Energy Transfer 2012 Annual Report Download - page 109

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Impairment of Long-Lived Assets and Goodwill. Long-lived assets are required to be tested for recoverability whenever events
or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Goodwill and intangibles with
indefinite lives must be tested for impairment annually or more frequently if events or changes in circumstances indicate that the
related asset might be impaired. An impairment loss should be recognized only if the carrying amount of the asset/goodwill is not
recoverable and exceeds its fair value.
In order to test for recoverability when performing a quantitative impairment test, we must make estimates of projected cash flows
related to the asset, which include, but are not limited to, assumptions about the use or disposition of the asset, estimated remaining
life of the asset, and future expenditures necessary to maintain the asset’s existing service potential. In order to determine fair
value, we make certain estimates and assumptions, including, among other things, changes in general economic conditions in
regions in which our markets are located, the availability and prices of natural gas and propane supply, our ability to negotiate
favorable sales agreements, the risks that natural gas exploration and production activities will not occur or be successful, our
dependence on certain significant customers and producers of natural gas, and competition from other midstream companies,
including major energy producers. While we believe we have made reasonable assumptions to calculate the fair value, if future
results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results
of operations.
Property, Plant and Equipment. Expenditures for maintenance and repairs that do not add capacity or extend the useful life are
expensed as incurred. Expenditures to refurbish assets that either extend the useful lives of the asset or prevent environmental
contamination are capitalized and depreciated over the remaining useful life of the asset. Additionally, we capitalize certain costs
directly related to the construction of assets including internal labor costs, interest and engineering costs. Upon disposition or
retirement of pipeline components or natural gas plant components, any gain or loss is recorded to accumulated depreciation.
When entire pipeline systems, gas plants or other property and equipment are retired or sold, any gain or loss is included in the
consolidated statement of operations. Depreciation of property, plant and equipment is provided using the straight-line method
based on their estimated useful lives ranging from 3 to 83 years. Changes in the estimated useful lives of the assets could have a
material effect on our results of operation. We do not anticipate future changes in the estimated useful lives of our property, plant
and equipment.
Asset Retirement Obligation. We have determined that we are obligated by contractual or regulatory requirements to remove
facilities or perform other remediation upon retirement of certain assets. The fair value of any ARO is determined based on estimates
and assumptions related to retirement costs, which the Partnership bases on historical retirement costs, future inflation rates and
credit-adjusted risk-free interest rates. These fair value assessments are considered to be level 3 measurements, as they are based
on both observable and unobservable inputs. Changes in the liability are recorded for the passage of time (accretion) or for revisions
to cash flows originally estimated to settle the ARO.
An ARO is required to be recorded when a legal obligation to retire an asset exists and such obligation can be reasonably estimated.
We will record an asset retirement obligation in the periods in which management can reasonably determine the settlement dates.
Except for the AROs of Southern Union, Sunoco Logistics and Sunoco discussed below, management was not able to reasonably
measure the fair value of asset retirement obligations as of December 31, 2012 and 2011 because the settlement dates were
indeterminable. Although a number of other onshore assets in Southern Union’s system are subject to agreements or regulations
that give rise to an ARO upon Southern Union’s discontinued use of these assets, AROs were not recorded because these assets
have an indeterminate removal or abandonment date given the expected continued use of the assets with proper maintenance or
replacement. Sunoco has legal asset retirement obligations for several other assets at its refineries, pipelines and terminals, for
which it is not possible to estimate when the obligations will be settled. Consequently, the retirement obligations for these assets
cannot be measured at this time. At the end of the useful life of these underlying assets, Sunoco is legally or contractually required
to abandon in place or remove the asset. Sunoco Logistics believes it may have additional asset retirement obligations related to
its pipeline assets and storage tanks, for which it is not possible to estimate whether or when the retirement obligations will be
settled. Consequently, these retirement obligations cannot be measured at this time.
Individual component assets have been and will continue to be replaced, but the pipeline and the natural gas gathering and processing
systems will continue in operation as long as supply and demand for natural gas exists. Based on the widespread use of natural
gas in industrial and power generation activities, management expects supply and demand to exist for the foreseeable future. We
have in place a rigorous repair and maintenance program that keeps the pipelines and the natural gas gathering and processing
systems in good working order. Therefore, although some of the individual assets may be replaced, the pipelines and the natural
gas gathering and processing systems themselves will remain intact indefinitely.
As of December 31, 2012, there were no legally restricted funds for the purpose of settling AROs.
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