10-Q 1 et-09x30x201810xq.htm 10-Q Document

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-32740
ENERGY TRANSFER LP
(Exact name of registrant as specified in its charter)
 
Delaware
 
30-0108820
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
8111 Westchester Drive, Suite 600, Dallas, Texas 75225
(Address of principal executive offices) (zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)

Energy Transfer Equity, L.P.
(Former name, former address and former fiscal year, if changed since last report)
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 (§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



At November 2, 2018, the registrant had 2,617,100,880 Common Units outstanding.
 



FORM 10-Q
ENERGY TRANSFER LP AND SUBSIDIARIES
TABLE OF CONTENTS
 


i


Forward-Looking Statements
Certain matters discussed in this report, as well as certain statements by Energy Transfer LP, formerly Energy Transfer Equity, L.P. (“Energy Transfer,” the “Partnership” or “ETE”), in periodic press releases and certain oral statements of Energy Transfer management during presentations about the Partnership, include forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “project,” “expect,” “plan,” “goal,” “forecast,” “estimate,” “intend,” “continue,” “believe,” “may,” “will” or similar expressions help identify forward-looking statements. Although the Partnership and its general partner believe such forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, no assurance can be given that such assumptions, expectations or projections will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, the Partnership’s actual results may vary materially from those anticipated, estimated or expressed, forecasted, projected or expected in forward-looking statements since many of the factors that determine these results are subject to uncertainties and risks that are difficult to predict and beyond management’s control. For additional discussion of risks, uncertainties and assumptions, see “Part I — Item 1A. Risk Factors” in the Partnership’s Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 23, 2018, “Part II — Item 1A. Risk Factors,” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018 filed on May 10, 2018 and “Part II — Item 1A. Risk Factors,” in the Partnership’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 filed on August 9, 2018.
Definitions
The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:
 
/d
 
per day
 
 
 
 
AOCI
 
accumulated other comprehensive income (loss)
 
 
 
 
 
BBtu
 
billion British thermal units
 
 
 
 
 
Btu
 
British thermal unit, an energy measurement used by gas companies to convert the volume of gas used to its heat equivalent, and thus calculate the actual energy content
 
 
 
 
 
CDM
 
CDM Resource Management LLC and CDM Environmental & Technical Services LLC, collectively
 
 
 
 
 
DOJ
 
U.S. Department of Justice
 
 
 
 
 
EPA
 
U.S. Environmental Protection Agency
 
 
 
 
 
ETP
 
Energy Transfer Operating, L.P. (formerly Energy Transfer Partners, L.P.)
 
 
 
 
 
ETP GP
 
Energy Transfer Partners GP, L.P., the general partner of ETP
 
 
 
 
 
ETP Holdco
 
ETP Holdco Corporation
 
 
 
 
 
ETP Series A Preferred Units
 
ETP’s 6.250% Series A Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETP Series B Preferred Units
 
ETP’s 6.625% Series B Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETP Series C Preferred Units
 
ETP’s 7.375% Series C Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
ETP Series D Preferred Units
 
ETP’s 7.625% Series D Fixed-to-Floating Rate Cumulative Redeemable Perpetual Preferred Units
 
 
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
 
 
 
 
 
FEP
 
Fayetteville Express Pipeline LLC
 
 
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
 
 
FGT
 
Florida Gas Transmission Company, LLC
 
 
 
 
 
GAAP
 
accounting principles generally accepted in the United States of America
 
 
 
 
 
HPC
 
RIGS Haynesville Partnership Co.
 
 
 
 

ii


 
IDRs
 
incentive distribution rights
 
 
 
 
 
Lake Charles LNG
 
Lake Charles LNG Company, LLC
 
 
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
 
 
MBbls
 
thousand barrels
 
 
 
 
 
MEP
 
Midcontinent Express Pipeline LLC
 
 
 
 
 
MTBE
 
methyl tertiary butyl ether
 
 
 
 
 
NGL
 
natural gas liquid, such as propane, butane and natural gasoline
 
 
 
 
NYMEX
 
New York Mercantile Exchange
 
 
 
 
 
OSHA
 
Federal Occupational Safety and Health Act
 
 
 
 
OTC
 
over-the-counter
 
 
 
 
 
Panhandle
 
Panhandle Eastern Pipe Line Company, LP
 
 
 
 
PES
 
Philadelphia Energy Solutions
 
 
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
 
 
RIGS
 
Regency Interstate Gas LP
 
 
 
 
 
Rover
 
Rover Pipeline LLC
 
 
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
 
 
Series A Convertible Preferred Units
 
ETE Series A convertible preferred units
 
 
 
 
 
Sunoco Logistics
 
Sunoco Logistics Partners L.P.
 
 
 
 
 
Sunoco LP
 
Sunoco LP (previously named Susser Petroleum Partners, LP)
 
 
 
 
 
Sunoco LP Series A Preferred Units
 
Sunoco LP Series A Preferred Units previously held by ETE
 
 
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC
 
 
 
 
 
Trunkline
 
Trunkline Gas Company, LLC
 
 
 
 
 
USAC
 
USA Compression Partners, LP
 
 
 
 
 
USAC Preferred Units
 
USAC Series A Preferred Units
Adjusted EBITDA is a term used throughout this document. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization and other non-cash items, such as non-cash compensation expense, gains and losses on disposals of assets, the allowance for equity funds used during construction, unrealized gains and losses on commodity risk management activities, non-cash impairment charges, losses on extinguishments of debt, gain on deconsolidation and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities include unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Adjusted EBITDA reflects amounts for non-wholly-owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on the Partnership’s proportionate ownership.

iii


PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
 
September 30, 2018
 
December 31, 2017
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
398

 
$
336

Accounts receivable, net
4,408

 
4,504

Accounts receivable from related companies
80

 
53

Inventories
2,066

 
2,022

Derivative assets
97

 
24

Income taxes receivable
169

 
136

Other current assets
303

 
295

Current assets held for sale
6

 
3,313

Total current assets
7,527

 
10,683

 
 
 
 
Property, plant and equipment
77,819

 
71,177

Accumulated depreciation and depletion
(12,176
)
 
(10,089
)
 
65,643

 
61,088

 
 
 
 
Advances to and investments in unconsolidated affiliates
2,656

 
2,705

Other non-current assets, net
1,106

 
886

Intangible assets, net
6,013

 
6,116

Goodwill
5,242

 
4,768

Total assets
$
88,187

 
$
86,246


The accompanying notes are an integral part of these consolidated financial statements.
1


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in million)
(unaudited)

 
September 30, 2018
 
December 31, 2017
LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
3,986

 
$
4,685

Accounts payable to related companies
58

 
31

Derivative liabilities
344

 
111

Income taxes payable
88

 

Accrued and other current liabilities
3,088

 
2,582

Current maturities of long-term debt
2,655

 
413

Current liabilities held for sale

 
75

Total current liabilities
10,219

 
7,897

 
 
 
 
Long-term debt, less current maturities
42,117

 
43,671

Non-current derivative liabilities
58

 
145

Deferred income taxes
3,008

 
3,315

Other non-current liabilities
1,253

 
1,217

 
 
 
 
Commitments and contingencies

 

Redeemable noncontrolling interests
499

 
21

 
 
 
 
Equity:
 
 
 
Limited Partners:
 
 
 
Series A Convertible Preferred Units

 
450

Common Unitholders
(1,099
)
 
(1,643
)
General Partner
(4
)
 
(3
)
Total partners’ deficit
(1,103
)
 
(1,196
)
Noncontrolling interest
32,136

 
31,176

Total equity
31,033

 
29,980

Total liabilities and equity
$
88,187

 
$
86,246


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


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per unit data)
(unaudited)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017*
 
2018
 
2017*
REVENUES:
 
 
 
 
 
 
 
Natural gas sales
$
1,026

 
$
1,098

 
$
3,112

 
$
3,132

NGL sales
2,695

 
1,749

 
6,866

 
4,782

Crude sales
3,841

 
2,381

 
11,336

 
7,268

Gathering, transportation and other fees
1,781

 
1,068

 
4,878

 
3,244

Refined product sales
4,955

 
3,080

 
13,583

 
8,998

Other
216

 
608

 
739

 
1,648

Total revenues
14,514

 
9,984

 
40,514

 
29,072

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of products sold
11,093

 
7,341

 
31,681

 
22,018

Operating expenses
784

 
918

 
2,280

 
2,167

Depreciation, depletion and amortization
750


642

 
2,109

 
1,877

Selling, general and administrative
184

 
142

 
515

 
480

Impairment losses

 
10

 

 
99

Total costs and expenses
12,811

 
9,053

 
36,585

 
26,641

OPERATING INCOME
1,703

 
931

 
3,929

 
2,431

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(535
)
 
(490
)
 
(1,511
)
 
(1,440
)
Equity in earnings of unconsolidated affiliates
87

 
92

 
258

 
228

Gains on disposal of assets
18

 
5

 
14

 

Losses on extinguishments of debt

 

 
(106
)
 
(25
)
Gains (losses) on interest rate derivatives
45

 
(8
)
 
117

 
(28
)
Other, net
23

 
54

 
83

 
133

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE (BENEFIT)
1,341

 
584

 
2,784

 
1,299

Income tax expense (benefit) from continuing operations
(52
)
 
(157
)
 
6

 
(86
)
INCOME FROM CONTINUING OPERATIONS
1,393

 
741

 
2,778

 
1,385

Income (loss) from discontinued operations, net of income taxes
(2
)

17

 
(265
)
 
(187
)
NET INCOME
1,391

 
758

 
2,513

 
1,198

Less: Net income attributable to noncontrolling interest
1,008

 
506

 
1,412

 
495

Less: Net income attributable to redeemable noncontrolling interests
12

 

 
24

 

NET INCOME ATTRIBUTABLE TO PARTNERS
371

 
252

 
1,077

 
703

Convertible Unitholders' interest in income

 
11

 
33

 
25

General Partner’s interest in net income
1

 
1

 
3

 
2

Limited Partners’ interest in net income
$
370

 
$
240

 
$
1,041

 
$
676

INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.22

 
$
0.94

 
$
0.63

Diluted
$
0.32

 
$
0.22

 
$
0.94

 
$
0.62

NET INCOME PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.22

 
$
0.93

 
$
0.62

Diluted
$
0.32

 
$
0.22

 
$
0.93

 
$
0.61

* As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
3


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in millions)
(unaudited)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017*
 
2018
 
2017*
Net income
$
1,391

 
$
758

 
$
2,513

 
$
1,198

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Change in value of available-for-sale securities
2

 
2

 

 
5

Actuarial gain (loss) relating to pension and other postretirement benefit plans

 
5

 
(2
)
 
2

Change in other comprehensive income from unconsolidated affiliates
2

 

 
9

 
(1
)
 
4

 
7

 
7

 
6

Comprehensive income
1,395

 
765

 
2,520

 
1,204

Less: Comprehensive income attributable to noncontrolling interest
1,024

 
513

 
1,443

 
501

Comprehensive income attributable to partners
$
371

 
$
252

 
$
1,077

 
$
703

* As adjusted. See Note 1.

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


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2018
(Dollars in millions)
(unaudited)
 
 
Series A Convertible Preferred Units
 
Common Unitholders    
 
General Partner    
 
Noncontrolling Interest
 
Total    
Balance, December 31, 2017
$
450

 
$
(1,643
)
 
$
(3
)
 
$
31,176

 
$
29,980

Distributions to partners

 
(883
)
 
(3
)
 

 
(886
)
Distributions to noncontrolling interest

 

 

 
(2,742
)
 
(2,742
)
Distributions reinvested
115

 
(115
)
 

 

 

Subsidiary units repurchased
(7
)
 
(119
)
 

 
102

 
(24
)
Subsidiary units issued

 
1

 

 
937

 
938

Capital contributions received from noncontrolling interests

 

 

 
438

 
438

Other comprehensive income, net of tax

 

 

 
7

 
7

Cumulative effect adjustment due to change in accounting principle (see Note 1)

 

 

 
(54
)
 
(54
)
Acquisition of USAC

 

 

 
832

 
832

Series A Convertible Preferred Units conversion
(589
)
 
589

 

 

 

Other, net
(2
)
 
30

 
(1
)
 
28

 
55

Net income, excluding amounts attributable to redeemable noncontrolling interests
33

 
1,041

 
3

 
1,412

 
2,489

Balance, September 30, 2018
$

 
$
(1,099
)
 
$
(4
)
 
$
32,136

 
$
31,033


The accompanying notes are an integral part of these consolidated financial statements.
5


ENERGY TRANSFER LP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Nine Months Ended
September 30,
 
2018
 
2017*
OPERATING ACTIVITIES
 
 
 
Net income
$
2,513

 
$
1,198

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Loss from discontinued operations
265

 
187

Depreciation, depletion and amortization
2,109

 
1,877

Deferred income taxes
1

 
(64
)
Non-cash compensation expense
82

 
76

Impairment losses

 
99

Loss on extinguishment of debt
106

 
25

Equity in earnings of unconsolidated affiliates
(258
)
 
(228
)
Distributions from unconsolidated affiliates
220

 
211

Inventory valuation adjustments
(50
)
 
(8
)
Distributions on unvested awards
(36
)
 
(24
)
Other non-cash
(80
)
 
(131
)
Net change in operating assets and liabilities, net of effects of acquisitions and deconsolidation
423

 
192

Net cash provided by operating activities
5,295

 
3,410

INVESTING ACTIVITIES
 
 
 
Cash received in USAC acquisition (net of cash paid)
461

 

Cash proceeds from sale of Bakken Pipeline interest

 
2,000

Cash paid for other acquisitions (net of cash received)
(233
)
 
(573
)
Capital expenditures (excluding allowance for equity funds used during construction)
(5,175
)
 
(6,126
)
Contributions in aid of construction costs
95

 
25

Contributions to unconsolidated affiliates
(13
)
 
(230
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
62

 
115

Proceeds from the sale of other assets
40

 
37

Other

 
(33
)
Net cash used in by investing activities
(4,763
)
 
(4,785
)
FINANCING ACTIVITIES
 
 
 
Proceeds from borrowings
22,126

 
23,988

Repayments of long-term debt
(23,323
)
 
(22,536
)
Cash paid on affiliate notes

 
(255
)
Subsidiary units repurchased
(24
)
 

Units issued for cash

 
568

Subsidiary units and warrants issued for cash
1,403

 
1,635

Distributions to partners
(886
)
 
(752
)
Distributions on USAC Preferred Units
(12
)
 

Debt issuance costs
(188
)
 
(85
)
Distributions to noncontrolling interests
(2,742
)
 
(2,156
)
Capital contributions from noncontrolling interest
438

 
919


The accompanying notes are an integral part of these consolidated financial statements.
6


Redemption of ETP Convertible Preferred Units

 
(53
)
Other, net

 
30

Net cash (used in) provided by financing activities
(3,208
)
 
1,303

DISCONTINUED OPERATIONS
 
 
 
Operating activities
(480
)
 
139

Investing activities
3,207

 
(57
)
Changes in cash included in current assets held for sale
11

 
(2
)
Net increase in cash and cash equivalents of discontinued operations
2,738

 
80

Increase in cash and cash equivalents
62

 
8

Cash and cash equivalents, beginning of period
336

 
467

Cash and cash equivalents, end of period
$
398

 
$
475

* As adjusted. See Note 1.

The accompanying notes are an integral part of these consolidated financial statements.
7


ENERGY TRANSFER LP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
1.
ORGANIZATION AND BASIS OF PRESENTATION
Organization
Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer LP (formerly Energy Transfer Equity, L.P., as discussed below) and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer LP 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, Sunoco LP and, beginning April 2018, USAC;
consolidated subsidiaries of our controlled subsidiaries and our wholly-owned subsidiaries that owned general partner interests and IDRs in ETP and Sunoco LP, and the general partner interests in USAC; 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 September 30, 2018, our interests in ETP, Sunoco LP and USAC consisted of 100% of the respective general partner interests and IDRs in ETP and Sunoco LP, as well as approximately 27.5 million ETP common units, approximately 2.3 million Sunoco LP common units, and approximately 20.5 million USAC common units. Additionally, ETE owned 100 ETP Class I Units, which were not entitled to any distributions.
ETE-ETP Merger and Name Change
In October 2018, Energy Transfer Equity, L.P. (“ETE”) and Energy Transfer Partners, L.P. (“ETP”) completed the merger of ETP with a wholly-owned subsidiary of ETE in a unit-for-unit exchange (the “ETE-ETP Merger”). In connection with the transaction, ETP unitholders (other than ETE and its subsidiaries) received 1.28 common units of ETE for each common unit of ETP they owned.
Immediately prior to the closing of the ETE-ETP Merger, the following also occurred:
the IDRs in ETP were converted into 1,168,205,710 ETP common units; and
the general partner interest in ETP was converted to a non-economic general partner interest and ETP issued 18,448,341 ETP common units to ETP GP.
Following the closing of the ETE-ETP Merger, ETE changed its name to “Energy Transfer LP” and its common units began trading on the New York Stock Exchange under the “ET” ticker symbol on Friday, October 19, 2018. In addition, ETP changed its name to “Energy Transfer Operating, L.P.” For purposes of maintaining clarity, the following references are used herein:
References to “ETP” refer to the entity named Energy Transfer Partners, L.P. prior to the close of the ETE-ETP Merger and Energy Transfer Operating, L.P. subsequent to the close of the ETE-ETP Merger; and
References to “ETE” refer to the entity named Energy Transfer Equity, L.P. prior to the close of the ETE-ETP Merger and Energy Transfer LP subsequent to the close of the ETE-ETP Merger.

8


Business Operations
The Parent Company’s principal sources of cash flow have been derived from its direct and indirect investments in ETP, Sunoco LP, USAC and 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 16 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 USAC, including the consolidated operations of USAC;
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 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.

9


As a result of this change in accounting policy, the consolidated statement of operations and comprehensive income in prior periods have been retrospectively adjusted, as follows:
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2017
 
September 30, 2017
 
As Originally Reported*
 
Effect of Change
 
As Adjusted
 
As Originally Reported*
 
Effect of Change
 
As Adjusted
Cost of products sold
$
7,295

 
$
46

 
$
7,341

 
$
22,005

 
$
13

 
$
22,018

Operating income
977

 
(46
)
 
931

 
2,444

 
(13
)
 
2,431

Income before income tax expense
630

 
(46
)
 
584

 
1,312

 
(13
)
 
1,299

Net income
804

 
(46
)
 
758

 
1,211

 
(13
)
 
1,198

Net loss attributable to noncontrolling interest
552

 
(46
)
 
506

 
508

 
(13
)
 
495

Comprehensive income
811

 
(46
)
 
765

 
1,217

 
(13
)
 
1,204

* Amounts reflect certain reclassifications made to conform to the current year presentation and include the impact of discontinued operations as discussed in Note 2.
As a result of this change in accounting policy, the consolidated statement of cash flows in prior periods have been retrospectively adjusted, as follows:
 
Nine Months Ended September 30, 2017
 
As Originally Reported*
 
Effect of Change
 
As Adjusted
Net income
$
1,211

 
$
(13
)
 
$
1,198

Inventory Valuation Adjustments
(38
)
 
30

 
(8
)
Net change in operating assets and liabilities (change in inventories)
209

 
(17
)
 
192

* 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 decreases in revenue (with offsetting decreases 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 our operations, as well as contracts deemed to be in-substance supply agreements in our 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

10


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

Other non-current assets, net
886

 
39

 
925

Intangible assets, net
6,116

 
(100
)
 
6,016

 
 
 
 
 
 
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
 
Nine Months Ended
 
September 30, 2018
 
September 30, 2018
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change: Higher/(Lower)
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change: Higher/(Lower)
Revenues:
 
 
 
 
 
 
 
 
 
 
 
Natural gas sales
$
1,026

 
$
1,026

 
$

 
$
3,112

 
$
3,112

 
$

NGL sales
2,695

 
2,686

 
9

 
6,866

 
6,839

 
27

Crude sales
3,841

 
3,838

 
3

 
11,336

 
11,326

 
10

Gathering, transportation and other fees
1,781

 
1,985

 
(204
)
 
4,878

 
5,415

 
(537
)
Refined product sales
4,955

 
4,968

 
(13
)
 
13,583

 
13,619

 
(36
)
Other
216

 
216

 

 
739

 
739

 

 
 
 
 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
 
 
 
Cost of products sold
$
11,093

 
$
11,298

 
$
(205
)
 
$
31,681

 
$
32,221

 
$
(540
)
Operating expenses
784

 
773

 
11

 
2,280

 
2,248

 
32

Depreciation and amortization
750

 
758

 
(8
)
 
2,109

 
2,130

 
(21
)

11


 
September 30, 2018
 
As Reported
 
Balances Without Adoption of ASC 606
 
Effect of Change: Higher/(Lower)
Assets:
 
 
 
 
 
Other current assets
$
303

 
$
292

 
$
11

Property and Equipment, net
65,643

 
65,643

 

Intangible assets, net
6,013

 
6,135

 
(122
)
Other non-current assets, net
1,106

 
1,055

 
51

 
 
 
 
 
 
Liabilities and Equity:
 
 
 
 
 
Other non-current liabilities
$
1,253

 
$
1,252

 
$
1

Noncontrolling interest
32,136

 
32,197

 
(61
)
Additional disclosures related to revenue are included in Note 12.
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 information about the amount, timing, and uncertainty of cash flows arising from a lease. The update requires lessees to record virtually all leases on their balance sheets. For lessors, this amended guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. 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 the existing lease guidance in Topic 840. The Partnership plans to elect the package of transition practical expedients and will adopt this standard beginning with its first quarter of fiscal 2019 and apply it retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings. The Partnership has performed several procedures to evaluate the impact of the adoption of this standard on the financial statements and disclosures and address the implications of Topic 842 on future lease arrangements. The procedures include reviewing all forms of leases, performing a completeness assessment over the lease population, establishing processes and controls to timely identify new and modified lease agreements, educating its employees on these new processes and controls and implementing a third-party supported lease accounting information system to account for our leases in accordance with the new standard. However, we are still in the process of quantifying this impact. We expect that upon adoption most of the Partnership’s lease commitments will be recognized as right of use assets and lease obligations.
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.

12


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 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.
2.
ACQUISITIONS AND OTHER INVESTING TRANSACTIONS
ETE-ETP Merger and Related Contribution of Assets to ETP
Immediately prior to the closing of the ETE-ETP Merger discussed in Note 1, ETE contributed the following to ETP:
2,263,158 common units representing limited partner interests in Sunoco LP to ETP in exchange for 2,874,275 ETP common units;
100 percent of the limited liability company interests in Sunoco GP LLC, the sole general partner of Sunoco LP, and all of the IDRs in Sunoco LP, to ETP in exchange for 42,812,389 ETP common units;
12,466,912 common units representing limited partner interests in USAC and 100 percent of the limited liability company interests in USA Compression GP, LLC, the general partner of USAC, to ETP in exchange for 16,134,903 ETP common units; and
a 100 percent limited liability company interest in Lake Charles LNG and a 60 percent limited liability company interest in each of Energy Transfer LNG Export, LLC, ET Crude Oil Terminals, LLC and ETC Illinois LLC to ETP in exchange for 37,557,815 ETP common units.
ETE will continue to consolidate each of these entities in its consolidated financial statements subsequent to the ETE-ETP Merger, and these transactions will not impact the carrying values of the related assets and liabilities.
USAC Transactions
On April 2, 2018, ETE acquired a controlling interest in USAC, a publicly traded partnership that provides compression services in the United States. Specifically ETE acquired (i) all of the outstanding limited liability company interests in USA Compression GP, LLC (“USAC GP”), the general partner of USAC, and (ii) 12,466,912 USAC common units representing limited partner interests in USAC for cash consideration equal to $250 million (the “USAC Transaction”). Concurrently, USAC cancelled its incentive distribution rights and converted its economic general partner interest into a non-economic general partner interest in exchange for the issuance of 8,000,000 USAC common units to USAC GP.
Concurrent with these transactions, ETP contributed to USAC all of the issued and outstanding membership interests of CDM for aggregate consideration of approximately $1.7 billion, consisting of (i) 19,191,351 USAC common units, (ii) 6,397,965 units of a newly authorized and established class of units representing limited partner interests in USAC (“USAC Class B Units”) and (iii) $1.23 billion in cash, including customary closing adjustments (the “CDM Contribution”). The USAC Class B Units are a new class of partnership interests of USAC that have substantially all of the rights and obligations of a USAC common unit, except the USAC Class B Units will not participate in distributions for the first four quarters following the closing date of April 2, 2018. Each USAC Class B Unit will automatically convert into one USAC common unit on the first business day following the record date attributable to the quarter ending June 30, 2019.
Prior to the CDM Contribution, the CDM entities were indirect wholly-owned subsidiaries of ETP. Beginning April 2018, ETE’s consolidated financial statements reflected USAC as a consolidated subsidiary.

13


Summary of Assets Acquired and Liabilities Assumed
We accounted for the USAC Transaction using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized on the balance sheet at their fair values as of the acquisition date.
The total purchase price was allocated as follows:
 
 
At April 2, 2018
Total current assets
 
$
786

Property, plant and equipment
 
1,332

Other non-current assets
 
15

Goodwill(1)
 
366

Intangible assets
 
222

 
 
2,721

 
 
 
Total current liabilities
 
110

Long-term debt, less current maturities
 
1,527

Other non-current liabilities
 
2

 
 
1,639

 
 
 
Noncontrolling interest
 
832

 
 

Total consideration
 
250

Cash received(2)
 
711

Total consideration, net of cash received(2)
 
$
(461
)
(1) 
None of the goodwill is expected to be deductible for tax purposes. Goodwill recognized from the business combination primarily relates to the value attributed to additional growth opportunities, synergies and operating leverage within USAC’s operations.
(2) 
Cash received represents cash and cash equivalents held by USAC as of the acquisition date.
The fair values of the assets acquired and liabilities assumed were determined using various valuation techniques, including the income and market approaches.
HPC
ETP previously owned a 49.99% interest in HPC, which owns RIGS.  In April 2018, ETP acquired the remaining 50.01% interest in HPC.  Prior to April 2018, HPC was reflected as an unconsolidated affiliate in the Partnership’s consolidated financial statements; beginning in April 2018, RIGS is reflected as a wholly-owned subsidiary in the Partnership’s consolidated financial statements.
Sunoco LP Retail Store and Real Estate Sales
On January 23, 2018, Sunoco LP completed the disposition of assets pursuant to the purchase agreement with 7-Eleven, Inc. (the “7-11 Transaction”). As a result of the 7-11 Transaction, previously eliminated wholesale motor fuel sales to Sunoco LP’s retail locations are reported as wholesale motor fuel sales to third parties. Also, the related accounts receivable from such sales are no longer eliminated from the Partnership’s consolidated balance sheets and are reported as accounts receivable.
In connection with the 7-11 Transaction, Sunoco LP entered into a Distributor Motor Fuel Agreement dated as of January 23, 2018 (“Supply Agreement”), with 7-Eleven and SEI Fuel (collectively, “Distributor”). The Supply Agreement consists of a 15-year take-or-pay fuel supply arrangement under which Sunoco LP has agreed to supply approximately 2.0 billion gallons of fuel annually plus additional aggregate growth volumes of up to 500 million gallons to be added incrementally over the first four years. For the period from January 1, 2018 through January 22, 2018 and the three and nine months ended September 30, 2017, Sunoco LP recorded sales to the sites that were subsequently sold to 7-Eleven of $199 million, $926 million and $2.4 billion, respectively, which were eliminated in consolidation. Sunoco LP payments on trade receivables of

14


$1 billion and $2.6 billion from 7-Eleven in the three and nine months ended September 30, 2018 subsequent to the closing of the sale.
On January 18, 2017, with the assistance of a third-party brokerage firm, Sunoco LP launched a portfolio optimization plan to market and sell 97 real estate assets. Real estate assets included in this process are company-owned locations, undeveloped greenfield sites and other excess real estate. Properties are located in Florida, Louisiana, Massachusetts, Michigan, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Texas and Virginia. The properties are being sold through a sealed-bid. Of the 97 properties, 50 have been sold, one is under contract to be sold, and five continue to be marketed by the third-party brokerage firm. Additionally, 32 were sold to 7-Eleven and nine are part of the approximately 207 retail sites located in certain West Texas, Oklahoma, and New Mexico markets which are operated by a commission agent.
The Partnership has concluded that it meets the accounting requirements for reporting the financial position, results of operations and cash flows of Sunoco LP’s retail divestment as discontinued operations.
The following tables present the aggregate carrying amounts of assets and liabilities classified as held for sale in the consolidated balance sheet:
 
September 30, 2018
 
December 31, 2017
Carrying amount of assets classified as held for sale:
 
 
 
Cash and cash equivalents
$

 
$
21

Inventories

 
149

Other current assets

 
16

Property, plant and equipment, net
6

 
1,851

Goodwill

 
796

Intangible assets, net

 
477

Other non-current assets, net

 
3

Total assets classified as held for sale in the Consolidated Balance Sheet
$
6

 
$
3,313

 
 
 
 
Carrying amount of liabilities classified as held for sale:
 
 
 
Other current and non-current liabilities
$

 
$
75

Total liabilities classified as held for sale in the Consolidated Balance Sheet
$

 
$
75


15


The results of operations associated with discontinued operations are presented in the following table:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017
 
2018
 
2017
REVENUES
$

 
$
1,802

 
$
349

 
$
5,145

 
 
 
 
 
 
 
 
COSTS AND EXPENSES
 
 
 
 
 
 
 
Cost of products sold

 
1,482

 
305

 
4,274

Operating expenses

 
182

 
61

 
566

Depreciation, depletion and amortization

 
(5
)
 

 
31

Impairment losses

 
34

 

 
265

Selling, general and administrative

 
57

 
7

 
126

Total costs and expenses

 
1,750

 
373

 
5,262

OPERATING LOSS

 
52

 
(24
)
 
(117
)
Interest expense, net

 
13

 
2

 
21

Loss on extinguishment of debt and other

 

 
20

 

Other, net

 
(8
)
 
61

 

INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE

 
47

 
(107
)
 
(138
)
Income tax expense
2

 
30

 
158

 
49

INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
$
(2
)
 
$
17

 
$
(265
)
 
$
(187
)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS BEFORE INCOME TAX EXPENSE ATTRIBUTABLE TO ETE
$

 
$
1

 
$
(10
)
 
$
(6
)
3. CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash on hand, demand deposits, and investments with original maturities of three months or less. We consider cash equivalents to include short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.
We place our cash deposits and temporary cash investments with high credit quality financial institutions. At times, our cash and cash equivalents may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation insurance limit.
Non-cash investing and financing activities were as follows:
 
Nine Months Ended
September 30,
 
2018
 
2017
NON-CASH INVESTING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
1,059

 
$
1,237

Losses from subsidiary common unit transactions
(125
)
 
(57
)
NON-CASH FINANCING ACTIVITIES:
 
 
 
Contribution of property, plant and equipment from noncontrolling interest
$

 
$
988

Conversion of Series A Convertible Preferred Units to common units
589

 


16


4. INVENTORIES
Inventories consisted of the following:
 
September 30, 2018
 
December 31, 2017
Natural gas, NGLs, and refined products
$
1,072

 
$
1,120

Crude oil
643

 
551

Spare parts and other
351

 
351

Total inventories
$
2,066

 
$
2,022

We utilize commodity derivatives to manage price volatility associated with its natural gas inventories. Changes in fair value of designated hedged inventory are recorded in inventory on our consolidated balance sheets and cost of products sold in our consolidated statements of operations.
USAC’s inventory consists of serialized and non-serialized parts used primarily in the repair of compression units. All inventory is stated at the lower of cost or net realizable value. The cost of serialized parts inventory is determined using the specific identification cost method, while the cost of non-serialized parts inventory is determined using the weighted average cost method. Purchases of these assets are considered operating activities on the Consolidated Statements of Cash Flows.
5. FAIR VALUE MEASURES
Based on the estimated borrowing rates currently available to us and our subsidiaries for loans with similar terms and average maturities, the aggregate fair value and carrying amount of our consolidated debt obligations as of September 30, 2018 were $45.54 billion and $44.77 billion, respectively. As of December 31, 2017, the aggregate fair value and carrying amount of our consolidated debt obligations were $45.62 billion and $44.08 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the respective debt obligations’ observable inputs used for similar liabilities.
We have commodity derivatives and interest rate derivatives that are accounted for as assets and liabilities at fair value in our consolidated balance sheets. We determine the fair value of our assets and liabilities subject to fair value measurement by using the highest possible “level” of inputs. Level 1 inputs are observable quotes in an active market for identical assets and liabilities. We consider the valuation of marketable securities and commodity derivatives transacted through a clearing broker with a published price from the appropriate exchange as a Level 1 valuation. Level 2 inputs are inputs observable for similar assets and liabilities. We consider OTC commodity derivatives entered into directly with third parties as a Level 2 valuation since the values of these derivatives are quoted on an exchange for similar transactions. Additionally, we consider our options transacted through our clearing broker as having Level 2 inputs due to the level of activity of these contracts on the exchange in which they trade. We consider the valuation of our interest rate derivatives as Level 2 as the primary input, the LIBOR curve, is based on quotes from an active exchange of Eurodollar futures for the same period as the future interest swap settlements. Level 3 inputs are unobservable. During the nine months ended September 30, 2018, no transfers were made between any levels within the fair value hierarchy.

17


The following tables summarize the gross fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of September 30, 2018 and December 31, 2017 based on inputs used to derive their fair values:
 
 
 
Fair Value Measurements at
September 30, 2018
 
Fair Value Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
$
48

 
$
48

 
$

Swing Swaps IFERC
1

 

 
1

Fixed Swaps/Futures
25

 
25

 

Forward Physical Contracts
12

 

 
12

Power:
 
 
 
 
 
Forwards
36

 

 
36

Options — Puts
1

 
1

 

NGLs — Forwards/Swaps
476

 
476

 

Refined Products — Futures
4

 
4

 

Total commodity derivatives
603

 
554

 
49

Other non-current assets
28

 
18

 
10

Total assets
$
631

 
$
572

 
$
59

Liabilities:
 
 
 
 
 
Interest rate derivatives
$
(97
)
 
$

 
$
(97
)
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(89
)
 
(89
)
 

Swing Swaps IFERC
(1
)
 

 
(1
)
Fixed Swaps/Futures
(26
)
 
(26
)
 

Forward Physical Contracts
(7
)
 

 
(7
)
Power:
 
 
 
 
 
Forwards
(30
)
 

 
(30
)
Futures
(1
)
 
(1
)
 

NGLs — Forwards/Swaps
(522
)
 
(522
)
 

Refined Products — Futures
(10
)
 
(10
)
 

Crude — Forwards/Swaps
(191
)
 
(191
)
 

Total commodity derivatives
(877
)
 
(839
)
 
(38
)
Total liabilities
$
(974
)
 
$
(839
)
 
$
(135
)

18


 
 
 
Fair Value Measurements at
December 31, 2017
 
Fair Value Total
 
Level 1
 
Level 2
Assets:
 
 
 
 
 
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
$
11

 
$
11

 
$

Swing Swaps IFERC
13

 

 
13

Fixed Swaps/Futures
70

 
70

 

Forward Physical Contracts
8

 

 
8

Power — Forwards
23

 

 
23

NGLs — Forwards/Swaps
191

 
191

 

Refined Products — Futures
1

 
1

 

Crude:
 
 
 
 
 
Forwards/Swaps
2

 
2

 

Futures
2

 
2

 

Total commodity derivatives
321

 
277

 
44

Other non-current assets
21

 
14

 
7

Total assets
$
342

 
$
291

 
$
51

Liabilities:
 
 
 
 
 
Interest rate derivatives
$
(219
)
 
$

 
$
(219
)
Commodity derivatives:
 
 
 
 
 
Natural Gas:
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(24
)
 
(24
)
 

Swing Swaps IFERC
(15
)
 
(1
)
 
(14
)
Fixed Swaps/Futures
(57
)
 
(57
)
 

Forward Physical Contracts
(2
)
 

 
(2
)
Power — Forwards
(22
)
 

 
(22
)
NGLs — Forwards/Swaps
(186
)
 
(186
)
 

Refined Products — Futures
(28
)
 
(28
)
 

Crude:
 
 
 
 
 
Forwards/Swaps
(6
)
 
(6
)
 

Futures
(1
)
 
(1
)
 

Total commodity derivatives
(341
)
 
(303
)
 
(38
)
Total liabilities
$
(560
)
 
$
(303
)
 
$
(257
)

19


6. NET INCOME PER LIMITED PARTNER UNIT
A reconciliation of income and weighted average units used in computing basic and diluted income per unit is as follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2018
 
2017*
 
2018
 
2017*
Income from continuing operations
$
1,393

 
$
741

 
$
2,778

 
$
1,385

Less: Net income attributable to redeemable noncontrolling interests
12

 

 
24

 

Less: Income from continuing operations attributable to noncontrolling interest
1,010

 
491

 
1,667

 
676

Income from continuing operations, net of noncontrolling interest
371

 
250

 
1,087

 
709

Less: Convertible Unitholders’ interest in income

 
11

 
33

 
25

Less: General Partner’s interest in income
1

 
1

 
3

 
2

Income from continuing operations available to Limited Partners
$
370

 
$
238

 
$
1,051

 
$
682

Basic Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Weighted average limited partner units
1,158.2

 
1,079.1

 
1,117.7

 
1,077.9

Basic income from continuing operations per Limited Partner unit
$
0.32

 
$
0.22

 
$
0.94

 
$
0.63

Basic income (loss) from discontinued operations per Limited Partner unit
$
0.00

 
$
0.00

 
$
(0.01
)
 
$
(0.01
)
Diluted Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Income from continuing operations available to Limited Partners
$
370

 
$
238

 
$
1,051

 
$
682

Dilutive effect of equity-based compensation of subsidiaries and distributions to Convertible Unitholders

 
11

 
33

 
25

Diluted income from continuing operations available to Limited Partners
$
370

 
$
249

 
$
1,084

 
$
707

Weighted average limited partner units
1,158.2

 
1,079.1

 
1,117.7

 
1,077.9

Dilutive effect of unconverted unit awards and Convertible Units

 
69.2

 
40.5

 
69.5

Diluted weighted average limited partner units
1,158.2

 
1,148.3

 
1,158.2

 
1,147.4

Diluted income from continuing operations per Limited Partner unit
$
0.32

 
$
0.22

 
$
0.94

 
$
0.62

Diluted income (loss) from discontinued operations per Limited Partner unit
$
0.00

 
$
0.00

 
$
(0.01
)
 
$
(0.01
)
* As adjusted. See Note 1.
7. DEBT OBLIGATIONS
Parent Company Indebtedness
The Parent Company’s indebtedness, including its senior notes, senior secured term loan and senior secured revolving credit facility, is secured by all of its and certain of its subsidiaries’ tangible and intangible assets.
ETE Revolving Credit Facility
As of September 30, 2018, borrowings of $898 million were outstanding under the Parent Company revolving credit facility. In connection with the closing of the ETE-ETP Merger, on October 19, 2018, the Partnership repaid in full all outstanding borrowings under the facility and the facility was terminated.

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Subsidiary Indebtedness
ETP Senior Notes Offering and Redemption
In June 2018, ETP issued the following senior notes:
$500 million aggregate principal amount of 4.20% senior notes due 2023;
$1.00 billion aggregate principal amount of 4.95% senior notes due 2028;
$500 million aggregate principal amount of 5.80% senior notes due 2038; and
$1.00 billion aggregate principal amount of 6.00% senior notes due 2048.
The senior notes were registered under the Securities Act of 1933 (as amended).  The Partnership may redeem some or all of the senior notes at any time, or from time to time, pursuant to the terms of the indenture and related indenture supplements related to the senior notes. The principal on the senior notes is payable upon maturity and interest is paid semi-annually.
The senior notes rank equally in right of payment with ETP’s existing and future senior debt, and senior in right of payment to any future subordinated debt ETP may incur.  The notes of each series will initially be fully and unconditionally guaranteed by ETP’s subsidiary, Sunoco Logistics Partners Operations L.P., on a senior unsecured basis so long as it guarantees any of ETP’s other long-term debt. The guarantee for each series of notes ranks equally in right of payment with all of the existing and future senior debt of Sunoco Logistics Partners Operations L.P., including its senior notes.
The $2.96 billion net proceeds from the offering were used to repay borrowings outstanding under ETP’s revolving credit facility, for general partnership purposes and to redeem all of the following senior notes:
ETP’s $650 million aggregate principal amount of 2.50% senior notes due June 15, 2018;
Panhandle’s $400 million aggregate principal amount of 7.00% senior notes due June 15, 2018; and
ETP’s $600 million aggregate principal amount of 6.70% senior notes due July 1, 2018.
The aggregate amount paid to redeem these notes was approximately $1.65 billion.
ETP Five-Year Credit Facility
ETP’s revolving credit facility (the “ETP Five-Year Credit Facility”) previously allowed for unsecured borrowings up to $4.00 billion and matured in December 2022. On October 19, 2018, the ETP Five-Year Credit Facility was amended to increase the borrowing capacity by $1.00 billion, to $5.00 billion, and to extend the maturity date to December 1, 2023. The ETP Five-Year Credit Facility contains an accordion feature, under which the total aggregate commitment may be increased up to $6.00 billion under certain conditions.
As of September 30, 2018, the ETP Five-Year Credit Facility had $1.78 billion outstanding, of which $1.57 billion was commercial paper. The amount available for future borrowings was $2.06 billion after taking into account letters of credit of $163 million, but before taking into account the additional capacity from the October 19, 2018 amendment. The weighted average interest rate on the total amount outstanding as of September 30, 2018 was 3.00%.
ETP 364-Day Facility
ETP’s 364-day revolving credit facility (the “ETP 364-Day Facility”) previously allowed for unsecured borrowings up to $1.00 billion and matured on November 30, 2018. On October 19, 2018, the ETP 364-Day Facility was amended to extend the maturity date to November 29, 2019. As of September 30, 2018, the ETP 364-Day Facility had no outstanding borrowings.
Bakken Credit Facility
In August 2016, ETP and Phillips 66 completed project-level financing of the Bakken pipeline. The $2.50 billion credit facility matures in August 2019 (the “Bakken Credit Facility”). As of September 30, 2018, the Bakken Credit Facility had $2.50 billion of outstanding borrowings, all of which has been reflected in current maturities of long-term debt on the Partnership’s consolidated balance sheet. The weighted average interest rate on the total amount outstanding as of September 30, 2018 was 3.85%.

21


Sunoco LP Senior Notes and Term Loan
On January 23, 2018, Sunoco LP completed a private offering of $2.2 billion of senior notes, comprised of $1.0 billion in aggregate principal amount of 4.875% senior notes due 2023, $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. Sunoco LP used the proceeds from the private offering, along with proceeds from the closing of the asset purchase agreement with 7-Eleven to:
redeem in full its 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;
repay in full and terminate its term loan;
pay all closing costs in connection with the 7-Eleven transaction;
redeem the outstanding Sunoco LP Series A Preferred Units; and
repurchase 17,286,859 Sunoco LP common units owned by ETP.
Sunoco LP Credit Facility
Sunoco LP maintains a $1.50 billion revolving credit agreement. In July 2018, Sunoco LP amended its revolving credit agreement, including extending the expiration to July 2023 (which may be extended in accordance with the terms of the credit agreement). Borrowings under the amended revolving credit agreement were used to pay off Sunoco LP’s existing revolving credit facility which was entered into in September 2014.
As of September 30, 2018, the Sunoco LP credit facility had $493 million outstanding borrowings and $8 million in standby letters of credit. The unused availability on the revolver at September 30, 2018 was $999 million.
USAC Credit Facility
USAC currently has a $1.6 billion revolving credit facility, which matures on April 2, 2023 and permits up to $400 million of future increases in borrowing capacity.
As of September 30, 2018, USAC had $1.0 billion of outstanding borrowings and no outstanding letters of credit under the credit agreement. As of September 30, 2018, USAC had $578 million of availability under its credit facility.
USAC Senior Notes
USAC has outstanding $725 million aggregate principal amount of senior notes that mature on April 1, 2026. The notes accrue interest from March 23, 2018 at the rate of 6.875% per year. Interest on the notes will be payable semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2018.
Compliance with Our Covenants
We and our subsidiaries were in compliance with all requirements, tests, limitations, and covenants related to our respective credit agreements as of September 30, 2018.
8. REDEEMABLE NONCONTROLLING INTERESTS
Certain redeemable noncontrolling interest in the Partnership’s subsidiaries are reflected as mezzanine equity on the consolidated balance sheet. Redeemable noncontrolling interests as of September 30, 2018 include (i) a balance of $477 million related to the USAC Preferred Units described below and (ii) a balance of $22 million related to noncontrolling interest holders in one of ETP’s consolidated subsidiaries that have the option to sell their interests to ETP.
USAC Series A Preferred Units
On April 2, 2018, USAC issued 500,000 USAC Preferred Units at a price of $1,000 per USAC Preferred Unit, for total gross proceeds of $500 million in a private placement.
The USAC Preferred Units are entitled to receive cumulative quarterly distributions equal to $24.375 per USAC Preferred Unit, subject to increase in certain limited circumstances. The USAC Preferred Units will have a perpetual term, unless converted or redeemed. Certain portions of the USAC Preferred Units will be convertible into USAC common units at the election of the holders beginning in 2021. To the extent the holders of the USAC Preferred Units have not elected to convert

22


their preferred units by the fifth anniversary of the issue date, USAC will have the option to redeem all or any portion of the USAC Preferred Units for cash. In addition, at any time on or after the tenth anniversary of the issue date, the holders of the USAC Preferred Units will have the right to require USAC to redeem all or any portion of the USAC Preferred Units, and the Partnership may elect to pay up to 50% of such redemption amount in USAC common units.
9. EQUITY
ETE
The changes in ETE common units and ETE Series A Convertible Preferred Units during the nine months ended September 30, 2018 were as follows:
 
Number of ETE Series A Convertible Preferred Units
 
Number of Common Units
Outstanding at December 31, 2017
329.3

 
1,079.1

Conversion of ETE Series A Convertible Preferred Units to common units
(329.3
)
 
79.1

Outstanding at September 30, 2018

 
1,158.2

In October 2018, ETE issued 1.46 billion ETE Common Units in connection with the ETE-ETP Merger.
ETE Equity Distribution Program
In March 2017, the Partnership entered into an equity distribution agreement relating to at-the-market offerings of its common units with an aggregate offering price up to $1 billion. As of September 30, 2018, there have been no sales of common units under the equity distribution agreement.
ETE Series A Convertible Preferred Units
In May 2018, the Partnership converted its 329.3 million Series A Convertible Preferred Units into approximately 79.1 million common units in accordance with the terms of our partnership agreement.
ETE Class A Units
In connection with the ETE-ETP Merger, the Partnership issued 647,745,099 Class A units (“ETE Class A Units”) representing limited partner interests in the Partnership to LE GP, LLC (“LE GP”), the general partner of ETE. The number of ETE Class A Units issued allows LE GP and its affiliates to retain a voting interest in the Partnership that is identical to their voting interest in the Partnership prior to the completion of the Merger. The ETE Class A Units are entitled to vote together with the Partnership’s common units, as a single class, except as required by law. Additionally, ETE’s partnership agreement provides that, under certain circumstances, upon the issuance by the Partnership of additional common units or any securities that have voting rights that are pari passu with the Partnership common units, the Partnership will issue to any holder of ETE Class A Units additional ETE Class A Units such that the holder maintains a voting interest in the Partnership that is identical to its voting interest in the Partnership prior to such issuance. The ETE Class A Units are not entitled to distributions and otherwise have no economic attributes.
Repurchase Program
During the nine months ended September 30, 2018, ETE did not repurchase any ETE common units under its current buyback program. As of September 30, 2018, $936 million remained available to repurchase under the current program.
Subsidiary Equity Transactions
The Parent Company accounts for the difference between the carrying amount of its investment in ETP, Sunoco LP, and USAC and the underlying book value arising from the issuance or redemption of units by ETP, Sunoco LP, and USAC (excluding transactions with the Parent Company) as capital transactions. As a result of these transactions, during the nine months ended September 30, 2018, we recognized a decrease in partners’ capital of $125 million.
ETP Equity Distribution Program
During the nine months ended September 30, 2018, there were no ETP common units issued under ETP’s equity distribution agreements. In connection with the ETE-ETP Merger, the equity distribution program was terminated in October 2018.

23


ETP Distribution Reinvestment Program
In July 2017, ETP initiated a new distribution reinvestment plan. During the nine months ended September 30, 2018, distributions of $57 million were reinvested under ETP’s distribution reinvestment plan. In connection with the ETE-ETP Merger, the distribution reinvestment program was terminated in October 2018.
ETP Preferred Units
ETP issued 950,000 ETP Series A Preferred Units and 550,000 ETP Series B Preferred Units in November 2017 and has issued additional preferred units in 2018, as discussed below. Subsequent to the ETE-ETP Merger, all of ETP’s Series A, Series B, Series C and Series D Preferred Units remain outstanding.
ETP Series C Preferred Units Issuance
In April 2018, ETP issued 18 million of its 7.375% ETP Series C Preferred Units at a price of $25 per unit, resulting in total gross proceeds of $450 million. The proceeds were used to repay amounts outstanding under ETP’s revolving credit facility and for general partnership purposes.
Distributions on the ETP Series C Preferred Units will accrue and be cumulative from and including the date of original issue to, but excluding, May 15, 2023, at a rate of 7.375% per annum of the stated liquidation preference of $25. On and after May 15, 2023, distributions on the ETP Series C Preferred Units will accumulate at a percentage of the $25 liquidation preference equal to an annual floating rate of the three-month LIBOR, determined quarterly, plus a spread of 4.530% per annum. The ETP Series C Preferred Units are redeemable at ETP’s option on or after May 15, 2023 at a redemption price of $25 per ETP Series C Preferred Unit, plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption.
ETP Series D Preferred Units Issuance
In July 2018, ETP issued 17.8 million of its 7.625% ETP Series D Preferred Units at a price of $25 per unit, resulting in total gross proceeds of $445 million. The proceeds were used to repay amounts outstanding under ETP’s revolving credit facility and for general partnership purposes.
Distributions on the ETP Series D Preferred Units will accrue and be cumulative from and including the date of original issue to, but excluding, August 15, 2023, at a rate of 7.625% per annum of the stated liquidation preference of $25. On and after August 15, 2023, distributions on the ETP Series D Preferred Units will accumulate at a percentage of the $25 liquidation preference equal to an annual floating rate of the three-month LIBOR, determined quarterly, plus a spread of 4.378% per annum. The ETP Series D Preferred Units are redeemable at ETP’s option on or after August 15, 2023 at a redemption price of $25 per ETP Series D Preferred Unit, plus an amount equal to all accumulated and unpaid distributions thereon to, but excluding, the date of redemption.
Sunoco LP Common Unit Transactions
On February 7, 2018, subsequent to the record date for Sunoco LP’s fourth quarter 2017 cash distributions, Sunoco LP repurchased 17,286,859 Sunoco LP common units owned by ETP for aggregate cash consideration of approximately $540 million. ETP used the proceeds from the sale of the Sunoco LP common units to repay amounts outstanding under its revolving credit facility.
Sunoco LP Series A Preferred Units
On January 25, 2018, Sunoco LP redeemed all outstanding Sunoco LP Series A Preferred Units held by ETE for an aggregate redemption amount of approximately $313 million. The redemption amount includes the original consideration of $300 million and a 1% call premium plus accrued and unpaid quarterly distributions.
USAC Warrant Private Placement
On April 2, 2018, USAC issued two tranches of warrants to purchase USAC common units (the “USAC Warrants”), which included USAC Warrants to purchase 5,000,000 common units with a strike price of $17.03 per unit and USAC Warrants to purchase 10,000,000 common units with a strike price of $19.59 per unit. The USAC Warrants may be exercised by the holders thereof at any time beginning on the one year anniversary of the closing date and before the tenth anniversary of the closing date. Upon exercise of the USAC Warrants, USAC may, at its option, elect to settle the USAC Warrants in common units on a net basis.

24


USAC Class B Units
The USAC Class B Units, all of which are owned by ETP, are a new class of partnership interests of USAC that have substantially all of the rights and obligations of a USAC common unit, except the USAC Class B Units will not participate in distributions for the first four quarters following the closing date of the USAC Transaction on April 2, 2018. Each USAC Class B Unit will automatically convert into one USAC common unit on the first business day following the record date attributable to the quarter ending June 30, 2019.
USAC Distribution Reinvestment Program
During the six months ended September 30, 2018, distributions of $0.4 million were reinvested under the USAC distribution reinvestment program resulting in the issuance of approximately 24,261 USAC common units.
Parent Company Cash Distributions
Distributions declared and/or paid subsequent to December 31, 2017 were as follows:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2017 (1)
 
February 8, 2018