles LNG, including the operations of Lake Charles LNG; and
• | Corporate and Other, including the following:
• | activities of the Parent Company; and
• | the goodwill and property, plant and equipment fair value adjustments recorded as a result of the 2004 reverse acquisition of Heritage Propane Partners, L.P.
Basis of Presentation The unaudited financial information included in this Form 10-Q has been prepared on the same basis as the audited consolidated financial statements included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 23, 2018. In the opinion of the Partnership’s management, such financial information reflects all adjustments necessary for a fair presentation of the financial position and the results of operations for such interim periods in accordance with GAAP. All intercompany items and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been omitted pursuant to the rules and regulations of the SEC. For prior periods reported herein, certain transactions related to the business of legacy Sunoco Logistics have been reclassified from cost of products sold to operating expenses; these transactions include sales between operating subsidiaries and their marketing affiliate. Certain other prior period amounts were reclassified to conform to the 2018 presentation. Additionally, there are reclassifications of certain balances to assets and liabilities held for sale and certain revenues and expenses to discontinued operations. These reclassifications had no impact on net income or total equity. Change in Accounting Policy Inventory Accounting Change During the fourth quarter of 2017, we elected to change our method of inventory costing to weighted-average cost for certain inventory that had previously been accounted for using the last-in, first-out (“LIFO”) method. The inventory impacted by this change included the crude oil, refined product and NGL associated with the legacy Sunoco Logistics business. Our management believes that the weighted-average cost method is preferable to the LIFO method as it more closely aligns the accounting policies across the consolidated entity, given that the legacy ETP inventory has been accounted for using the weighted-average cost method. As a result of this change in accounting policy, prior periods have been retrospectively adjusted, as follows:
| Three Months Ended March 31, 2017
| As Originally Reported* |  | Effect of Change |  | As Adjusted
Consolidated Statement of Operations and Comprehensive Income: |  |  |  |  |
Cost of products sold | $ | 7,539 |  |  | $ | (29 | ) |  | $ | 7,510 |
Operating income | 728 |  |  | 29 |  |  | 757 |
Income before income tax expense | 339 |  |  | 29 |  |  | 368 |
Net income | 290 |  |  | 29 |  |  | 319 |
Net income attributable to noncontrolling interest | 51 |  |  | 29 |  |  | 80 |
Comprehensive income | 290 |  |  | 29 |  |  | 319 |
Consolidated Statements of Cash Flows: |  |  |  |  |
Net income | 290 |  |  | 29 |  |  | 319 |
Inventory Valuation Adjustments | 11 |  |  | 2 |  |  | 13 |
Net change in operating assets and liabilities (change in inventories) | (154 | ) |  | (31 | ) |  | (185 | )
* Amounts reflect certain reclassifications made to conform to the current year presentation and include the impact of discontinued operations as discussed in Note 2. Revenue Recognition Standard In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which clarifies the principles for recognizing revenue based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Partnership adopted ASU 2014-09 on January 1, 2018. Upon the adoption of ASU 2014-09, the amount of revenue that the Partnership recognizes on certain contracts has changed, primarily due to increases in revenue (with offsetting increases to cost of sales) resulting from recognition of non-cash consideration as revenue when received and as cost of sales when sold to third parties. In addition, income statement reclassifications were required for fuel usage and loss allowances related to certain of ETP’s operations, as well as contracts deemed to be in-substance supply agreements in ETP’s midstream operations. 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. Utilizing the practical expedients allowed under the modified retrospective adoption method, Accounting Standards Codification (“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, the Partnership 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 adjustments to the opening balance sheet primarily relate to a change in timing of revenue recognition for variable consideration at Sunoco LP, 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 the Partnership’s consolidated balance sheet for the adoption of ASU 2014-09 was as follows:
| Balance at December 31, 2017 |  | Adjustments due to ASC 606 |  | Balance at January 1, 2018
Assets: |  |  |  |  |
Other current assets | $ | 295 |  |  | $ | 8 |  |  | $ | 303 |
Property and Equipment, net | 61,088 |  |  | — |  |  | 61,088 |
Intangible assets, net | 6,116 |  |  | (100 | ) |  | 6,016 |
Other non-current assets, net | 886 |  |  | 39 |  |  | 925 |
Liabilities and Equity: |  |  |  |  |
Other non-current liabilities | 1,217 |  |  | 1 |  |  | 1,218 |
Noncontrolling interest | 31,176 |  |  | (54 | ) |  | 31,122 |
The adoption of the new revenue standard resulted in reclassifications between 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 ASC Topic 606, the disclosure below shows the impact of adopting the new standard on the consolidated statement of operations and the consolidated balance sheet.
| Three Months Ended March 31, 2018
| As Reported |  | Balances Without Adoption of ASC 606 |  | Effect of Change: Higher/(Lower)
Revenues: |  |  |  |  |
Natural gas sales | $ | 1,062 |  |  | $ | 1,062 |  |  | $ | — |
NGL sales | 2,030 |  |  | 2,019 |  |  | 11 |
Crude sales | 3,254 |  |  | 3,254 |  |  | — |
Gathering, transportation and other fees | 1,430 |  |  | 1,617 |  |  | (187 | )
Refined product sales | 3,810 |  |  | 3,820 |  |  | (10 | )
Other | 296 |  |  | 296 |  |  | — |
Costs and expenses: |  |  |  |  |
Cost of products sold | 9,245 |  |  | 9,433 |  |  | (188 | )
Operating expenses | 724 |  |  | 715 |  |  | 9 |
Depreciation and amortization | 665 |  |  | 671 |  |  | (6 | )
Assets: |  |  |  |  |
Other current assets | 304 |  |  | 295 |  |  | 9 |
Property and Equipment, net | 61,975 |  |  | 61,975 |  |  | — |
Intangible assets, net | 5,936 |  |  | 6,041 |  |  | (105 | )
Other non-current assets, net | 936 |  |  | 894 |  |  | 42 |
Liabilities and Equity: |  |  |  |  |
Other non-current liabilities | 1,244 |  |  | 1,243 |  |  | 1 |
Noncontrolling interest | 30,661 |  |  | 30,716 |  |  | (55 | )
Additional disclosures related to revenue are included in Note 11. Use of Estimates The unaudited consolidated financial statements have been prepared in conformity with GAAP, which includes the use of estimates and assumptions made by management that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the consolidated financial statements. Although these estimates are based on management’s available knowledge of current and expected future events, actual results could be different from those estimates. Recent Accounting Pronouncements ASU 2016-02 In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which establishes the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. In January 2018, the FASB issued Accounting Standards Update No. 2018-01 (“ASU 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. ASU 2017-12 In August 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments in this update improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. 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. The Partnership is currently evaluating the impact that adopting this new standard will have on the consolidated financial statements and related disclosures. ASU 2018-02 In February 2018, the FASB issued Accounting Standards Update No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings at partners’ capital for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The Partnership elected to early adopt this ASU in the first quarter of 2018. The effect of the adoption was not material.

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