01—Abstract
Summary
Summary of the 10-K filed March 1, 2010. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(NYSE: EPD) closed fiscal 2009 with revenues of $25.51 billiona, down from $35.47 billion in 2008, driven almost entirely by lower energy commodity prices rather than volume or operational weakness. Net income was $1.16 billion ($1.03 billion attributable to the partnership), and earnings per unit were $1.73 versus $1.84 in 2008. Total segment gross operating margin rose 9% to $2.84 billion, led by NGL Pipelines & Services ($1.63 billion, up from $1.33 billion), which benefited from new Rocky Mountain processing plants, stronger NGL marketing, and higher pipeline volumes.
Distributions per unit increased to $2.195b from $2.075, and the quarterly rate reached $0.56 in early 2010. The defining event of the year was the October 2009 TEPPCO Merger, which issued roughly 127 million common units plus 4.5 million Class B units and added a substantial set of refined products, crude, and marine assets. The merger also drove a sharp rise in consolidated debt to $11.35 billion and in the number of common units outstanding to about 606 million.
Management guides 2010 capital spending to about $1.75 billionc, including $1.5 billion of growth projects such as the Haynesville Extension and a new Mont Belvieu fractionator, and reports approximately $2 billion of liquidity after a January 2010 equity offering that raised $343.1 million. Investors should weigh the strong gross margin and expanded asset base against rising leverage, a $1.6 billion 2010 to 2011 refinancing need, and a material $1.4 billion of 2009 charges tied to the TOPS project and impairments.
02—Key points
Key Highlights
- Revenue fell 28% to $25.51 billion as commodity prices dropped (NGL prices down 39%, natural gas down 56%, crude oil down 38%), but total segment gross operating margin rose 9% to $2.84 billion.
- The TEPPCO Merger closed October 26, 2009, issuing 126.9 million common units and 4.5 million Class B units, with the Class B units not receiving regular distributions for the first 16 quarters.
- Net income attributable to Enterprise Products Partners was $1.03 billion, up 8% from $954 million, while basic and diluted EPU fell to $1.73 from $1.84 because of the larger unit count.
- Consolidated debt principal reached $11.3 billion at year-end, with about $554 million maturing in 2010 and roughly $3.2 billion of senior notes maturing from 2010 through 2013.
- The partnership recorded $135.3 million of charges related to the Texas Offshore Port System (TOPS) dissociation and settlement, plus $33.5 million of non-cash impairments.
- Operating cash flow increased to $2.38 billion from $1.57 billion, and distributions per unit rose to $2.195 with a Q4 2009 quarterly rate of $0.56.
- The 2010 capital program is projected at $1.75 billion, including $1.5 billion of growth projects; the January 2010 equity offering added $343.1 million of net proceeds, and liquidity is about $2 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Enterprise Products Partners L.P. kept $0.01.
- Revenue$25.51B100.0%
- Cost of revenue−$20.92B82.0%
- Gross profit$4.59B18.0%
- Operating costs−$2.73B10.7%
- Operating income$1.85B7.3%
- Interest, other & tax−$1.65B6.5%
- Net income$204.1M0.8%
Where FY2009 revenue went
$25.51B- Cost of revenue: $20.92B, 82% of revenue
- Net income: $204.1M, 0.8% of revenue
- Operating costs: $2.73B, 11% of revenue
- Interest, other & tax: $1.65B, 6.5% of revenue
Kept 0.8% as net incomeNet income $204.1M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed March 1, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $25.51B$35.47B | −28.1% |
| Cost of Revenue | $20.92B— | — |
| Gross Profit | $4.59B— | — |
| Operating Expenses | $23.75B$33.76B | −29.7% |
| Operating Income | $1.85B$1.77B | +4.7% |
| Interest Expense | $687.30M-$608.30M | +213.0% |
| Net Income | $204.10M$164.00M | +24.5% |
| EPS (Basic) | $0.49$0.45 | +11.2% |
| EPS (Diluted) | $0.49$0.45 | +11.2% |
| Shares Outstanding (Basic) | 413.40M— | — |
| Shares Outstanding (Diluted) | 413.40M— | — |
05—Questions
Frequently Asked Questions
Why did revenues fall so sharply in 2009 even though the business grew?
Most of the $9.96 billion decline came from lower energy commodity sales prices, which reduced revenues from NGL, natural gas, crude oil, petrochemical and refined products marketing by about $10.01 billion. The remaining revenue lines actually rose by $47.9 million, driven mainly by offshore operations. Because the company's marketing activities pass through commodity prices, revenue is a poor measure of operating performance; gross operating margin, which rose 9%, is the better indicator.
How did the TEPPCO Merger change the investment profile of Enterprise Products Partners?
The merger, completed October 26, 2009, added TEPPCO's refined products, crude oil, petrochemical and marine businesses and increased the common unit count substantially. It also brought about $2 billion of TEPPCO notes into the Enterprise structure via exchange offers, and the Class B units held by an EPCO affiliate do not receive regular distributions until the 16th quarterly payment after the merger. Historical results were recast as if the companies were always combined, so prior-period comparisons reflect the combined entity.
How leveraged is the partnership, and is the debt load a concern?
Consolidated debt principal was about $11.3 billion at December 31, 2009, against total equity of about $10.0 billion. Credit ratings are investment grade (Baa3 by Moody's, BBB- by Fitch and S&P), and management expects to maintain them. Roughly $1.34 billion (11.8%) of debt is variable-rate, and average debt principal rose to $11.92 billion in 2009 from $10.17 billion in 2008, pushing interest expense up to $641.8 million. Investors should watch interest coverage and the refinancing of about $554 million due in 2010 and about $3.2 billion of senior notes maturing through 2013.
What are the main growth projects and how will they be funded?
Management estimates 2010 capital expenditures of about $1.75 billion, including $1.5 billion of growth projects and $250 million of sustaining spending. Key projects include a new 75 MBPD NGL fractionator at Mont Belvieu (expected Q1 2011), the 249-mile Haynesville Extension of the Acadian Gas System (expected Q3 2011), and the Trinity River Lateral (Q2 2010). Funding is expected from operating cash flow, credit facilities, debt and equity issuance, and possible asset divestitures or joint ventures, with the January 2010 offering of $343.1 million net proceeds supporting the plan.
What litigation or regulatory issues could affect future results?
The 10-K reports that no pending litigation is reasonably likely to have a significant adverse effect, but it discloses several items: a FERC rate case involving Mid-America and Seminole pipelines (with a February 2010 ruling affirming the initial decision and revised rates due March 2010), a Flint Hills complaint against Mid-America, and a Delaware settlement approved January 15, 2010 that resolved the TEPPCO merger and derivative suits. The company also faces greenhouse gas regulation risk under the EPA endangerment finding and the proposed ACESA cap-and-trade legislation, along with ongoing pipeline integrity spending of about $116 million expected in 2010.
06—Continue