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Operations And Organization | 6 Months Ended
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Jun. 30, 2020
Operations And Organization [Abstract] |
Operations And Organization | ORGANIZATION AND BASIS OF PRESENTATION Organization The consolidated financial statements presented herein contain the results of Energy Transfer LP and its subsidiaries (the “Partnership,” “we,” “us,” “our” or “ET”). References to the “Parent Company” mean Energy Transfer LP on a stand-alone basis. In December 2019, we completed the acquisition of SemGroup. In connection with the transaction, a wholly-owned subsidiary of ET merged with and into SemGroup, with SemGroup surviving the merger. During the first and second quarters of 2020, ET contributed SemGroup and its former subsidiaries to ETO through sale and contribution transactions (together, the “SemGroup Transaction”). Substantially all of the Partnership’s cash flows are derived from distributions related to its investment in ETO, whose cash flows are derived from its subsidiaries, including ETO’s investments in Sunoco LP and USAC. 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 ET’s subsidiaries. Our financial statements reflect the following reportable segments: •intrastate transportation and storage; •interstate transportation and storage; •midstream; •NGL and refined products transportation and services; •crude oil transportation and services; •investment in Sunoco LP; •investment in USAC; and •corporate and other, including the following:
• | activities of the Parent Company; and
• | certain operations and investments that are not separately reflected as reportable segments.
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, 2019, filed with the SEC on February 21, 2020. 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. The consolidated financial statements of ET presented herein include the results of operations of:
• | the Parent Company;
• | our controlled subsidiary, ETO;
• | ETP GP, the general partner of ETO, and Energy Transfer Partners, L.L.C., the general partner of ETP GP; and
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. Certain prior period amounts have also been reclassified to conform to the current period presentation. These reclassifications had no impact on net income or total equity. Change in Accounting Policy Effective January 1, 2020, the Partnership elected to change its accounting policy related to certain barrels of crude oil that were previously accounted for as inventory. Under the revised accounting policy, certain amounts of crude oil that are not available for sale have been reclassified from inventory to non-current assets. These crude oil barrels, which are owned by the Partnership’s crude oil acquisition and marketing business, include pipeline linefill and tank bottoms and are not considered to be available for sale because the volumes must be maintained in order to continue normal operation of the related pipelines or tanks and because there is no expectation of liquidation or sale of these volumes in the near term. Under the previous accounting policy, all crude oil barrels were recorded as inventory under the weighted-average cost method. Under the revised accounting policy, barrels related to pipeline linefill and tank bottoms are accounted for as long-lived assets and reflected as non-current assets on the consolidated balance sheet. These crude oil barrels will be tested for impairment consistent with the Partnership’s existing accounting policy for impairments of long-lived assets. The Partnership’s management believes that the change in accounting policy is preferable as it more closely aligns the accounting policies across the consolidated entity, given that similar assets in the Partnership’s natural gas, NGLs and refined products businesses are accounted for as non-current assets. In addition, management believes that reflecting these crude oil barrels as non-current assets better represents the economic results of the Partnership’s crude oil acquisition and marketing business by reducing volatility resulting from market price adjustments to crude oil barrels that are not expected to be sold or liquidated in the near term. The impact of this accounting policy change on the Partnership’s net income for the six months ended June 30, 2020 was $265 million, or $0.10 per limited partner unit. As a result of this change in accounting policy, the Partnership’s consolidated balance sheets for prior periods have been retrospectively adjusted as follows:
| December 31, 2019 |  | December 31, 2018
| As Originally Reported |  | Effect of Change |  | As Adjusted |  | As Originally Reported |  | Effect of Change |  | As Adjusted
Inventories | $ | 1,935 |  |  | $ | (403 | ) |  | $ | 1,532 |  |  | $ | 1,677 |  |  | $ | (305 | ) |  | $ | 1,372 |
Total current assets | 7,867 |  |  | (403 | ) |  | 7,464 |  |  | 6,750 |  |  | (305 | ) |  | 6,445 |
Other non-current assets, net | 1,075 |  |  | 496 |  |  | 1,571 |  |  | 1,006 |  |  | 472 |  |  | 1,478 |
Total assets | 98,880 |  |  | 93 |  |  | 98,973 |  |  | 88,246 |  |  | 167 |  |  | 88,413 |
Total partners’ capital | 21,827 |  |  | 93 |  |  | 21,920 |  |  | 20,559 |  |  | 167 |  |  | 20,726 |
In addition, the Partnership’s consolidated statements of operations, comprehensive income and cash flows for prior periods have been retrospectively adjusted as follows:
| Year Ended December 31, |  | Three Months Ended June 30, |  | Six Months Ended June 30,
| 2019 |  | 2018 |  | 2019 |  | 2019
As originally reported: |  |  |  |  |  |  |
Consolidated Statements of Operations and Comprehensive Income |  |  |  |  |  |  |
Cost of products sold | $ | 39,727 |  |  | $ | 41,658 |  |  | $ | 10,302 |  |  | $ | 19,717 |
Operating income | 7,277 |  |  | 5,348 |  |  | 1,819 |  |  | 3,746 |
Income from continuing operations before income tax expense (benefit) | 5,094 |  |  | 3,634 |  |  | 1,242 |  |  | 2,548 |
Net income | 4,899 |  |  | 3,365 |  |  | 1,208 |  |  | 2,388 |
Net income per limited partner unit | 1.37 |  |  | 1.16 |  |  | 0.33 |  |  | 0.66 |
Comprehensive income | 4,930 |  |  | 3,322 |  |  | 1,209 |  |  | 2,397 |
Comprehensive income attributable to partners | 3,623 |  |  | 1,651 |  |  | 879 |  |  | 1,757 |
Consolidated Statements of Cash Flows |  |  |  |  |  |  |
Net income | 4,899 |  |  | 3,365 |  |  | 1,208 |  |  | 2,388 |
Net change in operating assets and liabilities | (518 | ) |  | 289 |  |  | 67 |  |  | (274 | )
Effect of change: |  |  |  |  |  |  |
Consolidated Statements of Operations and Comprehensive Income |  |  |  |  |  |  |
Cost of products sold | 74 |  |  | (55 | ) |  | (1 | ) |  | 61 |
Operating income | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Income from continuing operations before income tax expense (benefit) | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Net income | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Net income per limited partner unit | (0.03 | ) |  | 0.04 |  |  | — |  |  | (0.02 | )
Comprehensive income | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Comprehensive income attributable to partners | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Consolidated Statements of Cash Flows |  |  |  |  |  |  |
Net income | (74 | ) |  | 55 |  |  | 1 |  |  | (61 | )
Net change in operating assets and liabilities | 74 |  |  | (55 | ) |  | (1 | ) |  | 61 |
As adjusted: |  |  |  |  |  |  |
Consolidated Statements of Operations and Comprehensive Income |  |  |  |  |  |  |
Cost of products sold | 39,801 |  |  | 41,603 |  |  | 10,301 |  |  | 19,778 |
Operating income | 7,203 |  |  | 5,403 |  |  | 1,820 |  |  | 3,685 |
Income from continuing operations before income tax expense (benefit) | 5,020 |  |  | 3,689 |  |  | 1,243 |  |  | 2,487 |
Net income | 4,825 |  |  | 3,420 |  |  | 1,209 |  |  | 2,327 |
Net income per limited partner unit | 1.34 |  |  | 1.20 |  |  | 0.33 |  |  | 0.64 |
Comprehensive income | 4,856 |  |  | 3,377 |  |  | 1,210 |  |  | 2,336 |
Comprehensive income attributable to partners | 3,549 |  |  | 1,706 |  |  | 880 |  |  | 1,696 |
Consolidated Statements of Cash Flows |  |  |  |  |  |  |
Net income | 4,825 |  |  | 3,420 |  |  | 1,209 |  |  | 2,327 |
Net change in operating assets and liabilities | (444 | ) |  | 234 |  |  | 66 |  |  | (213 | )
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 Effective January 1, 2020, the Partnership adopted Accounting Standards Update (“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 impact of adoption was immaterial to the Partnership. However, due in large part to the global economic impacts of COVID-19, the Partnership and its subsidiaries recorded an aggregate $16 million of current expected credit losses for the six months ended June 30, 2020. Goodwill During the first quarter of 2020, due to the impacts of the COVID-19 pandemic, the decline in commodity prices and the decreases in the Partnership’s market capitalization, we determined that interim impairment testing should be performed on certain reporting units. We performed the interim impairment tests consistent with our approach for annual impairment testing, including using similar models, inputs and assumptions. As a result of the interim impairment test, the Partnership recognized a goodwill impairment of $483 million related to our Arklatex and South Texas operations within the midstream segment, a goodwill impairment of $183 million related to our Lake Charles LNG regasification operations within the interstate transportation and storage segment due to contractually scheduled reductions in payments for the remainder of the contract term, and a goodwill impairment of $40 million related to our all other operations primarily due to decreases in projected future revenues and cash flows as a result of the overall market demand decline. In addition, USAC recognized a goodwill impairment of $619 million during the three months ended March 31, 2020, which is included in the Partnership’s consolidated results of operations. No other impairments of the Partnership’s goodwill were identified. In connection with aforementioned impairments, the Partnership determined the fair value of our reporting units using the income approach. The income approach is based on the present value of future cash flows, which are derived from our long-term financial forecasts, and requires significant assumptions including, among others, 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. Cash flow projections are derived from one-year budgeted amounts and three-year operating forecasts plus an estimate of later period cash flows, all of which are evaluated by management. Subsequent period cash flows are developed for each reporting unit using growth rates that management believes are reasonably likely to occur. Of the $3.87 billion of goodwill on the Partnership’s consolidated balance sheet as of June 30, 2020, approximately $1.2 billion is recorded in reporting units for which the estimated fair value exceeded the carrying value by less than 20% in the most recent quantitative test. Management believes that all of the $1.2 billion is at significant risk of impairment, if commodity prices and/or overall market demand remains low. Changes in the carrying amount of goodwill were as follows:
| Intrastate Transportation and Storage |  | Interstate Transportation and Storage |  | Midstream |  | NGL and Refined Products Transportation and Services |  | Crude Oil Transportation and Services |  | Investment in Sunoco LP |  | Investment in USAC |  | All Other |  | Total
Balance, December 31, 2019 | $ | 10 |  |  | $ | 226 |  |  | $ | 483 |  |  | $ | 693 |  |  | $ | 1,397 |  |  | $ | 1,555 |  |  | $ | 619 |  |  | $ | 184 |  |  | $ | 5,167 |
Impaired | — |  |  | (183 | ) |  | (483 | ) |  | — |  |  | — |  |  | — |  |  | (619 | ) |  | (40 | ) |  | (1,325 | )
Other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (7 | ) |  | (7 | )
Balance, March 31, 2020 | 10 |  |  | 43 |  |  | — |  |  | 693 |  |  | 1,397 |  |  | 1,555 |  |  | — |  |  | 137 |  |  | 3,835 |
Other | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 33 |  |  | 33 |
Balance, June 30, 2020 | $ | 10 |  |  | $ | 43 |  |  | $ | — |  |  | $ | 693 |  |  | $ | 1,397 |  |  | $ | 1,555 |  |  | $ | — |  |  | $ | 170 |  |  | $ | 3,868 |

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