Energy Transfer 2015 Annual Report Download - page 49

Table of Contents
rail carriers, public utilities and others. Our ability to secure extensions of existing agreements, permits and licenses is essential to our continuing business
operations, and securing additional rights-of-way will be critical to our ability to pursue expansion projects. We cannot provide any assurance that we will be
able to maintain access to existing rights-of-way upon the expiration of the current grants, that all of the rights-of-way will be obtained in a timely fashion or
that we will acquire new rights-of-way as needed.
Further, whether we have the power of eminent domain for our pipelines varies from state to state, depending upon the type of pipeline and the laws of the
particular state and the ownership of the land to which we seek access. When we exercise eminent down rights or negotiate private agreements cases, we must
compensate landowners for the use of their property and, in eminent domain actions, such compensation may be determined by a court. The inability to
exercise the power of eminent domain could negatively affect our business if we were to lose the right to use or occupy the property on which our pipelines
are located.
In addition, we do not own all of the land on which our retail service stations are located. We have rental agreements for approximately 32.6% of the
company-operated retail service stations where we currently control the real estate and we have rental agreements for certain logistics facilities. As such, we
are subject to the possibility of increased costs under rental agreements with landowners, primarily through rental increases and renewals of expired
agreements. We are also subject to the risk that such agreements may not be renewed. Additionally, certain facilities and equipment (or parts thereof) used by
us are leased from third parties for specific periods. Our inability to renew leases or otherwise maintain the right to utilize such facilities and equipment on
acceptable terms, or the increased costs to maintain such rights, could have a material adverse effect on our financial condition, results of operations and cash
flows.
We may not be able to fully execute our growth strategy if we encounter increased competition for qualified assets.
Our strategy contemplates growth through the development and acquisition of a wide range of midstream, transportation, storage and other energy
infrastructure assets while maintaining a strong balance sheet. This strategy includes constructing and acquiring additional assets and businesses to enhance
our ability to compete effectively and diversify our asset portfolio, thereby providing more stable cash flow. We regularly consider and enter into discussions
regarding the acquisition of additional assets and businesses, stand-alone development projects or other transactions that we believe will present
opportunities to realize synergies and increase our cash flow.
Consistent with our strategy, we may, from time to time, engage in discussions with potential sellers regarding the possible acquisition of additional assets or
businesses. Such acquisition efforts may involve our participation in processes that involve a number of potential buyers, commonly referred to as “auction”
processes, as well as situations in which we believe we are the only party or one of a very limited number of potential buyers in negotiations with the
potential seller. We cannot give assurance that our acquisition efforts will be successful or that any acquisition will be completed on terms considered
favorable to us.
In addition, we are experiencing increased competition for the assets we purchase or contemplate purchasing. Increased competition for a limited pool of
assets could result in us losing to other bidders more often or acquiring assets at higher prices, both of which would limit our ability to fully execute our
growth strategy. Inability to execute our growth strategy may materially adversely impact our results of operations.
An impairment of goodwill and intangible assets could reduce our earnings.
As of December 31, 2015, our consolidated balance sheet reflected $5.43 billion of goodwill and $4.42 billion of intangible assets. Goodwill is recorded
when the purchase price of a business exceeds the fair value of the tangible and separately measurable intangible net assets. Accounting principles generally
accepted in the United States require us to test goodwill for impairment on an annual basis or when events or circumstances occur, indicating that goodwill
might be impaired. Long-lived assets such as intangible assets with finite useful lives are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If we determine that any of our goodwill or intangible assets were impaired, we
would be required to take an immediate charge to earnings with a correlative effect on partners’ capital and balance sheet leverage as measured by debt to
total capitalization.
During the fourth quarter of 2015, we 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.
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