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Equity-Based Awards | 12 Months Ended
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Dec. 31, 2019
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 years indicated:
|  | For the Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Equity-classified awards: |  |  |  |  |  |  |  |  |
Phantom unit awards |  | $ | 132.2 |  |  | $ | 99.7 |  |  | $ | 92.8 |
Profits interest awards |  |  | 11.6 |  |  |  | 6.1 |  |  |  | 6.0 |
Restricted common unit awards |  |  | – |  |  |  | – |  |  |  | 0.5 |
Liability-classified awards |  |  | 0.1 |  |  |  | 0.3 |  |  |  | 0.4 |
Total |  | $ | 143.9 |  |  | $ | 106.1 |  |  | $ | 99.7 |
The fair value of equity-classified awards is amortized to 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. Phantom Unit Awards Subject to customary forfeiture provisions, phantom unit awards allow recipients to acquire EPD common units once a defined vesting period expires (at no cost to the recipient apart from fulfilling required service and other conditions). We expect phantom units to result in the issuance of common units upon vesting; therefore, these grants are accounted for as equity-classified awards. 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. The grant date fair value of a phantom unit award is based on the market price per unit of EPD 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 years indicated:
|  | Number of Units |  |  | Weighted- Average Grant Date Fair Value per Unit (1) |
Phantom unit awards at December 31, 2016 |  |  | 7,767,501 |  |  | $ | 27.20 |
Granted (2) |  |  | 4,268,920 |  |  | $ | 28.83 |
Vested |  |  | (2,490,081 | ) |  | $ | 28.30 |
Forfeited |  |  | (256,839 | ) |  | $ | 27.60 |
Phantom unit awards at December 31, 2017 |  |  | 9,289,501 |  |  | $ | 27.65 |
Granted (3) |  |  | 5,006,181 |  |  | $ | 26.82 |
Vested |  |  | (3,479,958 | ) |  | $ | 28.57 |
Forfeited |  |  | (482,447 | ) |  | $ | 26.88 |
Phantom unit awards at December 31, 2018 |  |  | 10,333,277 |  |  | $ | 26.97 |
Granted (4) |  |  | 6,854,920 |  |  | $ | 27.75 |
Vested |  |  | (3,895,049 | ) |  | $ | 27.53 |
Forfeited |  |  | (318,464 | ) |  | $ | 27.21 |
Phantom unit awards at December 31, 2019 |  |  | 12,974,684 |  |  | $ | 27.21 |
(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 $123.1 million based on a grant date market price of EPD common units ranging from $24.55 to $28.87 per unit. An estimated annual forfeiture rate of 3.8% was applied to these awards.
(3) | The aggregate grant date fair value of phantom unit awards issued during 2018 was $134.3 million based on a grant date market price of EPD common units ranging from $25.40 to $29.22 per unit. An estimated annual forfeiture rate of 3.2% was applied to these awards.
(4) | The aggregate grant date fair value of phantom unit awards issued during 2019 was $190.2 million based on a grant date market price of EPD common units ranging from $26.32 to $29.29 per unit. An estimated annual forfeiture rate of 3.0% was applied to these awards.
The phantom unit awards were granted under the 2008 Plan, which 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 phantom units, options, restricted common units, unit appreciation rights, 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 EPD common units authorized for issuance under the 2008 Plan was 50,000,000 at December 31, 2019. This amount automatically increased under the terms of the 2008 Plan by 5,000,000 common units on January 1, 2020 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 (i) the time that all available common units under the 2008 Plan have been delivered to participants or (ii) the time of termination of the 2008 Plan by the Board of Directors of EPCO or by the Incentive Plan Administration Subcommittee of the Governance Committee of Enterprise GP. After giving effect to awards granted under the 2008 Plan through December 31, 2019, a total of 17,106,486 additional common units were available for issuance. After taking into account tax withholding requirements, we issued 2,720,603, 2,442,436 and 1,687,692 common units in connection with the vesting of phantom unit awards in the years ended December 31, 2019, 2018 and 2017, 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 by EPD to its 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 years indicated:
|  | For the Year Ended December 31, |
|  | 2019 |  |  | 2018 |  |  | 2017 |
Cash payments made in connection with DERs |  | $ | 22.1 |  |  | $ | 17.7 |  |  | $ | 15.1 |
Total intrinsic value of phantom unit awards that vested during period |  | $ | 111.1 |  |  | $ | 90.7 |  |  | $ | 69.8 |
For the EPCO group of companies, the unrecognized compensation cost associated with phantom unit awards was $138.1 million at December 31, 2019, of which our share of such cost is currently estimated to be $113.3 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 2.1 years. Profits Interest Awards In 2016 and 2018, EPCO Holdings Inc. (“EPCO Holdings”), a privately held affiliate of EPCO, contributed a portion of the EPD common units it owned to form limited partnerships (referred to as “Employee Partnerships”) that serve as long-term incentive arrangements for key employees of EPCO by providing them a “profits interest” in an Employee Partnership. The Employee Partnerships named (i) EPD PubCo Unit I L.P. (“PubCo I”), (ii) EPD PubCo Unit II L.P. (“PubCo II”), and (iii) EPD PrivCo Unit I L.P. (“PrivCo I”) were formed by EPCO Holdings in 2016. The Employee Partnerships named (i) EPD 2018 Unit IV L.P. (“EPD IV”) and (ii) EPCO Unit II L.P. (“EPCO II”) were formed by EPCO Holdings in 2018. In exchange for the contributions of EPD common units, 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. Each quarter, the Employee Partnerships, as owners of EPD common units, receive a cash distribution from EPD as do EPD’s other common unitholders. The cash received by the Employee Partnership is first used to pay the Class A limited partner a cash distribution equal to the product of (i) the number of EPD common units owned by the Employee Partnership and (ii) the Class A Preference Return (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 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. 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 as of December 31, 2019:
Employee Partnership | EPD Common Units Contributed to Employee Partnership by EPCO Holdings | Class A Capital Base (1) | Class A Preference Return | Expected Vesting/ Liquidation Date | Estimated Grant Date Fair Value of Profits Interest Awards (2) | Unrecognized Compensation Cost (3)
PubCo I | 2,723,052 | $63.7 million | 0.3900 | February 2020 | $12.9 million | $0.8 million
PubCo II | 2,834,198 | $66.3 million | 0.3900 | February 2021 | $14.9 million | $4.0 million
PrivCo I | 1,111,438 | $26.0 million | 0.3900 | February 2021 | $5.8 million | $0.3 million
EPD IV | 6,400,000 | $172.9 million | 0.4325 | December 2023 | $26.7 million | $18.4 million
EPCO II | 1,600,000 | $43.2 million | 0.4325 | December 2023 | $6.6 million | $0.5 million
(1) | Represents the fair market value of EPD common units contributed to each Employee Partnership at the applicable contribution date.
(2) | Represents the total grant date fair value of the profits interest awards awarded to the Class B limited partners of each Employee Partnership irrespective of how such costs will be allocated between us and EPCO and its privately held affiliates.
(3) | Represents our expected share of the unrecognized compensation cost at December 31, 2019. We expect to recognize our share of the unrecognized compensation cost for PubCo II, PrivCo I, EPD IV and EPCO II over a weighted-average period of 1.1 years, 1.1 years, 3.9 years and 3.9 years, respectively. The Class B limited partner interests of PubCo I vested on February 22, 2020.
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 2.7% | 5.9% to 7.0% | 15% to 40%
PubCo II | 5.0 years | 1.1% to 3.0% | 5.9% to 7.0% | 19% to 40%
PrivCo I | 5.0 years | 1.2% to 1.6% | 6.1% to 6.7% | 28% to 40%
EPD IV | 5.0 years | 2.8% | 6.5% | 27%
EPCO II | 5.0 years | 1.6% to 2.8% | 6.3% to 6.8% | 24% to 27%
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 allowed recipients to acquire EPD common units (at no cost to the recipient apart from fulfilling service and other conditions) once a defined vesting period expired, subject to customary forfeiture provisions. There have been no restricted common unit awards outstanding since 2017.

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