ETE 09-30-2013 10-Q
Table of Contents

 

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, 2013
or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-32740
ENERGY TRANSFER EQUITY, L.P.
(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.)
3738 Oak Lawn Avenue, Dallas, Texas 75219
(Address of principal executive offices) (zip code)
(214) 981-0700
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  ý    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
ý
  
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
£  (Do not check if a smaller reporting company)
  
Smaller reporting company
¨
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 1, 2013, the registrant had units outstanding as follows:
Energy Transfer Equity, L.P. 280,711,650 Common Units


Table of Contents

FORM 10-Q
ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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Table of Contents

Forward-Looking Statements
Certain matters discussed in this report, excluding historical information, as well as some statements by Energy Transfer Equity, L.P. (“Energy Transfer Equity,” the “Partnership” or “ETE”) in periodic press releases and some oral statements of Energy Transfer Equity officials 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, 2012 filed with the Securities and Exchange Commission on March 1, 2013.
Definitions
The following is a list of certain acronyms and terms generally used in the energy industry and throughout this document:
/d
  
per day
 
 
AmeriGas
 
AmeriGas Partners, L.P.
 
 
 
AOCI
 
accumulated other comprehensive income (loss)
 
 
 
Bbls
  
barrels
 
 
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
 
 
 
Canyon
 
ETC Canyon Pipeline, LLC
 
 
 
Citrus
 
Citrus Corp., which owns 100% of FGT
 
 
 
ETC FEP
 
ETC Fayetteville Express Pipeline, LLC
 
 
 
ETC OLP
 
La Grange Acquisition, L.P., which conducts business under the assumed name of Energy Transfer Company
 
 
 
ETC Tiger
 
ETC Tiger Pipeline, LLC
 
 
 
ETP
 
Energy Transfer Partners, L.P.
 
 
 
ETP Credit Facility
 
ETP’s $2.5 billion revolving credit facility
 
 
 
ETP GP
 
Energy Transfer Partners GP, L.P., the general partner of ETP
 
 
 
ETP LLC
 
Energy Transfer Partners, L.L.C., the general partner of ETP GP
 
 
 
EPA
 
U.S. Environmental Protection Agency
 
 
 
Exchange Act
 
Securities Exchange Act of 1934
 
 
 
FEP
 
Fayetteville Express Pipeline LLC
 
 
 
FERC
 
Federal Energy Regulatory Commission
 
 
 
FGT
 
Florida Gas Transmission Company, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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GAAP
 
accounting principles generally accepted in the United States of America
 
 
 
HPC
 
RIGS Haynesville Partnership Co.
 
 
 
Holdco
 
ETP Holdco Corporation
 
 
 
Holdco Acquisition
 
ETP’s April 30, 2013 acquisition of ETE’s 60% interest in Holdco
 
 
 
Holdco Transaction
 
October 5, 2012 transaction including contributions from ETP and ETE to Holdco
 
 
 
IDRs
 
incentive distribution rights
 
 
 
LIBOR
 
London Interbank Offered Rate
 
 
 
LNG
 
liquefied natural gas
 
 
 
Lone Star
 
Lone Star NGL LLC
 
 
 
MGE
 
Missouri Gas Energy
 
 
 
MEP
 
Midcontinent Express Pipeline LLC
 
 
 
MMBtu
  
million British thermal units
 
 
 
MTBE
 
methyl tertiary butyl ether
 
 
 
NEG
 
New England Gas Company
 
 
 
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 and its subsidiaries
 
 
 
PCBs
 
polychlorinated biphenyl
 
 
 
PEPL
 
Panhandle Eastern Pipe Line Company, LP
 
 
 
PEPL Holdings
 
PEPL Holdings, LLC, a wholly-owned subsidiary of Southern Union, which owns the general partner and 100% of the limited partner interests in Panhandle Eastern Pipeline Company, LP
 
 
 
PES
 
Philadelphia Energy Solutions
 
 
 
PHMSA
 
Pipeline Hazardous Materials Safety Administration
 
 
 
Preferred Units
 
ETE’s Series A Convertible Preferred Units
 
 
 
Propane Business
 
Heritage Operating, L.P. and Titan Energy Partners, L.P.
 
 
 
Propane Contribution
 
ETP’s contribution of its Propane Business to AmeriGas
 
 
 
Regency
 
Regency Energy Partners LP
 
 
 
Regency Credit Facility
 
Regency’s $1.2 billion revolving credit facility
 
 
 
Regency Preferred Units
 
Regency’s Series A Convertible Preferred Units, the Preferred Units of a Subsidiary
 
 
 
SEC
 
Securities and Exchange Commission
 
 
 
Southern Union
 
Southern Union Company
 
 
 
Southern Union Merger
 
ETE’s acquisition of Southern Union on March 26, 2012
 
 
 
SUGS
 
Southern Union Gas Services
 
 
 
Sunoco
 
Sunoco, Inc.

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Sunoco Logistics
 
Sunoco Logistics Partners L.P.
 
 
 
Sunoco Merger
 
ETP’s acquisition of Sunoco on October 5, 2012
 
 
 
Transwestern
 
Transwestern Pipeline Company, LLC
 
 
 
WTI
  
West Texas Intermediate Crude

Adjusted EBITDA is a term used throughout this document, which we define as earnings before interest, taxes, depreciation, 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, loss on extinguishment of debt, gain on deconsolidation of ETP’s Propane Business and other non-operating income or expense items. Unrealized gains and losses on commodity risk management activities includes unrealized gains and losses on commodity derivatives and inventory fair value adjustments (excluding lower of cost or market adjustments). Adjusted EBITDA reflects amounts for less than wholly owned subsidiaries based on 100% of the subsidiaries’ results of operations and for unconsolidated affiliates based on the Partnership’s proportionate ownership.

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
 
 
September 30,
2013
 
December 31, 2012
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
1,177

 
$
372

Accounts receivable, net
3,546

 
3,057

Accounts receivable from related companies
51

 
71

Inventories
1,697

 
1,522

Exchanges receivable
43

 
55

Price risk management assets
36

 
25

Current assets held for sale
16

 
184

Other current assets
321

 
311

Total current assets
6,887

 
5,597

 
 
 
 
PROPERTY, PLANT AND EQUIPMENT
32,623

 
30,388

ACCUMULATED DEPRECIATION
(2,949
)
 
(2,104
)
 
29,674

 
28,284

 
 
 
 
NON-CURRENT ASSETS HELD FOR SALE
145


985

ADVANCES TO AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES
4,087

 
4,737

NON-CURRENT PRICE RISK MANAGEMENT ASSETS
20

 
43

GOODWILL
6,428

 
6,434

INTANGIBLE ASSETS, net
2,195

 
2,291

OTHER NON-CURRENT ASSETS, net
607

 
533

Total assets
$
50,043

 
$
48,904

















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

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ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in million)
(unaudited)

 
September 30,
2013
 
December 31, 2012
LIABILITIES AND EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
3,544

 
$
3,107

Accounts payable to related companies
11

 
15

Exchanges payable
190

 
156

Price risk management liabilities
69

 
115

Accrued and other current liabilities
1,922

 
1,754

Current maturities of long-term debt
298

 
613

Current liabilities held for sale
13

 
85

Total current liabilities
6,047

 
5,845

 
 
 
 
NON-CURRENT LIABILTIES HELD FOR SALE
70


142

LONG-TERM DEBT, less current maturities
22,011

 
21,440

PREFERRED UNITS

 
331

DEFERRED INCOME TAXES
3,708

 
3,566

NON-CURRENT PRICE RISK MANAGEMENT LIABILITIES
78

 
162

OTHER NON-CURRENT LIABILITIES
893

 
995

 
 
 
 
COMMITMENTS AND CONTINGENCIES (Note 14)

 

 
 
 
 
PREFERRED UNITS OF SUBSIDIARY
32

 
73

 
 
 
 
EQUITY:
 
 
 
General Partner
(2
)
 

Limited Partners:
 
 
 
Common Unitholders
1,401

 
2,125

Accumulated other comprehensive income (loss)
1

 
(12
)
Total partners’ capital
1,400

 
2,113

Noncontrolling interest
15,804

 
14,237

Total equity
17,204

 
16,350

Total liabilities and equity
$
50,043

 
$
48,904










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

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ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per unit data)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
REVENUES:
 
 
 
 
 
 
 
Natural gas sales
$
915

 
$
734

 
$
2,752

 
$
1,791

NGL sales
968

 
585

 
2,468

 
1,705

Crude sales
4,215

 

 
11,408

 

Gathering, transportation and other fees
786

 
627

 
2,341

 
1,712

Refined product sales
4,633

 

 
13,945

 

Other
969

 
158

 
2,814

 
443

Total revenues
12,486

 
2,104

 
35,728

 
5,651

COSTS AND EXPENSES:
 
 
 
 
 
 
 
Cost of products sold
11,064

 
1,228

 
31,436

 
3,205

Operating expenses
403

 
208

 
1,127

 
614

Depreciation and amortization
332


211

 
962

 
571

Selling, general and administrative
158

 
98

 
499

 
353

Total costs and expenses
11,957

 
1,745

 
34,024

 
4,743

OPERATING INCOME
529

 
359

 
1,704

 
908

OTHER INCOME (EXPENSE):
 
 
 
 
 
 
 
Interest expense, net of interest capitalized
(298
)

(237
)
 
(913
)
 
(732
)
Bridge loan related fees



 

 
(62
)
Equity in earnings of unconsolidated affiliates
38

 
21

 
182

 
118

Gain on deconsolidation of Propane Business



 

 
1,057

Losses on extinguishment of debt

 

 
(7
)
 
(123
)
Gains (losses) on interest rate derivatives
3


(6
)
 
55

 
(23
)
Gain on sale of AmeriGas common units
87

 

 
87

 

Other, net
33

 
(3
)
 

 
28

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX EXPENSE
392

 
134

 
1,108

 
1,171

Income tax expense from continuing operations
49


26

 
136


33

INCOME FROM CONTINUING OPERATIONS
343

 
108

 
972

 
1,138

Income (loss) from discontinued operations
13


(142
)
 
44


(136
)
NET INCOME (LOSS)
356

 
(34
)
 
1,016

 
1,002

LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
205

 
(69
)
 
648

 
747

NET INCOME ATTRIBUTABLE TO PARTNERS
151

 
35

 
368

 
255

GENERAL PARTNER’S INTEREST IN NET INCOME
1

 

 
1

 
1

LIMITED PARTNERS’ INTEREST IN NET INCOME
$
150

 
$
35

 
$
367

 
$
254

INCOME FROM CONTINUING OPERATIONS PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.52

 
$
0.23

 
$
1.24

 
$
1.06

Diluted
$
0.52

 
$
0.23

 
$
1.24

 
$
1.06

NET INCOME PER LIMITED PARTNER UNIT:
 
 
 
 
 
 
 
Basic
$
0.54

 
$
0.13

 
$
1.31

 
$
0.97

Diluted
$
0.54

 
$
0.13

 
$
1.31

 
$
0.97


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

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ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
(unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Net income (loss)
$
356

 
$
(34
)
 
$
1,016

 
$
1,002

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Reclassification to earnings of gains and losses on derivative instruments accounted for as cash flow hedges
(3
)
 
(7
)
 
(5
)
 
(15
)
Change in value of derivative instruments accounted for as cash flow hedges
(4
)
 
(7
)
 
4

 
14

Change in value of available-for-sale securities
1

 

 
1

 

Actuarial gain relating to pension and other postretirement benefits
8

 

 
9

 

Foreign currency translation adjustment

 

 
(1
)
 

Change in other comprehensive income from equity investments
9

 
8

 
13

 
(14
)
 
11

 
(6
)
 
21

 
(15
)
Comprehensive income (loss)
367

 
(40
)
 
1,037

 
987

Less: Comprehensive income (loss) attributable to noncontrolling interest
213

 
(67
)
 
660

 
739

Comprehensive income attributable to partners
$
154

 
$
27

 
$
377

 
$
248





























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

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ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013
(Dollars in millions)
(unaudited)
 
 
General
Partner    
 
Common
Unitholders    
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total    
Balance, December 31, 2012
$

 
$
2,125

 
$
(12
)
 
$
14,237

 
$
16,350

Distributions to partners
(1
)
 
(543
)
 

 

 
(544
)
Distributions to noncontrolling interest

 

 

 
(1,050
)
 
(1,050
)
Subsidiary units issued for cash

 
96

 

 
1,354

 
1,450

Subsidiary units issued in certain acquisitions
(1
)
 
(506
)
 

 
507

 

Non-cash compensation expense, net of units tendered by employees for tax withholdings

 
4

 

 
44

 
48

Capital contributions from noncontrolling interest

 

 

 
15

 
15

Other, net
(1
)
 
(1
)
 
4

 
(4
)
 
(2
)
Conversion of Regency Preferred Units for Regency Common Units

 

 

 
41

 
41

Deemed distribution related to SUGS Transaction

 
(141
)
 

 

 
(141
)
Other comprehensive income, net of tax

 

 
9

 
12

 
21

Net income
1

 
367

 

 
648

 
1,016

Balance, September 30, 2013
$
(2
)
 
$
1,401

 
$
1

 
$
15,804

 
$
17,204
























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

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Table of Contents

ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
 
Nine Months Ended
September 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
1,016

 
$
1,002

Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
962

 
571

Deferred income taxes
244

 
37

Gain on curtailment of other postretirement benefit plans

 
(15
)
Amortization of finance costs charged to interest
(43
)
 
6

Bridge loan related fees

 
62

Non-cash compensation expense
43

 
34

Gain on deconsolidation of Propane Business

 
(1,057
)
Gain on sale of AmeriGas common units
(87
)
 

Write-down of assets included in loss from discontinued operations

 
145

Losses on extinguishment of debt
7

 
123

LIFO valuation adjustments
(22
)
 

Equity in earnings of unconsolidated affiliates
(182
)
 
(118
)
Distributions from unconsolidated affiliates
269

 
153

Other non-cash
22

 
74

Net change in operating assets and liabilities, net of effects of acquisitions and deconsolidation (see Note 2)
(382
)
 
(120
)
Net cash provided by operating activities
1,847

 
897

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Cash paid for Southern Union Merger, net of cash received

 
(2,972
)
Cash paid for all other acquisitions, net of cash received
(5
)
 
(10
)
Cash proceeds from the sale of MGE assets, net (See Note 2)
973

 

Cash proceeds from the sale of AmeriGas common units
346

 

Capital expenditures (excluding allowance for equity funds used during construction)
(2,504
)
 
(2,239
)
Contributions in aid of construction costs
11

 
28

Contributions to unconsolidated affiliates
(3
)
 
(35
)
Distributions from unconsolidated affiliates in excess of cumulative earnings
326

 
139

Proceeds from the sale of assets
72

 
35

Cash proceeds from contribution of propane operations

 
1,443

Other
(49
)
 
(2
)
Net cash used in investing activities
(833
)
 
(3,613
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from borrowings
9,768

 
9,081

Repayments of long-term debt
(9,439
)
 
(6,144
)
Subsidiary equity offerings, net of issue costs
1,450

 
1,084

Distributions to partners
(544
)
 
(491
)
Debt issuance costs
(56
)
 
(99
)
Distributions to noncontrolling interest
(1,050
)
 
(688
)
Capital contributions received from noncontrolling interest
15

 
24

Redemption of Preferred Units
(340
)
 

Other, net
(13
)
 
(5
)
Net cash provided by (used in) financing activities
(209
)
 
2,762

INCREASE IN CASH AND CASH EQUIVALENTS
805

 
46

CASH AND CASH EQUIVALENTS, beginning of period
372

 
126

CASH AND CASH EQUIVALENTS, end of period
$
1,177

 
$
172


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

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Table of Contents

ENERGY TRANSFER EQUITY, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular dollar and unit amounts, except per unit data, are in millions)
(unaudited)
1.
OPERATIONS AND ORGANIZATION:
Unless the context requires otherwise, references to “we,” “us,” “our,” the “Partnership” and “ETE” mean Energy Transfer Equity, L.P. and its consolidated subsidiaries. References to the “Parent Company” mean Energy Transfer Equity, L.P. 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 and Regency (see description of their respective operations below under “Business Operations”); and
ETP’s and Regency’s consolidated subsidiaries and our wholly-owned subsidiaries that own the general partner and IDR interests in ETP and Regency.
Business Operations
The Parent Company’s principal sources of cash flow are derived from its direct and indirect investments in the limited partner and general partner interests in ETP and Regency. 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 19 for stand-alone financial information apart from that of the consolidated partnership information included herein.
Our activities are primarily conducted through our operating subsidiaries as follows:
ETP’s operations are conducted through the following subsidiaries:
ETC OLP, a Texas limited partnership engaged in midstream and intrastate transportation and storage natural gas operations. ETC OLP owns and operates, through its wholly and majority-owned subsidiaries, natural gas gathering systems, intrastate natural gas pipeline systems and gas processing plants and is engaged in the business of purchasing, gathering, transporting, processing, and marketing natural gas and NGLs in the states of Texas, Louisiana, New Mexico and West Virginia. ETC OLP’s intrastate transportation and storage operations primarily focus on transporting natural gas in Texas through our Oasis pipeline, ET Fuel System, East Texas pipeline and HPL System. ETC OLP’s midstream operations focus on the gathering, compression, treating, conditioning and processing of natural gas, primarily on or through our Southeast Texas System, Eagle Ford System, North Texas System and Northern Louisiana assets. ETC OLP also owns a 70% interest in Lone Star.
Energy Transfer Interstate Holdings, LLC, a Delaware limited liability company with revenues consisting primarily of fees earned from natural gas transportation services and operational gas sales, which is the parent company of:
Transwestern, a Delaware limited liability company engaged in interstate transportation of natural gas. Transwestern’s revenues consist primarily of fees earned from natural gas transportation services and operational gas sales.
ETC FEP, a Delaware limited liability company that directly owns a 50% interest in FEP, which owns 100% of the Fayetteville Express interstate natural gas pipeline.
ETC Tiger, a Delaware limited liability company engaged in interstate transportation of natural gas.
CrossCountry, a Delaware limited liability company that indirectly owns a 50% interest in Citrus, which owns 100% of the FGT interstate natural gas pipeline.
ETC Compression, a Delaware limited liability company engaged in natural gas compression services and related equipment sales.

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Sunoco Logistics, a publicly traded Delaware limited partnership that owns and operates a logistics business, consisting of refined products and crude oil pipelines, terminalling and storage assets, and refined products and crude oil acquisition and marketing assets.
Holdco, a Delaware limited liability company that indirectly owns Southern Union and Sunoco. As discussed in Note 2, ETP acquired ETE’s 60% interest in Holdco on April 30, 2013. Sunoco and Southern Union operations are described as follows:
Southern Union owns and operates assets in the regulated and unregulated natural gas industry and is primarily engaged in the transportation, storage and distribution of natural gas in the United States. As discussed in Note 2, on April 30, 2013, Southern Union completed its contribution to Regency of all of the issued and outstanding membership interests in Southern Union Gathering Company, LLC, and its subsidiaries, including SUGS. Additionally, as discussed in Note 2, on September 1, 2013, Southern Union completed its sale of the assets of MGE to Laclede Gas Company.
Sunoco owns and operates retail marketing assets, which sell gasoline and middle distillates at retail and operates convenience stores primarily on the east coast and in the midwest region of the United States.
Regency is a publicly traded partnership engaged in the gathering and processing, compression, treating and transportation of natural gas and the transportation, fractionation and storage of NGLs. Regency focuses on providing midstream services in some of the most prolific natural gas producing regions in the United States, including the Eagle Ford, Haynesville, Barnett, Fayetteville, Marcellus, Utica, Bone Spring, Avalon and Granite Wash shales. Its assets are located in Texas, Louisiana, Arkansas, Pennsylvania, California, Mississippi, Alabama, New Mexico and the mid-continent region of the United States, which includes Kansas, Colorado and Oklahoma. Regency also holds a 30% interest in Lone Star.
Our reportable segments reflect the following reportable business segments:
Investment in ETP, including the consolidated operations of ETP.
Investment in Regency, including the consolidated operations of Regency.
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.
Preparation of Interim Financial Statements
The accompanying consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements and notes thereto of the Partnership as of September 30, 2013 and for the three months ended September 30, 2013 and 2012, have been prepared in accordance with GAAP for interim consolidated financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. However, management believes that the disclosures made are adequate to make the information not misleading. The results of operations for interim periods are not necessarily indicative of the results to be expected for a full year due to the seasonal nature of the Partnership’s operations, maintenance activities of the Partnership’s subsidiaries and the impact of forward natural gas prices and differentials on certain derivative financial instruments that are accounted for using mark-to-market accounting.
In the opinion of management, all adjustments (all of which are normal and recurring) have been made that are necessary to fairly state the consolidated financial position of the Partnership as of September 30, 2013, and the Partnership’s results of operations and cash flows for the three and nine months ended September 30, 2013 and 2012. The unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto presented in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 1, 2013.
Certain prior period amounts have been reclassified to conform to the 2013 presentation. These reclassifications had no impact on net income or total equity.
As a result of the Southern Union Merger in March 2012 and the Holdco Transaction in October 2012, the periods presented herein do not include activities from Southern Union or Sunoco prior to the consummation of the respective mergers and/or transactions.


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2.
ACQUISITIONS, DIVESTITURES AND RELATED TRANSACTIONS:
Sale of Distribution Operations
In December 2012, Southern Union entered into a purchase and sale agreement with The Laclede Group, Inc., pursuant to which Laclede Missouri agreed to acquire the assets of Southern Union’s MGE division and Laclede Massachusetts agreed to acquire the assets of Southern Union’s NEG division (together, the “LDC Disposal Group”). As of January 2013, Laclede Gas Company, a subsidiary of The Laclede Group, Inc., assumed all of Laclede Missouri’s rights and obligations under the purchase and sale agreement. In February 2013, The Laclede Group, Inc. entered into an agreement with Algonquin Power & Utilities Corp (“APUC”) that allows a subsidiary of APUC to assume the rights of The Laclede Group, Inc. to purchase the assets of Southern Union’s NEG division, subject to certain approvals.
Effective September 1, 2013, Southern Union completed its sale of the assets of MGE to Laclede Gas Company for an aggregate purchase price of $975 million, subject to customary post-closing adjustments. The sale of Southern Union’s NEG division is expected to close in the fourth quarter of 2013 for cash proceeds of $40 million, subject to customary post-closing adjustments and the assumption of $20 million of debt.
The LDC Disposal Group’s operations have been classified as discontinued operations for all periods in the consolidated statements of operations. The assets and liabilities of the LDC Disposal Group have been classified as assets and liabilities held for sale.
SUGS Contribution
On April 30, 2013, Southern Union completed its contribution to Regency of all of the issued and outstanding membership interest in Southern Union Gathering Company, LLC, and its subsidiaries, including SUGS (the “SUGS Contribution”). The consideration paid by Regency in connection with this transaction consisted of (i) the issuance of approximately 31.4 million Regency common units to Southern Union, (ii) the issuance of approximately 6.3 million Regency Class F units to Southern Union, (iii) the distribution of $463 million in cash to Southern Union, net of closing adjustments, and (iv) the payment of $30 million in cash to a subsidiary of ETP. This transaction was between commonly controlled entities; therefore, the amounts recorded in the consolidated balance sheet for the investment in Regency and the related deferred tax liabilities were based on the historical book value of SUGS. In addition, PEPL Holdings, a wholly-owned subsidiary of Southern Union, provided a guarantee of collection with respect to the payment of the principal amounts of Regency’s debt related to the SUGS Contribution. The Regency Class F units have the same rights, terms and conditions as the Regency common units, except that Southern Union will not receive distributions on the Regency Class F units for the first eight consecutive quarters following the closing, and the Regency Class F units will thereafter automatically convert into Regency common units on a one-for-one basis.
ETP’s Acquisition of ETE’s Holdco Interest
On April 30, 2013, ETP acquired ETE’s 60% interest in Holdco for approximately 49.5 million of newly issued ETP Common Units and $1.40 billion in cash, less $68 million of closing adjustments. As a result, ETP now owns 100% of Holdco. ETE, which owns the general partner and IDRs of ETP, agreed to forego incentive distributions on the newly issued ETP units for each of the first eight consecutive quarters beginning with the quarter in which the closing of the transaction occurred and 50% of incentive distributions on the newly issued ETP units for the following eight consecutive quarters. ETP controlled Holdco prior to this acquisition; therefore, the transaction did not constitute a change of control.
Sunoco Merger
On October 5, 2012, Sam Acquisition Corporation, a Pennsylvania corporation and a wholly-owned subsidiary of ETP, completed its merger with Sunoco. Under the terms of the merger agreement, Sunoco shareholders received a total of approximately 55 million ETP Common Units and $2.6 billion in cash.
Regency’s Acquisition of PVR Partners, L.P.
On October 10, 2013, Regency and PVR Partners, L.P. (“PVR”) announced the approval of a merger agreement, pursuant to which Regency intends to propose to acquire PVR. This acquisition will be a unit-for-unit transaction plus a one-time $40 million cash payment to PVR unitholders which represents total consideration of $5.6 billion, including the assumption of net debt of $1.8 billion. The holders of PVR common units, PVR Class B Units and PVR Special Units (“PVR Unit(s)”) will receive 1.02 Regency common units in exchange for each PVR Unit held on the applicable record date. The transaction is subject to the approval of PVR’s unitholders, Hart-Scott-Rodino Antitrust Improvements Act approval and other customary closing conditions. The transaction is expected to close in the first quarter of 2014.

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3.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
The following investments in unconsolidated affiliates are reflected in our consolidated financial statements using the equity method:
AmeriGas. ETP received approximately 30 million AmeriGas common units in connection with the Partnership’s contribution of its retail propane operations to AmeriGas in January 2012. On July 12, 2013, ETP sold 7.5 million of its AmeriGas common units for net proceeds of $346 million. ETP currently owns approximately 22 million AmeriGas common units.
Citrus. ETP owns a 50% interest in Citrus, which owns 100% of FGT, an approximate 5,400 mile natural gas pipeline system that originates in Texas and delivers natural gas to the Florida peninsula. The other 50% interest in Citrus is owned by a subsidiary of Kinder Morgan, Inc.
FEP. ETP owns a 50% interest in the FEP, which owns an approximately 185-mile natural gas pipeline that originates in Conway County, Arkansas, continues eastward through White County, Arkansas and terminates at an interconnect with Trunkline Gas Company, LLC in Panola County, Mississippi.
HPC. Regency owns a 49.99% interest in HPC, which, through its ownership of the Regency Intrastate Gas System, delivers natural gas from Northwest Louisiana to downstream pipelines and markets through a 450-mile intrastate pipeline system.
MEP. Regency owns a 50% interest in MEP, which owns approximately 500 miles of natural gas pipelines that extend from Southeast Oklahoma, across Northeast Texas, Northern Louisiana and Central Mississippi to an interconnect with the Transcontinental natural gas pipeline system in Butler, Alabama.
PES. Sunoco owns an approximate 30% non-operating interest in PES, a joint venture with The Carlyle Group, L.P., which owns a refinery in Philadelphia. Sunoco has a ten-year supply contract for gasoline and diesel produced at the refinery for its retail marketing business.
The following table presents aggregated selected income statement data for our unconsolidated affiliates listed above (on a 100% basis for all periods presented).
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Revenue
$
5,208

 
$
1,840

 
$
14,710

 
$
4,251

Operating income
163

 
273

 
803

 
807

Net income
21

 
111

 
409

 
376

In addition to the equity method investments described above, ETP and Regency have other equity method investments, which are not significant to our consolidated financial statements.


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4.
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.
Non-cash investing and financing activities are as follows:
 
Nine Months Ended
September 30,
 
2013
 
2012
NON-CASH INVESTING ACTIVITIES:
 
 
 
Accrued capital expenditures
$
260

 
$
432

Net gains (losses) from subsidiary common unit transactions
$
(410
)
 
$
33

AmeriGas limited partner interest received in Propane Contribution
$

 
$
1,123

NON-CASH FINANCING ACTIVITIES:
 
 
 
Issuance of common units in connection with Southern Union Merger
$

 
$
2,354

Subsidiary issuances of common units in connection with certain acquisitions
$

 
$
112


5.
INVENTORIES:
Inventories consisted of the following:
 
September 30,
2013
 
December 31,
2012
Natural gas and NGLs
$
513

 
$
338

Crude oil
464

 
418

Refined products
517

 
572

Other
203

 
194

Total inventories
$
1,697

 
$
1,522


ETP utilizes commodity derivatives to manage price volatility associated with its natural gas inventory and designates certain of these derivatives as fair value hedges for accounting purposes. Changes in fair value of the designated hedged inventory have been recorded in inventory on our consolidated balance sheets and in cost of products sold in our consolidated statements of operations.
6.
FAIR VALUE MEASUREMENTS:
We have commodity derivatives, interest rate derivatives, the Preferred Units and embedded derivatives in the Regency Preferred Units 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 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, and we discount the future cash flows accordingly, including the effects of credit risk. Level 3 inputs are unobservable. Derivatives related to the Regency Preferred Units are valued using a binomial lattice model. The market inputs utilized in the model include credit spread, probabilities of the occurrence of certain events, common unit price, dividend yield, and expected value, and are considered Level 3. At December 31, 2012, the fair value of the Preferred Units was based predominantly on an income approach model and considered Level 3. The Preferred Units were redeemed on April 1, 2013.
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 of our consolidated debt obligations as of September 30, 2013 and December 31, 2012

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was $22.96 billion and $24.15 billion, respectively. As of September 30, 2013 and December 31, 2012, the aggregate carrying amount of our consolidated debt obligations was $22.31 billion and $22.05 billion, respectively. The fair value of our consolidated debt obligations is a Level 2 valuation based on the observable inputs used for similar liabilities.
The following tables summarize the fair value of our financial assets and liabilities measured and recorded at fair value on a recurring basis as of September 30, 2013 and December 31, 2012 based on inputs used to derive their fair values:
 
Fair Value Measurements at
September 30, 2013
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
43

 
$

 
$
43

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
4

 
4

 

 

Swing Swaps IFERC
1

 

 
1

 

Fixed Swaps/Futures
90

 
84

 
6

 

Options — Calls
1

 

 
1

 

Forward Physical Contracts
1

 

 
1

 

NGLs — Forwards/Swaps
10

 
9

 
1

 

Power — Forwards
2

 

 
2

 

Refined Products — Futures
25

 
25

 

 

Total commodity derivatives
134

 
122

 
12

 

Total Assets
$
177

 
$
122

 
$
55

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(112
)
 
$

 
$
(112
)
 
$

Embedded derivatives in the Regency Preferred Units
(23
)
 

 

 
(23
)
Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps
(2
)
 

 
(2
)
 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(8
)
 
(8
)
 

 

Swing Swaps IFERC
(2
)
 

 
(2
)
 

Fixed Swaps/Futures
(59
)
 
(58
)
 
(1
)
 

Options — Calls
(1
)
 

 
(1
)
 

NGLs — Forwards/Swaps
(10
)
 
(8
)
 
(2
)
 

Power:
 
 
 
 
 
 
 
Forwards
(1
)
 

 
(1
)
 

Options — Calls
(2
)
 

 
(2
)
 

Refined Products — Futures
(16
)
 
(16
)
 

 

Crude — Futures
(2
)
 
(2
)
 

 

Total commodity derivatives
(103
)
 
(92
)
 
(11
)
 

Total Liabilities
$
(238
)
 
$
(92
)
 
$
(123
)
 
$
(23
)



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Table of Contents

 
Fair Value Measurements at
December 31, 2012
 
Fair Value
Total
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
Interest rate derivatives
$
55

 
$

 
$
55

 
$

Commodity derivatives:
 
 
 
 
 
 
 
Condensate — Forward Swaps
2

 

 
2

 

Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
11

 
11

 

 

Swing Swaps IFERC
3

 

 
3

 

Fixed Swaps/Futures
98

 
94

 
4

 

Options — Calls
3

 

 
3

 

Options — Puts
1

 

 
1

 

Forward Physical Contracts
1

 

 
1

 

NGLs — Swaps
2

 
1

 
1

 

Power:
 
 
 
 
 
 
 
Forwards
27

 

 
27

 

Futures
1

 
1

 

 

Options — Calls
2

 

 
2

 

Refined Products — Futures
5

 
1

 
4

 

Total commodity derivatives
156

 
108

 
48

 

Total Assets
$
211

 
$
108

 
$
103

 
$

Liabilities:
 
 
 
 
 
 
 
Interest rate derivatives
$
(235
)
 
$

 
$
(235
)
 
$

Preferred Units
(331
)
 

 

 
(331
)
Embedded derivatives in the Regency Preferred Units
(25
)
 

 

 
(25
)
Commodity derivatives:
 
 
 
 
 
 
 
Natural Gas:
 
 
 
 
 
 
 
Basis Swaps IFERC/NYMEX
(18
)
 
(18
)
 

 

Swing Swaps IFERC
(2
)
 

 
(2
)
 

Fixed Swaps/Futures
(103
)
 
(94
)
 
(9
)
 

Options — Calls
(3
)
 

 
(3
)
 

Options — Puts
(1
)
 

 
(1
)
 

NGLs — Swaps
(4
)
 
(3
)
 
(1
)
 

Power:
 
 
 
 
 
 
 
Forwards
(27
)
 

 
(27
)
 

Futures
(2
)
 
(2
)
 

 

Refined Products — Futures
(8
)
 
(1
)
 
(7
)
 

Total commodity derivatives
(168
)
 
(118
)
 
(50
)
 

Total Liabilities
$
(759
)
 
$
(118
)
 
$
(285
)
 
$
(356
)

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The following table presents a reconciliation of the beginning and ending balances for our Level 3 financial instruments measured at fair value on a recurring basis using significant unobservable inputs for the nine months ended September 30, 2013. There were no transfers between the fair value hierarchy levels during the nine months ended September 30, 2013 or 2012.
Balance, December 31, 2012
$
(356
)
Realized loss included in other income (expense)
(9
)
Net unrealized gain included in other income (expense)
2

Redemption of Preferred Units
340

Balance, September 30, 2013
$
(23
)

  
7.
NET INCOME PER LIMITED PARTNER UNIT:
A reconciliation of income from continuing operations and weighted average units used in computing basic and diluted income from continuing operations per unit is as follows:
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Income from continuing operations
$
343

 
$
108

 
$
972

 
$
1,138

Less: Income from continuing operations attributable to noncontrolling interest
195

 
45

 
623

 
860

Income from continuing operations, net of noncontrolling interest
148

 
63

 
349

 
278

Less: General Partner’s interest in income from continuing operations
1

 

 
1

 

Income from continuing operations available to Limited Partners
$
147

 
$
63

 
$
348

 
$
278

Basic Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Weighted average limited partner units
280.7

 
280.0

 
280.4

 
262.3

Basic income from continuing operations per Limited Partner unit
$
0.52

 
$
0.23

 
$
1.24

 
$
1.06

Basic income (loss) from discontinued operations per Limited Partner unit
$
0.02

 
$
(0.10
)
 
$
0.07

 
$
(0.09
)
Diluted Income from Continuing Operations per Limited Partner Unit:
 
 
 
 
 
 
 
Income from continuing operations available to Limited Partners
$
147

 
$
63

 
$
348

 
$
278

Dilutive effect of equity-based compensation of subsidiaries

 

 
(1
)
 
(1
)
Diluted income from continuing operations available to Limited Partners
$
147

 
$
63

 
$
347

 
$
277

Weighted average limited partner units
280.7

 
280.0

 
280.4

 
262.3

Diluted income from continuing operations per Limited Partner unit
$
0.52

 
$
0.23

 
$
1.24

 
$
1.06

Diluted income (loss) from discontinued operations per Limited Partner unit
$
0.02

 
$
(0.10
)
 
$
0.07

 
$
(0.09
)


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Table of Contents

8.
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.
Term Loan
On March 23, 2012, ETE entered into a Senior Secured Term Loan Agreement (the “Term Credit Agreement”) with Credit Suisse AG, as Administrative Agent, and the other lenders from time to time party thereto (the “Term Lenders”), which became effective on March 26, 2012. The Term Credit Agreement has a scheduled maturity date of March 26, 2017, with an option for ETE to extend the term subject to the terms and conditions set forth therein. Pursuant to the Term Credit Agreement, the Term Lenders have provided senior secured financing in an aggregate principal amount of $2 billion. Interest accrues on advances at a LIBOR rate or a base rate plus an applicable margin based on the election of ETE for each interest period. The applicable margin for LIBOR rate loans is 3.00% and the applicable margin for base rate loans is 2.00%.  Proceeds of the borrowings under the Term Credit Agreement were used to partially fund the Southern Union Merger, to repay amounts outstanding under the Parent Company Credit Facility, and to pay transaction fees and expenses related to the Southern Union Merger, the new Term Credit Agreement and other transactions incidental thereto.
During the nine months ended September 30, 2013, proceeds from ETP’s acquisition of ETE’s 60% interest in Holdco were used to repay borrowings of $1.10 billion on ETE’s Term Credit Agreement. The total amount outstanding as of September 30, 2013 was $900 million.
Revolving Credit Facility
As of September 30, 2013, there were no outstanding borrowings under the Parent Company Credit Facility and the amount available for future borrowings was $200 million.
Senior Notes
The Parent Company currently has outstanding on aggregate of $1.80 billion in principal amount of 7.5% Senior Notes due 2020 (the “ETE Notes”).
Refinancing Activities
On October 30, 2013, the Parent Company commenced an offer to purchase for cash up to $400 million aggregate principal amount outstanding of the ETE Notes pursuant to the Offer to Purchase Statement dated October 30, 2013, which tender offer amount may be increased at the discretion of the Parent Company. The tender offer is subject to a financing condition, and the Parent Company may obtain financing for purchases of ETE Notes in the tender offer pursuant to the issuance of new senior notes, borrowings under a new term loan facility or other debt financings. In this regard, the Parent Company has also announced that it has launched a syndication of a new senior secured term loan credit facility to refinance its existing term loan facility under the Term Credit Agreement. The Parent Company is also arranging a new five-year revolving credit facility for up to $600 million.
Subsidiary Indebtedness
Regency Senior Notes
In April 2013, in conjunction with Southern Union’s contribution of SUGS to Regency, Regency issued $600 million aggregate principal amount of senior notes in a private placement that mature November 2023 and bear interest at 4.5% payable semi-annually. At any time prior to August 2023, Regency may redeem some or all of the senior notes due 2023 at a price equal to 100% of the principal amount plus a make-whole premium and accrued interest. On or after August 1, 2023, Regency may redeem some or all of the senior notes due 2023 at a price equal to 100% plus accrued interest.
In June 2013, Regency redeemed all of the $163 million outstanding 9.375% Senior Notes due 2016 for $178 million cash, including accrued and unpaid interest of $7 million and other fees and expenses.
In September 2013, Regency issued $400 million aggregate principal amount of senior notes that mature September 2020 and bear interest at 5.75% payable semi-annually. Regency used the net proceeds of approximately $394 million from the offering to repay borrowings outstanding under the Regency Credit Facility.

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Table of Contents

ETP Senior Notes
In January 2013, ETP issued $800 million aggregate principal amount of 3.6% Senior Notes due February 2023 and $450 million aggregate principal amount of 5.15% Senior Notes due February 2043. ETP used the net proceeds of $1.24 billion from the offering to repay borrowings outstanding under the ETP Credit Facility and for general partnership purposes.
In September 2013, ETP issued $700 million aggregate principal amount of 4.15% Senior Notes due October 2020, $350 million aggregate principal amount of 4.90% Senior Notes due February 2024 and $450 million aggregate principal amount of 5.95% Senior Notes due October 2043. ETP used the net proceeds of $1.47 billion from the offering to repay $455 million in borrowings outstanding under the term loan of Panhandle’s wholly-owned subsidiary, Trunkline LNG Holdings, LLC, to repay borrowings outstanding under the ETP Credit Facility and for general partnership purposes.
Sunoco Logistics Senior Notes
In January 2013, Sunoco Logistics issued $350 million aggregate principal amount of 3.45% Senior Notes due January 2023 and $350 million aggregate principal amount of 4.95% Senior Notes due January 2043. The net proceeds of $691 million from the offering were used to pay outstanding borrowings under the Sunoco Logistics’ Credit Facilities and for general partnership purposes.
ETP Note Exchange
On June 24, 2013, ETP completed the exchange of approximately $1.09 billion aggregate principal amount of Southern Union’s outstanding senior notes, comprising 77% of the principal amount of the 7.6% Senior Notes due 2024, 89% of the principal amount of the 8.25% Senior Notes due 2029 and 91% of the principal amount of the Junior Subordinated Notes due 2066.  These notes were exchanged for new notes issued by ETP with the same coupon rates and maturity dates.  In conjunction with this transaction, Southern Union entered into intercompany notes payable to ETP, which provide for the reimbursement by Southern Union of ETP’s payments under the newly issued notes.
Subsidiary Credit Facilities
ETP Credit Facility
ETP has a $2.5 billion revolving credit facility which expires in October 2016. Indebtedness under the ETP Credit Facility is unsecured and not guaranteed by any of the Partnership’s subsidiaries and has equal rights to holders of ETP’s current and future unsecured debt. There were no outstanding borrowings under the ETP Credit Facility as of September 30, 2013.
Regency Credit Facility
In May 2013, Regency entered into an amendment to the Regency Credit Facility to increase the borrowing capacity of the Regency Credit Facility to $1.2 billion with a $300 million uncommitted incremental facility and extended the maturity date to May 21, 2018. Indebtedness under the Regency Credit Facility is secured by all of Regency’s and certain of its subsidiaries’ tangible and intangible assets and guaranteed by certain of Regency’s subsidiaries.
As of September 30, 2013, the Regency Credit Facility had a balance outstanding of $176 million in revolving credit loans and approximately $15 million in letters of credit. The total amount available under the Regency Credit Facility, as of September 30, 2013, which was reduced by any letters of credit, was approximately $1.01 billion, and the weighted average interest rate on the total amount outstanding as of September 30, 2013 was 2.19%.
Southern Union Credit Facilities
Proceeds from the SUGS Contribution were used to repay $240 million of borrowings under the Eighth Amended and Restated Revolving Credit Agreement (the “Southern Union Credit Facility”) and the facility was terminated.
Sunoco Logistics Credit Facilities
Sunoco Logistics maintains two credit facilities to fund its working capital requirements, finance acquisitions and capital projects and for general partnership purposes. The credit facilities consist of a $350 million unsecured credit facility which expires in August 2016 and a $200 million unsecured credit facility which expires in August 2014. There were no outstanding borrowings under these credit facilities as of September 30, 2013.
West Texas Gulf Pipe Line Company, a subsidiary of Sunoco Logistics, has a $35 million revolving credit facility which expires in April 2015. Outstanding borrowings under this credit facility were $35 million as of September 30, 2013.

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Table of Contents

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, 2013.
9.
PREFERRED UNITS:
On April 1, 2013, ETE paid $300 million to redeem (the “Redemption”) all of its 3,000,000 outstanding Preferred Units from Regency GP Acquirer L.P. (“GE Regency”) pursuant to a Preferred Unit Redemption Agreement, dated as of March 28, 2013, between ETE and GE Regency. Prior to the Redemption, on March 28, 2013, ETE paid GE Regency $40 million in cash in exchange for GE Regency relinquishing its right to receive any premium in connection with a future redemption or conversion of the Preferred Units.
In July 2013, certain holders of the Regency Preferred Units exercised their right to convert an aggregate 2,459,017 Series A Preferred Units into 2,629,223 Regency Common Units. Concurrent with this transaction, a gain of $26 million was recognized in other, net, related to the embedded derivative. As of September 30, 2013, the remaining Series A Preferred Units were convertible into 2,047,571 Regency Common Units, and if outstanding, are mandatorily redeemable on September 2, 2029 for $35 million plus all accrued but unpaid distributions and interest thereon.
10.
EQUITY:
ETE Common Unit Activity
The change in ETE Common Units during the nine months ended September 30, 2013 was as follows:
 
Number of
Units
Outstanding at December 31, 2012
280.0

Issuance of restricted units under equity incentive plans
0.8

Outstanding at September 30, 2013
280.8

Sales of Common Units by Subsidiaries
The Parent Company accounts for the difference between the carrying amount of its investments in ETP and Regency and the underlying book value arising from the issuance or redemption of units by ETP or Regency (excluding transactions with the Parent Company) as capital transactions.
As a result of ETP’s and Regency’s issuances of common units during the nine months ended September 30, 2013, we recognized decreases in partners’ capital of $410 million.
Sales of Common Units by ETP
In January 2013 and May 2013, ETP entered into Equity Distribution Agreements pursuant to which ETP may sell from time to time ETP Common Units having aggregate offering prices of up to $200 million and $800 million, respectively. During the nine months ended September 30, 2013, ETP received proceeds of $568 million, net of commissions of $6 million, from the issuance of units pursuant to the Equity Distribution Agreements, which proceeds were used for general partnership purposes. ETP also received $13 million, net of commissions, in October 2013 from the settlement of transactions initiated in September 2013 under these agreements. Approximately $426 million of ETP Common Units remain available to be issued under these agreements.
During the nine months ended September 30, 2013, distributions of $76 million were reinvested under the Distribution Reinvestment Plan resulting in the issuance of 1.6 million ETP Common Units. As of September 30, 2013, a total of 2.7 million ETP Common Units remain available to be issued under the existing registration statement.
In April 2013, ETP issued 13.8 million ETP Common Units at $48.05 per ETP Common Unit in an underwritten public offering. Net proceeds of $657 million from the offering were used to repay amounts outstanding under the ETP Credit Facility and for general partnership purposes.
As discussed in “ETP Class H Units” below, ETP redeemed and cancelled 50.2 million of its common units in connection with the issuance of Class H Units to ETE.

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ETP Class G Units
In April 2013, all of the outstanding ETP Class F Units, which were issued in connection with the Sunoco Merger, were exchanged for ETP Class G Units on a one-for-one basis. The Class G Units have terms that are substantially the same as the Class F Units, with the principal difference between the Class G Units and the Class F Units being that allocations of depreciation and amortization to the Class G Units for tax purposes are based on a predetermined percentage and are not contingent on whether ETP has net income or loss. These units are held by a subsidiary and therefore are reflected as treasury units in ETP’s consolidated financial statements.
ETP Class H Units
Pursuant to an Exchange and Redemption Agreement previously entered into among ETP, ETE and ETE Common Holdings, LLC, a wholly-owned subsidiary of ETE (“ETE Holdings”), ETP redeemed and cancelled 50.2 million of its common units representing limited partner interests (the “Redeemed Units”) owned by ETE Holdings on October 31, 2013 in exchange for the issuance by ETP to ETE Holdings of a new class of limited partner interest in ETP (the “Class H Units”), which are generally entitled to (i) allocations of profits, losses and other items from ETP corresponding to 50.05% of the profits, losses, and other items allocated to ETP by Sunoco Partners LLC (“Sunoco Partners”), the general partner of Sunoco Logistics, with respect to the IDRs and general partner interest in Sunoco Logistics held by Sunoco Partners, (ii) distributions from available cash at ETP for each quarter equal to 50.05% of the cash distributed to ETP by Sunoco Partners with respect to the IDRs and general partner interest in Sunoco Logistics held by Sunoco Partners for such quarter and, to the extent not previously distributed to holders of the Class H Units, for any previous quarters and (iii) incremental additional cash distributions in the aggregate amount of $329 million to be payable by ETP to ETE Holdings over 15 quarters, commencing with the quarter ended September 30, 2013 and ending with the quarter ending March 31, 2017. The incremental cash distributions referred to in clause (iii) of the previous sentence are intended to offset a portion of the IDR subsidies previously granted by ETE to ETP in connection with the Citrus Merger, the Holdco Transaction and the Holdco Acquisition. In connection with the issuance of the Class H Units, ETE and ETP also agreed to certain adjustments to the prior IDR subsidies in order to ensure that the IDR subsidies are fixed amounts for each quarter to which the IDR subsidies are in effect. For a summary of the net IDR subsidy amounts resulting from this transaction, see “Quarterly Distributions of Available Cash” below.
Parent Company Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by us subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 19, 2013
 
$
0.6350

March 31, 2013
 
May 6, 2013
 
May 17, 2013
 
0.6450

June 30, 2013
 
August 5, 2013
 
August 19, 2013
 
0.6550

September 30, 2013
 
November 4, 2013
 
November 19, 2013
 
0.6725

ETP Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by ETP subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 14, 2013
 
$
0.89375

March 31, 2013
 
May 6, 2013
 
May 15, 2013
 
0.89375

June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
0.89375

September 30, 2013

November 4, 2013

November 14, 2013

0.90500

Following are incentive distributions ETE has agreed to relinquish:
In conjunction with the Partnership’s Citrus Merger, ETE agreed to relinquish its rights to $220 million of the incentive distributions from ETP that ETE would otherwise be entitled to receive over 16 consecutive quarters beginning with the distribution paid on May 15, 2012.
In conjunction with the Holdco transaction in October 2012, ETE agreed to relinquish its right to $210 million of incentive distributions from ETP that ETE would otherwise be entitled to receive over 12 consecutive quarters beginning with the distribution paid on November 14, 2012.

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As discussed in Note 2, in connection with the Holdco Acquisition on April 30, 2013, ETE also agreed to relinquish incentive distributions on the newly issued Common Units for the first eight consecutive quarters beginning with the distribution paid on August 14, 2013, and 50% of the incentive distributions for the following eight consecutive quarters.
As discussed under “ETP Class H Units” above, ETP has agreed to make incremental cash distributions in the aggregate amount of $329 million to ETE Holdings, over 15 quarters, commencing with the quarter ended September 30, 2013 and ending with the quarter ending March 31, 2017, in respect of the Class H Units as a means to offset prior IDR subsidies that ETE agreed to in connection with the Citrus Merger, the Holdco Transaction and the Holdco Acquisition.
As a result, the net IDR subsidies from ETE, taking into account the incremental cash distributions related to the Class H units as an offset thereto, will be the amounts set forth in the table below:
 
 
Quarters Ending
 
 
 
 
March 31
 
June 30
 
September 30
 
December 31
 
Total Year
2013
 
N/A

 
N/A

 
$
21.00

 
$
21.00

 
$
42.00

2014
 
$
27.25

 
$
27.25

 
27.25

 
27.25

 
109.00

2015
 
13.25

 
13.25

 
13.25

 
13.25

 
53.00

2016
 
5.50

 
5.50

 
5.50

 
5.50

 
22.00


Regency Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Regency subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 7, 2013
 
February 14, 2013
 
$
0.460

March 31, 2013
 
May 6, 2013
 
May 13, 2013
 
0.460

June 30, 2013
 
August 5, 2013
 
August 14, 2013
 
0.465

September 30, 2013
 
November 4, 2013
 
November 14, 2013
 
0.470

In conjunction with Southern Union’s contribution of SUGS to Regency, ETE agreed to forego incentive distributions with respect to the Regency common units issued in the transaction for the first eight consecutive quarters following the closing.
Sunoco Logistics Quarterly Distributions of Available Cash
Following are distributions declared and/or paid by Sunoco Logistics subsequent to December 31, 2012:
Quarter Ended
 
Record Date
 
Payment Date
 
Rate
December 31, 2012
 
February 8, 2013
 
February 14, 2013
 
$
0.5450

March 31, 2013
 
May 9, 2013
 
May 15, 2013
 
0.5725

June 30, 2013
 
August 8, 2013
 
August 14, 2013
 
0.6000

September 30, 2013
 
November 8, 2013
 
November 14, 2013
 
0.6300


Accumulated Other Comprehensive Income (Loss)
The following table presents the components of accumulated other comprehensive income (loss), net of tax:
 
September 30,
2013
 
December 31, 2012
Net gains (losses) on commodity related hedges
$

 
$
(3
)
Available-for-sale securities
1

 

Foreign currency translation adjustment
(1
)
 

Actuarial loss related to pensions and other postretirement benefits
(1
)
 
(10
)
Equity investments, net
4

 
(9
)
Subtotal
3

 
(22
)
Amounts attributable to noncontrolling interest
(2
)
 
10

Total accumulated other comprehensive income (loss), net of tax
$
1

 
$
(12
)

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11.
UNIT-BASED COMPENSATION PLANS:
We and certain of our subsidiaries have equity incentive plans for employees, officers and directors, which provide for various types of awards, including options to purchase common units, restricted units, phantom units, DERs, common unit appreciation rights, and other unit-based awards.
ETE Long-Term Incentive Plan
During the nine months ended September 30, 2013, an equity award relating to 750,000 ETE Common Units was granted to an ETE employee and equity awards relating to 6,042 ETE Common Units were granted to ETE directors. The weighted average grant-date fair value of these awards was $55.95 per unit. As of September 30, 2013, a total of 804,190 unit awards remain subject to vesting or other conditions. We expect to recognize a total of $39 million in compensation expense over a weighted average period of 4.3 years related to unvested awards.
ETP Unit-Based Compensation Plans
During the nine months ended September 30, 2013, ETP employees were granted a total of 1,142,663 unvested awards with five-year service vesting requirements, and directors were granted a total of 9,060 unvested awards with three-year and five-year service vesting requirements. The weighted average grant-date fair value of these awards was $45.74 per unit. As of September 30, 2013, a total of 2,840,725 unit awards remain unvested, for which ETP expects to recognize $72 million in compensation expense over a weighted average period of 1.8 years related to unvested awards.
Regency Unit-Based Compensation Plans
During the nine months ended September 30, 2013, Regency employees and directors were granted 52,360 Regency phantom units with five-year service vesting requirements. As of September 30, 2013, a total of 1,168,247 Regency Phantom Units remain unvested, with a weighted average grant date fair value of $23.41 per unit. Regency expects to recognize a total of $20 million in compensation expense over a weighted average period of 3.5 years related to Regency’s unvested phantom units.
Sunoco Logistics Unit-Based Compensation Plan
As of September 30, 2013, a total of 918,031 Sunoco Logistics restricted units were outstanding for which Sunoco Logistics expects to recognize $16 million in compensation expense over a weighted-average period of 2.4 years.
12.
INCOME TAXES:

The following table summarizes the Partnership’s income tax expense from continuing operations:
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
 
2013
 
2012
 
2013
 
2012
Income tax expense from continuing operations
$
49

 
$
26

 
$
136

 
$
33

Effective tax rate
13
%
 
19
%
 
12
%
 
3
%
The decrease in the effective tax rate for the three months ended September 30, 2013 compared to the same period last year was primarily due to Southern Union’s non-deductible executive compensation as a result of the Southern Union Merger in 2012. The increase in the effective tax rate for the nine months ended September 30, 2013 compared to the same period last year is primarily due to the Partnership conducting a significant portion of its activities through its corporate subsidiaries, Southern Union and Sunoco, subsequent to the mergers and related transactions that occurred in 2012. The Southern Union Merger was completed in the first quarter of 2012 and the Holdco Transaction and Sunoco Merger were completed in the fourth quarter 2012.
Sunoco has historically included certain government incentive payments as taxable income on its federal and state income tax returns.  In connection with Sunoco’s 2004 through 2011 open statute years, Sunoco has proposed to the Internal Revenue Service (“IRS”) that these government incentive payments be excluded from federal taxable income. A successful claim could result in significant tax refunds for multiple years. However, a thorough evaluation of the ultimate financial impact to Sunoco is complex and requires significant analysis, including the ramifications of tax indemnification agreements with certain former Sunoco affiliates which were members of Sunoco’s consolidated federal return group during these years. At this time, a benefit for the claim is not estimable and has not been recorded in the financial statements.

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13.
RETIREMENT BENEFITS:
The following table sets forth the components of net period benefit cost of the Partnership’s pension and other postretirement benefit plans:
 
Three Months Ended September 30,
 
2013
 
2012 (1)
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$

 
$
(1
)
 
$
1

 
$

Interest cost
10

 
2

 
2

 
1

Expected return on plan assets
(15
)
 
(3
)
 
(3
)
 
(2
)
Prior service cost amortization

 
1

 

 

Actuarial loss amortization
1

 

 

 

 
(4
)
 
(1
)
 

 
(1
)
Regulatory adjustment (2)
1

 

 
3

 
1

Net periodic benefit cost
$
(3
)
 
$
(1
)
 
$
3

 
$

 
Nine Months Ended September 30,
 
2013
 
2012 (1)
 
Pension Benefits
 
Other Postretirement Benefits
 
Pension Benefits
 
Other Postretirement Benefits
Net Periodic Benefit Cost:
 
 
 
 
 
 
 
Service cost
$
5

 
$

 
$
2

 
$

Interest cost
28

 
5

 
5

 
1

Expected return on plan assets
(45
)
 
(7
)
 
(6
)
 
(3
)
Prior service cost amortization

 
1

 

 

Actuarial loss amortization
2

 

 

 

Settlement credits
(2
)
 

 

 

Curtailment recognition (3)

 

 

 
(15
)
 
(12
)
 
(1
)
 
1

 
(17
)
Regulatory adjustment (2)
5

 

 
6

 
1