01—Abstract
Summary
Summary of the 10-K filed February 29, 2016. Cited figures are marked; the original filing is the authoritative source.
Energy Transfer Equity, L.P.
(ETE) reported 2015 results in its 10-K filed February 29, 2016, showing consolidated total revenues of $42.1 billiona (down from $55.7 billion in 2014, largely reflecting lower commodity prices and the deconsolidation of Sunoco LP in July 2015), net income of $1.09 billion, and Segment Adjusted EBITDA of $5.9 billion, up about 2% year over year. Net income attributable to limited partners was $1.18 billion, or $1.11 per unit, versus $0.57 per diluted unit in 2014. The primary growth driver was Investment in ETP, which held steady at $5.7 billion of Segment Adjusted EBITDA, while Sunoco LP contributed $614 million, up from $277 million, largely because 2014 included only a partial period.
The balance sheet became considerably more leveraged. Consolidated debt rose to about $37.0 billionb, and long-term debt reached $36.8 billion, up from $29.5 billion. Parent Company debt was approximately $7.0 billion, and the company expects total debt to increase by about $32.1 billion once the pending $6.05 billion cash-funded acquisition of The Williams Companies (WMB) closes and debt is assumed.
Cash flow from operations was $3.07 billionc against $10.09 billion of investing outflows, mostly growth capital, funded by $6.8 billion of net financing inflows. The Parent's distribution was $0.285 per unit for Q4 2015, up from $0.225 a year earlier, and the company repurchased $1.06 billion of its units during 2015. Key risks for investors are the leverage and ratings pressure from the WMB transaction, the Parent's reliance on cash distributions from ETP and Sunoco LP, sustained weak commodity prices (which drove $339 million of impairments and $249 million of inventory write-downs), and pending litigation over the WMB merger and the MTBE claims against Sunoco, Inc.
02—Key points
Key Highlights
- Consolidated revenues fell to $42.1 billion in 2015 from $55.7 billion in 2014, reflecting lower commodity prices and the July 2015 deconsolidation of Sunoco LP.
- Net income was $1.09 billion; net income attributable to limited partners was $1.18 billion, or $1.11 per unit, compared with $0.57 per diluted unit in 2014.
- Total Segment Adjusted EBITDA rose to $5.9 billion (from $5.8 billion), with Investment in ETP flat at $5.7 billion and Sunoco LP up to $614 million from $277 million.
- Consolidated debt reached about $37.0 billion, and the company expects debt to rise by roughly $32.1 billion after the pending WMB acquisition, which includes a $6.05 billion cash-funded term loan and assumption of about $4.2 billion of WMB senior notes.
- Impairments of $339 million and inventory write-downs of $249 million were recorded in 2015, mainly tied to lower commodity prices and goodwill impairments at Transwestern and Lone Star Refinery Services.
- The quarterly distribution on ETE common units was raised to $0.285 per unit for Q4 2015 (from $0.225 a year earlier), and the company repurchased $1.06 billion of units during 2015.
- The WMB merger is expected to close in the first half of 2016, and the company faces the risk of rating downgrades, which could trigger a $3.0 billion change-of-control repurchase offer on WPZ notes.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, Energy Transfer LP kept $0.03.
- Revenue$36.10B100.0%
- Cost of revenue−$28.67B79.4%
- Gross profit$7.43B20.6%
- Operating costs−$5.14B14.2%
- Operating income$2.29B6.3%
- Interest, other & tax−$1.10B3.0%
- Net income$1.19B3.3%
Where FY2015 revenue went
$36.10B- Cost of revenue: $28.67B, 79% of revenue
- Other operating costs: $4.59B, 13% of revenue
- Net income: $1.19B, 3.3% of revenue
- SG&A: $548.0M, 1.5% of revenue
- Interest, other & tax: $1.10B, 3.0% of revenue
Kept 3.3% as net incomeNet income $1.19B · 3.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 29, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $36.10B$55.69B | −35.2% |
| Cost of Revenue | $28.67B$48.41B | −40.8% |
| Gross Profit | $7.43B$7.30B | +1.7% |
| SG&A Expenses | $548.00M$611.00M | −10.3% |
| Operating Expenses | $33.81B$53.22B | −36.5% |
| Operating Income | $2.29B$2.47B | −7.4% |
| Interest Expense | $1.62B$1.37B | +18.5% |
| Net Income | $1.19B$633.00M | +87.8% |
05—Questions
Frequently Asked Questions
What drove the decline in revenue while segment profitability held up?
Revenue fell about 24% to $42.1 billion, mainly because of lower prices for crude, NGLs, and refined products, along with the deconsolidation of Sunoco LP in July 2015. Segment Adjusted EBITDA was relatively stable, supported by Sunoco Logistics NGL operations, ETP liquids transportation growth, and a full period of Sunoco LP results in 2015 compared with a partial period in 2014.
How much debt will ETE carry after the WMB acquisition, and what are the implications?
Consolidated debt of about $37.0 billion at year-end 2015 is expected to increase by about $32.1 billion to roughly $69 billion once the WMB transaction closes. Parent Company debt would rise to about $17.25 billion. The higher leverage raises the risk of credit rating downgrades, which would increase borrowing costs and could require asset sales, equity issuance, or distribution cuts to maintain ratings.
How secure are ETE's cash distributions to unitholders?
ETE has no operating assets of its own beyond Lake Charles LNG. Its cash flow comes almost entirely from distributions on its general partner interests, IDRs, and Class H units in ETP and Sunoco LP, so distributions depend on those partnerships' ability to pay. The partnership agreement requires distribution of all Available Cash, and reserves are set by the General Partner, so payouts are not guaranteed and may fluctuate.
What legal and environmental risks should investors monitor?
Key items include shareholder lawsuits challenging the WMB merger, the Dieckman lawsuit related to the Regency merger, the Enterprise Products appeal (ETP has a judgment of about $536 million that is not yet recorded), and MTBE groundwater litigation against Sunoco, Inc. where the potential loss cannot be estimated beyond accrued amounts. Environmental accruals total about $368 million.
Is there any dilution or unit-count change investors should expect?
Common units outstanding fell slightly to about 1.04 billion at year-end 2015 because of $1.06 billion of buybacks. The partnership can issue unlimited additional units without unitholder approval, and ETP has an equity distribution program with $328 million of capacity remaining, so dilution remains a possibility. Cash distributions to ETE from ETP were also affected by IDR relinquishments of about $137 million scheduled for 2016.
06—Continue