Energy Transfer 2010 Annual Report Download - page 37

areas of operation by third party gathering systems or pipelines, as a result of depressed commodity prices or
otherwise, would result in a decline in the volume of natural gas we handle, which would reduce our revenues
and operating income. In addition, our future growth will depend, in part, upon whether we can contract for
additional supplies at a greater rate than the rate of natural decline in our currently connected supplies.
Transwestern derives a significant portion of its revenue from charging its customers for reservation of capacity,
which revenues Transwestern receives regardless of whether these customers actually use the reserved capacity.
Transwestern also generates revenue from transportation of natural gas for customers without reserved capacity.
If the reserves available through the supply basins connected to Transwestern’s systems decline, a decrease in
development or production activity could cause a decrease in the volume of natural gas available for transmission
or a decrease in demand for natural gas transportation on the Transwestern system over the long run.
The volumes of natural gas we transport on our intrastate transportation pipelines may be reduced in the event
that the prices at which natural gas is purchased and sold at the Waha Hub, the Katy Hub, the Carthage Hub and
the Houston Ship Channel Hub, the four major natural gas trading hubs served by our pipelines, become
unfavorable in relation to prices for natural gas at other natural gas trading hubs or in other markets as customers
may elect to transport their natural gas to these other hubs or markets using pipelines other than those we operate.
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, propane 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, and are currently contemplating, 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 acquisition strategy, we are continuously engaged 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 current or future
acquisition efforts will be successful or that any such 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, 2010, our consolidated balance sheet reflected $781.2 million of goodwill and $264.7
million 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.
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