10-QPeriod: Q2 FY2010

Energy Transfer LP Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 9, 2010For Securities:ETET-PI

Summary

Energy Transfer Equity, L.P. (ETE) reported mixed financial results for the six months ended June 30, 2010, primarily impacted by its significant Regency Transactions completed in May 2010. Consolidated revenues increased year-over-year due to the inclusion of Regency's operations, but net income attributable to partners experienced a substantial decline from $255.9 million in the prior year to $131.6 million. This decrease was largely driven by a significant impairment of investment in an affiliate ($52.6 million) and unfavorable results from non-hedged interest rate derivatives, which offset gains from equity in affiliates. The company's balance sheet saw a substantial increase in assets, particularly in property, plant, and equipment and goodwill, reflecting the Regency acquisition. Long-term debt also increased to fund the transaction and ongoing operations. While the company's operating activities generated positive cash flow, the investing activities were heavily weighted towards acquisitions, with significant capital expenditures also continuing. The company maintained compliance with its debt covenants.

Financial Statements
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Key Highlights

  • 1Consolidated revenues increased by 16.5% for the six months ended June 30, 2010, compared to the same period in 2009, largely due to the inclusion of Regency Energy Partners operations following the Regency Transactions.
  • 2Net income attributable to partners decreased significantly from $255.9 million in the first half of 2009 to $131.6 million in the first half of 2010.
  • 3An impairment of investment in an affiliate of $52.6 million and losses on non-hedged interest rate derivatives of $36.9 million negatively impacted net income for the six-month period.
  • 4Total assets grew substantially from $12.16 billion at the end of 2009 to $16.36 billion at June 30, 2010, primarily driven by the Regency acquisition, which included significant increases in property, plant and equipment, goodwill, and intangible assets.
  • 5Long-term debt increased from $7.75 billion at December 31, 2009, to $8.78 billion at June 30, 2010, reflecting borrowings related to the Regency Transactions and ongoing capital investments.
  • 6Cash flow from operating activities remained robust, increasing to $801.9 million for the six months ended June 30, 2010, up from $653.5 million in the prior year.
  • 7Cash used in investing activities increased to $786.2 million, primarily due to acquisition-related payments and capital expenditures, compared to $875.5 million in the prior year, which included significant advances to affiliates.

Frequently Asked Questions

The Regency Transactions, completed in May 2010, significantly increased Energy Transfer Equity's consolidated assets, including property, plant, and equipment, goodwill, and intangible assets. This also led to an increase in long-term debt. While revenues increased due to the consolidation of Regency's operations, net income attributable to partners decreased year-over-year, impacted by an impairment charge and derivative losses.

The company's total consolidated debt increased from $7.75 billion at the end of 2009 to $8.78 billion at June 30, 2010. This increase was primarily due to borrowings to finance the Regency Transactions and ongoing capital expenditures.

The Parent Company announced a quarterly cash distribution of $0.54 per Common Unit for the period ended June 30, 2010, consistent with the prior quarter. However, the significant decrease in net income and the substantial debt levels warrant close monitoring of future operational performance and cash flow generation by both ETE and its subsidiaries, ETP and Regency, to sustain or grow these distributions.

Yes, ETP was involved in a settlement with the FERC regarding alleged market manipulation. While the settlement resolved most claims, ETP remains a party to three legal proceedings related to alleged natural gas price manipulation. The outcomes of these proceedings are uncertain and could potentially impact ETP's financial results and liquidity.