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Equity-Based Awards | 6 Months Ended
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Jun. 30, 2017
Equity-based Awards [Abstract] |
Equity-based Awards | Note 11. 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 Three Months Ended June 30, |  |  | For the Six Months Ended June 30, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Equity-classified awards: |  |  |  |  |  |  |  |  |  |  |  |
Phantom unit awards |  | $ | 23.5 |  |  | $ | 19.3 |  |  | $ | 46.3 |  |  | $ | 38.7 |
Restricted common unit awards |  |  | -- |  |  |  | 0.7 |  |  |  | 0.5 |  |  |  | 2.9 |
Profits interest awards |  |  | 1.6 |  |  |  | 1.6 |  |  |  | 3.1 |  |  |  | 2.3 |
Liability-classified awards |  |  | -- |  |  |  | 0.2 |  |  |  | 0.2 |  |  |  | 0.3 |
Total |  | $ | 25.1 |  |  | $ | 21.8 |  |  | $ | 50.1 |  |  | $ | 44.2 |
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 June 30, 2017, all of the outstanding phantom unit awards were granted under EPCO’s 2008 Enterprise Products Long-Term Incentive Plan (Third Amendment and Restatement) (“2008 Plan”). The maximum number of common units authorized for issuance under the 2008 Plan was 40,000,000 at June 30, 2017. This amount will automatically increase under the terms of the 2008 Plan by 5,000,000 common units on January 1, 2018 and will continue to automatically increase annually on each 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. After giving effect to awards granted under the 2008 Plan through June 30, 2017, a total of 18,947,916 additional common units were available for issuance under this plan. EPCO serves as the general partner of four limited partnerships that were formed in 2016 (generally referred to as “Employee Partnerships”) to serve as 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”). At June 30, 2017, 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. 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. At June 30, 2017, 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 period indicated:
|  | Number of Units |  |  | Weighted- Average Grant Date Fair Value per Unit (1) |
Phantom unit awards at January 1, 2017 |  |  | 7,767,501 |  |  | $ | 27.20 |
Granted (2) |  |  | 4,224,680 |  |  | $ | 28.86 |
Vested |  |  | (2,355,937 | ) |  | $ | 28.32 |
Forfeited |  |  | (107,145 | ) |  | $ | 27.74 |
Phantom unit awards at June 30, 2017 |  |  | 9,529,099 |  |  | $ | 27.66 |
(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 2017 was $121.9 million based on a grant date market price of our common units ranging from $26.40 to $28.87 per unit. An estimated annual forfeiture rate of 3.8% was applied to these awards. |
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 Three Months Ended June 30, |  |  | For the Six Months Ended June 30, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Cash payments made in connection with DERs |  | $ | 4.0 |  |  | $ | 3.3 |  |  | $ | 7.2 |  |  | $ | 5.3 |
Total intrinsic value of phantom unit awards that vested during period |  |  | 3.1 |  |  |  | 0.8 |  |  |  | 66.3 |  |  |  | 37.1 |
For the EPCO group of companies, the unrecognized compensation cost associated with phantom unit awards was $142.0 million at June 30, 2017, of which our share of the cost is currently estimated to be $122.5 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 2.2 years. Profits Interest Awards In 2016, EPCO Holdings Inc. (“EPCO Holdings”), a privately held affiliate of EPCO, contributed a portion of the Enterprise common units it owned to each of the Employee Partnerships. 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. 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 | $63.7 million |  | $ | 0.39 |  | Feb. 2020 | $13.2 million | $8.8 million
PubCo II | 2,834,198 units | $66.3 million |  | $ | 0.39 |  | Feb. 2021 | $14.7 million | $10.8 million
PubCo III | 105,000 units | $2.5 million |  | $ | 0.39 |  | Apr. 2020 | $0.6 million | $0.2 million
PrivCo I | 1,111,438 units | $26.0 million |  | $ | 0.39 |  | Feb. 2021 | $5.8 million | $0.9 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 June 30, 2017. 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 2.6 years, 3.6 years, 2.8 years and 3.6 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 1.7% | 6.1% to 6.8% | 27% to 40%
PubCo III | 4.0 years | 1.0% to 1.4% | 6.1% to 6.2% | 31% to 40%
PrivCo I | 5.0 years | 1.2% to 1.6% | 6.1% to 6.7% | 28% 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 Unaudited Condensed 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 period indicated:
|  | Number of Units |  |  | Weighted- Average Grant Date Fair Value per Unit (1) |
Restricted common units at January 1, 2017 |  |  | 682,294 |  |  | $ | 28.61 |
Vested |  |  | (668,470 | ) |  | $ | 28.56 |
Forfeited |  |  | (1,250 | ) |  | $ | 31.07 |
Restricted common units at June 30, 2017 |  |  | 12,574 |  |  | $ | 30.92 |
(1)Determined by dividing the aggregate grant date fair value of awards (before an allowance for forfeitures) by the number of awards issued. |
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 Unaudited Condensed Statements of Consolidated Cash Flows. The following table presents supplemental information regarding restricted common unit awards for the periods indicated:
|  | For the Three Months Ended June 30, |  |  | For the Six Months Ended June 30, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Cash distributions paid to restricted common unitholders |  | $ | -- |  |  | $ | 0.3 |  |  | $ | 0.3 |  |  | $ | 1.1 |
Total intrinsic value of restricted common unit awards that vested during period |  |  | 0.1 |  |  |  | 0.5 |  |  |  | 18.6 |  |  |  | 27.3 |
We expect to recognize our share of the unrecognized compensation cost for these awards by the end of 2017.

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