Business context and reporting period
The supplied filing is Energy Transfer Equity, L.P.’s Form 10-K for the fiscal year ended December 31, 2013, filed February 27, 2014. This differs from the request metadata, which identifies Energy Transfer LP. ETE is a holding partnership whose cash flow primarily depends on its investments in Energy Transfer Partners (ETP) and Regency; its consolidated results include their controlled subsidiaries, including Sunoco and Sunoco Logistics. Comparisons with 2012 are significantly affected by the 2012 acquisitions of Southern Union and Sunoco and other portfolio changes.
Financial performance and position
Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $48,335 | $16,964 |
| Gross margin | $5,781 | $3,876 |
| Operating income | $1,551 | $1,360 |
| Income from continuing operations | $282 | $1,383 |
| Net income | $315 | $1,274 |
| Net income attributable to partners | $196 | $304 |
| Continuing-operations income per limited partner unit | $0.33 | $0.59 |
| Segment Adjusted EBITDA | $4,367 | $3,105 |
| Cash from operating activities | $2,419 | $1,078 |
| Cash used in investing activities | $2,347 | $4,196 |
| Cash and cash equivalents at year-end | $590 | $372 |
- The fourth quarter included a $689 million goodwill impairment at Trunkline LNG, contributing to a quarterly net loss of $701 million. The impairment reflected changed assumptions about the proposed LNG export project, market conditions and regulatory approval prospects.
- Year-end total assets were $50,330 million, total equity $16,279 million and consolidated debt $23,199 million, excluding joint-venture debt. Long-term debt, net of current maturities, was $22,562 million; current maturities were $637 million. Current assets of $6,536 million slightly exceeded current liabilities of $6,500 million.
- Management reported $2.63 billion of variable-rate consolidated debt exposure. At year-end, ETP had $2.34 billion of available revolving capacity and Regency had approximately $676 million available under its facility; these are subsidiary resources, not necessarily freely available to the parent.
- ETE declared distributions of $1.33 per common unit for 2013; the fourth-quarter distribution was $0.34625 per unit, declared in January 2014. The filing reports that the two-for-one unit split completed in January 2014 is reflected in per-unit figures.
Material changes versus the prior comparable period
- Revenue rose sharply, largely because 2013 included a full year of Sunoco and Sunoco Logistics operations, compared with only part of 2012, as well as acquisitions and growth projects. The higher reported revenue base includes substantial crude and refined-product sales; it is not a like-for-like growth comparison.
- Segment Adjusted EBITDA increased by $1,262 million. ETP contributed $3,953 million, up $1,209 million, while Regency contributed $608 million, up $91 million. ETP benefited from the full-year contribution of acquired businesses, increased NGL volumes and fractionation capacity; lower intrastate transportation and storage margin partly offset these gains.
- Net income declined as 2012 included a $1,057 million gain on deconsolidation of the propane business. In 2013, the Trunkline LNG impairment, $168 million of non-operating environmental remediation, higher interest expense and debt-extinguishment losses also weighed on results.
- Operating cash flow increased to $2,419 million. Investing cash use declined, reflecting asset-sale proceeds, including $1,008 million from the MGE and NEG divestitures and $346 million from AmeriGas unit sales, partly offset by $3,505 million of capital expenditures.
- Consolidated debt increased from $22,053 million to $23,199 million. Financing activities included $1,759 million of subsidiary unit-offering proceeds and substantial borrowing and repayment activity.
Outlook, commentary, risks and unusual items
- ETE states its objective is to grow cash available for distributions by supporting subsidiary acquisitions and infrastructure projects. It provides no consolidated earnings or distribution guidance.
- ETP projected 2014 growth capital expenditures of $2,060–$2,285 million and maintenance capital expenditures of $295–$355 million. Regency projected $540 million of growth and $60 million of maintenance capital expenditures.
- Pending transactions at the filing date included Regency’s proposed PVR merger, valued at approximately $5.6 billion including assumed net debt, and its proposed $1.3 billion Eagle Rock midstream acquisition. Regency completed the $282 million Hoover Energy acquisition in February 2014. These transactions carry financing, integration, approval and execution risks.
- ETE refinanced debt in December 2013, including $450 million of 5.875% notes due 2024, a $1 billion term loan and a $600 million revolving facility. The revolver was increased to $800 million in February 2014; ETE expected to use additional capacity for a $400 million Regency unit purchase associated with Eagle Rock.
- Environmental liabilities accrued were $403 million at year-end, including $377 million related to Sunoco legacy remediation; a captive insurance subsidiary held $348 million of restricted cash. Management reported an estimated additional reasonably possible environmental loss of approximately $6 million, but remediation costs remain subject to estimation uncertainty.
- Sunoco’s MTBE groundwater cases could result in a significant charge in a period if adverse determinations occur; management could not clearly estimate the potential liability, but did not expect a material adverse effect on consolidated financial position. Other risks include commodity and interest-rate volatility, customer and counterparty credit, pipeline safety and environmental regulation, access to capital, and the dependence of parent-company cash flow on subsidiary distributions.
- Management reported compliance with debt covenants and effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion on the consolidated financial statements.
Most important facts for investors to verify
- Confirm the issuer: the supplied document is ETE’s 10-K, not a filing identified as Energy Transfer LP; distinguish parent-only finances from consolidated subsidiary results.
- Review the $689 million Trunkline LNG impairment assumptions and the subsequent transfer of Trunkline LNG to ETE, effective January 1, 2014.
- Assess the scale, funding, dilution and expected returns of the PVR and Eagle Rock transactions, and the impact of the Hoover acquisition and other planned capital spending.
- Reconcile consolidated debt, maturities, subsidiary credit availability and covenants with the parent’s reliance on distributions from ETP and Regency.
- Track environmental accruals and restricted funds, MTBE litigation, tax exposures—including $429 million of unrecognized tax benefits—and any changes in estimated contingencies.