01—Abstract
Summary
Summary of the 10-K filed February 24, 2010. Cited figures are marked; the original filing is the authoritative source.
Energy Transfer Equity, L.P.
(NYSE: ETE) reported its 10-K for fiscal year ended December 31, 2009. Consolidated revenues fell to approximately $5.42 billiona from $9.29 billion in 2008, driven by lower commodity prices, while operating income was roughly flat at $1.11 billion and net income rose to $697.9 million, helped by a sharp swing in non-hedged interest rate derivatives and higher equity earnings. Results are consolidated from Energy Transfer Partners (ETP), the Parent Company's only cash-generating asset, which it owns through roughly 62.5 million ETP common units, the general partner interest, and 100% of the incentive distribution rights (IDRs).
Cash distributions from ETP totaled about $593 millionb in 2009, and the Parent Company paid $2.14 per unit in distributions for the year. The filing shows a company growing its asset base through large pipeline builds: roughly 1,000 miles and about 5 Bcf/d of capacity completed in 2009, with Midcontinent Express in service and Fayetteville Express and Tiger pipelines under development (total costs of roughly $1.2 billion each). Growth capital spending is guided at $1.2-1.3 billion for 2010.
Leverage is significant: consolidated debt was about $7.79 billionc at year-end, and the Parent Company's term loan and revolver rely on ETP distributions. Investors should weigh the strong distribution growth against the concentration of cash flow in a single subsidiary, the rising debt load, exposure to natural gas and NGL prices (mitigated by a growing fee-based base), and the FERC market-manipulation settlement and related third-party litigation. Key structural risks include the Parent Company's dependence on ETP's ability to keep distributions growing, the disproportionate effect that ETP distribution changes have on IDR payouts, limited governance rights for unitholders, and the 49% ownership held by affiliates including Enterprise GP Holdings, which holds a 40.6% non-controlling interest in the General Partner.
02—Key points
Key Highlights
- Consolidated 2009 revenue of about $5.42 billion (down from $9.29 billion in 2008) and operating income of about $1.11 billion, with net income of $697.9 million.
- Parent Company cash distributions from ETP totaled $593.4 million in 2009, including $350.5 million from incentive distribution rights, and the Parent Company paid $2.14 per unit for the year.
- Completed roughly 1,000 miles of large-diameter pipeline (about 5 Bcf/d of capacity) in 2009, including the 1.4 Bcf/d Midcontinent Express pipeline (50/50 JV with Kinder Morgan).
- Pipeline growth pipeline pending: Fayetteville Express (1.85 Bcf/d committed, expected in service by end of 2010) and Tiger pipeline (2.0 Bcf/d initial design, expected in service in 2011), each estimated around $1.2 billion.
- Consolidated debt of about $7.79 billion at December 31, 2009, with $6.06 billion fixed-rate and $1.73 billion variable-rate; interest-rate swaps cover $1.50 billion notional.
- Retail propane segment operating income rose to $229.2 million from $114.6 million, benefiting from falling propane product costs; intrastate transportation and storage remained the largest contributor at about 56% of operating income.
- FERC market-manipulation matter settled in 2009 with a $5.0 million payment and a $25.0 million fund for third-party claims, while private class and royalty-owner suits remain pending.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Energy Transfer LP kept $0.08.
- Revenue$5.42B100.0%
- Cost of revenue−$3.12B57.6%
- Gross profit$2.30B42.4%
- Operating costs−$1.18B21.9%
- Operating income$1.11B20.5%
- Interest, other & tax−$667.9M12.3%
- Net income$442.5M8.2%
Where FY2009 revenue went
$5.42B- Cost of revenue: $3.12B, 58% of revenue
- Other operating costs: $1.01B, 19% of revenue
- Interest, other & tax: $667.9M, 12% of revenue
- Net income: $442.5M, 8.2% of revenue
- SG&A: $178.9M, 3.3% of revenue
Kept 8.2% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 24, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $5.42B$9.29B | −41.7% |
| Cost of Revenue | $3.12B— | — |
| Gross Profit | $2.30B— | — |
| SG&A Expenses | $178.92M$200.18M | −10.6% |
| Operating Expenses | $4.31B$8.19B | −47.4% |
| Operating Income | $1.11B$1.10B | +1.0% |
| Interest Expense | $468.42M$357.54M | +31.0% |
| Net Income | $442.47M$375.04M | +18.0% |
05—Questions
Frequently Asked Questions
What is the main source of cash flow for Energy Transfer Equity?
ETE's only cash-generating assets are its interests in Energy Transfer Partners (ETP): about 62.5 million ETP common units, the general partner interest, and 100% of the incentive distribution rights. Distributions from ETP totaled roughly $593 million in 2009, so ETE's ability to pay its own distributions depends on ETP maintaining and growing its distributions.
Why did revenue fall while net income increased in 2009?
Revenue dropped about 42% to $5.42 billion, mainly because natural gas and NGL prices fell sharply from 2008 highs, reducing the cost of products sold and the value of sales. Net income rose to $697.9 million, helped by a $33.6 million gain on non-hedged interest rate derivatives (versus a $128.4 million loss in 2008) and higher equity earnings from the Midcontinent Express joint venture.
How much debt does the company carry and what are the main risks?
Consolidated debt was about $7.79 billion at year-end 2009, of which about $1.73 billion was variable-rate before swaps. Covenants include leverage limits such as a 5.0x ETP leverage test on distributions, and failure to comply could restrict distributions. Increased borrowing for pipeline projects is expected to raise debt further in 2010.
What growth projects are planned and how will they be funded?
Key projects are Fayetteville Express (about $1.2 billion, expected in service by end of 2010, backed by a $1.1 billion FEP credit facility), Tiger pipeline (about $1.2 billion, pending FERC approval, expected in service 2011), and Midcontinent Express expansions (late 2010). Growth capital spending is expected at $1.2-1.3 billion in 2010, funded through ETP equity issuances, senior notes, and its revolving credit facility.
What legal and regulatory exposures could affect investors?
ETP settled FERC market-manipulation claims in 2009 for a $5.0 million payment plus a $25.0 million fund for third-party claims. Several private suits (Houston Ship Channel price manipulation, NYMEX-related class actions, and antitrust claims) remain pending, and ETP does not hold material litigation accruals beyond the fund, so future payments could exceed the amounts reserved and reduce distributable cash.
06—Continue