Energy Transfer Equity, L.P. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. The filing is for Energy Transfer Equity, L.P. (ETE), which consolidates Energy Transfer Partners (ETP), Regency and their subsidiaries. Unaudited results reflect significant acquisitions and changes in the portfolio, so comparisons with 2012 are not like-for-like.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $12.486 billion | $2.104 billion | $35.728 billion | $5.651 billion |
| Operating income | $529 million | $359 million | $1.704 billion | $908 million |
| Income from continuing operations | $343 million | $108 million | $972 million | $1.138 billion |
| Net income attributable to partners | $151 million | $35 million | $368 million | $255 million |
| Net income per limited partner unit | $0.54 | $0.13 | $1.31 | $0.97 |
| Segment Adjusted EBITDA | $1.049 billion | $754 million | $3.264 billion | $2.063 billion |
| Cash from operating activities | Not presented by quarter | $1.847 billion | $897 million |
Q3 revenue growth primarily reflects consolidation of Sunoco and Sunoco Logistics, including high-volume crude and refined-product sales. Those sales also bring substantial product costs, so revenue growth alone is not a measure of improved profitability. Segment Adjusted EBITDA rose in both comparison periods, led by ETP; Regency also reported growth. For the nine-month period, continuing-operations income declined despite higher Adjusted EBITDA, including because depreciation, interest and tax expense increased.
Nine-month net income included a $1.057 billion gain on deconsolidation of the propane business in 2012, which makes reported net-income comparisons particularly affected by unusual items. In 2013, ETE recorded an $87 million gain on sale of AmeriGas units. Discontinued operations contributed income of $44 million for the 2013 nine-month period versus a $136 million loss in 2012.
Cash, debt and liquidity
- At September 30, 2013, cash and cash equivalents were $1.177 billion; total current assets were $6.887 billion and current liabilities were $6.047 billion.
- Consolidated debt carrying amount was $22.309 billion, including $298 million of current maturities, versus $22.053 billion at year-end 2012. Debt fair value was reported as $22.96 billion.
- Nine-month operating cash flow was $1.847 billion; investing cash outflow was $833 million and financing cash outflow was $209 million. Capital expenditures were $2.504 billion. Cash increased by $805 million from year-end 2012.
- ETE had $900 million outstanding on its term loan, $1.8 billion of 7.5% senior notes due 2020 and no borrowings under its $200 million revolver. ETP had no balance outstanding under its $2.5 billion revolving facility. Regency had $176 million of revolver borrowings and about $1.01 billion available after letters of credit.
- Floating-rate debt was $1.72 billion; management estimated a 100-basis-point rate increase would raise annual interest expense by $17 million. The partnerships reported compliance with applicable debt covenants.
Material changes, outlook and commentary
- Portfolio transactions: ETP acquired ETE’s remaining 60% interest in Holdco in April 2013. Southern Union contributed SUGS to Regency. Southern Union sold its MGE assets for $975 million in September; the sale of NEG was expected to close in Q4 for $40 million cash plus assumption of $20 million debt.
- Growth investment: ETP projected 2013 capital expenditures of $1.885–$1.975 billion for growth and $320–$370 million for maintenance. Regency expected $870 million of growth and $40 million of maintenance capital expenditures.
- Subsequent developments: ETE, ETP and BG Group announced plans to develop an LNG export project at Lake Charles after conditional federal authorization to export up to 15 million metric tonnes annually to non-free-trade-agreement countries. Regency announced a proposed PVR acquisition valued at $5.6 billion, including assumed net debt, expected to close in Q1 2014 subject to approvals. ETP also acquired a convenience-store operator for about $400 million in October.
- Funding and distributions: ETE began a tender offer for up to $400 million of its 2020 notes and pursued refinancing of its term loan and a new revolver; completion and financing were not assured. ETE declared a quarterly distribution of $0.6725 per unit for the September quarter.
- Commodity and operating risks: Management noted that commodity price movements, derivative accounting, working-capital changes, weather, maintenance, integration of acquisitions and capital needs can affect results and cash available for distributions. ETP’s trading and derivative activity can cause significant period-to-period earnings volatility.
Contingencies and unusual items
Environmental liabilities accrued were $232 million at September 30, 2013, including $40 million current; nine-month cleanup expenditures were $27 million. Sunoco faced six MTBE-related cases, including state natural-resource-damage claims; management said an adverse outcome could significantly affect results in the period but was not expected to materially affect consolidated financial position. Other disclosed matters included a Massachusetts proceeding over recoverability of environmental legal costs and lawsuits challenging the proposed PVR merger. The filing reported $38 million of accruals for contingent obligations overall. ETE said the PVR lawsuits were preliminary and their outcomes could not be predicted.
ETE’s parent-company assets are not available to satisfy subsidiary obligations. ETP had also agreed to provide contingent residual support for $1.55 billion of certain AmeriGas senior notes. These distinctions and guarantees matter when assessing liquidity and debt at each entity level.
Important facts for investors to verify
- Separate acquisition-driven revenue growth from organic volume, margin and cash-flow performance; compare ETP and Regency segment results and consider the changed consolidation scope.
- Reconcile reported net income with continuing income, Adjusted EBITDA and unusual items, particularly the 2012 propane deconsolidation gain and the 2013 AmeriGas-unit sale gain.
- Assess whether operating cash flow can support the disclosed growth and maintenance capital plans, distributions and financing needs, including planned acquisitions.
- Review debt maturities, refinancing progress, subsidiary-level liquidity, interest-rate exposure and the parent/subsidiary separation of assets and obligations.
- Track the PVR transaction and litigation, the expected NEG sale, LNG project approvals and development commitments, and environmental and MTBE exposures.