UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___  to  ___.

Commission file number:  1-14323

ENTERPRISE PRODUCTS PARTNERS L.P.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
 
76-0568219
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
1100 Louisiana Street, 10th Floor
Houston, Texas 77002
    (Address of Principal Executive Offices, including Zip Code)
 
(713) 381-6500
(Registrant’s Telephone Number, including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
Non-accelerated filer    (Do not check if a smaller reporting company)
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes    No

There were 2,104,197,364 common units of Enterprise Products Partners L.P. outstanding at the close of business on October 31, 2016.  Our common units trade on the New York Stock Exchange under the ticker symbol “EPD.”

ENTERPRISE PRODUCTS PARTNERS L.P.
TABLE OF CONTENTS

 
 
Page No.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

1

PART I.  FINANCIAL INFORMATION.

Item 1.
Financial Statements.

ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)

   
September 30,
2016
   
December 31,
2015
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
57.1
   
$
19.0
 
Restricted cash
   
277.3
     
15.9
 
Accounts receivable – trade, net of allowance for doubtful accounts
of $14.0 at September 30, 2016 and $12.1 at December 31, 2015
   
2,944.1
     
2,569.9
 
Accounts receivable – related parties
   
1.7
     
1.2
 
Inventories
   
1,762.5
     
1,038.1
 
Derivative assets
   
241.4
     
258.6
 
Prepaid and other current assets
   
457.5
     
395.6
 
Total current assets
   
5,741.6
     
4,298.3
 
Property, plant and equipment, net
   
33,119.4
     
32,034.7
 
Investments in unconsolidated affiliates
   
2,687.2
     
2,628.5
 
Intangible assets, net of accumulated amortization of $1,365.9 at
September 30, 2016 and $1,235.8 at December 31, 2015 (see Note 6)
   
3,907.2
     
4,037.2
 
Goodwill (see Note 6)
   
5,745.2
     
5,745.2
 
Other assets
   
57.8
     
58.3
 
Total assets
 
$
51,258.4
   
$
48,802.2
 
 
               
LIABILITIES AND EQUITY
               
Current liabilities:
               
Current maturities of debt (see Note 7)
 
$
2,838.1
   
$
1,863.9
 
Accounts payable – trade
   
453.7
     
860.1
 
Accounts payable – related parties
   
97.7
     
84.1
 
Accrued product payables
   
3,087.5
     
2,484.4
 
Accrued liability related to EFS Midstream acquisition
   
--
     
993.2
 
Accrued interest
   
202.7
     
352.1
 
Derivative liabilities
   
464.2
     
140.6
 
Other current liabilities
   
424.4
     
388.2
 
Total current liabilities
   
7,568.3
     
7,166.6
 
Long-term debt (see Note 7)
   
21,121.2
     
20,676.9
 
Deferred tax liabilities
   
51.6
     
46.1
 
Other long-term liabilities
   
478.6
     
411.5
 
Commitments and contingencies (see Note 14)
               
Equity:
               
Partners’ equity:
               
Limited partners:
               
Common units (2,102,796,228 units outstanding at September 30, 2016
and 2,012,553,024 units outstanding at December 31, 2015)
   
22,127.9
     
20,514.3
 
Accumulated other comprehensive loss
   
(308.7
)
   
(219.2
)
Total  partners’ equity
   
21,819.2
     
20,295.1
 
Noncontrolling interests
   
219.5
     
206.0
 
Total equity
   
22,038.7
     
20,501.1
 
Total liabilities and equity
 
$
51,258.4
   
$
48,802.2
 



See Notes to Unaudited Condensed Consolidated Financial Statements.
2


ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
 (Dollars in millions, except per unit amounts)

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Revenues:
                       
Third parties
 
$
5,904.7
   
$
6,294.0
   
$
16,499.0
   
$
20,845.6
 
Related parties
   
15.7
     
13.9
     
44.5
     
27.3
 
Total revenues (see Note 9)
   
5,920.4
     
6,307.9
     
16,543.5
     
20,872.9
 
Costs and expenses:
                               
Operating costs and expenses:
                               
Third parties
   
4,781.2
     
5,167.9
     
13,199.4
     
17,642.6
 
Related parties
   
284.5
     
284.7
     
835.4
     
783.9
 
Total operating costs and expenses
   
5,065.7
     
5,452.6
     
14,034.8
     
18,426.5
 
General and administrative costs:
                               
Third parties
   
15.0
     
20.8
     
35.9
     
57.9
 
Related parties
   
27.0
     
28.2
     
85.1
     
85.3
 
Total general and administrative costs
   
42.0
     
49.0
     
121.0
     
143.2
 
Total costs and expenses (see Note 9)
   
5,107.7
     
5,501.6
     
14,155.8
     
18,569.7
 
Equity in income of unconsolidated affiliates
   
92.3
     
103.1
     
269.8
     
302.5
 
Operating income
   
905.0
     
909.4
     
2,657.5
     
2,605.7
 
Other income (expense):
                               
Interest expense
   
(250.9
)
   
(243.7
)
   
(735.6
)
   
(723.2
)
Change in fair market value of Liquidity Option
   Agreement (see Note 14)
   
(6.9
)
   
(4.3
)
   
(28.0
)
   
(15.8
)
Other, net
   
0.7
     
1.8
     
2.5
     
2.6
 
Total other expense, net
   
(257.1
)
   
(246.2
)
   
(761.1
)
   
(736.4
)
Income before income taxes
   
647.9
     
663.2
     
1,896.4
     
1,869.3
 
Provision for income taxes
   
(4.8
)
   
(5.5
)
   
(13.1
)
   
(4.4
)
Net income
   
643.1
     
657.7
     
1,883.3
     
1,864.9
 
Net income attributable to noncontrolling interests (see Note 8)
   
(8.5
)
   
(8.4
)
   
(29.0
)
   
(28.5
)
Net income attributable to limited partners
 
$
634.6
   
$
649.3
   
$
1,854.3
   
$
1,836.4
 
 
                               
Earnings per unit: (see Note 10)
                               
Basic earnings per unit
 
$
0.30
   
$
0.33
   
$
0.89
   
$
0.94
 
Diluted earnings per unit
 
$
0.30
   
$
0.32
   
$
0.89
   
$
0.92
 
















See Notes to Unaudited Condensed Consolidated Financial Statements.
3


ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED
COMPREHENSIVE INCOME
(Dollars in millions)

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
 
                       
Net income
 
$
643.1
   
$
657.7
   
$
1,883.3
   
$
1,864.9
 
Other comprehensive income (loss):
                               
Cash flow hedges:
                               
Commodity derivative instruments:
                               
Changes in fair value of cash flow hedges
   
22.7
     
85.8
     
(52.2
)
   
112.3
 
Reclassification of gains to net income
   
(26.9
)
   
(46.8
)
   
(48.7
)
   
(128.1
)
Interest rate derivative instruments:
                               
Changes in fair value of cash flow hedges
   
(6.9
)
   
--
     
(16.3
)
   
--
 
Reclassification of losses to net income
   
9.4
     
8.9
     
27.8
     
26.3
 
Total cash flow hedges
   
(1.7
)
   
47.9
     
(89.4
)
   
10.5
 
Other
   
--
     
--
     
(0.1
)
   
0.4
 
Total other comprehensive income (loss)
   
(1.7
)
   
47.9
     
(89.5
)
   
10.9
 
Comprehensive income
   
641.4
     
705.6
     
1,793.8
     
1,875.8
 
Comprehensive income attributable to noncontrolling interests
   
(8.5
)
   
(8.4
)
   
(29.0
)
   
(28.5
)
Comprehensive income attributable to limited partners
 
$
632.9
   
$
697.2
   
$
1,764.8
   
$
1,847.3
 
  





























See Notes to Unaudited Condensed Consolidated Financial Statements.
4


ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)

 
 
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
 
Operating activities:
           
Net income
 
$
1,883.3
   
$
1,864.9
 
Reconciliation of net income to net cash flows provided by operating activities:
               
Depreciation, amortization and accretion
   
1,155.3
     
1,147.7
 
Asset impairment charges (see Note 12)
   
22.0
     
139.1
 
Loss due to Pascagoula fire (see Note 4)
   
7.1
     
--
 
Equity in income of unconsolidated affiliates
   
(269.8
)
   
(302.5
)
Distributions received on earnings from unconsolidated affiliates
   
281.6
     
362.4
 
Net losses (gains) attributable to asset sales
   
(2.3
)
   
14.7
 
Gains on early extinguishment of debt
   
--
     
(1.4
)
Deferred income tax expense (benefit)
   
5.3
     
(13.3
)
Change in fair market value of derivative instruments
   
42.1
     
(7.7
)
Change in fair market value of Liquidity Option Agreement (see Note 14)
   
28.0
     
15.8
 
Net effect of changes in operating accounts (see Note 15)
   
(489.7
)
   
(627.9
)
Other operating activities
   
(3.9
)
   
(0.6
)
Net cash flows provided by operating activities
   
2,659.0
     
2,591.2
 
Investing activities:
               
Capital expenditures
   
(2,443.9
)
   
(2,630.5
)
Contributions in aid of construction costs
   
34.1
     
11.4
 
Increase in restricted cash
   
(261.4
)
   
(46.2
)
Cash used for business combinations, net of cash received
   
(1,000.0
)
   
(1,045.1
)
Investments in unconsolidated affiliates
   
(119.9
)
   
(130.7
)
Distributions received for return of capital from unconsolidated affiliates
   
51.9
     
--
 
Proceeds from asset sales
   
43.9
     
1,537.3
 
Other investing activities
   
(0.4
)
   
(4.4
)
Cash used in investing activities
   
(3,695.7
)
   
(2,308.2
)
Financing activities:
               
Borrowings under debt agreements
   
50,183.8
     
17,113.7
 
Repayments of debt
   
(48,776.5
)
   
(16,139.2
)
Debt issuance costs
   
(10.5
)
   
(23.9
)
Cash distributions paid to limited partners (see Note 8)
   
(2,448.3
)
   
(2,185.1
)
Cash payments made in connection with distribution equivalent rights
   
(8.5
)
   
(5.6
)
Cash distributions paid to noncontrolling interests
   
(35.7
)
   
(33.2
)
Cash contributions from noncontrolling interests
   
20.1
     
37.4
 
Net cash proceeds from the issuance of common units
   
2,170.4
     
1,011.4
 
Other financing activities
   
(20.0
)
   
(52.4
)
Cash provided by (used in) financing activities
   
1,074.8
     
(276.9
)
Net change in cash and cash equivalents
   
38.1
     
6.1
 
Cash and cash equivalents, January 1
   
19.0
     
74.4
 
Cash and cash equivalents, September 30
 
$
57.1
   
$
80.5
 










See Notes to Unaudited Condensed Consolidated Financial Statements.
5


ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EQUITY
(See Note 8 for Unit History, Accumulated Other Comprehensive
Income (Loss) and Noncontrolling Interests)
(Dollars in millions)

 
 
Partners’ Equity
             
 
 
Limited
Partners
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Noncontrolling
Interests
   
Total
 
Balance, December 31, 2015
 
$
20,514.3
   
$
(219.2
)
 
$
206.0
   
$
20,501.1
 
Net income
   
1,854.3
     
--
     
29.0
     
1,883.3
 
Cash distributions paid to limited partners
   
(2,448.3
)
   
--
     
--
     
(2,448.3
)
Cash payments made in connection with distribution equivalent rights
   
(8.5
)
   
--
     
--
     
(8.5
)
Cash distributions paid to noncontrolling interests
   
--
     
--
     
(35.7
)
   
(35.7
)
Cash contributions from noncontrolling interests
   
--
     
--
     
20.1
     
20.1
 
Net cash proceeds from the issuance of common units
   
2,170.4
     
--
     
--
     
2,170.4
 
Amortization of fair value of equity-based awards
   
67.7
     
--
     
--
     
67.7
 
Cash flow hedges
   
--
     
(89.4
)
   
--
     
(89.4
)
Other
   
(22.0
)
   
(0.1
)
   
0.1
     
(22.0
)
Balance, September 30, 2016
 
$
22,127.9
   
$
(308.7
)
 
$
219.5
   
$
22,038.7
 

 
 
Partners’ Equity
             
 
 
Limited
Partners
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Noncontrolling
Interests
   
Total
 
Balance, December 31, 2014
 
$
18,304.8
   
$
(241.6
)
 
$
1,629.0
   
$
19,692.2
 
Net income
   
1,836.4
     
--
     
28.5
     
1,864.9
 
Cash distributions paid to limited partners
   
(2,185.1
)
   
--
     
--
     
(2,185.1
)
Cash payments made in connection with distribution equivalent rights
   
(5.6
)
   
--
     
--
     
(5.6
)
Cash distributions paid to noncontrolling interests
   
--
     
--
     
(33.2
)
   
(33.2
)
Cash contributions from noncontrolling interests
   
--
     
--
     
37.4
     
37.4
 
Common units issued in connection with Step 2 of Oiltanking acquisition
   
1,408.7
     
--
     
(1,408.7
)
   
--
 
Removal of noncontrolling interests in connection with sale of Offshore Business
   
--
     
--
     
(62.1
)
   
(62.1
)
Net cash proceeds from the issuance of common units
   
1,011.4
     
--
     
--
     
1,011.4
 
Amortization of fair value of equity-based awards
   
72.9
     
--
     
--
     
72.9
 
Cash flow hedges
   
--
     
10.5
     
--
     
10.5
 
Other
   
(50.7
)
   
0.4
     
(0.1
)
   
(50.4
)
Balance, September 30, 2015
 
$
20,392.8
   
$
(230.7
)
 
$
190.8
   
$
20,352.9
 


















See Notes to Unaudited Condensed Consolidated Financial Statements.

6

Table of Contents
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
With the exception of per unit amounts, or as noted within the context of each disclosure,
the dollar amounts presented in the tabular data within these disclosures are
stated in millions of dollars.

KEY REFERENCES USED IN THESE
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unless the context requires otherwise, references to “we,” “us,” “our,” “Enterprise” or “Enterprise Products Partners” are intended to mean the business and operations of Enterprise Products Partners L.P. and its consolidated subsidiaries.  References to “EPO” mean Enterprise Products Operating LLC, which is a wholly owned subsidiary of Enterprise, and its consolidated subsidiaries, through which Enterprise Products Partners L.P. conducts its business.  Enterprise is managed by its general partner, Enterprise Products Holdings LLC (“Enterprise GP”), which is a wholly owned subsidiary of Dan Duncan LLC, a privately held Texas limited liability company.

The membership interests of Dan Duncan LLC are owned by a voting trust, the current trustees (“DD LLC Trustees”) of which are: (i) Randa Duncan Williams, who is also a director and Chairman of the Board of Directors (the “Board”) of Enterprise GP; (ii) Richard H. Bachmann, who is also a director and Vice Chairman of the Board of Enterprise GP; and (iii) Dr. Ralph S. Cunningham.  Ms. Duncan Williams and Mr. Bachmann also currently serve as managers of Dan Duncan LLC along with W. Randall Fowler, who is also a director and President of Enterprise GP.

References to “EPCO” mean Enterprise Products Company, a privately held Texas corporation, and its privately held affiliates.  A majority of the outstanding voting capital stock of EPCO is owned by a voting trust, the current trustees (“EPCO Trustees”) of which are:  (i) Ms. Duncan Williams, who serves as Chairman of EPCO; (ii) Dr. Cunningham, who serves as Vice Chairman of EPCO; and (iii) Mr. Bachmann, who serves as the President and Chief Executive Officer of EPCO.  Ms. Duncan Williams and Mr. Bachmann also currently serve as directors of EPCO along with Mr. Fowler, who is also the Executive Vice President and Chief Administrative Officer of EPCO. EPCO, together with its privately held affiliates, owned approximately 32.6% of our limited partner interests at September 30, 2016.
  
References to “Oiltanking” and “Oiltanking GP” mean Oiltanking Partners, L.P. and OTLP GP, LLC, the general partner of Oiltanking, respectively. In October 2014, we acquired approximately 65.9% of the limited partner interests of Oiltanking, all of the member interests of Oiltanking GP and the incentive distribution rights (“IDRs”) held by Oiltanking GP from Oiltanking Holding Americas, Inc. (“OTA”), a U.S. corporation, as the first step of a two-step acquisition of Oiltanking. In February 2015, we completed the second step of this transaction consisting of the acquisition of the noncontrolling interests in Oiltanking.

References to “TEPPCO” mean TEPPCO Partners, L.P. prior to its merger with one of our wholly owned subsidiaries in October 2009.

References to “Offshore Business” refer to the Gulf of Mexico operations we sold to Genesis Energy, L.P. (“Genesis”) in July 2015.

References to “EFS Midstream” mean EFS Midstream LLC, which we acquired in July 2015 from affiliates of Pioneer Natural Resources Company (“Pioneer”) and Reliance Industries Limited (“Reliance”).


Note 1.  Partnership Operations, Organization and Basis of Presentation

We are a publicly traded Delaware limited partnership, the common units of which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “EPD.”  We were formed in April 1998 to own and operate certain natural gas liquid (“NGL”) related businesses of EPCO and are a leading North American provider of midstream energy services to producers and consumers of natural gas, NGLs, crude oil, petrochemicals and refined products. 
7

Table of Contents
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our integrated midstream energy asset network links producers of natural gas, NGLs and crude oil from some of the largest supply basins in the United States (“U.S.”), Canada and the Gulf of Mexico with domestic consumers and international markets.  Our midstream energy operations currently include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and import and export terminals (including liquefied petroleum gas, or “LPG”); crude oil gathering, transportation, storage and terminals; petrochemical and refined products transportation, storage and terminals, and related services; and a marine transportation business that operates primarily on the U.S. inland and Intracoastal Waterway systems.  Our assets currently include approximately 49,000 miles of pipelines; 250 million barrels (“MMBbls”) of storage capacity for NGLs, crude oil, petrochemicals and refined products; and 14 billion cubic feet (“Bcf”) of natural gas storage capacity.  

We conduct substantially all of our business through EPO and are owned 100% by our limited partners from an economic perspective.  Enterprise GP manages our partnership and owns a non-economic general partner interest in us.  We, Enterprise GP, EPCO and Dan Duncan LLC are affiliates under the collective common control of the DD LLC Trustees and the EPCO Trustees.  Like many publicly traded partnerships, we have no employees. All of our management, administrative and operating functions are performed by employees of EPCO pursuant to an administrative services agreement (the “ASA”) or by other service providers. See Note 13 for information regarding the ASA and other related party matters.

Our historical operations are reported under five business segments: (i) NGL Pipelines & Services, (ii) Crude Oil Pipelines & Services, (iii) Natural Gas Pipelines & Services, (iv) Petrochemical & Refined Products Services and (v) Offshore Pipelines & Services. On July 24, 2015, we completed the sale of our Offshore Business, which primarily consisted of our Offshore Pipelines & Services segment. Our consolidated financial statements reflect ownership of the Offshore Business through July 24, 2015. See Note 9 for additional information regarding our business segments.

As a result of our acquisition of the member interests of EFS Midstream effective July 1, 2015, we began consolidating the financial statements of EFS Midstream as of that date.

Effective January 1, 2016, we applied the provisions of Accounting Standard Update (“ASU”) 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires bond issuance costs to be presented on the balance sheet as a deduction from the carrying value of the associated debt. The guidance was applied on a retrospective basis; therefore, we adjusted our December 31, 2015 consolidated balance sheet to reflect the reclassification of $14.7 million of bond issuance costs from prepaid and other current assets and $135.1 million from other assets to reduce the carrying amount of long-term debt by an aggregate $149.8 million. See Note 7 for additional information regarding our long-term debt.


Note 2.  General Accounting and Disclosure Matters

Our results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of results expected for the full year of 2016.  In our opinion, the accompanying Unaudited Condensed Consolidated Financial Statements include all adjustments consisting of normal recurring accruals necessary for fair presentation.  Although we believe the disclosures in these financial statements are adequate and make the information presented not misleading, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”).

These Unaudited Condensed Consolidated Financial Statements and Notes thereto should be read in conjunction with the Audited Consolidated Financial Statements and Notes thereto included in our annual report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) filed with the SEC on February 26, 2016.
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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contingencies
Certain conditions may exist as of the date our consolidated financial statements are issued, which may result in a loss to us but which will only be resolved when one or more future events occur or fail to occur.  Management has regular quarterly litigation reviews, including updates from legal counsel, to assess the need for accounting recognition or disclosure of these contingencies, and such assessment inherently involves an exercise in judgment.  In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, our management and legal counsel evaluate the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

We accrue an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated.  If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued.  We do not record a contingent liability when the likelihood of loss is probable but the amount cannot be reasonably estimated or when the likelihood of loss is believed to be only reasonably possible or remote.  For contingencies where an unfavorable outcome is reasonably possible and the impact would be material to our consolidated financial statements, we disclose the nature of the contingency and, where feasible, an estimate of the possible loss or range of loss.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  See Note 14 for additional information regarding our contingencies.

Derivative Instruments
We use derivative instruments such as futures, swaps, forward contracts and other arrangements to manage price risks associated with inventories, firm commitments, interest rates and certain anticipated future commodity transactions.  To qualify for hedge accounting, the hedged item must expose us to risk and the related derivative instrument must reduce the exposure to that risk and meet specific hedge documentation requirements related to designation dates, expectations for hedge effectiveness and the probability that hedged future transactions will occur as forecasted.  We formally designate derivative instruments as hedges and document and assess their effectiveness at inception of the hedge and on a monthly basis thereafter.  Forecasted transactions are evaluated for the probability of occurrence and are periodically back-tested once the forecasted period has passed to determine whether similarly forecasted transactions are probable of occurring in the future.

For certain physical forward commodity derivative contracts, we apply the normal purchase/normal sale exception, whereby changes in the mark-to-market values of such contracts are not recognized in income.  As a result, the revenues and expenses associated with such physical transactions are recognized during the period when volumes are physically delivered or received.  Physical forward commodity contracts subject to this exception are evaluated for the probability of future delivery and are periodically back-tested once the forecasted period has passed to determine whether similar forward contracts are probable of physical delivery in the future.  See Note 12 for additional information regarding our derivative instruments.

Estimates
Preparing our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates that affect amounts presented in the financial statements.  Our most significant estimates relate to: (i) the useful lives and depreciation/amortization methods used for fixed and identifiable intangible assets; (ii) measurement of fair value and projections used in impairment testing of fixed and intangible assets (including goodwill); (iii) contingencies; and (iv) revenue and expense accruals.

Actual results could differ materially from our estimates.  On an ongoing basis, we review our estimates based on currently available information.  Any changes in the facts and circumstances underlying our estimates may require us to update such estimates, which could have a material impact on our consolidated financial statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements
Our fair value estimates are based on either (i) actual market data or (ii) assumptions that other market participants would use in pricing an asset or liability, including estimates of risk, in the principal market of the asset or liability at a specified measurement date.  Recognized valuation techniques employ inputs such as contractual prices, quoted market prices or rates, operating costs, discount factors and business growth rates.  These inputs may be either readily observable, corroborated by market data or generally unobservable.  In developing our estimates of fair value, we endeavor to utilize the best information available and apply market-based data to the highest extent possible.  Accordingly, we utilize valuation techniques (such as the market approach) that maximize the use of observable inputs and minimize the use of unobservable inputs.

A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate such fair values.  The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3).  At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.

Restricted Cash
Restricted cash represents amounts held in segregated bank accounts by our clearing brokers as margin in support of our commodity derivative instruments portfolio and related physical purchases and sales of natural gas, NGLs, crude oil and refined products.  Additional cash may be restricted to maintain our commodity derivative instruments portfolio as prices fluctuate or margin requirements change.  

At September 30, 2016 and December 31, 2015, our restricted cash amounts were $277.3 million and $15.9 million, respectively.  The balance at September 30, 2016 consisted of initial margin requirements of $48.9 million and variation margin requirements of $228.4 million. The initial margin requirements will be returned to us as the related derivative instruments are settled.  Our variation margin requirements increased by $248.7 million since December 31, 2015 primarily due to higher forward commodity prices for NGLs and related hydrocarbons during 2016 relative to our short financial derivative positions in these products.  See Note 12 for information regarding our derivative instruments and hedging activities.


Note 3.  Inventories

Our inventory amounts by product type were as follows at the dates indicated:

 
 
September 30,
2016
   
December 31,
2015
 
NGLs
 
$
1,202.4
   
$
639.9
 
Petrochemicals and refined products
   
230.4
     
148.0
 
Crude oil
   
299.3
     
222.1
 
Natural gas
   
30.4
     
28.1
 
Total
 
$
1,762.5
   
$
1,038.1
 

Our inventories, and associated working capital commitments, have increased significantly since December 31, 2015 primarily due to our marketing groups taking advantage of contango opportunities using our storage assets.  We expect to gradually settle these inventory positions (valued at approximately $1 billion) through the first quarter of 2017, with a corresponding decrease in working capital commitments and related debt.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Due to fluctuating commodity prices, we recognize lower of cost or market adjustments when the carrying value of our available-for-sale inventories exceeds their net realizable value.  The following table presents our total cost of sales amounts and lower of cost or market adjustments for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Cost of sales (1)
 
$
4,088.6
   
$
4,419.9
   
$
11,135.6
   
$
15,355.9
 
Lower of cost or market adjustments within cost of sales
   
1.5
     
2.1
     
7.6
     
6.1
 
   
(1) Cost of sales is a component of “Operating costs and expenses” as presented on our Unaudited Condensed Statements of Consolidated Operations. Fluctuations in these amounts are primarily due to changes in energy commodity prices and sales volumes associated with our marketing activities.
 


Note 4.  Property, Plant and Equipment

The historical costs of our property, plant and equipment and related accumulated depreciation balances were as follows at the dates indicated:

 
 
Estimated
Useful Life
in Years
   
September 30,
2016
   
December 31,
2015
 
Plants, pipelines and facilities (1)
 
3-45 (5)
 
 
$
34,752.7
   
$
32,525.0
 
Underground and other storage facilities (2)
 
5-40 (6)
 
   
3,309.2
     
3,000.5
 
Transportation equipment (3)
 
3-10
     
162.9
     
159.9
 
Marine vessels (4)
 
15-30
     
792.0
     
769.8
 
Land
           
264.6
     
262.7
 
Construction in progress
           
3,276.4
     
3,894.0
 
Total
           
42,557.8
     
40,611.9
 
Less accumulated depreciation
           
9,438.4
     
8,577.2
 
Property, plant and equipment, net
         
$
33,119.4
   
$
32,034.7
 
   
(1) Plants, pipelines and facilities include processing plants; NGL, natural gas, crude oil and petrochemical and refined products pipelines; terminal loading and unloading facilities; buildings; office furniture and equipment; laboratory and shop equipment and related assets.
(2) Underground and other storage facilities include underground product storage caverns; above ground storage tanks; water wells and related assets.
(3) Transportation equipment includes tractor-trailer tank trucks and other vehicles and similar assets used in our operations.
(4) Marine vessels include tow boats, barges and related equipment used in our marine transportation business.
(5) In general, the estimated useful lives of major assets within this category are: processing plants, 20-35 years; pipelines and related equipment, 5-45 years; terminal facilities, 10-35 years; buildings, 20-40 years; office furniture and equipment, 3-20 years; and laboratory and shop equipment, 5-35 years.
(6) In general, the estimated useful lives of assets within this category are: underground storage facilities, 5-35 years; storage tanks, 10-40 years; and water wells, 5-35 years.
 

The following table summarizes our depreciation expense and capitalized interest amounts for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Depreciation expense (1)
 
$
309.4
   
$
286.2
   
$
903.5
   
$
870.1
 
Capitalized interest (2)
   
38.9
     
40.3
     
127.8
     
105.6
 
   
(1) Depreciation expense is a component of “Costs and expenses” as presented on our Unaudited Condensed Statements of Consolidated Operations.
(2) We capitalize interest costs incurred on funds used to construct property, plant and equipment while the asset is in its construction phase. The capitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life as a component of depreciation expense. When capitalized interest is recorded, it reduces interest expense from what it would be otherwise.
 

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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Fire at Pascagoula Facility
We acquired the remaining 60% undivided interest in the Pascagoula natural gas processing facility (the “Pascagoula Facility”) for $35.0 million in March 2016 and assumed operatorship of the facility on June 1, 2016.  The facility is located in Pascagoula, Mississippi and processes natural gas received from third-party production developments located in the northern Gulf of Mexico.  On June 27, 2016, we experienced a fire at the facility, which remains out of service as a result of damage sustained during the fire.  Repairs to this location have commenced and the facility is expected to return to commercial service during the fourth quarter of 2016.

As a result of this event, we recorded a $7.1 million non-cash loss in the second quarter of 2016 attributable to assets damaged in the fire. In addition, we incurred $7.1 million of expense during the third quarter of 2016 for fire response activities at the Pascagoula Facility. We will capitalize those expenditures we incur to rebuild the facility.

Under our current insurance program, the standalone deductible for property damage claims is $55 million.  We also have business interruption protection; however, such claims must involve physical damage and have a combined loss value in excess of $55 million and the period of interruption must exceed 60 days.  We continue to evaluate the possibility of filing an insurance claim related to this event.

Asset Retirement Obligations
We record asset retirement obligations (“AROs”) in connection with legal requirements to perform specified retirement activities under contractual arrangements and/or governmental regulations.  Our contractual AROs primarily result from right-of-way agreements associated with our pipeline operations and real estate leases associated with our plant sites.  In addition, we record AROs in connection with governmental regulations associated with the abandonment or retirement of above-ground brine storage pits and certain marine vessels.  We also record AROs in connection with regulatory requirements associated with the renovation or demolition of certain assets containing hazardous substances such as asbestos.  We typically fund our AROs using cash flow from operations.

Property, plant and equipment at September 30, 2016 and December 31, 2015 includes $21.1 million and $17.6 million, respectively, of asset retirement costs capitalized as an increase in the associated long-lived asset.

The following table presents information regarding our AROs since December 31, 2015:

ARO liability balance, December 31, 2015
 
$
58.5
 
Liabilities incurred
   
4.1
 
Liabilities settled
   
(2.9
)
Revisions in estimated cash flows
   
4.0
 
Accretion expense
   
2.8
 
ARO liability balance, September 30, 2016
 
$
66.5
 

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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 5.  Investments in Unconsolidated Affiliates

The following table presents our investments in unconsolidated affiliates by business segment at the dates indicated.  We account for these investments using the equity method.

 
 
Ownership
Interest at
September 30,
2016
   
September 30,
2016
   
December 31,
2015
 
NGL Pipelines & Services:
                 
Venice Energy Service Company, L.L.C.
 
13.1%
 
 
$
25.0
   
$
25.9
 
K/D/S Promix, L.L.C.
 
50%
 
   
35.2
     
38.3
 
Baton Rouge Fractionators LLC
 
32.2%
 
   
17.1
     
18.5
 
Skelly-Belvieu Pipeline Company, L.L.C.
 
50%
 
   
40.0
     
39.8
 
Texas Express Pipeline LLC
 
35%
 
   
330.1
     
342.0
 
Texas Express Gathering LLC
 
45%
 
   
36.1
     
36.8
 
Front Range Pipeline LLC
 
33.3%
 
   
168.0
     
171.2
 
Delaware Basin Gas Processing LLC
 
50%
 
   
96.0
     
46.2
 
Crude Oil Pipelines & Services:
                       
Seaway Crude Pipeline Company LLC
 
50%
 
   
1,405.7
     
1,396.0
 
Eagle Ford Pipeline LLC
 
50%
 
   
383.6
     
388.8
 
Eagle Ford Terminals Corpus Christi LLC
 
50%
 
   
49.4
     
28.6
 
Natural Gas Pipelines & Services:
                       
White River Hub, LLC
 
50%
 
   
22.0
     
22.5
 
Petrochemical & Refined Products Services:
                       
Baton Rouge Propylene Concentrator, LLC
 
30%
 
   
4.6
     
5.4
 
Centennial Pipeline LLC
 
50%
 
   
62.7
     
65.6
 
Other
 
Various
     
11.7
     
2.9
 
Total investments in unconsolidated affiliates
         
$
2,687.2
   
$
2,628.5
 

The following table presents our equity in income (loss) of unconsolidated affiliates by business segment for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
NGL Pipelines & Services
 
$
15.9
   
$
18.9
   
$
45.0
   
$
43.0
 
Crude Oil Pipelines & Services
   
78.4
     
81.2
     
234.3
     
220.5
 
Natural Gas Pipelines & Services
   
1.0
     
0.9
     
2.9
     
2.8
 
Petrochemical & Refined Products Services
   
(3.0
)
   
(3.3
)
   
(12.4
)
   
(10.4
)
Offshore Pipelines & Services
   
--
     
5.4
     
--
     
46.6
 
Total
 
$
92.3
   
$
103.1
   
$
269.8
   
$
302.5
 

The following table presents our unamortized excess cost amounts by business segment at the dates indicated:

 
 
September 30,
2016
   
December 31,
2015
 
NGL Pipelines & Services
 
$
24.4
   
$
25.3
 
Crude Oil Pipelines & Services
   
18.7
     
19.3
 
Petrochemical & Refined Products Services
   
2.2
     
2.3
 
Total
 
$
45.3
   
$
46.9
 

In total, amortization of excess cost amounts was $0.5 million and $0.6 million for the three months ended September 30, 2016 and 2015, respectively.  During the nine months ended September 30, 2016 and 2015, amortization of excess cost amounts was $1.6 million and $4.5 million, respectively.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Summarized Combined Financial Information of Unconsolidated Affiliates
Combined results of operations data for the periods indicated for our unconsolidated affiliates are summarized in the following table (all data presented on a 100% basis):

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Income Statement Data:
                       
Revenues
 
$
328.9
   
$
368.2
   
$
991.9
   
$
1,121.4
 
Operating income
   
193.6
     
225.4
     
589.0
     
662.7
 
Net income
   
192.0
     
223.0
     
585.5
     
654.1
 


Note 6.  Intangible Assets and Goodwill

Identifiable Intangible Assets
The following table summarizes our intangible assets by business segment at the dates indicated:

 
 
September 30, 2016
   
December 31, 2015
 
 
 
Gross
Value
   
Accumulated
Amortization
   
Carrying
Value
   
Gross
Value
   
Accumulated
Amortization
   
Carrying
Value
 
NGL Pipelines & Services:
                                   
Customer relationship intangibles
 
$
447.4
   
$
(168.9
)
 
$
278.5
   
$
447.4
   
$
(156.9
)
 
$
290.5
 
Contract-based intangibles
   
283.5
     
(204.3
)
   
79.2
     
283.0
     
(193.2
)
   
89.8
 
Segment total
   
730.9
     
(373.2
)
   
357.7
     
730.4
     
(350.1
)
   
380.3
 
Crude Oil Pipelines & Services:
                                               
Customer relationship intangibles
   
2,204.4
     
(74.2
)
   
2,130.2
     
2,204.4
     
(39.1
)
   
2,165.3
 
Contract-based intangibles
   
281.0
     
(109.3
)
   
171.7
     
281.4
     
(69.2
)
   
212.2
 
Segment total
   
2,485.4
     
(183.5
)
   
2,301.9
     
2,485.8
     
(108.3
)
   
2,377.5
 
Natural Gas Pipelines & Services:
                                               
Customer relationship intangibles
   
1,350.3
     
(384.1
)
   
966.2
     
1,350.3
     
(366.3
)
   
984.0
 
Contract-based intangibles
   
464.7
     
(368.2
)
   
96.5
     
464.7
     
(361.0
)
   
103.7
 
Segment total
   
1,815.0
     
(752.3
)
   
1,062.7
     
1,815.0
     
(727.3
)
   
1,087.7
 
Petrochemical & Refined Products Services:
                                               
Customer relationship intangibles
   
185.5
     
(42.5
)
   
143.0
     
185.5
     
(38.3
)
   
147.2
 
Contract-based intangibles
   
56.3
     
(14.4
)
   
41.9
     
56.3
     
(11.8
)
   
44.5
 
Segment total
   
241.8
     
(56.9
)
   
184.9
     
241.8
     
(50.1
)
   
191.7
 
Total intangible assets
 
$
5,273.1
   
$
(1,365.9
)
 
$
3,907.2
   
$
5,273.0
   
$
(1,235.8
)
 
$
4,037.2
 

The following table presents the amortization expense of our intangible assets by business segment for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
NGL Pipelines & Services
 
$
7.6
   
$
9.7
   
$
23.1
   
$
24.9
 
Crude Oil Pipelines & Services
   
23.2
     
29.0
     
75.6
     
62.3
 
Natural Gas Pipelines & Services
   
8.1
     
10.7
     
25.0
     
30.5
 
Petrochemical & Refined Products Services
   
2.3
     
2.3
     
6.8
     
7.0
 
Offshore Pipelines & Services
   
--
     
--
     
--
     
4.5
 
Total
 
$
41.2
   
$
51.7
   
$
130.5
   
$
129.2
 

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents our forecast of amortization expense associated with existing intangible assets for the periods indicated:

Remainder
of 2016
   
2017
   
2018
   
2019
   
2020
 
$
44.6
   
$
176.4
   
$
171.8
   
$
167.3
   
$
166.4
 

Goodwill
Goodwill represents the excess of the purchase price of an acquired business over the amounts assigned to assets acquired and liabilities assumed in the transaction.  The following table presents the carrying amount of goodwill at the dates indicated:

 
 
NGL
Pipelines
& Services
   
Crude Oil
Pipelines
& Services
   
Natural Gas
Pipelines
& Services
   
Petrochemical
& Refined
Products
Services
   
Consolidated
Total
 
Balance at December 31, 2015
 
$
2,651.7
   
$
1,841.0
   
$
296.3
   
$
956.2
   
$
5,745.2
 
Balance at September 30, 2016
 
$
2,651.7
   
$
1,841.0
   
$
296.3
   
$
956.2
   
$
5,745.2
 

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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Note 7.  Debt Obligations

The following table presents our consolidated debt obligations (arranged by company and maturity date) at the dates indicated:

 
 
September 30,
2016
   
December 31,
2015
 
EPO senior debt obligations:
           
Commercial Paper Notes, variable-rates
 
$
2,038.6
   
$
1,114.1
 
Senior Notes AA, 3.20% fixed-rate, due February 2016
   
--
     
750.0
 
Senior Notes L, 6.30% fixed-rate, due September 2017
   
800.0
     
800.0
 
364-Day Credit Agreement, variable-rate, due September 2017
   
--
     
--
 
Senior Notes V, 6.65% fixed-rate, due April 2018
   
349.7
     
349.7
 
Senior Notes OO, 1.65% fixed-rate, due May 2018
   
750.0
     
750.0
 
Senior Notes N, 6.50% fixed-rate, due January 2019
   
700.0
     
700.0
 
Senior Notes LL, 2.55% fixed-rate, due October 2019
   
800.0
     
800.0
 
Senior Notes Q, 5.25% fixed-rate, due January 2020
   
500.0
     
500.0
 
Senior Notes Y, 5.20% fixed-rate, due September 2020
   
1,000.0
     
1,000.0
 
Multi-Year Revolving Credit Facility, variable-rate, due September 2020
   
--
     
--
 
Senior Notes RR, 2.85% fixed-rate, due April 2021
   
575.0
     
--
 
Senior Notes CC, 4.05% fixed-rate, due February 2022
   
650.0
     
650.0
 
Senior Notes HH, 3.35% fixed-rate, due March 2023
   
1,250.0
     
1,250.0
 
Senior Notes JJ, 3.90% fixed-rate, due February 2024
   
850.0
     
850.0
 
Senior Notes MM, 3.75% fixed-rate, due February 2025
   
1,150.0
     
1,150.0
 
Senior Notes PP, 3.70% fixed-rate, due February 2026
   
875.0
     
875.0
 
Senior Notes SS, 3.95% fixed-rate, due February 2027
   
575.0
     
--
 
Senior Notes D, 6.875% fixed-rate, due March 2033
   
500.0
     
500.0
 
Senior Notes H, 6.65% fixed-rate, due October 2034
   
350.0
     
350.0
 
Senior Notes J, 5.75% fixed-rate, due March 2035
   
250.0
     
250.0
 
Senior Notes W, 7.55% fixed-rate, due April 2038
   
399.6
     
399.6
 
Senior Notes R, 6.125% fixed-rate, due October 2039
   
600.0
     
600.0
 
Senior Notes Z, 6.45% fixed-rate, due September 2040
   
600.0
     
600.0
 
Senior Notes BB, 5.95% fixed-rate, due February 2041
   
750.0
     
750.0
 
Senior Notes DD, 5.70% fixed-rate, due February 2042
   
600.0
     
600.0
 
Senior Notes EE, 4.85% fixed-rate, due August 2042
   
750.0
     
750.0
 
Senior Notes GG, 4.45% fixed-rate, due February 2043
   
1,100.0
     
1,100.0
 
Senior Notes II, 4.85% fixed-rate, due March 2044
   
1,400.0
     
1,400.0
 
Senior Notes KK, 5.10% fixed-rate, due February 2045
   
1,150.0
     
1,150.0
 
Senior Notes QQ, 4.90% fixed-rate, due May 2046
   
975.0
     
875.0
 
Senior Notes NN, 4.95% fixed-rate, due October 2054
   
400.0
     
400.0
 
TEPPCO senior debt obligations:
               
TEPPCO Senior Notes, 6.65% fixed-rate, due April 2018
   
0.3
     
0.3
 
TEPPCO Senior Notes, 7.55% fixed-rate, due April 2038
   
0.4
     
0.4
 
Total principal amount of senior debt obligations
   
22,688.6
     
21,264.1
 
EPO Junior Subordinated Notes A, fixed/variable-rate, due August 2066 (1)
   
521.1
     
521.1
 
EPO Junior Subordinated Notes C, fixed/variable-rate, due June 2067 (2)
   
256.4
     
256.4
 
EPO Junior Subordinated Notes B, fixed/variable-rate, due January 2068 (3)
   
682.7
     
682.7
 
TEPPCO Junior Subordinated Notes, fixed/variable-rate, due June 2067 
   
14.2
     
14.2
 
Total principal amount of senior and junior debt obligations
   
24,163.0
     
22,738.5
 
Other, non-principal amounts
   
(203.7
)
   
(197.7
)
Less current maturities of debt
   
(2,838.1
)
   
(1,863.9
)
Total long-term debt
 
$
21,121.2
   
$
20,676.9
 
   
(1) Fixed rate of 8.375% was paid through August 1, 2016; thereafter, a variable rate is in effect based on 3-month LIBOR plus 3.708%.
(2) Fixed rate of 7.000% through September 1, 2017 (i.e., first call date without a make-whole redemption premium); thereafter, variable rate based on 3-month LIBOR plus 2.778%.
(3) Fixed rate of 7.034% through January 15, 2018 (i.e., first call date without a make-whole redemption premium); thereafter, the rate will be the greater of 7.034% or a variable rate based on 3-month LIBOR plus 2.680%.
 

At December 31, 2015, we reclassified $149.8 million of bond issuance costs, which were previously accounted for as assets on our consolidated balance sheet, to long-term debt in connection with the adoption of ASU 2015-03 (see Note 1). These amounts are a component of “Other, non-principal amounts” in the preceding table.

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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents contractually scheduled maturities of our consolidated debt obligations outstanding at September 30, 2016 for the next five years, and in total thereafter:

 
       
Scheduled Maturities of Debt
 
 
 
Total
   
Remainder
of 2016
   
2017
   
2018
   
2019
   
2020
   
Thereafter
 
Commercial Paper Notes
 
$
2,038.6
   
$
2,038.6
   
$
--
   
$
--
   
$
--
   
$
--
   
$
--
 
Senior Notes
   
20,650.0
     
--
     
800.0
     
1,100.0
     
1,500.0
     
1,500.0
     
15,750.0
 
Junior Subordinated Notes
   
1,474.4
     
--
     
--
     
--
     
--
     
--
     
1,474.4
 
Total
 
$
24,163.0
   
$
2,038.6
   
$
800.0
   
$
1,100.0
   
$
1,500.0
   
$
1,500.0
   
$
17,224.4
 

Parent-Subsidiary Guarantor Relationships
Enterprise Products Partners L.P. acts as guarantor of the consolidated debt obligations of EPO, with the exception of the remaining debt obligations of TEPPCO.  If EPO were to default on any of its guaranteed debt, Enterprise Products Partners L.P. would be responsible for full and unconditional repayment of that obligation.

Issuance of $1.25 Billion of Senior Notes in April 2016
In April 2016, EPO issued $575 million in principal amount of 2.85% senior notes due April 2021 (“Senior Notes RR”), $575 million in principal amount of 3.95% senior notes due February 2027 (“Senior Notes SS”) and $100 million in principal amount of 4.90% reopened senior notes due May 2046 (“Senior Notes QQ”).  Senior Notes RR, SS and QQ were issued at 99.898%, 99.760% and 95.516% of their principal amounts, respectively. We issued these senior notes using our 2013 Shelf (see Note 8).

Net proceeds from the issuance of these senior notes were used as follows: (i) the repayment of amounts then outstanding under EPO’s commercial paper program, which included amounts we used to repay $750 million in principal amount of Senior Notes AA that matured in February 2016, and (ii) for general company purposes.

Enterprise Products Partners L.P. has unconditionally guaranteed these senior notes on an unsecured and unsubordinated basis.  These senior notes rank equal with EPO’s existing and future unsecured and unsubordinated indebtedness and are senior to any existing and future subordinated indebtedness of EPO.  These senior notes are subject to make-whole redemption rights and were issued under an indenture containing certain covenants, which generally restrict EPO’s ability (with certain exceptions) to incur debt secured by liens and engage in sale and leaseback transactions.

364-Day Credit Agreement
In September 2016, EPO amended its 364-Day Credit Agreement to extend its maturity date to September 2017.  There are currently no principal amounts outstanding under this revolving credit agreement.  Under the terms of the 364-Day Credit Agreement, EPO may borrow up to $1.5 billion (which may be increased by up to $200 million to $1.7 billion at EPO’s election, provided certain conditions are met) at a variable interest rate for a term of 364 days, subject to the terms and conditions set forth therein.  To the extent that principal amounts are outstanding at the maturity date, EPO may elect to have the entire principal balance then outstanding continued as a non-revolving term loan for a period of one additional year, payable in September 2018.  The remaining terms of the 364-Day Credit Agreement, as amended, remain materially the same as those reported for the 364-Day Credit Agreement in our 2015 Form 10-K.

Letters of Credit
At September 30, 2016, EPO had $67.7 million of letters of credit outstanding primarily related to our commodity hedging activities.

Lender Financial Covenants
We were in compliance with the financial covenants of our consolidated debt agreements at September 30, 2016.
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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Information Regarding Variable Interest Rates Paid
The following table presents the range of interest rates and weighted-average interest rates paid on our consolidated variable-rate debt during the nine months ended September 30, 2016:

 
Range of Interest
Rates Paid
Weighted-Average
Interest Rate Paid
Commercial Paper Notes
0.56% to 1.18%
0.89%
Junior Subordinated Notes A
4.46%
4.46%
Multi-Year Revolving Credit Facility
1.43% to 1.43%
1.43%


Note 8.  Equity and Distributions

Partners Equity
Partners’ equity reflects the limited partner interests (i.e., common units, including restricted common units) that we have outstanding.  The following table summarizes changes in the number of our outstanding units from December 31, 2015 to September 30, 2016:

   
Common
Units
(Unrestricted)
   
Restricted
Common
Units
   
Total
Common
Units
 
Number of units outstanding at December 31, 2015
   
2,010,592,504
     
1,960,520
     
2,012,553,024
 
Common units issued in connection with ATM program
   
76,113,492
     
--
     
76,113,492
 
Common units issued in connection with DRIP and EUPP
   
13,334,558
     
--
     
13,334,558
 
Common units issued in connection with the vesting of phantom unit awards
   
1,149,450
     
--
     
1,149,450
 
Common units issued in connection with the vesting of restricted common unit awards
   
1,214,178
     
(1,214,178
)
   
--
 
Forfeiture of restricted common unit awards
   
--
     
(41,774
)
   
(41,774
)
Acquisition and cancellation of treasury units in connection with the
vesting of equity-based awards
   
(403,229
)
   
--
     
(403,229
)
Other
   
90,707
     
--
     
90,707
 
Number of units outstanding at September 30, 2016
   
2,102,091,660
     
704,568
     
2,102,796,228
 

The net cash proceeds we received from the issuance of common units during the nine months ended September 30, 2016 were used to temporarily reduce principal amounts outstanding under EPO’s commercial paper program and revolving credit facilities and for general company purposes.

We expect to issue additional equity and debt securities to assist us in meeting our future liquidity requirements, including those related to capital spending.

Universal shelf registration statement
On May 12, 2016, we filed with the SEC a new universal shelf registration statement (the “2016 Shelf”), which was immediately effective and replaced our prior universal shelf registration statement filed with the SEC in June 2013 (the “2013 Shelf”).   The 2016 Shelf allows (and the prior 2013 Shelf allowed) Enterprise Products Partners L.P. and EPO (each on a standalone basis) to issue an unlimited amount of equity and debt securities, respectively. See Note 7 for information regarding an offering of senior notes we completed in April 2016 using the 2013 Shelf.

At-the-Market (“ATM”) program
On July 11, 2016, we filed an amended registration statement with the SEC covering the issuance of up to $1.89 billion of our common units in amounts, at prices and on terms to be determined by market conditions and other factors at the time of such offerings.  Pursuant to the ATM program, we may sell common units under an equity distribution agreement between Enterprise Products Partners L.P. and certain broker-dealers from time-to-time by means of ordinary brokers’ transactions through the NYSE at market prices, in block transactions or as otherwise agreed to with the broker-dealer parties to the agreement.  The new registration statement was declared effective on July 14, 2016 and replaced our prior registration statement with respect to the ATM program.
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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2016, we sold 76,113,492 common units under the ATM program for aggregate gross proceeds of $1.87 billion.  This includes 3,830,256 common units sold in January 2016 to privately held affiliates of EPCO, which generated gross proceeds of $100 million.  After taking into account applicable costs, our transactions under the ATM program resulted in aggregate net cash proceeds of $1.85 billion during the nine months ended September 30, 2016.  During the nine months ended September 30, 2015, we issued 23,258,453 common units under this program for aggregate gross cash proceeds of $767.1 million, resulting in total net cash proceeds of $759.7 million. This includes 3,225,057 common units sold in March 2015 to a privately held affiliate of EPCO, which generated gross proceeds of $100 million.  Following the effectiveness of the new ATM registration statement and after taking into account the aggregate sales price of common units sold under the ATM program through September 30, 2016, we have the capacity to issue additional common units under the ATM program up to an aggregate sales price of $1.75 billion.

Distribution reinvestment plan
On May 12, 2016, we filed with the SEC a new registration statement in connection with our distribution reinvestment plan (“DRIP”), which was immediately effective and amended a prior registration statement filed in March 2010.  The new registration statement increased the aggregate number of our common units authorized for issuance under the DRIP from 140,000,000 to 240,000,000.  The DRIP provides unitholders of record and beneficial owners of our common units a voluntary means by which they can increase the number of our common units they own by reinvesting the quarterly cash distributions they receive from us into the purchase of additional new common units.

We issued a total of 12,946,724 common units under our DRIP during the nine months ended September 30, 2016, which generated net cash proceeds of $306.2 million.  During the nine months ended September 30, 2015, we issued 7,965,318 common units under our DRIP, which generated net cash proceeds of $242.8 million.  Privately held affiliates of EPCO reinvested $100 million through the DRIP during the nine months ended September 30, 2016 (this amount being a component of the net cash proceeds presented).

After taking into account the new registration statement and the number of common units issued under the DRIP through September 30, 2016, we have the capacity to issue an additional 102,121,274 common units under this plan.

Employee unit purchase plan
In addition to the DRIP, we have registration statements on file with the SEC authorizing the issuance of up to 8,000,000 of our common units in connection with our employee unit purchase plan (“EUPP”).  We issued 387,834 common units under our EUPP during the nine months ended September 30, 2016, which generated net cash proceeds of $9.8 million.  During the nine months ended September 30, 2015, we issued 285,997 common units under our EUPP, which generated net cash proceeds of $8.9 million.  After taking into account the number of common units issued under the EUPP through September 30, 2016, we may issue an additional 6,384,672 common units under this plan.

Noncontrolling Interests
Noncontrolling interests represent third party equity ownership interests in our consolidated subsidiaries (e.g., joint venture partners in entities in which we have a controlling ownership interest).
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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Accumulated Other Comprehensive Loss
The following tables present the components of accumulated other comprehensive income (loss) as reported on our Unaudited Condensed Consolidated Balance Sheets at the dates indicated:

 
 
Gains (Losses) on
Cash Flow Hedges
             
 
 
Commodity
Derivative
Instruments
   
Interest Rate
Derivative
Instruments
   
Other
   
Total
 
Balance, December 31, 2015
 
$
56.6
   
$
(279.5
)
 
$
3.7
   
$
(219.2
)
Other comprehensive loss before reclassifications
   
(52.2
)
   
(16.3
)
   
(0.1
)
   
(68.6
)
Amounts reclassified from accumulated other comprehensive loss (income)
   
(48.7
)
   
27.8
     
--
     
(20.9
)
Total other comprehensive income (loss)
   
(100.9
)
   
11.5
     
(0.1
)
   
(89.5
)
Balance, September 30, 2016
 
$
(44.3
)
 
$
(268.0
)
 
$
3.6
   
$
(308.7
)

 
 
Gains (Losses) on
Cash Flow Hedges
             
 
 
Commodity
Derivative
Instruments
   
Interest Rate
Derivative
Instruments
   
Other
   
Total
 
Balance, December 31, 2014
 
$
69.9
   
$
(314.8
)
 
$
3.3
   
$
(241.6
)
Other comprehensive income before reclassifications
   
112.3
     
--
     
0.4
     
112.7
 
Amounts reclassified from accumulated other comprehensive loss (income)
   
(128.1
)
   
26.3
     
--
     
(101.8
)
Total other comprehensive income (loss)
   
(15.8
)
   
26.3
     
0.4
     
10.9
 
Balance, September 30, 2015
 
$
54.1
   
$
(288.5
)
 
$
3.7
   
$
(230.7
)

The following table presents reclassifications out of accumulated other comprehensive income (loss) into net income during the periods indicated:

 
  
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
Location  
2016
   
2015
   
2016
   
2015
 
Losses (gains) on cash flow hedges:
                         
Interest rate derivatives
Interest expense
 
$
9.4
   
$
8.9
   
$
27.8
   
$
26.3
 
Commodity derivatives
Revenue
   
(23.0
)
   
(46.8
)
   
(47.6
)
   
(128.6
)
Commodity derivatives
Operating costs and expenses
   
(3.9
)
   
--
     
(1.1
)
   
0.5
 
Total
 
 
$
(17.5
)
 
$
(37.9
)
 
$
(20.9
)
 
$
(101.8
)

For information regarding our interest rate and commodity derivative instruments, see Note 12.

Cash Distributions
The following table presents Enterprise’s declared quarterly cash distribution rates per common unit with respect to the quarter indicated:

 
 
Distribution Per
Common Unit
 
Record
Date
Payment
Date
2015:
            
1st Quarter
 
$
0.3750
 
4/30/2015
5/7/2015
2nd Quarter
 
$
0.3800
 
7/31/2015
8/7/2015
3rd Quarter
 
$
0.3850
 
10/30/2015
11/6/2015
2016:
       
 
    
1st Quarter
 
$
0.3950
 
4/29/2016
5/6/2016
2nd Quarter
 
$
0.4000
 
7/29/2016
8/5/2016
3rd Quarter
 
$
0.4050
 
10/31/2016
11/7/2016

In November 2010, we completed our merger with Enterprise GP Holdings L.P. (the “Holdings Merger”). In connection with the Holdings Merger, a privately held affiliate of EPCO agreed to temporarily waive the regular cash distributions it would otherwise receive from us with respect to a certain number of our common units it owns (the “Designated Units”). Distributions paid to partners during 2015 reflected the exclusion of 35,380,000 Designated Units. The temporary distribution waiver expired in November 2015; therefore, distributions paid to partners during calendar year 2016 are payable on all outstanding common units.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Note 9.  Business Segments

Our historical operations are reported under five business segments: (i) NGL Pipelines & Services, (ii) Crude Oil Pipelines & Services, (iii) Natural Gas Pipelines & Services, (iv) Petrochemical & Refined Products Services and (v) Offshore Pipelines & Services.  On July 24, 2015, we completed the sale of our Offshore Business, which primarily consisted of our Offshore Pipelines & Services segment.  Our consolidated financial statements reflect ownership of the Offshore Business through July 24, 2015.

Our business segments are generally organized and managed according to the types of services rendered (or technologies employed) and products produced and/or sold.  Financial information regarding these segments is evaluated regularly by our chief operating decision makers in deciding how to allocate resources and in assessing operating and financial performance.

Segment revenues include intersegment and intrasegment transactions, which are generally based on transactions made at market-based rates.  Our consolidated revenues reflect the elimination of intercompany transactions.  Substantially all of our consolidated revenues are earned in the U.S. and derived from a wide customer base.

We evaluate segment performance based on our financial measure of gross operating margin.  Gross operating margin is an important performance measure of the core profitability of our operations and forms the basis of our internal financial reporting.  We believe that investors benefit from having access to the same financial measures that our management uses in evaluating segment results.  The GAAP financial measure most directly comparable to total segment gross operating margin is operating income.

Gross operating margin represents GAAP operating income exclusive of (i) depreciation, amortization and accretion expenses, (ii) impairment charges, (iii) gains and losses attributable to asset sales, insurance recoveries and related property damage and (iv) general and administrative costs.  Gross operating margin includes (i) equity in the earnings of unconsolidated affiliates and (ii) non-refundable deferred transportation revenues relating to the make-up rights of committed shippers on certain pipeline assets.  Gross operating margin is exclusive of other income and expense transactions, income taxes, the cumulative effect of changes in accounting principles and extraordinary charges.  Gross operating margin is presented on a 100% basis before any allocation of earnings to noncontrolling interests.  Gross operating margin by segment is calculated by subtracting segment operating costs and expenses from segment revenues, with both segment totals reflecting the adjustments noted above, as applicable, and before the elimination of intercompany transactions.

Segment assets consist of property, plant and equipment, investments in unconsolidated affiliates, intangible assets and goodwill.  The carrying values of such amounts are assigned to each segment based on each asset’s or investment’s principal operations and contribution to the gross operating margin of that particular segment.  Since construction-in-progress amounts (a component of property, plant and equipment) generally do not contribute to segment gross operating margin, such amounts are excluded from segment asset totals until the underlying assets are placed in service.  Intangible assets and goodwill are assigned to each segment based on the classification of the assets to which they relate.  The remainder of our consolidated total assets, which consist primarily of working capital assets, are excluded from segment assets since these amounts are not attributable to one specific segment (e.g. cash).

Substantially all of our plants, pipelines and other fixed assets are located in the U.S.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
The following table presents our measurement of total segment gross operating margin for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Revenues
 
$
5,920.4
   
$
6,307.9
   
$
16,543.5
   
$
20,872.9
 
Subtract operating costs and expenses
   
(5,065.7
)
   
(5,452.6
)
   
(14,034.8
)
   
(18,426.5
)
Add equity in income of unconsolidated affiliates
   
92.3
     
103.1
     
269.8
     
302.5
 
Add depreciation, amortization and accretion expense amounts not reflected in gross operating margin
   
367.1
     
351.1
     
1,085.6
     
1,082.0
 
Add asset impairment charges not reflected in gross operating margin
   
6.8
     
26.8
     
21.6
     
139.1
 
Add net losses or subtract net gains attributable to asset sales, insurance recoveries and related property damage not reflected in gross operating margin
   
(8.9
)
   
12.3
     
4.8
     
14.7
 
Add non-refundable payments attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin
   
1.2
     
3.4
     
10.1
     
39.3
 
Subtract subsequent revenue recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin
   
(5.6
)
   
(10.9
)
   
(25.1
)
   
(45.3
)
Total segment gross operating margin
 
$
1,307.6
   
$
1,341.1
   
$
3,875.5
   
$
3,978.7
 

The following table presents a reconciliation of total segment gross operating margin to GAAP operating income and further to income before income taxes for the periods indicated:

 
 
For the Three Months
Ended September 30,
   
For the Nine Months
Ended September 30,
 
 
 
2016
   
2015
   
2016
   
2015
 
Total segment gross operating margin
 
$
1,307.6
   
$
1,341.1
   
$
3,875.5
   
$
3,978.7
 
Adjustments to reconcile total segment gross operating margin to operating income:
                               
Subtract depreciation, amortization and accretion expense amounts not reflected in gross operating margin
   
(367.1
)
   
(351.1
)
   
(1,085.6
)
   
(1,082.0
)
Subtract asset impairment charges not reflected in gross operating margin
   
(6.8
)
   
(26.8
)
   
(21.6
)
   
(139.1
)
Add net gains or subtract net losses attributable to asset sales, insurance recoveries and related property damage not reflected in gross operating margin
   
8.9
     
(12.3
)
   
(4.8
)
   
(14.7
)
Subtract non-refundable payments attributable to shipper make-up rights on new pipeline projects reflected in gross operating margin
   
(1.2
)
   
(3.4
)
   
(10.1
)
   
(39.3
)
Add subsequent revenue recognition of deferred revenues attributable to make-up rights not reflected in gross operating margin
   
5.6
     
10.9
     
25.1
     
45.3
 
Subtract general and administrative costs not reflected in gross operating margin
   
(42.0
)
   
(49.0
)
   
(121.0
)
   
(143.2
)
Operating income
   
905.0
     
909.4
     
2,657.5
     
2,605.7
 
Other expense, net
   
(257.1
)
   
(246.2
)
   
(761.1
)
   
(736.4
)
Income before income taxes
 
$
647.9
   
$
663.2
   
$
1,896.4
   
$
1,869.3
 

22

Table of Contents
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Information by business segment, together with reconciliations to our consolidated financial statement totals, is presented in the following table:

 
 
Business Segments
             
 
 
NGL
Pipelines
& Services
   
Crude Oil
Pipelines
& Services
   
Natural Gas
Pipelines
& Services
   
Petrochemical
& Refined Products Services
   
Offshore
Pipelines
& Services
   
Adjustments
and
Eliminations
   
Consolidated
Total
 
Revenues from third parties:
                                         
Three months ended September 30, 2016
 
$
2,414.2
   
$
1,712.9
   
$
711.3
   
$
1,066.3
   
$
--
   
$
--
   
$
5,904.7
 
Three months ended September 30, 2015
   
2,284.6
     
2,316.4
     
705.2
     
980.0
     
7.8
     
--
     
6,294.0
 
Nine months ended September 30, 2016
   
7,328.9
     
4,641.8
     
1,792.5
     
2,735.8
     
--
     
--
     
16,499.0
 
Nine months ended September 30, 2015
   
7,223.2
     
8,080.4
     
2,117.5
     
3,347.6
     
76.9
     
--
     
20,845.6
 
Revenues from related parties:
                                                       
Three months ended September 30, 2016
   
2.7
     
10.1
     
2.9
     
--
     
--
     
--
     
15.7
 
Three months ended September 30, 2015
   
2.2
     
6.2
     
4.5
     
--
     
1.0
     
--
     
13.9
 
Nine months ended September 30, 2016
   
7.3
     
29.8
     
7.4
     
--
     
--
     
--
     
44.5
 
Nine months ended September 30, 2015
   
6.0
     
8.6
     
10.8
     
--
     
1.9
     
--
     
27.3
 
Intersegment and intrasegment revenues:
                                                       
Three months ended September 30, 2016
   
4,772.4
     
2,445.2
     
201.2
     
315.4
     
--
     
(7,734.2
)
   
--
 
Three months ended September 30, 2015
   
2,461.0
     
1,142.1
     
180.2
     
267.3
     
0.1
     
(4,050.7
)
   
--
 
Nine months ended September 30, 2016
   
12,828.0
     
6,390.3
     
472.8
     
865.8
     
--
     
(20,556.9
)
   
--
 
Nine months ended September 30, 2015
   
7,685.1
     
3,958.9
     
519.7
     
875.8
     
0.6
     
(13,040.1
)
   
--
 
Total revenues:
                                                       
Three months ended September 30, 2016
   
7,189.3
     
4,168.2
     
915.4
     
1,381.7
     
--
     
(7,734.2
)
   
5,920.4
 
Three months ended September 30, 2015
   
4,747.8
     
3,464.7
     
889.9
     
1,247.3
     
8.9
     
(4,050.7
)
   
6,307.9
 
Nine months ended September 30, 2016
   
20,164.2
     
11,061.9
     
2,272.7
     
3,601.6
     
--
     
(20,556.9
)
   
16,543.5
 
Nine months ended September 30, 2015
   
14,914.3
     
12,047.9
     
2,648.0
     
4,223.4
     
79.4
     
(13,040.1
)
   
20,872.9
 
Equity in income (loss) of unconsolidated affiliates:
                                                       
Three months ended September 30, 2016
   
15.9