10-QPeriod: Q1 FY2008

Energy Transfer LP Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 12, 2008For Securities:ETET-PI

Summary

Energy Transfer Equity, L.P. (ET) reported its first-quarter results for the period ending March 31, 2008. The company saw a notable increase in total revenues, reaching $2.64 billion, up from $2.06 billion in the comparable period of the prior year. This growth was primarily driven by significant increases in natural gas operations revenue, which rose to $2.01 billion from $1.49 billion, and retail propane revenue, which grew to $598 million from $499 million. Despite the revenue growth, net income decreased to $126.7 million ($0.57 per unit) from $147.4 million ($0.67 per unit) in the prior year's first quarter. This decline can be attributed to a substantial increase in interest expense, higher operating expenses, and a significant unrealized loss on non-hedged interest rate derivatives. The company also reported ongoing legal proceedings and regulatory matters, notably a $10 million settlement with the CFTC regarding alleged natural gas price manipulation, which was paid from operating cash flow. Investors should monitor the resolution of these legal issues and the company's ability to manage its increasing debt load and operational costs.

Key Highlights

  • 1Total revenues increased by 28% to $2.64 billion for the three months ended March 31, 2008, compared to $2.06 billion for the same period in 2007.
  • 2Net income decreased by approximately 14% to $126.7 million ($0.57 per unit) from $147.4 million ($0.67 per unit) year-over-year.
  • 3Interest expense significantly increased by $15.4 million, primarily due to higher debt levels for growth capital expenditures and acquisitions.
  • 4The company reported a $31.6 million loss on non-hedged interest rate derivatives during the quarter.
  • 5Total assets grew to $9.99 billion from $9.46 billion, primarily driven by increases in property, plant, and equipment.
  • 6Total long-term debt increased to $6.21 billion from $5.87 billion.
  • 7Energy Transfer Equity settled a Commodity Futures Trading Commission (CFTC) action for $10 million in March 2008.

Frequently Asked Questions

The increase in total revenues to $2.64 billion was primarily driven by growth in the natural gas operations segment, which saw revenues rise to $2.01 billion from $1.49 billion. The retail propane segment also contributed with revenues increasing to $598 million from $499 million. These increases reflect higher sales volumes and potentially higher commodity prices.

Net income declined to $126.7 million from $147.4 million due to several factors. A significant increase in interest expense (up $15.4 million) was a major contributor, driven by higher debt levels. Additionally, operating expenses and selling, general, and administrative expenses rose. The company also recorded a substantial unrealized loss of $31.6 million on non-hedged interest rate derivatives.

The company is involved in significant legal and regulatory matters, including allegations of market manipulation by the FERC and a CFTC lawsuit. A $10 million settlement was reached with the CFTC in March 2008. The company is actively contesting the FERC allegations and states that its trading and transportation activities complied with applicable laws. The ultimate outcome of these matters is uncertain and could have a material impact on the company's financial results and liquidity.

The company's total long-term debt increased to $6.21 billion. However, significant financing activities occurred, including the issuance of $1.5 billion in Senior Notes to repay existing debt and fund operations. The company also has access to revolving credit facilities, with a total amount available under its debt facilities of $378.5 million for the Parent Company and $1.4 billion for ETP as of March 31, 2008, suggesting adequate liquidity for its short-term needs.