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Equity-Based Awards | 12 Months Ended
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Dec. 31, 2016
Equity-based Awards [Abstract] |
Equity-based Awards | Note 13. Equity-Based Awards An allocated portion of the fair value of EPCO’s equity-based awards is charged to us under the ASA. The following table summarizes compensation expense we recognized in connection with equity-based awards for the periods indicated:
|  | For the Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Equity-classified awards: |  |  |  |  |  |  |  |  |
Phantom unit awards |  | $ | 78.6 |  |  | $ | 78.3 |  |  | $ | 45.1 |
Restricted common unit awards |  |  | 4.7 |  |  |  | 14.7 |  |  |  | 42.1 |
Profits interest awards |  |  | 5.4 |  |  |  | -- |  |  |  | -- |
Liability-classified awards |  |  | 0.5 |  |  |  | 0.2 |  |  |  | 0.3 |
Total |  | $ | 89.2 |  |  | $ | 93.2 |  |  | $ | 87.5 |
The fair value of equity-classified awards is amortized into earnings over the requisite service or vesting period. Equity-classified awards are expected to result in the issuance of common units upon vesting. Compensation expense for liability-classified awards is recognized over the requisite service or vesting period based on the fair value of the award remeasured at each reporting date. Liability-classified awards are settled in cash upon vesting. At December 31, 2016, substantially all of the restricted common unit awards, and all of the phantom unit awards, were granted under EPCO’s 2008 Enterprise Products Long-Term Incentive Plan (Third Amendment and Restatement) (“2008 Plan”). The 2008 Plan is a long-term incentive plan under which any employee or consultant of EPCO, us or our affiliates that provides services to us, directly or indirectly, may receive incentive compensation awards in the form of options, restricted common units, phantom units, distribution equivalent rights (“DERs”), unit appreciation rights (“UARs”), unit awards, other unit-based awards or substitute awards. Non-employee directors of our general partner may also participate in the 2008 Plan. The maximum number of common units authorized for issuance under the 2008 Plan was 35,000,000 at December 31, 2016. This amount automatically increased under the terms of the 2008 Plan by 5,000,000 common units on January 1, 2016 and will continue to automatically increase annually on January 1 thereafter during the term of the 2008 Plan; provided, however, that in no event shall the maximum aggregate number exceed 70,000,000 common units. The 2008 Plan is effective until September 30, 2023 or, if earlier, until the time that all available common units under the 2008 Plan have been delivered to participants or the time of termination of the 2008 Plan by the Board of Directors of EPCO or by the Audit and Conflicts Committee. After giving effect to awards granted under the 2008 Plan through January 1, 2017, a total of 18,336,456 additional common units were available for issuance. During 2016, EPCO formed four limited partnerships (generally referred to as “Employee Partnerships”) to serve as long-term incentive arrangements for key employees of EPCO by providing them a “profits interest” in an Employee Partnership. The names of the Employee Partnerships are EPD PubCo Unit I L.P. (“PubCo I”), EPD PubCo Unit II L.P. (“PubCo II”), EPD PubCo Unit III L.P. (“PubCo III”) and EPD PrivCo Unit I L.P. (“PrivCo I”). The Employee Partnerships are discussed later in this note. At December 31, 2016, a small number of restricted common unit awards remained outstanding under the Enterprise Products 1998 Long-Term Incentive Plan (“1998 Plan”). The 1998 Plan is effectively closed and no new awards have been granted under this plan since 2014. The 1998 Plan provided for awards of our common units and other rights to our non-employee directors and to employees of EPCO and its affiliates providing services to us. Historically, awards under the 1998 Plan consisted of unit options and restricted common units. Phantom Unit Awards Phantom unit awards allow recipients to acquire our common units (at no cost to the recipient apart from fulfilling service and other conditions) once a defined vesting period expires, subject to customary forfeiture provisions. Phantom unit awards generally vest at a rate of 25% per year beginning one year after the grant date and are non-vested until the required service periods expire. All of the phantom unit awards were issued under the 2008 Plan. At December 31, 2016, substantially all of our phantom unit awards are expected to result in the issuance of common units upon vesting; therefore, the applicable awards are accounted for as equity-classified awards. The grant date fair value of a phantom unit award is based on the market price per unit of our common units on the date of grant. Compensation expense is recognized based on the grant date fair value, net of an allowance for estimated forfeitures, over the requisite service or vesting period. The following table presents phantom unit award activity for the periods indicated:
|  | Number of Units |  |  | Weighted- Average Grant Date Fair Value per Unit (1) |
Phantom unit awards at January 1, 2014 |  |  | -- |  |  | $ | -- |
Granted (2) |  |  | 3,530,710 |  |  | $ | 33.12 |
Vested |  |  | (38,200 | ) |  | $ | 33.04 |
Forfeited |  |  | (150,120 | ) |  | $ | 33.12 |
Phantom unit awards at December 31, 2014 |  |  | 3,342,390 |  |  | $ | 33.13 |
Granted (3) |  |  | 3,496,140 |  |  | $ | 33.96 |
Vested |  |  | (940,415 | ) |  | $ | 33.14 |
Forfeited |  |  | (471,166 | ) |  | $ | 33.51 |
Phantom unit awards at December 31, 2015 |  |  | 5,426,949 |  |  | $ | 33.63 |
Granted (4) |  |  | 4,508,310 |  |  | $ | 21.90 |
Vested |  |  | (1,761,455 | ) |  | $ | 33.10 |
Forfeited |  |  | (406,303 | ) |  | $ | 28.52 |
Phantom unit awards at December 31, 2016 |  |  | 7,767,501 |  |  | $ | 27.20 |
(1)Determined by dividing the aggregate grant date fair value of awards (before an allowance for forfeitures) by the number of awards issued. (2)The aggregate grant date fair value of phantom unit awards issued during 2014 was $117.0 million based on a grant date market price of our common units ranging from $33.04 to $37.59 per unit. An estimated annual forfeiture rate of 3.4% was applied to these awards. (3)The aggregate grant date fair value of phantom unit awards issued during 2015 was $118.7 million based on a grant date market price of our common units ranging from $27.31 to $34.40 per unit. An estimated annual forfeiture rate of 3.5% was applied to these awards. (4)The aggregate grant date fair value of phantom unit awards issued during 2016 was $98.7 million based on a grant date market price of our common units ranging from $21.86 to $27.39 per unit. An estimated annual forfeiture rate of 3.9% was applied to these awards. |
After taking into account tax withholding requirements, we issued 1,170,600, 618,395 and 23,311 common units in connection with the vesting of phantom unit awards in the years ended December 31, 2016, 2015 and 2014, respectively. The 2008 Plan provides for the issuance of DERs in connection with phantom unit awards. A DER entitles the participant to nonforfeitable cash payments equal to the product of the number of phantom unit awards outstanding for the participant and the cash distribution per common unit paid to our common unitholders. Cash payments made in connection with DERs are charged to partners’ equity when the phantom unit award is expected to result in the issuance of common units; otherwise, such amounts are expensed. The following table presents supplemental information regarding phantom unit awards for the periods indicated:
|  | For the Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Cash payments made in connection with DERs |  | $ | 11.7 |  |  | $ | 7.7 |  |  | $ | 3.7 |
Total intrinsic value of phantom unit awards that vested during period |  | $ | 40.9 |  |  | $ | 31.2 |  |  | $ | 1.4 |
For the EPCO group of companies, the unrecognized compensation cost associated with phantom unit awards was $79.8 million at December 31, 2016, of which our share of the cost is currently estimated to be $71.1 million. Due to the graded vesting provisions of these awards, we expect to recognize our share of the unrecognized compensation cost for these awards over a weighted-average period of 2.0 years. Profits Interest Awards In February 2016, EPCO Holdings Inc. (“EPCO Holdings”), a privately held affiliate of EPCO, contributed the following Enterprise common units it owned to the Employee Partnerships: (i) 2,723,052 units to PubCo I, (ii) 2,834,198 units to PubCo II and (iii) 1,111,438 units to PrivCo I. In April 2016, EPCO Holdings contributed 105,000 Enterprise common units it owned to PubCo III. In exchange for these contributions, EPCO Holdings was admitted as the Class A limited partner of each Employee Partnership. Also on the applicable contribution date, certain key EPCO employees were issued Class B limited partner interests (i.e., profits interest awards) and admitted as Class B limited partners of each Employee Partnership, all without any capital contribution by such employees. EPCO serves as the general partner of each Employee Partnership. In general, the Class A limited partner earns a quarterly preferred return equal to $0.39 per unit on the number of Enterprise common units contributed by EPCO Holdings to each Employee Partnership, with any residual cash amount remaining in each Employee Partnership being paid to the applicable Class B limited partners on a quarterly basis as a distribution. Upon liquidation of an Employee Partnership, assets having a then current fair market value equal to the Class A limited partner’s capital base in such Employee Partnership will be distributed to the Class A limited partner. Any remaining assets of such Employee Partnership will be distributed to the Class B limited partners of such Employee Partnership as a residual profits interest, which represents the appreciation in value of the Employee Partnership’s assets since the date of EPCO Holdings’ contribution to it, as described above. Unless otherwise agreed to by EPCO and a majority in interest of the limited partners of each Employee Partnership, such Employee Partnership will terminate at the earliest to occur of (i) 30 days following its vesting date, (ii) a change of control or (iii) a dissolution of the Employee Partnership. The Class B limited partner interests in each Employee Partnership vest as follows: PubCo I, four years from February 22, 2016; PubCo II and PrivCo I, five years from February 22, 2016; and PubCo III, four years from April 6, 2016. Individually, each Class B limited partner interest is subject to forfeiture if the participating employee’s employment with EPCO is terminated prior to vesting, with customary exceptions for death, disability and certain retirements. The risk of forfeiture will also lapse upon certain change of control events. Forfeited individual Class B limited partner interests are allocated to the remaining Class B limited partners. The following table summarizes key elements of each Employee Partnership:
Employee Partnership | Enterprise Common Units owned by Employee Partnership | Class A Capital Base (1) |  | Class A Preference Return (2) |  | Expected Liquidation Date | Estimated Grant Date Fair Value of Profits Interest Awards (3) | Unrecognized Compensation Cost (4)
PubCo I | 2,723,052 units | $63.5 million |  | $ | 0.39 |  | Feb. 2020 | $13.2 million | $10.4 million
PubCo II | 2,834,198 units | $66.1 million |  | $ | 0.39 |  | Feb. 2021 | $14.6 million | $12.1 million
PubCo III | 105,000 units | $2.5 million |  | $ | 0.39 |  | Apr. 2020 | $0.5 million | $0.4 million
PrivCo I | 1,111,438 units | $25.9 million |  | $ | 0.39 |  | Feb. 2021 | $5.8 million | $1.0 million
(1)Represents fair market value of the Enterprise common units contributed to each Employee Partnership at the applicable contribution date. (2)Each quarter, the Class A limited partner in each Employee Partnership is paid a cash distribution equal to the product of (i) the number of common units owned by the Employee Partnership and (ii) the Class A Preference Return of $0.39 per unit (subject to equitable adjustment in order to reflect any equity split, equity distribution or dividend, reverse split, combination, reclassification, recapitalization or other similar event affecting such common units). To the extent that the Employee Partnership has cash remaining after making this quarterly payment to the Class A limited partner, the residual cash is distributed to the Class B limited partners on a quarterly basis. (3)Represents the total grant date fair value of the profits interest awards irrespective of how such costs will be allocated between us and EPCO and its privately held affiliates. (4)Represents our expected share of the unrecognized compensation cost at December 31, 2016. We expect to recognize our share of the unrecognized compensation cost for PubCo I, PubCo II, PubCo III and PrivCo I over a weighted-average period of 3.1 years, 4.1 years, 3.3 years and 4.1 years, respectively.
The grant date fair value of each Employee Partnership is based on (i) the estimated value (as determined using a Black-Scholes option pricing model) of such Employee Partnership’s assets that would be distributed to the Class B limited partners thereof upon liquidation and (ii) the value, based on a discounted cash flow analysis, of the residual quarterly cash amounts that such Class B limited partners are expected to receive over the life of the Employee Partnership. The following table summarizes the assumptions we used in applying a Black-Scholes option pricing model to derive that portion of the estimated grant date fair value of the profits interest awards for each Employee Partnership:
| Expected | Risk-Free | Expected | Expected Unit
Employee | Life | Interest | Distribution | Price
Partnership | of Award | Rate | Yield | Volatility
PubCo I | 4.0 years | 0.9% to 1.1% | 6.2% to 6.8% | 29% to 40%
PubCo II | 5.0 years | 1.1% to 1.3% | 6.2% to 6.8% | 27% to 40%
PubCo III | 4.0 years | 1.0% | 6.2% | 40%
PrivCo I | 5.0 years | 1.2% to 1.3% | 6.2% to 6.7% | 32% to 40%
Compensation expense attributable to the profits interest awards is based on the estimated grant date fair value of each award. A portion of the fair value of these equity-based awards is allocated to us under the ASA as a non-cash expense. We are not responsible for reimbursing EPCO for any expenses of the Employee Partnerships, including the value of any contributions of units made by EPCO Holdings. Restricted Common Unit Awards Restricted common unit awards allow recipients to acquire our common units (at no cost to the recipient apart from fulfilling service and other conditions) once a defined vesting period expires, subject to customary forfeiture provisions. Restricted common unit awards generally vest at a rate of 25% per year beginning one year after the grant date and are non-vested until the required service periods expire. Restricted common units are included in the number of common units outstanding as presented on our Consolidated Balance Sheets. The fair value of a restricted common unit award is based on the market price per unit of our common units on the date of grant. Compensation expense is recognized based on the grant date fair value, net of an allowance for estimated forfeitures, over the requisite service or vesting period. The following table presents restricted common unit award activity for the periods indicated:
|  | Number of Units |  |  | Weighted- Average Grant Date Fair Value per Unit (1) |
Restricted common units at January 1, 2014 |  |  | 7,221,214 |  |  | $ | 25.83 |
Vested |  |  | (2,634,074 | ) |  | $ | 23.94 |
Forfeited |  |  | (357,350 | ) |  | $ | 26.38 |
Restricted common units at December 31, 2014 |  |  | 4,229,790 |  |  | $ | 26.96 |
Vested |  |  | (2,009,970 | ) |  | $ | 26.00 |
Forfeited |  |  | (259,300 | ) |  | $ | 27.53 |
Restricted common units at December 31, 2015 |  |  | 1,960,520 |  |  | $ | 27.88 |
Vested |  |  | (1,234,502 | ) |  | $ | 27.45 |
Forfeited |  |  | (43,724 | ) |  | $ | 28.48 |
Restricted common units at December 31, 2016 (2) |  |  | 682,294 |  |  | $ | 28.61 |
(1)Determined by dividing the aggregate grant date fair value of awards (before an allowance for forfeitures) by the number of awards issued. (2)Of the total number of restricted common units outstanding at December 31, 2016, a total of 491,280 were issued under the 2008 Plan with the balance issued under the 1998 Plan. |
Each recipient of a restricted common unit award is entitled to nonforfeitable cash distributions equal to the product of the number of restricted common units outstanding for the participant and the cash distribution per unit paid to our common unitholders. These distributions are included in “Cash distributions paid to limited partners” as presented on our Statements of Consolidated Cash Flows. The following table presents supplemental information regarding restricted common unit awards for the periods indicated:
|  | For the Year Ended December 31, |
|  | 2016 |  |  | 2015 |  |  | 2014 |
Cash distributions paid to restricted common unitholders |  | $ | 1.6 |  |  | $ | 4.0 |  |  | $ | 7.3 |
Total intrinsic value of restricted common unit awards that vested during period |  | $ | 28.5 |  |  | $ | 67.3 |  |  | $ | 87.1 |
For the EPCO group of companies, the unrecognized compensation cost associated with restricted common unit awards was an aggregate $0.7 million at December 31, 2016, of which our share of the cost is currently estimated to be $0.5 million. We expect to recognize our share of the unrecognized compensation cost for these awards by the end of 2017. Unit Option Awards EPCO’s long-term incentive plans provide for the issuance of non-qualified incentive options denominated in our common units. Historically, our unit option awards were issued under the 1998 Plan. All such awards had been exercised as of December 31, 2015 and no new unit option awards were granted during the three years ended December 31, 2016. When issued, the exercise price of each unit option award was equal to the market price of our common units on the date of grant. In general, unit option awards had a vesting period of four years from the date of grant and expired at the end of the calendar year following the year of vesting. The fair value of each unit option award was estimated on the date of grant using a Black-Scholes option pricing model, which incorporated various assumptions including expected life of the option, risk-free interest rates, expected distribution yield of our common units, and expected price volatility of our common units. Compensation expense recorded in connection with unit option awards was based on the grant date fair value, net of an allowance for estimated forfeitures, over the requisite service or vesting period. The following table presents unit option award activity for the periods indicated:
|  | Number of Units |  |  | Weighted- Average Strike Price (dollars/unit) |
Unit option awards at January 1, 2014 |  |  | 4,050,000 |  |  | $ | 13.24 |
Exercised |  |  | (2,720,000 | ) |  | $ | 11.83 |
Forfeited |  |  | (60,000 | ) |  | $ | 16.14 |
Unit option awards at December 31, 2014 |  |  | 1,270,000 |  |  | $ | 16.14 |
Exercised |  |  | (1,270,000 | ) |  | $ | 16.14 |
Unit option awards at December 31, 2015 |  |  | -- |  |  | $ | -- |
In order to fund its unit option award-related obligations, EPCO purchased our common units at fair value directly from us. When employees exercised unit option awards, we reimbursed EPCO for the cash difference between the strike price paid by the employee and the actual purchase price paid by EPCO for the units issued to the employee. The following table presents supplemental information regarding unit option awards during the periods indicated:
|  | For the Year Ended December 31, |
|  | 2015 |  |  | 2014 |
Total intrinsic value of unit option awards exercised during period |  | $ | 21.7 |  |  | $ | 57.5 |
Cash received from EPCO in connection with the exercise of unit option awards |  | $ | 13.1 |  |  | $ | 33.4 |
Unit option award-related cash reimbursements to EPCO |  | $ | 21.7 |  |  | $ | 57.5 |

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