01—Abstract
Summary
Summary of the 10-K filed March 1, 2011. Cited figures are marked; the original filing is the authoritative source.
Enterprise Products Partners L.P.
(EPD) reported a 2010 10-K filed March 1, 2011, showing revenues of $33.74 billiona (up 32% from $25.51 billion in 2009) and net income attributable to partners of $320.8 million (up from $204.1 million). The headline growth is driven largely by higher commodity prices and volumes in the marketing businesses, while segment gross operating margin rose 13% to $3.25 billion, led by NGL Pipelines & Services and Petrochemical & Refined Products Services. Results were also shaped by the November 2010 Holdings Merger with Enterprise GP Holdings, which was accounted for as an equity transaction, so pre-merger financials reflect Holdings' historical presentation and per-unit figures were restated for the 1.5-to-1 exchange ratio.
The balance sheet expanded materially, with total assets of $31.4 billionb and consolidated debt of about $13.5 billion principal. Management guided 2011 capital spending of roughly $3.7 billion, mostly growth projects tied to the Eagle Ford Shale and the Haynesville Extension, and reported about $2.9 billion of consolidated liquidity after post-year-end note issuance. Key risks include a February 2011 fire at the Mont Belvieu West Storage facility (one fatality), heavy dependence on distributions from EPO, Gulf of Mexico drilling uncertainty after the 2010 moratorium, and a proposed unit-for-unit acquisition of Duncan Energy Partners announced February 22, 2011, which would offer 0.9545 EPD units per DEP unit (valued at $42.00, a roughly 30% premium).
From an investor standpoint, the filing shows a larger, more diversified midstream platform with growing fee-based and volume-driven earnings, but the gap between net income ($1.38 billionc consolidated) and income attributable to partners ($320.8 million) is large because of noncontrolling interests, so per-unit distributable cash flow is the more relevant lens. Distributions were $2.27 per unit for 2010, with a $0.59 quarterly rate declared for Q4 2010.
02—Key points
Key Highlights
- Revenues rose 32% to $33.74 billion in 2010, driven mainly by higher NGL, crude oil and petrochemical sales prices and volumes.
- Total segment gross operating margin increased 13% to $3.25 billion, with NGL Pipelines & Services ($1.73 billion) and Petrochemical & Refined Products Services ($584.5 million, up from $364.7 million) the strongest contributors.
- Net income attributable to partners was $320.8 million ($1.17 basic EPU), up from $204.1 million, while consolidated net income was $1.38 billion after $1.06 billion attributable to noncontrolling interests.
- Holdings Merger (November 22, 2010) combined Enterprise with its parent, issuing 208.8 million common units; historical results were restated as if Holdings were the reporting entity.
- Capital spending guidance for 2011 is about $3.7 billion, including $3.4 billion of growth projects such as Eagle Ford Shale infrastructure (about $2.7 billion through 2012) and the $1.56 billion Haynesville Extension.
- Mont Belvieu West Storage fire on February 8, 2011 caused one fatality; the insurance deductible is $5 million per occurrence, and further losses could not yet be estimated.
- Proposed acquisition of Duncan Energy Partners' public units at 0.9545 EPD units each (about $42.00 per unit, a ~30% premium) was submitted February 22, 2011, subject to a definitive agreement.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Enterprise Products Partners L.P. kept $0.01.
- Revenue$33.74B100.0%
- Cost of revenue−$28.72B85.1%
- Gross profit$5.02B14.9%
- Operating costs−$2.87B8.5%
- Operating income$2.15B6.4%
- Interest, other & tax−$1.83B5.4%
- Net income$320.8M1.0%
Where FY2010 revenue went
$33.74B- Cost of revenue: $28.72B, 85% of revenue
- Net income: $320.8M, 1.0% of revenue
- Operating costs: $2.87B, 8.5% of revenue
- Interest, other & tax: $1.83B, 5.4% of revenue
Kept 1.0% as net incomeNet income $320.8M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed March 1, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $33.74B$25.51B | +32.3% |
| Cost of Revenue | $28.72B$20.92B | +37.3% |
| Gross Profit | $5.02B$4.59B | +9.3% |
| Operating Expenses | $31.65B$23.75B | +33.3% |
| Operating Income | $2.15B$1.85B | +15.8% |
| Interest Expense | $741.90M$687.30M | +7.9% |
| Net Income | $320.80M$204.10M | +57.2% |
| EPS (Basic) | $0.58$0.49 | +18.2% |
| EPS (Diluted) | $0.57$0.49 | +16.2% |
| Shares Outstanding (Basic) | 549.00M413.40M | +32.8% |
| Shares Outstanding (Diluted) | 557.00M413.40M | +34.7% |
05—Questions
Frequently Asked Questions
How did Enterprise Products Partners perform financially in 2010?
Revenue grew to $33.74 billion from $25.51 billion, and operating income rose to $2.15 billion from $1.85 billion. Net income attributable to partners increased to $320.8 million from $204.1 million. Most of the revenue increase reflects higher commodity prices (crude oil up 29%, NGLs up 36% on a weighted-average basis) rather than purely volume-driven growth.
Why is net income attributable to partners so much lower than consolidated net income?
Consolidated net income of $1.38 billion includes income allocated to noncontrolling interests of $1.06 billion. These are mainly public and related-party unitholders of Enterprise's limited partner interests before the Holdings Merger, and Duncan Energy Partners' public unitholders. Because of this, investors often focus on per-unit results and distributable cash flow rather than consolidated net income.
What were the main risks disclosed in the filing?
Key risks include dependence on cash distributions from EPO and Energy Transfer Equity, commodity price volatility, rising debt levels (about $13.5 billion principal) and sensitivity to interest rates (about 11% variable-rate exposure), construction and cost overrun risk on large growth projects, and regulatory uncertainty including FERC rate matters, climate-change rules, and offshore drilling restrictions after the 2010 Gulf of Mexico moratorium. The filing also notes the Mont Belvieu fire and related litigation over the Holdings Merger, which plaintiffs later voluntarily dismissed.
What is the outlook for distributions to unitholders?
The partnership declared a $0.59 per unit distribution for Q4 2010, up from $0.5675 in Q1 2010, and total 2010 distributions were $2.27 per unit. Management expects to continue comparable distributions and to fund them primarily from operating cash flow, although payment is not guaranteed. A temporary EPCO distribution waiver on 30.61 million units applies in 2011, stepping down over the following years, which reduces cash paid out during that period.
How will the proposed Duncan Energy Partners acquisition affect investors?
The February 2011 proposal would exchange 0.9545 EPD common units for each publicly held DEP unit, valued at $42.00, a roughly 30% premium to the 10-day average price as of February 18, 2011. The offer is non-binding until a definitive agreement is signed and requires approval of the DEP unitholders. If completed, EPD would absorb the remaining public interest in DEP, simplifying the structure but increasing EPD's unit count.
06—Continue