Enterprise Products Partners L.P

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Enterprise Products Partners L.P Cover 4/12/2000 1:34 PM Page cvr1 Enterprise Products Partners L.P. 1999 Annual Report Cover 4/12/2000 1:34 PM Page cvr2 Company Profile Enterprise Products Partners L.P. is one of the largest publicly traded master limited partnerships with an enterprise value of approximately $2 billion. Enterprise is a leading integrated provider of processing, fractionation, storage, transportation and terminalling services to producers and consumers of natural gas liquids (“NGLs”) and other liquid hydrocarbons. The Company’s assets are geographically focused on the United States’ Gulf Coast, which accounts for approximately 55 percent of domestic NGL production and 75 percent of domestic NGL demand. Financial Highlights Amounts in 000s except per unit amounts 1999 1998 1997 1996 1995 Income Statement Data: Total revenues $ 1,346,456 $ 754,573 $ 1,035,963 $ 1,015,262 $ 802,354 Gross operating margin (1) $ 179,195 $ 99,627 $ 128,710 $ 137,937 $ 104,774 Operating income $ 132,351 $ 50,473 $ 75,680 $ 84,668 $ 61,845 Income before extraordinary charge and minority interest $ 121,521 $ 37,355 $ 52,690 $ 61,427 $ 35,137 Extraordinary charge on early extinguishment of debt $ — $ (27,176) $ — $ — $ — Net Income $ 120,295 $ 10,077 $ 52,163 $ 60,813 $ 34,786 Basic Earnings per Unit Income before extraordinary item and minority interest per unit $ 1.80 $ 0.62 $ 0.95 $ 1.11 $ 0.63 Net income per unit $ 1.79 $ 0.17 $ 0.94 $ 1.10 $ 0.63 Number of units used for basic calculation 66,710.4 60,124.4 54,962.8 54,962.8 54,962.8 Diluted Earnings per Unit Income before extraordinary item and minority interest per unit $ 1.65 $ 0.62 $ 0.95 $ 1.11 $ 0.63 Net income per unit $ 1.64 $ 0.17 $ 0.94 $ 1.10 $ 0.63 Number of units for fully diluted calculation 72,788.5 60,124.4 54,962.8 54,962.8 54,962.8 Balance Sheet Data: Total assets $ 1,494,952 $ 741,037 $ 697,713 $ 711,151 $ 610,931 Total debt $ 295,000 $ 90,000 $ 230,237 $ 255,617 $ 281,656 Total equity $ 789,465 $ 562,536 $ 311,885 $ 266,021 $ 198,815 % of total debt to total debt and equity 27.2% 13.8% 42.5% 49.0% 58.6% Other Financial Data: Cash flow from operating activities $ 168,810 $ (20,294) $ 57,795 $ 91,431 $ 12,212 Cash flow from investing activities $ (265,221) $ (50,695) $ (30,982) $ (57,725) $ (9,233) Cash flow from financing activities $ 77,538 $ 61,238 $ (26,551) $ (24,930) $ 11,995 EBITDA (2) $ 147,050 $ 55,472 $ 79,882 $ 87,109 $ 65,406 EBITDA of unconsolidated affiliates (3) $ 23,425 $ 23,912 $ 24,372 $ 25,012 $ 18,520 Total “Lookthrough” EBITDA (4) $ 170,475 $ 79,384 $ 104,254 $ 112,121 $ 83,926 Cash distributions declared per Common Unit (5) $ 1.85 $ 0.77 (5) (5) (5) (5) (1) Gross operating margin represents earnings before depreciation, lease expense obligations retained by the Company’s largest unitholder, Enterprise Products Company (“EPCO”), gain or loss from sale of assets and general and administrative expenses. Gross margin also includes the Company’s equity earnings from unconsolidated affiliates. (2) EBTIDA is defined as net income plus depreciation and amortization and interest expense less equity in income of unconsolidated affiliates. EBITDA for 1998 excludes the extraordinary charge of $27,176 related to the early extinguishment of debt. A complete description of EBTIDA is described in footnote (4) on page 32 of the Annual Report on Form 10-K. (3) Represents Enterprise’s pro rata share of EBITDA of the unconsolidated affiliates. (4)Total of EBITDA and EBITDA of unconsolidated affiliates. (5) The Company began distributing cash to its partnership units after its initial public offering of Common Units on July 27, 1998. Narrative 4/12/2000 1:31 PM Page 1 Dear Unitholders 1999 was a significant year for Enterprise. We generated record earnings and cash flow that surpassed any year since the company’s formation in 1968. During the year, we completed several strategic acquisitions that broadened our platform for growth. These were complementary to our existing asset base and were immediately accretive to earnings and cash flow. As a result of our earnings expansion and our confidence in Enterprise’s future, we announced an 11 percent increase in our annual cash distribution rate to $2.00 per unit. We also enhanced Enterprise’s ability to capitalize on emerging growth opportunities in the midstream energy sector. And, most importantly, we delivered on the goals that we outlined to our unitholders a year ago. Record Earnings By every measure, Enterprise reported strong financial performance during 1999. Our revenues increased to over $1.3 billion in 1999 compared to $755 million in 1998. Net income for 1999 was $120 million, or $1.64 per unit on a fully diluted basis, versus an adjusted net income of $37 million, or $0.62 per unit, for 1998. Gross operating margin increased by 80% to $179 million from approximately $100 million in 1998. This improvement was led by the Company’s Fractionation and Processing segments During the year, we completed several which benefited from increased demand for natural gas liquids (“NGLs”), resulting in increased strategic acquisitions volumes, improved margins, and a strong price environment for natural gas processing. that broadened our platform for growth. $Millions 1999 1998 Change These were comple- Gross Operating Margin by Segment: mentary to our exist- Processing $ 36.8 $ (0.6) $ 37.4 ing asset base and Fractionation 106.3 66.6 39.7 Pipeline 27.0 27.3 (0.3) were immediately Octane Enhancement 8.2 9.8 (1.6) accretive to earnings Otheroooooooooo 0.9 oooooooooo (3.5) oooooooooo 4.4 and cash flow. Total $ 179.2 $ 99.6 $ 79.6 Two significant acquisitions completed during the second half of 1999 were immediately accretive to net income and cash flow. These were the purchase of Tejas Natural Gas Liquids, LLC (“Tejas NGL”), which had an effective date of August 1, 1999, and the acquisition of an additional 25.5 percent ownership interest in our 210,000 barrel per day NGL fractionation facility in Mont Belvieu, Texas, which was effective July 1, 1999. Net income also benefited from four joint venture projects that began commercial operations late in the year. Two NGL pipelines, Tri-States and Wilprise, became operational during the second quarter and began contributing to earnings during the second half of the year. A 60,000 barrel per day NGL fractionator located in Baton Rouge, Louisiana and a refrigerated propane and butane export terminal on the Houston Ship Channel started operations late in the third quarter. In 2000, we will benefit from a full year of net income from these projects and acquisitions. Strategic Acquisitions In 1999, we acquired over $500 million in assets. These businesses broadened our array of services further upstream to include natural gas processing and the transportation of unfractionated NGLs. Focused on the Gulf Coast, we significantly expanded 1 Narrative 4/12/2000 1:31 PM Page 2 our asset base in Louisiana and Mississippi with facilities that are complementary to our existing platform of assets and provide additional volumes for our downstream processing, transportation and storage businesses. As a result of these acquisitions and investments in joint ventures, total assets at December 31, 1999 more than doubled to $1.5 billion from $741 million at the end of 1998. In our brief public history, Enterprise has already become one of the largest publicly traded partnerships with an enterprise value (market capitalization plus debt) of approximately $2 billion. The most significant of these transactions was the acquisition of Tejas NGL, which was Shell Oil Company’s natural gas processing and NGL business in Louisiana and Mississippi. This acquisition united our substantial NGL fractionation, storage, transportation and distribution system with Tejas NGL’s large upstream NGL supply position. It is anchored by a 20-year contract for the rights to process Shell’s current and future natural gas production from the Gulf of Mexico. Through this transaction, we have established a strategic partnership with one of the largest oil and gas producers and leaseholders in the deepwater Gulf of Mexico. Based on the cash Enterprise has now established a strong presence across the entire NGL value chain on the generating capacity of Gulf Coast. The Gulf Coast is the largest NGL supply and market area in the United States and our portfolio of the gateway to global supplies and markets. By having an integrated business position across fee-based businesses each segment of the value chain, we believe we can extract more value for our unitholders and and our confidence in provide additional benefits for our customers by providing integrated, or bundled, services Enterprise’s prospects unique to the NGL marketplace. for the future, we In exchange for Tejas NGL, Shell received total consideration valued at $375 million consisting increased the annual cash distribution rate of $166 million in cash and 14.5 million Special Units, which convert to Common Units on a 1:1 by $0.20 per unit to basis through 2002. These Special Units represent a 17.6 percent direct ownership position in $2.00 per unit effective Enterprise. Shell has the opportunity to earn an additional 6.0 million convertible Contingency with the distribution of Units, which would increase its direct ownership position to 23.2 percent, contingent upon their fourth quarter 1999 delivering a targeted volume of natural gas to Enterprise for processing during 2000 and 2001. No cash. cash distributions are paid or accrue to the Special or Contingency Units prior to conversion.
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