e424b3
The
information in this preliminary prospectus supplement is not
complete and may be changed. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities, and we are not soliciting an offer to buy
these securities in any jurisdiction where the offer or sale is
not permitted.
|
Filed
Pursuant to Rule 424(b)(3)
Registration No. 333-168049
333-168049-01
Subject To Completion, dated
January 4, 2011
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus dated
November 29, 2010)
Enterprise Products Operating
LLC
$ %
Senior Notes due 2016
$ %
Senior Notes due 2041
Unconditionally Guaranteed
by
Enterprise Products Partners
L.P.
This prospectus supplement relates to our offering of two series
of senior notes. The senior notes due 2016, which we refer to as
2016 notes, will bear interest at the rate
of % per year and will mature
on ,
2016. The senior notes due 2041, which we refer to as 2041
notes, will bear interest at the rate
of % per year and will mature
on ,
2041. We refer to the 2016 notes and 2041 notes, collectively,
as the notes. We will pay interest on the 2016 notes
on
and
of each year,
beginning ,
2011. We will pay interest on the 2041 notes
on and
of each year,
beginning ,
2011. We may redeem some or all of the notes at any time at the
applicable redemption price described beginning on
page S-26
of this prospectus supplement, which includes a make-whole
premium.
The notes are unsecured and rank equally with all other senior
indebtedness of Enterprise Products Operating LLC (successor to
Enterprise Products Operating L.P.). The notes will be
guaranteed by our parent, Enterprise Products Partners L.P., and
in certain circumstances may be guaranteed in the future on the
same basis by one or more subsidiary guarantors.
The notes will not be listed on any securities exchange.
Investing in the notes involves certain risks. See Risk
Factors beginning on
page S-16
of this prospectus supplement and on page 2 of the
accompanying prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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2016 Notes
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2041 Notes
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Per Note
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Total
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Per Note
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Total
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Public Offering Price(1)
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%
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$
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%
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$
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Underwriting Discount
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%
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$
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%
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$
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Proceeds to Enterprise Products Operating LLC (before expenses)
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%
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$
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%
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$
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(1) |
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Plus accrued interest from January , 2011, if
settlement occurs after that date. |
The underwriters expect to deliver the notes in book-entry form
only, through the facilities of The Depository Trust Company,
against payment on January , 2011, the seventh
trading day after the date of this prospectus.
Joint Book-Running
Managers
Co-Managers
The date of this prospectus supplement is
January , 2011.
TABLE OF
CONTENTS
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Page
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Prospectus Supplement
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S-1
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S-16
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S-20
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S-21
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S-24
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S-29
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S-34
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S-35
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S-37
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S-37
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S-38
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S-38
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F-1
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Prospectus
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About This Prospectus
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1
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Our Company
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1
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Risk Factors
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2
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Use of Proceeds
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3
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Ratio of Earnings to Fixed Charges
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3
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Description of Debt Securities
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4
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Description of Our Common Units
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18
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Cash Distribution Policy
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20
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Description of Our Partnership Agreement
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21
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Material Tax Consequences
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27
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Investment in Enterprise Products Partners L.P. by Employee
Benefit Plans
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42
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Plan of Distribution
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43
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Where You Can Find More Information
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43
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Forward-Looking Statements
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44
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Legal Matters
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45
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Experts
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45
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Important
Notice About Information in This
Prospectus Supplement and the Accompanying Prospectus
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of notes
and certain terms of the notes and the guarantee. The second
part is the accompanying prospectus, which describes certain
terms of the indenture under which the notes will be issued and
which gives more general information, some of which may not
apply to this offering of notes.
If the information varies between this prospectus supplement and
the accompanying prospectus, you should rely on the information
in this prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus or any free writing prospectus prepared
by or on behalf of us. We have not authorized anyone to provide
you with additional or different information. We are not making
an offer to sell these notes or the guarantee in any
jurisdiction where the offer is not permitted. You should not
assume that the information contained in this prospectus
supplement or the accompanying prospectus is accurate as of any
date other than the date on the front of this document or that
any information we have incorporated by reference is accurate as
of any date other than the date of the document incorporated by
reference. Our business, financial condition, results of
operations and prospects may have changed since these dates.
We expect delivery of the notes will be made against payment
therefor on or
about ,
2011, which is the seventh business day following the date of
pricing of the notes (such settlement being referred to as
T+7). Under
Rule 15c6-1
of the Securities Exchange Act of 1934, trades in the secondary
market generally are required to settle in three business days
unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the notes on the date
of pricing of the notes or the next succeeding three business
days will be required, by virtue of the fact that the notes
initially will settle in T+7, to specify an alternate settlement
cycle at the time of any such trade to prevent failed settlement
and should consult their own advisers.
S-i
SUMMARY
This summary highlights information from this prospectus
supplement and the accompanying prospectus to help you
understand our business, the notes and the guarantee. It does
not contain all of the information that is important to you. You
should read carefully the entire prospectus supplement, the
accompanying prospectus, the documents incorporated by reference
and the other documents to which we refer for a more complete
understanding of this offering and our business. You should read
Risk Factors beginning on
page S-16
of this prospectus supplement and page 2 of the
accompanying prospectus for more information about important
risks that you should consider before making a decision to
purchase notes in this offering.
Enterprise Products Partners L.P. (which we refer to as
Enterprise Parent) conducts substantially all of its
business through Enterprise Products Operating LLC (successor to
Enterprise Products Operating L.P.) (which we refer to as
Enterprise) and the subsidiaries and unconsolidated
affiliates of Enterprise. Accordingly, in the sections of this
prospectus supplement that describe the business of Enterprise
and Enterprise Parent, unless the context otherwise indicates,
references to Enterprise, us,
we, our and like terms refer to
Enterprise Products Operating LLC together with its wholly owned
subsidiaries, Duncan Energy Partners L.P. (NYSE: DEP)
(Duncan Energy Partners), a publicly traded,
consolidated subsidiary of Enterprise, and Enterprises
investments in unconsolidated affiliates. Enterprise is the
borrower under substantially all of the consolidated
companys credit facilities (except for credit facilities
of Duncan Energy Partners and certain unconsolidated affiliates)
and is the issuer of substantially all of the companys
publicly traded notes, all of which are guaranteed by Enterprise
Parent. Enterprises financial results do not differ
materially from those of Enterprise Parent; the number and
dollar amount of reconciling items between Enterprises
consolidated financial statements and those of Enterprise Parent
are insignificant. All financial results presented in this
prospectus supplement are those of Enterprise Parent. The pro
forma financial information presented in this prospectus
supplement gives effect to the recent merger of Enterprise GP
Holdings L.P. (Holdings) with a subsidiary of
Enterprise Parent as described under Recent
Developments in this Summary section.
The notes are solely obligations of Enterprise and, to the
extent described in this prospectus supplement, are guaranteed
by Enterprise Parent. Accordingly, in the other sections of this
prospectus supplement, including The Offering and
Description of the Notes, unless the context
otherwise indicates, references to Enterprise,
us, we, our and like terms
refer to Enterprise Products Operating LLC and do not include
any of its subsidiaries or unconsolidated affiliates or
Enterprise Parent. Likewise, in such sections, unless the
context otherwise indicates, including with respect to financial
and operating information that is presented on a consolidated
basis, Enterprise Parent and Parent
Guarantor refer to Enterprise Products Partners L.P. and
not its subsidiaries or unconsolidated affiliates.
Enterprise
and Enterprise Parent
Overview
We are a leading North American provider of midstream energy
services to producers and consumers of natural gas, natural gas
liquids (NGLs), crude oil, refined products and
petrochemicals. Our midstream energy asset network links
producers of natural gas, NGLs and crude oil from some of the
largest supply basins in the United States, Canada and the Gulf
of Mexico with domestic consumers and international markets.
Our midstream energy operations include: natural gas
transportation, gathering, treating, processing and storage; NGL
transportation, fractionation, storage, and import and export
terminaling; crude oil and refined products transportation,
storage and terminaling; offshore production platforms;
petrochemical transportation and services; and a marine
transportation business that operates primarily on the United
States inland and Intracoastal Waterway systems and in the Gulf
of Mexico. NGL products (ethane, propane, normal butane,
isobutane and natural gasoline) are used as raw materials by the
petrochemical industry, as feedstocks by refiners in the
production of motor gasoline and as fuel by industrial and
residential users. Our portfolio of integrated assets includes
approximately: 49,100 miles of natural gas, NGL, crude oil,
refined products and
S-1
petrochemical pipelines; 200 million barrels
(MMBbls) of NGL, refined products and crude oil
storage capacity; 27 billion cubic feet (Bcf)
of natural gas storage capacity; and 25 natural gas processing
plants. In addition, our asset portfolio includes 19
fractionation facilities, six offshore hub platforms located in
the Gulf of Mexico, a butane isomerization complex, NGL import
and export terminals, and an octane enhancement facility.
For the year ended December 31, 2009 and the nine months
ended September 30, 2010, Enterprise Parent had pro forma
consolidated revenues of $25.5 billion and
$24.2 billion, operating income of $1.9 billion and
$1.6 billion, and net income from continuing operations of
$1.1 billion and $1.1 billion, respectively.
Our principal offices, including those of Enterprise Parent, are
located at 1100 Louisiana Street, 10th Floor, Houston,
Texas 77002, and our and Enterprise Parents telephone
number is
(713) 381-6500.
Our
Business Segments
We have six reportable business segments: (i) NGL
Pipelines & Services; (ii) Onshore Natural Gas
Pipelines & Services; (iii) Onshore Crude Oil
Pipelines & Services; (iv) Offshore
Pipelines & Services;
(v) Petrochemical & Refined Products Services;
and (vi) Other Investments. Our business segments are
generally organized and managed along our asset base according
to the type of services rendered (or technologies employed) and
products produced
and/or sold.
We provide midstream energy services through our subsidiaries
and unconsolidated affiliates.
NGL Pipelines & Services. Our NGL
Pipelines & Services business segment includes our
(i) natural gas processing business and related NGL
marketing activities, (ii) NGL pipelines aggregating
approximately 16,300 miles, (iii) NGL and related
product storage and terminal facilities with 163.4 MMBbls
of working storage capacity and (iv) NGL fractionation
facilities. This segment also includes our import and export
terminal operations.
Onshore Natural Gas Pipelines &
Services. Our Onshore Natural Gas
Pipelines & Services business segment includes
approximately 19,600 miles of onshore natural gas pipeline
systems that provide for the gathering and transportation of
natural gas in Alabama, Colorado, Louisiana, Mississippi, New
Mexico, Texas and Wyoming. We own two salt dome natural gas
storage facilities located in Mississippi and lease natural gas
storage facilities located in Texas and Louisiana. This segment
also includes our related natural gas marketing activities.
Onshore Crude Oil Pipelines &
Services. Our Onshore Crude Oil
Pipelines & Services business segment includes
approximately 4,400 miles of onshore crude oil pipelines
and 10.5 MMBbls of above-ground storage tank capacity. This
segment also includes our crude oil marketing activities.
Offshore Pipelines & Services. Our
Offshore Pipelines & Services business segment serves
some of the most active drilling development regions, including
deepwater production fields in the northern Gulf of Mexico
offshore Texas, Louisiana, Mississippi and Alabama. This segment
includes approximately 1,400 miles of offshore natural gas
pipelines, approximately 1,000 miles of offshore crude oil
pipelines and six offshore hub platforms.
Petrochemical & Refined Products
Services. Our Petrochemical & Refined
Products Services business segment consists of
(i) propylene fractionation plants and related activities,
(ii) butane isomerization facilities, (iii) an octane
enhancement facility, (iv) refined products pipelines,
including our Products Pipeline System and related activities
and (v) marine transportation and other services.
Other Investments. On November 22, 2010,
we completed the merger with Holdings and, as a result, our
financial results include a sixth segment, Other Investments,
which consists of Holdings noncontrolling ownership
interests in Energy Transfer Equity, L.P. (Energy Transfer
Equity), a publicly traded limited partnership (NYSE:
ETE). In May 2007, Holdings acquired 38,976,090 common units of
Energy Transfer Equity, which it accounts for using the equity
method of accounting.
S-2
Recent
Developments
Enterprise
Parent Issues 13,225,000 Common Units.
In December 2010, Enterprise Parent issued 13,225,000 common
units representing limited partner interests (including an
over-allotment of 1,725,000 common units) to the public at an
offering price of $41.25 per unit. We used the net cash proceeds
of approximately $528.3 million to temporarily reduce
borrowings under our multi-year revolving credit facility.
Merger
of Enterprise GP Holdings L.P. with a Subsidiary of Enterprise
Parent
On November 22, 2010, Enterprise Parent completed the
merger of Holdings, the holder of 100% of the membership
interests in Enterprise Parents prior general partner,
with and into a wholly owned subsidiary of ours (the
Holdings Merger). At the effective time of the
Holdings Merger, EPE Holdings, LLC, the former general partner
of Holdings (Holdings GP), succeeded as the general
partner of Enterprise Parent, and each unit representing limited
partner interests in Holdings issued and outstanding was
cancelled and converted into the right to receive Enterprise
Parent common units based on an exchange rate of 1.50 Enterprise
Parent common units per Holdings unit. Enterprise Parent issued
an aggregate of 208,813,454 common units (net of 23 fractional
common units cashed out) as consideration in the Holdings Merger
and, immediately after the merger, cancelled 21,563,177
Enterprise Parent common units previously owned by Holdings.
In connection with the Holdings Merger, Enterprise Parents
partnership agreement was amended and restated to effect the
cancellation of its general partners 2% economic general
partner interest in Enterprise Parent and the incentive
distribution rights held by Holdings general partner.
Holdings GP succeeded as the non-economic general partner of
Enterprise Parent and was subsequently renamed Enterprise
Products Holdings LLC (Enterprise GP).
In connection with the Holdings Merger, an affiliate of
Enterprise Products Company (EPCO) agreed to
designate and waive its rights to quarterly distributions of
available cash with respect to a specified number of
Enterprise Parent common units over a five-year period:
30,610,000 common units during 2011; 26,130,000 common units
during 2012; 23,700,000 common units during 2013; 22,560,000
common units during 2014; and 17,690,000 common units during
2015.
For information regarding the pro forma effects of the Holdings
Merger, please read the Unaudited Pro Forma Condensed
Consolidated Financial Statements beginning on
page F-1
of this prospectus supplement.
S-3
Organizational
Structure
The following chart depicts our current organizational structure
and ownership.
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(1) |
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Includes Enterprise Parent common units beneficially owned by
the estate of Dan L. Duncan, related family trusts and other
EPCO affiliates. DDLLC, a private affiliate of EPCO that owns
100% of the membership interests in our general partner, and
EPCO are each controlled by separate voting trusts. The voting
trustees of each of these voting trusts consist of three
individuals, currently Randa Duncan Williams, Richard H.
Bachmann and Dr. Ralph S. Cunningham. Accordingly, the common
units beneficially owned by DDLLC and EPCO are now controlled by
each of the respective voting trusts. Ms. Williams also has
beneficial ownership in these common units to the extent of her
pecuniary interest in DDLLC and EPCO. Ms. Williams,
Mr. Bachmann and Dr. Cunningham are also co-executors
of the estate of Dan L. Duncan. |
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Also includes 20,881 common units owned directly by
Enterprise GP, and 4,520,431 Class B units held by a
privately held affiliate of EPCO. The Class B units are
entitled to vote together with the common units as a single
class on partnership matters and have the same rights and
privileges as our common units, except that they are not
entitled to regular quarterly cash distributions for the first
sixteen quarters following the closing date of our merger with
TEPPCO Partners, L.P., which occurred on October 26, 2009.
The Class B units automatically convert into the same
number of common units on the date immediately following the
payment date for the sixteenth quarterly distribution following
the closing date of the TEPPCO merger. |
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There are currently 30,610,000 common units subject to a
distribution waiver agreement. Please read
Summary Recent Developments Merger
of Enterprise GP Holdings L.P. with a Subsidiary of Enterprise
Parent for a description of this agreement. |
S-4
The
Offering
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Issuer |
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Enterprise Products Operating LLC |
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Guarantee |
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The notes will be fully and unconditionally guaranteed by the
Parent Guarantor on an unsecured and unsubordinated basis.
Initially, the notes will not be guaranteed by any of our
subsidiaries. In the future, however, if any of our subsidiaries
become guarantors or co-obligors of our funded debt (as defined
in the indenture), then these subsidiaries will jointly and
severally, fully and unconditionally, guarantee our payment
obligations under the notes. Please read Description of
the Notes Parent Guarantee. |
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Securities Offered |
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$ aggregate principal amount
of % senior notes due 2016.
$ aggregate principal amount
of % senior notes due 2041. |
|
Interest |
|
The 2016 notes will bear interest
at % per annum. The 2041 notes will
bear interest at % per annum. All
interest on the 2016 notes will accrue from and including
January , 2011 and all interest on the 2041
notes will accrue from and including January ,
2011. |
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Interest Payment Dates |
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Interest on the 2016 notes will be paid in cash semi-annually in
arrears
on and
of each year,
beginning ,
2011. Interest on the 2041 notes will be paid in cash
semi-annually in arrears
on and
of each year,
beginning ,
2011. |
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Maturity |
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2016
notes ,
2016. |
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2041
notes ,
2041. |
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Use of Proceeds |
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We will receive aggregate net proceeds of approximately
$ million from the sale of
the notes to the underwriters after deducting the
underwriters discount and other offering expenses payable
by us. We expect to use the net proceeds of this offering to
temporarily reduce borrowings under our multi-year revolving
credit facility, to repay outstanding amounts on the maturity of
our $450 million principal amount of senior notes B
due February 2011, and for general company purposes. Affiliates
of certain of the underwriters are lenders under our multi-year
revolving credit facility and, accordingly, will receive a
substantial portion of the proceeds of this offering. Please
read Use of Proceeds and Underwriting. |
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Ranking |
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The notes will be our unsecured and unsubordinated obligations
and will rank equally with all of our other existing and future
unsubordinated indebtedness. Please read Description of
the Notes Ranking. |
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Optional Redemption |
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We may redeem the notes in whole, at any time, or in part, from
time to time, prior to maturity, at a redemption price that
includes accrued and unpaid interest and a make-whole premium.
For a more complete description of the redemption provisions of
the notes, please read Description of the
Notes Optional Redemption. |
S-5
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Certain Covenants |
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We will issue the notes under an Indenture (as defined below)
with Wells Fargo Bank, N.A., as trustee. The Indenture covenants
include a limitation on liens and a restriction on
sale-leasebacks. Each covenant is subject to a number of
important exceptions, limitations and qualifications that are
described under Description of Debt Securities
Certain Covenants in the accompanying prospectus. |
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Risk Factors |
|
Investing in the notes involves certain risks. You should
carefully consider the risk factors discussed under the heading
Risk Factors beginning on
page S-16
of this prospectus supplement and on page 2 of the
accompanying prospectus and the other information contained or
incorporated by reference in this prospectus supplement and the
accompanying prospectus before deciding to invest in the notes. |
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Book-Entry Form/Denominations |
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The notes of each series will be issued in denominations of
$1,000 and integral multiples thereof in book-entry form and
will be represented by one or more permanent global certificates
deposited with, or on behalf of, The Depository
Trust Company (DTC) and registered in the name
of a nominee of DTC. Beneficial interests in any of the notes
will be shown on, and transfers will be effected only through,
records maintained by DTC or its nominee and any such interest
may not be exchanged for certificated securities, except in
limited circumstances. |
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Trading |
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We will not list the notes for trading on any securities
exchange. |
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Trustee |
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Wells Fargo Bank, National Association |
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Governing Law |
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The notes and the Indenture will be governed by, and construed
in accordance with, the laws of the State of New York. |
S-6
Summary
Historical and Pro Forma Financial and
Operating Information of Enterprise Parent and Holdings
The following tables set forth, for the periods and at the dates
indicated, summary historical financial and operating
information for Enterprise Parent and Holdings prior to the
Holdings Merger and summary unaudited pro forma financial
information for Enterprise Parent after giving effect to the
Holdings Merger and related transactions. The summary historical
financial data as of and for each of the years ended
December 31, 2007, 2008 and 2009 are derived from and
should be read in conjunction with the audited financial
statements and accompanying footnotes of Enterprise Parent and
Holdings, respectively. The summary historical financial data as
of and for the nine month periods ended September 30, 2009
and 2010 are derived from and should be read in conjunction with
the unaudited financial statements and accompanying footnotes of
Enterprise Parent and Holdings, respectively.
Enterprise Parents consolidated balance sheets as of
December 31, 2008 and 2009 and as of September 30,
2010, and the related statements of consolidated operations,
comprehensive income, cash flows and equity for each of the
three years in the period ended December 31, 2009 and the
nine months ended September 30, 2010 and 2009 are
incorporated by reference into this prospectus supplement from
its annual report on
Form 10-K
for the year ended December 31, 2009, and its quarterly
report on
Form 10-Q
for the period ended September 30, 2010. Holdings
consolidated balance sheets as of December 31, 2008 and
2009 and as of September 30, 2010, and the related
statements of consolidated operations, comprehensive income,
cash flows and equity for each of the three years in the period
ended December 31, 2009 and the nine months ended
September 30, 2010 and 2009 are incorporated by reference
into this prospectus supplement from Enterprise Parents
current reports on
Form 8-K
and 8-K/A
filed on November 23, 2010.
The summary unaudited pro forma condensed consolidated financial
statements of Enterprise Parent give pro forma effect to the
Holdings Merger and related transactions, which closed on
November 22, 2010. Holdings will be treated as the
surviving consolidated entity for accounting purposes, even
though Enterprise Parent will be the surviving consolidated
entity for legal and reporting purposes. For financial
accounting and reporting purposes, Holdings is considered the
accounting acquiror of its noncontrolling interests in
Enterprise Parent (i.e., Enterprise Parents limited
partner interests that are owned by third parties and related
parties other than Holdings).
The unaudited pro forma condensed consolidated financial
statements have been prepared to assist in the analysis of the
financial effects of the Holdings Merger and related
transactions. The unaudited pro forma condensed statements of
consolidated operations for the nine months ended
September 30, 2010 and the year ended December 31,
2009 assume the Holdings Merger and related transactions
occurred on January 1, 2009. The unaudited pro forma
condensed consolidated balance sheet shows the financial effects
of the Holdings Merger and related transactions as if they
occurred on September 30, 2010. The unaudited pro forma
condensed consolidated financial statements are based upon
assumptions that Enterprise Parent believes are reasonable under
the circumstances and are intended for informational purposes
only. They are not necessarily indicative of the financial
results that would have occurred if the Holdings Merger and
related transactions had taken place on the dates indicated, nor
are they indicative of the future consolidated results of the
combined entity. For a complete discussion of the pro forma
adjustments, please read the section titled Index to
Unaudited Pro Forma Condensed Consolidated Financial
Statements beginning on
page F-1
of this document.
Enterprise Parents non-generally accepted accounting
principles, or non-GAAP, financial measures of gross operating
margin and Adjusted EBITDA are presented in the summary
historical and pro forma financial information. Please read
Non GAAP Financial Measures, which
provides the necessary explanations and reconciliations for the
non-GAAP financial measures.
S-7
Summary
Historical and Pro Forma Financial and Operating Information of
Enterprise Parent
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Enterprise Parent Consolidated Historical
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Enterprise Parent Pro Forma
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For the Year Ended
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For the Year Ended December 31,
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December 31,
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2007
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2008
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2009
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2009
|
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(Unaudited)
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(Dollars in millions, except per unit amounts)
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Income statement data:
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Revenues
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$
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26,713.8
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|
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$
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35,469.6
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$
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25,510.9
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$
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25,510.9
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Costs and expenses
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25,529.3
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33,756.1
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23,738.1
|
|
|
|
23,748.6
|
|
Equity in income of unconsolidated affiliates
|
|
|
10.5
|
|
|
|
34.9
|
|
|
|
51.2
|
|
|
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,195.0
|
|
|
|
1,748.4
|
|
|
|
1,824.0
|
|
|
|
1,854.6
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(413.0
|
)
|
|
|
(540.7
|
)
|
|
|
(641.8
|
)
|
|
|
(687.3
|
)
|
Other, net
|
|
|
71.7
|
|
|
|
12.2
|
|
|
|
(1.8
|
)
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(341.3
|
)
|
|
|
(528.5
|
)
|
|
|
(643.6
|
)
|
|
|
(689.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
853.7
|
|
|
|
1,219.9
|
|
|
|
1,180.4
|
|
|
|
1,165.6
|
|
Provision for income taxes
|
|
|
(15.7
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
838.0
|
|
|
|
1,188.9
|
|
|
|
1,155.1
|
|
|
|
1,140.3
|
|
Net income attributable to noncontrolling interests
|
|
|
(304.4
|
)
|
|
|
(234.9
|
)
|
|
|
(124.2
|
)
|
|
|
(110.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Enterprise Parent
|
|
$
|
533.6
|
|
|
$
|
954.0
|
|
|
$
|
1,030.9
|
|
|
$
|
1,029.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
0.95
|
|
|
$
|
1.84
|
|
|
$
|
1.73
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
0.95
|
|
|
$
|
1.84
|
|
|
$
|
1.73
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit (declared with respect to period)
|
|
$
|
1.9475
|
|
|
$
|
2.0750
|
|
|
$
|
2.1950
|
|
|
$
|
2.1950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
22,515.5
|
|
|
$
|
24,211.6
|
|
|
$
|
26,151.6
|
|
|
|
n/a
|
|
Total long-term debt, including current maturities
|
|
|
8,771.1
|
|
|
|
11,637.9
|
|
|
|
11,346.4
|
|
|
|
n/a
|
|
Total equity
|
|
|
9,016.5
|
|
|
|
9,295.9
|
|
|
|
10,042.3
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,953.6
|
|
|
$
|
1,567.1
|
|
|
$
|
2,377.2
|
|
|
|
n/a
|
|
Cash used in investing activities
|
|
|
2,871.8
|
|
|
|
3,246.9
|
|
|
|
1,546.9
|
|
|
|
n/a
|
|
Cash provided by (used in) financing activities
|
|
|
946.3
|
|
|
|
1,690.7
|
|
|
|
(837.1
|
)
|
|
|
n/a
|
|
Distributions received from unconsolidated affiliates
|
|
|
87.0
|
|
|
|
80.8
|
|
|
|
86.6
|
|
|
|
n/a
|
|
Total gross operating margin(1)
|
|
|
1,964.4
|
|
|
|
2,609.0
|
|
|
|
2,839.8
|
|
|
$
|
2,880.9
|
|
Adjusted EBITDA(1)
|
|
|
2,004.6
|
|
|
|
2,546.1
|
|
|
|
2,686.1
|
|
|
|
2,759.9
|
|
|
|
|
(1) |
|
Unaudited. Please read Non-GAAP Financial
Measures beginning on
page S-13
for a reconciliation of non-GAAP gross operating margin and
Adjusted EBITDA to their most closely-related GAAP measures. |
S-8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Parent
|
|
|
Enterprise Parent
|
|
|
|
Consolidated Historical
|
|
|
Pro Forma
|
|
|
|
For the Nine Months
|
|
|
For the Nine Months
|
|
|
|
Ended September 30,
|
|
|
Ended September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions, except per unit amounts)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
17,110.6
|
|
|
$
|
24,155.7
|
|
|
$
|
24,155.7
|
|
Costs and expenses
|
|
|
15,930.2
|
|
|
|
22,537.7
|
|
|
|
22,557.1
|
|
Equity in income of unconsolidated affiliates
|
|
|
32.0
|
|
|
|
50.2
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,212.4
|
|
|
|
1,668.2
|
|
|
|
1,641.8
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(472.0
|
)
|
|
|
(496.9
|
)
|
|
|
(529.1
|
)
|
Other, net
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(469.8
|
)
|
|
|
(495.1
|
)
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
742.6
|
|
|
|
1,173.1
|
|
|
|
1,114.5
|
|
Provision for income taxes
|
|
|
(26.8
|
)
|
|
|
(20.1
|
)
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
715.8
|
|
|
|
1,153.0
|
|
|
|
1,094.4
|
|
Net income attributable to noncontrolling interests
|
|
|
(91.0
|
)
|
|
|
(46.1
|
)
|
|
|
(46.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Enterprise Parent
|
|
$
|
624.8
|
|
|
$
|
1,106.9
|
|
|
$
|
1,048.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
1.09
|
|
|
$
|
1.45
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
1.09
|
|
|
$
|
1.44
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit (declared with respect to period)
|
|
$
|
1.6350
|
|
|
$
|
1.7250
|
|
|
$
|
1.7250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
25,931.2
|
|
|
$
|
28,472.7
|
|
|
$
|
29,929.7
|
|
Total long-term debt, including current maturities
|
|
|
11,999.2
|
|
|
|
12,704.8
|
|
|
|
13,790.1
|
|
Total equity
|
|
|
9,863.6
|
|
|
|
10,835.6
|
|
|
|
11,158.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
891.7
|
|
|
$
|
1,415.1
|
|
|
|
n/a
|
|
Cash used in investing activities
|
|
|
1,072.2
|
|
|
|
2,501.5
|
|
|
|
n/a
|
|
Cash provided by financing activities
|
|
|
196.5
|
|
|
|
1,074.1
|
|
|
|
n/a
|
|
Distributions received from unconsolidated affiliates
|
|
|
55.2
|
|
|
|
82.3
|
|
|
|
n/a
|
|
Total gross operating margin(1)
|
|
|
1,974.9
|
|
|
|
2,430.9
|
|
|
$
|
2,423.9
|
|
Adjusted EBITDA(1)
|
|
|
1,854.7
|
|
|
|
2,405.6
|
|
|
|
2,453.4
|
|
|
|
|
(1) |
|
Unaudited. Please read Non-GAAP Financial
Measures beginning on
page S-13
for a reconciliation of non-GAAP gross operating margin and
Adjusted EBITDA to their most closely-related GAAP measures. |
S-9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Parent Consolidated Historical
|
|
|
|
|
For the Nine Months
|
|
|
For the Year Ended December 31,
|
|
Ended September 30,
|
|
|
2007
|
|
2008
|
|
2009
|
|
2009
|
|
2010
|
|
|
(Unaudited)
|
|
Selected volumetric operating data by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBPD)
|
|
|
1,877
|
|
|
|
2,021
|
|
|
|
2,196
|
|
|
|
2,098
|
|
|
|
2,254
|
|
NGL fractionation volumes (MBPD)
|
|
|
405
|
|
|
|
441
|
|
|
|
461
|
|
|
|
456
|
|
|
|
471
|
|
Equity NGL production (MBPD)
|
|
|
88
|
|
|
|
108
|
|
|
|
117
|
|
|
|
116
|
|
|
|
123
|
|
Fee-based natural gas processing
(MMcf/d)
|
|
|
2,565
|
|
|
|
2,524
|
|
|
|
2,650
|
|
|
|
2,685
|
|
|
|
2,795
|
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
8,465
|
|
|
|
9,612
|
|
|
|
10,435
|
|
|
|
10,502
|
|
|
|
11,432
|
|
Onshore Crude Oil Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil transportation volumes (MBPD)
|
|
|
652
|
|
|
|
696
|
|
|
|
680
|
|
|
|
683
|
|
|
|
678
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
1,641
|
|
|
|
1,408
|
|
|
|
1,420
|
|
|
|
1,458
|
|
|
|
1,284
|
|
Crude oil transportation volumes (MBPD)
|
|
|
163
|
|
|
|
169
|
|
|
|
308
|
|
|
|
278
|
|
|
|
325
|
|
Platform natural gas processing
(MMcf/d)
|
|
|
494
|
|
|
|
632
|
|
|
|
700
|
|
|
|
741
|
|
|
|
547
|
|
Platform crude oil processing (MBPD)
|
|
|
24
|
|
|
|
15
|
|
|
|
12
|
|
|
|
10
|
|
|
|
18
|
|
Petrochemical Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBPD)
|
|
|
90
|
|
|
|
86
|
|
|
|
97
|
|
|
|
98
|
|
|
|
89
|
|
Propylene fractionation volumes (MBPD)
|
|
|
68
|
|
|
|
58
|
|
|
|
68
|
|
|
|
67
|
|
|
|
78
|
|
Octane additive production volumes (MBPD)
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
9
|
|
|
|
14
|
|
Transportation volumes, primarily refined products and
petrochemicals (MBPD)
|
|
|
882
|
|
|
|
818
|
|
|
|
806
|
|
|
|
797
|
|
|
|
779
|
|
/d = per day
BBtus = billion British thermal units
MBPD = thousand barrels per day
MMcf = million cubic feet
S-10
Summary
Historical Financial Information of Holdings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Consolidated Historical
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in millions, except per unit amounts)
|
|
|
Income statement data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
26,713.8
|
|
|
$
|
35,469.6
|
|
|
$
|
25,510.9
|
|
|
$
|
17,110.6
|
|
|
$
|
24,155.7
|
|
Costs and expenses
|
|
|
25,534.0
|
|
|
|
33,763.7
|
|
|
|
23,748.6
|
|
|
|
15,938.9
|
|
|
|
22,557.1
|
|
Equity in income of unconsolidated affiliates
|
|
|
13.6
|
|
|
|
66.2
|
|
|
|
92.3
|
|
|
|
57.7
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,193.4
|
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
1,229.4
|
|
|
|
1,641.8
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(487.4
|
)
|
|
|
(608.3
|
)
|
|
|
(687.3
|
)
|
|
|
(508.2
|
)
|
|
|
(529.1
|
)
|
Other, net
|
|
|
71.8
|
|
|
|
12.3
|
|
|
|
(1.7
|
)
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(415.6
|
)
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(506.0
|
)
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
777.8
|
|
|
|
1,176.1
|
|
|
|
1,165.6
|
|
|
|
723.4
|
|
|
|
1,114.5
|
|
Provision for income taxes
|
|
|
(15.8
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(26.8
|
)
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
762.0
|
|
|
|
1,145.1
|
|
|
|
1,140.3
|
|
|
|
696.6
|
|
|
|
1,094.4
|
|
Net income attributable to noncontrolling interests
|
|
|
(653.0
|
)
|
|
|
(981.1
|
)
|
|
|
(936.2
|
)
|
|
|
(569.3
|
)
|
|
|
(933.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Holdings
|
|
$
|
109.0
|
|
|
$
|
164.0
|
|
|
$
|
204.1
|
|
|
$
|
127.3
|
|
|
$
|
161.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit
|
|
$
|
0.97
|
|
|
$
|
1.33
|
|
|
$
|
1.48
|
|
|
$
|
0.93
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit
|
|
$
|
0.97
|
|
|
$
|
1.33
|
|
|
$
|
1.48
|
|
|
$
|
0.93
|
|
|
$
|
1.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit (declared with respect to period)
|
|
$
|
1.550
|
|
|
$
|
1.790
|
|
|
$
|
2.030
|
|
|
$
|
1.500
|
|
|
$
|
1.680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
24,084.4
|
|
|
$
|
25,780.4
|
|
|
$
|
27,686.3
|
|
|
$
|
27,466.5
|
|
|
$
|
29,946.6
|
|
Total long-term debt, including current maturities
|
|
|
9,861.2
|
|
|
|
12,714.9
|
|
|
|
12,427.9
|
|
|
|
13,077.7
|
|
|
|
13,790.1
|
|
Total equity
|
|
|
9,530.0
|
|
|
|
9,759.4
|
|
|
|
10,473.1
|
|
|
|
10,300.4
|
|
|
|
11,174.9
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,936.8
|
|
|
$
|
1,566.4
|
|
|
$
|
2,410.3
|
|
|
$
|
910.1
|
|
|
$
|
1,443.8
|
|
Cash used in investing activities
|
|
|
4,541.1
|
|
|
|
3,246.9
|
|
|
|
1,547.7
|
|
|
|
1,073.0
|
|
|
|
2,501.5
|
|
Cash provided by (used in) financing activities
|
|
|
2,622.5
|
|
|
|
1,695.9
|
|
|
|
(863.9
|
)
|
|
|
181.1
|
|
|
|
1,045.0
|
|
Distributions received from unconsolidated affiliates
|
|
|
116.9
|
|
|
|
157.2
|
|
|
|
169.3
|
|
|
|
117.0
|
|
|
|
146.0
|
|
Total gross operating margin
|
|
|
1,967.5
|
|
|
|
2,640.3
|
|
|
|
2,880.9
|
|
|
|
2,000.6
|
|
|
|
2,423.9
|
|
|
|
|
(1) |
|
Unaudited. Please read Non-GAAP Financial
Measures beginning on
page S-13
for a reconciliation of non-GAAP gross operating margin and
Adjusted EBITDA to their most closely-related GAAP measures |
S-11
Non-GAAP Financial
Measures
This section provides reconciliations of Enterprise
Parents and Holdings non-GAAP financial measures
included in this prospectus supplement to their most directly
comparable financial measures calculated and presented in
accordance with GAAP. Enterprise Parent and Holdings both
present the non-GAAP financial measure of gross operating
margin. Enterprise Parent also utilizes the non-GAAP financial
measure of Adjusted EBITDA. These non-GAAP financial measures
should not be considered as an alternative to GAAP measures such
as net income, operating income, net cash flows provided by
operating activities or any other measure of liquidity or
financial performance calculated and presented in accordance
with GAAP. These non-GAAP financial measures may not be
comparable to similarly-titled measures of other companies
because they may not calculate such measures in the same manner
as Enterprise Parent or Holdings does.
Gross
Operating Margin
Enterprise Parent and Holdings evaluate segment performance
based on the non-GAAP financial measure of gross operating
margin. Gross operating margin (either in total or by individual
segment) is an important performance measure of the core
profitability of both Enterprise Parents and
Holdings operations. This measure forms the basis of
Enterprise Parents and Holdings internal financial
reporting and is used by management in deciding how to allocate
capital resources among business segments. Enterprise Parent and
Holdings believe that investors benefit from having access to
the same financial measures that management uses in evaluating
segment results. The GAAP measure most directly comparable to
total segment gross operating margin is operating income. The
non-GAAP financial measure of total segment gross operating
margin should not be considered an alternative to GAAP operating
income.
Enterprise Parent and Holdings define total segment gross
operating margin as operating income before:
(i) depreciation, amortization and accretion expense;
(ii) non-cash asset impairment charges;
(iii) operating lease expenses for which Enterprise Parent
and Holdings do not have the payment obligation; (iv) gains
and losses from asset sales and related transactions; and
(v) general and administrative costs. Gross operating
margin by segment is calculated by subtracting segment operating
costs and expenses (net of the adjustments noted above) from
segment revenues, with both segment totals before the
elimination of intercompany transactions. In accordance with
GAAP, intercompany accounts and transactions are eliminated in
consolidation. Gross operating margin is presented on a 100%
basis before the allocation of earnings to noncontrolling
interests.
The following table presents a reconciliation of Enterprise
Parents non-GAAP financial measure of total gross
operating margin to the GAAP financial measure of operating
income, on a historical and pro forma basis, as applicable for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Parent Consolidated Historical
|
|
|
Enterprise Parent Pro Forma
|
|
|
|
|
|
|
For the Nine
|
|
|
|
|
|
For the Nine
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
Months
|
|
|
|
|
|
|
Ended
|
|
|
For the Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Total segment gross operating margin
|
|
$
|
1,964.4
|
|
|
$
|
2,609.0
|
|
|
$
|
2,839.8
|
|
|
$
|
1,974.9
|
|
|
$
|
2,430.9
|
|
|
$
|
2,880.9
|
|
|
$
|
2,423.9
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(647.9
|
)
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(602.9
|
)
|
|
|
(674.5
|
)
|
|
|
(809.3
|
)
|
|
|
(674.5
|
)
|
Non-cash asset impairment charges in operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(26.3
|
)
|
|
|
(1.5
|
)
|
|
|
(33.5
|
)
|
|
|
(1.5
|
)
|
Operating lease expenses paid by EPCO
|
|
|
(2.1
|
)
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
Gains from asset sales and related transactions in operating
costs and expenses
|
|
|
7.8
|
|
|
|
4.0
|
|
|
|
|
|
|
|
0.5
|
|
|
|
45.3
|
|
|
|
|
|
|
|
45.3
|
|
General and administrative costs
|
|
|
(127.2
|
)
|
|
|
(137.2
|
)
|
|
|
(172.3
|
)
|
|
|
(133.3
|
)
|
|
|
(131.5
|
)
|
|
|
(182.8
|
)
|
|
|
(150.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,195.0
|
|
|
|
1,748.4
|
|
|
|
1,824.0
|
|
|
|
1,212.4
|
|
|
|
1,668.2
|
|
|
|
1,854.6
|
|
|
|
1,641.8
|
|
Other expense, net
|
|
|
(341.3
|
)
|
|
|
(528.5
|
)
|
|
|
(643.6
|
)
|
|
|
(469.8
|
)
|
|
|
(495.1
|
)
|
|
|
(689.0
|
)
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision of income taxes
|
|
$
|
853.7
|
|
|
$
|
1,219.9
|
|
|
$
|
1,180.4
|
|
|
$
|
742.6
|
|
|
$
|
1,173.1
|
|
|
$
|
1,165.6
|
|
|
$
|
1,114.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-12
The following table presents a reconciliation of Holdings
non-GAAP financial measure of total gross operating margin to
the GAAP financial measure of operating income, on a historical
basis, for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Consolidated Historical
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
For the Year Ended December 31,
|
|
|
Ended September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Total segment gross operating margin
|
|
$
|
1,967.5
|
|
|
$
|
2,640.3
|
|
|
$
|
2,880.9
|
|
|
$
|
2,000.6
|
|
|
$
|
2,423.9
|
|
Adjustments to reconcile total segment gross operating margin to
operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, amortization and accretion in operating costs and
expenses
|
|
|
(647.9
|
)
|
|
|
(725.4
|
)
|
|
|
(809.3
|
)
|
|
|
(602.9
|
)
|
|
|
(674.5
|
)
|
Non-cash asset impairment charges in operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(33.5
|
)
|
|
|
(26.3
|
)
|
|
|
(1.5
|
)
|
Operating lease expenses paid by EPCO
|
|
|
(2.1
|
)
|
|
|
(2.0
|
)
|
|
|
(0.7
|
)
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
Gains from asset sales and related transactions in operating
costs and expenses
|
|
|
7.8
|
|
|
|
4.0
|
|
|
|
|
|
|
|
0.5
|
|
|
|
45.3
|
|
General and administrative costs
|
|
|
(131.9
|
)
|
|
|
(144.8
|
)
|
|
|
(182.8
|
)
|
|
|
(142.0
|
)
|
|
|
(150.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,193.4
|
|
|
|
1,772.1
|
|
|
|
1,854.6
|
|
|
|
1,229.4
|
|
|
|
1,641.8
|
|
Other expense, net
|
|
|
(415.6
|
)
|
|
|
(596.0
|
)
|
|
|
(689.0
|
)
|
|
|
(506.0
|
)
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision of income taxes
|
|
$
|
777.8
|
|
|
$
|
1,176.1
|
|
|
$
|
1,165.6
|
|
|
$
|
723.4
|
|
|
$
|
1,114.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA of Enterprise Parent
Enterprise Parent defines Adjusted EBITDA as income from
continuing operations less equity in income from unconsolidated
affiliates; plus distributions received from unconsolidated
affiliates, interest expense, provision for income taxes and
depreciation, amortization and accretion expense. The GAAP
measure most directly comparable to Adjusted EBITDA is net cash
flows provided by operating activities. Adjusted EBITDA is
commonly used as a supplemental financial measure by management
and by external users of Enterprise Parents financial
statements, such as investors, commercial banks, research
analysts and rating agencies, to assess (i) the financial
performance of Enterprise Parents assets without regard to
financing methods, capital structures or historical cost basis;
(ii) the ability of Enterprise Parents assets to
generate cash sufficient to pay interest cost and support our
indebtedness; and (iii) the viability of projects and the
overall rates of return on alternative investment opportunities.
S-13
The following table presents Enterprise Parents
calculation of Adjusted EBITDA on a historical and pro forma
basis and also a reconciliation of Enterprise Parents
non-GAAP financial measure of Adjusted EBITDA to the GAAP
financial measure of net cash flows provided by operating
activities on a historical basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Parent Consolidated Historical
|
|
|
Enterprise Parent Pro Forma
|
|
|
|
|
|
|
For the Nine Months
|
|
|
|
|
|
For the Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
For the Year Ended
|
|
|
Ended
|
|
|
|
For the Year Ended December 31,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in millions)
|
|
|
Net income
|
|
$
|
838.0
|
|
|
$
|
1,188.9
|
|
|
$
|
1,155.1
|
|
|
$
|
715.8
|
|
|
$
|
1,153.0
|
|
|
$
|
1,140.3
|
|
|
$
|
1,094.4
|
|
Adjustments to GAAP net income to derive non-GAAP Adjusted
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(10.5
|
)
|
|
|
(34.9
|
)
|
|
|
(51.2
|
)
|
|
|
(32.0
|
)
|
|
|
(50.2
|
)
|
|
|
(92.3
|
)
|
|
|
(43.2
|
)
|
Distributions received from unconsolidated affiliates
|
|
|
87.0
|
|
|
|
80.8
|
|
|
|
86.6
|
|
|
|
55.2
|
|
|
|
82.3
|
|
|
|
169.3
|
|
|
|
146.0
|
|
Interest expense (including related amortization)
|
|
|
413.0
|
|
|
|
540.7
|
|
|
|
641.8
|
|
|
|
472.0
|
|
|
|
496.9
|
|
|
|
687.3
|
|
|
|
529.1
|
|
Provision for income taxes
|
|
|
15.7
|
|
|
|
31.0
|
|
|
|
25.3
|
|
|
|
26.8
|
|
|
|
20.1
|
|
|
|
25.3
|
|
|
|
20.1
|
|
Depreciation, amortization and accretion in costs and expenses
|
|
|
661.4
|
|
|
|
739.6
|
|
|
|
828.5
|
|
|
|
616.9
|
|
|
|
703.5
|
|
|
|
830.0
|
|
|
|
707.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
|
2,004.6
|
|
|
|
2,546.1
|
|
|
|
2,686.1
|
|
|
|
1,854.7
|
|
|
|
2,405.6
|
|
|
$
|
2,759.9
|
|
|
$
|
2,453.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to non-GAAP Adjusted EBITDA to derive GAAP net
cash flows provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(413.0
|
)
|
|
|
(540.7
|
)
|
|
|
(641.8
|
)
|
|
|
(472.0
|
)
|
|
|
(496.9
|
)
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(15.7
|
)
|
|
|
(31.0
|
)
|
|
|
(25.3
|
)
|
|
|
(26.8
|
)
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
Operating lease expenses paid by EPCO
|
|
|
2.1
|
|
|
|
2.0
|
|
|
|
0.7
|
|
|
|
0.5
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
Gain from asset sales and related transactions
|
|
|
(67.4
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(0.5
|
)
|
|
|
(45.4
|
)
|
|
|
|
|
|
|
|
|
Loss on forfeiture of Texas Offshore Port System
|
|
|
|
|
|
|
|
|
|
|
68.4
|
|
|
|
68.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous non-cash and other amounts to reconcile Adjusted
EBITDA and net cash flows provided by operating activities
|
|
|
8.1
|
|
|
|
5.8
|
|
|
|
43.2
|
|
|
|
42.3
|
|
|
|
(5.1
|
)
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
434.9
|
|
|
|
(411.1
|
)
|
|
|
245.9
|
|
|
|
(574.9
|
)
|
|
|
(423.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
$
|
1,953.6
|
|
|
$
|
1,567.1
|
|
|
$
|
2,377.2
|
|
|
$
|
891.7
|
|
|
$
|
1,415.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-14
Ratio of
Earnings to Fixed Charges
Enterprise Parents ratio of earnings to fixed charges for
each of the periods indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Ended
|
Year Ended December 31,
|
|
September 30,
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2.7x
|
|
2.9x
|
|
2.6x
|
|
2.8x
|
|
2.6x
|
|
3.1x
|
For purposes of these calculations, earnings is the
amount resulting from adding and subtracting the following items:
Add the following, as applicable:
|
|
|
|
|
consolidated pre-tax income from continuing operations before
adjustment for income or loss from equity investees;
|
|
|
|
fixed charges;
|
|
|
|
amortization of capitalized interest;
|
|
|
|
distributed income of equity investees; and
|
|
|
|
our share of pre-tax losses of equity investees for which
charges arising from guarantees are included in fixed charges.
|
From the subtotal of the added items, subtract the following, as
applicable:
|
|
|
|
|
interest capitalized;
|
|
|
|
preference security dividend requirements of consolidated
subsidiaries; and
|
|
|
|
the noncontrolling interest in pre-tax income of subsidiaries
that have not incurred fixed charges.
|
The term fixed charges means the sum of the
following: interest expensed and capitalized; amortized
premiums, discounts and capitalized expenses related to
indebtedness; an estimate of interest within rental expense; and
preference dividend requirements of consolidated subsidiaries.
S-15
RISK
FACTORS
An investment in our notes involves certain risks. You should
carefully consider the supplemental risks described below in
addition to the risks described under Risk Factors
in the accompanying prospectus, in our Annual Report on
Form 10-K
filed March 1, 2010, in our Quarterly Reports for the
quarters ended March 31, 2010, June 30, 2010 and
September 30, 2010, and in Exhibit 99.2 of our Current
Report on
Form 8-K
filed November 23, 2010, which reports are incorporated by
reference herein, as well as the other information contained in
or incorporated by reference into this prospectus supplement and
the accompanying prospectus before making an investment
decision. If any of these risks were to materialize, our
business, results of operations, cash flows and financial
condition could be materially adversely affected. In that case,
the value of our notes could decline, and you could lose part or
all of your investment.
Risks
Related to Our Business
Our
debt level may limit our future financial and operating
flexibility.
On a pro forma basis and as adjusted to give effect to
Enterprise Parents December 2010 equity offering and to
this offering, as of September 30, 2010, Enterprise Parent
had approximately $ billion
principal amount of consolidated long-term debt outstanding,
including $529.8 million outstanding under the credit
facilities of Duncan Energy Partners and
$ million outstanding under
our multi-year revolving credit facility. The amount of our
future debt could have significant effects on our operations,
including, among other things:
|
|
|
|
|
a substantial portion of our cash flow, including that of Duncan
Energy Partners, could be dedicated to the payment of principal
and interest on our future debt and may not be available for
other purposes, including the payment of distributions on the
Enterprise Parent common units and capital expenditures;
|
|
|
|
credit rating agencies may view our consolidated debt level
negatively;
|
|
|
|
covenants contained in our existing and future credit and debt
arrangements will require us to continue to meet financial tests
that may adversely affect our flexibility in planning for and
reacting to changes in our business, including possible
acquisition opportunities;
|
|
|
|
our ability to obtain additional financing, if necessary, for
working capital, capital expenditures, acquisitions or other
purposes may be impaired or such financing may not be available
on favorable terms;
|
|
|
|
we may be at a competitive disadvantage relative to similar
companies that have less debt; and
|
|
|
|
we may be more vulnerable to adverse economic and industry
conditions as a result of our significant debt level.
|
Our public debt indentures currently do not limit the amount of
future indebtedness that we can create, incur, assume or
guarantee. Although our credit agreements restrict our ability
to incur additional debt above certain levels, any debt we may
incur in compliance with these restrictions may still be
substantial.
Our credit agreements and each of our indentures for our public
debt contain conventional financial covenants and other
restrictions. For example, Enterprise Parent is prohibited from
making distributions to our partners if such distributions would
cause an event of default or otherwise violate a covenant under
our credit agreements. A breach of any of these restrictions by
us or Enterprise Parent could permit our lenders or noteholders,
as applicable, to declare all amounts outstanding under these
debt agreements to be immediately due and payable and, in the
case of our credit agreements, to terminate all commitments to
extend further credit.
Our ability to access capital markets to raise capital on
favorable terms could be affected by our debt level, the amount
of our debt maturing in the next several years and current
maturities, and by prevailing market conditions. Moreover, if
the rating agencies were to downgrade our credit ratings, then
we could experience an increase in our borrowing costs,
difficulty assessing capital markets or a reduction in the
market price of our common units. Such a development could
adversely affect our ability to obtain financing for working
capital, capital expenditures or acquisitions or to refinance
existing indebtedness. If we are unable to
S-16
access the capital markets on favorable terms in the future, we
might be forced to seek extensions for some of our short-term
securities or to refinance some of our debt obligations through
bank credit, as opposed to long-term public debt securities or
equity securities. The price and terms upon which we might
receive such extensions or additional bank credit, if at all,
could be more onerous than those contained in existing debt
agreements. Any such arrangements could, in turn, increase the
risk that our leverage may adversely affect our future financial
and operating flexibility.
Risks
Related to the Notes
A
significant amount of the common units of Enterprise Parent and
all of its Class B units that are owned by EPCO and certain
of its affiliates are pledged as security under the credit
facility of an affiliate of EPCO. Upon an event of default under
this credit facility, a change in ownership or control of
Enterprise Parent or us could ultimately result.
An affiliate of EPCO has pledged substantially all of its common
units in Enterprise Parent as security under its credit
facility. This credit facility contains customary and other
events of default relating to defaults of the borrower,
including certain defaults by Enterprise Parent and other
affiliates of EPCO. An event of default, followed by a
foreclosure on the pledged collateral, could ultimately result
in a change in ownership of Enterprise Parent.
The
credit and risk profile of the general partner of Enterprise
Parent and its owners could adversely affect our credit ratings
and profile.
The credit and business risk profiles of the general partner or
owners of a general partner may be factors in credit evaluations
of a limited partnership. This is because the general partner
can exercise significant influence over the business activities
of the partnership, including its cash distribution and
acquisition strategy and business risk profile. Another factor
that may be considered is the financial condition of the general
partner and its owners, including the degree of their financial
leverage and their dependence on cash flow from the partnership
to service their indebtedness.
Affiliates of the entities controlling the owner of the general
partner of Enterprise Parent have significant indebtedness
outstanding and are dependent principally on the cash
distributions from their equity interests in us and Enterprise
Parent to service such indebtedness. Any distributions by us to
such entities will be made only after satisfying our then
current obligations to creditors.
Although we have taken certain steps in our organizational
structure, financial reporting and contractual relationships to
reflect the separateness of us and our general partner from the
entities that control our general partner, our credit ratings
and business risk profile could be adversely affected if the
ratings and risk profiles of Dan Duncan LLC, EPCO or the
entities that control the general partner of Enterprise Parent
were viewed as substantially lower or more risky than ours.
The
notes are pari passu with a substantial portion of our other
unsecured senior indebtedness.
Our payment obligations under the notes are unsecured and pari
passu in right of payment with a substantial portion of our
current and future indebtedness, including our indebtedness for
borrowed money, indebtedness evidenced by bonds, debentures,
notes or similar instruments, obligations arising from or with
respect to guarantees and direct credit substitutes, obligations
associated with hedges and derivative products, capitalized
lease obligations and other senior indebtedness.
The Indenture does not limit our ability to incur additional
indebtedness and other obligations, including indebtedness and
other obligations that rank senior to or pari passu with the
notes. On a pro forma basis as adjusted to give effect to
Enterprise Parents December 2010 equity offering and to
this offering, at September 30, 2010, the principal amount
of direct long-term indebtedness (including current maturities)
of Enterprise that would be pari passu with the notes totaled
approximately $ billion. As
discussed below, the notes will also be effectively subordinated
to all of our subsidiaries and unconsolidated
affiliates existing and future indebtedness and other
obligations, other than any subsidiaries that may guarantee the
notes in the
S-17
future. At September 30, 2010, indebtedness of our
subsidiaries and unconsolidated affiliates totaled
$9.7 billion on a pro forma as adjusted basis.
Enterprise
Parents guarantee of the notes is pari passu with all of
its other senior indebtedness.
Enterprise Parents guarantee of the notes ranks pari passu
in right of payment with all of its current and future senior
indebtedness, including Enterprise Parents indebtedness
for borrowed money, indebtedness evidenced by bonds, debentures,
notes or similar instruments, obligations arising from or with
respect to guarantees and direct credit substitutes, obligations
associated with hedges and derivative products, capitalized
lease obligations and other senior indebtedness.
We may
require cash from our subsidiaries to make payments on the
notes.
We conduct the majority of our operations through our
subsidiaries and unconsolidated affiliates, some of which are
not wholly owned, and we rely to a significant extent on
dividends, distributions, proceeds from inter-company
transactions, interest payments and loans from those entities to
meet our obligations for payment of principal and interest on
our outstanding debt obligations and corporate expenses,
including interest payments on the notes, which may be subject
to contractual restrictions. Accordingly, the notes are
structurally subordinated to all existing and future liabilities
of our subsidiaries and unconsolidated affiliates, other than
any subsidiaries that may guarantee the notes in the future.
Holders of notes should look only to our assets and the assets
of Enterprise Parent, and not any of our subsidiaries or
unconsolidated affiliates, for payments on the notes, other than
any subsidiaries that may guarantee the notes in the future. If
we are unable to obtain cash from such entities to fund required
payments in respect of the notes, we may be unable to make
payments of principal of or interest on the notes.
We may
elect to cause the redemption of the notes when prevailing
interest rates are relatively low.
As discussed in Description of the Notes
Optional Redemption, we may redeem the notes at any time,
in whole or in part, at a price equal to the greater of
(i) 100% of the principal amount of the notes to be
redeemed or (ii) the sum of the present values of the
remaining scheduled payments of principal and interest (at the
rate in effect on the date of the calculation of the redemption
price) on the notes to be redeemed (exclusive of interest
accrued to the date of redemption) discounted to the
Redemption Date on a semi-annual basis (assuming a
360-day year
consisting of twelve
30-day
months) at the applicable Treasury Yield
plus
basis points for the 2016 notes
and
basis points for the 2041 notes; plus, in either case, accrued
interest to the Redemption Date.
A
market may not develop for the notes.
The notes constitute a new issue of securities with no
established trading market and will not be listed on any
exchange. An active market for the notes may not develop or be
sustained. As a result, we cannot assure you that you will be
able to sell your notes or at what price. Although the
underwriters have indicated that they intend to make a market in
the notes, as permitted by applicable laws and regulations, they
are not obligated to do so and may discontinue that
market-making at any time without notice.
There
are restrictions on your ability to resell the
notes.
The notes may not be purchased by or transferred to certain
types of benefit plans. See Certain ERISA
Considerations.
If we
were treated as a corporation for federal income tax purposes or
subject to a material amount of entity-level taxation for state
tax purposes, then our cash available for payment on the notes
would be substantially reduced.
Current law may change so as to cause us to be treated as a
corporation for federal income tax purposes or otherwise subject
us to a material amount of entity-level taxation. If we were
treated as a corporation for United States federal income
tax purposes, we would pay United States federal income tax on
our taxable
S-18
income at the corporate tax rate, which is currently a maximum
of 35%, and we likely would pay state taxes as well. Because a
tax would be imposed upon us as a corporation, the cash
available for payment on the notes would be substantially
reduced. Therefore, treatment of us as a corporation would
result in a material reduction in our anticipated cash flows and
could cause a reduction in the value of the notes.
In addition, several states are evaluating ways to subject
partnerships to entity-level taxation through the imposition of
state income, franchise and other forms of taxation. For
example, we are now subject to a new entity-level tax on the
portion of our gross income apportioned to Texas. If any
additional state were to impose an entity-level tax on us, the
cash available for payment on the notes would be reduced.
S-19
USE OF
PROCEEDS
We will receive aggregate net proceeds of approximately
$ million from the sale of
the notes to the underwriters after deducting the
underwriters discount and other offering expenses payable
by us. We expect to use the net proceeds of this offering to
temporarily reduce borrowings under our multi-year revolving
credit facility, to repay outstanding amounts on the maturity of
our $450 million principal amount of senior notes B
due February 2011, and for general company purposes.
In general, our indebtedness under the multi-year revolving
credit facility was incurred for working capital purposes,
capital expenditures and other acquisitions. Amounts repaid
under our multi-year revolving credit facility may be reborrowed
from time to time for acquisitions, capital expenditures and
other general partnership purposes. As of January 3, 2011,
we had $648.0 million of borrowings outstanding under
EPOs multi-year revolving credit facility that bear
interest at a variable rate, which on a weighted-average basis
was approximately 0.761% per annum. Our multi-year revolving
credit facility will mature in November 2012. We used
availability under our multi-year revolving credit facility to
retire approximately $1.1 billion of Holdings debt
obligations concurrently with the Holdings Merger. Holdings no
longer has any debt outstanding.
Affiliates of certain of the underwriters are lenders under our
multi-year revolving credit facility and, accordingly, will
receive a substantial portion of the proceeds of this offering.
Please read Underwriting.
S-20
CAPITALIZATION
The Holdings Merger resulted in Holdings being considered the
surviving consolidated entity for accounting purposes rather
than Enterprise, which is the surviving consolidated entity for
legal and reporting purposes. As a result, the following table
sets forth the capitalization of Holdings as of
September 30, 2010 on:
|
|
|
|
|
a consolidated historical basis;
|
|
|
|
a pro forma basis to give effect to the Holdings Merger and
related transactions;
|
|
|
|
a pro forma as adjusted basis to give effect to the application
of (i) the net proceeds of approximately $528.3 million
from Enterprise Parents sale of 13,225,000 common units in
December 2010 at a public offering price of $41.25 per common
unit and (ii) the net proceeds from the sale of the notes in
this offering to: (a) temporarily reduce borrowings
outstanding under our multi-year revolving credit facility;
(b) repay outstanding amounts on the maturity of our
$450 million principal amount of senior notes B due
February 2011; and (c) increase cash and cash equivalents,
which we intend to use for general company purposes.
|
Since Enterprise Parent is the surviving entity for legal and
reporting purposes, the pro forma condensed consolidated balance
sheet information is labeled Enterprise Parent Pro
Forma. The historical data in the table below is derived
from and should be read in conjunction with Holdings
consolidated historical financial statements, including the
accompanying notes, incorporated by reference in this prospectus
supplement. The data below does not reflect events after
September 30, 2010 except as noted above for the Holdings
Merger and December 2010 common unit offering. The Enterprise
Parent pro forma information in the table below is derived from
and should be read in conjunction with the unaudited pro forma
condensed consolidated financial statements included elsewhere
in this prospectus supplement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
Holdings
|
|
|
|
|
|
Enterprise Parent
|
|
|
|
Consolidated
|
|
|
Enterprise Parent
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
(Dollars in millions)
|
|
|
Cash and cash equivalents
|
|
$
|
42.9
|
|
|
$
|
32.8
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings senior debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Holdings Revolver, variable-rate, due August 2012
|
|
|
127.3
|
|
|
|
|
|
|
|
|
|
$125 million Term Loan A, variable-rate, due
August 2012
|
|
|
125.0
|
|
|
|
|
|
|
|
|
|
$850 million Term Loan B, variable-rate, due
November 2014(1)
|
|
|
833.0
|
|
|
|
|
|
|
|
|
|
Enterprise senior debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Year Revolving Credit Facility, variable-rate, due
November 2012(2)
|
|
|
35.0
|
|
|
|
1,120.3
|
|
|
|
|
|
Petal GO Zone Bonds, variable-rate, due August 2034
|
|
|
57.5
|
|
|
|
57.5
|
|
|
|
57.5
|
|
Senior Notes B, 7.50% fixed-rate, due February 2011(1)
|
|
|
450.0
|
|
|
|
450.0
|
|
|
|
|
|
Senior Notes C, 6.375% fixed-rate, due February 2013
|
|
|
350.0
|
|
|
|
350.0
|
|
|
|
350.0
|
|
Senior Notes D, 6.875% fixed-rate, due March 2033
|
|
|
500.0
|
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes G, 5.60% fixed-rate, due October 2014
|
|
|
650.0
|
|
|
|
650.0
|
|
|
|
650.0
|
|
Senior Notes H, 6.65% fixed-rate, due October 2034
|
|
|
350.0
|
|
|
|
350.0
|
|
|
|
350.0
|
|
Senior Notes I, 5.00% fixed-rate, due March 2015
|
|
|
250.0
|
|
|
|
250.0
|
|
|
|
250.0
|
|
S-21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
Holdings
|
|
|
|
|
|
Enterprise Parent
|
|
|
|
Consolidated
|
|
|
Enterprise Parent
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
(Dollars in millions)
|
|
|
Senior Notes J, 5.75% fixed-rate, due March 2035
|
|
|
250.0
|
|
|
|
250.0
|
|
|
|
250.0
|
|
Senior Notes L, 6.30% fixed-rate, due September 2017
|
|
|
800.0
|
|
|
|
800.0
|
|
|
|
800.0
|
|
Senior Notes M, 5.65% fixed-rate, due April 2013
|
|
|
400.0
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Senior Notes N, 6.50% fixed-rate, due January 2019
|
|
|
700.0
|
|
|
|
700.0
|
|
|
|
700.0
|
|
Senior Notes O, 9.75% fixed-rate, due January 2014
|
|
|
500.0
|
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes P, 4.60% fixed-rate, due August 2012
|
|
|
500.0
|
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes Q, 5.25% fixed-rate, due January 2020
|
|
|
500.0
|
|
|
|
500.0
|
|
|
|
500.0
|
|
Senior Notes R, 6.125% fixed-rate, due October 2039
|
|
|
600.0
|
|
|
|
600.0
|
|
|
|
600.0
|
|
Senior Notes S, 7.625% fixed-rate, due February 2012
|
|
|
490.5
|
|
|
|
490.5
|
|
|
|
490.5
|
|
Senior Notes T, 6.125% fixed-rate, due February 2013
|
|
|
182.5
|
|
|
|
182.5
|
|
|
|
182.5
|
|
Senior Notes U, 5.90% fixed-rate, due April 2013
|
|
|
237.6
|
|
|
|
237.6
|
|
|
|
237.6
|
|
Senior Notes V, 6.65% fixed-rate, due April 2018
|
|
|
349.7
|
|
|
|
349.7
|
|
|
|
349.7
|
|
Senior Notes W, 7.55% fixed-rate, due April 2038
|
|
|
399.6
|
|
|
|
399.6
|
|
|
|
399.6
|
|
Senior Notes X, 3.70% fixed-rate, due June 2015
|
|
|
400.0
|
|
|
|
400.0
|
|
|
|
400.0
|
|
Senior Notes Y, 5.20% fixed-rate, due September 2020
|
|
|
1,000.0
|
|
|
|
1,000.0
|
|
|
|
1,000.0
|
|
Senior Notes Z, 6.45% fixed-rate, due September 2040
|
|
|
600.0
|
|
|
|
600.0
|
|
|
|
600.0
|
|
Senior Notes AA, % fixed-rate,
due 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Notes BB, % fixed-rate,
due 2041
|
|
|
|
|
|
|
|
|
|
|
|
|
TEPPCO senior debt obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
TEPPCO Senior Notes
|
|
|
40.1
|
|
|
|
40.1
|
|
|
|
40.1
|
|
Duncan Energy Partners debt obligations:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
DEP Revolving Credit Facility, variable-rate, due February
2011(1)
|
|
|
247.5
|
|
|
|
247.5
|
|
|
|
247.5
|
|
DEP Term Loan, variable-rate, due December 2011
|
|
$
|
282.3
|
|
|
$
|
282.3
|
|
|
$
|
282.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total principal amount of senior debt obligations
|
|
|
12,207.6
|
|
|
|
12,207.6
|
|
|
|
|
|
Enterprise Junior Subordinated Notes A,
fixed/variable-rate, due August 2066
|
|
|
550.0
|
|
|
|
550.0
|
|
|
|
550.0
|
|
Enterprise Junior Subordinated Notes B,
fixed/variable-rate, due January 2068
|
|
|
682.7
|
|
|
|
682.7
|
|
|
|
682.7
|
|
Enterprise Junior Subordinated Notes C,
fixed/variable-rate, due June 2067
|
|
|
285.8
|
|
|
|
285.8
|
|
|
|
285.8
|
|
TEPPCO Junior Subordinated Notes, fixed/variable-rate, due June
2067
|
|
|
14.2
|
|
|
|
14.2
|
|
|
|
14.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2010
|
|
|
|
Holdings
|
|
|
|
|
|
Enterprise Parent
|
|
|
|
Consolidated
|
|
|
Enterprise Parent
|
|
|
Pro Forma
|
|
|
|
Historical
|
|
|
Pro Forma
|
|
|
As Adjusted
|
|
|
|
(Dollars in millions)
|
|
|
Total principal amount of senior and junior debt obligations
|
|
|
13,740.3
|
|
|
|
13,740.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other, non-principal amounts
|
|
|
49.8
|
|
|
|
49.8
|
|
|
|
49.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt obligations, including current maturities
|
|
|
13,790.1
|
|
|
|
13,790.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Partners equity
|
|
|
1,863.6
|
|
|
|
10,630.5
|
|
|
|
11,158.8
|
|
Noncontrolling interest
|
|
|
9,311.3
|
|
|
|
527.5
|
|
|
|
527.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
11,174.9
|
|
|
|
11,158.0
|
|
|
|
11,686.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
24,965.0
|
|
|
$
|
24,948.1
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Amount is negligible. |
|
(1) |
|
Long-term and current maturities of debt reflect the
classification of such obligations at September 30, 2010.
With respect to an $8.5 million current maturity due under
Holdings Term Loan B, Holdings had the ability to use
available long-term credit capacity under the Holdings Revolver
to fund repayment of this amount. We had the ability to use
available forecast long-term borrowing capacity under our
$1.75 billion multi-year revolving credit facility to
satisfy the current maturity of Senior Notes B. Duncan
Energy Partners used its borrowing capacity under a new
$1.25 billion multi-year credit agreement executed in
October 2010 to refinance amounts due under the DEP Revolving
Credit Facility on a long-term basis. |
|
(2) |
|
As of January 3, 2011, we had $648 million of
borrowings outstanding under our $1.75 billion multi-year
revolving credit facility and Duncan Energy Partners had
$128 million of borrowings outstanding under its
$850 million multi-year revolving credit facility. |
|
(3) |
|
The borrowings of Holdings, TEPPCO and Duncan Energy Partners
are presented as part of Enterprise Parents consolidated
debt; however, Enterprise does not have any obligation for the
payment of interest or repayment of borrowings incurred by
Holdings, TEPPCO and Duncan Energy Partners. |
S-23
DESCRIPTION
OF THE NOTES
We have summarized below certain material terms and
provisions of the notes. This summary is not a complete
description of all of the terms and provisions of the notes. You
should read carefully the section entitled Description of
Debt Securities in the accompanying prospectus for a
description of other material terms of the notes, the Guarantee
and the Base Indenture (defined below). For more information, we
refer you to the notes, the Base Indenture and the Supplemental
Indenture (defined below), all of which are available from us.
We urge you to read the Base Indenture and the Supplemental
Indenture because they, and not this description, define your
rights as an owner of the notes.
The 2016 notes and the 2041 notes will each constitute a
separate new series of debt securities that will be issued under
the Indenture dated as of October 4, 2004, as amended by
the Tenth Supplemental Indenture (which we refer to as the
Base Indenture), as supplemented by the Twentieth
Supplemental Indenture with respect to the 2016 notes and the
2041 notes, to be dated the date of delivery of the notes (which
supplemental indenture we refer to as the Supplemental
Indenture and, together with the Base Indenture, as the
Indenture), among Enterprise Products Operating LLC
(successor to Enterprise Products Operating L.P.), as issuer
(which we refer to as the Issuer), Enterprise
Products Partners L.P., as parent guarantor, any subsidiary
guarantors party thereto (which we refer to as the
Subsidiary Guarantors) and Wells Fargo Bank,
National Association, as trustee (which we refer to as the
Trustee). References in this section to the
Guarantee refer to the Parent Guarantors
Guarantee of payments on the notes.
In addition to these new series of notes, as of
September 30, 2010, there were outstanding under the
above-referenced Base Indenture (i) $650 million in
aggregate principal amount of 5.600% senior notes G
due 2014, (ii) $350 million in aggregate principal
amount of 6.650% senior notes H due 2034,
(iii) $250 million in aggregate principal amount of
5.00% senior notes I due 2015,
(iv) $250 million in aggregate principal amount of
5.75% senior notes J due 2035,
(v) $800 million in aggregate principal amount of
6.30% senior notes L due 2017,
(vi) $400 million in aggregate principal amount of
5.65% senior notes M due 2013,
(vii) $700 million in aggregate principal amount of
6.50% senior notes N due 2019,
(viii) $500 million in aggregate principal amount of
9.75% senior notes O due 2014,
(ix) $500 million in aggregate principal amount of
4.60% senior notes P due 2012,
(x) $500 million in aggregate principal amount of
5.25% senior notes Q due 2020,
(xi) $600 million in aggregate principal amount of
6.125% senior notes R due 2039,
(xii) $490.5 million in aggregate principal amount of
7.625% senior notes S due 2012,
(xiii) $182.5 million in aggregate principal amount of
6.125% senior notes T due 2013,
(xiv) $237.6 million in aggregate principal amount of
5.90% senior notes U due 2013,
(xv) $349.7 million in aggregate principal amount of
6.65% senior notes V due 2018,
(xvi) $399.6 million in aggregate principal amount of
7.55% senior notes W due 2038,
(xvii) $400.0 million in aggregate principal amount of
3.70% senior notes X due 2015,
(xviii) $1,000.0 million in aggregate principal amount
of 5.20% senior notes Y due 2020,
(xix) $600.0 million in aggregate principal amount of
6.45% senior notes Z due 2040,
(xx) $550 million in aggregate principal amount of
8.375% fixed/floating rate junior subordinated notes A due
2066, (xxi) $682.7 million in aggregate principal
amount of 7.034% fixed/floating rate junior subordinated
notes B due 2068, and (xxii) $285.8 million in
aggregate principal amount of 7.000% fixed/floating rate junior
subordinated notes C due 2067.
General
The Notes. The notes:
|
|
|
|
|
will be general unsecured, senior obligations of the Issuer;
|
|
|
|
will constitute two new series of debt securities issued under
the Indenture and will be initially limited to
$ million aggregate principal
amount of 2016 notes and
$ million aggregate principal
amount of 2041 notes;
|
|
|
|
with respect to the 2016 notes, will mature
on ,
2016, and with respect to the 2041 notes, will mature
on ,
2041;
|
|
|
|
will be issued in denominations of $1,000 and integral multiples
of $1,000;
|
S-24
|
|
|
|
|
initially will be issued only in book-entry form represented by
one or more notes in global form registered in the name of
Cede & Co., as nominee of DTC, or such other name as
may be requested by an authorized representative of DTC, and
deposited with the Trustee as custodian for DTC; and
|
|
|
|
will be fully and unconditionally guaranteed on an unsecured,
unsubordinated basis by the Parent Guarantor, and in certain
circumstances may be guaranteed in the future on the same basis
by one or more Subsidiary Guarantors.
|
Interest. Interest on the notes will:
|
|
|
|
|
with respect to the 2016 notes, accrue at the rate
of % per annum, and with respect to
the 2041 notes, accrue at the rate
of % per annum, in each case from
the date of issuance (January , 2011 with
respect to both the 2016 notes and the 2041 notes) or the most
recent interest payment date;
|
|
|
|
with respect to the 2016 notes, be payable in cash semi-annually
in arrears
on and
of each year, commencing
on ,
2011, and with respect to the 2041 notes, be payable in cash
semi-annually in arrears
on
and
of each year, commencing
on ,
2011;
|
|
|
|
with respect to the 2016 notes, be payable to holders of record
on
the
and immediately
preceding the related interest payment dates, and with respect
to the 2041 notes, be payable to holders of record on
the
and
immediately preceding the related interest payment
dates; and
|
|
|
|
be computed on the basis of a
360-day year
consisting of twelve
30-day
months.
|
Payment
and Transfer.
Initially, the notes will be issued only in global form.
Beneficial interests in notes in global form will be shown on,
and transfers of interests in notes in global form will be made
only through, records maintained by DTC and its participants.
Notes in definitive form, if any, may be presented for
registration of transfer or exchange at the office or agency
maintained by us for such purpose (which initially will be the
corporate trust office of the Trustee located at 45 Broadway,
14th Floor, New York, New York 10006).
Payment of principal, premium, if any, and interest on notes in
global form registered in the name of DTCs nominee will be
made in immediately available funds to DTCs nominee, as
the registered holder of such global notes. If any of the notes
is no longer represented by a global note, payment of interest
on the notes in definitive form may, at our option, be made at
the corporate trust office of the Trustee indicated above or by
check mailed directly to holders at their respective registered
addresses or by wire transfer to an account designated by a
holder.
If any interest payment date, maturity date or redemption date
falls on a day that is not a business day, the payment will be
made on the next business day with the same force and effect as
if made on the relevant interest payment date, maturity date or
redemption date. No interest will accrue for the period from and
after the applicable interest payment date, maturity date or
redemption date.
No service charge will be made for any registration of transfer
or exchange of notes, but we may require payment of a sum
sufficient to cover any transfer tax or other governmental
charge payable in connection therewith. We are not required to
register the transfer of or exchange any note selected for
redemption or for a period of 15 days before mailing a
notice of redemption of notes of the same series.
The registered holder of a note will be treated as the owner of
it for all purposes, and all references in this
Description of the Notes to holders mean
holders of record, unless otherwise indicated.
Investors may hold interests in the notes outside the United
States through Euroclear or Clearstream if they are participants
in those systems, or indirectly through organizations which are
participants in those systems. Euroclear and Clearstream will
hold interests on behalf of their participants through
customers securities accounts in Euroclears and
Clearstreams names on the books of their respective
depositaries which in turn will hold such positions in
customers securities accounts in the names of the nominees
of the
S-25
depositaries on the books of DTC. All securities in Euroclear or
Clearstream are held on a fungible basis without attribution of
specific certificates to specific securities clearance accounts.
Transfers of notes by persons holding through Euroclear or
Clearstream participants will be effected through DTC, in
accordance with DTCs rules, on behalf of the relevant
European international clearing system by its depositaries;
however, such transactions will require delivery of exercise
instructions to the relevant European international clearing
system by the participant in such system in accordance with its
rules and procedures and within its established deadlines
(European time). The relevant European international clearing
system will, if the exercise meets its requirements, deliver
instructions to its depositaries to take action to effect
exercise of the notes on its behalf by delivering notes through
DTC and receiving payment in accordance with its normal
procedures for
next-day
funds settlement. Payments with respect to the notes held
through Euroclear or Clearstream will be credited to the cash
accounts of Euroclear participants in accordance with the
relevant systems rules and procedures, to the extent
received by its depositaries.
Replacement
of Notes.
We will replace any mutilated, destroyed, stolen or lost notes
at the expense of the holder upon surrender of the mutilated
notes to the Trustee or evidence of destruction, loss or theft
of a note satisfactory to us and the Trustee.
In the case of a destroyed, lost or stolen note, we may require
an indemnity satisfactory to the Trustee and to us before a
replacement note will be issued.
Further
Issuances
We may from time to time, without notice or the consent of the
holders of the notes of either series, create and issue further
notes of the same series ranking equally and ratably with the
original notes in all respects (or in all respects except for
the payment of interest accruing prior to the issue date of such
further notes, the public offering price and the issue date), so
that such further notes form a single series with the original
notes of that series and have the same terms as to status,
redemption or otherwise as the original notes of that series.
Optional
Redemption
Each series of notes will be redeemable, at our option, at any
time in whole, or from time to time in part, at a price equal to
the greater of:
|
|
|
|
|
100% of the principal amount of the notes to be redeemed; or
|
|
|
|
the sum of the present values of the remaining scheduled
payments of principal and interest (at the rate in effect on the
date of calculation of the redemption price) on the notes to be
redeemed (exclusive of interest accrued to the date of
redemption) discounted to the date of redemption (the
Redemption Date) on a semi-annual basis
(assuming a
360-day year
consisting of twelve
30-day
months) at the applicable Treasury Yield
plus
basis points for the 2016 notes
and
basis points for the 2041 notes;
|
|
|
|
plus, in either case, accrued interest to the
Redemption Date.
|
The actual redemption price, calculated as provided below, will
be calculated and certified to the Trustee and us by the
Independent Investment Banker.
Notes called for redemption become due on the
Redemption Date. Notices of optional redemption will be
mailed at least 30 but not more than 60 days before the
Redemption Date to each holder of the notes to be redeemed
at its registered address. The notice of optional redemption for
the notes will state, among other things, the amount of notes to
be redeemed, the Redemption Date, the method of calculating
the redemption price and each place that payment will be made
upon presentation and surrender of notes to be redeemed. If less
than all of the notes of either series are redeemed at any time,
the Trustee will select the notes to be redeemed on a pro rata
basis or by any other method the Trustee deems fair and
appropriate. Unless we
S-26
default in payment of the redemption price, interest will cease
to accrue on the Redemption Date with respect to any notes
called for optional redemption.
For purposes of determining the optional redemption price, the
following definitions are applicable:
Treasury Yield means, with respect to any
Redemption Date applicable to the notes, the rate per annum
equal to the semi-annual equivalent yield to maturity (computed
as of the third business day immediately preceding such
Redemption Date) of the Comparable Treasury Issue, assuming
a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the applicable
Comparable Treasury Price for such Redemption Date.
Comparable Treasury Issue means the United States
Treasury security selected by the Independent Investment Banker
as having a maturity comparable to the remaining term of the
notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the notes to be redeemed;
provided, however, that if no maturity is within three
months before or after the maturity date for such notes, yields
for the two published maturities most closely corresponding to
such United States Treasury security will be determined and the
treasury rate will be interpolated or extrapolated from those
yields on a straight line basis rounding to the nearest month.
Independent Investment Banker means any of J.P.
Morgan Securities LLC, BNP Paribas Securities Corp., Deutsche
Bank Securities Inc., DnB NOR Markets, Inc., RBS Securities
Inc., Scotia Capital (USA) Inc., and their respective successors
or, if no such firm is willing and able to select the applicable
Comparable Treasury Issue, an independent investment banking
institution of national standing appointed by the Trustee and
reasonably acceptable to the Issuer.
Comparable Treasury Price means, with respect to any
Redemption Date, (a) the average of the Reference
Treasury Dealer Quotations for the Redemption Date, after
excluding the highest and lowest Reference Treasury Dealer
Quotations, or (b) if the Independent Investment Banker
obtains fewer than six Reference Treasury Dealer Quotations, the
average of all such quotations.
Reference Treasury Dealer means each of J. P. Morgan
Securities LLC, BNP Paribas Securities Corp., Deutsche Bank
Securities Inc., DnB NOR Markets, Inc., RBS Securities Inc.,
Scotia Capital (USA) Inc., so long as it is a Primary Treasury
Dealer at the relevant time and, if it is not then a Primary
Treasury Dealer, then a Primary Treasury Dealer selected by it,
and in each case their respective successors (each, a
Primary Treasury Dealer); provided, however,
that if any of the foregoing shall not be a Primary Treasury
Dealer at such time and shall fail to select a Primary Treasury
Dealer, then the Issuer will substitute therefor another Primary
Treasury Dealer.
Reference Treasury Dealer Quotations means, with
respect to each Reference Treasury Dealer and any
Redemption Date for the notes, an average, as determined by
an Independent Investment Banker, of the bid and asked prices
for the Comparable Treasury Issue for the notes (expressed in
each case as a percentage of its principal amount) quoted in
writing to an Independent Investment Banker by such Reference
Treasury Dealer at 5:00 p.m., New York City time, on the
third business day preceding such Redemption Date.
Ranking
The notes will be unsecured, unless we are required to secure
them pursuant to the limitations on liens covenant described in
the accompanying prospectus under Description of Debt
Securities Certain Covenants Limitations
on Liens. The notes will also be the unsubordinated
obligations of the Issuer and will rank equally with all other
existing and future unsubordinated indebtedness of the Issuer.
Each guarantee of the notes will be an unsecured and
unsubordinated obligation of the Guarantor and will rank equally
with all other existing and future unsubordinated indebtedness
of the Guarantor. The notes and each guarantee will effectively
rank junior to any future indebtedness of the Issuer and the
Guarantor that is both secured and unsubordinated to the extent
of the assets securing such indebtedness, and the notes will
effectively rank junior to all indebtedness and other
liabilities of the Issuers subsidiaries that are not
Subsidiary Guarantors.
On a pro forma as adjusted basis at September 30, 2010, the
Issuer had approximately
$ billion principal amount of
consolidated indebtedness, including
$ billion in senior notes and
$1.5 billion of junior subordinated notes, outstanding
under the Base Indenture and a similar indenture, and the Parent
S-27
Guarantor had no indebtedness (excluding guarantees totaling
$ billion), in each case
excluding intercompany loans. Please read
Capitalization.
Parent
Guarantee
The Parent Guarantor will fully and unconditionally guarantee to
each holder and the Trustee, on an unsecured and unsubordinated
basis, the full and prompt payment of principal of, premium, if
any, and interest on the notes, when and as the same become due
and payable, whether at stated maturity, upon redemption, by
declaration of acceleration or otherwise.
Potential
Guarantee of Notes by Subsidiaries
Initially, the notes will not be guaranteed by any of our
Subsidiaries. In the future, however, if our Subsidiaries become
guarantors or co-obligors of our Funded Debt (as defined below),
then these Subsidiaries will jointly and severally, fully and
unconditionally, guarantee our payment obligations under the
notes. We refer to any such Subsidiaries as Subsidiary
Guarantors and sometimes to such guarantees as
Subsidiary Guarantees. Each Subsidiary Guarantor
will execute a supplement to the Indenture to effect its
guarantee.
The obligations of each Guarantor under its guarantee of the
notes will be limited to the maximum amount that will not result
in the obligations of the Guarantor under the guarantee
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law, after giving effect to:
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all other contingent and fixed liabilities of the
Guarantor; and
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any collection from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other
Guarantor under its guarantee.
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Funded Debt means all Indebtedness maturing one year
or more from the date of the creation thereof, all Indebtedness
directly or indirectly renewable or extendible, at the option of
the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the
date of the creation thereof, and all Indebtedness under a
revolving credit or similar agreement obligating the lender or
lenders to extend credit over a period of one year or more.
Addition
and Release of Subsidiary Guarantors
The guarantee of any Guarantor may be released under certain
circumstances. If we exercise our legal or covenant defeasance
option with respect to notes of either series as described in
the accompanying prospectus under Description of Debt
Securities Defeasance and Discharge, then any
guarantee will be released with respect to that series. Further,
if no Default has occurred and is continuing under the
Indenture, a Subsidiary Guarantor will be unconditionally
released and discharged from its guarantee:
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automatically upon any sale, exchange or transfer, whether by
way of merger or otherwise, to any person that is not our
affiliate, of all of the Parent Guarantors direct or
indirect limited partnership or other equity interests in the
Subsidiary Guarantor;
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automatically upon the merger of the Subsidiary Guarantor into
us or any other Guarantor or the liquidation and dissolution of
the Subsidiary Guarantor; or
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following delivery of a written notice by us to the Trustee,
upon the release of all guarantees or other obligations of the
Subsidiary Guarantor with respect to any Funded Debt of ours,
except the notes and any other series of debt securities issued
under the Indenture.
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If at any time following any release of a Subsidiary Guarantor
from its initial guarantee of the notes pursuant to the third
bullet point in the preceding paragraph, the Subsidiary
Guarantor again guarantees or co-issues any of our Funded Debt
(other than our obligations under the Indenture), then the
Parent Guarantor will cause the Subsidiary Guarantor to again
guarantee the notes in accordance with the Indenture.
No
Sinking Fund
We are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
S-28
MATERIAL
U.S. INCOME TAX CONSEQUENCES
The following discussion summarizes the material
U.S. federal income tax consequences of purchasing, owning
and disposing of the notes. This discussion applies only to
initial holders of the notes who acquire the notes for a price
equal to the issue price of the notes and who hold the notes as
capital assets within the meaning of Section 1221 of the
Internal Revenue Code of 1986, as amended (the Internal
Revenue Code) (generally, property held for investment).
The issue price of the notes is the first price at which a
substantial amount of the notes is sold other than to bond
houses, brokers or similar persons or organizations acting in
the capacity of underwriters, placement agents or wholesalers.
In this discussion, we do not purport to address all tax
considerations that may be important to a particular holder in
light of the holders circumstances, or to certain
categories of investors that may be subject to special rules,
such as:
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dealers in securities or currencies;
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traders in securities;
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U.S. holders (as defined below) whose functional currency
is not the U.S. dollar;
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persons holding notes as part of a hedge, straddle, conversion
or other synthetic security or integrated
transaction;
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certain U.S. expatriates;
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financial institutions;
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insurance companies;
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entities that are tax-exempt for U.S. federal income tax
purposes; and
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partnerships and other pass-through entities and holders of
interests therein.
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This discussion is included for general information only and
does not address all of the aspects of U.S. federal income
taxation that may be relevant to you in light of your particular
circumstances. In addition, this discussion does not address any
state or local, foreign, or other tax consequences. This
discussion is based on U.S. federal income tax law,
including the provisions of the Internal Revenue Code, Treasury
Regulations, administrative rulings and judicial authority, all
as in effect as of the date of this prospectus supplement.
Subsequent developments in U.S. federal income tax law,
including changes in law or differing interpretations, which may
be applied retroactively, could have a material effect on the
U.S. federal income tax consequences of purchasing, owning
and disposing of notes as described below. Before you purchase
notes, you are urged to consult your own tax advisor regarding
the particular U.S. federal income, state and local,
foreign and other tax consequences of purchasing, owning and
disposing of notes that may be applicable to you.
U.S.
Holders
The following summary applies to you only if you are a
U.S. holder (as defined below).
Definition
of a U.S. Holder
A U.S. holder is a beneficial owner of a note
or notes who or which is for U.S. federal income tax
purposes:
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an individual citizen or resident of the United States;
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a corporation (or other entity classified as a corporation for
U.S. federal income tax purposes) created or organized in
or under the laws of the United States, any of its states or the
District of Columbia;
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an estate, the income of which is subject to U.S. federal
income taxation regardless of the source of that income; or
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a trust, if, in general, a U.S. court is able to exercise
primary supervision over the trusts administration and one
or more United States persons (within the meaning of the
Internal Revenue Code) have the authority to control all of the
trusts substantial decisions, or the trust has a valid
election in effect under applicable Treasury Regulations to be
treated as a United States person.
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S-29
If a partnership (or other entity classified as a partnership
for U.S. federal income tax purposes) is a beneficial owner
of notes, the treatment of a partner in the partnership will
generally depend upon the status of the partner and upon the
activities of the partnership. Holders of notes that are a
partnership or partners in such partnership are urged to consult
their own tax advisors regarding the U.S. federal income
tax consequences of purchasing, owning and disposing of the
notes.
Taxation
of Interest
Interest on your notes will be taxed as ordinary interest
income. In addition:
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if you use the cash method of accounting for U.S. federal
income tax purposes, you will have to include the interest on
your notes in your gross income at the time that you receive the
interest; and
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if you use the accrual method of accounting for
U.S. federal income tax purposes, you will have to include
the interest on your notes in your gross income at the time that
the interest accrues.
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Sale
or Other Disposition of Notes
When you sell or otherwise dispose of your notes in a taxable
transaction, you generally will recognize taxable gain or loss
equal to the difference, if any, between:
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the amount realized on the sale or other disposition less any
amount attributable to accrued interest, which will be taxable
as ordinary interest income to the extent you have not
previously included the accrued interest in income; and
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your adjusted tax basis in the notes.
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Your adjusted tax basis in your notes generally will equal the
amount you paid for the notes. Your gain or loss generally will
be capital gain or loss and will be long-term capital gain or
loss if at the time of the sale or other taxable disposition you
have held the notes for more than one year. Subject to limited
exceptions, your capital losses cannot be used to offset your
ordinary income. If you are a non-corporate U.S. holder,
your long-term capital gain generally will be subject to a
maximum tax rate of 15% for taxable years beginning on or before
December 31, 2012. For taxable years beginning on or after
January 1, 2013, the long-term capital gain rate is
scheduled to increase to 20%.
Existence
of the Optional Redemption
We do not intend to treat the possibility of the payment of
additional amounts described in Description of the
Notes Optional Redemption, as (i) giving
rise to original issue discount or recognition of ordinary
income on the sale or other taxable disposition of the notes or
(ii) resulting in the notes being treated as contingent
payment debt instruments under the applicable Treasury
Regulations. It is possible that the Internal Revenue Service
may take a different position, in which case a holder might be
required to accrue interest at a higher rate than the stated
interest rate and to treat as ordinary interest income any gain
realized on the taxable disposition of the notes.
Information
Reporting and Backup Withholding
Information reporting requirements apply to payments of interest
on the notes and the proceeds of sales before maturity. These
amounts generally must be reported to the Internal Revenue
Service and to you unless you are an exempt recipient. In
general, backup withholding (currently at a rate of
28%) may apply:
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to any payments made to you of interest on your notes, and
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to payment of the proceeds of a sale or other disposition of
your notes before maturity,
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if you are a non-corporate U.S. holder and fail to provide
a correct taxpayer identification number, certified under
penalties of perjury, or otherwise fail to comply with
applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax and may be credited
against your U.S. federal income tax liability if the
required information is timely provided to the Internal Revenue
Service.
S-30
New
Legislation
For taxable years beginning after December 31, 2012, newly
enacted legislation is scheduled to impose a 3.8% tax on the
net investment income of certain U.S. citizens
and residents, and on the undistributed net investment
income of certain estates and trusts. Among other items,
net investment income would generally include gross
income from interest, less certain deductions. Prospective
investors are urged to consult their own tax advisors with
respect to the tax consequences of this new legislation.
Non-U.S.
Holders
The following summary applies to you if you are a beneficial
owner of notes and you are an individual, corporation, estate or
trust and are not a U.S. holder (as defined above). An
individual may, subject to exceptions, be deemed to be a
resident alien, as opposed to a non-resident alien, by, among
other ways, being present in the United States:
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on at least 31 days in the calendar year, and
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for an aggregate of at least 183 days during a three-year
period ending in the current calendar year, counting for these
purposes all of the days present in the current year, one-third
of the days present in the immediately preceding year and
one-sixth of the days present in the second preceding year.
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Resident aliens are subject to U.S. federal income tax as
if they were U.S. citizens.
U.S.
Federal Withholding Tax
Under current U.S. federal income tax laws, and subject to
the discussion below, U.S. federal withholding tax will not
apply to payments by us or our paying agent (in its capacity as
such) of interest on your notes under the portfolio
interest exemption of the Internal Revenue Code,
provided that interest on the notes is not effectively
connected with your conduct of a trade or business in the United
States and:
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you do not, directly or indirectly, actually or constructively,
own (including through an interest in Enterprise Parent) 10% or
more of the interests in our capital or profits; and
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you are not a controlled foreign corporation for
U.S. federal income tax purposes that is related, directly
or indirectly, to us through sufficient equity ownership (as
provided in the Internal Revenue Code); and
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you certify that you are not a U.S. holder by providing a
properly executed IRS
Form W-8BEN
or appropriate substitute form to us or our paying agent or a
securities clearing organization, bank or other financial
institution that holds customers securities in the
ordinary course of its trade or business and holds your notes on
your behalf and that certifies to us or our paying agent under
penalties of perjury that it has received from you your signed,
written statement and provides us or our paying agent with a
copy of this statement.
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If you cannot satisfy the requirements described above, payments
of interest made to you will be subject to the 30%
U.S. federal withholding tax, unless you provide us or our
paying agent with a properly executed IRS
Form W-8BEN
(or successor form) claiming an exemption from (or a reduction
of) withholding under a U.S. income tax treaty, or you
provide us or our paying agent with a properly executed IRS
Form W-8ECI
claiming that the payments of interest are effectively connected
with your conduct of a trade or business in the United States,
in which case you generally will be subject to U.S. income
tax on a net income basis on such payments of interest (see
U.S. Federal Income Tax below).
U.S.
Federal Income Tax
Except for the possible application of U.S. federal
withholding tax (as described immediately above) and backup
withholding tax (see Backup Withholding and Information
Reporting below), you generally will not have to pay
U.S. federal income tax on payments of interest on your
notes, or on any gain or income realized from the sale,
redemption, retirement at maturity or other taxable disposition
of your notes (subject to, in the
S-31
case of proceeds representing accrued interest, the conditions
described in U.S. Federal Withholding Tax
immediately above) unless:
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in the case of gain, you are an individual who is present in the
United States for 183 days or more during the taxable year
of the sale or other taxable disposition of your notes and
specific other conditions are present; or
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the income or gain is effectively connected with your conduct of
a U.S. trade or business, and, if a U.S. income tax
treaty applies, is attributable to a U.S. permanent
establishment you maintain.
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If you are described in the first bullet point above, you will
be subject to a flat 30% tax (unless a lower applicable income
tax treaty rate applies) on the gain realized on the sale,
redemption, retirement at maturity or other taxable disposition,
and such gain may be offset by U.S. source capital losses,
even though you are not considered a resident of the United
States. If you are engaged in a trade or business in the United
States and interest, gain or any other income attributable to
your notes is effectively connected with the conduct of your
trade or business, and, if a U.S. income tax treaty
applies, you maintain a U.S. permanent
establishment to which the interest, gain or other income
is generally attributable, you generally will be subject to
U.S. income tax on a net income basis on such interest,
gain or income. In this instance, however, the interest on your
notes will be exempt from the 30% U.S. withholding tax
discussed immediately above under U.S. Federal
Withholding Tax if you provide a properly executed IRS
Form W-8ECI
or appropriate substitute form to us or our paying agent on or
before any payment date to claim the exemption.
In addition, if you are a foreign corporation, you may be
subject to a U.S. branch profits tax equal to 30% of your
effectively connected earnings and profits for the taxable year,
as adjusted for certain items, unless a lower rate applies to
you under a U.S. income tax treaty with your country of
residence. For this purpose, you must include interest and gain
on your notes in the earnings and profits subject to the
U.S. branch profits tax if these amounts are effectively
connected with the conduct of your U.S. trade or business.
Backup
Withholding and Information Reporting
Payments of interest on a note, and amounts of tax withheld from
such payments, if any, generally will be required to be reported
to the U.S. Internal Revenue Service and to you. Backup
withholding will not apply to payments made by us or our paying
agent (in its capacity as such) to you if you have provided the
required certification that you are a
non-U.S. holder
as described in U.S. Federal Withholding Tax
above, and if neither we nor our paying agent has actual
knowledge or reason to know that you are a U.S. holder (as
described in U.S. Holders
Definition of a U.S. Holder above).
The gross proceeds from the disposition of your notes may be
subject to information reporting and backup withholding. If you
sell your notes outside the United States through a
non-U.S. office
of a
non-U.S. broker
and the sales proceeds are paid to you outside the United
States, then the U.S. backup withholding and information
reporting requirements generally will not apply to that payment.
However, U.S. information reporting, but not backup
withholding, will apply to a payment of sales proceeds, even if
that payment is made outside the United States, if you sell your
notes through a
non-U.S. office
of a broker that is:
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a United States person (as defined in the Internal Revenue Code);
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a foreign person that derives 50% or more of its gross income in
specific periods from the conduct of a trade or business in the
United States;
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a controlled foreign corporation for
U.S. federal income tax purposes; or
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a foreign partnership that, at any time during its taxable year,
has more than 50% of its income or capital interests owned by
United States persons or is engaged in the conduct of a
U.S. trade or business;
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S-32
unless the broker has documentary evidence in its files that you
are not a United States person and certain other conditions are
met or you otherwise establish an exemption. If you receive
payments of the proceeds of a sale of your notes to or through a
U.S. office of a broker, the payment is subject to both
U.S. backup withholding and information reporting unless
you provide an IRS
Form W-8BEN
certifying that you are not a United States person or you
otherwise establish an exemption.
You are urged to consult your own tax advisor regarding
application of backup withholding in your particular
circumstances and the availability of and procedure for
obtaining an exemption from backup withholding under current
Treasury Regulations. Any amounts withheld under the backup
withholding rules from a payment to you will be allowed as a
refund or credit against your U.S. federal income tax
liability, provided that the required information is
timely furnished to the Internal Revenue Service.
S-33
CERTAIN
ERISA CONSIDERATIONS
A fiduciary of a pension, profit-sharing or other employee
benefit plan subject to Section 406 of the Employee
Retirement Income Security Act of 1974, as amended
(ERISA), a plan or other arrangement subject to
Section 4975 of the Internal Revenue Code of 1986, as
amended (the Code), or a plan or other arrangement
subject to any other law or other restrictions materially
similar to Section 406 of ERISA or Section 4975 of the
Code (Similar Law) (each, a Plan),
should consider the fiduciary standards of ERISA or Similar Law
in the context of such a Plans particular circumstances
before authorizing an investment in the notes. Among other
factors, the fiduciary should consider whether such an
investment is in accordance with the documents governing the
Plan and whether the investment is appropriate for the Plan in
view of its overall investment policy and the prudence and
diversification requirements of ERISA or Similar Law.
The notes may not be sold to any Plan unless either (i) the
purchase and holding of the notes would not be a transaction
prohibited under Section 406 of ERISA, Section 4975 of
the Code or Similar Law, or (ii) an exemption under ERISA,
the Code or Similar Law or one of the following Prohibited
Transaction Class Exemptions (PTCE) issued by the
U.S. Department of Labor (or a materially similar exemption
or exception under Similar Law) applies to the purchase, holding
and disposition of the notes:
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PTCE 96-23
for transactions determined by in-house asset managers;
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PTCE 95-60
for transactions involving insurance company general accounts;
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PTCE 91-38
for transactions involving bank collective investment funds;
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PTCE 90-1
for transactions involving insurance company pooled separate
accounts; or
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PTCE 84-14
for transactions determined by independent qualified
professional asset managers.
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Any purchaser of the notes or any interest therein and any
subsequent transferee will be deemed to have represented and
warranted to us on each day from and including the date of its
purchase of such notes through and including the date of its
disposition of such notes that either:
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(a)
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Plan assets under ERISA and the regulations issued thereunder,
or under any Similar Law, are not being used to acquire the
notes; or
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(b)
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Plan assets as so defined are being used to acquire such notes
but the purchase, holding and disposition of such notes either
(1) are not and will not be a prohibited
transaction within the meaning of ERISA, the Code or
Similar Law or (2) are and will be exempt from the
prohibited transaction rules under ERISA, the Code and Similar
Law under a provision of ERISA, the Code or Similar Law or by
one or more of the following prohibited transaction exemptions:
PTCE 96-23,
95-60,
91-38,
90-1 or
84-14, or a
materially similar exemption or exception under Similar Law.
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The discussion set forth above is general in nature and is not
intended to be complete. Accordingly, it is important that any
person considering the purchase of notes with Plan assets
consult with its counsel regarding the consequences under ERISA,
the Code or other Similar Law of the acquisition and ownership
of the notes. Purchasers of the notes have exclusive
responsibility for ensuring that their purchase and holding of
the notes do not violate the fiduciary or prohibited transaction
rules of ERISA, the Code or any Similar Law. The sale of the
notes to a Plan is in no respect a representation by us or the
underwriters that such an investment meets all relevant legal
requirements with respect to investments by Plans generally or
any particular Plan, or that such an investment is appropriate
for Plans generally or any particular Plan.
S-34
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting
agreement, dated the date of this prospectus supplement, between
us and the underwriters named below, we have agreed to sell to
each of the underwriters, and the underwriters have agreed,
severally and not jointly, to purchase, the principal amount of
the notes set forth opposite their respective names below:
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Principal Amount
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Principal Amount
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Underwriters
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of 2016 Notes
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of 2041 Notes
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J.P. Morgan Securities LLC
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$
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$
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BNP Paribas Securities Corp.
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Deutsche Bank Securities Inc.
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DnB NOR Markets, Inc.
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RBS Securities Inc.
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Scotia Capital (USA) Inc.
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Total
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$
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$
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The underwriting agreement provides that the obligations of the
underwriters to purchase the notes included in this offering are
subject to approval of legal matters by counsel and to other
conditions. Under the terms of the underwriting agreement, the
underwriters are committed to purchase all of the notes if any
are purchased.
The underwriters propose initially to offer the notes to the
public at the public offering prices set forth on the cover page
of this prospectus supplement and may offer the notes to certain
dealers at such prices less a concession not in excess
of % of the principal amount of the
2016 notes and % of the principal
amount of the 2041 notes. The underwriters may allow a discount
not in excess of % of the principal
amount of the 2016 notes and % of
the principal amount of the 2041 notes on sales to certain other
brokers and dealers. After this initial public offering, the
public offering prices, concessions and discounts may be changed.
The following table summarizes the compensation to be paid by us
to the underwriters.
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2016 Notes
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2041 Notes
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Per Note
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Total
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Per Note
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Total
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Underwriting discount paid by us
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%
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$
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%
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$
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We estimate that our share of the total expenses of the
offering, excluding underwriting discounts and commissions, will
be approximately $300,000.
We do not intend to apply for listing of the notes on a national
securities exchange. We have been advised by the underwriters
that the underwriters intend to make a market in the notes of
each series but are not obligated to do so and may discontinue
market making at any time without notice. No assurance can be
given as to whether or not a trading market for the notes will
develop or as to the liquidity of any trading market for the
notes of either series which may develop.
In connection with the offering of the notes, the underwriters
may engage in transactions that stabilize, maintain or otherwise
affect the price of the notes of either series. Specifically,
the underwriters may overallot in connection with the offering
of the notes, creating a syndicate short position. In addition,
the underwriters may bid for, and purchase, notes in the open
market to cover syndicate short positions or to stabilize the
price of the notes of either series. Finally, the underwriting
syndicate may reclaim selling concessions allowed for
distributing the notes in the offering, if the syndicate
repurchases previously distributed notes in syndicate
S-35
covering transactions, stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market
price of the notes of either series above independent market
levels. The underwriters are not required to engage in any of
these activities and may end any of them at any time. Neither we
nor the underwriters make any representation or prediction as to
the direction or magnitude of any effect that the transactions
described above may have on the price of the notes of either
series. In addition, neither we nor the underwriters make any
representation that the underwriters will engage in such
transactions or that such transactions, once commenced, will not
be discontinued without notice.
We expect delivery of the notes will be made against payment
therefor on or about January , 2011, which is
the seventh business day following the date of pricing of the
notes (such settlement being referred to as T+7).
Under
Rule 15c6-1
of the Securities Exchange Act of 1934, trades in the secondary
market generally are required to settle in three business days
unless the parties to any such trade expressly agree otherwise.
Accordingly, purchasers who wish to trade the notes on the date
of pricing of the notes or the next succeeding three business
days will be required, by virtue of the fact that the notes
initially will settle in T+7, to specify an alternate settlement
cycle at the time of any such trade to prevent failed settlement
and should consult their own advisers.
We, Enterprise Parent and certain of our affiliates have agreed
to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make because of those liabilities.
Conflicts
of Interest
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory, commercial banking and
investment banking services for us and our affiliates, for which
they received or will receive customary fees and expense
reimbursement. Affiliates of J.P. Morgan Securities LLC, BNP
Paribas Securities Corp., Deutsche Bank Securities Inc., DnB NOR
Markets, Inc., RBS Securities Inc., Scotia Capital (USA) Inc.
and other co-managers are lenders under our multi-year revolving
credit facility. These affiliates will receive their respective
share of any repayment by us of amounts outstanding under the
multi-year revolving credit facility from the proceeds of this
offering. Because we intend to use the net proceeds from this
offering to reduce indebtedness owed by us under our multi-year
revolving credit facility, each of the underwriters whose
affiliates will receive at least 5% of the net proceeds is
considered by the Financial Industry Regulatory Authority, or
FINRA, to have a conflict of interest with us in regards to this
offering. However, no qualified independent underwriter is
needed for this offering because the senior notes offered hereby
are investment grade rated as defined in NASD
Conduct Rule 2720(f)(8).
S-36
LEGAL
MATTERS
Andrews Kurth LLP, Houston, Texas, will pass upon the validity
of the notes, the guarantees and certain federal income tax
matters related to the notes for Enterprise Parent and us.
Certain legal matters with respect to the notes and the
guarantees will be passed upon for the underwriters by
Vinson & Elkins L.L.P., Houston, Texas.
Vinson & Elkins L.L.P. performs legal services for
Enterprise Parent and us from time to time on matters unrelated
to this offering.
EXPERTS
The consolidated financial statements of Enterprise Products
Partners L.P. and subsidiaries incorporated in this prospectus
supplement by reference from Enterprise Products Partners
L.P.s Annual Report on
Form 10-K
for the year ended December 31, 2009 and the effectiveness
of Enterprise Products Partners L.P. and subsidiaries
internal control over financial reporting have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference (which reports (i) express
an unqualified opinion on the financial statements and include
an explanatory paragraph concerning the retroactive effects of
the common control acquisition of TEPPCO Partners, L.P. and
Texas Eastern Products Pipeline Company, LLC by Enterprise
Products Partners L.P. on October 26, 2009 and the related
change in the composition of reportable segments as a result of
these acquisitions and (ii) express an unqualified opinion
on the effectiveness of internal control over financial
reporting). Such consolidated financial statements have been so
incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The consolidated balance sheet of Enterprise Products GP, LLC
and subsidiaries as of December 31, 2009, incorporated in
this prospectus supplement by reference from Enterprise Products
Partners L.P.s Current Report on
Form 8-K
filed on March 8, 2010, has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is
incorporated herein by reference. Such consolidated balance
sheet has been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting
and auditing.
The consolidated financial statements of Enterprise GP Holdings
L.P. and subsidiaries, except Energy Transfer Equity, L.P., an
investment of Enterprise GP Holdings L.P. which is accounted for
by the use of the equity method, incorporated in this prospectus
supplement by reference from Enterprise Products Partners
L.P.s Current Report on
Form 8-K
filed on November 23, 2010, have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report, which is
incorporated herein by reference (which report expresses an
unqualified opinion on the financial statements, refers to the
report of the other auditors as it relates to an equity method
investment in Energy Transfer Equity, L.P., and includes an
explanatory paragraph concerning the retroactive effects of the
common control acquisition of TEPPCO Partners, L.P. and Texas
Eastern Products Pipeline Company, LLC by Enterprise Products
Partners L.P. on October 26, 2009 and the related change in
the composition of reportable segments as a result of these
acquisitions). The consolidated financial statements of Energy
Transfer Equity, L.P. have been audited by Grant Thornton LLP,
an independent registered public accounting firm, as stated in
their report, which report is incorporated herein by reference
from Enterprise Products Partners L.P.s Current Report on
Form 8-K
filed on November 23, 2010. Such consolidated financial
statements are incorporated herein by reference, and have been
so incorporated in reliance upon the report of
Deloitte & Touche LLP, and as it relates to the
Companys investment in Energy Transfer Equity, L.P., the
report of Grant Thornton LLP, in each case, given upon their
authority as experts in accounting and auditing.
S-37
INFORMATION
INCORPORATED BY REFERENCE
Enterprise Parent files annual, quarterly and current reports,
and other information with the Commission under the Exchange Act
(Commission File
No. 1-4323).
You may read and copy any document Enterprise Parent files at
the Commissions public reference room at
100 F Street, N.E., Washington, D.C. 20549.
Please call the Commission at
1-800-732-0330
for further information on the public reference room. Enterprise
Parents filings are also available to the public at the
Commissions web site at
http://www.sec.gov.
In addition, documents filed by Enterprise Parent can be
inspected at the offices of the New York Stock Exchange, Inc.
20 Broad Street, New York, New York 10002.
The Commission allows Enterprise Parent to incorporate by
reference into this prospectus supplement and the accompanying
prospectus the information Enterprise Parent files with it,
which means that Enterprise Parent can disclose important
information to you by referring you to those documents. The
information incorporated by reference is considered to be part
of this prospectus supplement and the accompanying prospectus,
and later information that Enterprise Parent files with the
Commission will automatically update and supersede this
information. Enterprise Parent incorporates by reference the
document listed below and any future filings it makes with the
Commission under section 13(a), 13(c), 14 or 15(d) of the
Exchange Act until this offering is completed (other than
information furnished under Items 2.02 or 7.01 of any
Form 8-K,
which is not deemed filed under the Exchange Act):
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Annual Report on
Form 10-K
for the year ended December 31, 2009;
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Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2010, June 30, 2010
and September 30, 2010; and
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Current Reports on
Form 8-K
filed with the Commission on January 4, 2010,
January 8, 2010, February 26, 2010, March 8,
2010, March 29, 2010, April 1, 2010, April 15,
2010, May 17, 2010, May 20, 2010, May 21, 2010,
June 3, 2010, August 23, 2010, September 7, 2010,
September 28, 2010, October 1, 2010, October 14,
2010, October 26, 2010, November 9, 2010,
November 23, 2010 (as amended by Amendment No. 1 filed
with the Commission on November 23, 2010), December 6,
2010 and December 10, 2010.
|
Enterprise Parent will provide without charge to each person,
including any beneficial owner, to whom this prospectus
supplement has been delivered, a copy of any and all of our
filings with the Commission. You may request a copy of these
filings by writing or telephoning Enterprise Parent at:
Enterprise Products Partners L.P.
1100 Louisiana Street, 10th Floor
Houston, Texas 77002
Attention: Investor Relations
Telephone:
(713) 381-6500
FORWARD-LOOKING
STATEMENTS
This prospectus supplement, the accompanying prospectus and some
of the documents we have incorporated herein and therein by
reference contain various forward-looking statements and
information that are based on our beliefs and those of our
general partner, as well as assumptions made by and information
currently available to us. These forward-looking statements are
identified as any statement that does not relate strictly to
historical or current facts. When used in this prospectus
supplement, the accompanying prospectus or the documents we have
incorporated herein or therein by reference, words such as
anticipate, project, expect,
plan, seek, goal,
estimate, forecast, intend,
could, should, will,
believe, may, potential and
similar expressions and statements regarding our plans and
objectives for future operations, are intended to identify
forward-looking statements. Although we and our general partner
believe that such
S-38
expectations reflected in such forward-looking statements are
reasonable, neither we nor our general partner can give
assurances that such expectations will prove to be correct.
Such statements are subject to a variety of risks, uncertainties
and assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key risk factors
that may have a direct bearing on our results of operations and
financial condition are:
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|
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fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces;
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a reduction in demand for our products by the petrochemical,
refining or heating industries;
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the effects of our debt level on our future financial and
operating flexibility;
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a decline in the volumes of NGLs delivered by our facilities;
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the failure of our credit risk management efforts to adequately
protect us against customer non-payment;
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|
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terrorist attacks aimed at our facilities; and
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our failure to successfully integrate our operations with assets
or companies we acquire.
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You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review the risk factors described under Risk Factors
in this prospectus supplement, in the accompanying prospectus,
in our Annual Report on
Form 10-K
filed March 1, 2010, our Quarterly Reports on
Form 10-Q
for the quarters ended March 31, 2010, June 30, 2010
and September 30, 2010 and in Exhibit 99.2 of our
Current Report on
8-K filed on
November 23, 2010.
* * * *
S-39
ENTERPRISE
PRODUCTS PARTNERS L.P.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Introduction
Enterprise Products Partners L.P. (the Partnership,
NYSE: EPD), Enterprise GP Holdings L.P. (Holdings,
NYSE: EPE), and their respective general partners entered into
an Agreement and Plan of Merger dated September 3, 2010
(the merger agreement). Pursuant to the merger
agreement, all Holdings units (including 13,921 Holdings units
issued in a transformation of the 0.01% economic general partner
interest of Holdings immediately prior to the merger), or
139,208,985 units, converted into 208,813,454 common units
(net of 23 fractional common units cashed out) representing
limited partner interests in the Partnership (Partnership
common units). The merger agreement and related documents
also provided for (i) the cancellation of the
Partnerships incentive distribution rights held indirectly
by Holdings through its ownership of the Partnerships
general partner (the Partnership GP), (ii) the
conversion of the Partnership GPs 2% economic interest in
the Partnership into a non-economic general partner interest in
the Partnership and (iii) the cancellation of 21,563,177
Partnership common units owned by Holdings.
Prior to the merger, the Partnership was a consolidated
subsidiary of Holdings. After the merger was completed on
November 22, 2010, Holdings became a subsidiary of the
Partnership, with the Partnership as the sole limited partner of
Holdings and the general partner of Holdings continuing as a
non-economic general partner of the Partnership. Holdings will
be treated as the surviving consolidated entity for accounting
purposes, even though the Partnership will be the surviving
consolidated entity for legal and reporting purposes. For
financial accounting and reporting purposes, Holdings is
considered the accounting acquirer of its noncontrolling
interests in the Partnership (i.e., the Partnerships
limited partner interests that are owned by third parties and
related parties other than Holdings). The transaction was
accounted for as an equity transaction and no gain or loss was
recognized as a result of the merger.
The unaudited pro forma condensed consolidated balance sheet
combines the historical balance sheets of the Partnership and
Holdings, after giving effect to the merger and related
transactions as if they had occurred on September 30, 2010.
The unaudited pro forma condensed consolidated statements of
operations for the nine months ended September 30, 2010 and
the year ended December 31, 2009 give effect to the merger
and related transactions as if they had occurred on
January 1, 2009. The historical consolidated financial
information has been adjusted to give effect to pro forma events
that are directly attributable to the merger and related
transactions and are factually supportable.
These unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical
audited consolidated financial information and accompanying
notes of Holdings and the Partnership.
The unaudited pro forma condensed consolidated financial
statements are intended for informational purposes only and do
not reflect any cost savings or other synergies that may be
achieved as a result of the merger and are based on assumptions
that the Partnership believes are reasonable under the
circumstances. As such, these statements do not necessarily
reflect the results of operations or financial position of the
Partnership that would have resulted had the merger actually
been consummated as of the dates indicated, and are not
necessarily indicative of the future results of operations or
the future financial position of the Partnership following
completion of the merger.
F-2
ENTERPRISE
PRODUCTS PARTNERS L.P.
September 30,
2010
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
Enterprise GP
|
|
|
|
|
|
Products
|
|
|
|
Holdings L.P.
|
|
|
Pro Forma
|
|
|
Partners L.P.
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
42.9
|
|
|
$
|
(10.1
|
)(a)
|
|
$
|
32.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
32.5
|
|
|
|
|
|
|
|
32.5
|
|
Accounts and notes receivable, net
|
|
|
3,067.6
|
|
|
|
|
|
|
|
3,067.6
|
|
Inventories
|
|
|
1,210.0
|
|
|
|
|
|
|
|
1,210.0
|
|
Other current assets
|
|
|
292.9
|
|
|
|
(1.9
|
)(b)
|
|
|
291.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
4,645.9
|
|
|
|
(12.0
|
)
|
|
|
4,633.9
|
|
Property, plant and equipment, net
|
|
|
18,810.0
|
|
|
|
|
|
|
|
18,810.0
|
|
Investments in unconsolidated affiliates
|
|
|
2,331.2
|
|
|
|
|
|
|
|
2,331.2
|
|
Intangible assets, net
|
|
|
1,860.3
|
|
|
|
|
|
|
|
1,860.3
|
|
Goodwill
|
|
|
2,052.7
|
|
|
|
|
|
|
|
2,052.7
|
|
Other assets
|
|
|
246.5
|
|
|
|
(4.9
|
)(b)
|
|
|
241.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
29,946.6
|
|
|
$
|
(16.9
|
)
|
|
$
|
29,929.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
618.4
|
|
|
$
|
|
|
|
$
|
618.4
|
|
Accrued product payables
|
|
|
3,338.6
|
|
|
|
|
|
|
|
3,338.6
|
|
Other current liabilities
|
|
|
672.3
|
|
|
|
|
|
|
|
672.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
4,629.3
|
|
|
|
|
|
|
|
4,629.3
|
|
Long-term debt
|
|
|
13,790.1
|
|
|
|
1,085.3
|
(b)
|
|
|
13,790.1
|
|
|
|
|
|
|
|
|
(1,085.3
|
)(b)
|
|
|
|
|
Other long-term liabilities
|
|
|
352.3
|
|
|
|
|
|
|
|
352.3
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
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|
Equity:
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|
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|
|
|
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|
|
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|
Partners equity
|
|
|
1,863.6
|
|
|
|
(10.1
|
)(a)
|
|
|
10,630.5
|
|
|
|
|
|
|
|
|
(6.8
|
)(b)
|
|
|
|
|
|
|
|
|
|
|
|
8,783.8
|
(c)
|
|
|
|
|
Noncontrolling interest
|
|
|
9,311.3
|
|
|
|
(8,783.8
|
)(c)
|
|
|
527.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
11,174.9
|
|
|
|
(16.9
|
)
|
|
|
11,158.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities & equity
|
|
$
|
29,946.6
|
|
|
$
|
(16.9
|
)
|
|
$
|
29,929.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-3
ENTERPRISE
PRODUCTS PARTNERS L.P.
For the
Nine Months Ended September 30, 2010
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|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
Enterprise GP
|
|
|
|
|
|
Products
|
|
|
|
Holdings L.P.
|
|
|
Pro Forma
|
|
|
Partners L.P.
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Revenues
|
|
$
|
24,155.7
|
|
|
$
|
|
|
|
$
|
24,155.7
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
22,406.2
|
|
|
|
|
|
|
|
22,406.2
|
|
General and administrative costs
|
|
|
150.9
|
|
|
|
|
|
|
|
150.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
22,557.1
|
|
|
|
|
|
|
|
22,557.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
43.2
|
|
|
|
|
|
|
|
43.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,641.8
|
|
|
|
|
|
|
|
1,641.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(529.1
|
)
|
|
|
|
|
|
|
(529.1
|
)
|
Other, net
|
|
|
1.8
|
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
(527.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,114.5
|
|
|
|
|
|
|
|
1,114.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
(20.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,094.4
|
|
|
$
|
|
|
|
$
|
1,094.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$
|
161.0
|
|
|
$
|
887.3
|
(d)
|
|
$
|
1,048.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
$
|
933.4
|
|
|
$
|
(887.3
|
)(d)
|
|
$
|
46.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note e)
|
|
|
139.2
|
|
|
|
|
|
|
|
791.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.16
|
|
|
|
|
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note f)
|
|
|
139.2
|
|
|
|
|
|
|
|
822.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.16
|
|
|
|
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-4
ENTERPRISE
PRODUCTS PARTNERS L.P.
UNAUDITED
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
For the
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise
|
|
|
|
Enterprise GP
|
|
|
|
|
|
Products
|
|
|
|
Holdings L.P.
|
|
|
Pro Forma
|
|
|
Partners L.P.
|
|
|
|
Historical
|
|
|
Adjustments
|
|
|
Pro Forma
|
|
|
Revenues
|
|
$
|
25,510.9
|
|
|
$
|
|
|
|
$
|
25,510.9
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
23,565.8
|
|
|
|
|
|
|
|
23,565.8
|
|
General and administrative costs
|
|
|
182.8
|
|
|
|
|
|
|
|
182.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
23,748.6
|
|
|
|
|
|
|
|
23,748.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
92.3
|
|
|
|
|
|
|
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
1,854.6
|
|
|
|
|
|
|
|
1,854.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(687.3
|
)
|
|
|
|
|
|
|
(687.3
|
)
|
Other, net
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(689.0
|
)
|
|
|
|
|
|
|
(689.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
1,165.6
|
|
|
|
|
|
|
|
1,165.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
1,140.3
|
|
|
$
|
|
|
|
$
|
1,140.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of income from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$
|
204.1
|
|
|
$
|
825.5
|
(d)
|
|
$
|
1,029.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
$
|
936.2
|
|
|
$
|
(825.5
|
)(d)
|
|
$
|
110.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note e)
|
|
|
137.8
|
|
|
|
|
|
|
|
643.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.48
|
|
|
|
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of units outstanding (see Note f)
|
|
|
137.8
|
|
|
|
|
|
|
|
675.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per unit from continuing operations
|
|
$
|
1.48
|
|
|
|
|
|
|
$
|
1.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
pro forma
condensed consolidated financial statements.
F-5
ENTERPRISE
PRODUCTS PARTNERS L.P.
These unaudited pro forma condensed consolidated financial
statements and underlying pro forma adjustments are based upon
currently available information and certain estimates and
assumptions made by the management of the general partner of
Holdings (Holdings GP) and the Partnership GP;
therefore, actual results could materially differ from the pro
forma information. However, Holdings and the Partnership believe
that the assumptions provide a reasonable basis for presenting
the significant effects of the transactions noted herein. We
believe that the pro forma adjustments give appropriate effect
to those assumptions and are properly applied in the pro forma
information.
The merger and related transactions result in Holdings being
considered the surviving consolidated entity for accounting
purposes rather than the Partnership, which is the surviving
consolidated entity for legal and reporting purposes. As a
result, the merger will be accounted for in Holdings
consolidated financial statements as an equity transaction in
accordance with Financial Accounting Standards Board Accounting
Standards Codification
810-10-45,
Consolidation Overall Changes in
Parents Ownership Interest in a Subsidiary. As a
result, that portion of noncontrolling owners interest
attributable to the limited partners of the Partnership other
than Holdings (as recognized in Holdings consolidated
balance sheet) will be reclassified to partners equity.
Consequently, no fair value adjustment would be made to the
assets or liabilities of Holdings and no gain or loss would be
recognized in Holdings net income. Since the Partnership
is the surviving entity for legal purposes, the pro forma
condensed consolidated balance sheet and statements of
operations are entitled Enterprise Products Partners L.P.
Pro Forma.
Pro Forma
Adjustments
The following pro forma adjustments made to the historical
financial statements of the Partnership and Holdings presented
herein are described as follows:
|
|
|
|
(a)
|
To reflect the payment of $10.1 million of estimated
incremental transaction costs associated with completing the
merger and related transactions including the payment of
remaining financial advisory fees, legal and accounting fees and
other professional fees and expenses using cash on hand. For
purposes of this pro forma presentation, these material
non-recurring charges have been reflected in the pro forma
balance sheet only; however, such fees will also be recognized
as expenses in the Partnerships statement of operations
during the periods in which the underlying services are
rendered. As of September 30, 2010, Holdings and the
Partnership expensed an aggregate of $13.9 million of
transaction costs related to the merger.
|
|
|
|
|
(b)
|
To reflect the pro forma refinancing of Holdings variable
rate credit facilities at September 30, 2010 using
availability under the multi-year revolving credit facility of
Enterprise Products Operating LLC (EPO), a
subsidiary of the Partnership. For purposes of the pro forma
balance sheet presentation, the $1.1 billion increase in
long-term debt attributable to additional borrowings under the
EPO credit facility is offset by an equal reduction in the
amount of debt principal outstanding under the Holdings
credit facilities. The pro forma balance sheet adjustments
related to this refinancing include the write-off of
$6.8 million of unamortized debt issuance costs recorded by
Holdings.
|
For purposes of the pro forma statements of operations, we have
assumed that the Partnership would have refinanced
Holdings debt principal amounts in prior periods using the
same terms that Holdings entered into its debt originally. As a
result, the pro forma statements of operations do not reflect
any adjustments to interest expense for the years ended
December 31, 2009 or the nine months ended
September 30, 2010.
In addition, the pro forma statements of operations do not
reflect a nonrecurring charge of $29.8 million for the
redesignation of Holdings interest rate swaps in
connection with the refinancing of Holdings long-term debt
concurrent with the merger. At September 30, 2010, these
derivative instruments were in a $29.8 million liability
position, which was a component of partners equity (i.e.,
accumulated other comprehensive loss) for Holdings on a
consolidated historical basis. The
F-6
reclassification of this accumulated other comprehensive loss to
earnings in connection with the refinancing will result in an
increase in the Partnerships consolidated interest expense
for the fourth quarter of 2010. From a pro forma balance sheet
perspective, no pro forma adjustment is necessary since the
accumulated other comprehensive loss is already a component of
partners equity.
As an aid to the reader, the following table presents the amount
of interest expense, excluding amortization of debt issuance
costs and the effect of interest rate swaps, that was recognized
by Holdings in connection with its debt agreements for the
periods presented along with the associated weighted-average
interest rate charged and principal balance outstanding during
each period. The interest expense amounts presented in the
following table are a component of consolidated interest expense
as presented in Holdings historical financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
|
Average
|
|
Average
|
|
|
|
|
Interest
|
|
Principal
|
|
|
Interest
|
|
Rate for
|
|
Outstanding
|
|
|
Expense
|
|
Period
|
|
for Period
|
|
Year ended December 31, 2009
|
|
$
|
29.1
|
|
|
|
2.7
|
%
|
|
$
|
1,078.9
|
|
Nine months ended September 30, 2010
|
|
$
|
19.1
|
|
|
|
2.3
|
%
|
|
$
|
1,096.1
|
|
If the weighted-average variable interest rates charged during
the year ended December 31, 2009 and the nine months ended
September 30, 2010 were
1/8%
higher than the historical weighted-average rates presented in
the preceding table, Holdings interest expense would have
increased by approximately $1.4 million and
$0.8 million, respectively.
At November 22, 2010, the total principal amount of
Holdings long-term debt principal outstanding was
approximately $1.1 billion and the weighted-average
interest rate charged on such debt was 2.2%. During the nine
months ended September 30, 2010, the interest rate paid on
the EPO multi-year revolving credit facility ranged from 0.73%
to 3.25%, with a weighted-average interest rate paid of 0.84%.
|
|
|
|
(c)
|
To reclassify to partners capital the noncontrolling
owners interests in consolidated subsidiaries previously
reported by Holdings related to the Partnerships public
limited partner unitholders other than Holdings.
|
|
|
|
|
(d)
|
To reclassify to limited partners interest the net income
previously allocated to noncontrolling owners interest in
consolidated subsidiaries previously reported by Holdings
related to the Partnerships public limited partner
unitholders.
|
|
|
|
|
(e)
|
The Partnerships pro forma weighted-average basic number
of units outstanding was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Weighted-average basic number of Partnership units
|
|
|
|
|
|
|
|
|
outstanding as reported
|
|
|
629.9
|
|
|
|
486.8
|
|
Weighted-average Partnership units issued in exchange for
Holdings units(1)
|
|
|
182.7
|
|
|
|
178.2
|
|
Cancellation of Partnership units owned by Holdings
|
|
|
(21.6
|
)
|
|
|
(21.6
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average basic number of Partnership units
outstanding
|
|
|
791.0
|
|
|
|
643.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The amount presented for the nine months ended
September 30, 2010 excludes 26.1 million Partnership
common units (the Designated Units, as discussed
below) issued to certain privately |
F-7
|
|
|
|
|
held affiliates of Enterprise Products Company. The amount
presented for the year ended December 31, 2009 excludes
30.6 million Designated Units. |
In connection with the merger, certain privately held affiliates
of Enterprise Products Company have agreed to temporarily waive
the cash distributions they would otherwise receive on
30,610,000 of the Partnership common units (the Designated
Units) they would receive upon completion of the merger.
The temporary distribution waiver would lapse on a fixed number
of Designated Units as follows: none in calendar year 2011,
4,480,000 Partnership common units in calendar year 2012,
2,430,000 Partnership common units in calendar year 2013,
1,140,000 Partnership common units in calendar year 2014,
4,870,000 Partnership common units in calendar year 2015 and the
remaining 17,690,000 units in calendar year 2016.
From a financial accounting perspective, the Designated Units
are excluded from basic earnings per unit until they become
eligible to receive quarterly cash distributions. The Designated
Units will not be allocated any book earnings until the
applicable waiver periods expire for each tranche of units. For
purposes of this pro forma presentation, all of the 30,610,000
Designated Units were excluded from the Partnerships pro
forma basic earnings per unit computation for the year ended
December 31, 2009 and 26,130,000 Designated Units were
excluded from the pro forma basic earnings per unit computation
for the nine months ended September 30, 2010. The full
amount of Designated Units, or 30,610,000 units, are
reflected in the pro forma diluted earnings per unit calculation
for both the year ended December 31, 2009 and nine months
ended September 30, 2010 (see Note f).
|
|
|
|
(f)
|
The Partnerships pro forma weighted-average diluted number
of units outstanding was calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
Year
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Weighted-average diluted number of Partnership units
|
|
|
|
|
|
|
|
|
outstanding as reported
|
|
|
635.4
|
|
|
|
487.8
|
|
Partnership units issued in exchange for Holdings units
|
|
|
208.8
|
|
|
|
208.8
|
|
Cancellation of Partnership units owned by Holdings
|
|
|
(21.6
|
)
|
|
|
(21.6
|
)
|
|
|
|
|
|
|
|
|
|
Pro forma weighted-average diluted number of Partnership units
outstanding
|
|
|
822.6
|
|
|
|
675.0
|
|
|
|
|
|
|
|
|
|
|
F-8
PROSPECTUS
Enterprise Products Partners
L.P.
Enterprise Products Operating
LLC
COMMON UNITS
DEBT SECURITIES
We may offer an unlimited number and amount of the following
securities under this prospectus:
|
|
|
|
|
common units representing limited partner interests in
Enterprise Products Partners L.P.; and
|
|
|
|
debt securities of Enterprise Products Operating LLC (successor
to Enterprise Products Operating L.P.), which will be guaranteed
by its parent company, Enterprise Products Partners L.P.
|
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read carefully this prospectus
and any prospectus supplement before you invest. You should also
read the documents we have referred you to in the Where
You Can Find More Information section of this prospectus
for information about us, including our financial statements.
Our common units are listed on the New York Stock Exchange under
the trading symbol EPD.
Unless otherwise specified in a prospectus supplement, the
senior debt securities, when issued, will be unsecured and will
rank equally with our other unsecured and unsubordinated
indebtedness. The subordinated debt securities, when issued,
will be subordinated in right of payment to our senior debt.
Investing in our common units and debt securities involves
risks. Limited partnerships are inherently different from
corporations. You should review carefully Risk
Factors beginning on page 2 for a discussion of
important risks you should consider before investing on our
securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to consummate sales of
securities by the registrants unless accompanied by a prospectus
supplement.
The date of this prospectus is November 29, 2010.
TABLE OF
CONTENTS
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1
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1
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2
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3
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3
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4
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4
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5
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5
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9
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10
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12
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13
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14
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14
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16
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17
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17
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17
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18
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18
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18
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18
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19
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20
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20
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20
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21
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21
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21
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21
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22
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22
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23
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24
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24
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24
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25
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25
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25
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26
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26
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27
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27
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29
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29
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34
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35
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37
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38
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39
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41
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41
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42
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43
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43
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44
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45
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45
|
|
You should rely only on the information contained or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. You should not assume that the information incorporated by
reference or provided in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the
front of each document.
Unless the context requires otherwise or unless otherwise noted,
our, we, us and
Enterprise as used in this prospectus refer to
Enterprise Products Partners L.P. and Enterprise Products
Operating LLC, their consolidated subsidiaries and their
investments in unconsolidated affiliates.
ii
ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement that we file
with the Securities and Exchange Commission (the
Commission) using a shelf registration
process. Under this shelf process, we may offer from time to
time an unlimited number and amount of our securities. Each time
we offer securities, we will provide you with a prospectus
supplement that will describe, among other things, the specific
amounts, types and prices of the securities being offered and
the terms of the offering. Any prospectus supplement may add,
update or change information contained or incorporated by
reference in this prospectus. Any statement that we make in or
incorporate by reference in this prospectus will be modified or
superseded by any inconsistent statement made by us in a
prospectus supplement. Therefore, you should read this
prospectus (including any documents incorporated by reference)
and any attached prospectus supplement before you invest in our
securities.
OUR
COMPANY
We are a leading North American provider of midstream energy
services to producers and consumers of natural gas, natural gas
liquids (or NGLs), crude oil, refined products and
petrochemicals. Our midstream energy asset network links
producers of natural gas, NGLs and crude oil from some of the
largest supply basins in the United States, Canada and the Gulf
of Mexico with domestic consumers and international markets. In
addition, we are an industry leader in the development of
pipeline and other midstream energy infrastructure in the
continental United States and Gulf of Mexico. We operate an
integrated midstream energy asset network within the United
States that includes: natural gas gathering, treating,
processing, transportation and storage; NGL fractionation (or
separation), transportation, storage, and import and export
terminaling; crude oil transportation, import terminaling and
storage; refined product transportation and storage; offshore
production platform services; and petrochemical transportation
and services. NGL products (ethane, propane, normal butane,
isobutane and natural gasoline) are used as raw materials by the
petrochemical industry, as feedstocks by refiners in the
production of motor gasoline and by industrial and residential
users as fuel.
Our
Business Segments
We have six reportable business segments: (i) NGL
Pipelines & Services; (ii) Onshore Natural Gas
Pipelines & Services; (iii) Onshore Crude Oil
Pipelines & Services; (iv) Offshore
Pipelines & Services;
(v) Petrochemical & Refined Products Services;
and (vi) Other Investments. Our business segments are
generally organized and managed along our asset base according
to the type of services rendered (or technologies employed) and
products produced
and/or sold.
NGL Pipelines & Services. Our NGL
Pipelines & Services business segment includes our
(i) natural gas processing business and related NGL
marketing activities, (ii) NGL pipelines aggregating
approximately 16,300 miles, (iii) NGL and related
product storage and terminal facilities with 163.4 million
barrels, or MMBbls, of working storage capacity and
(iv) NGL fractionation facilities. This segment also
includes our import and export terminal operations.
Onshore Natural Gas Pipelines &
Services. Our Onshore Natural Gas
Pipelines & Services business segment includes
approximately 19,600 miles of onshore natural gas pipeline
systems that provide for the gathering and transportation of
natural gas in Alabama, Colorado, Louisiana, Mississippi, New
Mexico, Texas and Wyoming. We own two salt dome natural gas
storage facilities located in Mississippi and lease natural gas
storage facilities located in Texas and Louisiana. This segment
also includes our related natural gas marketing activities.
Onshore Crude Oil Pipelines &
Services. Our Onshore Crude Oil
Pipelines & Services business segment includes
approximately 4,400 miles of onshore crude oil pipelines
and 10.5 MMBbls of above-ground storage tank capacity. This
segment also includes our crude oil marketing activities.
Offshore Pipelines & Services. Our
Offshore Pipelines & Services business segment serves
some of the most active drilling and development regions,
including deepwater production fields, in the northern Gulf of
Mexico offshore Texas, Louisiana, Mississippi and Alabama. This
segment includes approximately 1,400 miles
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of offshore natural gas pipelines, approximately
1,000 miles of offshore crude oil pipelines and six
offshore hub platforms.
Petrochemical & Refined Products
Services. Our Petrochemical & Refined
Products Services business segment consists of
(i) propylene fractionation plants and related activities,
(ii) butane isomerization facilities, (iii) an octane
enhancement facility, (iv) refined products pipelines,
including our Products Pipeline System and related activities
and (v) marine transportation and other services.
Other Investments. Our Other Investments
business segment consists of our non-controlling ownership
interests in Energy Transfer Equity L.P. (Energy Transfer
Equity) and its general partner, LE GP, LLC
(LE GP), which we acquired in connection with
our acquisition of Enterprise GP Holdings L.P. on
November 22, 2010.
Enterprise Products Operating LLC provides the foregoing
services directly and through our subsidiaries and
unconsolidated affiliates. Our principal offices are located at
1100 Louisiana Street, 10th Floor, Houston, Texas 77002,
and our telephone number is
(713) 381-6500.
RISK
FACTORS
Limited partner interests are inherently different from the
capital stock of a corporation, although many of the business
risks to which we are subject are similar to those that would be
faced by a corporation engaged in a similar business. Before you
invest in our securities, you should carefully consider the risk
factors included as Exhibit 99.2 to our current report on
Form 8-K filed on November 23, 2010 and in our most
recent annual report on
Form 10-K
and our quarterly reports on
Form 10-Q
that are incorporated herein by reference and those that may be
included in the applicable prospectus supplement, together with
all of the other information included in this prospectus, any
prospectus supplement and the documents we incorporate by
reference in evaluating an investment in our securities.
If any of the risks discussed in the foregoing documents were
actually to occur, our business, financial condition, results of
operations, or cash flow could be materially adversely affected.
In that case, our ability to make distributions to our
unitholders or pay interest on, or the principal of, any debt
securities, may be reduced, the trading price of our securities
could decline and you could lose all or part of your investment.
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USE OF
PROCEEDS
We will use the net proceeds from any sale of securities
described in this prospectus for future business acquisitions
and other general partnership or company purposes, such as
working capital, investments in subsidiaries, the retirement of
existing debt
and/or the
repurchase of common units or other securities. The prospectus
supplement will describe the actual use of the net proceeds from
the sale of securities. The exact amounts to be used and when
the net proceeds will be applied to partnership or company
purposes will depend on a number of factors, including our
funding requirements and the availability of alternative funding
sources.
RATIO OF
EARNINGS TO FIXED CHARGES
Enterprises ratio of earnings to fixed charges for each of
the periods indicated is as follows:
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Nine Months
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Ended
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Year Ended December 31,
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September 30,
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2005
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2006
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2007
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2008
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2009
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2010
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2.7x
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2.9x
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2.6x
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2.8x
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2.6x
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3.1x
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For purposes of these calculations, earnings is the
amount resulting from adding and subtracting the following items:
Add the following, as applicable:
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consolidated pre-tax income from continuing operations before
adjustment for income or loss from equity investees;
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fixed charges;
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amortization of capitalized interest;
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distributed income of equity investees; and
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our share of pre-tax losses of equity investees for which
charges arising from guarantees are included in fixed charges.
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From the subtotal of the added items, subtract the following, as
applicable:
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interest capitalized;
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preference security dividend requirements of consolidated
subsidiaries; and
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the noncontrolling interest in pre-tax income of subsidiaries
that have not incurred fixed charges.
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The term fixed charges means the sum of the
following: interest expensed and capitalized; amortized
premiums, discounts and capitalized expenses related to
indebtedness; an estimate of interest within rental expense; and
preference dividend requirements of consolidated subsidiaries.
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DESCRIPTION
OF DEBT SECURITIES
In this Description of Debt Securities references to the
Issuer mean only Enterprise Products Operating LLC
(successor to Enterprise Products Operating L.P.) and not its
subsidiaries. References to the Guarantor mean only
Enterprise Products Partners L.P. and not its subsidiaries.
References to we and us mean the Issuer
and the Guarantor collectively.
The debt securities will be issued under an Indenture dated as
of October 4, 2004, as amended by the Tenth Supplemental
Indenture, dated as of June 30, 2007, and as further
amended by one or more additional supplemental indentures
(collectively, the Indenture), among the Issuer, the
Guarantor, and Wells Fargo Bank, National Association, as
trustee (the Trustee). The terms of the debt
securities will include those expressly set forth in the
Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the
Trust Indenture Act). Capitalized terms used in
this Description of Debt Securities have the meanings specified
in the Indenture.
This Description of Debt Securities is intended to be a useful
overview of the material provisions of the debt securities and
the Indenture. Since this Description of Debt Securities is only
a summary, you should refer to the Indenture for a complete
description of our obligations and your rights.
General
The Indenture does not limit the amount of debt securities that
may be issued thereunder. Debt securities may be issued under
the Indenture from time to time in separate series, each up to
the aggregate amount authorized for such series. The debt
securities will be general obligations of the Issuer and the
Guarantor and may be subordinated to Senior Indebtedness of the
Issuer and the Guarantor. See
Subordination.
A prospectus supplement and a supplemental indenture (or a
resolution of our Board of Directors and accompanying
officers certificate) relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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the form and title of the debt securities;
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the total principal amount of the debt securities;
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the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated;
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the currency or currency unit in which the debt securities will
be paid, if not U.S. dollars;
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any right we may have to defer payments of interest by extending
the dates payments are due whether interest on those deferred
amounts will be payable as well;
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the dates on which the principal of the debt securities will be
payable;
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the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
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any optional redemption provisions;
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
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any changes to or additional Events of Default or covenants;
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whether the debt securities are to be issued as Registered
Securities or Bearer Securities or both; and any special
provisions for Bearer Securities;
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the subordination, if any, of the debt securities and any
changes to the subordination provisions of the
Indenture; and
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any other terms of the debt securities.
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The prospectus supplement will also describe any material United
States federal income tax consequences or other special
considerations applicable to the applicable series of debt
securities, including those applicable to:
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Bearer Securities;
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debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index or
formula, including changes in prices of particular securities,
currencies or commodities;
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debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency;
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debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates; and
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variable rate debt securities that are exchangeable for fixed
rate debt securities.
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At our option, we may make interest payments, by check mailed to
the registered holders thereof or, if so stated in the
applicable prospectus supplement, at the option of a holder by
wire transfer to an account designated by the holder. Except as
otherwise provided in the applicable prospectus supplement, no
payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account in the
United States.
Registered Securities may be transferred or exchanged, and they
may be presented for payment, at the office of the Trustee or
the Trustees agent in New York City indicated in the
applicable prospectus supplement, subject to the limitations
provided in the Indenture, without the payment of any service
charge, other than any applicable tax or governmental charge.
Bearer Securities will be transferable only by delivery.
Provisions with respect to the exchange of Bearer Securities
will be described in the applicable prospectus supplement.
Any funds we pay to a paying agent for the payment of amounts
due on any debt securities that remain unclaimed for two years
will be returned to us, and the holders of the debt securities
must thereafter look only to us for payment thereof.
Guarantee
The Guarantor will unconditionally guarantee to each holder and
the Trustee the full and prompt payment of principal of,
premium, if any, and interest on the debt securities, when and
as the same become due and payable, whether at maturity, upon
redemption or repurchase, by declaration of acceleration or
otherwise.
Certain
Covenants
Except as set forth below or as may be provided in a prospectus
supplement and supplemental indenture, neither the Issuer nor
the Guarantor is restricted by the Indenture from incurring any
type of indebtedness or other obligation, from paying dividends
or making distributions on its partnership interests or capital
stock or purchasing or redeeming its partnership interests or
capital stock. The Indenture does not require the maintenance of
any financial ratios or specified levels of net worth or
liquidity. In addition, the Indenture does not contain any
provisions that would require the Issuer to repurchase or redeem
or otherwise modify the terms of any of the debt securities upon
a change in control or other events involving the Issuer which
may adversely affect the creditworthiness of the debt securities.
Limitations on Liens. The Indenture provides
that the Guarantor will not, nor will it permit any Subsidiary
to, create, assume, incur or suffer to exist any mortgage, lien,
security interest, pledge, charge or other encumbrance
(liens) other than Permitted Liens (as defined
below) upon any Principal Property (as defined below) or upon
any shares of capital stock of any Subsidiary owning or leasing,
either directly or through ownership in another Subsidiary, any
Principal Property (a Restricted Subsidiary),
whether owned or leased on the date of the Indenture or
thereafter acquired, to secure any indebtedness for borrowed
money
5
(debt) of the Guarantor or the Issuer or any other
person (other than the debt securities), without in any such
case making effective provision whereby all of the debt
securities outstanding shall be secured equally and ratably
with, or prior to, such debt so long as such debt shall be so
secured.
In the Indenture, the term Consolidated Net Tangible
Assets means, at any date of determination, the total
amount of assets of the Guarantor and its consolidated
subsidiaries after deducting therefrom:
(1) all current liabilities (excluding (A) any current
liabilities that by their terms are extendable or renewable at
the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long-term
debt); and
(2) the value (net of any applicable reserves) of all
goodwill, trade names, trademarks, patents and other like
intangible assets, all as set forth, or on a pro forma basis
would be set forth, on the consolidated balance sheet of the
Guarantor and its consolidated subsidiaries for the
Guarantors most recently completed fiscal quarter,
prepared in accordance with generally accepted accounting
principles.
Permitted Liens means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics, repairmens,
materialmens, suppliers, carriers,
landlords, warehousemens or similar lien incurred in
the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction,
development, improvement or repair; or any right reserved to, or
vested in, any municipality or public authority by the terms of
any right, power, franchise, grant, license, permit or by any
provision of law, to purchase or recapture or to designate a
purchaser of, any property;
(3) liens for taxes and assessments which are (a) for
the then current year, (b) not at the time delinquent, or
(c) delinquent but the validity or amount of which is being
contested at the time by the Guarantor or any Subsidiary in good
faith by appropriate proceedings;
(4) liens of, or to secure performance of, leases, other
than capital leases; or any lien securing industrial
development, pollution control or similar revenue bonds;
(5) any lien upon property or assets acquired or sold by
the Guarantor or any Subsidiary resulting from the exercise of
any rights arising out of defaults on receivables;
(6) any lien in favor of the Guarantor or any Subsidiary;
or any lien upon any property or assets of the Guarantor or any
Subsidiary in existence on the date of the execution and
delivery of the Indenture;
(7) any lien in favor of the United States of America or
any state thereof, or any department, agency or instrumentality
or political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by the Guarantor or any Subsidiary for the purpose of
financing all or any part of the purchase price of, or the cost
of constructing, developing, repairing or improving, the
property or assets subject to such lien;
(8) any lien incurred in the ordinary course of business in
connection with workmens compensation, unemployment
insurance, temporary disability, social security, retiree health
or similar laws or regulations or to secure obligations imposed
by statute or governmental regulations;
(9) liens in favor of any person to secure obligations
under provisions of any letters of credit, bank guarantees,
bonds or surety obligations required or requested by any
governmental authority in connection with any contract or
statute; or any lien upon or deposits of any assets to secure
performance of bids, trade contracts, leases or statutory
obligations;
(10) any lien upon any property or assets created at the
time of acquisition of such property or assets by the Guarantor
or any Subsidiary or within one year after such time to secure
all or a portion of the purchase price for such property or
assets or debt incurred to finance such purchase price, whether
such debt was incurred prior to, at the time of or within one
year after the date of such acquisition; or
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any lien upon any property or assets to secure all or part of
the cost of construction, development, repair or improvements
thereon or to secure debt incurred prior to, at the time of, or
within one year after completion of such construction,
development, repair or improvements or the commencement of full
operations thereof (whichever is later), to provide funds for
any such purpose;
(11) any lien upon any property or assets existing thereon
at the time of the acquisition thereof by the Guarantor or any
Subsidiary and any lien upon any property or assets of a person
existing thereon at the time such person becomes a Subsidiary by
acquisition, merger or otherwise; provided that, in each case,
such lien only encumbers the property or assets so acquired or
owned by such person at the time such person becomes a
Subsidiary;
(12) liens imposed by law or order as a result of any
proceeding before any court or regulatory body that is being
contested in good faith, and liens which secure a judgment or
other court-ordered award or settlement as to which the
Guarantor or the applicable Subsidiary has not exhausted its
appellate rights;
(13) any extension, renewal, refinancing, refunding or
replacement (or successive extensions, renewals, refinancing,
refunding or replacements) of liens, in whole or in part,
referred to in clauses (1) through (12) above;
provided, however, that any such extension, renewal,
refinancing, refunding or replacement lien shall be limited to
the property or assets covered by the lien extended, renewed,
refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding
or replacement lien shall be in an amount not greater than the
amount of the obligations secured by the lien extended, renewed,
refinanced, refunded or replaced and any expenses of the
Guarantor and its Subsidiaries (including any premium) incurred
in connection with such extension, renewal, refinancing,
refunding or replacement; or
(14) any lien resulting from the deposit of moneys or
evidence of indebtedness in trust for the purpose of defeasing
debt of the Guarantor or any Subsidiary.
Principal Property means, whether owned or
leased on the date of the Indenture or thereafter acquired:
(1) any pipeline assets of the Guarantor or any Subsidiary,
including any related facilities employed in the transportation,
distribution, storage or marketing of refined petroleum
products, natural gas liquids, and petrochemicals, that are
located in the United States of America or any territory or
political subdivision thereof; and
(2) any processing or manufacturing plant or terminal owned
or leased by the Guarantor or any Subsidiary that is located in
the United States or any territory or political subdivision
thereof,
except, in the case of either of the foregoing clauses (1)
or (2):
(a) any such assets consisting of inventories, furniture,
office fixtures and equipment (including data processing
equipment), vehicles and equipment used on, or useful with,
vehicles; and
(b) any such assets, plant or terminal which, in the
opinion of the board of directors of the general partner of the
Issuer, is not material in relation to the activities of the
Issuer or of the Guarantor and its Subsidiaries taken as a whole.
Subsidiary means:
(1) the Issuer; or
(2) any corporation, association or other business entity
of which more than 50% of the total voting power of the equity
interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof or any partnership of which more than 50% of
the partners equity interests (considering all
partners equity interests as a single class) is, in each
case, at the time owned or controlled, directly or indirectly,
by the Guarantor, the Issuer or one or more of the other
Subsidiaries of the Guarantor or the Issuer or combination
thereof.
Notwithstanding the preceding, under the Indenture, the
Guarantor may, and may permit any Subsidiary to, create, assume,
incur, or suffer to exist any lien (other than a Permitted Lien)
upon any Principal Property
7
or capital stock of a Restricted Subsidiary to secure debt of
the Guarantor, the Issuer or any other person (other than the
debt securities), without securing the debt securities, provided
that the aggregate principal amount of all debt then outstanding
secured by such lien and all similar liens, together with all
Attributable Indebtedness from Sale-Leaseback Transactions
(excluding Sale-Leaseback Transactions permitted by
clauses (1) through (4), inclusive, of the first paragraph
of the restriction on sale-leasebacks covenant described below)
does not exceed 10% of Consolidated Net Tangible Assets.
Restriction on Sale-Leasebacks. The Indenture
provides that the Guarantor will not, and will not permit any
Subsidiary to, engage in the sale or transfer by the Guarantor
or any Subsidiary of any Principal Property to a person (other
than the Issuer or a Subsidiary) and the taking back by the
Guarantor or any Subsidiary, as the case may be, of a lease of
such Principal Property (a Sale-Leaseback
Transaction), unless:
(1) such Sale-Leaseback Transaction occurs within one year
from the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, development or substantial repair or improvement,
or commencement of full operations on such Principal Property,
whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a
period, including renewals, of not more than three years;
(3) the Guarantor or such Subsidiary would be entitled to
incur debt secured by a lien on the Principal Property subject
thereto in a principal amount equal to or exceeding the
Attributable Indebtedness from such Sale-Leaseback Transaction
without equally and ratably securing the debt securities; or
(4) the Guarantor or such Subsidiary, within a one-year
period after such Sale-Leaseback Transaction, applies or causes
to be applied an amount not less than the Attributable
Indebtedness from such Sale-Leaseback Transaction to
(a) the prepayment, repayment, redemption, reduction or
retirement of any debt of the Guarantor or any Subsidiary that
is not subordinated to the debt securities, or (b) the
expenditure or expenditures for Principal Property used or to be
used in the ordinary course of business of the Guarantor or its
Subsidiaries.
Attributable Indebtedness, when used with respect to
any Sale-Leaseback Transaction, means, as at the time of
determination, the present value (discounted at the rate set
forth or implicit in the terms of the lease included in such
transaction) of the total obligations of the lessee for rental
payments (other than amounts required to be paid on account of
property taxes, maintenance, repairs, insurance, assessments,
utilities, operating and labor costs and other items that do not
constitute payments for property rights) during the remaining
term of the lease included in such Sale-Leaseback Transaction
(including any period for which such lease has been extended).
In the case of any lease that is terminable by the lessee upon
the payment of a penalty or other termination payment, such
amount shall be the lesser of the amount determined assuming
termination upon the first date such lease may be terminated (in
which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered
as required to be paid under such lease subsequent to the first
date upon which it may be so terminated) or the amount
determined assuming no such termination.
Notwithstanding the preceding, under the Indenture the Guarantor
may, and may permit any Subsidiary to, effect any Sale-Leaseback
Transaction that is not excepted by clauses (1) through
(4), inclusive, of the first paragraph under
Restrictions on Sale-Leasebacks,
provided that the Attributable Indebtedness from such
Sale-Leaseback Transaction, together with the aggregate
principal amount of all other such Attributable Indebtedness
deemed to be outstanding in respect of all Sale-Leaseback
Transactions and all outstanding debt (other than the debt
securities) secured by liens (other than Permitted Liens) upon
Principal Properties or upon capital stock of any Restricted
Subsidiary, do not exceed 10% of Consolidated Net Tangible
Assets.
Merger, Consolidation or Sale of Assets. The
Indenture provides that each of the Guarantor and the Issuer
may, without the consent of the holders of any of the debt
securities, consolidate with or sell, lease,
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convey all or substantially all of its assets to, or merge with
or into, any partnership, limited liability company or
corporation if:
(1) the entity surviving any such consolidation or merger
or to which such assets shall have been transferred (the
successor) is either the Guarantor or the Issuer, as
applicable, or the successor is a domestic partnership, limited
liability company or corporation and expressly assumes all the
Guarantors or the Issuers, as the case may be,
obligations and liabilities under the Indenture and the debt
securities (in the case of the Issuer) and the Guarantee (in the
case of the Guarantor);
(2) immediately after giving effect to the transaction no
Default or Event of Default has occurred and is
continuing; and
(3) the Issuer and the Guarantor have delivered to the
Trustee an officers certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer
complies with the Indenture.
The successor will be substituted for the Guarantor or the
Issuer, as the case may be, in the Indenture with the same
effect as if it had been an original party to the Indenture.
Thereafter, the successor may exercise the rights and powers of
the Guarantor or the Issuer, as the case may be, under the
Indenture, in its name or in its own name. If the Guarantor or
the Issuer sells or transfers all or substantially all of its
assets, it will be released from all liabilities and obligations
under the Indenture and under the debt securities (in the case
of the Issuer) and the Guarantee (in the case of the Guarantor)
except that no such release will occur in the case of a lease of
all or substantially all of its assets.
Events of
Default
Each of the following will be an Event of Default under the
Indenture with respect to a series of debt securities:
(1) default in any payment of interest on any debt
securities of that series when due, continued for 30 days;
(2) default in the payment of principal of or premium, if
any, on any debt securities of that series when due at its
stated maturity, upon optional redemption, upon declaration or
otherwise;
(3) failure by the Guarantor or the Issuer to comply for
60 days after notice with its other agreements contained in
the Indenture;
(4) certain events of bankruptcy, insolvency or
reorganization of the Issuer or the Guarantor (the
bankruptcy provisions); or
(5) the Guarantee ceases to be in full force and effect or
is declared null and void in a judicial proceeding or the
Guarantor denies or disaffirms its obligations under the
Indenture or the Guarantee.
However, a default under clause (3) of this paragraph will
not constitute an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding
debt securities of that series notify the Issuer and the
Guarantor of the default such default is not cured within the
time specified in clause (3) of this paragraph after
receipt of such notice.
An Event of Default for a particular series of debt securities
will not necessarily constitute an Event of Default for any
other series of debt securities that may be issued under the
Indenture. If an Event of Default (other than an Event of
Default described in clause (4) above) occurs and is
continuing, the Trustee by notice to the Issuer, or the holders
of at least 25% in principal amount of the outstanding debt
securities of that series by notice to the Issuer and the
Trustee, may, and the Trustee at the request of such holders
shall, declare the principal of, premium, if any, and accrued
and unpaid interest, if any, on all the debt securities of that
series to be due and payable. Upon such a declaration, such
principal, premium and accrued and unpaid interest will be due
and payable immediately. If an Event of Default described in
clause (4) above occurs and is continuing, the principal
of, premium, if any, and accrued and unpaid interest on all the
debt securities will become and be immediately due and payable
without any declaration or other act on the part of the Trustee
or any holders. However, the effect of such provision may be
limited by applicable law. The holders of a majority in
principal
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amount of the outstanding debt securities of a series may
rescind any such acceleration with respect to the debt
securities of that series and its consequences if rescission
would not conflict with any judgment or decree of a court of
competent jurisdiction and all existing Events of Default with
respect to that series, other than the nonpayment of the
principal of, premium, if any, and interest on the debt
securities of that series that have become due solely by such
declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, if an Event of Default with respect to a
series of debt securities occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of
the holders of debt securities of that series, unless such
holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of debt securities of any
series may pursue any remedy with respect to the Indenture or
the debt securities of that series unless:
(1) such holder has previously given the Trustee notice
that an Event of Default with respect to the debt securities of
that series is continuing;
(2) holders of at least 25% in principal amount of the
outstanding debt securities of that series have requested the
Trustee to pursue the remedy;
(3) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense;
(4) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and
(5) the holders of a majority in principal amount of the
outstanding debt securities of that series have not given the
Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such
60-day
period.
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding debt securities of each
series have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the
Trustee with respect to that series of debt securities. The
Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other
holder of debt securities of that series or that would involve
the Trustee in personal liability.
The Indenture provides that if a Default (that is, an event that
is, or after notice or the passage of time would be, an Event of
Default) with respect to the debt securities of a particular
series occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder of debt securities of that
series notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on the debt
securities of that series, the Trustee may withhold notice, but
only if and so long as the Trustee in good faith determines that
withholding notice is in the interests of the holders of debt
securities of that series. In addition, the Issuer is required
to deliver to the Trustee, within 120 days after the end of
each fiscal year, an officers certificate as to compliance
with all covenants in the Indenture and indicating whether the
signers thereof know of any Default or Event of Default that
occurred during the previous year. The Issuer also is required
to deliver to the Trustee, within 30 days after the
occurrence thereof, an officers certificate specifying any
Default or Event of Default, its status and what action the
Issuer is taking or proposes to take in respect thereof.
Amendments
and Waivers
Amendments of the Indenture may be made by the Issuer, the
Guarantor and the Trustee with the consent of the holders of a
majority in principal amount of all debt securities of each
series affected thereby then outstanding under the Indenture
(including consents obtained in connection with a tender offer
or exchange
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offer for the debt securities). However, without the consent of
each holder of outstanding debt securities affected thereby, no
amendment may, among other things:
(1) reduce the percentage in principal amount of debt
securities whose holders must consent to an amendment;
(2) reduce the stated rate of or extend the stated time for
payment of interest on any debt securities;
(3) reduce the principal of or extend the stated maturity
of any debt securities;
(4) reduce the premium payable upon the redemption of any
debt securities or change the time at which any debt securities
may be redeemed;
(5) make any debt securities payable in money other than
that stated in the debt securities;
(6) impair the right of any holder to receive payment of,
premium, if any, principal of and interest on such holders
debt securities on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with
respect to such holders debt securities;
(7) make any change in the amendment provisions which
require each holders consent or in the waiver provisions;
(8) release any security that may have been granted in
respect of the debt securities; or
(9) release the Guarantor or modify the Guarantee in any
manner adverse to the holders.
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series affected thereby, may
waive compliance by the Issuer and the Guarantor with certain
restrictive covenants on behalf of all holders of debt
securities of such series, including those described under
Certain Covenants Limitations on
Liens and Certain Covenants
Restriction on Sale-Leasebacks. The holders of a majority
in principal amount of the outstanding debt securities of each
series affected thereby, on behalf of all such holders, may
waive any past Default or Event of Default with respect to that
series (including any such waiver obtained in connection with a
tender offer or exchange offer for the debt securities), except
a Default or Event of Default in the payment of principal,
premium or interest or in respect of a provision that under the
Indenture that cannot be amended without the consent of all
holders of the series of debt securities that is affected.
Without the consent of any holder, the Issuer, the Guarantor and
the Trustee may amend the Indenture to:
(1) cure any ambiguity, omission, defect or inconsistency;
(2) provide for the assumption by a successor of the
obligations of the Guarantor or the Issuer under the Indenture;
(3) provide for uncertificated debt securities in addition
to or in place of certificated debt securities (provided that
the uncertificated debt securities are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated debt securities are described in
Section 163(f)(2)(B) of the Code);
(4) add or release guarantees by any Subsidiary with
respect to the debt securities, in either case as provided in
the Indenture;
(5) secure the debt securities or a guarantee;
(6) add to the covenants of the Guarantor or the Issuer for
the benefit of the holders or surrender any right or power
conferred upon the Guarantor or the Issuer;
(7) make any change that does not adversely affect the
rights of any holder;
(8) comply with any requirement of the Commission in
connection with the qualification of the Indenture under the
Trust Indenture Act; and
(9) issue any other series of debt securities under the
Indenture.
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The consent of the holders is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment. After an amendment requiring consent of the
holders becomes effective, the Issuer is required to mail to the
holders of an affected series a notice briefly describing such
amendment. However, the failure to give such notice to all such
holders, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance
and Discharge
The Issuer at any time may terminate all its obligations under
the Indenture as they relate to a series of debt securities
(legal defeasance), except for certain obligations,
including those respecting the defeasance trust and obligations
to register the transfer or exchange of the debt securities of
that series, to replace mutilated, destroyed, lost or stolen
debt securities of that series and to maintain a registrar and
paying agent in respect of such debt securities.
The Issuer at any time may terminate its obligations under
covenants described under Certain
Covenants (other than Merger, Consolidation or Sale
of Assets) and the bankruptcy provisions with respect to
the Guarantor, and the Guarantee provision, described under
Events of Default above with respect to
a series of debt securities (covenant defeasance).
The Issuer may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance
option. If the Issuer exercises its legal defeasance option,
payment of the defeased series of debt securities may not be
accelerated because of an Event of Default with respect thereto.
If the Issuer exercises its covenant defeasance option, payment
of the affected series of debt securities may not be accelerated
because of an Event of Default specified in clause (3), (4),
(with respect only to the Guarantor) or (5) under
Events of Default above. If the Issuer
exercises either its legal defeasance option or its covenant
defeasance option, each guarantee will terminate with respect to
the debt securities of the defeased series and any security that
may have been granted with respect to such debt securities will
be released.
In order to exercise either defeasance option, the Issuer must
irrevocably deposit in trust (the defeasance trust)
with the Trustee money, U.S. Government Obligations (as
defined in the Indenture) or a combination thereof for the
payment of principal, premium, if any, and interest on the
relevant series of debt securities to redemption or maturity, as
the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an opinion of counsel
(subject to customary exceptions and exclusions) to the effect
that holders of that series of debt securities will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject
to federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such
defeasance had not occurred. In the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service (IRS) or other change in
applicable federal income tax law.
In the event of any legal defeasance, holders of the debt
securities of the relevant series would be entitled to look only
to the trust fund for payment of principal of and any premium
and interest on their debt securities until maturity.
Although the amount of money and U.S. Government
Obligations on deposit with the Trustee would be intended to be
sufficient to pay amounts due on the debt securities of a
defeased series at the time of their stated maturity, if the
Issuer exercises its covenant defeasance option for the debt
securities of any series and the debt securities are declared
due and payable because of the occurrence of an Event of
Default, such amount may not be sufficient to pay amounts due on
the debt securities of that series at the time of the
acceleration resulting from such Event of Default. The Issuer
would remain liable for such payments, however.
In addition, the Issuer may discharge all its obligations under
the Indenture with respect to debt securities of any series,
other than its obligation to register the transfer of and
exchange notes of that series, provided that it either:
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delivers all outstanding debt securities of that series to the
Trustee for cancellation; or
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all such debt securities not so delivered for cancellation have
either become due and payable or will become due and payable at
their stated maturity within one year or are called for
redemption within one year, and in the case of this bullet point
the Issuer has deposited with the Trustee in trust an amount of
cash sufficient to pay the entire indebtedness of such debt
securities, including interest to the stated maturity or
applicable redemption date.
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Subordination
Debt securities of a series may be subordinated to our Senior
Indebtedness, which we define generally to include all notes or
other evidences of indebtedness for money borrowed by the
Issuer, including guarantees, that are not expressly subordinate
or junior in right of payment to any other indebtedness of the
Issuer. Subordinated debt securities and the Guarantors
guarantee thereof will be subordinate in right of payment, to
the extent and in the manner set forth in the Indenture and the
prospectus supplement relating to such series, to the prior
payment of all indebtedness of the Issuer and Guarantor that is
designated as Senior Indebtedness with respect to
the series.
The holders of Senior Indebtedness of the Issuer will receive
payment in full of the Senior Indebtedness before holders of
subordinated debt securities will receive any payment of
principal, premium or interest with respect to the subordinated
debt securities:
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upon any payment of distribution of our assets of the Issuer to
its creditors;
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upon a total or partial liquidation or dissolution of the
Issuer; or
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in a bankruptcy, receivership or similar proceeding relating to
the Issuer or its property.
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Until the Senior Indebtedness is paid in full, any distribution
to which holders of subordinated debt securities would otherwise
be entitled will be made to the holders of Senior Indebtedness,
except that such holders may receive units representing limited
partner interests and any debt securities that are subordinated
to Senior Indebtedness to at least the same extent as the
subordinated debt securities.
If the Issuer does not pay any principal, premium or interest
with respect to Senior Indebtedness within any applicable grace
period (including at maturity), or any other default on Senior
Indebtedness occurs and the maturity of the Senior Indebtedness
is accelerated in accordance with its terms, the Issuer may not:
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make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities;
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make any deposit for the purpose of defeasance of the
subordinated debt securities; or
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repurchase, redeem or otherwise retire any subordinated debt
securities, except that in the case of subordinated debt
securities that provide for a mandatory sinking fund, we may
deliver subordinated debt securities to the Trustee in
satisfaction of our sinking fund obligation,
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unless, in either case,
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the default has been cured or waived and the declaration of
acceleration has been rescinded;
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the Senior Indebtedness has been paid in full in cash; or
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the Issuer and the Trustee receive written notice approving the
payment from the representatives of each issue of
Designated Senior Indebtedness.
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Generally, Designated Senior Indebtedness will
include:
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indebtedness for borrowed money under a bank credit agreement,
called Bank Indebtedness; and
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any specified issue of Senior Indebtedness of at least
$100 million.
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During the continuance of any default, other than a default
described in the immediately preceding paragraph, that may cause
the maturity of any Senior Indebtedness to be accelerated
immediately without further notice, other than any notice
required to effect such acceleration, or the expiration of any
applicable
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grace periods, the Issuer may not pay the subordinated debt
securities for a period called the Payment Blockage
Period. A Payment Blockage Period will commence on the
receipt by us and the Trustee of written notice of the default,
called a Blockage Notice, from the representative of
any Designated Senior Indebtedness specifying an election to
effect a Payment Blockage Period.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice;
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by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or
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if the default giving rise to the Payment Blockage Period is no
longer continuing.
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Unless the holders of Senior Indebtedness shall have accelerated
the maturity of the Senior Indebtedness, we may resume payments
on the subordinated debt securities after the expiration of the
Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days unless the first Blockage Notice
within the
360-day
period is given by holders of Designated Senior Indebtedness,
other than Bank Indebtedness, in which case the representative
of the Bank Indebtedness may give another Blockage Notice within
the period. The total number of days during which any one or
more Payment Blockage Periods are in effect, however, may not
exceed an aggregate of 179 days during any period of 360
consecutive days.
After all Senior Indebtedness is paid in full and until the
subordinated debt securities are paid in full, holders of the
subordinated debt securities shall be subrogated to the rights
of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, our
creditors who are holders of Senior Indebtedness, as well as
certain of our general creditors, may recover more, ratably,
than the holders of the subordinated debt securities.
Form and
Denomination
Unless otherwise indicated in a prospectus supplement, the debt
securities of a series will be issued as Registered Securities
in denominations of $1,000 and any integral multiple thereof.
Book-Entry
System
Unless otherwise indicated in a prospectus supplement, we will
issue the debt securities in the form of one or more global
securities in fully registered form initially in the name of
Cede & Co., as nominee of The Depository
Trust Company (DTC), or such other name as may
be requested by an authorized representative of DTC. Unless
otherwise indicated in a prospectus supplement, the global
securities will be deposited with the Trustee as custodian for
DTC and may not be transferred except as a whole by DTC to a
nominee of DTC or by a nominee of DTC to DTC or another nominee
of DTC or by DTC or any nominee to a successor of DTC or a
nominee of such successor.
DTC has advised us as follows:
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DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of
1934, as amended, or the Exchange Act.
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DTC holds securities that its participants deposit with DTC and
facilitates the post-trade settlement among direct participants
of sales and other securities transactions in deposited
securities, such as transfers and pledges, through electronic
computerized book-entry transfers and pledges between direct
participants accounts, thereby eliminating the need for
physical movement of securities certificates.
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Direct participants include both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations.
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DTC is a wholly owned subsidiary of The Depository
Trust & Clearing Corporation (DTCC). DTCC
is the holding company for DTC, National Securities Clearing
Corporation and Fixed Income Clearing Corporation, all of which
are registered clearing agencies. DTCC is owned by the users of
its regulated subsidiaries.
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Access to the DTC system is also available to others such as
both U.S. and
non-U.S. securities
brokers and dealers, banks, trust companies, and clearing
corporations that clear through or maintain a custodial
relationship with a direct participant, either directly or
indirectly.
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The rules applicable to DTC and its direct and indirect
participants are on file with the Commission.
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Purchases of debt securities under the DTC system must be made
by or through direct participants, which will receive a credit
for the debt securities on DTCs records. The ownership
interest of each actual purchaser of debt securities is in turn
to be recorded on the direct and indirect participants
records. Beneficial owners of the debt securities will not
receive written confirmation from DTC of their purchase, but
beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect
participant through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the debt
securities are to be accomplished by entries made on the books
of direct and indirect participants acting on behalf of
beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the debt
securities, except in the event that use of the book-entry
system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities
deposited by direct participants with DTC are registered in the
name of DTCs partnership nominee, Cede & Co., or
such other name as may be requested by an authorized
representative of DTC. The deposit of debt securities with DTC
and their registration in the name of Cede & Co. or
such other DTC nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners
of the debt securities; DTCs records reflect only the
identity of the direct participants to whose accounts such debt
securities are credited, which may or may not be the beneficial
owners. The direct and indirect participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by, direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the global securities.
Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.s consenting or voting
rights to those direct participants to whose accounts the debt
securities are credited on the record date (identified in the
listing attached to the omnibus proxy).
All payments on the global securities will be made to
Cede & Co., as holder of record, or such other nominee
as may be requested by an authorized representative of DTC.
DTCs practice is to credit direct participants
accounts upon DTCs receipt of funds and corresponding
detail information from us or the Trustee on payment dates in
accordance with their respective holdings shown on DTCs
records. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in
bearer form or registered in street name, and will
be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal,
premium, if any, and interest to Cede & Co. (or such
other nominee as may be requested by an authorized
representative of DTC) shall be the responsibility of us or the
Trustee. Disbursement of such payments to direct participants
shall be the responsibility of DTC, and disbursement of such
payments to the beneficial owners shall be the responsibility of
direct and indirect participants.
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DTC may discontinue providing its service as securities
depositary with respect to the debt securities at any time by
giving reasonable notice to us or the Trustee. In addition, we
may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary).
Under such circumstances, in the event that a successor
securities depositary is not obtained, note certificates in
fully registered form are required to be printed and delivered
to beneficial owners of the global securities representing such
debt securities.
Neither we nor the Trustee will have any responsibility or
obligation to direct or indirect participants, or the persons
for whom they act as nominees, with respect to the accuracy of
the records of DTC, its nominee or any participant with respect
to any ownership interest in the debt securities, or payments
to, or the providing of notice to participants or beneficial
owners.
So long as the debt securities are in DTCs book-entry
system, secondary market trading activity in the debt securities
will settle in immediately available funds. All payments on the
debt securities issued as global securities will be made by us
in immediately available funds.
The information in this section concerning DTC and DTCs
book-entry system has been obtained from sources that we believe
to be reliable, but we take no responsibility for the accuracy
thereof.
Limitations
on Issuance of Bearer Securities
The debt securities of a series may be issued as Registered
Securities (which will be registered as to principal and
interest in the register maintained by the registrar for the
debt securities) or Bearer Securities (which will be
transferable only by delivery). If the debt securities are
issuable as Bearer Securities, certain special limitations and
conditions will apply.
In compliance with United States federal income tax laws and
regulations, we and any underwriter, agent or dealer
participating in an offering of Bearer Securities will agree
that, in connection with the original issuance of the Bearer
Securities and during the period ending 40 days after the
issue date, they will not offer, sell or deliver any such Bearer
Securities, directly or indirectly, to a United States Person
(as defined below) or to any person within the United States,
except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect:
Any United States person who holds this obligation will be
subject to limitations under the United States federal income
tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue
Code. The sections referred to in the legend provide that,
with certain exceptions, a United States taxpayer who holds
Bearer Securities will not be allowed to deduct any loss with
respect to, and will not be eligible for capital gain treatment
with respect to any gain realized on the sale, exchange,
redemption or other disposition of, the Bearer Securities.
For this purpose, United States includes the United
States of America and its possessions, and United States
person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States, or an estate or trust
the income of which is subject to United States federal income
taxation regardless of its source.
Pending the availability of a definitive global security or
individual Bearer Securities, as the case may be, debt
securities that are issuable as Bearer Securities may initially
be represented by a single temporary global security, without
interest coupons, to be deposited with a common depositary for
the Euroclear System as operated by Euroclear Bank S.A./N.V.
(Euroclear) and Clearstream Banking S.A.
(Clearstream, formerly Cedelbank), for credit to the
accounts designated by or on behalf of the purchasers thereof.
Following the availability of a definitive global security in
bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in
the applicable prospectus supplement, the temporary global
security will be exchangeable for interests in the definitive
global security or for the individual Bearer Securities,
respectively, only upon receipt of a Certificate of
Non-U.S. Beneficial
Ownership, which is a certificate to the effect that a
beneficial interest in a temporary global security is owned by a
person that is not a United States Person or is owned by or
through a financial institution in compliance with applicable
United States Treasury regulations. No Bearer Security will be
delivered in or to
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the United States. If so specified in the applicable prospectus
supplement, interest on a temporary global security will be paid
to each of Euroclear and Clearstream with respect to that
portion of the temporary global security held for its account,
but only upon receipt as of the relevant interest payment date
of a Certificate of
Non-U.S. Beneficial
Ownership.
No
Recourse Against General Partner
The Issuers general partner, the Guarantors general
partner and their respective directors, officers, employees and
members, as such, shall have no liability for any obligations of
the Issuer or the Guarantor under the debt securities, the
Indenture or the guarantee or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
holder by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities
laws, and it is the view of the Commission that such a waiver is
against public policy.
Concerning
the Trustee
The Indenture contains certain limitations on the right of the
Trustee, should it become our creditor, to obtain payment of
claims in certain cases, or to realize for its own account on
certain property received in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in
certain other transactions. However, if it acquires any
conflicting interest within the meaning of the
Trust Indenture Act, it must eliminate the conflict or
resign as Trustee.
The holders of a majority in principal amount of all outstanding
debt securities (or if more than one series of debt securities
under the Indenture is affected thereby, all series so affected,
voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for
exercising any remedy or power available to the Trustee for the
debt securities or all such series so affected.
If an Event of Default occurs and is not cured under the
Indenture and is known to the Trustee, the Trustee shall
exercise such of the rights and powers vested in it by the
Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such
provisions, the Trustee will not be under any obligation to
exercise any of its rights or powers under the Indenture at the
request of any of the holders of debt securities unless they
shall have offered to such Trustee reasonable security and
indemnity.
Wells Fargo Bank, National Association is the Trustee under the
Indenture and has been appointed by the Issuer as Registrar and
Paying Agent with regard to the debt securities. Wells Fargo
Bank, National Association is a lender under the Issuers
credit facilities.
Governing
Law
The Indenture, the debt securities and the guarantee are
governed by, and will be construed in accordance with, the laws
of the State of New York.
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DESCRIPTION
OF OUR COMMON UNITS
Generally, our common units represent limited partner interests
that entitle the holders to participate in our cash
distributions and to exercise the rights and privileges
available to limited partners under our partnership agreement.
We also have issued and outstanding Class B units, which
are entitled to the rights and privileges as noted below. The
Class B units are held by a privately held affiliate of
Enterprise Products Company, a Texas corporation formerly named
EPCO, Inc. (EPCO). The Class B units generally
have the same rights and privileges as our common units, except
that they are not entitled to regular quarterly cash
distributions for the first sixteen quarters following
October 26, 2009, which was the closing date of our merger
with TEPPCO Partners, L.P. (TEPPCO). The
Class B units will automatically convert into the same
number of common units on the date immediately following the
payment date for the sixteenth quarterly distribution following
the closing of the TEPPCO merger. For a description of the
relative rights and preferences of unitholders in and to cash
distributions, please read Cash Distribution Policy
elsewhere in this prospectus.
Our outstanding common units are listed on the NYSE under the
symbol EPD. Any additional common units we issue
will also be listed on the NYSE.
The transfer agent and registrar for our common units is BNY
Mellon Shareowner Services.
Meetings/Voting
Each holder of common units and Class B units is entitled
to one vote for each unit on all matters submitted to a vote of
the common unitholders. Holders of the Class B units are
entitled to vote as a separate class on any matter that
adversely affects the rights or preference of such class in
relation to other classes of partnership interests. The approval
of a majority of the Class B units is required to approve
any matter for which the Class B unitholders are entitled
to vote as a separate class.
Status as
Limited Partner or Assignee
Except as described below under Limited
Liability, the common units will be fully paid, and
unitholders will not be required to make additional capital
contributions to us.
Each purchaser of our common units must execute a transfer
application whereby the purchaser requests admission as a
substituted limited partner and makes representations and agrees
to provisions stated in the transfer application. If this action
is not taken, a purchaser will not be registered as a record
holder of common units on the books of our transfer agent or
issued a common unit certificate or other evidence of the
issuance of uncertificated units. Purchasers may hold common
units in nominee accounts.
An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in us equivalent to that of
a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. Our general partner will vote and exercise other
powers attributable to common units owned by an assignee who has
not become a substituted limited partner at the written
direction of the assignee. Transferees who do not execute and
deliver transfer applications will be treated neither as
assignees nor as record holders of common units and will not
receive distributions, federal income tax allocations or reports
furnished to record holders of common units. The only right the
transferees will have is the right to admission as a substituted
limited partner in respect of the transferred common units upon
execution of a transfer application in respect of the common
units. A nominee or broker who has executed a transfer
application with respect to common units held in street name or
nominee accounts will receive distributions and reports
pertaining to its common units.
Limited
Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware
Revised Uniform Limited Partnership Act (the Delaware
Act) and that he otherwise acts in conformity with the
provisions of our partnership agreement, his liability under the
Delaware Act will be
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limited, subject to some possible exceptions, generally to the
amount of capital he is obligated to contribute to us in respect
of his units plus his share of any undistributed profits and
assets.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner to the extent that at the time of the
distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of
the assets of the limited partnership.
For the purposes of determining the fair value of the assets of
a limited partnership, the Delaware Act provides that the fair
value of the property subject to liability of which recourse of
creditors is limited shall be included in the assets of the
limited partnership only to the extent that the fair value of
that property exceeds the nonrecourse liability. The Delaware
Act provides that a limited partner who receives a distribution
and knew at the time of the distribution that the distribution
was in violation of the Delaware Act is liable to the limited
partnership for the amount of the distribution for three years
from the date of the distribution.
Reports
and Records
As soon as practicable, but in no event later than 120 days
after the close of each fiscal year, our general partner will
mail or furnish to each unitholder of record (as of a record
date selected by our general partner) an annual report
containing our audited financial statements for the past fiscal
year. These financial statements will be prepared in accordance
with United States generally accepted accounting principles. In
addition, no later than 90 days after the close of each
quarter (except the fourth quarter), our general partner will
mail or furnish to each unitholder of record (as of a record
date selected by our general partner) a report containing our
unaudited financial statements and any other information
required by law.
Our general partner will use all reasonable efforts to furnish
each unitholder of record information reasonably required for
tax reporting purposes within 90 days after the close of
each fiscal year. Our general partners ability to furnish
this summary tax information will depend on the cooperation of
unitholders in supplying information to our general partner.
Each unitholder will receive information to assist him in
determining his U.S. federal and state and Canadian federal
and provincial tax liability and filing his U.S. federal
and state and Canadian federal and provincial income tax returns.
A limited partner can, for a purpose reasonably related to the
limited partners interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner;
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a copy of our tax returns;
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information as to the amount of cash and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each became a partner;
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copies of our partnership agreement, our certificate of limited
partnership, amendments to either of them and powers of attorney
which have been executed under our partnership agreement;
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information regarding the status of our business and financial
condition; and
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any other information regarding our affairs as is just and
reasonable.
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Our general partner may, and intends to, keep confidential from
the limited partners trade secrets and other information the
disclosure of which our general partner believes in good faith
is not in our best interest or which we are required by law or
by agreements with third parties to keep confidential.
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CASH
DISTRIBUTION POLICY
Distributions
of Available Cash
General. Within approximately 45 days
after the end of each quarter, we will distribute all of our
available cash to unitholders of record (excluding holders of
our Class B units as set forth in our partnership agreement and
subject to terms applicable under a distribution waiver
agreement with one of our common unitholders) on the applicable
record date.
Definition of Available Cash. Available cash
is defined in our partnership agreement and generally means,
with respect to any calendar quarter, all cash on hand at the
end of such quarter:
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less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of our general partner
to:
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provide for the proper conduct of our business (including
reserves for our future capital expenditures and for our future
credit needs) subsequent to such quarter;
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comply with applicable law or any loan agreement, security
agreement, mortgage, debt instrument or other agreement or
obligation to which we are a party or to which we are bound or
our assets are subject; or
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provide funds for distributions to unitholders in respect of any
one or more of the next four quarters;
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter or certain interim capital
transactions after the end of such quarter designated by our
general partner as operating surplus in accordance with the
partnership agreement. Working capital borrowings are generally
borrowings that are made under our credit facilities and in all
cases are used solely for working capital purposes or to pay
distributions to partners.
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Distributions
of Cash upon Liquidation
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
a liquidation. We will first apply the proceeds of liquidation
to the payment of our creditors in the order of priority
provided in the partnership agreement and by law and,
thereafter, we will distribute any remaining proceeds to the
unitholders in accordance with their respective capital account
balances as so adjusted.
Manner of Adjustments for Gain. The manner of
the adjustment is set forth in the partnership agreement. Upon
our liquidation, we will allocate any net gain (or unrealized
gain attributable to assets distributed in kind to the partners)
as follows:
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first, to the unitholders having negative balances in
their capital accounts to the extent of and in proportion to
such negative balances; and
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second, to the unitholders, pro rata.
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Manner of Adjustments for Losses. Upon our
liquidation, any net loss will generally be allocated to the
unitholders as follows:
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first, to the unitholders in proportion to the positive
balances in their respective capital accounts, until the capital
accounts of the unitholders have been reduced to zero; and
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second, to the unitholders, pro rata.
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Adjustments to Capital Accounts. In addition,
interim adjustments to capital accounts will be made at the time
we issue additional partnership interests or make distributions
of property. Such adjustments will be based on the fair market
value of the partnership interests or the property distributed
and any gain or loss resulting therefrom will be allocated to
the unitholders in the same manner as gain or loss is allocated
upon liquidation.
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DESCRIPTION
OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. Our amended and restated partnership
agreement has been filed with the Commission. The following
provisions of our partnership agreement are summarized elsewhere
in this prospectus:
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distributions of our available cash are described under
Cash Distribution Policy;
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rights of holders of common units are described under
Description of Our Common Units.
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In addition, allocations of taxable income and other matters are
described under Material Tax Consequences.
Purpose
Our purpose under our partnership agreement is to serve as a
member of Enterprise Products Operating
LLC (EPO), our primary operating subsidiary,
and to engage in any business activities that may be engaged in
by EPO or that are approved by our general partner. The limited
liability company agreement of EPO provides that it may engage
in any activity that was engaged in by our predecessors at the
time of our initial public offering or reasonably related
thereto and any other activity approved by our general partner.
Power of
Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application,
grants to our general partner and, if appointed, a liquidator, a
power of attorney to, among other things, execute and file
documents required for our qualification, continuance or
dissolution. The power of attorney also grants the authority for
the amendment of, and to make consents and waivers under, our
partnership agreement.
Voting
Rights
Unitholders will not have voting rights except with respect to
the following matters, for which our partnership agreement
requires the approval of the holders of a majority of the units,
unless otherwise indicated:
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the merger of our partnership or a sale, exchange or other
disposition of all or substantially all of our assets;
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the removal of our general partner (requires 60% of the
outstanding units, including units held by our general partner
and its affiliates);
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the election of a successor general partner;
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the dissolution of our partnership or the reconstitution of our
partnership upon dissolution;
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approval of certain actions of our general partner (including
the transfer by the general partner of its general partner
interest under certain circumstances); and
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certain amendments to the partnership agreement, including any
amendment that would cause us to be treated as an association
taxable as a corporation.
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Under the partnership agreement, our general partner generally
will be permitted to effect, without the approval of
unitholders, amendments to the partnership agreement that do not
adversely affect unitholders.
Class B Units. Holders of
Class B units are entitled to vote together with the our
common unitholders as a single class on all matters that our
common unitholders are entitled to vote on. Holders of the
Class B units are entitled to vote as a separate class on
any matter that adversely affects the rights or preference of
such class in relation to other classes of partnership
interests. The approval of the holders of a majority of the
Class B units is required to approve any matter for which
the Class B unitholders are entitled to vote as a separate
class.
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Issuance
of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional limited partner interests and other equity
securities that are equal in rank with or junior to our common
units on terms and conditions established by our general partner
in its sole discretion without the approval of any limited
partners.
It is possible that we will fund acquisitions through the
issuance of additional common units or other equity securities.
Holders of any additional common units we issue will be entitled
to share equally with the then-existing holders of common units
in our cash distributions. In addition, the issuance of
additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our
net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, in the sole discretion of our general partner,
may have special voting rights to which common units are not
entitled.
Our general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, we issue those securities to persons
other than our general partner and its affiliates, to the extent
necessary to maintain their percentage interests in us that
existed immediately prior to the issuance. The holders of common
units will not have preemptive rights to acquire additional
common units or other partnership interests in us.
Our partnership agreement authorizes a series of Enterprise
limited partner interests called our Class B units. The
Class B units will not be entitled to regular quarterly
cash distributions for the first sixteen quarters following the
closing of the TEPPCO merger (which occurred on October 26,
2009). The Class B units will convert automatically into
the same number of our common units on the date immediately
following the payment date of the sixteenth quarterly
distribution following October 26, 2009, and holders of
such converted units will thereafter be entitled to receive
distributions of available cash.
Amendments
to Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by
our general partner. Any amendment that materially and adversely
affects the rights or preferences of any type or class of
limited partner interests in relation to other types or classes
of limited partner interests or our general partner interest
will require the approval of at least a majority of the type or
class of limited partner interests or general partner interests
so affected. However, in some circumstances, more particularly
described in our partnership agreement, our general partner may
make amendments to our partnership agreement without the
approval of our limited partners or assignees to reflect:
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a change in our names, the location of our principal place of
business, our registered agent or our registered office;
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the admission, substitution, withdrawal or removal of partners;
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a change to qualify or continue our qualification as a limited
partnership or a partnership in which our limited partners have
limited liability under the laws of any state or to ensure that
neither we, EPO, nor any of our subsidiaries will be treated as
an association taxable as a corporation or otherwise taxed as an
entity for federal income tax purposes;
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a change that does not adversely affect our limited partners in
any material respect;
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a change to (i) satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority
or contained in any federal or state statute or
(ii) facilitate the trading of our limited partner
interests or comply with any rule, regulation, guideline or
requirement of any national securities exchange on which our
limited partner interests are or will be listed for trading;
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a change in our fiscal year or taxable year and any changes that
are necessary or advisable as a result of a change in our fiscal
year or taxable year;
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an amendment that is necessary to prevent us, or our general
partner or its directors, officers, trustees or agents from
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended;
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an amendment that is necessary or advisable in connection with
the authorization or issuance of any class or series of our
securities;
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone;
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an amendment effected, necessitated or contemplated by a merger
agreement approved in accordance with our partnership agreement;
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an amendment that is necessary or advisable to reflect, account
for and deal with appropriately our formation of, or investment
in, any corporation, partnership, joint venture, limited
liability company or other entity other than EPO, in connection
with our conduct of activities permitted by our partnership
agreement;
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a merger or conveyance to effect a change in our legal
form; or
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any other amendments substantially similar to the foregoing.
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Any amendment to our partnership agreement that would have the
effect of reducing the voting percentage required to take any
action must be approved by the written consent or the
affirmative vote of our limited partners constituting not less
than the voting requirement sought to be reduced.
No amendment to our partnership agreement may (i) enlarge
the obligations of any limited partner without its consent,
unless such shall have occurred as a result of an amendment
approved by not less than a majority of the outstanding
partnership interests of the class affected, (ii) enlarge
the obligations of, restrict in any way any action by or rights
of, or reduce in any way the amounts distributable, reimbursable
or otherwise payable to, our general partner or any of its
affiliates without its consent, which consent may be given or
withheld in its sole discretion, (iii) change the provision
of our partnership agreement that provides for our dissolution
(A) at the expiration of its term or (B) upon the
election to dissolve us by the general partner that is approved
by the holders of a majority of our outstanding common units and
by special approval (as such term is defined under
our partnership agreement), or (iv) change the term of us
or, except as set forth in the provision described in clause
(iii)(B) of this paragraph, give any person the right to
dissolve us.
Except for certain amendments in connection with the merger or
consolidation of us and except for those amendments that may be
effected by the general partner without the consent of limited
partners as described above, any amendment that would have a
material adverse effect on the rights or preferences of any
class of partnership interests in relation to other classes of
partnership interests must be approved by the holders of not
less than a majority of the outstanding partnership interests of
the class so affected.
Except for those amendments that may be effected by the general
partner without the consent of limited partners as described
above or certain provisions in connection with our merger or
consolidation, no amendment shall become effective without the
approval of the holders of at least 90% of the outstanding units
unless we obtain an opinion of counsel to the effect that such
amendment will not affect the limited liability of any limited
partner under applicable law.
Except for those amendments that may be effected by the general
partner without the consent of limited partners as described
above, the foregoing provisions described above relating to the
amendment of our partnership agreement may only be amended with
the approval of the holders of at least 90% of the outstanding
units.
Merger,
Sale or Other Disposition of Assets
Our partnership agreement generally prohibits the general
partner, without the prior approval of a majority of our
outstanding common units, from causing us to, among other
things, sell, exchange or
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otherwise dispose of all or substantially all of the assets us
or EPO in a single transaction or a series of related
transactions (including by way of merger, consolidation or other
combination). The general partner may, however, mortgage,
pledge, hypothecate or grant a security interest in all or
substantially all of the assets of us or EPO without the
approval of a Unit Majority (as defined in the our partnership
agreement). Our partnership agreement generally prohibits the
general partner from causing us to merge or consolidate with
another entity without the approval of a majority of the members
of our Audit and Conflicts Committee, at least one of which
majority meets certain independence requirements (such approval
constituting special approval under our partnership
agreement).
If certain conditions specified in our partnership agreement are
satisfied, our general partner may merge us or any of our
subsidiaries into, or convey some or all of our assets to, a
newly formed entity if the sole purpose of that merger or
conveyance is to change our legal form into another limited
liability entity.
Reimbursements
of Our General Partner
Our general partner does not receive any compensation for its
services as our general partner. It is, however, entitled to be
reimbursed for all of its costs incurred in managing and
operating our business. Our partnership agreement provides that
our general partner will determine the expenses that are
allocable to us in any reasonable manner determined by our
general partner in its sole discretion.
Withdrawal
or Removal of Our General Partner
Our general partner may withdraw as general partner without
first obtaining approval of any unitholder by giving
90 days written notice, and that withdrawal will not
constitute a violation of our partnership agreement. In
addition, our general partner may withdraw without unitholder
approval upon 90 days notice to our limited partners
if at least 50% of our outstanding common units are held or
controlled by one person and its affiliates other than our
general partner and its affiliates.
Upon the voluntary withdrawal of our general partner, the
holders of a majority of our outstanding common units, excluding
the common units held by the withdrawing general partner and its
affiliates, may elect a successor to the withdrawing general
partner. If a successor is not elected, or is elected but an
opinion of counsel regarding limited liability and tax matters
cannot be obtained, we will be dissolved, wound up and
liquidated, unless within 90 days after that withdrawal,
the holders of a majority of our outstanding units, excluding
the common units held by the withdrawing general partner and its
affiliates, agree to continue our business and to appoint a
successor general partner.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than 60% of our
outstanding units, including units held by our general partner
and its affiliates, and we receive an opinion of counsel
regarding limited liability and tax matters. In addition, if our
general partner is removed as our general partner under
circumstances where cause does not exist and units held by our
general partner and its affiliates are not voted in favor of
such removal, our general partner will have the right to convert
its general partner interest into common units or to receive
cash in exchange for such interests. Cause is narrowly defined
to mean that a court of competent jurisdiction has entered a
final, non-appealable judgment finding the general partner
liable for actual fraud, gross negligence or willful or wanton
misconduct in its capacity as our general partner. Any removal
of this kind is also subject to the approval of a successor
general partner by the vote of the holders of a majority of our
outstanding common units, including those held by our general
partner and its affiliates.
Transfer
of the General Partner Interest
While our partnership agreement limits the ability of our
general partner to withdraw, it allows the general partner
interest to be transferred to an affiliate or to a third party
in conjunction with a merger or sale of all or substantially all
of the assets of our general partner. In addition, our
partnership agreement expressly permits the sale, in whole or in
part, of the ownership of our general partner. Our general
partner may also transfer, in whole or in part, the common units
it owns.
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At any time, the owners of our general partner may sell or
transfer all or part of their ownership interests in the general
partner without the approval of the unitholders.
Dissolution
and Liquidation
We will continue as a limited partnership until terminated under
our partnership agreement. We will dissolve upon:
(1) the expiration of the term of our partnership agreement
on December 31, 2088;
(2) the withdrawal, removal, bankruptcy or dissolution of
the general partner unless a successor is elected and an opinion
of counsel is received that such withdrawal (following the
selection of a successor general partner) would not result in
the loss of the limited liability of any limited partner or of
any member of EPO or cause us or EPO to be treated as an
association taxable as a corporation or otherwise to be taxed as
an entity for U.S. federal income tax purposes (to the
extent not previously treated as such) and such successor is
admitted to the partnership as required by our partnership
agreement;
(3) an election to dissolve us by the general partner that
receives special approval (as defined in our
partnership agreement) and is approved by a majority of the
holders of our common units;
(4) the entry of a decree of judicial dissolution of us
pursuant to the provisions of the Delaware Act; or
(5) the sale of all or substantially all of the assets and
properties of us, EPO and their subsidiaries.
Upon (a) our dissolution following the withdrawal or
removal of the general partner and the failure of the partners
to select a successor general partner, then within 90 days
thereafter, or (b) our dissolution upon the bankruptcy or
dissolution of the general partner, then, to the maximum extent
permitted by law, within 180 days thereafter, the holders
of a majority of the holders of our common units may elect to
reconstitute us and continue our business on the same terms and
conditions set forth in the our partnership agreement by forming
a new limited partnership on terms identical to those set forth
in our partnership agreement and having as the successor general
partner a person approved by the holders of a majority of the
holders of our common units. Unless such an election is made
within the applicable time period as set forth above, we shall
conduct only activities necessary to wind up our affairs.
Liquidation
and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the person authorized to wind up
our affairs (the liquidator) will, acting with all the powers of
our general partner that the liquidator deems necessary or
desirable in its good faith judgment, liquidate our assets. The
proceeds of the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and
the creation of a reserve for contingent liabilities; and
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then, to all partners in accordance with the positive
balance in the respective capital accounts.
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Under some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time. If the liquidator determines
that a sale would be impractical or would cause a loss to our
partners, our general partner may distribute assets in kind to
our partners.
Limited
Call Right
If at any time our general partner and its affiliates own 85% or
more of the issued and outstanding limited partner interests of
any class, our general partner will have the right to purchase
all, but not less than all, of the outstanding limited partner
interests of that class that are held by non-affiliated persons.
The record date for determining ownership of the limited partner
interests would be selected by our general partner on at least
10 but not more than 60 days notice. The purchase
price in the event of a purchase under these
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provisions would be the greater of (1) the current market
price (as defined in our partnership agreement) of the limited
partner interests of the class as of the date three days prior
to the date that notice is mailed to the limited partners as
provided in the partnership agreement and (2) the highest
cash price paid by our general partner or any of its affiliates
for any limited partner interest of the class purchased within
the 90 days preceding the date our general partner mails
notice of its election to purchase the units.
As of November 23, 2010 our general partner and its
affiliates (excluding directors and officers except Randa Duncan
Williams) owned the non-economic general partner interest in us
and 307,587,486 common units and 4,520,431 Class B units,
representing an aggregate 37.5% of our issued and outstanding
units representing limited partner interests. Our Class B
units are entitled to vote together with our common units as a
single class on partnership matters and generally have the same
rights and privileges as our common units, except that they are
not entitled to regular quarterly cash distributions for the
first sixteen quarters following October 26, 2009, which
was the closing date of the TEPPCO merger. The Class B
units will automatically convert into the same number of common
units on the date immediately following the payment date for the
sixteenth quarterly distribution following the closing date of
the TEPPCO merger.
Indemnification
Section 17-108
of the Delaware Act empowers a Delaware limited partnership to
indemnify and hold harmless any partner or other person from and
against all claims and demands whatsoever. Our partnership
agreement provides that we will indemnify (i) the general
partner, (ii) any departing general partner, (iii) any
person who is or was an affiliate of the general partner or any
departing general partner, (iv) any person who is or was a
member, partner, officer director, employee, agent or trustee of
the general partner or any departing general partner or any
affiliate of the general partner or any departing general
partner or (v) any person who is or was serving at the
request of the general partner or any departing general partner
or any affiliate of any such person, any affiliate of the
general partner or any fiduciary or trustee of another person
(each, a Partnership Indemnitee), to the fullest
extent permitted by law, from and against any and all losses,
claims, damages, liabilities (joint or several), expenses
(including, without limitation, legal fees and expenses),
judgments, fines, penalties, interest, settlements and other
amounts arising from any and all claims, demands, actions, suits
or proceedings, whether civil, criminal, administrative or
investigative, in which any Partnership Indemnitee may be
involved, or is threatened to be involved, as a party or
otherwise, by reason of its status as a Partnership Indemnitee;
provided that in each case the Partnership Indemnitee
acted in good faith and in a manner that such Partnership
Indemnitee reasonably believed to be in or not opposed to our
best interests and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful. The
termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its
equivalent, shall not create an assumption that the Partnership
Indemnitee acted in a manner contrary to that specified above.
Any indemnification under these provisions will be only out of
the our assets, and the general partner shall not be personally
liable for, or have any obligation to contribute or lend funds
or assets to us to enable it to effectuate, such
indemnification. We are authorized to purchase (or to reimburse
the general partner or its affiliates for the cost of) insurance
against liabilities asserted against and expenses incurred by
such persons in connection with our activities, regardless of
whether we would have the power to indemnify such person against
such liabilities under the provisions described above.
Registration
Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act of 1933, as amended (the
Securities Act), and applicable state securities
laws any common units or other partnership securities proposed
to be sold by our general partner or any of its affiliates or
their assignees if an exemption from the registration
requirements is not otherwise available. We are obligated to pay
all expenses incidental to the registration, excluding
underwriting discounts and commissions.
26
MATERIAL
TAX CONSEQUENCES
This section is a discussion of the material tax considerations
that may be relevant to prospective unitholders who are
individual citizens or residents of the United States and,
unless otherwise noted in the following discussion, represents
the opinion of Andrews Kurth LLP, special counsel to our general
partner and us, insofar as it relates to matters of United
States federal income tax law and legal conclusions with respect
to those matters. This section is based upon current provisions
of the Internal Revenue Code of 1986, as amended, or the
Internal Revenue Code, existing and proposed Treasury
Regulations and current administrative rulings and court
decisions, all of which are subject to change. Later changes in
these authorities may cause the tax consequences to vary
substantially from the consequences described below. Unless the
context otherwise requires, references in this section to
us or we are references to Enterprise
Products Partners L.P. and Enterprise Products Operating LLC.
The following discussion does not address all federal, state and
local tax matters affecting us or our unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs), employee
benefit plans or mutual funds. Accordingly, we urge each
prospective unitholder to consult, and depend on, his own tax
advisor in analyzing the federal, state, local and foreign tax
consequences particular to him of the ownership or disposition
of the common units. All statements as to matters of law and
legal conclusions, but not as to factual matters, contained in
this section, unless otherwise noted, are the opinion of Andrews
Kurth LLP and are based on the accuracy of the representations
made by us and our general partner.
No ruling has been or will be requested from the IRS regarding
our status as a partnership for federal income tax purposes.
Instead, we will rely on opinions and advice of Andrews Kurth
LLP. Unlike a ruling, an opinion of counsel represents only that
counsels best legal judgment and does not bind the IRS or
the courts. Accordingly, the opinions and statements made in
this discussion may not be sustained by a court if contested by
the IRS. Any contest of this sort with the IRS may materially
and adversely impact the market for the common units and the
prices at which the common units trade. In addition, the costs
of any contest with the IRS, principally legal, accounting and
related fees, will result in a reduction in cash available for
distribution to our unitholders and our general partner and thus
will be borne indirectly by our unitholders and our general
partner. Furthermore, the tax treatment of us, or of an
investment in us, may be significantly modified by future
legislative or administrative changes or court decisions. Any
modifications may or may not be retroactively applied.
For the reasons described below, Andrews Kurth LLP has not
rendered an opinion with respect to the following specific
federal income tax issues: the treatment of a unitholder whose
common units are loaned to a short seller to cover a short sale
of common units (please read Tax Consequences
of Unit Ownership Treatment of Short Sales);
whether our monthly convention for allocating taxable income and
losses is permitted by existing Treasury Regulations (please
read Disposition of Common Units
Allocations Between Transferors and Transferees); and
whether our method for depreciating Section 743 adjustments
is sustainable in certain cases (please read
Tax Consequences of Unit
Ownership Section 754 Election and
Uniformity of Units.).
Partnership
Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable to the
partner unless the amount of cash distributed to him is in
excess of the partners adjusted basis in his partnership
interest.
Section 7704 of the Internal Revenue Code provides that
publicly traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income Exception, exists
27
with respect to publicly traded partnerships of which 90% or
more of the gross income for every taxable year consists of
qualifying income. Qualifying income includes income
and gains derived from the exploration, development, mining or
production, processing, refining, transportation, storage and
marketing of any mineral or natural resource, including our
allocable share of such income from Duncan Energy Partners and
Energy Transfer Equity (the MLP Entities). Other
types of qualifying income include interest (other than from a
financial business), dividends, gains from the sale of real
property and gains from the sale or other disposition of capital
assets held for the production of income that otherwise
constitutes qualifying income. We estimate that less than 5% of
our current gross income is not qualifying income; however, this
estimate could change from time to time. Based on and subject to
this estimate, the factual representations made by us and our
general partner and a review of the applicable legal
authorities, Andrews Kurth LLP is of the opinion that at least
90% of our current gross income constitutes qualifying income.
The portion of our income that is qualifying income may change
from time to time.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of
Enterprise Products Operating LLC as partnerships for federal
income tax purposes. Instead, we will rely on the opinion of
Andrews Kurth LLP on such matters. It is the opinion of Andrews
Kurth LLP that, based upon the Internal Revenue Code, its
regulations, published revenue rulings and court decisions and
the representations described below, we and Enterprise Products
Operating LLC will be classified as partnerships for federal
income tax purposes.
In rendering its opinion, Andrews Kurth LLP has relied on
factual representations made by us and our general partner. The
representations made by us and our general partner upon which
Andrews Kurth LLP has relied include:
(a) Neither we, Enterprise Products Operating LLC nor the
MLP Entities has elected or will elect to be treated as a
corporation; and
(b) For each taxable year, more than 90% of our gross
income has been and will be income that Andrews Kurth LLP has
opined or will opine is qualifying income within the
meaning of Section 7704(d) of the Internal Revenue Code.
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery (in which case
the IRS may also require us to make adjustments with respect to
our unitholders or pay other amounts), we will be treated as if
we had transferred all of our assets, subject to liabilities, to
a newly formed corporation, on the first day of the year in
which we fail to meet the Qualifying Income Exception, in return
for stock in that corporation, and then distributed that stock
to the unitholders in liquidation of their interests in us. This
deemed contribution and liquidation should be tax-free to
unitholders and us except to the extent that our liabilities
exceed the tax basis of our assets at that time. Thereafter, we
would be treated as a corporation for federal income tax
purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. Moreover, if any MLP Entity were
taxable as a corporation in any taxable year, our share of such
entitys items of income, gain, loss and deduction would
not be passed through to us and such entity would pay tax on its
income at corporate rates. If an MLP Entity or we were taxable
as a corporation, losses recognized by the MLP Entity would not
flow through to us or our losses would not flow through to our
unitholders, as the case may be. In addition, any distribution
made by us to a unitholder (or by the MLP Entity to us) would be
treated as either taxable dividend income, to the extent of our
current or accumulated earnings and profits, or, in the absence
of earnings and profits, a nontaxable return of capital, to the
extent of the unitholders tax basis in his common units
(or our tax basis in the MLP Entities), or taxable capital gain,
after the unitholders tax basis in his common units (or
our tax basis in the MLP Entities) is reduced to zero.
Accordingly, taxation of either us or any MLP Entity as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
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The discussion below is based on Andrews Kurth LLPs
opinion that we will be classified as a partnership for federal
income tax purposes.
Limited
Partner Status
Unitholders who have become limited partners of Enterprise
Products Partners L.P. will be treated as partners of Enterprise
Products Partners L.P. for federal income tax purposes. Also,
assignees who have executed and delivered transfer applications,
and are awaiting admission as limited partners, and unitholders
whose common units are held in street name or by a nominee and
who have the right to direct the nominee in the exercise of all
substantive rights attendant to the ownership of their common
units, will be treated as partners of Enterprise Products
Partners L.P. for federal income tax purposes. As there is no
direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and
thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver transfer
applications, Andrews Kurth LLPs opinion does not extend
to these persons. Furthermore, a purchaser or other transferee
of common units who does not execute and deliver a transfer
application may not receive some federal income tax information
or reports furnished to record holders of common units unless
the common units are held in a nominee or street name account
and the nominee or broker has executed and delivered a transfer
application for those common units.
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit
Ownership Treatment of Short Sales.
Items of our income, gain, loss and deduction would not appear
to be reportable by a unitholder who is not a partner for
federal income tax purposes, and any cash distributions received
by a unitholder who is not a partner for federal income tax
purposes would therefore appear to be fully taxable as ordinary
income. These unitholders are urged to consult their own tax
advisors with respect to their tax consequences of holding units
in Enterprise Products Partners L.P. The references to
unitholders in the discussion that follows are to
persons who are treated as partners in Enterprise Products
Partners L.P. for federal income tax purposes.
Tax
Consequences of Unit Ownership
Flow-through of Taxable Income. We do not pay
any federal income tax. Instead, each unitholder is required to
report on his income tax return his share of our income, gains,
losses and deductions without regard to whether corresponding
cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a
cash distribution. Each unitholder will be required to include
in income his allocable share of our income, gains, losses and
deductions for our taxable year or years ending with or within
his taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by
us to a unitholder generally will not be taxable to the
unitholder for federal income tax purposes, except to the extent
the amount of any such cash distribution exceeds his tax basis
in his common units immediately before the distribution. Our
cash distributions in excess of a unitholders tax basis in
his common units generally will be considered to be gain from
the sale or exchange of the common units, taxable in accordance
with the rules described under Disposition of
Common Units below. Any reduction in a unitholders
share of our liabilities for which no partner, bears the
economic risk of loss, known as nonrecourse
liabilities, will be treated as a distribution of cash to
that unitholder. To the extent our distributions cause a
unitholders at risk amount to be less than
zero at the end of any taxable year, the unitholder must
recapture any losses deducted in previous years. Please read
Limitations on Deductibility of Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash which may
constitute a non-pro rata distribution. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture,
and/or
substantially appreciated inventory items, both as
defined in Section 751 of the Internal Revenue Code, and
collectively, Section 751
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Assets. To that extent, he will be treated as having been
distributed his proportionate share of the Section 751
Assets and having then exchanged those assets with us in return
for the non-pro rata portion of the actual distribution made to
him. This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of the non-pro rata portion of that
distribution over the unitholders tax basis for the share
of Section 751 Assets deemed relinquished in the exchange.
Basis of Common Units. A unitholders
initial tax basis for his common units will be the amount he
paid for the common units plus his share of our nonrecourse
liabilities. That basis generally will be increased by his share
of our income and gains and by any increases in his share of our
nonrecourse liabilities. That basis generally will be decreased,
but not below zero, by distributions from us, by the
unitholders share of our losses and deductions, by any
decreases in his share of our nonrecourse liabilities and by his
share of our expenditures that are not deductible in computing
taxable income and are not required to be capitalized. A
unitholder will have a share of our nonrecourse liabilities
generally based on the Book-Tax Disparity (as described in
Allocation of Income, Gain, Loss and
Deduction) attributable to the unitholder, to the extent
of such amount, and thereafter, the unitholders share of
our profits. Please read Disposition of Common
Units Recognition of Gain or Loss.
Limitations on Deductibility of Losses. The
deduction by a unitholder of his share of our losses will be
limited to the tax basis in his units and, in the case of an
individual unitholder or a corporate unitholder, if more than
50% of the value of the corporate unitholders stock is
owned directly or indirectly by or for five or fewer individuals
or some tax-exempt organizations, to the amount for which the
unitholder is considered to be at risk with respect
to our activities, if that amount is less than his tax basis. A
unitholder subject to these limitations must recapture losses
deducted in previous years to the extent that distributions
cause his at risk amount to be less than zero at the end of any
taxable year. Losses disallowed to a unitholder or recaptured as
a result of these limitations will carry forward and will be
allowable as a deduction in a later year to the extent that his
tax basis or at risk amount, whichever is the limiting factor,
is subsequently increased provided that such losses are
otherwise allowable. Upon the taxable disposition of a unit, any
gain recognized by a unitholder can be offset by losses that
were previously suspended by the at risk limitation but may not
be offset by losses suspended by the basis limitation. Any
excess loss above that gain previously suspended by the at risk
or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by (i) any portion of that basis representing
amounts other than those protected against loss because of a
guarantee, stop-loss agreement or other similar arrangement and
(ii) any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to another unitholder who has an interest in us,
or can look only to the units for repayment. A unitholders
at risk amount will increase or decrease as the tax basis of the
unitholders units increases or decreases, other than tax
basis increases or decreases attributable to increases or
decreases in his share of our nonrecourse liabilities.
In addition to the basis and at-risk limitations on the
deductibility of losses, the passive loss limitations generally
provide that individuals, estates, trusts and some closely-held
corporations and personal service corporations are permitted to
deduct losses from passive activities, which are generally trade
or business activities in which the taxpayer does not materially
participate, only to the extent of the taxpayers income
from those passive activities. The passive loss limitations are
applied separately with respect to each publicly traded
partnership. However, the application of the passive loss
limitations to tiered publicly traded partnerships is uncertain.
We will take the position that any passive losses we generate
that are reasonably allocable to our investment in Duncan Energy
Partners or Energy Transfer Equity, as applicable, will only be
available to offset our passive income generated in the future
that is reasonably allocable to our investment in Duncan Energy
Partners or Energy Transfer Equity, as applicable, and will not
be available to offset income from other passive activities or
investments, including other investments in private businesses
or investments we may make in other publicly traded
partnerships. Moreover, because the passive loss limitations are
applied separately with respect to each publicly traded
partnership, any passive losses we generate will only be
available to offset our passive income generated in the future
and will not be available to offset income from other passive
activities or investments, including our investments or
investments in other publicly traded
30
partnerships, or a unitholders salary or active business
income. Further, a unitholders share of our net income may
be offset by any suspended passive losses from his investment in
us, but may not be offset by his current or carryover losses
from other passive activities, including those attributable to
other publicly traded partnerships. Passive losses that are not
deductible because they exceed a unitholders share of
income we generate may be deducted in full when the unitholder
disposes of his entire investment in us in a fully taxable
transaction with an unrelated party. The passive activity loss
limitations are applied after other applicable limitations on
deductions, including the at risk rules and the basis limitation.
The IRS could take the position that for purposes of applying
the passive loss limitation rules to tiered publicly traded
partnerships, such as the MLP Entities and us, the related
entities are treated as one publicly traded partnership. In that
case, any passive losses we generate would be available to
offset income from a unitholders investment in the MLP
Entities, as applicable. However, passive losses that are not
deductible because they exceed a unitholders share of
income we generate would not be deductible in full until a
unitholder disposes of his entire investment in both us and each
MLP Entity in a fully taxable transaction with an unrelated
party.
A unitholders share of our net income may be offset by any
of our suspended passive losses, but it may not be offset by any
other current or carryover losses from other passive activities,
including those attributable to other publicly traded
partnerships.
Limitations on Interest Deductions. The
deductibility of a non-corporate taxpayers
investment interest expense is generally limited to
the amount of that taxpayers net investment
income. Investment interest expense includes:
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interest on indebtedness properly allocable to property held for
investment;
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our interest expense attributed to portfolio income; and
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly traded
partnership will be treated as investment income to its
unitholders for purposes of the investment interest deduction
limitation. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections. If we are
required or elect under applicable law to pay any federal,
state, local or foreign income tax on behalf of any unitholder
or any former unitholder, we are authorized to pay those taxes
from our funds. That payment, if made, will be treated as a
distribution of cash to the unitholder on whose behalf the
payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat
the payment as a distribution to all current unitholders. We are
authorized to amend our partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax
characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under
our partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual unitholder
in which event the unitholder would be required to file a claim
in order to obtain a credit or refund.
Allocation of Income, Gain, Loss and
Deduction. In general, if we have a net profit,
our items of income, gain, loss and deduction will be allocated
among the unitholders in accordance with their percentage
interests in us. If we have a net loss for the entire year, that
loss will be allocated to the unitholders in accordance with
their percentage interests in us.
31
Specified items of our income, gain, loss and deduction will be
allocated under Section 704(c) of the Internal Revenue Code
to account for (i) any difference between the tax basis and
fair market value of our assets at the time we issue units in an
offering, or (ii) any difference between the tax basis and
fair market value of any property contributed to us at the time
of such contribution, together referred to in this discussion as
Contributed Property. These allocations are required
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and the tax capital
account, credited with the tax basis of Contributed Property,
referred to in the discussion as the Book-Tax
Disparity. The effect of these allocations to a unitholder
purchasing common units in such an offering will be essentially
the same as if the tax basis of our assets were equal to their
fair market value at the time of such an offering. In the event
we issue additional common units or engage in certain other
transactions in the future, reverse Section 704(c)
allocations, similar to the Section 704(c)
allocations described above, will be made to all partners to
account for the difference, at the time of the future
transaction, between the book basis for purposes of
maintaining capital accounts and the fair market value of all
property held by us at the time of the future transaction. In
addition, items of recapture income will be allocated to the
extent possible to the unitholder who was allocated the
deduction giving rise to the treatment of that gain as recapture
income in order to minimize the recognition of ordinary income
by other unitholders. Finally, although we do not expect that
our operations will result in the creation of negative capital
accounts, if negative capital accounts nevertheless result,
items of our income and gain will be allocated in an amount and
manner sufficient to eliminate the negative balance as quickly
as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by Section 704(c) to
eliminate the Book-Tax Disparity will generally be given effect
for federal income tax purposes in determining a partners
share of an item of income, gain, loss or deduction only if the
allocation has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us;
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the interests of all the partners in profits and losses;
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the interest of all the partners in cash flow and other
nonliquidating distributions; and
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the rights of all the partners to distributions of capital upon
liquidation.
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Andrews Kurth LLP is of the opinion that, with the exception of
the issues described in Tax Consequences of
Unit Ownership Section 754 Election
Uniformity of Units and
Disposition of Common
Units Allocations Between Transferors and
Transferees, allocations under our partnership agreement
will be given effect for federal income tax purposes in
determining a partners share of an item of income, gain,
loss or deduction.
Treatment of Short Sales. A unitholder whose
units are loaned to a short seller to cover a short
sale of units may be considered as having disposed of those
units. If so, he would no longer be treated for tax purposes as
a partner with respect to those units during the period of the
loan and may recognize gain or loss from the disposition. As a
result, during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder;
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any cash distributions received by the unitholder as to those
units would be fully taxable; and
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all of these distributions would appear to be ordinary income.
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Andrews Kurth LLP has not rendered an opinion regarding the tax
treatment of a unitholder where common units are loaned to a
short seller to cover a short sale of common units. Therefore,
unitholders desiring to assure their status as partners and
avoid the risk of gain recognition from a loan to a short seller
are urged to modify any applicable brokerage account agreements
to prohibit their brokers from borrowing and loaning their
units. The IRS has previously announced that it is studying
issues relating to the tax
32
treatment of short sales of partnership interests. Please also
read Disposition of Common Units
Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will
be required to take into account his distributive share of any
items of our income, gain, loss or deduction for purposes of the
alternative minimum tax. The current minimum tax rate for
noncorporate taxpayers is 26% on the first $175,000 of
alternative minimum taxable income in excess of the exemption
amount and 28% on any additional alternative minimum taxable
income. Prospective unitholders are urged to consult with their
tax advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. Under current law, the highest
marginal United States federal income tax rate applicable to
ordinary income of individuals is 35% and the maximum United
States federal income tax rate for net capital gains of an
individual is 15% if the asset disposed of was a capital asset
held for more than 12 months at the time of disposition.
However, absent new legislation extending the current rates,
beginning January 1, 2011, the highest marginal
U.S. federal income tax rate applicable to ordinary income
and long-term capital gains of individuals will increase to
39.6% and 20%, respectively. Moreover, these rates are subject
to change by new legislation at any time.
Recently enacted legislation will impose a 3.8% Medicare tax on
certain investment income earned by individuals, estates and
trusts for taxable years beginning after December 31, 2012.
For these purposes, net investment income generally includes a
unitholders allocable share of our income and gain
realized by a unitholder from a sale of common units. In the
case of an individual, the tax will be imposed on the lesser of
(1) the unitholders net investment income or
(2) the amount by which the unitholders modified
adjusted gross income exceeds $250,000 (if the unitholder is
married and filing jointly or a surviving spouse), $125,000 (if
the unitholder is married and filing separately) or $200,000 (in
any other case).
Section 754 Election. We have made the
election permitted by Section 754 of the Internal Revenue
Code. That election is irrevocable without the consent of the
IRS. The election generally permits us to adjust a common unit
purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election applies to a
person who purchases units from a selling unitholder but does
not apply to a person who purchases common units directly from
us. The Section 743(b) adjustment belongs to the purchaser
and not to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Treasury Regulations under Section 743 of the Internal
Revenue Code require, if the remedial allocation method is
adopted (which we have adopted), a portion of the
Section 743(b) adjustment that is attributable to recovery
property subject to depreciation under Section 168 of the
Internal Revenue Code to be depreciated over the remaining cost
recovery period for the propertys unamortized Book-Tax
Disparity. Under Treasury
Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property
subject to depreciation under Section 167 of the Internal
Revenue Code, rather than cost recovery deductions under
Section 168, is generally required to be depreciated using
either the straight-line method or the 150% declining balance
method. Under our partnership agreement, our general partner is
authorized to take a position to preserve the uniformity of
units even if that position is not consistent with these and any
other Treasury Regulations. Please read
Uniformity of Units.
Although Andrews Kurth LLP is unable to opine as to the validity
of this approach because there is no controlling authority on
this issue, we intend to depreciate the portion of a
Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the unamortized
Book-Tax Disparity of the property, or treat that portion as
non-amortizable
to the extent attributable to property which is not amortizable.
This method is consistent with methods employed by other
publicly traded partnerships but is arguably inconsistent with
Treasury
Regulation Section 1.167(c)-1(a)(6),
which is not expected to directly apply to a material portion of
our assets. To the extent this Section 743(b) adjustment is
attributable to appreciation in value in excess of the
unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative
33
history. If we determine that this position cannot reasonably be
taken, we may take a depreciation or amortization position under
which all purchasers acquiring units in the same month would
receive depreciation or amortization, whether attributable to
common basis or a Section 743(b) adjustment, based upon the
same applicable rate as if they had purchased a direct interest
in our assets. This kind of aggregate approach may result in
lower annual depreciation or amortization deductions than would
otherwise be allowable to some unitholders. Please read
Uniformity of Units. A unitholders
tax basis for his common units is reduced by his share of our
deductions (whether or not such deductions were claimed on an
individuals income tax return) so that any position we
take that understates deductions will overstate the common
unitholders basis in his common units, which may cause the
unitholder to understate gain or overstate loss on any sale of
such units. Please read Disposition of Common
Units Recognition of Gain or Loss. The IRS may
challenge our position with respect to depreciating or
amortizing the Section 743(b) adjustment we take to
preserve the uniformity of the units. If such a challenge were
sustained, the gain from the sale of units might be increased
without the benefit of additional deductions.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation deductions and his share of any
gain or loss on a sale of our assets would be less. Conversely,
a Section 754 election is disadvantageous if the
transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election. A basis adjustment is required regardless of
whether a Section 754 election is made in the case of a
transfer of an interest in us if we have a substantial built-in
loss immediately after the transfer, or if we distribute
property and have a substantial basis reduction. Generally a
basis reduction or a built-in loss is substantial if it exceeds
$250,000.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment we allocated to our tangible
assets or the tangible assets owned by the MLP Entities to
goodwill instead. Goodwill, as an intangible asset, is generally
either
non-amortizable
or amortizable over a longer period of time or under a less
accelerated method than our tangible assets. We cannot assure
you that the determinations we make will not be successfully
challenged by the IRS and that the deductions resulting from
them will not be reduced or disallowed altogether. Should the
IRS require a different basis adjustment to be made, and should,
in our opinion, the expense of compliance exceed the benefit of
the election, we may seek permission from the IRS to revoke our
Section 754 election. If permission is granted, a
subsequent purchaser of units may be allocated more income than
he would have been allocated had the election not been revoked.
Tax
Treatment of Operations
Accounting Method and Taxable Year. We use the
year ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year or
years ending within or with his taxable year. In addition, a
unitholder who has a taxable year different than our taxable
year and who disposes of all of his units following the close of
our taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and Amortization. We
use the tax basis of our and the MLP Entities assets for
purposes of computing depreciation and cost recovery deductions
and, ultimately, gain or loss on the disposition of these
assets. The federal income tax burden associated with the
difference between the fair market value of our assets and their
tax basis immediately prior to the time we issue units in an
offering will
34
be borne by partners holding interests in us immediately prior
to an offering. Please read Tax Consequences
of Unit Ownership Allocation of Income, Gain, Loss
and Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets subject
to these allowances are placed in service. Property we
subsequently acquire or construct may be depreciated using
accelerated methods permitted by the Internal Revenue Code.
If we or the MLP Entities dispose of depreciable property by
sale, foreclosure, or otherwise, all or a portion of any gain,
determined by reference to the amount of depreciation previously
deducted and the nature of the property, may be subject to the
recapture rules and taxed as ordinary income rather than capital
gain. Similarly, a common unitholder who has taken cost recovery
or depreciation deductions with respect to property we or the
MLP Entities own will likely be required to recapture some, or
all, of those deductions as ordinary income upon a sale of his
interest in us. Please read Tax Consequences
of Unit Ownership Allocation of Income, Gain, Loss
and Deduction and Disposition of Common
Units Recognition of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which we may amortize, and as syndication
expenses, which we may not be able to amortize. The underwriting
discounts and commissions we incur will be treated as
syndication expenses.
Valuation and Tax Basis of Our Properties. The
federal income tax consequences of the ownership and disposition
of units will depend in part on our estimates of the relative
fair market values, and the tax bases, of our assets and the MLP
Entities assets. Although we may from time to time consult
with professional appraisers regarding valuation matters, we
will make many of the relative fair market value estimates
ourselves. These estimates and determinations of basis are
subject to challenge and will not be binding on the IRS or the
courts. If the estimates of fair market value or basis are later
found to be incorrect, the character and amount of items of
income, gain, loss or deductions previously reported by
unitholders might change, and unitholders might be required to
adjust their tax liability for prior years and incur interest
and penalties with respect to those adjustments.
Disposition
of Common Units
Recognition of Gain or Loss. Gain or loss will
be recognized on a sale of units equal to the difference between
the unitholders amount realized and the unitholders
tax basis for the units sold. A unitholders amount
realized will be measured by the sum of the cash or the fair
market value of other property received by him plus his share of
our nonrecourse liabilities attributable to the common units
sold. Because the amount realized includes a unitholders
share of our nonrecourse liabilities, the gain recognized on the
sale of units could result in a tax liability in excess of any
cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit will generally be taxable as capital gain or
loss. Capital gain recognized by an individual on the sale of
units held more than 12 months will generally be taxed at a
maximum U.S. federal income tax rate of 15% through
December 31, 2010 and 20% thereafter (absent legislation
extending or adjusting the current rate). However, a portion,
which will likely be substantial, of this gain or loss will be
separately computed and taxed as ordinary income or loss under
Section 751 of the Internal Revenue Code to the extent
attributable to assets giving rise to depreciation recapture or
other unrealized receivables or to inventory
items we or the MLP Entities own. The term
unrealized receivables includes potential recapture
items, including depreciation recapture. Ordinary income
attributable to unrealized receivables, inventory items and
depreciation recapture may exceed net taxable gain realized on
the sale of a unit and may be recognized
35
even if there is a net taxable loss realized on the sale of a
unit. Thus, a unitholder may recognize both ordinary income and
a capital loss upon a sale of units. Net capital losses may
offset capital gains and no more than $3,000 of ordinary income
each year in the case of individuals and may only be used to
offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method, which generally means that the tax
basis allocated to the interest sold equals an amount that bears
the same relation to the partners tax basis in his entire
interest in the partnership as the value of the interest sold
bears to the value of the partners entire interest in the
partnership. Treasury Regulations under Section 1223 of the
Internal Revenue Code allow a selling unitholder who can
identify common units transferred with an ascertainable holding
period to elect to use the actual holding period of the common
units transferred. Thus, according to the ruling discussed
above, a common unitholder will be unable to select high or low
basis common units to sell as would be the case with corporate
stock, but, according to the Treasury Regulations, may designate
specific common units sold for purposes of determining the
holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. A unitholder considering the
purchase of additional units or a sale of common units purchased
in separate transactions is urged to consult his tax advisor as
to the possible consequences of this ruling and application of
the Treasury Regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale;
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an offsetting notional principal contract; or
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a futures or forward contract with respect to the partnership
interest or substantially identical property.
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Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and
Transferees. In general, our taxable income or
loss will be determined annually, will be prorated on a monthly
basis and will be subsequently apportioned among the unitholders
in proportion to the number of units owned by each of them as of
the opening of the applicable exchange on the first business day
of the month, which we refer to in this prospectus as the
Allocation Date. However, gain or loss realized on a
sale or other disposition of our assets other than in the
ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that
gain or loss is recognized. As a result, a unitholder
transferring units may be allocated income, gain, loss and
deduction realized after the date of transfer.
Although simplifying conventions are contemplated by the
Internal Revenue Code and most publicly traded partnerships use
similar simplifying conventions, the use of this method may not
be permitted under existing Treasury Regulations. Recently, the
Department of the Treasury and the IRS issued proposed Treasury
Regulations that provide a safe harbor pursuant to which a
publicly traded partnership may use a similar monthly
simplifying convention to allocate tax items among transferor
and transferee unitholders, although such tax items must be
prorated on a daily basis. Existing publicly traded partnerships
are entitled to rely on these proposed Treasury Regulations;
however, they are not binding on the IRS and are subject to
change until final Treasury Regulations are issued. Accordingly,
Andrews Kurth LLP is unable to opine on the validity of this
method of allocating income and deductions between transferor
and transferee unitholders. If this method
36
is not allowed under the Treasury Regulations, or only applies
to transfers of less than all of the unitholders interest,
our taxable income or losses might be reallocated among the
unitholders. We are authorized to revise our method of
allocation between transferor and transferee unitholders, as
well as unitholders whose interests vary during a taxable year,
to conform to a method permitted under future Treasury
Regulations.
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who
sells any of his units, other than through a broker, generally
is required to notify us in writing of that sale within
30 days after the sale (or, if earlier, January 15 of the
year following the sale). A purchaser of units who purchases
units from another unitholder is also generally required to
notify us in writing of that purchase within 30 days after
the purchase. Upon receiving such notification, we are required
to notify the IRS of that transaction and to furnish specified
information to the transferor and transferee. Failure to notify
us of a transfer of units may, in some cases, lead to the
imposition of penalties. However, these reporting requirements
do not apply to a sale by an individual who is a citizen of the
U.S. and who effects the sale or exchange through a broker
who will satisfy such requirements.
Constructive Termination. We will be
considered to have been terminated for tax purposes if there are
sales or exchanges which, in the aggregate, constitute 50% or
more of the total interests in our capital and profits within a
12-month
period. A constructive termination results in the closing of our
taxable year for all unitholders. In the case of a unitholder
reporting on a taxable year different from our taxable year, the
closing of our taxable year may result in more than
12 months of our taxable income or loss being includable in
his taxable income for the year of termination. A constructive
termination occurring on a date other than December 31 will
result in us filing two tax returns (and unitholders could
receive two Schedules K-1) for one fiscal year and the cost of
the preparation of these returns will be borne by all common
unitholders. We would be required to make new tax elections
after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination. The IRS has recently announced a relief procedure
whereby if a publicly traded partnership that has technically
terminated requests and is granted relief from the IRS, among
other things, the partnership will only have to provide one
Schedule K-1
to unitholders for the fiscal year notwithstanding that two
partnership tax years result from the termination.
Uniformity
of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury Regulation
Section 1.167(c)-1(a)(6).
Any non-uniformity could have a negative impact on the value of
the units. Please read Tax Consequences of
Unit Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the unamortized Book-Tax Disparity of that
property, or treat that portion as nonamortizable, to the extent
attributable to property which is not amortizable, consistent
with the Treasury Regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury Regulation
Section 1.167(c)-1(a)(6).
Please read Tax Consequences of Unit
Ownership Section 754 Election. To the
extent that the Section 743(b) adjustment is attributable
to appreciation in value in excess of the unamortized Book-Tax
Disparity, we will apply the rules described in the Treasury
Regulations and legislative history. If we determine that this
position cannot reasonably be taken, we may adopt a depreciation
and
37
amortization position under which all purchasers acquiring units
in the same month would receive depreciation and amortization
deductions, whether attributable to a common basis or
Section 743(b) adjustment, based upon the same applicable
methods and lives as if they had purchased a direct interest in
our property. If this position is adopted, it may result in
lower annual depreciation and amortization deductions than would
otherwise be allowable to some unitholders and risk the loss of
depreciation and amortization deductions not taken in the year
that these deductions are otherwise allowable. This position
will not be adopted if we determine that the loss of
depreciation and amortization deductions will have a material
adverse effect on the unitholders. If we choose not to utilize
this aggregate method, we may use any other reasonable
depreciation and amortization method to preserve the uniformity
of the intrinsic tax characteristics of any units that would not
have a material adverse effect on the unitholders. Our counsel,
Andrews Kurth LLP, is unable to opine on the validity of any of
these positions. The IRS may challenge any method of
depreciating the Section 743(b) adjustment described in
this paragraph. If this challenge were sustained, the uniformity
of units might be affected, and the gain from the sale of units
might be increased without the benefit of additional deductions.
We do not believe these allocations will affect any material
items of income, gain, loss or deduction. Please read
Disposition of Common
Units Recognition of Gain or Loss.
Tax-Exempt
Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, regulated investment companies, non-resident
aliens, foreign corporations, and other foreign persons raises
issues unique to those investors and, as described below, may
have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
A regulated investment company or mutual fund is
required to derive 90% or more of its gross income from certain
permitted sources. The American Jobs Creation Act of 2004
generally treats net income from the ownership of publicly
traded partnerships as derived from such a permitted source. We
anticipate that all of our net income will be treated as derived
from such a permitted source.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence they will be required to file federal tax returns to
report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold tax at the highest
applicable effective tax rate from cash distributions made
quarterly to foreign unitholders. Each foreign unitholder must
obtain a taxpayer identification number from the IRS and submit
that number to our transfer agent on a
Form W-8
BEN or applicable substitute form in order to obtain credit for
these withholding taxes. A change in applicable law may require
us to change these procedures.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
that is effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling published by the IRS, a foreign unitholder who
sells or otherwise disposes of a unit will be subject to federal
income tax on gain realized on the sale or disposition of that
unit to the extent that this gain is effectively connected with
a United States trade or business of the foreign unitholder.
Because a foreign unitholder is considered to be engaged in a
trade or business in the United States by virtue of the
ownership of units, under this ruling, a foreign unitholder who
sells or otherwise disposes of a unit generally will be subject
to federal income tax on gain realized on the sale or other
disposition of units. Apart from the
38
ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative
Matters
Information Returns and Audit Procedures. We intend to furnish
to each unitholder, within 90 days after the close of each
taxable year, specific tax information, including a
Schedule K-1,
which describes each unitholders share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
counsel, we will take various accounting and reporting
positions, some of which have been mentioned earlier, to
determine each unitholders share of income, gain, loss and
deduction. We cannot assure you that those positions will in all
cases yield a result that conforms to the requirements of the
Internal Revenue Code, Treasury Regulations or administrative
interpretations of the IRS.
Neither we nor Andrews Kurth LLP can assure prospective
unitholders that the IRS will not successfully contend in court
that those positions are impermissible. Any challenge by the IRS
could negatively affect the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his own return. Any audit of
a unitholders return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal income tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner has made and will make some elections on
our behalf and on behalf of unitholders. In addition, the Tax
Matters Partner can extend the statute of limitations for
assessment of tax deficiencies against unitholders for items in
our returns. The Tax Matters Partner may bind a unitholder with
less than a 1% profits interest in us to a settlement with the
IRS unless that unitholder elects, by filing a statement with
the IRS, not to give that authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review, by which all
the unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate in that action.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an
interest in us as a nominee for another person are required to
furnish the following information to us:
(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee;
(b) a statement regarding whether the beneficial owner is
(1) a person that is not a United States person,
(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing, or
(3) a tax-exempt entity;
39
(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and
(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales.
Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per failure, up
to a maximum of $100,000 per calendar year, is imposed by the
Internal Revenue Code for failure to report that information to
us. The nominee is required to supply the beneficial owner of
the units with the information furnished to us.
Accuracy-related Penalties. An additional tax
equal to 20% of the amount of any portion of an underpayment of
tax that is attributable to one or more specified causes,
including negligence or disregard of rules or regulations,
substantial understatements of income tax and substantial
valuation misstatements, is imposed by the Internal Revenue
Code. No penalty will be imposed, however, for any portion of an
underpayment if it is shown that there was a reasonable cause
for the underpa