01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
Energy Transfer Equity, L.P.
(ETE) reported consolidated 2013 revenues of $48.3 billiona (up from $17.0 billion in 2012, driven largely by the Sunoco and Southern Union acquisitions), but net income attributable to partners fell sharply to $196 million from $304 million, and income from continuing operations dropped to $282 million from $1.38 billion, which included a $1.06 billion gain on deconsolidation of the propane business in 2012. Operating income rose modestly to $1.55 billion, while a $689 million goodwill impairment at Trunkline LNG and $168 million of non-operating environmental remediation charges weighed on results, and the partnership's Q4 2013 posted a net loss of $701 million at the consolidated level. ETE is a holding company whose cash flow depends almost entirely on distributions from Energy Transfer Partners (ETP) and Regency Energy Partners, including incentive distribution rights (IDRs) that give it a growing share of incremental cash.
Consolidated debt was about $23.2 billionb at year-end 2013, and the company announced several growth moves: the pending Regency acquisitions of PVR Partners ($5.6 billion total consideration) and Eagle Rock's midstream business ($1.3 billion), the completed Hoover Energy acquisition, and the transfer of Trunkline LNG to ETE. ETE also completed a 2-for-1 unit split in January 2014 and raised the quarterly distribution to $0.34625 per unit.
Investors should weigh the strong top-line growth and distribution growth against heavy leverage, the dependence on IDR and distribution flows from subsidiaries, significant incentive distribution relinquishments that reduce future upstream payments to ETE (e.g., $106 millionc in 2014), and exposure to commodity price cycles and regulatory risk. The filing's Q4 impairment and environmental charges highlight earnings volatility.
02—Key points
Key Highlights
- Total revenues rose to $48.3 billion in 2013 from $17.0 billion in 2012, reflecting full-year consolidation of Sunoco, Sunoco Logistics, and Southern Union.
- Net income attributable to partners was $196 million, down from $304 million, while income from continuing operations fell to $282 million from $1.38 billion due to the absence of the 2012 $1.06 billion propane deconsolidation gain.
- A $689 million goodwill impairment on Trunkline LNG and $168 million of non-operating environmental remediation charges depressed fourth-quarter results, producing a net loss at the consolidated level for Q4 2013.
- Consolidated debt totaled approximately $23.2 billion at December 31, 2013, with $2.63 billion at variable rates; the company was in compliance with its debt covenants.
- Distributions to unitholders increased to $1.33 per unit for 2013 from $1.26 in 2012; the Q4 2013 distribution was raised to $0.34625 per unit.
- Pending acquisitions include Regency's PVR Partners merger ($5.6 billion total consideration, expected to close March 2014) and Eagle Rock midstream business ($1.3 billion, expected Q2 2014).
- Incentive distribution relinquishments and Class H unit arrangements reduce future distributions to ETE by about $106 million in 2014, declining in later years.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Energy Transfer LP kept $0.00.
- Revenue$48.34B100.0%
- Cost of revenue−$42.55B88.0%
- Gross profit$5.78B12.0%
- Operating costs−$4.23B8.8%
- Operating income$1.55B3.2%
- Interest, other & tax−$1.35B2.8%
- Net income$196.0M0.4%
Where FY2013 revenue went
$48.34B- Cost of revenue: $42.58B, 88% of revenue
- Net income: $196.0M, 0.4% of revenue
- SG&A: $533.0M, 1.1% of revenue
- Other operating costs: $3.67B, 7.6% of revenue
- Interest, other & tax: $1.35B, 2.8% of revenue
Kept 0.4% as net incomeNet income $196.0M · 0.4%SG&A $533.0M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $48.34B$16.96B | +184.9% |
| Cost of Revenue | $42.58B$13.09B | +225.3% |
| Gross Profit | $5.78B$3.88B | +49.1% |
| SG&A Expenses | $533.00M$527.00M | +1.1% |
| Operating Expenses | $46.78B$15.60B | +199.8% |
| Operating Income | $1.55B$1.36B | +14.0% |
| Interest Expense | $1.22B$1.02B | +19.9% |
| Net Income | $196.00M$304.00M | −35.5% |
05—Questions
Frequently Asked Questions
Why did net income fall in 2013 despite higher revenues?
Revenue growth was driven by the Sunoco and Southern Union acquisitions, but 2012 net income included a $1.06 billion one-time gain on deconsolidating the propane business. In 2013, results were also hit by a $689 million goodwill impairment at Trunkline LNG and $168 million in environmental remediation charges, and interest expense rose to $1.22 billion.
How does ETE generate cash for its unitholders?
ETE's only significant assets are its general partner interests, incentive distribution rights, and limited partner units in ETP and Regency. Its cash flow therefore depends on the distributions those partnerships pay, which in turn depend on their operating performance, debt levels, and distribution policies.
What are the main risks to ETE's distribution?
Key risks include high leverage (about $23.2 billion of consolidated debt), commodity price and demand volatility affecting midstream and retail businesses, regulatory changes at FERC and state agencies, dependence on subsidiary distributions, and limited unitholder voting rights. Distributions are not guaranteed and may fluctuate with ETP and Regency results.
What growth is planned and how is it funded?
Regency plans to acquire PVR Partners and Eagle Rock's midstream business, largely through unit issuances and borrowings; ETE increased its revolving credit facility to $800 million to buy $400 million of Regency units. ETP and Regency also have multi-hundred-million to billion-dollar growth capital budgets for 2014 funded by credit facilities, notes, and equity offerings.
Are there concerns about the General Partner's and insiders' influence?
Directors and executive officers own about 19% of common units, and the General Partner owes limited fiduciary duties to unitholders under the partnership agreement. Conflicts of interest with ETP and Regency are reviewed by a Conflicts Committee, but the partnership's documents allow the General Partner broad discretion, which investors should consider.
06—Continue