Edgar Filing: ENTERPRISE PRODUCTS PARTNERS L P

epdform10q_06302010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

o 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		(I.R.S. Employer Identification No.)
Incorporation or Organization)

	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 þ No o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

There were 636,721,700 common units, including 3,638,381 restricted common units, and 4,520,431 Class B units (which generally vote together with the common units) of Enterprise Products Partners L.P. outstanding at August 1, 2010. Our common units trade on the New York Stock Exchange under the ticker symbol “EPD.”

Table of Contents

ENTERPRISE PRODUCTS PARTNERS L.P.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION.
Item 1.	Financial Statements.
	Unaudited Condensed Consolidated Balance Sheets	2
	Unaudited Condensed Statements of Consolidated Operations	3
	Unaudited Condensed Statements of Consolidated Comprehensive Income	4
	Unaudited Condensed Statements of Consolidated Cash Flows	5
	Unaudited Condensed Statements of Consolidated Equity	6
	Notes to Unaudited Condensed Consolidated Financial Statements:
	1. Partnership Operations and Basis of Presentation	9
	2. General Accounting Matters	11
	3. Equity-based Awards	12
	4. Derivative Instruments, Hedging Activities and Fair Value Measurements	16
	5. Inventories	25
	6. Property, Plant and Equipment	26
	7. Investments in Unconsolidated Affiliates	27
	8. Business Combinations	29
	9. Intangible Assets and Goodwill	32
	10. Debt Obligations	35
	11. Equity and Distributions	37
	12. Business Segments	42
	13. Related Party Transactions	46
	14. Earnings Per Unit	50
	15. Commitments and Contingencies	52
	16. Significant Risks and Uncertainties	54
	17. Supplemental Cash Flow Information	55
	18. Condensed Consolidating Financial Information	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	63
Item 3.	Quantitative and Qualitative Disclosures about Market Risk.	87
Item 4.	Controls and Procedures.	89

PART II. OTHER INFORMATION.
Item 1.	Legal Proceedings.	90
Item 1A.	Risk Factors.	90
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	92
Item 3.	Defaults upon Senior Securities.	93
Item 4.	(Removed and Reserved).	93
Item 5.	Other Information.	93
Item 6.	Exhibits.	93

Signatures		101

Table of Contents

PART I. FINANCIAL INFORMATION.

Item 1. Financial Statements.

ENTERPRISE PRODUCTS PARTNERS L.P.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in millions)

	June 30,			December 31,
ASSETS	2010			2009
Current assets:
Cash and cash equivalents	$	494.5		$	54.7
Restricted cash		19.1			63.6
Accounts and notes receivable – trade, net of allowance for doubtful accounts of $17.5 at June 30, 2010 and $16.8 at December 31, 2009		2,913.5			3,099.0
Accounts receivable – related parties		29.8			38.4
Inventories		1,025.5			711.9
Prepaid and other current assets		423.2			279.3
Total current assets		4,905.6			4,246.9
Property, plant and equipment, net		18,332.0			17,689.2
Investments in unconsolidated affiliates		873.2			890.6
Intangible assets, net of accumulated amortization of $858.7 at June 30, 2010 and $795.0 at December 31, 2009		1,896.1			1,064.8
Goodwill		2,050.6			2,018.3
Other assets		232.0			241.8
Total assets	$	28,289.5		$	26,151.6

LIABILITIES AND EQUITY
Current liabilities:
Current maturities of long-term debt	$	255.0		$	--
Accounts payable – trade		457.9			410.6
Accounts payable – related parties		136.9			69.8
Accrued product payables		3,120.9			3,393.0
Accrued interest		232.9			228.0
Other current liabilities		463.8			434.6
Total current liabilities		4,667.4			4,536.0
Long-term debt (see Note 10)		12,416.5			11,346.4
Deferred tax liabilities		72.9			71.7
Other long-term liabilities		207.3			155.2
Commitments and contingencies
Equity: (see Note 11)
Enterprise Products Partners L.P. partners’ equity:
Limited Partners:
Common units (633,084,119 units outstanding at June 30, 2010 and 603,202,828 units outstanding at December 31, 2009)		10,053.0			9,173.5
Restricted common units (3,638,381 units outstanding at June 30, 2010 and 2,720,882 units outstanding at December 31, 2009)		49.3			37.7
Class B units (4,520,431 units outstanding at June 30, 2010 and December 31, 2009)		118.5			118.5
General partner		208.8			190.8
Accumulated other comprehensive loss		(33.2	)		(8.4	)
Total Enterprise Products Partners L.P. partners’ equity		10,396.4			9,512.1
Noncontrolling interest		529.0			530.2
Total equity		10,925.4			10,042.3
Total liabilities and equity	$	28,289.5		$	26,151.6

See Notes to Unaudited Condensed Consolidated Financial Statements.

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ENTERPRISE PRODUCTS PARTNERS L.P.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS

(Dollars in millions, except per unit amounts)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2010			2009*			2010			2009*
Revenues:
Third parties	$	7,427.4		$	5,342.0		$	15,739.5		$	10,009.4
Related parties		116.0			92.3			348.4			311.8
Total revenues (see Note 12)		7,543.4			5,434.3			16,087.9			10,321.2
Costs and expenses:
Operating costs and expenses:
Third parties		6,676.1			4,771.1			14,324.0			8,918.2
Related parties		298.1			253.4			622.1			482.9
Total operating costs and expenses		6,974.2			5,024.5			14,946.1			9,401.1
General and administrative costs:
Third parties		14.6			21.5			28.7			29.4
Related parties		23.3			24.6			46.8			51.6
Total general and administrative costs		37.9			46.1			75.5			81.0
Total costs and expenses (see Note 12)		7,012.1			5,070.6			15,021.6			9,482.1
Equity in income of unconsolidated affiliates		16.7			9.6			32.7			17.0
Operating income		548.0			373.3			1,099.0			856.1
Other income (expense):
Interest expense		(168.6	)		(158.5	)		(317.2	)		(311.0	)
Interest income		0.5			0.7			0.7			1.6
Other, net		(0.1	)		0.1			(0.2	)		0.4
Total other expense, net		(168.2	)		(157.7	)		(316.7	)		(309.0	)
Income before provision for income taxes		379.8			215.6			782.3			547.1
Provision for income taxes		(6.5	)		(3.1	)		(15.2	)		(19.1	)
Net income		373.3			212.5			767.1			528.0
Net income attributable to noncontrolling interests		(16.1	)		(25.9	)		(32.1	)		(116.1	)
Net income attributable to Enterprise Products Partners L.P.	$	357.2		$	186.6		$	735.0		$	411.9

Allocation of net income attributable to
Enterprise Products Partners L.P.:
Limited partners	$	294.3		$	147.0		$	611.7		$	333.3
General partner	$	62.9		$	39.6		$	123.3		$	78.6

Basic earnings per unit (see Note 14)	$	0.46		$	0.32		$	0.97		$	0.73
Diluted earnings per unit (see Note 14)	$	0.46		$	0.32		$	0.96		$	0.73

See Notes to Unaudited Condensed Consolidated Financial Statements.

*See Note 1 for information regarding these recast amounts and basis of financial statement presentation.

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ENTERPRISE PRODUCTS PARTNERS L.P.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED

COMPREHENSIVE INCOME

(Dollars in millions)

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2010			2009*			2010			2009*

Net income	$	373.3		$	212.5		$	767.1		$	528.0
Other comprehensive income (loss):
Cash flow hedges:
Commodity derivative instrument gains (losses) during period		92.0			(76.6	)		33.1			(138.6	)
Reclassification adjustment for (gains) losses included in net income related to commodity derivative instruments		(1.5	)		66.3			15.0			98.5
Interest rate derivative instrument gains (losses) during period		(70.8	)		15.8			(76.5	)		15.1
Reclassification adjustment for losses included in net income related to interest rate derivative instruments		3.3			2.5			6.6			4.8
Foreign currency derivative gains (losses) during period		(0.1	)		0.1			(0.2	)		(10.5	)
Reclassification adjustment for gains included in net income related to foreign currency derivative instruments		--			--			(0.3	)		--
Total cash flow hedges		22.9			8.1			(22.3	)		(30.7	)
Foreign currency translation adjustment		(0.8	)		1.0			(0.2	)		0.6
Change in funded status of pension and postretirement plans, net of tax		--			--			(0.9	)		--
Total other comprehensive income (loss)		22.1			9.1			(23.4	)		(30.1	)
Comprehensive income		395.4			221.6			743.7			497.9
Comprehensive income attributable to noncontrolling interests		(16.8	)		(27.5	)		(33.5	)		(119.7	)
Comprehensive income attributable to Enterprise Products Partners L.P.	$	378.6		$	194.1		$	710.2		$	378.2

See Notes to Unaudited Condensed Consolidated Financial Statements.

*See Note 1 for information regarding these recast amounts and basis of financial statement presentation.

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ENTERPRISE PRODUCTS PARTNERS L.P.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in millions)

	For the Six Months
	Ended June 30,
	2010			2009*
Operating activities:
Net income	$	767.1		$	528.0
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation, amortization and accretion		451.4			407.7
Non-cash asset impairment charges		1.5			2.3
Equity in income of unconsolidated affiliates		(32.7	)		(17.0	)
Distributions received from unconsolidated affiliates		58.8			33.5
Operating lease expenses paid by EPCO		0.3			0.3
Gains from asset sales and related transactions		(5.7	)		(0.4	)
Loss on forfeiture of investment in Texas Offshore Port System		--			68.4
Deferred income tax expense		1.3			1.8
Changes in fair market value of derivative instruments		(5.0	)		(12.0	)
Effect of pension settlement recognition		(0.2	)		(0.1	)
Net effect of changes in operating accounts (see Note 17)		(336.5	)		(377.5	)
Net cash flows provided by operating activities		900.3			635.0
Investing activities:
Capital expenditures		(746.8	)		(834.2	)
Contributions in aid of construction costs		8.7			10.3
Decrease in restricted cash		52.6			19.4
Cash used for business combinations (see Note 8)		(1,220.2	)		(73.7	)
Acquisition of intangible assets		--			(1.4	)
Investments in unconsolidated affiliates		(10.2	)		(9.8	)
Proceeds from asset sales and related transactions		24.1			0.6
Other investing activities		--			1.5
Cash used in investing activities		(1,891.8	)		(887.3	)
Financing activities:
Borrowings under debt agreements		3,538.8			3,544.4
Repayments of debt		(2,215.0	)		(3,023.6	)
Debt issuance costs		(14.8	)		(5.4	)
Cash distributions paid to partners		(830.9	)		(566.1	)
Unit option-related reimbursements to EPCO		(2.2	)		(0.3	)
Cash distributions paid to noncontrolling interests		(36.6	)		(210.6	)
Cash contributions from noncontrolling interests		1.9			124.3
Net cash proceeds from issuance of common units		990.1			398.6
Cash proceeds from exercise of unit options		1.6			0.2
Acquisition of treasury units		(3.0	)		--
Monetization of interest rate derivative instruments		1.3			--
Cash provided by financing activities		1,431.2			261.5
Effect of exchange rate changes on cash		0.1			(2.2	)
Net change in cash and cash equivalents		439.7			9.2
Cash and cash equivalents, January 1		54.7			61.7
Cash and cash equivalents, June 30	$	494.5		$	68.7

See Notes to Unaudited Condensed Consolidated Financial Statements.

*See Note 1 for information regarding these recast amounts and basis of financial statement presentation.

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ENTERPRISE PRODUCTS PARTNERS L.P.

UNAUDITED CONDENSED STATEMENTS OF CONSOLIDATED EQUITY

(See Note 11 for Unit History, Detail of Changes in Limited Partners’ Equity and

Accumulated Other Comprehensive Loss)

(Dollars in millions)

	Enterprise Products Partners L.P.
	Limited Partners			General Partner			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total
Balance, December 31, 2009	$	9,329.7		$	190.8		$	(8.4	)	$	530.2		$	10,042.3
Net income		611.7			123.3			--			32.1			767.1
Operating lease expenses paid by EPCO		0.3			--			--			--			0.3
Cash distributions paid to partners		(705.7	)		(125.2	)		--			--			(830.9	)
Unit option-related reimbursements to EPCO		(2.2	)		--			--			--			(2.2	)
Cash distributions paid to noncontrolling interests		--			--			--			(36.6	)		(36.6	)
Net cash proceeds from issuance of common units		970.3			19.8			--			--			990.1
Cash proceeds from exercise of unit options		1.6			--			--			--			1.6
Cash contributions from noncontrolling interests		--			--			--			1.9			1.9
Amortization of equity awards		17.9			0.3			--			0.2			18.4
Acquisition of treasury units		(3.0	)		--			--			--			(3.0	)
Foreign currency translation adjustment		--			--			(0.2	)		--			(0.2	)
Cash flow hedges		--			--			(23.7	)		1.4			(22.3	)
Other		0.2			(0.2	)		(0.9	)		(0.2	)		(1.1	)
Balance, June 30, 2010	$	10,220.8		$	208.8		$	(33.2	)	$	529.0		$	10,925.4

	Enterprise Products Partners L.P.
	Limited Partners			General Partner			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total
Balance, December 31, 2008*	$	6,063.1		$	123.6		$	(97.2	)	$	3,206.4		$	9,295.9
Net income		333.3			78.6			--			116.1			528.0
Operating lease expenses paid by EPCO		0.3			--			--			--			0.3
Cash distributions paid to partners		(484.4	)		(81.7	)		--			--			(566.1	)
Unit option-related reimbursements to EPCO		(0.3	)		--			--			--			(0.3	)
Cash distributions paid to noncontrolling interests		--			--			--			(210.6	)		(210.6	)
Deconsolidation of Texas Offshore Port System (see Note 1)		--			--			--			(33.4	)		(33.4	)
Net cash proceeds from issuance of common units		390.6			8.0			--			--			398.6
Cash proceeds from exercise of unit options		0.2			--			--			--			0.2
Cash contributions from noncontrolling interests		--			--			--			124.3			124.3
Amortization of equity awards		8.0			0.1			--			2.0			10.1
Foreign currency translation adjustment		--			--			0.6			--			0.6
Cash flow hedges		--			--			(34.3	)		3.6			(30.7	)
Other		--			--			--			(0.1	)		(0.1	)
Balance, June 30, 2009*	$	6,310.8		$	128.6		$	(130.9	)	$	3,208.3		$	9,516.8

See Notes to Unaudited Condensed Consolidated Financial Statements.

*See Note 1 for information regarding these recast amounts and basis of financial statement presentation.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Except unit-related amounts, or as noted within the context of each footnote disclosure, the dollar amounts presented in the tabular data within these footnotes are stated in millions of dollars.

SIGNIFICANT RELATIONSHIPS REFERENCED IN THESE

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unless the context requires otherwise, references to “we,” “us,” “our,” 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 Products Partners. Enterprise Products Partners conducts substantially all of its business through EPO and its consolidated subsidiaries. References to “EPGP” mean Enterprise Products GP, LLC, which is our general partner.

References to “Duncan Energy Partners” mean Duncan Energy Partners L.P., which is a consolidated subsidiary of EPO. Duncan Energy Partners is a publicly traded Delaware limited partnership, the common units of which are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol “DEP.” References to “DEP GP” mean DEP Holdings, LLC, which is the general partner of Duncan Energy Partners and is wholly owned by EPO.

References to “Enterprise GP Holdings” mean Enterprise GP Holdings L.P., a publicly traded Delaware limited partnership, the units of which are listed on the NYSE under the ticker symbol “EPE.” Enterprise GP Holdings owns EPGP. The general partner of Enterprise GP Holdings is EPE Holdings, LLC (“EPE Holdings”), which is a wholly owned subsidiary of Dan Duncan LLC. The membership interests of Dan Duncan LLC are owned of record by a voting trust formed on April 26, 2006, pursuant to the Dan Duncan LLC Voting Trust Agreement dated April 26, 2006 (the “DD LLC Voting Trust Agreement”), among Dan Duncan LLC and Dan L. Duncan (as the record owner of all of the membership interests of Dan Duncan LLC immediately prior to the entering into of the DD LLC Voting Trust Agreement and as the initial sole voting trustee).

Immediately upon Mr. Duncan’s death on March 29, 2010, voting and dispositive control of all of the membership interests of Dan Duncan LLC was transferred pursuant to the DD LLC Voting Trust Agreement to three voting trustees. The current voting trustees under the DD LLC Voting Trust Agreement (the “DD LLC Trustees”) are: (i) Randa Duncan Williams, Mr. Duncan’s oldest daughter, who is also a director of EPE Holdings; (ii) Dr. Ralph S. Cunningham, who is currently the President and Chief Executive Officer (“CEO”) of EPE Holdings; and (iii) Richard H. Bachmann, who is currently an Executive Vice President, the Chief Legal Officer and Secretary of EPGP and one of three managers of Dan Duncan LLC. Dr. Cunningham and Mr. Bachmann are also currently directors of EPE Holdings.

The DD LLC Voting Trust Agreement requires that there always be two “Independent Voting Trustees” serving. If Mr. Bachmann or Dr. Cunningham fail to qualify or cease to serve, then the substitute or successor Independent Voting Trustee(s) will be appointed by the then-serving Independent Voting Trustee, provided that if no Independent Voting Trustee is then serving or if a vacancy in a trusteeship of an Independent Voting Trustee is not filled within ninety days of the vacancy’s occurrence, the CEO of EPGP will appoint the successor Independent Voting Trustee(s).

The DD LLC Voting Trust Agreement also provides for a “Duncan Voting Trustee.” The Duncan Voting Trustee is appointed by the children of Mr. Duncan acting by a majority or, if less than three children of Mr. Duncan are then living, unanimously. If for any reason no descendent of Mr. Duncan is appointed as the Duncan Voting Trustee, then such trusteeship will remain vacant until such time as a Duncan Voting Trustee is appointed in the manner provided above. If a Duncan Voting Trustee for any reason ceases to serve, his or her successor shall be appointed by the children of Mr. Duncan acting by majority or, if less than three children of Mr. Duncan are then living, unanimously. Ms. Williams is currently the Duncan Voting Trustee.

The DD LLC Trustees are required to treat for all purposes whatsoever the member party to the DD LLC Voting Trust Agreement as the beneficial owner of the membership interests of Dan Duncan

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

LLC. The estate of Mr. Duncan became the sole member party to the DD LLC Voting Trust Agreement upon the death of Mr. Duncan on March 29, 2010. However, the DD LLC Trustees collectively are the record owners of the Dan Duncan LLC membership interests and possess and are entitled to exercise all rights and powers of absolute ownership thereof and to vote, assent or consent with respect thereto and to take party in and consent to any corporate or members’ actions (except those actions, if any, to which the DD LLC Trustees may not legally consent) and subject to the provisions of the DD LLC Voting Trust Agreement, to receive dividends and distributions on the Dan Duncan LLC membership interests. Except as otherwise provided in the DD LLC Voting Trust Agreement, all actions taken by the DD LLC Trustees are by majority vote.

The DD LLC Trustees serve in such capacity without compensation, but they are entitled to incur reasonable charges and expenses deemed necessary and proper for administering the DD LLC Voting Trust Agreement and to reimbursement and indemnification.

The DD LLC Voting Trust Agreement will terminate when (i) the descendants of Mr. Duncan, and entities directly or indirectly controlled by or held for the benefit of any such descendant, no longer own any capital stock of EPCO (as defined below); or (ii) upon such earlier date designated by the DD LLC Trustees by an instrument in writing delivered to the member party to the DD LLC Voting Trust Agreement.

On April 27, 2010, the independent co-executors for the estate of Mr. Duncan were appointed by the probate court. The independent co-executors are Mr. Bachmann, Dr. Cunningham and Ms. Williams, who are the same persons as the current DD LLC Trustees and voting trustees under a separate voting trust agreement relating to a majority of EPCO’s outstanding shares with voting rights (as more fully described below).

References to “EPCO” mean Enterprise Products Company (formerly EPCO, Inc.) and its privately held affiliates. Prior to Mr. Duncan’s death, we, EPO, Duncan Energy Partners, DEP GP, EPGP, Enterprise GP Holdings and EPE Holdings were affiliates under the common control of Mr. Duncan, since he was the controlling shareholder of EPCO and the controlling member of Dan Duncan LLC. A majority of the outstanding voting capital stock of EPCO is owned of record by a voting trust formed on April 26, 2006, pursuant to the EPCO Inc. Voting Trust Agreement (the “EPCO Voting Trust Agreement”), among EPCO and Mr. Duncan (as the record owner of a majority of the outstanding voting capital stock of EPCO immediately prior to the entering into of the EPCO Voting Trust Agreement and as the initial sole voting trustee).

Immediately upon Mr. Duncan’s death, voting and dispositive control of such majority of the outstanding voting capital stock of EPCO was transferred pursuant to the EPCO Voting Trust Agreement to three voting trustees (the “EPCO Trustees”). The current EPCO Trustees are: (i) Ms. Williams, who serves as Chairman of EPCO; (ii) Dr. Cunningham, who serves as a Vice Chairman of EPCO; and (iii) Mr. Bachmann, who serves as the President, CEO and Chief Legal Officer of EPCO. Ms. Williams, Dr. Cunningham and Mr. Bachmann are also currently directors of EPCO. The current EPCO Trustees are the same as the current DD LLC Trustees, which control Dan Duncan LLC. The current EPCO Trustees are also the same persons as the individuals appointed on April 27, 2010 as the independent co-executors of the estate of Mr. Duncan. At June 30, 2010, Dan Duncan LLC and EPCO beneficially owned approximately 18% and 57%, respectively, of the outstanding units representing limited partner interests of Enterprise GP Holdings.

References to “TEPPCO” and “TEPPCO GP” mean TEPPCO Partners, L.P. and Texas Eastern Products Pipeline Company, LLC (which is the general partner of TEPPCO), respectively, prior to their mergers with our subsidiaries on October 26, 2009. We refer to such related mergers both individually and in the aggregate as the (“TEPPCO Merger”).

References to “Energy Transfer Equity” mean the business and operations of Energy Transfer Equity, L.P. and its consolidated subsidiaries, which include Energy Transfer Partners, L.P. (“ETP”) and, effective May 26, 2010, Regency Energy Partners LP (“RGNC”). Energy Transfer Equity is a publicly

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

traded Delaware limited partnership, the common units of which are listed on the NYSE under the ticker symbol “ETE.” ETP is a publicly traded Delaware limited partnership, the common units of which are listed on the NYSE under the ticker symbol “ETP.” RGNC is a publicly traded Delaware limited partnership, the common units of which are traded on the NASDAQ stock market under the ticker symbol “RGNC.” The general partner of Energy Transfer Equity is LE GP, LLC.

References to the “Employee Partnerships” mean EPE Unit L.P. (“EPE Unit I”), EPE Unit II, L.P. (“EPE Unit II”), EPE Unit III, L.P. (“EPE Unit III”), Enterprise Unit L.P. (“Enterprise Unit”) and EPCO Unit L.P. (“EPCO Unit”), collectively, all of which are privately held affiliates of EPCO.

Note 1. Partnership Operations and Basis of Presentation

General

We are a publicly traded Delaware limited partnership, the common units of which are listed on the NYSE under the ticker symbol “EPD.” We were formed in April 1998 to own and operate certain natural gas liquids (“NGLs”) related businesses of EPCO. We are a leading North American provider of midstream energy services to producers and consumers of natural gas, 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. The partnership’s assets include: 49,100 miles of onshore and offshore pipelines; approximately 200 million barrels (“MMBbls”) of storage capacity for NGLs, refined products and crude oil; and 27 billion cubic feet (“Bcf”) of natural gas storage capacity.

Our midstream energy operations include: natural gas transportation, gathering, 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 storage; and a marine transportation business that operates primarily on the United States inland and Intracoastal Waterway systems and in the Gulf of Mexico. We have five reportable business segments: (i) NGL Pipelines & Services; (ii) Onshore Natural Gas Pipelines & Services; (iii) Onshore Crude Oil Pipelines & Services; (iv) Offshore Pipelines & Services and (v) Petrochemical & Refined Products Services. Our business segments reflect the manner in which these businesses are managed and reviewed by the CEO of our general partner. See Note 12 for additional information regarding our business segments.

We are owned 98% by our limited partners and 2% by our general partner, EPGP. We, EPGP, Enterprise GP Holdings, EPE Holdings, EPCO and Dan Duncan LLC are affiliates and under the collective common control of the DD LLC Trustees and the EPCO Trustees. We have no employees. All of our operating functions and general and administrative support services are provided by employees of EPCO pursuant to an administrative services agreement, or ASA, or other service providers. See Note 13 for information regarding the ASA and related party matters.

Our results of operations for the three and six months ended June 30, 2010 are not necessarily indicative of results expected for the full year. 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 to 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 the 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, 2009 (the “2009 Form 10-K”).

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Consolidation of Duncan Energy Partners

For financial reporting purposes, we consolidate the financial statements of Duncan Energy Partners with those of our own and reflect its operations in our business segments. We control Duncan Energy Partners through our ownership of its general partner. Public ownership of Duncan Energy Partners’ net assets and earnings are presented as a component of noncontrolling interest in our consolidated financial statements. The borrowings of Duncan Energy Partners are presented as part of our consolidated debt. However, neither Enterprise Products Partners nor EPO have any obligation for the payment of interest or repayment of borrowings incurred by Duncan Energy Partners.

TEPPCO Merger and Basis of Presentation

On October 26, 2009, the related mergers of our wholly owned subsidiaries with TEPPCO and TEPPCO GP were completed. As a result, our consolidated financial statements and business segments were recast to reflect the TEPPCO Merger. Under terms of the merger agreements, TEPPCO and TEPPCO GP became wholly owned subsidiaries of ours, and each of TEPPCO’s unitholders, except for a privately held affiliate of EPCO, were entitled to receive 1.24 of our common units for each TEPPCO unit they owned. In total, we issued an aggregate of 126,932,318 common units and 4,520,431 Class B units (described below) as consideration in the TEPPCO Merger for both TEPPCO units and the TEPPCO GP membership interests. On October 27, 2009, our TEPPCO and TEPPCO GP equity interests were contributed to EPO, and TEPPCO and TEPPCO GP became wholly owned subsidiaries of EPO.

A privately held affiliate of EPCO exchanged a portion of its TEPPCO units, based on the 1.24 exchange rate, for 4,520,431 of our Class B units in lieu of common units. The Class B units are not entitled to receive regular quarterly cash distributions for the first sixteen quarters following the closing date of the merger. The Class B units automatically convert into the same number of common units on the date immediately following the payment date for the sixteenth regular quarterly distribution following the closing date of the merger. The Class B units are entitled to vote together with the common units as a single class on partnership matters and, except for the payment of distributions, have the same rights and privileges as our common units.

Under the terms of the TEPPCO Merger agreements, Enterprise GP Holdings received 1,331,681 of our common units and an increase in the capital account of EPGP to maintain its 2% general partner interest in us as consideration for 100% of the membership interests of TEPPCO GP.

Due to common control considerations, the TEPPCO Merger was accounted for at historical costs as a reorganization of entities under common control in a manner similar to a pooling of interests. Our consolidated financial statements for periods prior to the TEPPCO Merger reflect the combined financial information of Enterprise Products Partners, TEPPCO and TEPPCO GP on a 100% basis. Third-party and related party ownership interests in TEPPCO and TEPPCO GP are presented as “Former owners of TEPPCO,” which is a component of noncontrolling interest.

There was no change in net income attributable to Enterprise Products Partners L.P. for periods prior to the TEPPCO Merger since the net income attributable to TEPPCO and TEPPCO GP for these periods was allocated to noncontrolling interests. Additionally, there was no change in our reported earnings per unit (“EPU”) for such periods. See Note 12 for a reconciliation of our recast consolidated revenues and total segment gross operating margin, which is a non-generally accepted accounting principle (“non-GAAP”) financial performance measure, to our pre-merger reported amounts.

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Deconsolidation of Texas Offshore Port System

In August 2008, we, including TEPPCO, together with Oiltanking Holding Americas, Inc. (“Oiltanking”) formed the Texas Offshore Port System partnership (“TOPS”). In April 2009, we and TEPPCO dissociated from TOPS. As a result, our operating costs and expenses and net income for the second quarter of 2009 include a non-cash charge of $68.4 million. This loss represents the forfeiture of our cumulative investment, including that of TEPPCO, in TOPS through the date of dissociation. The impact on net income attributable to Enterprise Products Partners L.P. was approximately $34.2 million, as $34.2 million of this loss was absorbed by noncontrolling interests in consolidation (i.e., by the former owners of TEPPCO).

On a recast basis, we consolidated the financial statements of TOPS with those of our own since TEPPCO and we held a majority of the ownership interests and voting control of TOPS. Oiltanking’s interest in the joint venture was accounted for as a noncontrolling interest. As a result of our dissociation from TOPS, we discontinued the consolidation of TOPS during the second quarter of 2009. The effect of deconsolidation was to remove the accounts of TOPS, including Oiltanking’s noncontrolling interest of $33.4 million, from our books and records, after reflecting the $68.4 million aggregate write-off of the investments related to the deconsolidation.

Note 2. General Accounting Matters

Estimates

Preparing our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts presented in the financial statements (e.g., assets, liabilities, revenue and expenses) and disclosures regarding contingent assets and liabilities. Our actual results could differ from these estimates. On an ongoing basis, management reviews its estimates based on currently available information. Any future changes in facts and circumstances may require updated estimates, which, in turn, could have a significant impact on our financial statements.

Fair Value Information

Cash and cash equivalents and restricted cash, accounts receivable, accounts payable and accrued expenses and other current liabilities (excluding derivative instruments) are carried at amounts which reasonably approximate their fair values due to their short-term nature. The estimated fair values of our fixed-rate debt are based on quoted market prices for such debt or debt of similar terms and maturities. The carrying amounts of our variable-rate debt obligations reasonably approximate their fair values due to their variable interest rates. See Note 4 for fair value information associated with our derivative instruments.

The following table presents the estimated fair values of our financial instruments at the dates indicated:

	June 30, 2010				December 31, 2009
Financial Instruments	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents and restricted cash	$	513.6	$	513.6	$	118.3	$	118.3
Accounts receivable		2,943.3		2,943.3		3,137.4		3,137.4
Financial liabilities:
Accounts payable and accrued expenses		3,948.6		3,948.6		4,101.4		4,101.4
Other current liabilities (excluding derivative instruments)		331.7		331.7		341.6		341.6
Fixed-rate debt (principal amount)		12,032.7		12,665.8		10,586.7		11,056.2
Variable-rate debt		594.8		594.8		710.3		710.3

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Recent Accounting Developments

In November 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS consist of accounting standards published by the International Accounting Standards Board (“IASB”), which is based in London, England. In February 2010, the SEC expressed its continuing support for a single set of high-quality globally accepted accounting standards and established a general work plan that sets forth areas and factors the SEC will consider before requiring domestic public companies to transition to IFRS. Currently, the Financial Accounting Standards Board (or “FASB,” based in Norwalk, Connecticut) and the IASB are working both individually and jointly on a number of accounting standard convergence projects that, if finalized in 2011, would bring about a significant shift in the accounting and financial reporting landscape. These projects include a broad range of topics such as financial statement presentation, accounting for leases, revenue recognition, financial instruments, consolidations and fair value measurements.

The SEC will make a determination in 2011 regarding the mandatory adoption of IFRS with the expectation that any decision to adopt IFRS would allow U.S. issuers four to five years to transition from current U.S. GAAP. We continue to monitor developments in the potential implementation of IFRS and the ongoing convergence projects of the FASB and IASB. We will evaluate the impact that any definitive accounting guidance may have on our financial statements once this information is finalized by the appropriate standard setting organizations, including the SEC.

Restricted Cash

Restricted cash represents amounts held in connection with our commodity derivative instruments portfolio and related physical natural gas and NGL purchases. Additional cash may be restricted to maintain this portfolio as commodity prices fluctuate or deposit requirements change. At June 30, 2010 and December 31, 2009, our restricted cash amounts were $19.1 million and $63.6 million, respectively. Our restricted cash balances have decreased since December 31, 2009 due to a reduction in margin requirements related to our commodity hedging activities. See Note 4 for information regarding our derivative instruments and hedging activities.

Note 3. Equity-based Awards

An allocated portion of the fair value of EPCO’s equity-based awards is charged to us under the ASA. The following table summarizes the expense we recognized in connection with equity-based awards for the periods indicated:

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2010		2009		2010		2009
Restricted unit awards (1)	$	7.6	$	3.8	$	12.9	$	6.2
Unit option awards (1)		0.9		0.6		1.8		0.7
Unit appreciation rights (2)		0.1		--		0.2		--
Phantom units (2)		0.1		0.1		0.1		0.1
Profits interests awards (1)		1.8		2.0		3.6		3.4
Total compensation expense	$	10.5	$	6.5	$	18.6	$	10.4

(1) Accounted for as equity-classified awards. (2) Accounted for as liability-classified awards.

The fair value of an equity-classified award (e.g., a restricted unit award) is amortized to earnings over the requisite service or vesting period. Compensation expense for liability-classified awards (e.g., unit appreciation rights (“UARs”)) is recognized over the requisite service or vesting period of an award based on the fair value of the award remeasured at each reporting period. Liability-classified awards are settled in cash upon vesting.

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At June 30, 2010, EPCO’s long-term incentive plans applicable to our operations were the Enterprise Products 1998 Long-Term Incentive Plan, the Amended and Restated 2008 Enterprise Products Long-Term Incentive Plan and the 2010 Duncan Energy Partners L.P. Long-Term Incentive Plan. In addition, there were unvested awards outstanding under an inactive plan, the Enterprise Products 2006 TPP Long-Term Incentive Plan (“2006 Plan”). EPCO’s equity-based awards also include profits interests in the Employee Partnerships.

When employees exercise unit options, we reimburse EPCO for the cash difference between the strike price paid by the employee and the actual purchase price paid by EPCO for the common units issued to the employee. In addition, we reimburse EPCO for certain amounts recorded in connection with EPCO Unit (one of the Employee Partnerships). Beginning in February 2009, the ASA was amended to provide that we and other affiliates of EPCO will reimburse EPCO for our allocated share of distributions of cash or securities made to the Class B limited partners of EPCO Unit. Except for the foregoing, we are not responsible for reimbursing EPCO for any of the costs associated with equity awards.

Restricted Unit Awards

Restricted unit awards allow recipients to acquire (at no cost to the recipient apart from service or other conditions) limited partner units once a defined vesting period expires, subject to customary forfeiture provisions. Restricted unit awards may be denominated in our common units or those of Duncan Energy Partners depending on the issuer of the award. Restricted unit awards issued prior to 2010 cliff vest generally four years from the date of grant. Beginning with awards issued in 2010, restricted unit awards are subject to graded vesting provisions in which one-fourth of each award vests on the first, second, third and fourth anniversaries of the date of grant. As used in the context of EPCO’s long-term incentive plans, the term “restricted unit” represents a time-vested unit. Such awards are non-vested until the required service period expires.

The fair value of a restricted unit award is based on the market price per unit of the underlying security on the date of grant. Compensation expense is recognized based on the grant date fair value, net of an allowance for estimated forfeitures, over the requisite service or vesting period.

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The following table summarizes information regarding restricted unit awards for the periods indicated:

	Number of Units			Weighted- Average Grant Date Fair Value per Unit (1)
Enterprise Products Partners L.P. restricted unit awards:
Restricted units at December 31, 2009		2,720,882		$	27.70
Granted (2,3)		1,332,875		$	32.26
Vested (3)		(322,228	)	$	25.12
Forfeited		(93,148	)	$	29.51
Restricted units at June 30, 2010		3,638,381		$	29.69

Duncan Energy Partners L.P. restricted unit awards:
Restricted units at December 31, 2009		--
Granted (3,4)		6,348		$	25.26
Vested (3)		(6,348	)	$	25.26
Restricted units at June 30, 2010		--

(1) Determined by dividing the aggregate grant date fair value of awards before an allowance for forfeitures by the number of awards issued. (2) Aggregate grant date fair value of restricted unit awards denominated in our common units was $43.0 million based on grant date market price of our common units ranging from $32.00 to $32.27 per unit. Estimated forfeiture rates ranging between 4.6% and 17% were applied to these awards. (3) Includes awards granted to the independent directors of the boards of directors of EPGP and DEP GP as part of their annual compensation for 2010. A total of 6,960 and 6,348 restricted unit awards were issued in February 2010 to the independent directors of EPGP and DEP GP, respectively, that immediately vested upon issuance. (4) Aggregate grant date fair value of restricted unit awards denominated in Duncan Energy Partners’ common units was $0.2 million based on a grant date market price of Duncan Energy Partners’ common units of $25.26 per unit.

In the aggregate, unrecognized compensation cost of restricted unit awards was $59.6 million at June 30, 2010, of which our allocated share of the cost is currently estimated to be $53.5 million. We expect to recognize our share of the unrecognized compensation cost for these awards over a weighted-average period of 2.1 years.

Unit Option Awards

EPCO’s long-term incentive plans provide for the issuance of non-qualified incentive options. These option awards may be denominated in our common units or those of Duncan Energy Partners depending on the issuer of the award. When issued, the exercise price of each option award may be no less than the market price of the underlying security on the date of grant. In general, option awards have a vesting period of four years from the date of grant. If option awards are not exercised, these awards generally expire between five and ten years after the date of grant.

The fair value of each unit option is estimated on the date of grant using a Black-Scholes option pricing model, which incorporates various assumptions including expected life of the option, risk-free interest rates, expected distribution yield of the underlying security, and expected unit price volatility. Compensation expense is recognized based on the grant date fair value, net of an allowance for estimated forfeitures, over the vesting period.

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The following table presents unit option activity for the periods indicated. As of June 30, 2010, only Enterprise Products Partners has issued unit option awards.

	Number of Units			Weighted- Average Strike Price (dollars/unit)		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (1)
Outstanding at December 31, 2009		3,825,920		$	26.52
Granted (2)		785,000		$	32.26
Exercised		(222,500	)	$	24.60
Outstanding at June 30, 2010		4,388,420		$	27.65		4.3	$	6.5
Options exercisable at June 30, 2010		635,000		$	25.11		5.3	$	6.5

(1) Aggregate intrinsic value reflects fully vested unit options at the date indicated. (2) Aggregate grant date fair value of these unit options was $2.3 million based on the following assumptions: (i) a weighted-average grant date market price of our common units of $32.26 per unit; (ii) weighted-average expected life of options of 4.9 years; (iii) weighted-average risk-free interest rate of 2.5%; (iv) weighted-average expected distribution yield on our common units of 6.9%; and (v) weighted-average expected unit price volatility on our common units of 23.3%. An estimated forfeiture rate of 17% was applied to awards granted during 2010.

The following table presents additional information regarding unit option awards for the periods indicated:

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2010		2009		2010		2009
Total intrinsic value of option awards exercised during period	$	1.3	$	0.2	$	2.2	$	0.3
Cash received from EPCO in connection with the exercise of unit option awards		1.0		0.1		1.6		0.2
Unit option-related reimbursements to EPCO		1.3		0.2		2.2		0.3

In the aggregate, unrecognized compensation cost of unit option awards was $9.1 million at June 30, 2010, of which our allocated share of the cost is currently estimated to be $8.0 million. We expect to recognize our share of the unrecognized compensation cost for these awards over a weighted-average period of 2.7 years.

Unit Appreciation Rights

UARs entitle a participant to receive a cash payment on the vesting date equal to the excess, if any, of the fair market value of the underlying security (determined as of a future vesting date) over the grant date fair value of the award. UARs are accounted for as liability awards. The following tables present information regarding UAR awards for the periods indicated:

	UARs Based on Units of
	Enterprise Products Partners			Enterprise GP Holdings		Total
UARs at December 31, 2009		142,196			90,000		232,196
Settled or forfeited		(10,255	)		--		(10,255	)
UARs at June 30, 2010		131,941			90,000		221,941

	June 30,		December 31,
	2010		2009
Accrued liability for UARs	$	0.6	$	0.3

At June 30, 2010, 131,941 UARs had been granted under the 2006 Plan to certain employees of EPCO who work on our behalf. These awards are subject to five year cliff vesting requirements and are expected to settle in 2012. The grant date fair value with respect to these UARs is based on a unit price of $37.00 for our common units. If the employee resigns prior to vesting, the UAR awards are forfeited.

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At June 30, 2010, there were 90,000 UARs outstanding that were granted to the independent directors of DEP GP. These UARs cliff vest in 2012. The grant date fair value with respect to these UARs is based on an Enterprise GP Holdings’ unit price of $36.68. If a director resigns prior to vesting, his UAR awards are forfeited.

Phantom Unit Awards

Certain of EPCO’s long-term incentive plans provide for the issuance of phantom unit awards. These awards are automatically redeemed for cash based on the fair value of the vested portion of phantom units at redemption dates stated in each award. The fair value of each phantom unit award is equal to the closing market price of the underlying security on the redemption date. Each participant is required to redeem their phantom units as they vest, which is typically three to four years from the date the award is granted. Phantom unit awards are accounted for as liability awards.

The following tables present information regarding phantom unit awards for the periods indicated:

Phantom units at December 31, 2009	14,927
Granted	6,200
Vested	(4,327	)
Phantom units at June 30, 2010	16,800

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2010		2009		2010		2009
Liabilities paid for phantom unit awards	$	--	$	0.3	$	0.1	$	1.1

	June 30,		December 31,
	2010		2009
Accrued liability for phantom unit awards	$	0.2	$	0.2

The 3,472 phantom units outstanding under the TEPPCO 1999 Phantom Unit Retention Plan at December 31, 2009 vested in January 2010 and the plan was terminated.

Profits Interests Awards

As long-term incentive arrangements, EPCO granted its key employees who perform services on behalf of us, EPCO and other affiliated companies, “profits interests” in the Employee Partnerships, all of which are privately held affiliates of EPCO. Profits interests awards entitle each holder to participate in the expected long-term appreciation in value of the equity securities owned by each Employee Partnership. The Employee Partnerships own either units of Enterprise GP Holdings or common units of Enterprise Products Partners or a combination of both. The profits interests awards are subject to customary forfeiture provisions.

Our reimbursements to EPCO in connection with EPCO Unit were $0.1 million during each of the three months ended June 30, 2010 and 2009. During each of the six months ended June 30, 2010 and 2009, our reimbursements to EPCO in connection with EPCO Unit were $0.2 million.

In August 2010, the Employee Partnerships were liquidated. We expect to recognize approximately $24 million of expense during the third quarter of 2010 in connection with these liquidations. Of this expense amount, we estimate that approximately $18 million will be non-cash.

Note 4. Derivative Instruments, Hedging Activities and Fair Value Measurements

In the course of our normal business operations, we are exposed to certain risks, including changes in interest rates, commodity prices and, to a limited extent, foreign exchange rates. In order to manage risks associated with certain identifiable and anticipated transactions, we use derivative instruments.

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Derivatives are instruments whose fair value is determined by changes in a specified benchmark such as interest rates, commodity prices or currency values. Fair value is generally defined as the amount at which a derivative instrument could be exchanged in a current transaction between willing parties, not in a forced sale. Typical derivative instruments include futures, forward contracts, swaps, options and other instruments with similar characteristics. Substantially all of our derivatives are used for non-trading activities.

We are required to recognize derivative instruments at fair value as either assets or liabilities on the balance sheet. While all derivatives are required to be reported at fair value on the balance sheet, changes in fair value of the derivative instruments are reported in different ways depending on the nature and effectiveness of the hedging activities to which they relate. After meeting specified conditions, a qualified derivative may be specifically designated as a total or partial hedge of:

§	Changes in the fair value of a recognized asset or liability, or an unrecognized firm commitment - In a fair value hedge, gains and losses for both the derivative instrument and the hedged item are recognized in income during the period of change.

§	Variable cash flows of a forecasted transaction - In a cash flow hedge, the effective portion of the hedge is reported in other comprehensive income (loss) and is reclassified into earnings when the forecasted transaction affects earnings.

§	Foreign currency exposure - A foreign currency hedge can be treated as either a fair value hedge or a cash flow hedge depending on the risk being hedged.

An effective hedge relationship is one in which the change in fair value of a derivative instrument can be expected to offset 80% to 125% of the changes in fair value of a hedged item at inception and throughout the life of the hedging relationship. The effective portion of a hedge relationship is the amount by which the derivative instrument exactly offsets the change in fair value of the hedged item during the reporting period. Conversely, ineffectiveness represents the change in the fair value of the derivative instrument that does not exactly offset the change in the fair value of the hedged item. Any ineffectiveness associated with a hedge relationship is recognized in earnings immediately. Ineffectiveness can be caused by, among other things, changes in the timing of forecasted transactions or a mismatch of terms between the derivative instrument and the hedged item.

A contract designated as a cash flow hedge of an anticipated transaction that is probable of not occurring is immediately recognized in earnings.

Certain of our derivative instruments do not qualify for hedge accounting treatment; therefore, they are accounted for using mark-to-market accounting.

Interest Rate Derivative Instruments

We utilize interest rate swaps, treasury locks and similar derivative instruments to manage our exposure to changes in the interest rates charged on borrowings under certain consolidated debt agreements. This strategy is a component in controlling our cost of capital associated with such borrowings.

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The following table summarizes our interest rate derivative instruments outstanding at June 30, 2010:

Hedged Transaction	Number and Type of Derivative(s) Employed	Notional Amount	Period of Hedge	Rate Swap	Accounting Treatment
Enterprise Products Partners:
Senior Notes C	1 fixed-to-floating swap	$100.0	1/04 to 2/13	6.4% to 2.3%	Fair value hedge
Senior Notes G	3 fixed-to-floating swaps	$300.0	10/04 to 10/14	5.6% to 1.4%	Fair value hedge
Senior Notes P	7 fixed-to-floating swaps	$400.0	6/09 to 8/12	4.6% to 2.7%	Fair value hedge
Duncan Energy Partners:
Variable-rate borrowings	3 floating-to-fixed swaps	$175.0	9/07 to 9/10	0.5% to 4.6%	Cash flow hedge

Interest rate swaps exchange the stated interest rate paid on a notional amount of debt for a fixed or floating interest rate stipulated in the derivative instrument. Our interest rate swaps associated with existing debt obligations resulted in a decrease in interest expense of $4.6 million and $0.4 million for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, such swaps resulted in a decrease in interest expense of $8.9 million and an increase in interest expense of $0.2 million, respectively.

The following table summarizes our forward starting interest rate swaps outstanding at June 30, 2010, which hedge the expected underlying benchmark interest rates related to forecasted issuances of debt:

Hedged Transaction	Number and Type of Derivatives Employed	Notional Amount	Expected Termination Date	Average Rate Locked	Accounting Treatment
Future debt offering	3 forward starting swaps	$250.0	2/11	3.7%	Cash flow hedge
Future debt offering	10 forward starting swaps	$500.0	2/12	4.5%	Cash flow hedge
Future debt offering	3 forward starting swaps	$150.0	8/12	4.0%	Cash flow hedge
Future debt offering	4 forward starting swaps	$400.0	3/13	4.1%	Cash flow hedge

In May 2010, we settled a forward starting swap with a notional amount of $50.0 million and recognized a gain of $1.3 million in other comprehensive income. This amount will be amortized to earnings using the effective interest method over the estimated term of the underlying fixed-rate debt.

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Commodity Derivative Instruments

The prices of natural gas, NGLs, crude oil, refined products and certain petrochemical products are subject to fluctuations in response to changes in supply and demand, market conditions and a variety of additional factors that are beyond our control. In order to manage the price risk associated with certain exposures, we enter into commodity derivative instruments such as physical forward agreements, futures contracts, fixed-for-float swaps, basis swaps and options contracts. The following table summarizes our commodity derivative instruments outstanding at June 30, 2010:

	Volume (1)		Accounting
Derivative Purpose	Current	Long-Term (2)	Treatment
Derivatives designated as hedging instruments:
Enterprise Products Partners:
Natural gas processing:
Forecasted natural gas purchases for plant thermal reduction (“PTR”) (3)	27.1 Bcf	n/a	Cash flow hedge
Forecasted NGL sales (4)	8.0 MMBbls	n/a	Cash flow hedge
Octane enhancement:
Forecasted purchases of NGLs	1.5 MMBbls	n/a	Cash flow hedge
Inventory management - NGLs	0.1 MMBbls	n/a	Cash flow hedge
Forecasted sales of octane enhancement products	2.1 MMBbls	0.4 MMBbls	Cash flow hedge
Natural gas marketing:
Natural gas storage inventory management activities	3.1 Bcf	1.2 Bcf	Fair value hedge
NGL marketing:
Forecasted purchases of NGLs and related hydrocarbon products	7.5 MMBbls	0.7 MMBbls	Cash flow hedge
Forecasted sales of NGLs and related hydrocarbon products	9.4 MMBbls	1.2 MMBbls	Cash flow hedge
Crude oil marketing:
Forecasted purchases of crude oil	1.2 MMBbls	n/a	Cash flow hedge
Forecasted sales of crude oil	2.6 MMBbls	n/a	Cash flow hedge
Duncan Energy Partners:
Forecasted sales of natural gas	0.4 Bcf	n/a	Cash flow hedge
Derivatives not designated as hedging instruments:
Enterprise Products Partners:
Natural gas risk management activities (5,6)	384.2 Bcf	73.9 Bcf	Mark-to-market
Crude oil risk management activities (6)	0.5 MMBbls	n/a	Mark-to-market
Duncan Energy Partners:
Natural gas risk management activities (6)	0.5 Bcf	n/a	Mark-to-market
(1) Volume for derivatives designated as hedging instruments reflects the total amount of volumes hedged whereas volume for derivatives not designated as hedging instruments reflects the absolute value of derivative notional volumes. (2) The maximum term for derivatives included in the long-term column is December 2012. (3) PTR represents the British thermal unit equivalent of the NGLs extracted from natural gas by a processing plant, and includes the natural gas used as plant fuel to extract those liquids, plant flare and other shortages. (4) Excludes 3.7 MMBbls of additional hedges executed under contracts that have been designated as normal sales agreements under current accounting guidance. The combination of these volumes with the 8.0 MMBbls reflected as derivatives in the table above results in a total of 11.7 MMBbls of hedged forecasted NGL sales volumes, which corresponds to the 27.1 Bcf of forecasted natural gas purchase volumes for PTR. (5) Current and long-term volumes include approximately 142.8 and 10.5 Bcf, respectively, of physical derivative instruments that are predominantly priced at an index plus a premium or minus a discount related to location differences. (6) Reflects the use of derivative instruments to manage risks associated with transportation, processing and storage assets.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our predominant hedging strategies are: (i) hedging natural gas processing margins; (ii) hedging anticipated future contracted sales of NGLs, refined products and crude oil associated with volumes held in inventory and (iii) hedging the fair value of natural gas in inventory. The following information summarizes these hedging strategies:

The objective of our natural gas processing strategy is to hedge an amount of gross margin associated with our gas processing activities. We achieve this objective by using physical and financial instruments to lock in the purchase prices of natural gas consumed as PTR and the sales prices of the related NGL products. This program consists of (i) the forward sale of a portion of our expected equity NGL production at fixed prices through December 2010, which is achieved through the use of forward physical sales contracts and commodity derivative instruments and (ii) the purchase of commodity derivative instruments having a notional amount based on the volume of natural gas expected to be consumed as PTR in the production of such equity NGL production.

§	The objective of our NGL, refined products and crude oil sales hedging program is to hedge the margins of anticipated future sales of inventory by locking in sales prices through the use of forward physical sales contracts and commodity derivative instruments.

§	The objective of our natural gas inventory hedging program is to hedge the fair value of natural gas currently held in inventory by locking in the sales price of the inventory through the use of commodity derivative instruments.

Foreign Currency Derivative Instruments

We are exposed to a nominal amount of foreign currency exchange risk in connection with our NGL and natural gas marketing activities in Canada. As a result, we could be adversely affected by fluctuations in currency rates between the U.S. dollar and Canadian dollar. In order to manage this risk, we may enter into foreign exchange purchase contracts to lock in an exchange rate. Long-term transactions (i.e., those having terms of more than two months) are accounted for as cash flow hedges. Shorter term transactions are accounted for using mark-to-market accounting. At June 30, 2010, our foreign currency derivative instruments portfolio had a notional amount of $6.0 million Canadian. The fair market value of these derivative instruments was a liability of $0.1 million at June 30, 2010.

Credit-Risk Related Contingent Features in Derivative Instruments

A limited number of our commodity derivative instruments include provisions related to credit ratings and/or adequate assurance clauses. A credit rating provision provides for a counterparty to demand immediate full or partial payment to cover a net liability position upon the loss of a stipulated credit rating. An adequate assurance clause provides for a counterparty to demand immediate full or partial payment to cover a net liability position should reasonable grounds for insecurity arise with respect to contractual performance by either party. At June 30, 2010, the aggregate fair value of our over-the-counter derivative instruments in a net liability position was $6.4 million, all of which was subject to a credit rating contingent feature. If our credit ratings were downgraded to Ba2/BB, approximately $1.4 million would be payable as a margin deposit to the counterparties, and if our credit ratings were downgraded to Ba3/BB- or below, approximately $6.4 million would be payable as a margin deposit to the counterparties. Currently, no margin is required to be deposited. The potential for derivatives with contingent features to enter a net liability position may change in the future as commodity positions and prices fluctuate.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Tabular Presentation of Fair Value Amounts, and Gains and Losses on

Derivative Instruments and Related Hedged Items

The following table provides a balance sheet overview of our derivative assets and liabilities at the dates indicated:

	Asset Derivatives						Liability Derivatives
	June 30, 2010			December 31, 2009			June 30, 2010			December 31, 2009
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments
Interest rate derivatives	Other current assets	$	28.5	Other current assets	$	32.7	Other current liabilities	$	11.5	Other current liabilities	$	5.5
Interest rate derivatives	Other assets		31.4	Other assets		31.8	Other liabilities		46.9	Other liabilities		2.2
Total interest rate derivatives			59.9			64.5			58.4			7.7
Commodity derivatives	Other current assets		122.0	Other current assets		52.0	Other current liabilities		65.0	Other current liabilities		62.6
Commodity derivatives	Other assets		3.2	Other assets		0.5	Other liabilities		2.8	Other liabilities		1.8
Total commodity derivatives (1)			125.2			52.5			67.8			64.4
Foreign currency derivatives	Other current assets		--	Other current assets		0.2	Other current liabilities		0.1	Other current liabilities		--
Total derivatives designated as hedging instruments		$	185.1		$	117.2		$	126.3		$	72.1

Derivatives not designated as hedging instruments
Commodity derivatives	Other current assets	$	52.4	Other current assets	$	28.9	Other current liabilities	$	55.5	Other current liabilities	$	24.9
Commodity derivatives	Other assets		2.4	Other assets		2.0	Other liabilities		8.7	Other liabilities		2.7
Total commodity derivatives			54.8			30.9			64.2			27.6
Total derivatives not designated as hedging instruments		$	54.8		$	30.9		$	64.2		$	27.6

(1) Represent commodity derivative instrument transactions that have either not settled or have settled and not been invoiced. Settled and invoiced transactions are reflected in either accounts receivable or accounts payable depending on the outcome of the transaction.

The following tables present the effect of our derivative instruments designated as fair value hedges on our Unaudited Condensed Statements of Consolidated Operations for the periods indicated:

Derivatives in Fair Value Hedging Relationships	Location	Gain/(Loss) Recognized in Income on Derivative
		For the Three Months					For the Six Months
		Ended June 30,					Ended June 30,
		2010		2009			2010		2009
Interest rate derivatives	Interest expense	$	11.6	$	(14.9	)	$	19.0	$	(16.2	)
Commodity derivatives	Revenue		4.7		(1.0	)		2.9		(1.1	)
Total		$	16.3	$	(15.9	)	$	21.9	$	(17.3	)

Derivatives in Fair Value Hedging Relationships	Location	Gain/(Loss) Recognized in Income on Hedged Item
		For the Three Months					For the Six Months
		Ended June 30,					Ended June 30,
		2010			2009		2010			2009
Interest rate derivatives	Interest expense	$	(10.8	)	$	14.3	$	(18.2	)	$	15.6
Commodity derivatives	Revenue		(4.3	)		1.0		(2.4	)		1.1
Total		$	(15.1	)	$	15.3	$	(20.6	)	$	16.7

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the effect of our derivative instruments designated as cash flow hedges on our Unaudited Condensed Statements of Consolidated Comprehensive Income and Consolidated Operations for the periods indicated.

Derivatives in Cash Flow Hedging Relationships	Change in Value Recognized in Other Comprehensive Income on Derivative (Effective Portion)
	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
	2010			2009			2010			2009
Interest rate derivatives	$	(70.8	)	$	15.8		$	(76.5	)	$	15.1
Commodity derivatives – Revenue		93.5			75.8			86.4			65.8
Commodity derivatives – Operating costs and expenses		(1.5	)		(152.4	)		(53.3	)		(204.4	)
Foreign currency derivatives		(0.1	)		0.1			(0.2	)		(10.5	)
Total	$	21.1		$	(60.7	)	$	(43.6	)	$	(134.0	)

Derivatives in Cash Flow Hedging Relationships	Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/Loss into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Income/Loss to Income (Effective Portion)
		For the Three Months						For the Six Months
		Ended June 30,						Ended June 30,
		2010			2009			2010			2009
Interest rate derivatives	Interest expense	$	(3.3	)	$	(2.5	)	$	(6.6	)	$	(4.8	)
Commodity derivatives	Revenue		18.3			4.4			2.5			19.7
Commodity derivatives	Operating costs and expenses		(16.8	)		(70.7	)		(17.5	)		(118.2	)
Foreign currency derivatives	Other income		--			--			0.3			--
Total		$	(1.8	)	$	(68.8	)	$	(21.3	)	$	(103.3	)

Derivatives in Cash Flow Hedging Relationships	Location of Gain/(Loss) Recognized in Income on Ineffective Portion of Derivative	Amount of Gain/(Loss) Recognized in Income on Ineffective Portion of Derivative
		For the Three Months					For the Six Months
		Ended June 30,					Ended June 30,
		2010		2009			2010		2009
Commodity derivatives	Revenue	$	--	$	(0.7	)	$	--	$	(0.7	)
Commodity derivatives	Operating costs and expenses		3.5		(0.2	)		2.9		(1.3	)
Total		$	3.5	$	(0.9	)	$	2.9	$	(2.0	)

Over the next twelve months, we expect to reclassify $7.8 million of losses attributable to interest rate derivative instruments from accumulated other comprehensive loss to earnings as an increase in interest expense. Likewise, we expect to reclassify $48.2 million of gains attributable to commodity derivative instruments from accumulated other comprehensive income to earnings, $24.8 million as a decrease in operating costs and expenses and $23.4 million as an increase in revenues.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table presents the effect of our derivative instruments not designated as hedging instruments on our Unaudited Condensed Statements of Consolidated Operations for the periods indicated:

Derivatives Not Designated as Hedging Instruments	Location	Gain/(Loss) Recognized in Income on Derivative
		For the Three Months					For the Six Months
		Ended June 30,					Ended June 30,
		2010			2009		2010			2009
Commodity derivatives	Revenue	$	(8.9	)	$	7.0	$	(5.0	)	$	32.5
Commodity derivatives	Operating costs and expenses		--			--		(1.5	)		--
Foreign currency derivatives	Other income		--			--		--			(0.1	)
Total		$	(8.9	)	$	7.0	$	(6.5	)	$	32.4

Fair Value Measurements

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

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

The characteristics of fair value amounts classified within each level of the hierarchy are described as follows:

Level 1 fair values are based on quoted prices, which are available in active markets for identical assets or liabilities as of the measurement date. Active markets are defined as those in which transactions for identical assets or liabilities occur with sufficient frequency so as to provide pricing information on an ongoing basis (e.g., the New York Mercantile Exchange). Our Level 1 fair values primarily consist of financial assets and liabilities such as exchange-traded commodity derivative instruments.

Level 2 fair values are based on pricing inputs other than quoted prices in active markets (as reflected in Level 1 fair values) and are either directly or indirectly observable as of the measurement date. Level 2 fair values include instruments that are valued using financial models or other appropriate valuation methodologies. Such financial models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, the time value of money, volatility factors, current market and contractual prices for the underlying instruments and other relevant economic measures. Substantially all of these assumptions are: (i) observable in the marketplace throughout the full term of the instrument, (ii) can be derived from observable data or (iii) are validated by inputs other than quoted prices (e.g., interest rate and yield curves at commonly quoted intervals). Our Level 2 fair values primarily consist of commodity derivative instruments such as forwards, swaps and other instruments transacted on an exchange or over-the-counter and interest rate derivative instruments. The fair values of these derivative instruments are based on observable price quotes for similar products and locations. The fair value of our interest rate derivatives are determined using appropriate financial models that incorporate the implied forward London Interbank Offered Rate yield curve for the same period as the future interest swap settlements.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Level 3 fair values are based on unobservable inputs. Unobservable inputs are used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Unobservable inputs reflect our ideas about the assumptions that market participants would use in pricing an asset or liability (including assumptions about risk). Unobservable inputs are based on the best information available to us in the circumstances, which might include our internally developed data. Level 3 inputs are typically used in connection with internally developed valuation methodologies where we make our best estimate of an instrument’s fair value. Our Level 3 fair values primarily consist of ethane, normal butane and natural gasoline-based contracts with terms ranging from two months to a year. We rely on price quotes from reputable brokers who publish price quotes on certain products. Whenever possible, we compare these prices to other reputable brokers for the same product in the same market. These prices, when combined with data from our commodity derivative instruments, are used in our models to determine the fair value of such instruments.

The following table sets forth, by level within the fair value hierarchy, our financial assets and liabilities at June 30, 2010. These financial assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input that is significant to their respective fair value measurements. Our assessment of the relative significance of such inputs requires judgment. There were no significant transfers between Levels 1, 2 or 3 during the six months ended June 30, 2010.

	At June 30, 2010
	Level 1		Level 2		Level 3		Total
Financial assets:
Interest rate derivative instruments	$	--	$	59.9	$	--	$	59.9
Commodity derivative instruments		74.5		47.6		57.9		180.0
Total	$	74.5	$	107.5	$	57.9	$	239.9

Financial liabilities:
Interest rate derivative instruments	$	--	$	58.4	$	--	$	58.4
Commodity derivative instruments		27.5		66.4		38.1		132.0
Foreign currency derivative instruments		--		0.1		--		0.1
Total	$	27.5	$	124.9	$	38.1	$	190.5

The following table sets forth a reconciliation of changes in the overall fair values of our Level 3 financial assets and liabilities for the periods indicated:

	For the Six Months Ended June 30,
	2010			2009
Balance, January 1	$	5.7		$	32.4
Total gains (losses) included in:
Net income (1)		(3.6	)		12.9
Other comprehensive income (loss)		(8.3	)		1.5
Purchases, issuances, settlements – net		3.6			(12.3	)
Balance, March 31		(2.6	)		34.5
Total gains (losses) included in:
Net income (1)		16.2			7.7
Other comprehensive income (loss)		22.2			(23.1	)
Purchases, issuances, settlements – net		(16.2	)		(8.1	)
Transfers out of Level 3		0.2			(0.2	)
Balance, June 30	$	19.8		$	10.8

(1) There were $2.8 million and $2.3 million of unrealized losses included in these amounts for the three and six months ended June 30, 2010, respectively. There were $0.1 million of unrealized gains and $0.2 million of unrealized losses included in these amounts for the three and six months ended June 30, 2009, respectively.

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ENTERPRISE PRODUCTS PARTNERS L.P.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Nonfinancial Assets and Liabilities

Certain nonfinancial assets and liabilities are measured at fair value on a nonrecurring basis and are subject to fair value adjustments in certain circumstances (e.g., when there is evidence of impairment). The following table presents the estimated fair value of certain assets carried on our Unaudited Condensed Consolidated Balance Sheet by caption for which a nonrecurring change in fair value has been recorded during the six months ended June 30, 2010:

		Level 3				Impairment Charges
Property, plant and equipment		$	--			$	1.5

Using appropriate valuation techniques, we adjusted the carrying value of certain of our Onshore Natural Gas Pipelines & Services business segment assets and recorded, in operating costs and expenses, non-cash asset impairment charges of $1.5 million during the six months ended June 30, 2010. During the six months ended June 30, 2009, we adjusted the carrying value of certain of our Petrochemical & Refined Products Services business segment assets and recorded, in operating costs and expenses, non-cash asset impairment charges of $2.3 million.

Note 5. Inventories

Our inventory amounts were as follows at the dates indicated:

	June 30,		December 31,
	2010		2009
Working inventory (1)	$	598.6	$	466.4
Forward sales inventory (2)		426.9		245.5
Total inventory	$	1,025.5	$	711.9

(1) Working inventory is comprised of natural gas, NGLs, crude oil, refined products, lubrication oils and certain petrochemical products that are either available-for-sale or used in the provision for services. The increase since December 31, 2009 is primarily related to increased marketing activities. (2) Forward sales inventory consists of identified natural gas, NGL, refined product and crude oil volumes dedicated to the fulfillment of forward sales contracts. The increase since December 31, 2009 is primarily related to higher refined products forward sales volumes.

In those instances where we take ownership of inventory through percent-of-liquids contracts and similar arrangements (as opposed to actually purchasing volumes for cash from third parties), these volumes are valued at market-based prices during the month in which they are acquired.

The following table summarizes our cost of sales and lower of cost or market (“LCM”) adjustments for the periods indicated:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2010		2009		2010		2009
Cost of sales (1)	$	6,343.2	$	4,420.9	$	13,685.5	$	8,238.8
LCM adjustments		1.1		1.4		6.9		5.7