10-QPeriod: Q1 FY2012

Energy Transfer LP Quarterly Report for Q1 Ended Mar 31, 2012

Filed May 9, 2012For Securities:ETET-PI

Summary

Energy Transfer Equity, L.P. (ETE) reported a significant increase in net income for the first quarter of 2012, largely driven by the acquisition of Southern Union Company. Total revenues decreased compared to the prior year, primarily due to lower natural gas sales and retail propane sales, but this was more than offset by a substantial gain on the deconsolidation of the propane business and strong performance from ETP's NGL segment. The company's balance sheet shows a substantial increase in assets, driven by the Southern Union acquisition, with corresponding increases in property, plant, and equipment, goodwill, and long-term debt. Key financial movements include a significant increase in long-term debt, largely to finance the Southern Union acquisition. Operating cash flow experienced a notable decrease year-over-year, primarily due to the timing of the Southern Union acquisition and the impact of large non-cash gains/losses. Investors should note the substantial debt taken on for the acquisition and monitor its impact on future interest coverage and financial flexibility. The company also announced a pending merger between ETP and Sunoco, which, if completed, will further expand its asset base and operational scale.

Financial Highlights

44 data points
Beta

Revenue

$1.67B

39.2% Gross Margin

Net Income

$166.00M

9.9% Net Margin

Total Assets

$32.82B

Cash & Equivalents

$293.00M

Free Cash Flow

$79.00M

Financial Statements
Beta
Revenue$1.67B
Cost of Revenue$1.01B
Gross Profit$654.00M
SG&A Expenses$147.00M
Operating Expenses$1.49B
Operating Income$183.00M
Interest Expense$213.00M
Net Income$166.00M

Key Highlights

  • 1Net income attributable to partners surged to $166.4 million in Q1 2012, up from $88.6 million in Q1 2011, largely due to the acquisition of Southern Union and the deconsolidation of the propane business.
  • 2Total revenues decreased by approximately 15% to $1.69 billion from $1.99 billion in the prior year's quarter, mainly due to lower natural gas and retail propane sales.
  • 3A significant gain of $1.06 billion was recognized on the deconsolidation of the Propane Business through its contribution to AmeriGas.
  • 4Total assets grew substantially to $32.8 billion from $20.9 billion, primarily driven by the acquisition of Southern Union Company for approximately $3.01 billion in cash and ETE Common Units.
  • 5Long-term debt increased significantly to $17.39 billion from $10.95 billion, reflecting new borrowings to finance the Southern Union acquisition.
  • 6Operating cash flow decreased to $79.4 million from $358.1 million in the prior year, impacted by the Southern Union acquisition's timing and significant non-cash items.
  • 7ETP announced a pending merger with Sunoco for approximately $5.3 billion, which, if completed, will significantly expand the company's scale.

Frequently Asked Questions

The primary drivers of the significant increase in net income were the acquisition of Southern Union Company, which contributed to increased revenues and assets, and the gain recognized from the deconsolidation of the Propane Business through its contribution to AmeriGas. These factors, combined with solid performance in other segments, significantly boosted profitability compared to the prior year.

The acquisition of Southern Union was a major event, nearly doubling the company's total assets to $32.8 billion. This was financed through a substantial increase in long-term debt, which rose to $17.39 billion from $10.95 billion. This significantly increased leverage for the company.

The announced merger of ETP with Sunoco, valued at $5.3 billion, represents a major strategic move to further expand ETP's energy infrastructure footprint. It is expected to significantly increase the combined entity's scale, potentially leading to greater operational efficiencies, broader market reach, and increased cash flow generation, although it will also involve further integration challenges and financing considerations.

The decrease in operating cash flow, despite higher net income, is primarily attributable to the large non-cash gain from the deconsolidation of the propane business ($1.06 billion) and a loss on extinguishment of debt ($115 million) recorded in the current period. These are significant non-cash adjustments that boost net income but do not represent actual cash inflows from operations. Additionally, the timing of the Southern Union acquisition also impacted working capital and cash flow.