Enterprise Products Partners L.P.

SEC Filings

10-K
ENTERPRISE PRODUCTS PARTNERS L P filed this Form 10-K on 02/28/2018
Entire Document
 

ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the EPCO group of companies, the unrecognized compensation cost associated with phantom unit awards was $92.3 million at December 31, 2017, of which our share of the cost is currently estimated to be $77.5 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 2.1 years.

Profits Interest Awards
In February and April 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 as disclosed in the table below.  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.

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, 2017:

 
 
 
Employee
Partnership
 
Enterprise
Common Units
contributed to
Employee Partnership
by EPCO Holdings
 
Class A
Capital
     Base (1)
 
Class A
Preference
Return (2)
 
Expected
Vesting/
Liquidation
Date
Estimated
Grant Date
Fair Value of
Profits Interest
  Awards (3)
Unrecognized
Compensation
  Cost (4)
                           
PubCo I
   
2,723,052
 
$63.7 million
 
$
0.39
 
Feb. 2020
$13.2 million
$7.4 million
PubCo II
   
2,834,198
 
$66.3 million
 
$
0.39
 
Feb. 2021
$14.7 million
$9.3 million
PubCo III
   
105,000
 
$2.5 million
 
$
0.39
 
Apr. 2020
$0.6 million
$0.2 million
PrivCo I
   
1,111,438
 
$26.0 million
 
$
0.39
 
Feb. 2021
$5.8 million
$0.8 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, 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 2.1 years, 3.1 years, 2.3 years and 3.1 years, respectively.

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