Energy Transfer 2015 Annual Report Download - page 182

Table of Contents
Changes in the carrying amount of goodwill were as follows:
Intrastate
Transportation
and Storage
Interstate
Transportation and
Storage
Midstream
Liquids
Transportation and
Services
Investment in
Sunoco
Logistics
Retail
Marketing
All Other
Total
Balance, December 31,
2013 $ 10
$ 1,195
$ 686
$ 432
$ 1,346
$ 1,445
$ 742
$ 5,856
Acquired —
—
451
—
12
1,862
15
2,340
Disposed —
(184)
—
—
—
—
—
(184)
Impaired —
—
(370)
—
—
—
—
(370)
Balance, December 31,
2014 10
1,011
767
432
1,358
3,307
757
7,642
Reduction due to
Sunoco LP
deconsolidation —
—
—
—
—
(2,018)
—
(2,018)
Impaired —
(99)
—
(106)
—
—
(205)
Other —
—
(49)
—
—
—
58
9
Balance, December 31,
2015 $ 10
$ 912
$ 718
$ 326
$ 1,358
$ 1,289
$ 815
$ 5,428
Goodwill is recorded at the acquisition date based on a preliminary purchase price allocation and generally may be adjusted when the purchase price
allocation is finalized. We recorded a net decrease in goodwill of $2.21 billion during the year ended December 31, 2015, primarily due the
deconsolidation of Sunoco LP of $2.02 billion subsequent to ETE’s acquisition in 2015 (see Note 3).
During 2015, the Partnership voluntarily changed the date of the annual goodwill impairment testing to the first day of the fourth quarter. The
Partnership believes this new date is preferable because it allows for more timely completion of the annual goodwill impairment test prior to the end of
the annual financial reporting period. This change in accounting principle does not delay, accelerate or avoid any potential impairment loss, nor does
the change have a cumulative effect on income from continuing operations, net income or loss, or net assets. This change was not applied
retrospectively, as doing so would require the use of significant estimates and assumptions that include hindsight. Accordingly, the Partnership applied
the change in annual goodwill impairment testing date prospectively beginning October 1, 2015.
During the fourth quarter of 2015, the Partnership performed goodwill impairment tests on our reporting units and recognized goodwill impairments of:
(i) $99 million in the Transwestern reporting unit due primarily to the market declines in current and expected future commodity prices in the fourth
quarter of 2015 and (ii) $106 million in the Lone Star Refinery Services reporting unit due primarily to changes in assumptions related to potential future
revenues decrease as well as the market declines in current and expected future commodity prices.
During the fourth quarter of 2014, a $370 million goodwill impairment was recorded related to Regency’s Permian Basin gathering and processing
operations. The decline in estimated fair value of that reporting unit was primarily driven by the significant decline in commodity prices in the fourth
quarter of 2014, and the resulting impact to future commodity prices, as well as, increases in future estimated operations and maintenance expenses.
The Partnership determined the fair value of our reporting units using a weighted combination of the discounted cash flow method and the guideline
company method. Determining the fair value of a reporting unit requires judgment and the use of significant estimates and assumptions. Such estimates
and assumptions include 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. Under the discounted cash flow method, the Partnership determined fair value based on estimated future cash flows of each reporting unit
including estimates for capital expenditures, discounted to present value using the risk-adjusted industry rate, which reflect the overall level of inherent
risk of the reporting unit. Cash flow projections are derived from one year budgeted amounts and five 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. Under the guideline company method, the Partnership determined the estimated fair value of each
of our reporting units by applying valuation multiples of comparable publicly-traded companies to each reporting unit’s projected EBITDA and then
averaging that estimate with similar historical calculations using a three year average. In addition, the Partnership estimated a reasonable control
premium representing the incremental value that accrues to the majority owner from the opportunity to dictate the strategic and operational actions of
the business.
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