epeform8k_081808.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT PURSUANT
TO
SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
report (Date of earliest event reported): June 30, 2008
ENTERPRISE
GP HOLDINGS L.P.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
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1-32610
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13-4297064
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Commission
File
Number)
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(I.R.S.
Employer
Identification
No.)
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1100
Louisiana, 10th Floor
Houston,
Texas 77002
(Address
of Principal Executive Offices, including Zip Code)
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(713)
381-6500
(Registrant’s
Telephone Number, including Area
Code)
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Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
¨ Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
¨ Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
8.01. Other Events.
We are filing the unaudited condensed
consolidated balance sheet of EPE Holdings, LLC at June 30, 2008, which is
included as Exhibit 99.1 to this Current Report on Form 8-K. EPE
Holdings, LLC is the general partner of Enterprise GP Holdings L.P.
Item
9.01. Financial Statements and Exhibits.
(d) Exhibits.
Exhibit
No.
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Description
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99.1
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Unaudited
Condensed Consolidated Balance Sheet of EPE Holdings, LLC at June 30,
2008.
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SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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ENTERPRISE
GP HOLDINGS L.P.
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By:
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EPE
Holdings, LLC, as general partner
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Date: August 18, 2008
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By:
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/s/ Michael
J. Knesek
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Name:
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Michael
J. Knesek
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Title:
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Senior
Vice President, Controller
and
Principal Accounting
Officer
of the
general partner
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exhibit99_1.htm
EXHIBIT
99.1
EPE
HOLDINGS, LLC
Unaudited
Condensed Consolidated Balance Sheet at June 30, 2008
TABLE
OF CONTENTS
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Page
No.
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2
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3
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5
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8
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8
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14
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19
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20
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22
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23
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25
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26
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30
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31
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33
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38
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38
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CONSOLIDATED
BALANCE SHEET
AT
JUNE 30, 2008
(Dollars
in thousands)
ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
24,834 |
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Accounts
and notes receivable – trade, net of allowance for
doubtful
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accounts
of $15,106
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4,549,327 |
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Accounts
receivable – related parties
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1,109 |
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Inventories
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578,787 |
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Prepaid
and other current assets
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335,832 |
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Total
current assets
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5,489,889 |
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Property,
plant and equipment, net
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15,710,188 |
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Investments
in and advances to unconsolidated affiliates
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2,512,167 |
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Intangible
assets, net of accumulated amortization of $611,687
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1,840,780 |
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Goodwill
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897,656 |
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Deferred
tax assets
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3,015 |
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Other
assets
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237,604 |
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Total
assets
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$ |
26,691,299 |
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LIABILITIES
AND MEMBER'S EQUITY
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Current
liabilities:
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Accounts
payable – trade
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$ |
444,391 |
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Accounts
payable – related parties
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41,130 |
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Accrued
product payables
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4,636,270 |
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Accrued
expenses
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76,726 |
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Accrued
interest
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186,109 |
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Other
current liabilities
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416,143 |
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Total
current liabilities
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5,800,769 |
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Long-term debt (see Note
11)
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11,396,678 |
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Deferred
tax liabilities
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20,957 |
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Other
long-term liabilities
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103,929 |
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Minority
interest
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9,360,317 |
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Commitments
and contingencies
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Member’s
equity, including accumulated other
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comprehensive
income of $8,782 (see Note 12)
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8,649 |
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Total
liabilities and member’s equity
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$ |
26,691,299 |
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See Notes
to Unaudited Condensed Consolidated Balance Sheet.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
AT
JUNE 30, 2008
Except
as noted within the context of each footnote disclosure, the dollar amounts
presented in the tabular data within these footnote disclosures are stated in
thousands of dollars.
Company
Organization
EPE
Holdings, LLC is a
Delaware limited liability company that was formed in April 2005 to
become the general partner of Enterprise GP Holdings L.P. The
business purpose of EPE Holdings, LLC is to manage the affairs and operations of
Enterprise GP Holdings L.P. At June 30, 2008, Dan Duncan LLC
owned 100% of the membership interests of EPE Holdings, LLC.
Unless
the context requires otherwise, references to “we,” “us,” “our” or “EPE
Holdings, LLC” are intended to mean and include the business and operations of
EPE Holdings, LLC, as well as its consolidated subsidiaries, which include
Enterprise GP Holdings L.P. (“Enterprise GP Holdings”) and its consolidated
subsidiaries. Enterprise Products GP LLC, Enterprise Products
Partners L.P., Enterprise Products Operating LLC, Texas Eastern Products
Pipeline Company, LLC, and TEPPCO Partners, L.P. and their respective
consolidated subsidiaries are consolidated subsidiaries of Enterprise GP
Holdings. References to “EPE Holdings” are intended to mean EPE
Holdings, LLC, individually, and not on a consolidated basis.
Enterprise
GP Holdings is a publicly traded Delaware limited partnership, the
registered limited partnership interests of which are listed on the New York
Stock Exchange (“NYSE”) under the ticker symbol “EPE.” The current business of
Enterprise GP Holdings is the ownership of general and limited partner interests
of publicly traded partnerships engaged in the midstream energy industry and
related businesses. EPE Holdings’ general partner interest in Enterprise GP
Holdings is fixed without any requirement for capital contributions in
connection with additional unit issuances by Enterprise GP
Holdings.
References
to “Enterprise Products Partners” mean Enterprise Products Partners L.P., the
common units of which are listed on the NYSE under the ticker symbol
“EPD.” Enterprise Products Partners has no business activities
outside those conducted by its operating subsidiary, Enterprise Products
Operating LLC (“EPO”). References to “EPGP” refer to Enterprise
Products GP, LLC, which is the general partner of Enterprise Products
Partners. Enterprise GP Holdings owns EPGP.
References
to “Duncan Energy Partners” mean Duncan Energy Partners L.P., which is a
consolidated subsidiary of EPO. Duncan Energy Partners is a publicly
traded Delaware limited partnership, the common units of which are listed on the
NYSE under the ticker symbol “DEP.” References to “DEP GP” mean DEP
Holdings, LLC, which is the general partner of Duncan Energy
Partners.
References
to “TEPPCO” mean TEPPCO Partners, L.P., the common units of which are listed on
the NYSE under the ticker symbol “TPP.” References to “TEPPCO GP”
refer to Texas Eastern Products Pipeline Company, LLC, which is the general
partner of TEPPCO. Enterprise GP Holdings owns TEPPCO
GP.
References to “Energy Transfer Equity”
mean the business and operations of Energy Transfer Equity, L.P. and its
consolidated subsidiaries, which includes Energy Transfer Partners, L.P.
(“ETP”). Energy Transfer Equity is a publicly traded Delaware limited
partnership, the common units of which are listed on the NYSE under the ticker
symbol “ETE.” The general partner of Energy Transfer Equity is LE GP, LLC (“LE
GP”). Enterprise GP Holdings has non-controlling interests in
both Energy Transfer Equity and LE GP that it accounts for using the equity
method of accounting.
References
to “Employee Partnerships” mean EPE Unit L.P. (“EPE Unit I”), EPE Unit II, L.P.
(“EPE Unit II”), EPE Unit III, L.P. (“EPE Unit III”) and Enterprise Unit L.P.
(“Enterprise Unit”), collectively, which are
private company affiliates of EPCO, Inc.
References
to “EPCO” mean EPCO, Inc. and its private company affiliates, which are related
parties to all of the foregoing named entities. Mr. Duncan is the
Group Co-Chairman and controlling shareholder of EPCO.
References to “DFI” mean Duncan Family
Interests, Inc. and “DFIGP” mean DFI GP Holdings, L.P. DFI and DFIGP
are private company affiliates of EPCO. Enterprise GP Holdings
acquired its ownership interests in TEPPCO and TEPPCO GP from DFI and
DFIGP.
EPE Holdings, Enterprise GP Holdings,
Enterprise Products Partners, EPGP, TEPPCO, TEPPCO GP, the Employee
Partnerships, EPCO, DFI and DFIGP are affiliates under common control of Mr.
Duncan. We do not control Energy Transfer Equity or LE
GP.
Basis
of Financial Statement Presentation
Since EPE
Holdings exercises control over Enterprise GP Holdings, EPE Holdings
consolidates its balance sheet with that of Enterprise GP
Holdings. EPE Holdings owns a 0.01% general partner interest in
Enterprise GP Holdings, which conducts substantially all of EPE Holdings’
business. EPE Holdings has no independent operations and no material
assets outside those of Enterprise GP Holdings.
The
number of reconciling items between our consolidated balance sheet and that of
Enterprise GP Holdings are few. The most significant reconciling item
is that relating to minority interest in our net assets by the limited partners
of Enterprise GP Holdings and the elimination of our investment in Enterprise GP
Holdings with our underlying partner’s capital account in Enterprise GP
Holdings. See Note 2 for additional details regarding minority
interest ownership in our consolidated subsidiaries.
Presentation
of Investments. Enterprise GP Holdings owns 13,454,498 common
units of Enterprise Products Partners and 100% of the membership interests of
EPGP, which is entitled to 2% of the cash distributions paid by Enterprise
Products Partners as well as the associated incentive distribution rights
(“IDRs”) of Enterprise Products Partners.
Private company affiliates of EPCO (DFI
and DFIGP) contributed equity interests in TEPPCO and TEPPCO GP to
Enterprise GP Holdings in May 2007. As a result of such contributions,
Enterprise GP Holdings owns 4,400,000 common units of TEPPCO and 100% of the
membership interests of TEPPCO GP, which is entitled to 2% of the cash
distributions of TEPPCO as well as the IDRs of TEPPCO. The
contributions of ownership interests in TEPPCO and TEPPCO GP were accounted for
at historical costs as a reorganization of entities under common control in a
manner similar to a pooling of interests. The inclusion of TEPPCO and
TEPPCO GP in our consolidated balance sheet was effective January 1, 2005
because an affiliate of EPCO under common control with Enterprise GP Holdings
originally acquired the ownership interests of TEPPCO GP in February
2005.
In May
2007, Enterprise GP Holdings acquired 38,976,090 common units of Energy Transfer
Equity and approximately 34.9% of the membership interests of its general
partner, LE GP, for $1.65 billion in cash. Energy Transfer Equity
owns limited partner interests and the general partner interest of ETP.
Enterprise GP Holdings accounts for its investments in Energy Transfer Equity
and LE GP using the equity method of accounting. See Note 8 for
additional information regarding these unconsolidated affiliates.
Consolidation
Policy
We
evaluate our financial interests in companies to determine if they represent
variable interest entities where we are the primary beneficiary. If
such criteria are met, we consolidate the financial statements of such
businesses with those of our own. Our financial statements include
our accounts and those of our majority-owned subsidiaries in which we have a
controlling financial or equity interest, after the elimination of intercompany
accounts and transactions.
If an
investee is organized as a limited partnership or limited liability company and
maintains separate ownership accounts, we account for our investment using the
equity method if our ownership interest is between 3% and 50% and we exercise
significant influence over the investee’s operating and financial
policies. For all other types of investments, we apply the equity
method of accounting if our ownership interest is between 20% and 50% and we
exercise significant influence over the investee’s operating and financial
policies. In consolidation, we eliminate our proportionate share of
profits and losses from transactions with equity method unconsolidated
affiliates to the extent such amounts are material and remain on our balance
sheet (or those of our equity method investees) in inventory or similar
accounts.
If our ownership interest in an
investee does not provide us with either control or significant influence over
the investee, we account for the investment using the cost method.
Dixie Employee
Benefit Plans
Dixie Pipeline Company (“Dixie”), a
consolidated subsidiary of EPO, directly employs the personnel that operate its
pipeline system. Certain of these employees are eligible to participate in
Dixie’s defined contribution plan and pension and postretirement benefit
plans. Dixie contributed $0.1 million and $0.2 million to its
company-sponsored defined contribution plan during the three and six months
ended June 30, 2008, respectively. During the remainder of 2008,
Dixie expects to contribute approximately $0.2 million to its postretirement
benefit plan and approximately $0.5 million to its pension plan.
Environmental
Costs
Environmental
costs for remediation are accrued based on estimates of known remediation
requirements. Such accruals are based on management’s best estimate of the
ultimate cost to remediate a site and are adjusted as further information and
circumstances develop. Those estimates may change substantially depending
on information about the nature and extent of contamination, appropriate
remediation technologies and regulatory approvals. Ongoing environmental
compliance costs are charged to expense as incurred. In accruing for
environmental remediation liabilities, costs of future expenditures for
environmental remediation are not discounted to their present value, unless the
amount and timing of the expenditures are fixed or reliably determinable.
Expenditures to mitigate or prevent future environmental contamination are
capitalized.
At June
30, 2008, our accrued liabilities for environmental remediation projects totaled
$30.2 million. This amount was derived from a range of reasonable
estimates based upon studies and site surveys. Unanticipated changes
in circumstances and/or legal requirements could result in expenses being
incurred in future periods in addition to an increase in actual cash required to
remediate contamination for which we are responsible.
Estimates
Preparing
our Unaudited Condensed Consolidated Balance Sheet in conformity with GAAP
requires management to make estimates and assumptions that affect amounts of
assets and liabilities presented and disclosures about contingent assets and
liabilities at the balance sheet. Our actual results
could
differ from these estimates. On an ongoing basis, management reviews its
estimates based on currently available information. Changes in facts and
circumstances may result in revised estimates.
Enterprise
Products Partners revised the remaining useful lives of certain assets, most
notably the assets that constitute its Texas Intrastate System, effective
January 1, 2008. This revision adjusted the remaining useful life of such assets
to incorporate recent data showing that proved natural gas reserves supporting
throughput and processing volumes for these assets have changed since our
original determination made in September 2004. These revisions will
prospectively reduce our depreciation expense on assets having carrying values
totaling $2.72 billion at January 1, 2008. For additional information
regarding this change in estimate, see Note 7.
Minority
Interest
As
presented in our Unaudited Condensed Consolidated Balance Sheets, minority
interest represents third-party and affiliate ownership interests in the net
assets of our consolidated subsidiaries. For financial reporting
purposes, the assets and liabilities of our controlled subsidiaries are
consolidated with those of EPE Holdings, with any third-party and affiliate
ownership interest in such amounts presented as minority
interest. The following table presents the components of minority
interest as presented on our Unaudited Condensed Consolidated Balance Sheets at
June 30, 2008:
Limited
partners of Enterprise Products Partners:
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Third-party
owners of Enterprise Products Partners (1)
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$ |
5,051,935 |
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Related
party owners of Enterprise Products Partners (2)
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|
294,782 |
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Limited
partners of Enterprise GP Holdings:
|
|
|
|
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Third-party
owners of Enterprise GP Holdings (1)
|
|
|
1,034,022 |
|
Related
party owners of Enterprise GP Holdings (2)
|
|
|
1,038,411 |
|
Limited
partners of Duncan Energy Partners:
|
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|
|
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Third-party
owners of Duncan Energy Partners (1)
|
|
|
285,448 |
|
Limited
partners of TEPPCO:
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|
|
|
|
Third-party
owners of TEPPCO (1)
|
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|
1,535,773 |
|
Related
party owners of TEPPCO (2)
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|
|
(17,271 |
) |
Joint
venture partners (3)
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|
137,217 |
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Total
minority interest on consolidated balance sheet
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$ |
9,360,317 |
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|
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(1)
Consists
of non-affiliate public unitholders of Enterprise Products Partners,
Enterprise GP Holdings, Duncan Energy Partners and TEPPCO.
(2)
Consists
of unitholders of Enterprise Products Partners, Enterprise GP Holdings and
TEPPCO that are related party affiliates. This group is primarily
comprised of EPCO and certain of its private company consolidated
subsidiaries.
(3) Represents
third-party ownership interests in joint ventures that we consolidate,
including Seminole Pipeline Company (“Seminole”), Dixie, Tri-States
Pipeline L.L.C. (“Tri-States”), Independence Hub, LLC (“Independence
Hub”), Wilprise Pipeline Company, LLC (“Wilprise”) and Belle Rose NGL
Pipeline, L.L.C. (“Belle Rose”).
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Recent
Accounting Developments
The
following information summarizes recently issued accounting guidance since those
reported in Enterprise GP Holdings’ Annual Report on Form 10-K for the year
ended December 31, 2007 that will or may affect our future balance
sheet.
Statement
of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities - An Amendment of FASB Statement No.
133. Issued in March
2008, SFAS 161 changes the disclosure requirements for derivative instruments
and hedging activities with the intent to provide users of financial statements
with an enhanced understanding of (i) how and why an entity uses derivative
instruments, (ii) how derivative instruments and related hedged items are
accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, and its related interpretations, and (iii) how derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows. SFAS 161 requires qualitative
disclosures about
objectives
and strategies for using derivatives, quantitative disclosures about fair value
amounts of and gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative
agreements. This statement has the same scope as SFAS 133, and
accordingly applies to all entities. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This Statement
encourages, but does not require, comparative disclosures for earlier periods at
initial adoption. SFAS 161 only affects disclosure requirements;
therefore, our adoption of this statement effective January 1,
2009 will not impact our financial position.
SFAS
162, The Hierarchy of Generally Accepted Accounting
Principles. In May 2008, the Financial Accounting Standards
Board (“FASB”) issued SFAS 162, which establishes a consistent framework, or
hierarchy, for selecting the accounting principles used to prepare financial
statements of nongovernmental entities in conformity with GAAP. SFAS
162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board (“PCAOB”) amendments to its Interim Auditing
Standards. We do not expect SFAS 162 to have a material impact on the
preparation of our consolidated balance sheet.
FASB
Staff Position (“FSP”) No.
FAS
157-2, Effective Date of FASB Statement No. 157. FSP 157-2
defers the effective date of SFAS 157 to fiscal years beginning after November
15, 2008, and interim periods within those fiscal years, for all nonfinancial
assets and nonfinancial liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). As allowed under FSP 157-2, we have not applied the
provisions of SFAS 157 to our nonfinancial assets and liabilities measured at
fair value, which include certain assets and liabilities acquired in business
combinations. We are currently evaluating the impact of our adoption
of FSP 157-2 effective January 1, 2009 on our consolidated balance
sheet.
On January 1, 2008, we adopted the
provisions of SFAS 157 that apply to financial assets and
liabilities. See Note 5 for these fair value
disclosures.
FSP
No. FAS 142-3, Determination of the Useful Life of Intangible
Assets. In April 2008, the FASB issued FSP 142-3, which amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under SFAS 142, Goodwill and Other Intangible Assets. This change is
intended to improve the consistency between the useful life of a recognized
intangible asset under SFAS 142 and the period of expected cash flows used
to measure the fair value of the asset under SFAS 141(R) and other GAAP.
FSP 142-3 is effective for us on January 1, 2009. The requirement for
determining useful lives must be applied prospectively to intangible assets
acquired after January 1, 2009 and the disclosure requirements must be applied
prospectively to all intangible assets recognized as of, and subsequent to,
January 1, 2009. We are evaluating the impact that FSP 142-3 will have on
our future balance sheet.
Restricted
Cash
Restricted cash represents amounts held
in connection with Enterprise Products Partners’ commodity financial instruments
portfolio and physical natural gas purchases made on the New York Merchantile
Exchange (“NYMEX”).
Due to
market conditions at June 30, 2008, no cash was restricted to meet commodity
exchange deposit requirements with respect to Enterprise Products Partners’
commodity risk hedging activities and physical natural gas purchases; however,
cash may be restricted in the future to maintain Enterprise Products Partners’
positions as commodity prices fluctuate or deposit requirements
change. As of June 30, 2008, all proceeds from the Petal GO
Zone bonds had been released by the trustee to fund construction costs
associated with the expansion of Enterprise Products Partners’ Petal,
Mississippi storage facility. See Note 5 for information about our
hedging activities and related changes in our restricted cash balances
subsequent to June 30, 2008.
Our investing activities are organized
into business segments that reflect how the Chief Executive Officer of EPE
Holdings (i.e., our chief operating decision maker) routinely manages and
reviews the financial performance of Enterprise GP Holdings’
investments. On a consolidated basis, we have three reportable
business segments: (i) Investment in Enterprise Products Partners,
(ii) Investment in TEPPCO and (iii) Investment in Energy Transfer
Equity.
Each of the respective general partners
of Enterprise Products Partners, TEPPCO and Energy Transfer Equity has a
separate operating management and board of directors, with at least three
independent directors. Enterprise GP Holdings controls Enterprise
Products Partners and TEPPCO through its ownership of their respective general
partners. We do not control Energy Transfer Equity or its general
partner.
TEPPCO and Enterprise Products Partners
are joint venture partners in Jonah, which owns a natural gas gathering system
(the “Jonah system”) located in southwest Wyoming. Within their
respective financial statements, Enterprise Products Partners and TEPPCO account
for their individual ownership interests in Jonah using the equity method of
accounting. As a result of common control at Enterprise GP Holdings’
level, Jonah is a consolidated subsidiary of Enterprise GP Holdings. For
financial reporting purposes, management elected to classify the net assets of
Jonah within our Investment in TEPPCO segment.
Financial information presented for our
Investment in Enterprise Products Partners and Investment in TEPPCO business
segments was derived from the underlying unaudited condensed consolidated
balance sheet of EPGP and TEPPCO GP, respectively. Financial
information presented for our Investment in Energy Transfer Equity segment
represents amounts we record in connection with these equity method investments
based primarily on publicly available information of Energy Transfer
Equity.
The following table presents selected
business segment information at June 30, 2008:
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Investment
|
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|
Investment
|
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|
|
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in
|
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|
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|
|
in
|
|
|
|
|
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|
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|
Enterprise
|
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|
Investment
|
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|
Energy
|
|
|
Adjustments
|
|
|
|
|
|
|
Products
|
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|
in
|
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|
Transfer
|
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|
and
|
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|
Consolidated
|
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|
|
Partners
|
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|
TEPPCO
|
|
|
Equity
|
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|
Eliminations
|
|
|
Totals
|
|
Segment
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008
|
|
$ |
17,935,757 |
|
|
$ |
7,208,936 |
|
|
$ |
1,621,795 |
|
|
$ |
(75,189 |
) |
|
$ |
26,691,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
Investments
in and advances
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
to
unconsolidated affiliates (see Note 8):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008
|
|
|
624,060 |
|
|
|
266,312 |
|
|
|
1,621,795 |
|
|
|
-- |
|
|
|
2,512,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets (see Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008
|
|
|
888,164 |
|
|
|
970,057 |
|
|
|
-- |
|
|
|
(17,441 |
) |
|
|
1,840,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
(see Note 10):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
June 30, 2008
|
|
|
591,652 |
|
|
|
306,004 |
|
|
|
-- |
|
|
|
-- |
|
|
|
897,656 |
|
We
account for unit-based awards in accordance with SFAS 123(R), “Share-Based
Payment.” SFAS 123(R) requires us to recognize compensation expense related to
unit-based awards based on the fair value of the award at grant
date. The fair value of restricted unit awards is based on the market
price of the underlying common units on the date of grant. The fair
value of other unit-based awards is estimated using the
Black-Scholes option pricing model. The fair value of an
equity-classified award (such as a restricted unit award) is amortized to
earnings on a straight-line basis over the requisite service or vesting
period. Compensation expense for liability-classified awards (such as unit
appreciation rights (“UARs”)) is
recognized
over the requisite service or vesting period of an award based on the fair value
of the award remeasured at each reporting period. Liability-type
awards are cash settled upon vesting.
As used
in the context of the EPCO and TEPPCO plans, the term “restricted unit”
represents a time-vested unit under SFAS 123(R). Such awards are
nonvested until the required service period expires.
EPGP
UARs
The
non-employee directors of EPGP have been granted UARs in the form of letter
agreements. These liability awards are not part of any established
long-term incentive plan of EPCO, Enterprise GP Holdings or Enterprise Products
Partners. These UARs entitle each non-employee director to receive a
cash payment on the vesting date equal to the excess, if any, of the fair market
value of Enterprise GP Holdings’ units (determined as of a future vesting date)
over the grant date fair value. These UARs are accounted for similar to
liability awards under SFAS 123(R) since they will be settled with
cash. At June 30, 2008, we had a total of 90,000 outstanding UARs
granted to non-employee directors of EPGP that cliff vest in 2011. If
a director resigns prior to vesting, his UAR awards are forfeited.
EPCO
Employee Partnerships
EPCO
formed the Employee Partnerships to serve as an incentive arrangement for key
employees of EPCO by providing them a “profits interest” in the Employee
Partnerships. Currently, there are four Employee Partnerships: EPE
Unit I, EPE Unit II, EPE Unit III and Enterprise Unit. EPE Unit I was formed in
August 2005 in connection with Enterprise GP Holdings’ initial public offering
and EPE Unit II was formed in December 2006. EPE Unit III was formed
in May 2007, and Enterprise Unit was formed in February 2008. For a
detailed description of EPE Unit I, EPE Unit II and EPE Unit III, see Enterprise
GP Holdings’ Annual Report on Form 10-K for the year ended December 31,
2007. See Note 16 regarding amendments to EPE Unit I, EPE Unit II and
EPE Unit III, which were effective July 2008.
As of
June 30, 2008, there was an estimated $26.1 million of combined unrecognized
compensation cost related to the four Employee Partnerships. We will
recognize our share of these costs in accordance with the EPCO administrative
services agreement over a weighted-average period of 3.7 years.
Enterprise
Unit. On
February 20, 2008, EPCO formed Enterprise Unit to serve as an incentive
arrangement for certain employees of EPCO through a “profits interest” in
Enterprise Unit. On that date, EPCO Holdings, Inc. (“EPCO Holdings”)
agreed to contribute $18.0 million in the aggregate (the “Initial Contribution”)
to Enterprise Unit and was admitted as the Class A limited
partner. Certain key employees of EPCO, including the Chief Executive
Officer and Chief Financial Officer of Enterprise GP Holdings, were issued
Class B limited partner interests and admitted as Class B limited partners
of Enterprise Unit without any capital contributions. EPCO
Holdings may make capital contributions to Enterprise Unit in addition to its
Initial Contribution. Through July 31, 2008, EPCO Holdings has
contributed a total of $51.5 million to Enterprise Unit. EPCO
Holdings has no legal obligation to make additional contributions.
As with
the awards granted in connection with the other Employee Partnerships, these
awards are designed to provide additional long-term incentive compensation for
certain employees. The profits interest awards (or Class B limited
partner interests) in Enterprise Unit entitle the holder to participate in the
appreciation in value of Enterprise Products Partners’ units and Enterprise GP
Holdings’ units and are subject to early vesting or forfeiture upon the
occurrence of certain events.
An allocated portion of the fair value
of these equity awards will be charged to us under the EPCO administrative
services agreement as a non-cash expense. We will not reimburse EPCO,
Enterprise Unit or any of their affiliates or partners, through the
administrative services agreement or otherwise, in cash for any expenses related
to Enterprise Unit, including the Initial Contribution by EPCO
Holdings.
The Class B limited partner
interests in Enterprise Unit that are owned by EPCO employees are subject to
forfeiture if the participating employee’s employment with EPCO and its
affiliates is terminated prior to February 20, 2014, with customary exceptions
for death, disability and certain retirements that will
result in
early vesting. The risk of forfeiture associated with the
Class B limited partner interests in Enterprise Unit will also lapse (i.e.
the interests will become vested) upon certain change of control
events.
Unless otherwise agreed to by EPCO,
EPCO Holdings and a majority in interest of the Class B limited partners of
Enterprise Unit, Enterprise Unit will terminate at the earlier of February 20,
2014 (six years from the date of the agreement) or a change in control
of Enterprise GP Holdings or Enterprise Products Partners.
Enterprise Unit has the following material terms regarding its
quarterly cash distribution to partners:
§
|
Distributions
of cash flow –
Each quarter, 100% of the cash distributions received by Enterprise
Unit from Enterprise Products Partners and Enterprise GP Holdings
will be distributed to the Class A limited partner until EPCO
Holdings has received an amount equal to the Class A preferred return
(as defined below), and any remaining distributions received by Enterprise
Unit will be distributed to the Class B limited partners. The
Class A preferred return equals the Class A capital base (as defined
below) multiplied by 5.0% per annum. The Class A limited
partner’s capital base equals the amount of any contributions of cash or
cash equivalents made by the Class A limited partner to Enterprise Unit,
plus any unpaid Class A preferred return from prior periods, less any
distributions made by Enterprise Unit of proceeds from the sale of units
owned by Enterprise Unit (as described
below).
|
§
|
Liquidating
Distributions –
Upon liquidation of Enterprise Unit, units having a fair market
value equal to the Class A limited partner capital base will be
distributed to EPCO Holdings, plus any accrued and unpaid Class A
preferred return for the quarter in which liquidation occurs. Any
remaining units will be distributed to the Class B limited
partners.
|
§
|
Sale
Proceeds – If
Enterprise Unit sells any units that it beneficially owns, the sale
proceeds will be distributed to the Class A limited partner and the
Class B limited partners in the same manner as liquidating
distributions described above.
|
EPCO
1998 Plan
The EPCO
1998 Plan provides for the issuance of up to 7,000,000 common units of
Enterprise Products Partners. After giving effect to outstanding
option awards at June 30, 2008 and the issuance and forfeiture of restricted
unit awards through June 30, 2008, a total of 768,154 additional common units of
Enterprise Products Partners could be issued under the EPCO 1998
Plan.
Enterprise
Products Partners’ unit option awards. Under the EPCO 1998
Plan, non-qualified incentive options to purchase a fixed number of Enterprise
Products Partners’ common units may be granted to key employees of EPCO who
perform management, administrative or operational functions for
us. The following table presents option activity under the EPCO 1998
Plan for the periods indicated:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
Aggregate
|
|
|
|
Number
of
|
|
|
strike
price
|
|
|
contractual
|
|
|
intrinsic
|
|
|
|
units
|
|
|
(dollars/unit)
|
|
|
term
(in years)
|
|
|
value (1)
|
|
Outstanding at December 31,
2007
(2)
|
|
|
2,315,000 |
|
|
$ |
26.18 |
|
|
|
|
|
|
|
Exercised
|
|
|
(47,500 |
) |
|
$ |
20.25 |
|
|
|
|
|
|
|
Forfeited
or terminated
|
|
|
(85,000 |
) |
|
$ |
26.72 |
|
|
|
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
2,182,500 |
|
|
$ |
26.29 |
|
|
|
5.68 |
|
|
$ |
4,260 |
|
Options
exercisable at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
|
517,500 |
|
|
$ |
21.31 |
|
|
|
4.42 |
|
|
$ |
4,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Aggregate intrinsic value
reflects fully vested option awards at June 30, 2008.
(2)
During
2008, Enterprise Products Partners amended the terms of certain of its
outstanding unit options. In general, the expiration dates of these
awards were modified from May and August 2017 to December
2012.
|
|
The total
intrinsic value of option awards exercised during the three and six months ended
June 30, 2008 was $0.4 million and $0.5 million, respectively. At
June 30, 2008, there was an estimated $2.2 million of total unrecognized
compensation cost related to nonvested unit options granted under the EPCO 1998
Plan. We expect to recognize our share of this cost over a
weighted-average period of 2.6 years in accordance with the EPCO administrative
services agreement.
During
the six months ended June 30, 2008, Enterprise Products Partners received cash
of $0.6 million from the exercise of unit
options. Conversely, its option-related reimbursements to EPCO
were $0.5 million.
Enterprise
Products Partners’ restricted unit awards. Under the EPCO 1998
Plan, Enterprise Products Partners may also issue restricted common units to key
employees of EPCO and directors of EPGP. The following table
summarizes information regarding Enterprise Products Partners’ restricted unit
awards for the periods indicated:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
grant
|
|
|
|
Number
of
|
|
|
date
fair value
|
|
|
|
units
|
|
|
per unit (1)
|
|
Restricted
units at December 31, 2007
|
|
|
1,688,540 |
|
|
|
|
Granted
(2)
|
|
|
718,800 |
|
|
$ |
25.64 |
|
Forfeited
|
|
|
(72,177 |
) |
|
$ |
25.88 |
|
Vested
|
|
|
(70,000 |
) |
|
$ |
19.35 |
|
Restricted
units at June 30, 2008
|
|
|
2,265,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Determined
by dividing the aggregate grant date fair value of awards (including an
allowance for forfeitures) by the number of awards
issued.
(2)
Aggregate
grant date fair value of restricted unit awards issued during 2008 was
$18.4 million based on a grant date market price of Enterprise Products
Partners’ common units ranging from $30.38 to $32.31 per unit and an
estimated forfeiture rate of 17.0%.
|
|
The total
fair value of Enterprise Products Partners’ restricted unit awards that vested
during the three and six months ended June 30, 2008 was $1.3 million and $1.4
million, respectively. As of June 30, 2008, there was an
estimated $37.8 million of total unrecognized compensation cost related to
restricted common units of Enterprise Products Partners. We will
recognize our share of such costs in accordance with the EPCO administrative
services agreement. At June 30, 2008, these costs are expected to be
recognized over a weighted-average period of 2.6 years.
EPD
2008 LTIP
On January 29, 2008, the
unitholders of Enterprise Products Partners approved the EPD 2008 LTIP, which
provides for awards of Enterprise Products Partners’ common units and other
rights to its non-employee directors and to consultants and employees of EPCO
and its affiliates providing services to Enterprise Products Partners. Awards
under the EPD 2008 LTIP may be granted in the form of restricted units, phantom
units, unit options, UARs and distribution equivalent rights. The EPD 2008 LTIP
is administered by EPGP’s Audit, Conflicts and Governance (“ACG”) Committee. The
EPD 2008 LTIP provides for the issuance of up to 10,000,000 of Enterprise
Products Partners’ common units. After giving effect to option awards
outstanding at June 30, 2008, a total of 9,205,000 additional common units of
Enterprise Products Partners could be issued under the EPD 2008
LTIP.
The EPD 2008 LTIP may be amended or
terminated at any time by the Board of Directors of EPCO or EPGP’s ACG
Committee; however, the rules of the NYSE require that any material amendment,
such as a significant increase in the number of common units available under the
plan or a change in the types of awards available under the plan, would require
the approval of Enterprise Products Partners’ unitholders. The ACG Committee is
also authorized to make adjustments in the terms and conditions of, and the
criteria included in, awards under the plan in specified circumstances. The EPD
2008 LTIP is effective until the earlier of January 29, 2018 or the time
which all available units under the incentive plan
have been
delivered to participants or the time of termination of the plan by EPCO or
EPGP’s ACG Committee.
Enterprise
Products Partners’ unit
option awards. The exercise price of
Enterprise Products Partners’ unit options awarded to participants is determined
by EPGP’s ACG Committee (at its discretion) at the date of grant and may be no
less than the fair market value of Enterprise Products Partners’ common units at
the date of grant.
The
following table presents unit option activity under the EPD 2008 LTIP for
the periods indicated:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
|
Number
of
|
|
|
strike
price
|
|
|
contractual
|
|
|
|
units
|
|
|
(dollars/unit)
|
|
|
term
(in years)
|
|
Outstanding
at January 1, 2008
|
|
|
-- |
|
|
|
|
|
|
|
Granted
(1)
|
|
|
795,000 |
|
|
$ |
30.93 |
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
795,000 |
|
|
$ |
30.93 |
|
|
|
5.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Aggregate grant date fair value
of these unit options issued during the second quarter of 2008 was $1.6
million based on a
grant date market price of Enterprise Products Partners’ common units of
$30.93 per unit and an estimated forfeiture rate of
17.0%.
|
|
At June 30, 2008, there was an
estimated $1.5 million of total unrecognized compensation cost related to
Enterprise Products Partners’ nonvested unit options granted under the EPD 2008
LTIP. We expect to recognize our share of this cost over a
weighted-average period of 3.9 years in accordance with the EPCO administrative
services agreement.
DEP GP
UARs
The
non-employee directors of DEP GP, the general partner of Duncan Energy
Partners, have been granted UARs in the form of letter agreements. These
liability awards are not part of any established long-term incentive plan of
EPCO, Enterprise GP Holdings or Enterprise Products Partners. These
UARs entitle each non-employee director to receive a cash payment on the vesting
date equal to the excess, if any, of the fair market value of Enterprise GP
Holdings’ units (determined as of a future vesting date) over the grant date
fair value. These UARs are accounted for similar to liability awards under
SFAS 123(R) since they will be settled with cash. At June 30,
2008, we had a total of 90,000 outstanding UARs granted to non-employee
directors of DEP GP that cliff vest in 2012. If a director
resigns prior to vesting, his UAR awards are forfeited.
TEPPCO 1999 Plan
The
TEPPCO 1999 Plan provides for the issuance of phantom unit awards as incentives
to key employees of EPCO working on behalf of TEPPCO. In April 2008,
13,000 phantom units vested resulting in a cash payment of $0.4
million. A total of 18,600 phantom units were outstanding under the
TEPPCO 1999 Plan at June 30, 2008. The awards cliff vest as
follows: 13,000 in April 2009 and 5,600 in January
2010. At June 30, 2008, TEPPCO had an accrued liability balance of
$0.6 million for compensation related to the TEPPCO 1999 Plan.
TEPPCO
2000 LTIP
The
TEPPCO 2000 LTIP provides key employees of EPCO working on behalf of TEPPCO
incentives to achieve improvements in TEPPCO’s financial performance. On
December 31, 2007, 8,400 phantom units vested and $0.5 million was paid out to
participants in the first quarter of 2008. At June 30, 2008, a total of
11,300 phantom units were outstanding under the TEPPCO 2000 LTIP that cliff vest
on
December
31, 2008 and will be paid out to participants in 2009. At June 30, 2008, TEPPCO
had an accrued liability balance of $0.3 million related to the TEPPCO 2000
LTIP.
TEPPCO
2005 Phantom Unit Plan
The
TEPPCO 2005 Phantom Unit Plan provides key employees of EPCO working on behalf
of TEPPCO incentives to achieve improvements in TEPPCO’s financial
performance. On December 31, 2007, 36,200 phantom units vested and
$1.6 million was paid out to participants in the first quarter of
2008. At June 30, 2008, a total of 36,600 phantom units were
outstanding under the TEPPCO 2005 Phantom Unit Plan that cliff vest on December
31, 2008 and will be paid out to participants in 2009. At June 30,
2008, TEPPCO had an accrued liability balance of $0.9 million related to the
TEPPCO 2005 Phantom Unit Plan.
TEPPCO
2006 LTIP
The
TEPPCO 2006 LTIP provides for awards of TEPPCO common units and other rights to
its non-employee directors and to certain employees of EPCO working on behalf of
TEPPCO. Awards granted under the TEPPCO 2006 LTIP may be in the form
of restricted units, phantom units, unit options, UARs and distribution
equivalent rights. In May 2008, TEPPCO granted 200,000 unit options
and 95,000 restricted units to certain EPCO employees working on behalf of
TEPPCO and 29,429 UARs to a non-employee director of TEPPCO GP in connection
with his election to the board. After giving effect to outstanding
unit options and restricted units at June 30, 2008, and the forfeiture of
restricted units through June 30, 2008, a total of 4,842,100 additional units of
TEPPCO could be issued under the TEPPCO 2006 LTIP in the future.
TEPPCO
unit
options. The information in the following table presents unit
option activity under the TEPPCO 2006 LTIP for the periods
indicated. No options were exercisable at June 30, 2008.
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
average
|
|
|
remaining
|
|
|
|
Number
|
|
|
strike
price
|
|
|
contractual
|
|
|
|
of units
|
|
|
(dollars/unit)
|
|
|
term
(in years)
|
|
Outstanding at December 31,
2007 (1)
|
|
|
155,000 |
|
|
$ |
45.35 |
|
|
|
|
Granted (2)
|
|
|
200,000 |
|
|
$ |
35.86 |
|
|
|
|
Outstanding
at June 30, 2008
|
|
|
355,000 |
|
|
$ |
40.00 |
|
|
|
5.07 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
During
2008, previous unit option grants were amended. The expiration dates
of the 2007 awards were modified from May 22, 2017 to December 31,
2012.
(2)
The
total grant date fair value of these awards was $0.3 million based on the
following assumptions: (i) expected life of the option of 4.7 years;
(ii) risk-free interest rate of 3.3%; (iii) expected distribution
yield on TEPPCO common units of 7.9%; (iv) estimated forfeiture rate of
17% and (v) expected unit price volatility on TEPPCO’s common units of
18.7%.
|
|
At June
30, 2008, total unrecognized compensation cost related to nonvested option
awards granted under the TEPPCO 2006 LTIP was an estimated $0.7
million. TEPPCO expects to recognize this cost over a
weighted-average period of 3.5 years.
TEPPCO
restricted
units. The
following table summarizes information regarding TEPPCO’s restricted unit awards
for the periods indicated:
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
average
grant
|
|
|
|
Number
of
|
|
|
date
fair value
|
|
|
|
units
|
|
|
per unit (1)
|
|
Restricted
units at December 31, 2007
|
|
|
62,400 |
|
|
|
|
Granted
(2)
|
|
|
95,900 |
|
|
$ |
32.97 |
|
Forfeited
|
|
|
(400 |
) |
|
$ |
35.86 |
|
Restricted
units at June 30, 2008
|
|
|
157,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Determined
by dividing the aggregate grant date fair value of awards (including an
allowance for forfeitures) by the number of awards issued.
(2)
Aggregate
grant date fair value of restricted unit awards issued during the six
months ended June 30, 2008 was $2.8 million based on grant date market
prices of TEPPCO’s common units ranging from $34.63 to $35.86 per unit and
an estimated forfeiture rate of 17%.
|
|
None of
TEPPCO’s restricted unit awards vested during the six months ended June 30,
2008. At June 30, 2008, there was an estimated $4.4 million of total
unrecognized compensation cost related to restricted unit awards granted under
the TEPPCO 2006 LTIP. TEPPCO expects to recognize these costs over a
weighted-average period of 3.3 years.
TEPPCO
UARs and phantom units. On June 20, 2008, 29,429 UARs were
awarded under the TEPPCO 2006 LTIP to a non-employee director of TEPPCO
GP. As of June 30, 2008, there were a total of 95,654 UARs
outstanding that had been granted to non-employee directors of TEPPCO GP and
335,723 UARs outstanding that were granted to certain employees of EPCO who work
on behalf of TEPPCO. These UAR awards are subject to five year cliff
vesting. If the non-employee director or employee resigns prior to
vesting, their UAR awards are forfeited. These UAR awards are accounted
for similar to liability awards under SFAS 123(R) since they will be settled
with cash.
As of
June 30, 2008, there were a total of 1,647 phantom unit awards outstanding that
had been granted to non-employee directors of TEPPCO GP. Each phantom
unit will be redeemed in cash the earlier of (i) April 2011 or (ii) when the
director is no longer serving on the board of TEPPCO GP. In addition,
during the vesting period, each participant is entitled to cash distributions
equal to the product of the number of phantom units outstanding for the
participant and the cash distribution per unit paid by TEPPCO on its common
units. Phantom units awarded to non-employee directors are accounted
for similar to liability awards.
We are
exposed to financial market risks, including changes in commodity prices,
interest rates and foreign exchange rates. We may use financial
instruments (i.e., futures, forwards, swaps, options and other financial
instruments with similar characteristics) to mitigate the risks of certain
identifiable and anticipated transactions. In general, the types of
risks we attempt to hedge are those related to (i) the variability of future
earnings, (ii) fair values of certain debt instruments and (iii) cash flows
resulting from changes in applicable interest rates, commodity prices or
exchange rates.
Interest
Rate Risk Hedging Program
Enterprise GP
Holdings. Enterprise GP Holdings’
interest rate exposure results from variable interest rate borrowings under its
credit facility. A portion of Enterprise GP Holdings’ interest rate
exposure is managed by utilizing interest rate swaps and similar arrangements,
which effectively convert a portion of its variable rate debt into fixed rate
debt. Enterprise GP Holdings had four floating-to-fixed interest rate
swap agreements outstanding at June 30, 2008 that were accounted for as cash
flow hedges.
|
Number
|
Period
Covered
|
Termination
|
Variable
to
|
Notional
|
|
Hedged
Variable Rate Debt
|
Of
Swaps
|
by
Swap
|
Date
of Swap
|
Fixed Rate
(1)
|
Value
|
|
Enterprise
GP Holdings variable-rate borrowings
|
2
|
Aug.
2007 to Aug. 2009
|
Aug.
2009
|
2.71% to
5.01%
|
$250.0
million
|
|
Enterprise
GP Holdings variable-rate borrowings
|
2
|
Sep.
2007 to Aug. 2011
|
Aug.
2011
|
2.71% to
4.82%
|
$250.0
million
|
|
|
|
|
|
|
|
|
|
(1) Amounts
receivable from or payable to the swap counterparties are settled every
three months (the “settlement
period”).
|
At June
30, 2008, the aggregate fair value of these interest rate swaps was a liability
of $12.0 million.
Enterprise
Products Partners.
Enterprise Products Partners’ interest rate exposure results from
variable and fixed interest rate borrowings under its consolidated debt
agreements, primarily those of EPO. A portion of its interest rate
exposure is managed by utilizing interest rate swaps and similar arrangements,
which effectively convert a portion of fixed rate debt into variable rate debt
or a portion of variable rate debt into fixed rate debt.
Enterprise
Products Partners had six interest rate swaps outstanding at June 30, 2008 that
were accounted for as fair value hedges. These agreements had a
combined notional value of $600.0 million and match the maturity dates of
the underlying fixed rate debt being hedged. The aggregate fair value
of these interest rate swaps at June 30, 2008 was $8.9 million (an asset),
with an offsetting decrease in the fair value of the underlying
debt.
The
following table summarizes the termination of Enterprise Products Partners’
interest rate swaps during 2008 (dollars in millions):
|
|
Notional
|
|
|
Cash
|
|
|
|
Value
|
|
|
Gains
|
|
Interest
rate swap portfolio, December 31, 2007
|
|
$ |
1,050.0 |
|
|
$ |
-- |
|
First
quarter of 2008 terminations
|
|
|
(200.0 |
) |
|
|
6.3 |
|
Second
quarter of 2008 terminations
|
|
|
(250.0 |
) |
|
|
12.0 |
|
Interest
rate swap portfolio, June 30, 2008
|
|
$ |
600.0 |
|
|
$ |
18.3 |
|
At times,
Enterprise Products Partners may enter into treasury rate lock transactions to
hedge U.S. treasury rates related to its anticipated issuances of debt. Gains or
losses on the termination of such instruments are amortized to earnings using
the effective interest method over the estimated term of the underlying
fixed-rate debt. Each of Enterprise Products Partners’ treasury lock
transactions was designated as a cash flow hedge under SFAS 133, “Accounting for
Derivative Instruments and Hedging Activities,” as amended and
interpreted. The following table summarizes changes in its treasury lock
portfolio since December 31, 2007 (dollars in millions).
|
|
Notional
|
|
|
Cash
|
|
|
|
Value
|
|
|
Losses
|
|
Treasury
lock portfolio, December 31, 2007
|
|
$ |
600.0 |
|
|
$ |
-- |
|
First
quarter of 2008 terminations
|
|
|
(350.0 |
) |
|
|
27.7 |
|
Second
quarter of 2008 terminations
|
|
|
(250.0 |
) |
|
|
12.7 |
|
Treasury
lock portfolio, June 30, 2008
|
|
$ |
-- |
|
|
$ |
40.4 |
|
Duncan
Energy Partners. Duncan Energy Partners had three floating-to-fixed
interest rate swap agreements outstanding at June 30, 2008 that were accounted
for as cash flow hedges having a notional value of $175.0
million. The purpose of these financial instruments is to reduce the
sensitivity of Duncan Energy Partners’ earnings to the variable interest rates
charged under its revolving credit facility.
The aggregate fair value of these
interest rate swaps at June 30, 2008 was a liability of $4.1
million.
TEPPCO. TEPPCO also
utilizes interest rate swap agreements to manage its cost of
borrowing. TEPPCO had interest rate swap agreements outstanding at
December 31, 2007 that had an aggregate notional value of $200.0
million. The fair value of these interest rate swaps at December 31,
2007 was an asset of $0.3 million. These swap agreements settled in January
2008, and there are currently no swap agreements outstanding.
In
connection with TEPPCO’s issuance of senior notes in March 2008 (see Note 11),
TEPPCO terminated all of its outstanding treasury lock financial instruments
having a notional value of $600.0 million. As a result of this
termination, TEPPCO recognized an other comprehensive loss of $52.1
million.
Commodity
Risk Hedging Program
Enterprise
Products Partners. The prices of natural gas, natural gas
liquids (“NGLs”) and certain petrochemical products are subject to fluctuations
in response to changes in supply, market uncertainty and a variety of additional
factors that are beyond the control of Enterprise Products
Partners. In order to manage the price risks associated with such
products, Enterprise Products Partners may enter into commodity financial
instruments.
The
primary purpose of Enterprise Products Partners’ commodity risk management
activities is to hedge its exposure to price risks associated with (i) natural
gas purchases, (ii) the value of NGL production and inventories, (iii) related
firm commitments, (iv) fluctuations in transportation revenues where the
underlying fees are based on natural gas index prices and (v) certain
anticipated transactions involving either natural gas, NGLs or certain
petrochemical products. From time to time, Enterprise Products Partners injects
natural gas into storage and may utilize hedging instruments to lock in the
value of its inventory positions. The commodity financial instruments
utilized by Enterprise Products Partners may be settled in cash or with another
financial instrument.
At June
30, 2008, the aggregate fair value of those financial instruments utilized in
connection with Enterprise Products Partners’ natural gas marketing activities
was an asset of $9.6 million. We utilize mark-to-market
accounting for substantially all of the instruments utilized in connection with
our natural gas marketing activities.
At June
30, 2008, the aggregate fair value of those financial instruments utilized in
connection with Enterprise Products Partners’ NGL and petrochemical operations
was an asset of $82.1 million. Almost all of the financial
instruments within this portion of the commodity financial instruments portfolio
are accounted for as cash flow hedges, with a lesser number accounted for using
mark-to-market accounting.
The fair value of Enterprise Products
Partners’ NGL and petrochemical portfolio was a liability of $95.4 million as of
August 5, 2008. The change in fair value of this portfolio is
primarily due to a decrease in natural gas prices. A significant
number of the financial instruments in this portfolio hedge the purchase of
physical natural gas. If natural gas prices fall below the price
stipulated in such financial instruments, we recognize a liability for the
difference; however, if prices partially or fully recover, this liability would
be reduced or eliminated, as appropriate. Enterprise Products
Partners’ restricted cash balance increased from none at June 30, 2008 to $191.2
million as of August 5, 2008 in order to meet commodity exchange deposit
requirements and the negative change in the fair value of its commodity
positions.
TEPPCO. TEPPCO seeks to
maintain a position that is substantially balanced between crude oil purchases
and related sales and future delivery obligations. As part of its
crude oil marketing business, TEPPCO enters into financial instruments such as
swaps and other hedging instruments. The purpose of such hedging
activity is either to balance TEPPCO’s inventory position or to lock in a profit
margin.
At June
30, 2008, TEPPCO had a limited number of commodity derivatives that were
accounted for as cash flow hedges. The majority of these contracts
will expire during 2008, with the remainder expiring during the first quarter
2009. In addition,
TEPPCO had some commodity derivatives that did not
qualify
for hedge accounting. The fair values of the open positions at June
30, 2008 were liabilities of $26.5 million.
Foreign
Currency Hedging Program – Enterprise Products Partners
Enterprise Products Partners is exposed
to foreign currency exchange rate risk primarily through its Canadian NGL
marketing subsidiary. As a result, Enterprise Products Partners could
be adversely affected by fluctuations in the foreign currency exchange rate
between the U.S. dollar and the Canadian dollar. Enterprise Products
Partners attempts to hedge this risk using foreign exchange purchase contracts
to fix the exchange rate. Mark-to-market accounting is utilized for
these contracts, which typically have a duration of one month.
Adoption of SFAS
157 – Fair Value Measurements
On
January 1, 2008, we adopted the provisions of SFAS 157 that apply to
financial assets and liabilities. We will adopt the provisions of SFAS 157 that
apply to nonfinancial assets and liabilities on January 1, 2009. SFAS
157 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants at a specified measurement date.
Our fair
value estimates are based on either (i) actual market data or (ii) assumptions
that other market participants would use in pricing an asset or
liability. These assumptions include estimates of risk.
Recognized valuation techniques employ inputs such as product prices, operating
costs, discount factors and business growth rates. These inputs
may be either readily observable, corroborated by market data or generally
unobservable. In developing our estimates of fair value, we endeavor
to utilize the best information available and apply market-based data to the
extent possible. Accordingly, we utilize valuation techniques (such
as the market approach) that maximize the use of observable inputs and minimize
the use of unobservable inputs.
SFAS 157
established a three-tier hierarchy that classifies fair value amounts recognized
or disclosed in the financial statements based on the observability of inputs
used to estimate such fair values. The hierarchy considers fair value
amounts based on observable inputs (Levels 1 and 2) to be more reliable and
predictable than those based primarily on unobservable inputs (Level 3). At each
balance sheet reporting date, we categorize our financial assets and liabilities
using this hierarchy. The characteristics of fair value amounts
classified within each level of the SFAS 157 hierarchy are described as
follows:
§
|
Level
1 fair values are based on quoted prices, which are available in active
markets for identical assets or liabilities as of the measurement
date. Active markets are defined as those in which transactions
for identical assets or liabilities occur in sufficient frequency so as to
provide pricing information on an ongoing basis (e.g., the NYSE or New
York Mercantile Exchange). Level 1 primarily consists of
financial assets and liabilities such as exchange-traded financial
instruments, publicly-traded equity securities and U.S. government
treasury securities.
|
§
|
Level
2 fair values are based on pricing inputs other than quoted prices in
active markets (as reflected in Level 1 fair values) and are either
directly or indirectly observable as of the measurement
date. Level 2 fair values include instruments that are valued
using financial models or other appropriate valuation
methodologies. Such financial models are primarily
industry-standard models that consider various assumptions, including
quoted forward prices for commodities, time value of money, volatility
factors for stocks, and current market and contractual prices for the
underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable
in the marketplace throughout the full term of the instrument, can be
derived from observable data, or are validated by inputs other than quoted
prices (e.g., interest rates and yield curves at commonly quoted
intervals). Level 2 includes non-exchange-traded
instruments such as over-the-counter forward contracts, options, and
repurchase agreements.
|
§
|
Level
3 fair values are based on unobservable inputs. Unobservable
inputs are used to measure fair value to the extent that observable inputs
are not available, thereby allowing for situations in which there is
little, if any, market activity for the asset or liability at the
measurement date. Unobservable inputs reflect the reporting entity’s
own ideas about the assumptions that market participants would use in
pricing an asset or liability (including assumptions about
risk). Unobservable inputs are based on the best information
available in the circumstances, which might include the reporting entity’s
internally-developed data. The reporting entity must not ignore
information about market participant assumptions that is reasonably
available without undue cost and effort. Level 3 inputs are
typically used in connection with internally developed valuation
methodologies where management makes its best estimate of an instrument’s
fair value. Level 3 generally includes specialized or unique
financial instruments that are tailored to meet a customer’s specific
needs.
|
The
following table sets forth, by level within the fair value hierarchy, our
financial assets and liabilities measured on a recurring basis at June 30,
2008. These financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement. Our assessment of the significance of a particular
input to the fair value measurement requires judgment, and may affect the
valuation of the fair value assets and liabilities and their placement within
the fair value hierarchy levels. At June 30, 2008, there were no
Level 1 financial assets or liabilities.
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
Commodity
financial instruments
|
|
$ |
175,267 |
|
|
$ |
95 |
|
|
$ |
175,362 |
|
Interest
rate hedging financial instruments
|
|
|
8,901 |
|
|
|
-- |
|
|
|
8,901 |
|
Total
|
|
$ |
184,168 |
|
|
$ |
95 |
|
|
$ |
184,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
financial instruments
|
|
$ |
105,299 |
|
|
$ |
4,806 |
|
|
$ |
110,105 |
|
Interest
rate hedging financial instruments
|
|
|
12,036 |
|
|
|
-- |
|
|
|
12,036 |
|
Total
|
|
$ |
117,335 |
|
|
$ |
4,806 |
|
|
$ |
122,141 |
|
Fair
values associated with our interest rate and commodity financial instrument
portfolios were developed using available market information and appropriate
valuation techniques in accordance with SFAS 157.
The
following table sets forth a reconciliation of changes in the fair value of our
Level 3 financial assets and liabilities for the periods indicated:
Balance,
January 1, 2008
|
|
$ |
(5,054 |
) |
Total
gains (losses) included in:
|
|
|
|
|
Net
income
|
|
|
(1,836 |
) |
Other
comprehensive income
|
|
|
2,419 |
|
Purchases,
issuances, settlements
|
|
|
1,861 |
|
Balance,
March 31, 2008
|
|
|
(2,610 |
) |
Total
gains (losses) included in:
|
|
|
|
|
Net
income
|
|
|
256 |
|
Other
comprehensive income
|
|
|
(2,428 |
) |
Purchases,
issuances, settlements
|
|
|
71 |
|
Ending
balance, June 30, 2008
|
|
$ |
(4,711 |
) |
Our inventory amounts by business
segment were as follows at June 30, 2008:
Investment
in Enterprise Products Partners:
|
|
|
|
Working
inventory (1)
|
|
$ |
435,686 |
|
Forward-sales
inventory (2)
|
|
|
28,035 |
|
Subtotal
|
|
|
463,721 |
|
Investment
in TEPPCO:
|
|
|
|
|
Working
inventory (3)
|
|
|
74,324 |
|
Forward-sales
inventory (4)
|
|
|
43,546 |
|
Subtotal
|
|
|
117,870 |
|
Eliminations
|
|
|
(2,804 |
) |
Total
inventory
|
|
$ |
578,787 |
|
|
|
|
|
|
(1)
Working
inventory is comprised of inventories of natural gas, NGLs and certain
petrochemical products that are either available-for-sale or used in the
provision for services.
(2)
Forward
sales inventory consists of segregated NGL and natural gas volumes
dedicated to the fulfillment of forward-sales contracts.
(3)
Working
inventory is comprised of inventories of crude oil, refined products,
liquefied petroleum gases (“LPGs”), lubrication oils, and specialty
chemicals that are either available-for-sale or used in the provision for
services.
(4)
Forward
sales inventory primarily consists of segregated crude oil volumes
dedicated to the fulfillment of forward-sales contracts.
|
|
Our
inventory values reflect payments for product purchases, freight charges
associated with such purchase volumes, terminal and storage fees, vessel
inspection costs, demurrage charges and other related
costs. Inventories are valued at the lower of average cost or
market.
In addition to cash purchases,
Enterprise Products Partners takes ownership of volumes through
percent-of-liquids contracts and similar arrangements. These volumes
are recorded as inventory at market-related values in the month of
acquisition. Enterprise Products Partners capitalizes as a component
of inventory those ancillary costs (e.g. freight-in, handling and processing
charges) incurred in connection with such volumes.
Due to
fluctuating commodity prices, we recognize lower of cost or market (“LCM”)
adjustments when the carrying value of inventories exceed their net realizable
value.
Our property, plant and equipment
amounts by business segment were as follows at June 30, 2008:
|
|
Estimated
|
|
|
|
|
|
|
Useful
Life
|
|
|
|
|
|
|
In
Years
|
|
|
|
|
Investment
in Enterprise Products Partners:
|
|
|
|
|
|
|
Plants,
pipelines, buildings and related assets (1)
|
|
3-35
(5)
|
|
$ |
11,692,461 |
|
Storage
facilities (2)
|
|
5-35 (6)
|
|
|
730,391 |
|
Offshore
platforms and related facilities (3)
|
|
20-31
|
|
|
634,820 |
|
Transportation
equipment (4)
|
|
3-10
|
|
|
32,981 |
|
Land
|
|
|
|
|
|
|
50,305 |
|
Construction
in progress
|
|
|
|
|
|
|
1,388,484 |
|
Total
historical cost
|
|
|
|
|
|
|
14,529,442 |
|
Less
accumulated depreciation
|
|
|
|
|
|
|
2,133,699 |
|
Total
carrying value, net
|
|
|
|
|
|
$ |
12,395,743 |
|
Investment
in TEPPCO:
|
|
|
|
|
|
|
|
|
Plants,
pipelines, buildings and related assets (1)
|
|
5-40
(5)
|
|
$ |
2,757,478 |
|
Storage
facilities (2)
|
|
5-40
(6)
|
|
|
268,716 |
|
Transportation
equipment (4)
|
|
5-10
|
|
|
9,486 |
|
Marine
vessels (7)
|
|
20-30 |
|
|
445,341 |
|
Land
|
|
|
|
|
|
|
193,556 |
|
Construction
in progress
|
|
|
|
|
|
|
343,011 |
|
Total
historical cost
|
|
|
|
|
|
|
4,017,588 |
|
Less
accumulated depreciation
|
|
|
|
|
|
|
703,143 |
|
Total
carrying value, net
|
|
|
|
|
|
$ |
3,314,445 |
|
Total
property, plant and equipment, net
|
|
|
|
|
|
$ |
15,710,188 |
|
|
|
|
|
|
|
|
|
|
(1)
Includes
processing plants; NGL, crude oil, natural gas and other pipelines;
terminal loading and unloading facilities; buildings; office furniture and
equipment; laboratory and shop equipment; and related assets.
(2)
Includes
underground product storage caverns, above ground storage tanks, water
wells and related assets.
(3)
Includes
offshore platforms and related facilities and assets.
(4)
Includes
vehicles and similar assets used in our operations.
(5)
In
general, the estimated useful lives of major components of this category
approximate the following: processing plants, 20-35 years; pipelines
and related equipment, 5-40 years; terminal facilities, 10-35 years;
delivery facilities, 20-40 years; buildings, 20-40 years; office furniture
and equipment, 3-20 years; and laboratory and shop equipment, 5-35
years.
(6)
In
general, the estimated useful lives of major components of this category
approximate the following: underground storage facilities, 5-35
years; storage tanks 10-40 years; and water wells, 5-35
years.
(7)
See
Note 9 for additional information regarding the acquisition of marine
services businesses by TEPPCO in February 2008.
|
|
The
following table summarizes our capitalized interest amounts by segment for the
periods indicated:
|
|
For
the
|
|
|
For
the
|
|
|
|
Three
Months
|
|
|
Six
Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June
30, 2008
|
|
|
June
30, 2008
|
|
Investment
in Enterprise Products Partners:
|
|
|
|
|
|
|
Capitalized
interest (1)
|
|
$ |
17,623 |
|
|
$ |
35,735 |
|
Investment
in TEPPCO:
|
|
|
|
|
|
|
|
|
Capitalized
interest (1)
|
|
|
5,475 |
|
|
|
9,831 |
|
|
|
|
|
|
|
|
|
|
(1)
Capitalized
interest increases the carrying value of the associated asset and reduces
interest expense during the period it is recorded.
|
|
Enterprise
Products Partners reviewed assumptions underlying the estimated remaining useful
lives of certain of its assets during the first quarter of 2008. As a
result of this review, effective January 1,
2008,
Enterprise Products Partners revised the remaining useful lives of these assets,
most notably the assets that constitute its Texas Intrastate
System. This revision increased the remaining useful life of such
assets to incorporate recent data showing that proved natural gas reserves
supporting throughput and processing volumes for these assets have changed since
Enterprise Products Partners’ original determination made in September
2004. These revisions will prospectively reduce Enterprise Products
Partners’ depreciation expense on assets having carrying values totaling $2.72
billion as of January 1, 2008. On average, we extended the life of
these assets by 3.1 years.
Asset
retirement obligations
Asset
retirement obligations (“AROs”) are legal obligations associated with the
retirement of a tangible long-lived asset that results from its acquisition,
construction, development or normal operation, or a combination of these
factors. The following table summarizes amounts recognized in
connection with AROs since December 31, 2007:
|
|
Investment
in
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
|
|
|
|
Products
|
|
|
Investment
in
|
|
|
|
|
|
|
Partners
|
|
|
TEPPCO
|
|
|
Total
|
|
ARO
liability balance, December 31, 2007
|
|
$ |
40,614 |
|
|
$ |
1,610 |
|
|
$ |
42,224 |
|
Liabilities
incurred
|
|
|
384 |
|
|
|
-- |
|
|
|
384 |
|
Liabilities
settled
|
|
|
(5,473 |
) |
|
|
(328 |
) |
|
|
(5,801 |
) |
Accretion
expense
|
|
|
1,169 |
|
|
|
107 |
|
|
|
1,276 |
|
Revisions
in estimated cash flows
|
|
|
2,308 |
|
|
|
1,877 |
|
|
|
4,185 |
|
ARO
liability balance, June 30, 2008
|
|
$ |
39,002 |
|
|
$ |
3,266 |
|
|
$ |
42,268 |
|
Our
consolidated property, plant and equipment at June 30, 2008 includes $11.3
million of asset retirement costs capitalized as an increase in the associated
long-lived asset.
We own
interests in a number of related businesses that are accounted for using the
equity method of accounting. The following table presents our
investments in and advances to unconsolidated affiliates by segment at June 30,
2008:
|
|
Ownership
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
Investment
in Enterprise Products Partners:
|
|
|
|
|
|
|
Venice
Energy Service Company L.L.C. (“VESCO”)
|
|
13.1%
|
|
$ |
36,040 |
|
K/D/S
Promix, L.L.C. (“Promix”)
|
|
50%
|
|
|
51,044 |
|
Baton
Rouge Fractionators LLC (“BRF”)
|
|
32.3%
|
|
|
24,576 |
|
Evangeline
(1)
|
|
49.5%
|
|
|
4,182 |
|
Poseidon
Oil Pipeline Company, L.L.C. (“Poseidon”)
|
|
36%
|
|
|
59,640 |
|
Cameron
Highway Oil Pipeline Company (“Cameron Highway”)
|
|
50%
|
|
|
256,724 |
|
Deepwater
Gateway, L.L.C. (“Deepwater Gateway”)
|
|
50%
|
|
|
107,876 |
|
Neptune
Pipeline Company, L.L.C. (“Neptune”)
|
|
25.7%
|
|
|
51,442 |
|
Nemo
Gathering Company, LLC (“Nemo”)
|
|
33.9%
|
|
|
789 |
|
White
River Hub, LLC (“White River Hub”) (2)
|
|
50%
|
|
|
14,592 |
|
Baton
Rouge Propylene Concentrator, LLC (“BRPC”)
|
|
30%
|
|
|
13,192 |
|
Other
|
|
50%
|
|
|
3,964 |
|
Total
Investment in Enterprise Products Partners
|
|
|
|
|
|
|
624,061 |
|
Investment
in TEPPCO:
|
|
|
|
|
|
|
|
|
Seaway
Crude Pipeline Company (“Seaway”)
|
|
50%
|
|
|
191,137 |
|
Centennial
Pipeline LLC (“Centennial”)
|
|
50%
|
|
|
74,776 |
|
Other
|
|
25%
|
|
|
398 |
|
Total
Investment in TEPPCO
|
|
|
|
|
|
|
266,311 |
|
Investment in Energy Transfer
Equity:
|
|
|
|
|
|
|
|
|
Energy
Transfer Equity
|
|
17.5%
|
|
|
1,609,782 |
|
LE
GP
|
|
34.9%
|
|
|
12,013 |
|
Total
Investment in Energy Transfer Equity
|
|
|
|
|
|
|
1,621,795 |
|
Total
consolidated
|
|
|
|
|
|
$ |
2,512,167 |
|
|
|
|
|
|
|
|
|
|
(1)
Refers
to ownership interests in Evangeline Gas Pipeline Company, L.P. and
Evangeline Gas Corp., collectively.
(2)
During
the second quarter of 2008, Enterprise Products Partners acquired a 50%
ownership interest in White River Hub.
|
|
On
occasion, the price we pay to acquire a non-controlling ownership interest in a
company exceeds the underlying book value of the net assets we
acquire. Such excess cost amounts are included within the carrying
values of our investments in and advances to unconsolidated
affiliates. That portion of excess cost attributable to fixed assets
or amortizable intangible assets is amortized over the estimated useful life of
the underlying asset(s) as a reduction in equity earnings from the
entity. That portion of excess cost attributable to goodwill or
indefinite life intangible assets is not subject to
amortization. Equity method investments, including their associated
excess cost amounts, are evaluated for impairment whenever events or changes in
circumstances indicate that there is a loss in value of the investment which is
other than temporary.
The
following table summarizes our excess cost information at June 30, 2008 by the
business segment:
|
|
Investment in
|
|
|
|
|
|
Investment
in
|
|
|
|
|
|
|
Enterprise
|
|
|
|
|
|
Energy
|
|
|
|
|
|
|
Products
|
|
|
Investment in
|
|
|
Transfer
|
|
|
|
|
|
|
Partners
|
|
|
TEPPCO
|
|
|
Equity
|
|
|
Total
|
|
Initial
excess cost amounts attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Assets
|
|
$ |
51,476 |
|
|
$ |
30,277 |
|
|
$ |
576,626 |
|
|
$ |
658,379 |
|
Goodwill
|
|
|
-- |
|
|
|
-- |
|
|
|
335,758 |
|
|
|
335,758 |
|
Intangibles
– finite life
|
|
|
-- |
|
|
|
30,021 |
|
|
|
244,695 |
|
|
|
274,716 |
|
Intangibles
– indefinite life
|
|
|
-- |
|
|
|
-- |
|
|
|
513,508 |
|
|
|
513,508 |
|
Total
|
|
$ |
51,476 |
|
|
$ |
60,298 |
|
|
$ |
1,670,587 |
|
|
$ |
1,782,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
cost amounts, net of amortization at:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
$ |
35,214 |
|
|
$ |
30,925 |
|
|
$ |
1,627,879 |
|
|
$ |
1,694,018 |
|
As shown
in the preceding table, Enterprise GP Holdings’ initial investments in Energy
Transfer Equity and LE GP exceeded its share of the historical cost of the
underlying net assets of such investees by $1.67 billion. At June 30,
2008, this basis differential decreased to $1.63 billion (after taking into
account related amortization amounts) and consisted of the
following:
§
|
$549.3
million attributed to fixed assets;
|
§
|
$513.5
million attributed to the IDRs (an indefinite-life intangible asset)
held by Energy Transfer Equity in the cash flows of
ETP;
|
§
|
$229.3
million attributed to amortizable intangible
assets;
|
§
|
and
$335.8 million attributed to equity method
goodwill.
|
The basis differential amounts
attributed to fixed assets and amortizable intangible assets represent
Enterprise GP Holdings’ pro rata share of the excess of the fair values
determined for such assets over the investee’s historical carrying values for
such assets at the date Enterprise GP Holdings acquired its investments in
Energy Transfer Equity and LE GP. These excess cost amounts are being
amortized over the estimated useful life of the underlying assets.
The $513.5 million of excess cost
attributed to ETP’s IDRs represents Enterprise GP Holdings’ pro rata share of
the fair value of the incentive distribution rights held by Energy Transfer
Equity in ETP’s cash distributions. The $335.8 million of equity
method goodwill is attributed to our view of the future financial performance of
Energy Transfer Equity and LE GP based upon their underlying assets and industry
relationships. Excess cost amounts attributed to the ETP IDRs and the
equity method goodwill are not amortized; however, such amounts are subject to
impairment testing.
TEPPCO
Marine Services Businesses
On
February 1, 2008, TEPPCO entered the marine transportation business for refined
products, crude oil and condensate through the purchase of related assets from
Cenac Towing Co., Inc., Cenac Offshore, L.L.C., and Mr. Arlen B. Cenac, Jr.
(collectively “Cenac”). The aggregate value of total consideration TEPPCO paid
or issued to complete this business combination was $444.7 million, which
consisted of $258.1 million in cash and approximately 4.9 million of TEPPCO’s
newly issued common units. Additionally, TEPPCO assumed approximately
$63.2 million of Cenac’s debt in the transaction. TEPPCO acquired 42
tow boats, 89 tank barges and the economic benefit of certain related commercial
agreements. TEPPCO’s new business line serves refineries and storage
terminals along the Mississippi,
Illinois
and Ohio rivers and the Intracoastal Waterway between Texas and
Florida. These assets also gather crude oil from production
facilities and platforms along the U.S. Gulf Coast and in the Gulf of Mexico.
TEPPCO used its short-term credit facility to finance the cash portion of the
acquisition. TEPPCO repaid the $63.2 million of debt assumed in this
transaction using borrowings under its short-term credit facility.
On
February 29, 2008, TEPPCO purchased related marine assets from Horizon Maritime,
L.L.C. (“Horizon”), a privately-held Houston-based company and an affiliate
of Mr. Cenac, for $80.8 million in cash. TEPPCO acquired 7 tow boats, 17 tank
barges, rights to two tow boats under construction and the economic benefit of
certain related commercial agreements. In April 2008, TEPPCO paid an
additional $3.0 million to Horizon pursuant to the purchase agreement upon
delivery of one of the tow boats under construction, and in June 2008, TEPPCO
paid an additional $3.8 million upon delivery of the second tow
boat. These vessels transport asphalt, heavy fuel oil and other
heated oil products to storage facilities and refineries along the Mississippi,
Illinois and Ohio Rivers and the Intracoastal
Waterway. TEPPCO’s short-term credit facility was used to finance
this acquisition.
Purchase
Price Allocations
We accounted for our business
combinations during the six months ended June 30, 2008 using the purchase method
of accounting and, accordingly, such costs have been allocated to assets
acquired and liabilities assumed based on estimated preliminary fair
values. Such preliminary values have been developed using recognized
business valuation techniques and are subject to change pending a final
valuation analysis. We expect to finalize the purchase price
allocations for these transactions during 2008.
|
|
Cenac
|
|
|
Horizon
|
|
|
South
|
|
|
|
|
|
|
Acquisition
|
|
|
Acquisition
|
|
|
Monco
(1)
|
|
|
Total
|
|
Assets
acquired in business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
35 |
|
|
$ |
35 |
|
Property,
plant and equipment, net
|
|
|
362,872 |
|
|
|
72,196 |
|
|
|
(12,781 |
) |
|
|
422,287 |
|
Intangible
assets
|
|
|
63,500 |
|
|
|
6,700 |
|
|
|
12,747 |
|
|
|
82,947 |
|
Total
assets acquired
|
|
|
426,372 |
|
|
|
78,896 |
|
|
|
1 |
|
|
|
505,269 |
|
Liabilities
assumed in business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
long-term liabilities
|
|
|
(63,157 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(63,157 |
) |
Total
liabilities assumed
|
|
|
(63,157 |
) |
|
|
-- |
|
|
|
-- |
|
|
|
(63,157 |
) |
Total
assets acquired less liabilities assumed
|
|
|
363,215 |
|
|
|
78,896 |
|
|
|
1 |
|
|
|
442,112 |
|
Fair
value of 4,854,899 TEPPCO common units
|
|
|
186,557 |
|
|
|
-- |
|
|
|
-- |
|
|
|
186,557 |
|
Total
cash used for business combinations
|
|
|
258,105 |
|
|
|
87,525 |
|
|
|
1 |
|
|
|
345,631 |
|
Goodwill
|
|
$ |
81,447 |
|
|
$ |
8,629 |
|
|
$ |
-- |
|
|
$ |
90,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Primarily represents non-cash reclassification adjustments to
Enterprise Products Partners’ December 2007 preliminary fair value
estimates for assets acquired in its South Monco natural gas pipeline
business acquisition.
|
|
Identifiable
Intangible Assets
The
following tables summarize our intangible assets at June 30, 2008:
|
|
Gross
|
|
|
Accum.
|
|
|
Carrying
|
|
|
|
Value
|
|
|
Amort.
|
|
|
Value
|
|
Investment
in Enterprise Products Partners:
|
|
|
|
|
|
|
|
|
|
Customer
relationship intangibles
|
|
$ |
858,354 |
|
|
$ |
(243,853 |
) |
|
$ |
614,501 |
|
Contract-based
intangibles
|
|
|
398,612 |
|
|
|
(142,390 |
) |
|
|
256,222 |
|
Subtotal
|
|
|
1,256,966 |
|
|
|
(386,243 |
) |
|
|
870,723 |
|
Investment
in TEPPCO:
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
distribution rights
|
|
|
606,926 |
|
|
|
-- |
|
|
|
606,926 |
|
Customer
relationship intangibles
|
|
|
51,821 |
|
|
|
(1,529 |
) |
|
|
50,292 |
|
Gas
gathering agreements
|
|
|
462,448 |
|
|
|
(197,720 |
) |
|
|
264,728 |
|
Other
contract-based intangibles
|
|
|
74,306 |
|
|
|
(26,195 |
) |
|
|
48,111 |
|
Subtotal
|
|
|
1,195,501 |
|
|
|
(225,444 |
) |
|
|
970,057 |
|
Total
|
|
$ |
2,452,467 |
|
|
$ |
(611,687 |
) |
|
$ |
1,840,780 |
|
The
carrying value of TEPPCO’s intangible assets increased as a result of its
acquisition of marine service businesses in February 2008. TEPPCO
acquired certain customer relationships and non-compete agreements.
In
general, our amortizable intangible assets fall within two categories –
contract-based intangible assets and customer
relationships. Contract-based intangible assets represent specific
commercial rights we acquired in connection with business combinations or asset
purchases. Customer relationship intangible assets, as used in this
context, represent the estimated economic value assigned to certain
relationships acquired in connection with business combinations and asset
purchases whereby (i) we acquired information about or access to customers and
now have regular contact with them and (ii) the customers now have the ability
to make direct contact with us. Customer relationships may arise from
contractual arrangements (such as supplier contracts and service contracts) and
through means other than contracts, such as through regular contact by sales or
service representatives. The values assigned to intangible assets are
amortized to earnings using either (i) a straight-line approach or (ii) other
methods that closely resemble the pattern in which the economic benefits of
associated resource bases are estimated to be consumed or otherwise used, as
appropriate.
Enterprise
GP Holdings recorded an indefinite-life intangible asset valued at $606.9
million in connection with its receipt of the TEPPCO IDRs from DFIGP in May
2007. This amount represents DFIGP’s historical carrying value and
characterization of such asset. This intangible asset is not subject
to amortization, but is subject to periodic testing for recoverability in a
manner similar to goodwill.
The IDRs
represent contractual rights to the incentive cash distributions paid by
TEPPCO. Such rights were granted to TEPPCO GP under the terms of
TEPPCO’s partnership agreement. In accordance with TEPPCO’s
partnership agreement, TEPPCO GP may separate and sell the IDRs independent of
its other residual general partner and limited partner interests in
TEPPCO. TEPPCO GP is entitled to 2% of the cash distributions paid by
TEPPCO as well as the associated IDRs of TEPPCO. TEPPCO GP is the
sole general partner of, and thereby controls, TEPPCO. As an
incentive, TEPPCO GP’s percentage interest in TEPPCO’s quarterly cash
distributions is increased after certain specified target levels of distribution
rates are met by TEPPCO.
Goodwill
Goodwill
represents the excess of the purchase price of an acquired business over the
amounts assigned to assets acquired and liabilities assumed in the
transaction. Goodwill is not amortized; however, it is subject
to annual impairment testing. The following table summarizes our
goodwill amounts by business segment at June 30, 2008:
Investment
in Enterprise Products Partners
|
|
$ |
591,652 |
|
Investment
in TEPPCO
|
|
|
306,004 |
|
Totals
|
|
$ |
897,656 |
|
The carrying value of TEPPCO’s goodwill
increased as a result of its acquisition of marine service businesses in
February 2008. Management attributes the value of this goodwill to
potential future benefits TEPPCO expects to realize as a result of acquiring
these assets.
The
following table summarizes the significant components of our consolidated debt
obligations at June 30, 2008:
Principal
amount of debt obligations of Enterprise GP Holdings
|
|
$ |
1,083,000 |
|
Principal
amount of debt obligations of Enterprise Products
Partners:
|
|
|
|
|
Senior
debt obligations
|
|
|
6,499,500 |
|
Subordinated
debt obligations
|
|
|
1,250,000 |
|
Total
principal amount of debt obligations of Enterprise Products
Partners
|
|
|
7,749,500 |
|
Principal
amount of debt obligations of TEPPCO:
|
|
|
|
|
Senior
debt obligations
|
|
|
2,230,000 |
|
Subordinated
debt obligations
|
|
|
300,000 |
|
Total
principal amount of debt obligations of TEPPCO
|
|
|
2,530,000 |
|
Total
principal amount of consolidated debt obligations
|
|
|
11,362,500 |
|
Other,
non-principal amounts:
|
|
|
|
|
Changes
in fair value of debt-related financial instruments (see Note
5)
|
|
|
16,875 |
|
Unamortized
discounts, net of premiums
|
|
|
(13,020 |
) |
Unamortized
deferred gains related to terminated interest rate swaps (see Note
5)
|
|
|
30,323 |
|
Total
other, non-principal amounts
|
|
|
34,178 |
|
Total
consolidated debt obligations
|
|
$ |
11,396,678 |
|
|
|
|
|
|
Standby
letters of credit outstanding:
|
|
|
|
|
Enterprise
Products Partners
|
|
$ |
1,100 |
|
TEPPCO
|
|
|
26,130 |
|
Total
standby letters of credit
|
|
$ |
27,230 |
|
Debt
Obligations of Enterprise GP Holdings
Enterprise
GP Holdings consolidates the debt obligations of both Enterprise Products
Partners and TEPPCO; however, Enterprise GP Holdings does not have the
obligation to make interest or principal payments with respect to such
obligations.
There
have been no significant changes in the terms of Enterprise GP Holdings’ debt
obligations since those reported in its Annual Report on Form 10-K for the year
ended December 31, 2007.
The
following table summarizes the debt obligations of Enterprise GP Holdings at
June 30, 2008:
EPE
Revolver, variable rate, due September 2012
|
|
$ |
108,000 |
|
$125.0
million Term Loan A, variable rate, due September 2012
|
|
|
125,000 |
|
$850.0
million Term Loan B, variable rate, due November 2014
|
|
|
850,000 |
|
Total
debt obligations of Enterprise GP Holdings
|
|
$ |
1,083,000 |
|
The total borrowing capacity under the
EPE Revolver is $200.0 million. Borrowings made under the EPE
Revolver, Term Loan A and Term Loan B are secured by Enterprise GP Holdings’
ownership of (i) 13,454,498 common units of Enterprise Products Partners, (ii)
100% of the membership interests in EPGP, (iii) 38,976,090 common units of
Energy Transfer Equity, (iv) 4,400,000 common units of TEPPCO and (v) 100% of
the membership interests in TEPPCO GP.
Consolidated
Debt Obligations of Enterprise Products Partners
The
following table summarizes the principal amount of consolidated debt obligations
of Enterprise Products Partners at June 30:
Senior
debt obligations of Enterprise Products Partners:
|
|
|
|
EPO
Revolver, variable rate, due November 2012
|
|
$ |
470,000 |
|
EPO
Senior Notes B, 7.50% fixed-rate, due February 2011
|
|
|
450,000 |
|
EPO
Senior Notes C, 6.375% fixed-rate, due February 2013
|
|
|
350,000 |
|
EPO
Senior Notes D, 6.875% fixed-rate, due March 2033
|
|
|
500,000 |
|
EPO
Senior Notes F, 4.625% fixed-rate, due October 2009
|
|
|
500,000 |
|
EPO
Senior Notes G, 5.60% fixed-rate, due October 2014
|
|
|
650,000 |
|
EPO
Senior Notes H, 6.65% fixed-rate, due October 2034
|
|
|
350,000 |
|
EPO
Senior Notes I, 5.00% fixed-rate, due March 2015
|
|
|
250,000 |
|
EPO
Senior Notes J, 5.75% fixed-rate, due March 2035
|
|
|
250,000 |
|
EPO
Senior Notes K, 4.950% fixed-rate, due June 2010
|
|
|
500,000 |
|
EPO
Senior Notes L, 6.30%, fixed-rate, due September 2017
|
|
|
800,000 |
|
EPO
Senior Notes M, 5.65%, fixed-rate, due April 2013
|
|
|
400,000 |
|
EPO
Senior Notes N, 6.50%, fixed-rate, due January 2019
|
|
|
700,000 |
|
Petal
GO Zone Bonds, variable rate, due August 2037
|
|
|
57,500 |
|
Pascagoula
MBFC Loan, 8.70% fixed-rate, due March 2010
|
|
|
54,000 |
|
Dixie
Revolver, variable rate, due June 2010
|
|
|
10,000 |
|
Duncan
Energy Partners’ Revolver, variable rate, due February
2011
|
|
|
208,000 |
|
Total
senior debt obligations of Enterprise Products Partners
|
|
|
6,499,500 |
|
Subordinated
debt obligations of Enterprise Products Partners:
|
|
|
|
|
EPO
Junior Notes A, fixed/variable rates, due August 2066
|
|
|
550,000 |
|
EPO
Junior Notes B, fixed/variable rates, due January 2068
|
|
|
700,000 |
|
Total
subordinated debt obligations of Enterprise Products
Partners
|
|
|
1,250,000 |
|
Total
principal amount of debt obligations of Enterprise Products
Partners
|
|
$ |
7,749,500 |
|
Enterprise
Products Partners L.P. acts as guarantor of the consolidated debt obligations of
EPO with the exception of Dixie’s revolving credit facility and Duncan Energy
Partners’ revolving credit facility. If EPO were to default on any of
its guaranteed debt, Enterprise Products Partners L.P. would be responsible for
full repayment of that obligation. EPO’s debt obligations are
non-recourse to Enterprise GP Holdings and EPGP.
With
respect to debt agreements existing at December 31, 2007, there have been no
significant changes in the terms of Enterprise Products
Partners’ consolidated debt obligations since December 31,
2007.
Senior
Notes M and N. In April 2008, EPO sold $400.0 million in
principal amount of 5-year senior unsecured notes (“Senior Notes M”) and $700.0
million in principal amount of 10-year senior unsecured notes (“Senior Notes N”)
under its universal registration statement. Senior Notes M were
issued at 99.906% of their principal amount, have a fixed interest rate of
5.65%, and mature in April 2013. Senior
Notes N
were issued at 99.866% of their principal amount, have a fixed interest rate of
6.50%, and mature in January 2019.
Senior
Notes M pay interest semi-annually in arrears on April 1 and October 1 of each
year, beginning October 1, 2008. Senior Notes N pay interest
semi-annually in arrears on January 31 and July 31 of each year, with the first
payment made on July 31, 2008. Net proceeds from the issuance of
Senior Notes M and N were used to temporarily reduce indebtedness outstanding
under the EPO Revolver.
Senior
Notes M and N rank equal with EPO’s existing and future unsecured and
unsubordinated indebtedness. They are senior to any existing and
future subordinated indebtedness of EPO. Senior Notes M and N are
subject to make-whole redemption rights and were issued under indentures
containing certain covenants, which generally restrict EPO’s ability, with
certain exceptions, to incur debt secured by liens and engage in sale and
leaseback transactions.
Consolidated
Debt Obligations of TEPPCO
The
following table summarizes the principal amount of consolidated debt obligations
of TEPPCO at June 30:
Senior
debt obligations of TEPPCO:
|
|
|
|
TEPPCO
Revolver, variable rate, due December 2012
|
|
$ |
530,000 |
|
TEPPCO
Senior Notes, 7.625% fixed rate, due February 2012
|
|
|
500,000 |
|
TEPPCO
Senior Notes, 6.125% fixed rate, due February 2013
|
|
|
200,000 |
|
TEPPCO
Senior Notes, 5.90% fixed rate, due April 2013
|
|
|
250,000 |
|
TEPPCO
Senior Notes, 6.65% fixed rate, due April 2018
|
|
|
350,000 |
|
TEPPCO
Senior Notes, 7.55% fixed rate, due April 2038
|
|
|
400,000 |
|
Total
senior debt obligations of TEPPCO
|
|
|
2,230,000 |
|
Subordinated
debt obligations of TEPPCO:
|
|
|
|
|
TEPPCO
Junior Subordinated Notes, fixed/variable rates, due June
2067
|
|
|
300,000 |
|
Total
principal amount of debt obligations of TEPPCO
|
|
$ |
2,530,000 |
|
TE
Products Pipeline Company, LLC (“TE Products”), TCTM, L.P., TEPPCO Midstream
Companies, LLC, and Val Verde Gas Gathering Company, L.P. (collectively, the
“Subsidiary Guarantors”) act as guarantors of TEPPCO’s senior notes and
revolver. The Subsidiary Guarantors also act as guarantors, on a
junior subordinated basis, of TEPPCO’s junior subordinated notes. TEPPCO’s debt
obligations are non-recourse to Enterprise GP Holdings and TEPPCO
GP.
TEPPCO
Short-Term Credit Facility. At December 31, 2007, TEPPCO had
in place an unsecured short term credit agreement (the “TEPPCO Short-Term Credit
Facility”) with a borrowing capacity of $1.00 billion. No amounts
were borrowed under this agreement at December 31, 2007. During the
first quarter of 2008, TEPPCO borrowed $1.00 billion under this credit agreement
to finance the retirement of the TE Products’ senior notes, the acquisition of
two marine service businesses and for other general partnership
purposes. In March 2008, TEPPCO repaid amounts borrowed under this
credit agreement, using proceeds from its senior notes offering, and terminated
the facility. The following table summarizes TEPPCO’s borrowing and
repayment activity under this credit agreement during the first quarter of
2008:
Borrowings,
January 2008 (1)
|
|
$ |
355,000 |
|
Borrowings,
February 2008 (2)
|
|
|
645,000 |
|
Repayments,
March 2008
|
|
|
(1,000,000 |
) |
Balance,
March 27, 2008 (3)
|
|
$ |
-- |
|
|
|
|
|
|
(1)
Funds
borrowed to finance the retirement of TE Products’ senior
notes.
(2)
Funds
borrowed to finance TEPPCO’s marine services acquisitions and for general
partnership purposes.
(3)
TEPPCO’s
Short Term Credit Facility was terminated on March 27, 2008 upon full
repayment of borrowings thereunder.
|
|
TEPPCO
March 2008
Senior Notes Offering. In March 2008, TEPPCO sold $250.0
million in principal amount of 5-year senior unsecured notes, $350.0 million in
principal amount of 10-year senior unsecured notes and $400.0 million in
principal amount of 30-year senior unsecured notes. The 5-year senior
notes were issued at 99.922% of their principal amount, have a fixed interest
rate of 5.90%, and mature in April 2013. The 10-year senior notes
were issued at 99.640% of their principal amount, have a fixed interest rate of
6.65%, and mature in April 2018. The 30-year senior notes were issued
at 99.451% of their principal amount, have a fixed interest rate of 7.55%, and
mature in April 2038.
These
senior notes pay interest semi-annually in arrears on April 15 and October 15 of
each year, beginning October 15, 2008. Net proceeds from the issuance
of these notes were used to repay and terminate the TEPPCO Short-Term Credit
Facility.
The notes
rank equal with TEPPCO’s existing and future unsecured and unsubordinated
indebtedness. They are senior to any future subordinated indebtedness
of TEPPCO. The notes are subject to make-whole redemption rights and
were issued under indentures containing certain covenants, including, but not
limited to the creation of liens securing indebtedness and sale and leaseback
transactions. However, the indentures do not limit TEPPCO’s ability
to incur additional indebtedness.
Amendment
to TEPPCO revolving credit agreement. As a result of
meeting certain conditions, the borrowing capacity under TEPPCO’s revolving
credit agreement (i.e. the TEPPCO Revolver) was increased from $700.0 million to
$950.0 million on July 17, 2008. Apart from this change and with
respect to debt agreements existing at December 31, 2007, there have been no
other significant changes in the terms of TEPPCO’s consolidated debt
obligations since December 31, 2007.
Covenants
We are in
compliance with the covenants of our consolidated debt agreements at June 30,
2008.
Information
regarding variable interest rates paid
The
following table presents the weighted-average interest rates paid on our
consolidated variable-rate debt obligations during the six months ended June 30,
2008.
|
Weighted-average
|
|
interest
rate
|
|
paid
|
EPE
Revolver
|
4.99%
|
EPE
Term Loan A
|
4.95%
|
EPE
Term Loan B
|
5.76%
|
EPO
Revolver
|
3.96%
|
Dixie
Revolver
|
3.46%
|
Petal
GO Zone Bonds
|
2.16%
|
Duncan
Energy Partners’ Revolver
|
4.51%
|
TEPPCO
Revolver
|
3.08%
|
TEPPCO
Short-Term Credit Facility
|
4.02%
|
Consolidated
debt maturity table
The
following table presents the scheduled maturities of principal amounts of our
consolidated debt obligations for the next five years and in total
thereafter.
2008
|
|
$ |
-- |
|
2009
|
|
|
500,000 |
|
2010
|
|
|
564,000 |
|
2011
|
|
|
658,000 |
|
2012
|
|
|
1,733,000 |
|
Thereafter
|
|
|
7,907,500 |
|
Total
scheduled principal payments
|
|
$ |
11,362,500 |
|
Debt
Obligations of Unconsolidated Affiliates
Enterprise
Products Partners has two unconsolidated affiliates with long-term debt
obligations and TEPPCO has one unconsolidated affiliate with long-term debt
obligations. The following table shows (i) the ownership interest in
each entity at June 30, 2008, (ii) total debt of each unconsolidated affiliate
at June 30, 2008 (on a 100% basis to the unconsolidated affiliate) and (iii) the
corresponding scheduled maturities of such debt.
|
|
|
|
|
|
|
|
Scheduled
Maturities of Debt
|
|
|
|
Ownership
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Interest
|
|
|
Total
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2012
|
|
Poseidon
(1)
|
|
36.0%
|
|
$ |
109,000 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
109,000 |
|
|
$ |
-- |
|
|
$ |
-- |
|
Evangeline
(1)
|
|
49.5%
|
|
|
20,650 |
|
|
|
5,000 |
|
|
|
5,000 |
|
|
|
3,150 |
|
|
|
7,500 |
|
|
|
-- |
|
|
|
-- |
|
Centennial
(2)
|
|
50.0% |
|
|
135,000 |
|
|
|
5,100 |
|
|
|
9,900 |
|
|
|
9,100 |
|
|
|
9,000 |
|
|
|
8,900 |
|
|
|
93,000 |
|
Total
|
|
|
|
|
|
$ |
264,650 |
|
|
$ |
10,100 |
|
|
$ |
14,900 |
|
|
$ |
12,250 |
|
|
$ |
125,500 |
|
|
$ |
8,900 |
|
|
$ |
93,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Denotes
an unconsolidated affiliate of Enterprise Products Partners.
(2)
Denotes
an unconsolidated affiliate of TEPPCO.
|
|
The
credit agreements of these unconsolidated affiliates include customary
covenants, including financial covenants. These businesses were in
compliance with such covenants at June 30, 2008. The credit
agreements of these unconsolidated affiliates restrict their ability to pay cash
dividends or distributions if a default or an event of default (as defined in
each credit agreement) has occurred and is continuing at the time such dividend
or distribution is scheduled to be paid.
There
have been no significant changes in the terms of the debt obligations of our
unconsolidated affiliates since those reported in Enterprise GP Holdings’ Annual
Report on Form 10-K for the year ended December 31, 2007.
At June
30, 2008, member’s equity consisted of the capital account of Dan Duncan LLC and
accumulated other comprehensive income. Subject to the terms of our
limited liability company agreement, we distribute available cash to Dan Duncan
LLC within 45 days of the end of each calendar quarter. No
distributions have been made to date. The capital account balance of
Dan Duncan LLC was nominal at June 30, 2008.
Accumulated
other comprehensive income (loss)
The following table summarizes
transactions affecting our accumulated other comprehensive income (loss) since
December 31, 2007.
|
|
|
|
|
|
|
Proportionate
|
|
|
|
|
|
|
|
|
|
|
Share
of
|
|
|
|
|
Cash
Flow Hedges
|
|
|
|
|
|
Other
|
|
Accumulated
|
|
|
|
|
Interest
|
|
|
|
Foreign
|
|
Pension
|
|
Comprehensive
|
|
Other
|
|
|
Commodity
|
|
Rate
|
|
Foreign
|
|
Currency
|
|
And
|
|
Loss
of
|
|
Comprehensive
|
|
|
Financial
|
|
Financial
|
|
Currency
|
|
Translation
|
|
Postretirement
|
|
Unconsolidated
|
|
Income
(Loss)
|
|
|
Instruments
|
|
Instruments
|
|
Hedges
|
|
Adjustment
|
|
Plans
|
|
Affiliates
|
|
Balance
|
|
Balance,
December 31, 2007
|
$ |
(40,271 |
) |
$ |
1,048 |
|
$ |
1,308 |
|
$ |
1,200 |
|
$ |
588 |
|
$ |
(3,848 |
) |
$ |
(39,975 |
) |
Net
commodity financial instrument gains during period
|
|
99,343 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
99,343 |
|
Net
interest rate financial instrument losses during period
|
|
-- |
|
|
(48,533 |
) |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(48,533 |
) |
Amortization
of cash flow financing hedges
|
|
-- |
|
|
393 |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
393 |
|
Change
in funded status of pension and postretirement plans, net of
tax
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(264 |
) |
|
-- |
|
|
(264 |
) |
Foreign
currency hedge losses
|
|
-- |
|
|
-- |
|
|
(1,308 |
) |
|
-- |
|
|
-- |
|
|
-- |
|
|
(1,308 |
) |
Foreign
currency translation adjustment
|
|
-- |
|
|
-- |
|
|
-- |
|
|
75 |
|
|
-- |
|
|
-- |
|
|
75 |
|
Proportionate
share of other
comprehensive loss of unconsolidated
affiliates
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
|
(949 |
) |
|
(949 |
) |
Balance,
June 30, 2008
|
$ |
59,072 |
|
$ |
(47,092 |
) |
$ |
-- |
|
$ |
1,275 |
|
$ |
324 |
|
$ |
(4,797 |
) |
$ |
8,782 |
|
We
believe that the terms and provisions of our related party agreements are fair
to us; however, such agreements and transactions may not be as favorable to us
as we could have obtained from unaffiliated third parties.
Relationship
with EPCO and affiliates
We have
an extensive and ongoing relationship with EPCO and its affiliates, which
include the following significant entities that are not part of our consolidated
group of companies:
§
|
EPCO
and its consolidated private company subsidiaries;
and
|
§
|
the
Employee Partnerships (see Note 4).
|
EPCO is a
private company controlled by Dan L. Duncan, who is also a director and Chairman
of EPE Holdings and EPGP. At June 30, 2008, EPCO and its private
company affiliates beneficially owned 107,972,268 (or 77.6%) of Enterprise GP
Holdings’ outstanding units and 100% of EPE Holdings. In addition, at
June 30, 2008, EPCO and its affiliates beneficially owned 149,167,842 (or 34.1%)
of Enterprise Products Partners’ common units, including 13,454,498 common units
owned by Enterprise GP Holdings. At June 30, 2008, EPCO and its
affiliates beneficially owned 16,691,550 (or 17.6%) of TEPPCO’s common units,
including the 4,400,000 common units owned by Enterprise GP
Holdings. Enterprise GP Holdings owns all of the membership interests
of EPGP and TEPPCO GP. The principal business activity of EPGP is to
act as the sole managing partner of Enterprise Products Partners. The
principal business activity of TEPPCO GP is to act as the sole general partner
of TEPPCO. The executive officers and certain of the directors of
EPGP, TEPPCO GP, and EPE Holdings are employees of EPCO.
Enterprise
GP Holdings, EPE Holdings, TEPPCO, TEPPCO GP, Enterprise Products Partners and
EPGP are separate legal entities apart from each other and apart from EPCO and
its other affiliates, with assets and liabilities that are separate from those
of EPCO and its other affiliates. EPCO and its private company
subsidiaries depend on the cash distributions they receive from Enterprise GP
Holdings,
TEPPCO,
Enterprise Products Partners and other investments to fund their other
operations and to meet their debt obligations. EPCO and its
affiliates received $214.3 million in cash distributions from us during the six
months ended June 30, 2008.
The
ownership interests in Enterprise Products Partners and TEPPCO that are owned or
controlled by Enterprise GP Holdings are pledged as security under its credit
facility. In addition, the ownership interests in Enterprise GP
Holdings, Enterprise Products Partners and TEPPCO that are owned or controlled
by EPCO and its affiliates, other than those interests owned by Enterprise GP
Holdings, DD Securities LLC and certain trusts affiliated with Dan L. Duncan,
are pledged as security under the credit facility of a private company affiliate
of EPCO. This credit facility contains customary and other events of
default relating to EPCO and certain affiliates, including Enterprise GP
Holdings, Enterprise Products Partners and TEPPCO.
We have
entered into an agreement with EPCO to provide trucking services to us for the
transportation of NGLs and other products. We also lease office space
in various buildings from affiliates of EPCO. The rental rates in
these lease agreements approximate market rates.
EPCO
Administrative Services Agreement
We have no employees. All of
our operating functions and general and administrative support services are
provided by employees of EPCO pursuant to an administrative services agreement
(the “ASA”). Enterprise GP Holdings and EPE Holdings, Enterprise
Products Partners and its general partner, Duncan Energy Partners and its
general partner, and TEPPCO and its general partner, among other affiliates, are
parties to the ASA. The ACG Committees of each general partner have
approved the ASA.
Under the ASA, we reimburse EPCO for
all costs and expenses it incurs in providing management, administrative and
operating services for us, including compensation of employees (i.e., salaries,
medical benefits and retirement benefits). The ASA also addresses
potential conflicts in business opportunities that may arise among parties to
the agreement, including (i) Enterprise Products Partners and EPGP; (ii) Duncan
Energy Partners and DEP GP; (iii) Enterprise GP Holdings and EPE Holdings; and
(iv) the EPCO Group, which includes EPCO and its affiliates (but does not
include the aforementioned entities and their controlled
affiliates).
Relationships
with Unconsolidated Affiliates
Enterprise
Products Partners. Enterprise Products Partners’ significant
related party revenue and expense transactions with its unconsolidated
affiliates consist of the sale of natural gas to Evangeline and the purchase of
NGL storage, transportation and fractionation services from
Promix. In addition, Enterprise Products Partners sells natural gas
to Promix and processes natural gas at VESCO.
TEPPCO. TEPPCO’s
significant related party revenue and expense transactions with its
unconsolidated affiliates consist of (i) management, rental and other revenues,
(ii) transportation expense related to the transportation of crude oil on
Seaway, (iii) transportation expense related to the transportation of refined
products on Centennial and (iv) rental expense related to the lease of pipeline
capacity on Centennial.
Energy
Transfer Equity. Enterprise Products Partners has a long-term
sales contract with Titan Energy Partners, L.P. (“Titan”), a consolidated
subsidiary of ETP. Titan purchases substantially all of its propane
requirements from Enterprise Products Partners. The contract
continues until March 31, 2010 and contains renewal and extension
options. Enterprise Products Partners and another subsidiary of ETP,
Energy Transfer Company (“ETC OLP”), transport natural gas on each other’s
systems and share operating expenses on certain pipelines. ETC OLP
also sells natural gas to Enterprise Products Partners.
Relationship
with Duncan Energy Partners
In September 2006, Duncan Energy
Partners, a consolidated subsidiary of Enterprise Products Partners, was formed
to acquire, own, and operate a diversified portfolio of midstream energy assets
and to support the growth objectives of EPO. On February 5, 2007,
Duncan Energy Partners completed its initial public offering of 14,950,000
common units at $21.00 per unit, which generated net proceeds to
Duncan Energy Partners of approximately $291.0 million. As
consideration for assets contributed and reimbursement for capital expenditures
related to these assets, Duncan Energy Partners distributed $260.6 million of
these net proceeds to Enterprise Products Partners (along with $198.9 million in
borrowings under its credit facility and a final amount of 5,351,571 common
units of Duncan Energy Partners).
Enterprise
Products Partners contributed 66% of its equity interests in certain of its
subsidiaries to Duncan Energy Partners. In addition to the 34% direct ownership
interest Enterprise Products Partners retained in these subsidiaries of Duncan
Energy Partners, it also owns the 2% general partner interest in Duncan Energy
Partners and 26.4% of Duncan Energy Partners’ outstanding common
units. EPO directs the business operations of Duncan Energy Partners
through its control of the general partner of Duncan Energy
Partners. Certain of Enterprise Products Partners’ officers and
directors are also beneficial owners of common units of Duncan Energy
Partners.
Enterprise Products Partners has
significant involvement with all of the subsidiaries of Duncan Energy Partners,
including the following types of transactions: (i) it utilizes storage
services to support its Mont Belvieu fractionation and other businesses; (ii) it
buys natural gas from and sells natural gas in connection with its normal
business activities; and (iii) it is currently the sole shipper on an NGL
pipeline system located in south Texas.
EPCO and its affiliates, including
Enterprise Products Partners and TEPPCO, may contribute or sell other equity
interests and assets to Duncan Energy Partners. EPCO and its
affiliates have no obligation or commitment to make such contributions or sales
to Duncan Energy Partners.
Relationship
with Cenac
In connection with the Cenac
acquisition (see Note 9), Cenac and affiliates became a related party of TEPPCO
due to its ownership of TEPPCO common units (approximately 5.1% as of June 30,
2008). TEPPCO entered into a transitional operating agreement with
Cenac in which TEPPCO’s fleet of acquired tow boats and tank barges will
continue to be operated by employees of Cenac for a period of up to two years
following the acquisition. Under this agreement, TEPPCO reimburses
Cenac for personnel salaries and related employee benefit expenses, certain
repairs and maintenance expenses and insurance premiums on its equipment, as
well as payment for the monthly operating fee.
Litigation
On
occasion, we or our unconsolidated affiliates are named as defendants in
litigation relating to our normal business activities, including regulatory and
environmental matters. Although we are insured against various
business risks to the extent we believe it is prudent, there is no assurance
that the nature and amount of such insurance will be adequate, in every case, to
indemnify us against liabilities arising from future legal proceedings as a
result of our ordinary business activities. We are not aware of any
significant litigation, pending or threatened, that could have a significant
adverse effect on our financial position, cash flows or results of
operations. The following is a discussion of litigation-related risks
by business segment.
Enterprise GP
Holdings
matters. In February
2008, Joel A. Gerber, a purported unitholder of Enterprise GP Holdings, filed
a derivative complaint on behalf of Enterprise GP Holdings in the
Court of Chancery of the State of Delaware. The complaint names as defendants
EPE Holdings; the Board of Directors of EPE Holdings; EPCO; and Dan L.
Duncan and certain of his affiliates. Enterprise GP
Holdings
is named as a nominal defendant. The complaint alleges that the defendants,
in breach of their fiduciary duties to Enterprise GP Holdings and its
unitholders, caused Enterprise GP Holdings to purchase in May 2007 the TEPPCO GP
membership interests and TEPPCO common units from Mr. Duncan’s affiliates at an
unfair price. The complaint also alleges that Charles E. McMahen, Edwin E. Smith
and Thurmon Andress, constituting the three members of EPE Holdings’ ACG
Committee, cannot be considered independent because of their relationships with
Mr. Duncan. The complaint seeks relief (i) awarding damages for
profits allegedly obtained by the defendants as a result of the alleged
wrongdoings in the complaint and (ii) awarding plaintiff costs of the
action, including fees and expenses of his attorneys and
experts. Management believes this lawsuit is without merit and
intends to vigorously defend against it. For information regarding our
relationship with Mr. Duncan and his affiliates, see Note 13.
Enterprise
Products Partners matters. In February
2007, EPO received a letter from the Environment and Natural Resources Division
(“ENRD”) of the U.S. Department of Justice (“DOJ”) related to an ammonia release
in Kingman County, Kansas in October 2004 from a pressurized anhydrous
ammonia pipeline owned by a third party, Magellan Ammonia Pipeline, L.P.
(“Magellan”) and a previous release of ammonia in September 2004 from the same
pipeline. EPO was the operator of this pipeline until July 1, 2008. The
ENRD has indicated that it may pursue civil damages against EPO and Magellan as
a result of these incidents. Based on this correspondence from the ENRD,
the statutory maximum amount of civil fines that could be assessed against EPO
and Magellan is up to $17.4 million in the aggregate. EPO is
cooperating with the DOJ and is hopeful that an expeditious resolution of this
civil matter acceptable to all parties will be reached in the near future.
Magellan has agreed to indemnify EPO for the civil matter. At this
time, we do not believe that a final resolution of the civil claims by the ENRD
will have a material impact on Enterprise Products Partners’ consolidated
financial position, cash flows or results of operations.
In October 2006, a rupture in the
Magellan Ammonia Pipeline resulted in the release of ammonia near Clay Center,
Kansas. The pipeline has been repaired and environmental remediation
tasks related to this incident have been completed. At this time, we
do not believe that this incident will have a material impact on Enterprise
Products Partners’ financial position, results of operations or cash
flows.
Several
lawsuits have been filed by municipalities and other water suppliers against a
number of manufacturers of reformulated gasoline containing methyl tertiary
butyl ether (“MTBE”). In general, such suits have not named
manufacturers of MTBE as defendants, and there have been no such lawsuits filed
against Enterprise Products Partners’ subsidiary that owns an octane-additive
production facility. It is possible, however, that former MTBE
manufacturers, such as Enterprise Products Partners’ subsidiary, could
ultimately be added as defendants in such lawsuits or in new
lawsuits.
The Attorney General of Colorado on
behalf of the Colorado Department of Public Health and Environment filed suit
against Enterprise Products Partners and others in April 2008 in connection with
the construction of a pipeline near Parachute, Colorado. The State sought
a temporary restraining order and an injunction to halt construction activities
since it alleged that the defendants failed to install measures to minimize
damage to the environment and to follow requirements for the pipeline’s
stormwater permit and appropriate stormwater plan. The State’s complaint
also seeks penalties for the above alleged failures. Defendants and the
State agreed to certain stipulations that, among other things, require
Enterprise Products Partners to install specified environmental protection
measures in the disturbed pipeline right-of-way to comply with
regulations. Enterprise Products Partners has complied with the
stipulations and the State has dismissed the portions of the compliant seeking
the temporary restraining order and injunction. The State has not yet
assessed penalties and we are unable to predict the amount of penalties that may
be assessed. At this time, we do not believe that this incident will have a
material impact on our consolidated financial position, results of operations or
cash flows.
TEPPCO
matters. In
September 2006, Peter Brinckerhoff, a purported unitholder of TEPPCO, filed
a complaint in the Court of Chancery of New Castle County in the State of
Delaware, in his individual capacity, as a putative class action on behalf of
other unitholders of TEPPCO, and derivatively on behalf of TEPPCO, concerning,
among other things, certain transactions involving TEPPCO and Enterprise
Products Partners or its affiliates. In July 2007, Mr. Brinkerhoff filed an
amended complaint. The amended
complaint
names as defendants (i) TEPPCO, certain of its current and former
directors, and certain of its affiliates; (ii) Enterprise Products Partners
and certain of its affiliates; (iii) EPCO; and (iv) Dan L.
Duncan.
The
amended complaint alleges, among other things, that the defendants caused TEPPCO
to enter into certain transactions that were unfair to TEPPCO or otherwise
unfairly favored Enterprise Products Partners or its affiliates over
TEPPCO. These transactions are alleged to include: (i) the joint
venture to further expand the Jonah system entered into by TEPPCO and
Enterprise Products Partners in August 2006; (ii) the sale by TEPPCO of its
Pioneer natural gas processing plant to Enterprise Products Partners in
March 2006; and (iii) certain amendments to TEPPCO’s partnership agreement,
including a reduction in the maximum tier of TEPPCO’s incentive distribution
rights in exchange for TEPPCO common units. The amended complaint
seeks (i) rescission of the amendments to TEPPCO’s partnership agreement;
(ii) damages for profits and special benefits allegedly obtained by
defendants as a result of the alleged wrongdoings in the amended complaint; and
(iii) awarding plaintiff costs of the action, including fees and expenses
of his attorneys and experts. We believe that the outcome of this
lawsuit will not have a material effect on TEPPCO’s financial position, results
of operations or cash flows.
Energy
Transfer Equity matters. In July 2007, ETP announced that
it was under investigation by the Commodity Futures Trading Commission
(“CFTC”) with respect to whether ETP engaged in manipulation or improper trading
activities in the Houston Ship Channel market around the time of the hurricanes
in the fall of 2005 and other prior periods in order to benefit financially from
commodity financial instrument positions and from certain index-priced physical
gas purchases in the Houston Ship Channel market. In March 2008, ETP
entered into a consent order with the CFTC. Pursuant to this consent
order, ETP agreed to pay the CFTC $10.0 million and the CFTC agreed to release
ETP and its affiliates, directors and employees from all claims or causes of
action asserted by the CFTC in this proceeding. ETP neither admitted nor
denied the allegations made by the CFTC in this proceeding. The settlement
was paid in March 2008.
In July
2007, ETP announced that it was also under investigation by the
Federal Energy Regulatory Commission (the “FERC”) for the same matters noted in
the CFTC proceeding described above. The FERC is also investigating
certain of ETP’s intrastate transportation activities. In July 2007,
the FERC announced that it was taking preliminary action against ETP and
proposed civil penalties of $97.5 million and disgorgement of profits, plus
interest, of $70.1 million. In October 2007, ETP filed a response
with the FERC refuting the FERC’s claims as being fundamentally flawed and
requested a dismissal of the FERC’s proceedings. In February 2008,
the FERC staff recommended an increase in the proposed civil penalties of $25.0
million and disgorgement of profits of $7.3 million. The total amount of civil
penalties and disgorgement of profits sought by the FERC is approximately $200.0
million. In March 2008, ETP responded to the FERC staff regarding the
recommended increase in the proposed civil penalties. In April 2008,
the FERC staff filed an answer to ETP’s March 2008 pleading. The FERC
has not taken any actions related to the recommendations of its staff with
respect to the proposed increase in civil penalties. In May 2008, the
FERC ordered hearings to be conducted by FERC administrative law judges with
respect to the FERC’s intrastate transportation claims and market manipulation
claims. The hearing related to the intrastate transportation claims
is scheduled to commence in December 2008 with the administrative law judge’s
initial decision due in April 2009 and the hearing related to the market
manipulation claims is scheduled to commence in April 2009 with the
administrative law judge’s initial decision due in October 2009. The
FERC denied ETP’s request for dismissal of the proceeding and has ordered that,
following completion of the hearings, the administrative law judge make
recommendations with respect to whether ETP engaged in market manipulation in
violation of the Natural Gas Act and FERC regulations, and, whether ETP violated
the Natural Gas Policy Act (“NGPA”) and FERC regulations related to ETP’s
intrastate transportation activities. The FERC reserved for itself
the issues of possible civil penalties, revocation of ETP’s blanket market
certificate, method by which ETP would disgorge any unjust profits and whether
any conditions should be placed on ETP’s NGPA Section 311
authorization. Following the issuance of each of the adminstrative
law judges’ initial decisions, the FERC would then issue an order with respect
to each of these matters. ETP management has stated that it expects
that the FERC will require a payment in order to conclude these investigations
on a negotiated settlement basis.
In
addition to the CFTC and FERC, third parties have asserted claims, and may
assert additional claims, against Energy Transfer Equity and ETP for damages
related to the aforementioned matters. Several natural gas producers
and a natural gas marketing company have initiated legal proceedings against
Energy Transfer Equity and ETP in Texas state courts for claims related to the
FERC claims. These suits contain contract and tort claims relating to
the alleged manipulation of natural gas prices at the Houston Ship Channel and
the Waha Hub in West Texas, as well as the natural gas price indices related to
these markets and the Permian Basin natural gas price index during the period
from December 2003 through December 2006, and seek unspecified direct, indirect,
consequential and exemplary damages. One of the suits against Energy
Transfer Equity and ETP contains an additional allegation that the defendants
transported natural gas in a manner that favored their affiliates and
discriminated against the plaintiff, and otherwise artificially affected the
market price of natural gas to other parties in the market. ETP has
also been served with a complaint from an owner of royalty interests in natural
gas producing properties, individually and on behalf of a putative class of
similarly situated royalty owners, working interest owners and
producers/operators, seeking arbitration to recover damages based on alleged
manipulation of natural gas prices at the Houston Ship Channel. ETP
filed an original action in Harris County, Texas seeking a stay of the
arbitration on the grounds that the action is not arbitrable. The
claimants have agreed to a stay of the arbitration pending briefing on
cross-motions for summary judgment in the state court
proceeding. Briefing and a hearing on these cross-motions is expected
to be completed in August 2008.
A
consolidated class action complaint has been filed against ETP and certain
affiliates in the United States District Court for the Southern District of
Texas. This action alleges that ETP engaged in intentional and unlawful
manipulation of the price of natural gas futures and options contracts on the
NYMEX in violation of the Commodity Exchange Act (“CEA”). It is further alleged
that during the class period December 2003 to December 2005, ETP had
the market power to manipulate index prices, and that ETP used this market power
to artificially depress the index prices at major natural gas trading hubs,
including the Houston Ship Channel, in order to benefit its natural gas physical
and financial trading positions and intentionally submitted price and volume
trade information to trade publications. This complaint also alleges that ETP
also violated the CEA because ETP knowingly aided and abetted violations of the
CEA. This action alleges that the unlawful depression of index prices by ETP
manipulated the NYMEX prices for natural gas futures and options contracts to
artificial levels during the period stipulated in the complaint, causing
unspecified damages to the plaintiff and all other members of the putative class
who purchased and/or sold natural gas futures and options contracts on the NYMEX
during the period. This class action complaint consolidated two class actions
which were pending against ETP. Following the consolidation order, the
plaintiffs who had filed these two earlier class actions filed a consolidated
complaint. They have requested certification of their suit as a class
action, unspecified damages, court costs and other appropriate
relief. In January 2008, ETP filed a motion to dismiss this suit
on the grounds of failure to allege facts sufficient to state a
claim. In March 2008, the plaintiffs filed a second consolidated
class action complaint. In response to this new pleading, ETP filed a
motion to dismiss this complaint in May 2008. In June 2008, the
plaintiffs filed a response opposing ETP’s motion to dismiss.
In March
2008, another class action complaint was filed against ETP in the United States
District Court for the Southern District of Texas. This action
alleges that ETP engaged in unlawful restraint of trade and intentional
monopolization and attempted monopolization of the market for fixed-price
natural gas baseload transactions at the Houston Ship Channel from December 2003
through December 2005 in violation of federal antitrust law. The
complaint further alleges that during this period ETP exerted monopolistic power
to suppress the price of these transactions to non-competitive levels in order
to benefit from its own physical natural gas positions. The plaintiff
has, individually and on behalf of all other similarly situated sellers of
physical natural gas, requested certification of its suit as a class action and
seeks unspecified treble damages, court costs and other appropriate
relief. In May 2008, ETP filed a motion to dismiss this
complaint.
At this
time, ETE is unable to predict the outcome of these matters; however, it is
possible that the amount it becomes obliged to pay as a result of the final
resolution of these matters, whether on a negotiated settlement basis or
otherwise, will exceed the amount of its existing accrual related to these
matters.
ETP
disclosed in its quarterly report on Form 10-Q for the six months ended June 30,
2008 that its accrued amounts for contingencies and current litigation matters
(excluding environmental matters) aggregated $20.4 million at June 30,
2008. Since ETP’s accrual amounts are non-cash, any cash payment of
an amount in resolution of these matters would likely be made from its operating
cash flows or from borrowings. If these payments are substantial, ETP and,
ultimately, our investee, Energy Transfer Equity, may experience a material
adverse impact on their results of operations, cash available for distribution
and liquidity.
Contractual
Obligations
Scheduled
Maturities of Long-Term Debt. With the exception of the
issuance of senior notes by TEPPCO and EPO and routine fluctuations in the
balance of our consolidated revolving credit facilities, there have been no
significant changes in our consolidated scheduled maturities of long-term debt
since those reported in Enterprise GP Holdings’ Annual Report on Form 10-K for
the year ended December 31, 2007. See Note 11 for additional
information regarding the issuance of senior notes by TEPPCO in March 2008 and
EPO in April 2008.
Operating
Lease Obligations. We lease certain
property, plant and equipment under noncancelable and cancelable operating
leases. Our significant lease agreements involve (i) the lease of
underground caverns for the storage of natural gas and NGLs, (ii) leased office
space with affiliates of EPCO, (iii) a railcar unloading terminal in Mont
Belvieu, Texas and (iv) land held pursuant to right-of-way
agreements. In general, our material lease agreements have original
terms that range from two to 28 years and include renewal options that could
extend the agreements for up to an additional 20 years.
There
have been no material changes in our operating lease commitments since December
31, 2007.
Purchase
Obligations. There have been no material changes in our consolidated
purchase obligations since December 31, 2007, except for commitments associated
with a new long-term natural gas purchase agreement executed in May 2008 in
connection with Enterprise Products Partners’ natural gas marketing
activities. Under this agreement, Enterprise Products Partners will
purchase 30,000 MMbtus of natural gas per day extending through March 2013, at
market-related prices at the time Enterprise Products Partners takes delivery of
the volumes. Our estimated future payment obligations under this
agreement (based on market prices at June 30, 2008 applied to all future volume
commitments) are $68.3 million in 2008, $135.5 million in each of the years 2009
through 2011, $135.8 million in 2012 and $33.4 million in
2013. Actual future payments obligations will vary depending on
market prices at the time of delivery.
Other
Claims
As part of our normal business
activities with joint venture partners and certain customers and suppliers, we
occasionally have claims made against us as a result of disputes related to
contractual agreements or similar arrangements. As of June 30, 2008,
claims against us totaled approximately $37.0 million. These matters
are in various stages of assessment and the ultimate outcome of such disputes
cannot be reasonably estimated. However, in our opinion, the
likelihood of a material adverse outcome related to disputes against us is
remote. Accordingly, accruals for loss contingencies related to these
matters, if any, that might result from the resolution of such disputes have not
been reflected in our consolidated financial statements.
The
following table summarizes the proceeds Enterprise Products Partners received
from business interruption and property damage insurance claims with respect to
certain named storms for the six months ended June 30, 2008:
Business
interruption proceeds:
|
|
|
|
Hurricane
Katrina
|
|
$ |
501 |
|
Hurricane
Rita
|
|
|
662 |
|
Total
proceeds
|
|
|
1,163 |
|
Property
damage proceeds:
|
|
|
|
|
Hurricane
Katrina
|
|
|
6,909 |
|
Hurricane
Rita
|
|
|
2,678 |
|
Total
proceeds
|
|
|
9,587 |
|
Total
|
|
$ |
10,750 |
|
At June
30, 2008, Enterprise Products Partners had $24.6 million of estimated property
damage claims outstanding related to these storms that we believe are probable
of collection through 2009. To the extent we estimate the dollar
value of such damages, please be aware that a change in our estimates may occur
as additional information becomes available.
Acquisition
of Remaining Interest in Dixie
In August 2008, Enterprise Products
Partners acquired the remaining 25.8% ownership interests in Dixie and a related
terminals and storage company. Following this transaction, Enterprise
Products Partners owns 100% of Dixie, which owns a 1,300-mile pipeline system
that delivers propane to customers along the U.S. Gulf Coast and southeastern
United States.
Amendments
to certain Employee Partnership agreements
In July
2008, EPE Unit I, EPE Unit II and EPE Unit III each entered into a second
amendment to agreement of limited partnership (“Second
Amendment”). The Second Amendments for EPE Unit I and EPE Unit II
provide for the reduction of the rate at which the Class A Limited Partner, DFI,
earns a preferred return on its investment in EPE Unit I and EPE Unit II (“Class
A Preference Return Rate”). The Class A Preference Return Rate in
each of these two limited partnership agreements was reduced from 6.25% to a
floating preference rate to be determined by EPCO, in its sole discretion, that
will be between 4.50% and 5.725% per annum. The Second Amendment for
EPE Unit I and EPE Unit II also provides that the liquidation date for these
partnerships be extended to November 2012 and February 2014,
respectively. The Second Amendment for EPE Unit III extends the
liquidation date to May 2014.