UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002
Commission File No. 1-10403
TEPPCO Partners,
L.P.
(Exact name of Registrant as specified in its charter)
Delaware
(State of Incorporation or Organization) |
76-0291058
(I.R.S. Employer Identification Number) |
2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(Address of principal executive offices, including zip code)
(713) 759-3636
(Registrants 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 [X] | No [ ] |
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Limited Partner Units outstanding as of August 13, 2002: 45,462,597
TEPPCO PARTNERS, L.P.
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001
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1 | ||||
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Consolidated Statements of Income for the three months and six months ended June 30, 2002
and 2001 (unaudited)
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2 | ||||
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Consolidated Statements of Cash Flows for the six months ended June 30, 2002
and 2001 (unaudited)
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3 | ||||
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Notes to the Consolidated Financial Statements (unaudited)
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4 | ||||
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
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Forward-Looking Statements
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
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PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
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42 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, | December 31, | |||||||||||
2002 | 2001 | |||||||||||
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(Unaudited) | ||||||||||||
ASSETS | ||||||||||||
Current assets:
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Cash and cash equivalents
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$ | 25,404 | $ | 25,479 | ||||||||
Accounts receivable, trade
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277,811 | 221,541 | ||||||||||
Accounts receivable, related party
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6,554 | 4,310 | ||||||||||
Inventories
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13,675 | 17,243 | ||||||||||
Other
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26,464 | 14,907 | ||||||||||
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Total current assets
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349,908 | 283,480 | ||||||||||
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Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $312,943 and $290,248)
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1,531,349 | 1,180,461 | ||||||||||
Equity investments
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292,506 | 292,224 | ||||||||||
Intangible assets
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502,033 | 251,487 | ||||||||||
Goodwill
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16,939 | 16,669 | ||||||||||
Other assets
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45,911 | 41,027 | ||||||||||
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Total assets
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$ | 2,738,646 | $ | 2,065,348 | ||||||||
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LIABILITIES AND PARTNERS CAPITAL | ||||||||||||
Current liabilities:
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Notes payable
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$ | 185,394 | $ | 360,000 | ||||||||
Accounts payable and accrued liabilities
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273,711 | 228,075 | ||||||||||
Accounts payable, related parties
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7,857 | 22,680 | ||||||||||
Accrued interest
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32,131 | 15,649 | ||||||||||
Other accrued taxes
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9,031 | 8,888 | ||||||||||
Other
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34,659 | 33,550 | ||||||||||
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Total current liabilities
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542,783 | 668,842 | ||||||||||
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Senior Notes
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887,714 | 389,814 | ||||||||||
Other long-term debt
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586,606 | 340,658 | ||||||||||
Other liabilities and deferred credits
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29,336 | 17,223 | ||||||||||
Redeemable Class B Units held by related party
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104,360 | 105,630 | ||||||||||
Commitments and contingencies
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Partners capital:
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Accumulated other comprehensive loss
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(19,976 | ) | (20,324 | ) | ||||||||
General partners interest
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10,870 | 13,190 | ||||||||||
Limited partners interests
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596,953 | 550,315 | ||||||||||
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Total partners capital
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587,847 | 543,181 | ||||||||||
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Total liabilities and partners capital
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$ | 2,738,646 | $ | 2,065,348 | ||||||||
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See accompanying Notes to Consolidated Financial Statements.
1
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per Unit amounts)
Three Months Ended | Six Months Ended | |||||||||||||||||
June 30, | June 30, | |||||||||||||||||
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2002 | 2001 | 2002 | 2001 | |||||||||||||||
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Operating revenues:
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Sales of crude oil and petroleum products
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$ | 800,107 | $ | 978,803 | $ | 1,345,315 | $ | 1,686,284 | ||||||||||
Transportation Refined products
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31,803 | 51,406 | 56,947 | 77,587 | ||||||||||||||
Transportation LPGs
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10,813 | 13,506 | 34,173 | 38,505 | ||||||||||||||
Transportation Crude oil
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7,095 | 5,959 | 13,223 | 12,067 | ||||||||||||||
Transportation NGLs
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10,544 | 5,449 | 16,850 | 10,250 | ||||||||||||||
Gathering Natural gas
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11,454 | | 20,974 | | ||||||||||||||
Mont Belvieu operations
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2,889 | 2,997 | 7,395 | 5,894 | ||||||||||||||
Other
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13,624 | 15,562 | 24,589 | 28,330 | ||||||||||||||
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Total operating revenues
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888,329 | 1,073,682 | 1,519,466 | 1,858,917 | ||||||||||||||
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Costs and expenses:
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Purchases of crude oil and petroleum
products
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787,933 | 965,919 | 1,321,142 | 1,664,495 | ||||||||||||||
Operating, general and administrative
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35,083 | 29,955 | 66,528 | 57,905 | ||||||||||||||
Operating fuel and power
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7,243 | 10,207 | 15,832 | 18,821 | ||||||||||||||
Depreciation and amortization
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17,599 | 10,857 | 33,640 | 20,764 | ||||||||||||||
Taxes other than income taxes
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3,474 | 3,675 | 7,979 | 7,557 | ||||||||||||||
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Total costs and expenses
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851,332 | 1,020,613 | 1,445,121 | 1,769,542 | ||||||||||||||
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Operating income
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36,997 | 53,069 | 74,345 | 89,375 | ||||||||||||||
Interest expense
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(16,829 | ) | (15,392 | ) | (33,616 | ) | (31,686 | ) | ||||||||||
Interest capitalized
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1,029 | 590 | 3,138 | 935 | ||||||||||||||
Equity earnings
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2,414 | 4,419 | 5,986 | 9,625 | ||||||||||||||
Other income net
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766 | 793 | 1,332 | 1,227 | ||||||||||||||
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Income before minority interest
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24,377 | 43,479 | 51,185 | 69,476 | ||||||||||||||
Minority interest
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| (441 | ) | | (703 | ) | ||||||||||||
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Net income
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$ | 24,377 | $ | 43,038 | $ | 51,185 | $ | 68,773 | ||||||||||
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Net Income Allocation:
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Limited Partner Unitholders
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$ | 16,467 | $ | 31,311 | $ | 35,061 | $ | 49,922 | ||||||||||
Class B Unitholder
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1,441 | 3,478 | 3,234 | 5,670 | ||||||||||||||
General Partner
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6,469 | 8,249 | 12,890 | 13,181 | ||||||||||||||
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Total net income allocated
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$ | 24,377 | $ | 43,038 | $ | 51,185 | $ | 68,773 | ||||||||||
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Basic net income per Limited
Partner and Class B Unit
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$ | 0.39 | $ | 0.90 | $ | 0.84 | $ | 1.45 | ||||||||||
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Diluted net income per Limited
Partner and Class B Unit
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$ | 0.39 | $ | 0.89 | $ | 0.84 | $ | 1.45 | ||||||||||
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Weighted average Limited Partner and Class B
Units outstanding
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46,346 | 38,867 | 45,457 | 38,380 |
See accompanying Notes to Consolidated Financial Statements.
2
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended | ||||||||||||
June 30, | ||||||||||||
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2002 | 2001 | |||||||||||
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Cash flows from operating activities:
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Net income
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$ | 51,185 | $ | 68,773 | ||||||||
Adjustments to reconcile net income to cash provided by
operating activities:
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Depreciation and amortization
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33,640 | 20,764 | ||||||||||
Earnings in equity investments, net of distributions
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7,444 | 4,457 | ||||||||||
Non-cash portion of interest expense
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2,284 | 1,356 | ||||||||||
Increase in accounts receivable
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(56,270 | ) | (3,843 | ) | ||||||||
(Increase) decrease in inventories
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3,568 | (13,158 | ) | |||||||||
Increase in other current assets
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(11,557 | ) | (843 | ) | ||||||||
Increase (decrease) in accounts payable and accrued expenses
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74,716 | (13,515 | ) | |||||||||
Other
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(7,552 | ) | (2,459 | ) | ||||||||
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Net cash provided by operating activities
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97,458 | 61,532 | ||||||||||
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Cash flows from investing activities:
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Proceeds from cash investments
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| 3,236 | ||||||||||
Purchase of crude oil assets
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| (20,000 | ) | |||||||||
Proceeds from the sale of assets
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3,380 | 1,300 | ||||||||||
Purchase of Val Verde Gathering system
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(444,150 | ) | | |||||||||
Purchase of Chaparral NGL system
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(132,140 | ) | | |||||||||
Purchase of Jonah Gas Gathering Company
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(7,315 | ) | | |||||||||
Investments in Centennial Pipeline, LLC
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(7,726 | ) | (25,142 | ) | ||||||||
Capital expenditures
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(63,560 | ) | (33,398 | ) | ||||||||
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Net cash used in investing activities
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(651,511 | ) | (74,004 | ) | ||||||||
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Cash flows from financing activities:
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Proceeds from term and revolving credit facilities
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642,000 | 33,000 | ||||||||||
Repayments on term and revolving credit facilities
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(570,660 | ) | (41,000 | ) | ||||||||
Issuance of Senior Notes
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497,805 | | ||||||||||
Debt issuance costs
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(7,043 | ) | | |||||||||
Issuance of Limited Partner Units, net
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59,234 | 54,588 | ||||||||||
General Partners contributions
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1,217 | 1,114 | ||||||||||
Distributions
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(68,575 | ) | (49,524 | ) | ||||||||
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Net cash provided by (used in) investing activities
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553,978 | (1,822 | ) | |||||||||
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Net decrease in cash and cash equivalents
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(75 | ) | (14,294 | ) | ||||||||
Cash and cash equivalents at beginning of period
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25,479 | 27,095 | ||||||||||
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Cash and cash equivalents at end of period
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$ | 25,404 | $ | 12,801 | ||||||||
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Supplemental disclosure of cash flows:
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Interest paid during the period (net of capitalized interest)
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$ | 19,499 | $ | 32,230 | ||||||||
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See accompanying Notes to Consolidated Financial Statements.
3
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership formed in March 1990. We operate through TE
Products Pipeline Company, Limited Partnership (TE Products), TCTM, L.P.
(TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO Midstream).
Collectively, TE Products, TCTM and TEPPCO Midstream are referred to as the
Operating Partnerships. Texas Eastern Products Pipeline Company, LLC (the
Company or General Partner), a Delaware limited liability company, serves
as our general partner. The General Partner is a wholly-owned subsidiary of
Duke Energy Field Services (DEFS), a joint venture between Duke Energy
Corporation (Duke Energy) and Phillips Petroleum Company (Phillips). Duke
Energy holds an approximate 70% interest in DEFS, and Phillips holds the
remaining 30%. The Company, as general partner, performs all management and
operating functions required for us, except for the management and operations
of certain of the TEPPCO Midstream assets. We have entered into agreements
with DEFS in which DEFS manages certain of the TEPPCO Midstream assets on our
behalf. We reimburse the General Partner for all reasonable direct and
indirect expenses incurred in managing us.
On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly-owned by
us. TEPPCO GP, Inc. (TEPPCO GP), our subsidiary, succeeded the Company as
general partner of the Operating Partnerships. All remaining partner interests
in the Operating Partnerships not already owned by us were transferred to us.
In exchange for this contribution, the Companys interest as our general
partner was increased to 2%. The increased percentage is the economic
equivalent of the aggregate interest that the Company had prior to the
restructuring through its combined interests in us and the Operating
Partnerships. As a result, we hold a 99.999% limited partner interest in the
Operating Partnerships and TEPPCO GP holds a 0.001% general partner interest.
This reorganization was undertaken to simplify required financial reporting by
the Operating Partnerships when the Operating Partnerships issue guarantees of
our debt.
As used in this Report, we, us, our, and the Partnership means
TEPPCO Partners, L.P. and, where the context requires, includes our subsidiary
operating partnerships.
The accompanying unaudited consolidated financial statements reflect all
adjustments that are, in the opinion of the management of the Company, of a
normal and recurring nature and necessary for a fair statement of our financial
position as of June 30, 2002, and the results of our operations and cash flows
for the periods presented. The results of operations for the three months and
six months ended June 30, 2002, are not necessarily indicative of results of
our operations for the full year 2002. You should read the interim financial
statements in conjunction with our consolidated financial statements and notes
thereto presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K, as
amended, for the year ended December 31, 2001. We have reclassified certain
amounts from prior periods to conform with the current presentation.
We operate and report in three business segments: transportation and
storage of refined products, liquefied petroleum gases (LPGs) and
petrochemicals (Downstream Segment); gathering, transportation, marketing and
storage of crude oil; and distribution of lubrication oils and specialty
chemicals (Upstream Segment); and gathering of natural gas, fractionation of
natural gas liquids (NGLs) and transportation of NGLs (Midstream Segment).
Our reportable segments offer different products and services and are managed
separately because each requires different business strategies.
Our interstate transportation operations, including rates charged to
customers, are subject to regulations prescribed by the Federal Energy
Regulatory Commission (FERC). We refer to refined products, LPGs,
petrochemicals, crude oil, NGLs and natural gas in this Report, collectively,
as petroleum products or products.
Basic net income per Unit is computed by dividing net income, after
deduction of the general partners interest, by the weighted average number of
Limited Partner and Class B Units outstanding (a total of 45.5 million
4
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and 38.4 million Units for the six months ended June 30, 2002, and 2001,
respectively, and 46.3 million and 38.9 million Units for the three months
ended June 30, 2002, and 2001, respectively). The general partners percentage
interest in net income is based on its percentage of cash distributions from
Available Cash for each period (see Note 9. Quarterly Distributions of
Available Cash). The general partner was allocated $12.9 million (representing
25.18%) and $13.2 million (representing 19.17%) of net income for the six
months ended June 30, 2002, and 2001, respectively. The General Partners
percentage interest in our net income increased for the six months ended June
30, 2002, compared to the corresponding period in 2001, as a result of the
increase in the quarterly distribution to $0.60 per Unit with respect to the
second quarter of 2002 from $0.525 per Unit with respect to the second quarter
of 2001.
Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury
stock method. For the three months ended June 30, 2002, and 2001, the
denominator was increased by 39,958 Units and 44,559 Units, respectively. For
the six months ended June 30, 2002, and 2001, the denominator was increased by
45,036 Units and 36,021 Units, respectively.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143,
Accounting for
Asset Retirement Obligations
. SFAS 143 requires us to record the fair value of
an asset retirement obligation as a liability in the period in which we incur a
legal obligation for the retirement of tangible long-lived assets. A
corresponding asset is also recorded and depreciated over the life of the
asset. After the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
We are required to adopt SFAS 143 effective January 1, 2003. We are currently
evaluating the impact of adopting SFAS 143.
In August 2001, the FASB issued SFAS No. 144,
Accounting for the
Impairment or Disposal of Long-Lived Assets
. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of
,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. We adopted SFAS 144 effective January 1, 2002. The
adoption of SFAS 144 did not have a material effect on our financial position,
results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections
. SFAS 145 eliminates the requirement to classify gains and losses
from the extinguishment of indebtedness as extraordinary, requires certain
lease modifications to be treated the same as a sale-leaseback transaction, and
makes other non-substantive technical corrections to existing pronouncements.
SFAS 145 is effective for fiscal years beginning after May 15, 2002, with
earlier adoption encouraged. We are required to adopt SFAS 145 effective
January 1, 2003. We do not believe that the adoption of SFAS 145 will have a
material effect on our financial position, results of operations or cash flows.
In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies EITF Issue No. 94-3,
Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)
. SFAS 146 requires recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred, as opposed to when the entity commits to an exit plan
under EITF No. 94-3. SFAS 146 is to be applied prospectively to
5
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
exit or disposal activities initiated after December 31, 2002. We do not
believe that the adoption of SFAS 146 will have a material effect on our
financial position, results of operations or cash flows.
NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS
In July 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible
Assets
. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 142 requires that intangible assets with definite useful lives
be amortized over their respective estimated useful lives.
Beginning January 1, 2002, effective with the adoption of SFAS 142, we no
longer record amortization expense related to goodwill or amortization expense
related to the excess investment on our equity investment in Seaway (see Note
7. Equity Investments). Upon adoption of SFAS 142 on January 1, 2002, we had
not yet begun to amortize our excess investment in Centennial Pipeline, LLC;
therefore, no amortization expense has been recorded in any of the periods
presented below related to this excess investment. The following table
presents our results on a comparable basis, as if we had not recorded
amortization expense of goodwill or amortization expense of our excess
investment in Seaway for the three months and six months ended June 30, 2001
(in thousands, except per Unit amounts):
Upon the adoption of SFAS 142, we were required to reassess the useful
lives and residual values of all intangible assets acquired, and make necessary
amortization period adjustments by the end of the first interim period after
adoption. We completed this analysis during the first quarter of 2002,
resulting in no change to the
6
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
amortization period for our intangible assets. We will continue to reassess
the useful lives and residual values of all intangible assets on an annual
basis.
In connection with the transitional goodwill impairment evaluation
required by SFAS 142, we were required to perform an assessment of whether
there was an indication that goodwill was impaired as of the date of adoption.
We accomplished this by identifying our reporting units and determining the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. We then determined the fair value of each
reporting unit and compared it to the carrying value of the reporting unit. We
completed this analysis during the second quarter of 2002, resulting in no
transitional impairment loss. We will continue to compare the fair value of
each reporting unit to the carrying value on an annual basis to determine if an
impairment loss has occurred.
At June 30, 2002, we had $16.9 million of unamortized goodwill and $58.2
million of excess investment in our equity investments (equity method
goodwill). We completed an impairment analysis of the excess investment in our
equity investments during the six months ended June 30, 2002, and we noted no
indication of impairment. The excess investment is included in our equity
investments account at June 30, 2002. The following table presents the
carrying amount of goodwill and excess investments, at June 30, 2002, by
business segment (in thousands):
The following table reflects the components of amortized intangible
assets, excluding goodwill (in thousands):
Excluding goodwill, amortization expense on intangible assets was $4.7
million and $0.5 million for the three months ended June 30, 2002 and 2001,
respectively, and $9.3 million and $1.1 million for the six months ended June
30, 2002 and 2001, respectively.
7
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table sets forth the estimated amortization expense on
intangible assets for the years ending December 31 (in thousands):
NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS
We account for derivative financial instruments in accordance with SFAS
No. 133,
Accounting for Derivative Instruments and Hedging Activities,
and SFAS
No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133.
These statements establish
accounting and reporting standards requiring that derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded on the balance sheet at fair value as either assets or liabilities.
The accounting for changes in the fair value of a derivative instrument depends
on the intended use of the derivative and the resulting designation, which is
established at the inception of a derivative. Special accounting for
derivatives qualifying as fair value hedges allows a derivatives gains and
losses to offset related results on the hedged item in the statement of income.
For derivative instruments designated as cash flow hedges, changes in fair
value, to the extent the hedge is effective, are recognized in other
comprehensive income until the hedged item is recognized in earnings. Hedge
effectiveness is measured at least quarterly based on the relative cumulative
changes in fair value between the derivative contract and the hedged item over
time. Any change in fair value resulting from ineffectiveness, as defined by
SFAS 133, is recognized immediately in earnings.
We have utilized and expect to continue to utilize derivative financial
instruments with respect to a portion of our interest rate and fair value risks
and our crude oil marketing activities, as each is explained below. The
derivative financial instrument related to our interest rate risk is intended
to reduce our exposure to increases in the benchmark interest rates underlying
our variable rate revolving credit facility. The derivative financial
instruments related to our fair value risks are intended to reduce our exposure
to changes in the fair value of the fixed rate Senior Notes resulting from
changes in interest rates. Our Upstream Segment uses derivative financial
instruments to reduce our exposure to fluctuations in the market price of crude
oil. At June 30, 2002, the Upstream Segment had no open positions on
derivative financial contracts. By using derivative financial instruments to
hedge exposures to changes in interest rates, fair value of fixed rate Senior
Notes and crude oil prices, we are exposed to credit risk and market risk.
Credit risk is the failure of the counterparty to perform under the terms of
the derivative contract. When the fair value of a derivative contract is
positive, the counterparty owes us, which creates credit risk for us. When the
fair value of a derivative contract is negative, we owe the counterparty and,
therefore, we do not possess credit risk. We minimize the credit risk in
derivative instruments by entering into transactions with major financial
institutions or commodities trading institutions. These derivative financial
instruments generally take the form of swaps and forward contracts. Market
risk is the adverse effect on the value of a financial instrument that results
from a change in interest rates or commodity prices. We manage market risk
associated with interest-rate and commodity-price contracts by establishing and
monitoring parameters that limit the type and degree of market risk that may be
undertaken.
On July 31, 2000, we entered into a three-year interest rate swap
agreement to hedge our exposure to increases in the benchmark interest rate
underlying our variable rate revolving credit facilities. The term of the
interest rate swap was extended to April 6, 2004, to match the maturity of the
credit facilities. We have designated this swap agreement, which hedges
exposure to variability in expected future cash flows attributed to changes in
interest rates, as a cash flow hedge. The swap agreement is based on a notional
amount of $250 million. Under the swap agreement, we pay a fixed rate of
interest of 6.955% and receive a floating rate based on a three month U.S.
Dollar LIBOR rate. Since this swap is designated as a cash flow hedge, the
changes in fair value, to the extent the swap is effective, are recognized in
other comprehensive income until the hedged interest costs are recognized in
earnings. During the six months ended June 30, 2002, and 2001, we recognized
$6.3 million and $2.2 million,
8
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
respectively, in losses, included in interest expense, on the interest
rate swap attributable to interest costs occurring in 2002 and 2001. During
the quarter ended June 30, 2002, we measured the hedge effectiveness of this
interest rate swap and noted that no gain or loss from ineffectiveness was
required to be recognized. The fair value of the interest rate swap agreement
was a loss of approximately $20 million and $20.3 million at June 30, 2002, and
December 31, 2001, respectively. We anticipate that approximately $10.6 million
of the fair value will be transferred into earnings over the next twelve
months.
On October 4, 2001, our TE Products subsidiary entered into an interest
rate swap agreement to hedge its exposure to changes in the fair value of its
fixed rate 7.51% Senior Notes due 2028. We have designated this swap agreement,
which hedges exposure to changes in the fair value of the TE Products Senior
Notes, as a fair value hedge. The swap agreement has a notional amount of $210
million and matures in January 2028 to match the principal and maturity of the
TE Products Senior Notes. Under the swap agreement, TE Products pays a
floating rate based on a three month U.S. Dollar LIBOR rate, plus a spread, and
receives a fixed rate of interest of 7.51%. During the six months ended June
30, 2002, we recognized a gain of $3.6 million, recorded as a reduction of
interest expense, on the interest rate swap. During the quarter ended June 30,
2002, we measured the hedge effectiveness of this interest rate swap and noted
that no gain or loss from ineffectiveness was required to be recognized.
On February 20, 2002, we entered into interest rate swap agreements to
hedge our exposure to changes in the fair value of our fixed rate 7.625% Senior
Notes due 2012. We have designated these swap agreements, which hedge exposure
to changes in the fair value of the Senior Notes, as fair value hedges. The
swap agreements have a combined notional amount of $500 million and mature in
2012 to match the principal and maturity of the Senior Notes. Under the swap
agreements, we pay a floating rate based on a six month U.S. Dollar LIBOR rate,
plus a spread, and receive a fixed rate of interest of 7.625%. During the six
months ended June 30, 2002, we recognized a gain of $6.9 million, recorded as a
reduction of interest expense, on the interest rate swaps. During the quarter
ended June 30, 2002, we measured the hedge effectiveness of these interest rate
swaps and noted that no gain or loss from ineffectiveness was required to be
recognized.
NOTE 5. ACQUISITIONS
On September 30, 2001, our subsidiaries completed the purchase of Jonah
Gas Gathering Company (Jonah) from Alberta Energy Company for $359.8 million.
The acquisition served as our entry into the natural gas gathering industry. We
recognized goodwill in the purchase of approximately $2.8 million. We
accounted for the acquisition under the purchase method of accounting.
Accordingly, the results of the acquisition are included in the consolidated
financial statements from September 30, 2001. We paid an additional $7.3
million on February 4, 2002, for final purchase adjustments related primarily
to construction projects in progress at the time of closing. Under a contract
arrangement on our behalf, DEFS operates and manages Jonah.
The following table allocates the estimated fair value of the Jonah assets
acquired on September 30, 2001, and includes the additional purchase adjustment
paid in February 2002 (in thousands):
9
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The value assigned to intangible assets relates to contracts with
customers that are either for a fixed term or which dedicate total future lease
production. We are amortizing the value assigned to intangible assets over the
expected lives of the contracts (approximately 16 years) in proportion to the
timing of expected contractual volumes.
On March 1, 2002, we completed the purchase of the Chaparral NGL system
(Chaparral) for $132 million from Diamond-Koch II, L.P. and Diamond-Koch III,
L.P. We funded the purchase by a drawdown of our $475 million revolving credit
facility (see Note 8. Debt). Chaparral is an NGL pipeline system that extends
from West Texas and New Mexico to Mont Belvieu, Texas. The pipeline delivers
NGLs to fractionators and to our existing storage in Mont Belvieu. Under a
contractual arrangement, DEFS operates and manages these assets on our behalf.
We accounted for the acquisition of the assets under the purchase method of
accounting. We allocated the purchase price of $132 million to property, plant
and equipment.
On June 30, 2002, we completed the purchase of the Val Verde Gathering
System (Val Verde) from Burlington Resources Gathering Inc., a subsidiary of
Burlington Resources Inc., for $444.2 million, including acquisition costs of
approximately $1.2 million. The Val Verde system gathers coal seam gas from
the Fruitland Coal Formation of the San Juan Basin in New Mexico. The system
is one of the largest coal seam gas gathering and treating facilities in the
United States. Under a contractual arrangement, DEFS will operate and manage
these assets on our behalf. We accounted for the acquisition under the
purchase method of accounting. Accordingly, the results of the acquisition
will be included in the consolidated financial statements from June 30, 2002.
The following table allocates the estimated fair value of the Val Verde
assets acquired on June 30, 2002 (in thousands):
The purchase price allocation for the Val Verde acquisition is based on
our best estimate using information currently available. We are in the process
of completing the final purchase price allocation for the Val Verde
acquisition. We have engaged an independent appraiser to assist us in the
allocation of the purchase price paid for the Val Verde assets. Consequently,
it is likely that the final purchase price allocation will be different from
the purchase price allocation shown above. However, we do not currently
anticipate that the difference will be material to our financial position,
results of operations or cash flows.
The value assigned to intangible assets relates to fixed-term contracts
with customers. We are amortizing the value assigned to intangible assets over
the lives of the contracts (averaging approximately 10 years) in proportion to
the expected contractual volumes.
The following table presents our unaudited pro forma results as though the
acquisitions of Jonah and Val Verde occurred at the beginning of 2001 (in
thousands, except per Unit amounts). The pro forma results do not include
operating efficiencies or revenue growth from historical results.
10
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INVENTORIES
Inventories are carried at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows
(in thousands):
The costs of inventories did not exceed market values at June 30, 2002,
and December 31, 2001.
NOTE 7. EQUITY INVESTMENTS
The acquisition of the ARCO Pipe Line Company (ARCO) assets in July 2000
included ARCOs 50-percent ownership interest in Seaway Crude Pipeline Company
(Seaway), which owns a pipeline that carries mostly imported crude oil from a
marine terminal at Freeport, Texas, to Cushing, Oklahoma, and from a marine
terminal at Texas City, Texas, to refineries in the Texas City and Houston
areas. Seaway is a partnership between TEPPCO Seaway, L.P. (TEPPCO Seaway),
a subsidiary of TCTM, and Phillips. TCTM purchased the 50-percent ownership
interest in Seaway on July 20, 2000, and transferred the investment to TEPPCO
Seaway. The Seaway Crude Pipeline Company Partnership Agreement provides for
varying participation ratios throughout the life of the Seaway partnership.
From July 20, 2000, through May 2002, TEPPCO Seaway received 80% of revenue and
expense of Seaway. From June 2002 through May 2006, TEPPCO Seaway receives 60%
of revenue and expense of Seaway. Thereafter, the sharing ratio becomes 40% of
revenue and expense to TEPPCO Seaway. For the year ended December 31, 2002,
our portion of equity earnings on a pro-rated basis will average approximately
67%.
In August 2000, TE Products entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form Centennial Pipeline, LLC
(Centennial). Centennial owns and operates an interstate refined petroleum
products pipeline extending from the upper Texas Gulf Coast to Illinois. Each
participant owns a one-third interest in Centennial. CMS Energy
Corporation has announced that it is exploring the sale of certain of
its assets, including its investment in Centennial. Through December 31,
2001, we contributed approximately $70 million for our investment in
Centennial. During the six months ended June 30, 2002, we contributed
approximately $7.7 million for our investment in Centennial. These amounts are
included in the equity investment balance at June 30, 2002.
We use the equity method of accounting to account for our investments in
Seaway and Centennial. Summarized combined income statement data for Seaway
and Centennial for the six months ended June 30, 2002, and 2001, is presented
below (in thousands):
11
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Summarized combined balance sheet data for Seaway and Centennial as of
June 30, 2002, and December 31, 2001, is presented below (in thousands):
Our investment in Seaway at June 30, 2002, and December 31, 2001, includes
an excess net investment amount of $25.5 million. At June 30, 2002, our
investment in Centennial includes an excess investment of $32.7 million.
Excess investment is the amount by which our investment balance exceeds our
proportionate share of the net assets of the investment. Prior to January 1,
2002, and the adoption of SFAS 142, we were amortizing the excess investment in
Seaway using the straight-line method over 20 years.
NOTE 8. DEBT
Senior Notes
On January 27, 1998, TE Products completed the issuance of $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the TE Products Senior
Notes). The 6.45% TE Products Senior Notes were issued at a discount and are
being accreted to their face value over the term of the notes. The 6.45% TE
Products Senior Notes due 2008 are not subject to redemption prior to January
15, 2008. The 7.51% TE Products Senior Notes due 2028, issued at par, may be
redeemed at any time after January 15, 2008, at the option of TE Products, in
whole or in part, at a premium.
The TE Products Senior Notes do not have sinking fund requirements.
Interest on the TE Products Senior Notes is payable semiannually in arrears on
January 15 and July 15 of each year. The TE Products Senior Notes are
unsecured obligations of TE Products and rank on a parity with all other
unsecured and unsubordinated indebtedness of TE Products. The indenture
governing the TE Products Senior Notes contains covenants, including, but not
limited to, covenants limiting the creation of liens securing indebtedness and
sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of June 30, 2002, TE Products was
in compliance with the covenants of the TE Products Senior Notes.
On February 20, 2002, we received $494.6 million in net proceeds from the
issuance of $500 million principal amount of 7.625% Senior Notes due 2012. The
7.625% Senior Notes were issued at a discount and are being accreted to their
face value over the term of the notes. We used the proceeds from the offering
to reduce a portion of the outstanding balances of our credit facilities,
including those issued in connection with the acquisition of Jonah. The Senior
Notes may be redeemed at any time at our option with the payment of accrued
interest and a
12
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
make-whole premium determined by discounting remaining interest and principal
payments using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing our 7.625% Senior Notes contains covenants, including, but
not limited to, covenants limiting the creation of liens securing indebtedness
and sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of June 30, 2002, we were in
compliance with the covenants of these Senior Notes.
We have entered into interest rate swap agreements to hedge our exposure
to changes in the fair value on a portion of the Senior Notes discussed above.
See Note 4. Derivative Financial Instruments.
Other Long Term Debt and Credit Facilities
On July 14, 2000, we entered into a $475 million revolving credit facility
(Three Year Facility) to finance the acquisition of the ARCO assets and to
refinance existing bank credit facilities. On April 6, 2001, the Three Year
Facility was amended to provide for revolving borrowings of up to $500 million
including the issuance of letters of credit of up to $20 million. The term of
the revised Three Year Facility was extended to April 6, 2004. The interest
rate is based, at our option, on either the lenders base rate plus a spread,
or LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement for the Three Year Facility contains restrictive financial covenants
that require us to maintain a minimum level of partners capital as well as
maximum debt-to-EBITDA (earnings before interest expense, income tax expense
and depreciation and amortization expense) and minimum fixed charge coverage
ratios. On November 13, 2001, certain lenders under the agreement elected to
withdraw from the facility, and the available borrowing capacity was reduced to
$411 million. On February 20, 2002, we repaid $115.7 million of the then
outstanding balance of the Three Year Facility with proceeds from the issuance
of our 7.625% Senior Notes. On March 1, 2002, we borrowed $132 million under
the Three Year Facility to finance the acquisition of Chaparral. On March 22,
2002, we repaid a portion of the Three Year Facility with proceeds we received
from the issuance of additional Limited Partner Units. On March 27, 2002, the
Three Year Facility was amended to increase the borrowing capacity to $500
million. To facilitate our financing of a portion of the purchase price of the
Val Verde assets, on June 27, 2002, the Three Year Facility was amended to
increase the maximum debt-to-EBITDA ratio covenant to allow us to incur
additional indebtedness. We then drew down the existing capacity of the Three
Year Facility. At June 30, 2002, $500 million was outstanding under the Three
Year Facility at a weighted average interest rate of 3.5%. As of June 30,
2002, we were in compliance with the covenants contained in this credit
agreement.
We have entered into an interest rate swap agreement to hedge our exposure
to increases in interest rates on the Three Year Facility discussed above. See
Note 4. Derivative Financial Instruments.
Short Term Credit Facilities
On April 6, 2001, we entered into a 364-day, $200 million revolving credit
agreement (Short-term Revolver). The interest rate is based, at our option,
on either the lenders base rate plus a spread, or LIBOR plus a spread in
effect at the time of the borrowings. The credit agreement contains
restrictive financial covenants that require us to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. On March 27, 2002, the Short-term Revolver was extended for an
additional period of 364 days, ending in April 2003. To facilitate our
financing of a portion of the purchase price of the Val Verde assets, on June
27, 2002, the Short-term Revolver was amended to increase the maximum
debt-to-EBITDA ratio covenant to allow us to incur additional indebtedness. We
then drew down $72 million under the Short-term Revolver. At June 30, 2002,
$72 million was outstanding under the Short-term Revolver at an interest rate
of 3.5%. As of June 30, 2002, we were in compliance with the covenants
contained in this credit agreement.
13
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On September 28, 2001, we entered into a $400 million credit facility with
SunTrust Bank (Bridge Facility). We borrowed $360 million under the Bridge
Facility to acquire the Jonah assets (see Note 5. Acquisitions). The Bridge
Facility was payable in June 2002. During the fourth quarter of 2001, we
repaid $160 million of the outstanding principal from proceeds received from
the issuance of Limited Partner Units in November 2001. On February 5, 2002,
we drew down an additional $15 million under the Bridge Facility. On February
20, 2002, we repaid the outstanding balance of the Bridge Facility of $215
million, with proceeds from the issuance of the 7.625% Senior Notes and
canceled the facility.
On June 27, 2002, we entered into a $200 million six-month term loan with
SunTrust Bank (Six-Month Term Loan). We borrowed $200 million under the
Six-Month Term Loan to acquire the Val Verde assets (see Note 5.
Acquisitions). The Six-Month Term Loan is payable in December 2002. The
interest rate is based, at our option, on either the lenders base rate plus a
spread, or LIBOR plus a spread in effect at the time of the borrowings. The
credit agreement contains restrictive financial covenants that require us to
maintain a minimum level of partners capital as well as maximum debt-to-EBITDA
and minimum fixed charge coverage ratios. At June 30, 2002, $200 million was
outstanding under the Six-Month Term Loan at an interest rate of 3.3%. As of
June 30, 2002, we were in compliance with the covenants contained in this
credit agreement.
On July 11, 2002, we issued 3 million Limited Partner Units at $30.15 per
Unit in an underwritten public offering. The net proceeds from the offering
totaled $86.6 million and were used to reduce borrowings under our Six-Month
Term Loan. In accordance with SFAS No. 6,
Classification of Short-term
Obligations Expected to be Refinanced,
the amount repaid on July 11, 2002,
$86.6 million, is classified as long-term debt at June 30, 2002.
The following table summarizes the principal outstanding under our credit
facilities as of June 30, 2002, and December 31, 2001 (in thousands):
14
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. According to the Partnership Agreement, the Company receives
incremental incentive cash distributions when cash distributions exceed certain
target thresholds as follows:
The following table reflects the allocation of total distributions paid
during the six months ended June 30, 2002, and 2001 (in thousands, except per
Unit amounts).
On August 8, 2002, we paid a cash distribution of $0.60 per Limited
Partner Unit and Class B Unit for the quarter ended June 30, 2002. The second
quarter 2002 cash distribution totaled $39.8 million.
NOTE 10. SEGMENT DATA
We have three reporting segments: transportation and storage of refined
products, LPGs and petrochemicals, which operates as the Downstream Segment;
gathering, transportation, marketing and storage of crude oil; and distribution
of lubrication oils and specialty chemicals, which operates as the Upstream
Segment; and gathering of natural gas, fractionation of NGLs and transportation
of NGLs, which operates as the Midstream Segment. The amounts indicated below
as Partnership and Other relate primarily to intercompany eliminations and
assets that we hold that have not been allocated to any of our reporting
segments.
Effective January 1, 2002, we realigned our three business segments to
reflect our entry into the natural gas gathering business and the expanded
scope of NGLs operations. We transferred the fractionation of NGLs, which were
previously reflected as part of the Downstream Segment, to the Midstream
Segment. The operation of NGL pipelines, which was previously reflected as
part of the Upstream Segment, was also transferred to the Midstream Segment.
We have adjusted our period-to-period comparisons to conform with the current
presentation.
15
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Our Downstream Segment includes the interstate transportation, storage and
terminaling of petroleum products and LPGs and intrastate transportation of
petrochemicals. Revenues are derived from transportation and storage of
refined products and LPGs, storage and short-haul shuttle transportation of
LPGs at the Mont Belvieu complex, intrastate transportation of petrochemicals,
sale of product inventory and other ancillary services. Our Downstream
Segments pipeline system extends from southeast Texas through the central and
midwestern United States to the northeastern United States, and is one of the
largest pipeline common carriers of refined petroleum products and LPGs in the
United States. Our Downstream Segment also includes the equity losses from our
investment in Centennial.
Our Upstream Segment includes the gathering, transportation, marketing and
storage of crude oil and distribution of lubrication oils and specialty
chemicals, principally in Oklahoma, Texas and the Rocky Mountain region. Our
Upstream Segment also includes the equity earnings from our investment in
Seaway. Seaway is a large diameter pipeline that transports crude oil from the
U.S. Gulf Coast to Cushing, Oklahoma, a central crude oil distribution point
for the Central United States.
Our Midstream Segment includes the fractionation of NGLs in Colorado; the
ownership and operation of two trunkline NGL pipelines in South Texas and two
NGL pipelines in East Texas; and the gathering of natural gas in the Green
River Basin in southwestern Wyoming, through Jonah, which was acquired by our
subsidiaries on September 30, 2001, from Alberta Energy Company. This segment
also includes Chaparral, which we acquired on March 1, 2002 (see Note 5.
Acquisitions). Chaparral is an NGL pipeline system that extends from West
Texas and New Mexico to Mont Belvieu. The pipeline delivers NGLs to
fractionators and to our existing storage in Mont Belvieu. The results of
operations of the Jonah and Chaparral acquisitions are included in periods
subsequent to September 30, 2001, and March 1, 2002, respectively. On June 30,
2002, we acquired the Val Verde assets, which will be included in the Midstream
Segment in periods subsequent to June 30, 2002. The Val Verde system gathers
coal seam gas from the Fruitland Coal Formation of the San Juan Basin in New
Mexico and is one of the largest coal seam gas gathering and treating
facilities in the United States (see Note 5. Acquisitions).
The table below includes interim financial information by reporting
segment for the interim periods ended June 30, 2002, and 2001 (in thousands):
16
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides the total assets for each segment as of June
30, 2002, and December 31, 2001 (in thousands):
17
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table reconciles the segments total to consolidated net
income (in thousands):
NOTE 11. COMMITMENTS AND CONTINGENCIES
In the fall of 1999 and on December 1, 2000, the Company and the
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, in
Ryan E. McCleery and Marcia S.
McCleery, et. al. v. Texas Eastern Corporation, et. al. (including the Company
and Partnership)
and
Gilbert Richards and Jean Richards v. Texas Eastern
Corporation, et. al. (including the Company and Partnership).
In both cases,
the plaintiffs contend, among other things, that the Company and other
defendants stored and disposed of toxic and hazardous substances and hazardous
wastes in a manner that caused the materials to be released into the air, soil
and water. They further contend that the release caused damages to the
plaintiffs. In their complaints, the plaintiffs allege strict liability for
both personal injury and property damage together with gross negligence,
continuing nuisance, trespass, criminal mischief and loss of consortium. The
plaintiffs are seeking compensatory, punitive and treble damages. The Company
has filed an answer to both complaints, denying the allegations, as well as
various other motions. These cases are in the early stages of discovery and
are not covered by insurance. The Company is defending itself vigorously
against the lawsuits. The plaintiffs have not stipulated the amount of damages
that they are seeking in the suit. We cannot estimate the loss, if any,
associated with these pending lawsuits.
On December 21, 2001, TE Products was named as a defendant in a lawsuit in
the 10th Judicial District, Natchitoches Parish, Louisiana, in
Rebecca L.
Grisham et. al. v. TE Products Pipeline Company, Limited Partnership
. In this
case, the plaintiffs contend that our pipeline, which crosses the plaintiffs
property, leaked toxic products onto the plaintiffs property. The plaintiffs
further contend that this leak caused damages to the plaintiffs. We have filed
an answer to the plaintiffs petition denying the allegations. The plaintiffs
have not stipulated the amount of damages they are seeking in the suit. We are
defending ourself vigorously against the lawsuit. We cannot estimate the
damages, if any, associated with this pending lawsuit, however; this case is
covered by insurance.
On April 19, 2002, we, through our subsidiary, TEPPCO Crude Oil, L.P.,
filed a declaratory judgment action in the U.S. District Court for the Western
District of Oklahoma against D.R.D. Environmental Services, Inc. (D.R.D.),
seeking resolution of billing and other contractual disputes regarding
potential overcharges for environmental remediation services provided by D.R.D.
On May 28, 2002, D.R.D. filed a counterclaim for alleged breach of contract in
the amount of $2,243,525, and for unspecified damages for alleged tortious
interference with D.R.D.s contractual relations with DEFS. We have denied the
counterclaims. Discovery is ongoing, and trial has been initially scheduled
for May 2003. If D.R.D. should be successful, a substantial portion of the
$2,243,525 breach of contract claim will be covered under an indemnity from
DEFS. We cannot predict the outcome of the litigation against us, however, we
are defending ourselves vigorously against the counterclaim. We do not believe
that the outcome of this lawsuit will have a material adverse effect on our
financial position, results of operations or cash flows.
In addition to the litigation discussed above, we have been, in the
ordinary course of business, a defendant in various lawsuits and a party to
various other legal proceedings, some of which are covered in whole or in part
by
18
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
insurance. We believe that the outcome of these lawsuits and other
proceedings will not individually or in the aggregate have a material adverse
effect on our consolidated financial position, results of operations or cash
flows.
In February 2002, a producer on the Jonah system notified Alberta Energy
Company that it may have a right to acquire all or a portion of the assets
comprising the Jonah system. The producers inquiry is based upon an alleged
right of first refusal contained in a gas gathering agreement between the
producer and Jonah. Subsidiaries of Alberta Energy have agreed to indemnify us
against losses resulting from the breach of representations concerning the
absence of third party rights in connection with the acquisition of the entity
that owns the Jonah system. We believe that we have adequate legal defenses if
the producer should assert a claim and we also believe that no right of first
refusal on any of the underlying Jonah system assets has been triggered.
Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil, and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities, and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.
In 1994, we entered into an Agreed Order with the Indiana Department of
Environmental Management (IDEM) that resulted in the implementation of a
remediation program for groundwater contamination attributable to our
operations at the Seymour, Indiana, terminal. In 1999, the IDEM approved a
Feasibility Study, which includes our proposed remediation program. We expect
the IDEM to issue a Record of Decision formally approving the remediation
program. After the Record of Decision is issued, we will enter into a
subsequent Agreed Order for the continued operation and maintenance of the
remediation program. We have an accrued liability of $0.5 million at June 30,
2002, for future remediation costs at the Seymour terminal. We do not expect
that the completion of the remediation program will have a future material
adverse effect on our financial position, results of operations or cash flows.
In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
adjacent petroleum terminals operated by other companies. In 1999, our Arcadia
facility and adjacent terminals were directed by the Remediation Services
Division of the LDEQ to pursue remediation of this containment phase. At June
30, 2002, we have an accrued liability of $0.3 million for remediation costs at
our Arcadia facility. We do not expect that the completion of the remediation
program that we have proposed will have a future material adverse effect on our
financial position, results of operations or cash flows.
During 2001, we accrued $8.6 million to complete environmental remediation
activities at certain of our Upstream Segment sites. In establishing this
accrual, we expensed $4.4 million for these environmental remediation costs and
recorded a receivable of $4.2 million for the remainder. The receivable is
based on a contractual indemnity obligation for specified environmental
liabilities that DEFS owes to us in connection with our acquisition of the
Upstream Segment from DEFS in November 1998. Under this indemnity obligation,
we are responsible for the first $3 million in specified environmental
liabilities, and DEFS is responsible for those environmental liabilities in
excess of $3 million, up to a maximum amount of $25 million. The majority of
the indemnified costs relate to remediation activities at the Velma crude oil
site in Stephens County, Oklahoma, attributable to operations prior to our
acquisition of the Upstream Segment. Remediation activities at the Velma crude
oil site are being conducted
19
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
according to a work plan approved by the Oklahoma Corporation Commission.
At June 30, 2002, an accrual of $5.3 million remains outstanding related to
TCTM environmental remediation activities. We do not expect that the
completion of remediation programs associated with this release will have a
future material adverse effect on our financial position, results of operations
or cash flows.
Centennial has entered into credit facilities totaling $150 million. The
proceeds were used to fund construction and conversion costs of its pipeline
system. As of June 30, 2002, Centennial had borrowed $140 million under its
credit facility. TE Products has guaranteed one-third of the debt of
Centennial up to a maximum amount of $50 million.
NOTE 12. COMPREHENSIVE INCOME
SFAS No. 130,
Reporting Comprehensive Income
requires certain items such
as foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on certain investments to be
reported in a financial statement. As of and for the six months ended June 30,
2002, and 2001, the components of comprehensive income were due to the interest
rate swap related to our variable rate revolving credit facility. The table
below reconciles reported net income to total comprehensive income for the
three months and six months ended June 30, 2002, and 2001 (in thousands).
The accumulated balance of other comprehensive loss related to cash flow
hedges is as follows (in thousands):
NOTE 13. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
In connection with our issuance of Senior Notes on February 20, 2002, TE
Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P. and Jonah Gas Gathering Company, our significant operating
subsidiaries, issued unconditional guarantees of our debt securities.
Effective with the
20
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
acquisition of the Val Verde assets on June 30, 2002, our subsidiary, Val Verde
Gas Gathering Company, L.P. also became a significant operating subsidiary and
issued unconditional guarantees of our debt securities. The guarantees are
full, unconditional, and joint and several. TE Products Pipeline Company,
Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P., Jonah Gas
Gathering Company and Val Verde Gas Gathering Company, L.P. are collectively
referred to as the Guarantor Subsidiaries.
The following supplemental condensed consolidating financial information
reflects our separate accounts, the combined accounts of the Guarantor
Subsidiaries (including Jonah for all periods and dates from and after
September 30, 2001, the date Jonah became our subsidiary), the combined
accounts of our other non-guarantor subsidiaries, the combined consolidating
adjustments and eliminations and our consolidated accounts for the dates and
periods indicated. For purposes of the following consolidating information, our
investments in our subsidiaries and the Guarantor Subsidiaries investments in
their subsidiaries are accounted for by the equity method of accounting.
21
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
24
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. SUBSEQUENT EVENTS
On July 16, 2002, we terminated our interest rate swap agreements that
were designated as hedges to our exposure to changes in the fair value of our
$500 million principal amount of 7.625% fixed rate Senior Notes due 2012. The
fair value upon termination of the interest rate swap agreements was $25.8
million. Approximately $7.8 million had been recognized as a reduction to
interest expense from the inception of the swap agreement on February 20, 2002,
through its termination on July 16, 2002. The remaining gain of $18 million
will be amortized as a reduction to future interest expense over the remaining
term of the Senior Notes.
Additionally, on July 16, 2002, we entered into new interest rate swap
agreements to hedge our future exposure to changes in the fair value of our
$500 million principal amount of 7.625% fixed rate Senior Notes due 2012. We
have designated these swap agreements as fair value hedges. The swap agreements
have a combined notional amount of $500 million and mature in 2012 to match the
principal and maturity of the Senior Notes. Under these swap agreements, we pay
a floating rate based on a six month U.S. Dollar LIBOR rate, plus a spread,
which increased by approximately 50 basis points from the previous swap
agreements, and receive a fixed rate of interest of 7.625%.
25
(Unaudited)
Table of Contents
(Unaudited)
Table of Contents
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2002
2001
2002
2001
$
24,377
$
43,038
$
51,185
$
68,773
873
1,263
$
24,377
$
43,911
$
51,185
$
70,036
$
16,467
$
31,946
$
35,061
$
50,839
1,441
3,549
3,234
5,774
6,469
8,416
12,890
13,423
$
24,377
$
43,911
$
51,185
$
70,036
$
0.39
$
0.90
$
0.84
$
1.45
0.01
0.03
$
0.39
$
0.91
$
0.84
$
1.48
$
0.39
$
0.89
$
0.84
$
1.45
0.02
0.02
$
0.39
$
0.91
$
0.84
$
1.47
Table of Contents
(Unaudited)
Downstream
Midstream
Upstream
Segments
Segment
Segment
Segment
Total
$
$
2,772
$
14,167
$
16,939
$
32,683
$
$
25,502
$
58,185
June 30, 2002
December 31, 2001
Gross Carrying
Accumulated
Gross Carrying
Accumulated
Amount
Amortization
Amount
Amortization
$
38,000
$
(8,075
)
$
38,000
$
(7,125
)
482,595
(11,451
)
222,800
(3,275
)
1,460
(496
)
1,458
(371
)
$
522,055
$
(20,022
)
$
262,258
$
(10,771
)
Table of Contents
(Unaudited)
$
37,619
60,192
62,794
63,663
57,259
Table of Contents
(Unaudited)
$
141,835
222,800
2,772
367,407
(489
)
$
366,918
Table of Contents
(Unaudited)
$
185,000
259,795
444,795
(645
)
$
444,150
Table of Contents
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2002
2001
2002
2001
$
908,010
$
1,102,204
$
1,557,251
$
1,916,672
39,766
57,018
78,248
99,193
23,190
39,495
47,177
63,556
$
0.37
$
0.82
$
0.78
$
1.34
June 30,
December 31,
2002
2001
$
1,558
$
3,783
1,145
3,670
1,096
2,280
1,431
4,300
3,744
4,392
3,519
$
13,675
$
17,243
Table of Contents
(Unaudited)
Six Months Ended June 30,
2002
2001
$
35,847
$
35,315
5,256
16,069
June 30,
December 31,
2002
2001
$
43,420
$
57,368
546,808
528,835
18,512
31,308
140,000
128,000
14,553
417,163
426,895
Table of Contents
(Unaudited)
Table of Contents
(Unaudited)
June 30,
December 31,
2002
2001
$
72,000
$
160,000
200,000
200,000
(86,606
)
$
185,394
$
360,000
$
86,606
$
500,000
340,658
179,830
179,814
210,000
210,000
497,884
$
1,474,320
$
730,472
Table of Contents
(Unaudited)
General
Unitholders
Partner
98
%
2
%
85
%
15
%
75
%
25
%
50
%
50
%
Six Months Ended June 30,
2002
2001
$
47,646
$
35,516
1,064
400
15,361
8,996
64,071
44,912
4,504
4,112
500
$
68,575
$
49,524
$
1.150
$
1.050
Table of Contents
(Unaudited)
Three Months Ended June 30, 2002
Downstream
Midstream
Upstream
Segments
Partnership
Segment
Segment
Segment
Total
and Other
Consolidated
$
54,656
$
24,366
$
809,779
$
888,801
$
(472
)
$
888,329
28,715
4,503
800,987
834,205
(472
)
833,733
7,364
8,146
2,089
17,599
17,599
18,577
11,717
6,703
36,997
36,997
(2,190
)
4,604
2,414
2,414
70
162
534
766
766
$
16,457
$
11,879
$
11,841
$
40,177
$
$
40,177
Three Months Ended June 30, 2001
Downstream
Midstream
Upstream
Segments
Partnership
Segment
Segment
Segment
Total
and Other
Consolidated
$
78,546
$
7,361
$
987,775
$
1,073,682
$
$
1,073,682
30,529
1,356
977,871
1,009,756
1,009,756
6,703
1,413
2,741
10,857
10,857
41,314
4,592
7,163
53,069
53,069
(339
)
4,758
4,419
4,419
388
(9
)
414
793
793
$
41,363
$
4,583
$
12,335
$
58,281
$
$
58,281
Table of Contents
(Unaudited)
Six Months Ended June 30, 2002
Downstream
Midstream
Upstream
Segments
Partnership
Segment
Segment
Segment
Total
and Other
Consolidated
$
114,242
$
42,736
$
1,363,667
$
1,520,645
$
(1,179
)
$
1,519,466
57,822
7,996
1,346,842
1,412,660
(1,179
)
1,411,481
14,196
15,291
4,153
33,640
33,640
42,224
19,449
12,672
74,345
74,345
(2,986
)
8,972
5,986
5,986
194
181
957
1,332
1,332
$
39,432
$
19,630
$
22,601
$
81,663
$
$
81,663
Six Months Ended June 30, 2001
Downstream
Midstream
Upstream
Segments
Partnership
Segment
Segment
Segment
Total
and Other
Consolidated
$
140,847
$
13,966
$
1,704,104
$
1,858,917
$
$
1,858,917
57,877
2,411
1,688,490
1,748,778
1,748,778
13,376
2,802
4,586
20,764
20,764
69,594
8,753
11,028
89,375
89,375
(339
)
9,964
9,625
9,625
681
(9
)
555
1,227
1,227
$
69,936
$
8,744
$
21,547
$
100,227
$
$
100,227
Downstream
Midstream
Upstream
Segments
Partnership
Segment
Segment
Segment
Total
and Other
Consolidated
$
865,729
$
1,129,066
$
862,247
$
2,857,042
$
(118,396
)
$
2,738,646
$
844,036
$
541,195
$
694,934
$
2,080,165
$
(14,817
)
$
2,065,348
Table of Contents
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2002
2001
2002
2001
$
40,177
$
58,281
$
81,663
$
100,227
(16,829
)
(15,392
)
(33,616
)
(31,686
)
1,029
590
3,138
935
(441
)
(703
)
$
24,377
$
43,038
$
51,185
$
68,773
Table of Contents
(Unaudited)
Table of Contents
(Unaudited)
Three Months Ended June 30,
Six Months Ended June 30,
2002
2001
2002
2001
$
24,377
$
43,038
$
51,185
$
68,773
(10,103
)
(2,952
)
7,646
348
5,385
$
21,425
$
50,684
$
51,533
$
64,055
$
(10,103
)
(10,221
)
$
(20,324
)
348
$
(19,976
)
Table of Contents
(Unaudited)
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
June 30, 2002
Partners,L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
19,388
$
68,596
$
408,352
$
(146,428
)
$
349,908
1,068,595
462,754
1,531,349
710,335
1,080,511
218,357
(1,716,697
)
292,506
1,269,004
(1,269,004
)
8,725
490,337
65,821
564,883
$
2,007,452
$
2,708,039
$
1,155,284
$
(3,132,129
)
$
2,738,646
$
221,407
$
81,602
$
387,609
$
(147,835
)
$
542,783
1,084,490
389,830
1,474,320
800,317
467,280
(1,267,597
)
9,349
19,756
231
29,336
104,360
104,360
587,846
1,416,534
300,164
(1,716,697
)
587,847
$
2,007,452
$
2,708,039
$
1,155,284
$
(3,132,129
)
$
2,738,646
Table of Contents
(Unaudited)
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners, L.P.
December 31, 2001
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
Consolidated
(in thousands)
$
3,100
$
59,730
$
223,345
$
(2,695
)
$
283,480
849,978
330,483
1,180,461
669,370
309,080
222,815
(909,041
)
292,224
700,564
11,269
7,404
(719,237
)
3,853
244,448
65,386
(4,504
)
309,183
$
1,376,887
$
1,474,505
$
849,433
$
(1,635,477
)
$
2,065,348
$
367,094
$
361,547
$
310,476
$
(370,275
)
$
668,842
340,658
389,814
730,472
45,410
294,801
(340,211
)
8,364
231
8,628
17,223
105,630
105,630
563,505
669,370
243,925
(933,619
)
543,181
$
1,376,887
$
1,474,505
$
849,433
$
(1,635,477
)
$
2,065,348
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
Three Months Ended June 30, 2002
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
$
66,574
$
822,227
$
(472
)
$
888,329
43,612
808,192
(472
)
851,332
22,962
14,035
36,997
(11,706
)
(8,888
)
(6,912
)
11,706
(15,800
)
24,377
12,442
4,604
(39,009
)
2,414
11,706
220
546
(11,706
)
766
$
24,377
$
26,736
$
12,273
$
(39,009
)
$
24,377
Table of Contents
(Unaudited)
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners, L.P.
Three Months Ended June 30, 2001
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
Consolidated
(in thousands)
$
$
78,546
$
995,136
$
$
1,073,682
37,233
983,380
1,020,613
41,313
11,756
53,069
(8,431
)
(7,355
)
(7,447
)
8,431
(14,802
)
43,038
9,132
4,758
(52,509
)
4,419
8,431
389
404
(8,431
)
793
43,038
43,479
9,471
(52,509
)
43,479
(441
)
(441
)
$
43,038
$
43,479
$
9,471
$
(52,950
)
$
43,038
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
Six Months Ended June 30, 2002
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
$
136,362
$
1,384,283
$
(1,179
)
$
1,519,466
86,636
1,359,664
(1,179
)
1,445,121
49,726
24,619
74,345
(23,139
)
(16,538
)
(13,940
)
23,139
(30,478
)
51,185
20,550
8,972
(74,721
)
5,986
23,139
353
979
(23,139
)
1,332
$
51,185
$
54,091
$
20,630
$
(74,721
)
$
51,185
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
Six Months Ended June 30, 2001
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
$
140,847
$
1,718,070
$
$
1,858,917
71,253
1,698,289
1,769,542
69,594
19,781
89,375
(17,803
)
(14,979
)
(15,772
)
17,803
(30,751
)
68,773
14,180
9,964
(83,292
)
9,625
17,803
681
546
(17,803
)
1,227
68,773
69,476
14,519
(83,292
)
69,476
(703
)
(703
)
$
68,773
$
69,476
$
14,519
$
(83,995
)
$
68,773
Table of Contents
(Unaudited)
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
Six Months Ended June 30, 2002
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
51,185
$
54,091
$
20,630
$
(74,721
)
$
51,185
25,021
8,619
33,640
17,391
2,142
4,458
(16,547
)
7,444
(564,188
)
25,389
(17,880
)
561,868
5,189
(495,612
)
106,643
15,827
470,600
97,458
(58,406
)
(511,431
)
(140,080
)
58,406
(651,511
)
554,018
408,499
120,467
(529,006
)
553,978
3,711
(3,786
)
(75
)
3,655
21,824
25,479
$
$
7,366
$
18,038
$
$
25,404
TEPPCO
TEPPCO
Guarantor
Non-Guarantor
Consolidating
Partners,
Six Months Ended June 30, 2001
Partners, L.P.
Subsidiaries
Subsidiaries
Adjustments
L.P. Consolidated
(in thousands)
$
68,773
$
69,476
$
14,519
$
(83,995
)
$
68,773
13,376
7,388
20,764
(19,750
)
1,279
4,212
18,716
4,457
1
(1,792
)
(31,374
)
703
(32,462
)
49,024
82,339
(5,255
)
(64,576
)
61,532
(47,139
)
(48,554
)
(25,450
)
47,139
(74,004
)
(1,885
)
(42,951
)
25,577
17,437
(1,822
)
(9,166
)
(5,128
)
(14,294
)
9,166
17,929
27,095
$
$
$
12,801
$
$
12,801
Table of Contents
(Unaudited)
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
General
You should read the following review of our financial position and results of operations in conjunction with the Consolidated Financial Statements. Material period-to-period variances in the consolidated statements of income are discussed under Results of Operations. The Financial Condition and Liquidity section analyzes cash flows and financial position. Other Considerations addresses certain trends, future plans or contingencies that could affect future liquidity or earnings. These Consolidated Financial Statements should be read in conjunction with the financial statements and related notes, together with our discussion and analysis of financial position and results of operations included in our Annual Report on Form 10-K, as amended, for the year ended December 31, 2001.
We operate and report in three business segments:
| Downstream Segment transportation and storage of refined products, LPGs and petrochemicals; | |
| Upstream Segment gathering, transportation, marketing and storage of crude oil; and distribution of lubrication oils and specialty chemicals; and | |
| Midstream Segment gathering of natural gas, fractionation of NGLs and transportation of NGLs. |
Our reportable segments offer different products and services and are managed separately because each requires different business strategies. TEPPCO GP, Inc., our wholly-owned subsidiary, acts as managing general partner with a 0.001% general partner interest and manages our subsidiaries.
Effective January 1, 2002, we realigned our three business segments to reflect our entry into the natural gas gathering business and the expanded scope of NGLs operations. We transferred the fractionation of NGLs, which were previously reflected as part of the Downstream Segment, to the Midstream Segment. The operation of NGL pipelines, which was previously reflected as part of the Upstream Segment, was also transferred to the Midstream Segment. We have adjusted our period-to-period comparisons to conform to the current presentation.
Our Downstream Segment revenues are derived from transportation and storage of refined products and LPGs, storage and short-haul shuttle transportation of LPGs at the Mont Belvieu complex, intrastate transportation of petrochemicals, sale of product inventory and other ancillary services. The two largest operating expense items of the Downstream Segment are labor and electric power. We generally realize higher revenues during the first and fourth quarters of each year since our operations are somewhat seasonal. Refined products volumes are generally higher during the second and third quarters because of greater demand for gasolines during the spring and summer driving seasons. LPGs volumes are generally higher from November through March due to higher demand in the Northeast for propane, a major fuel for residential heating. Our Downstream Segment also includes the equity losses from our investment in Centennial Pipeline, LLC (Centennial).
The Upstream Segment revenues are earned from gathering, transportation, marketing and storage of crude oil, and distribution of lubrication oils and specialty chemicals, principally in Oklahoma, Texas and the Rocky Mountain region. Marketing operations consist primarily of aggregating purchased crude oil along our pipeline systems, or from third party pipeline systems, and arranging the necessary logistics for the ultimate sale of the crude oil to local refineries, marketers or other end users. Our Upstream Segment also includes the equity earnings from our investment in Seaway Crude Pipeline Company (Seaway). Seaway is a large diameter pipeline that transports crude oil from the U.S. Gulf Coast to Cushing, Oklahoma, a central crude oil distribution point for the Central United States.
The Midstream Segment revenues are earned from fractionation of NGLs in
Colorado, transportation of NGLs and gathering of natural gas. The Midstream
Segment includes the operations from the acquisition of Jonah on September 30,
2001, from Alberta Energy Company for $359.8 million. We paid an additional
$7.3 million on
26
Table of Contents
February 4, 2002, for final purchase adjustments related primarily to construction projects in progress at the time of closing. The results of operations of the acquisition are included in our consolidated financial statements beginning in the fourth quarter of 2001. The Jonah assets are managed and operated by DEFS under a contract arrangement.
On March 1, 2002, we acquired the Chaparral NGL system from Diamond-Koch II, L.P. and Diamond-Koch III, L.P. for $132 million. The Chaparral system is an 800-mile pipeline that extends from West Texas and New Mexico to Mont Belvieu. The pipeline delivers NGLs to fractionators and to our existing storage in Mont Belvieu. The approximately 170-mile Quanah Pipeline is an NGL gathering system located in West Texas. The Quanah Pipeline begins in Sutton County, Texas, and connects to the Chaparral Pipeline near Midland. The pipelines are connected to 27 gas plants in West Texas and have approximately 28,000 horsepower of pumping capacity at 14 stations. These systems are managed and operated by DEFS under a contract arrangement. These assets are included in the Midstream Segment.
On June 30, 2002, we acquired the Val Verde Gathering System from Burlington Resources Gathering Inc., a subsidiary of Burlington Resources Inc., for $444.2 million. The Val Verde Gathering System gathers coal seam gas from the Fruitland Coal Formation of the San Juan Basin in New Mexico. The system is one of the largest coal seam gas gathering and treating facilities in the United States, gathering coal seam gas from more than 544 separate wells throughout New Mexico. The system provides gathering and treating services pursuant to approximately 60 long-term contracts with approximately 40 different gas producers in the San Juan Basin. Gas gathered on the Val Verde Gathering System is delivered to several interstate pipeline systems serving the western United States and to local New Mexico markets. The Val Verde Gathering System consists of 360 miles of pipeline ranging in size from 4 inches to 36 inches in diameter, 14 compressor stations operating over 93,000 horsepower of compression and a large amine treating facility for the removal of carbon dioxide. The system has a pipeline capacity of approximately one billion cubic feet per day. The assets will be managed and operated by DEFS under a contract arrangement. These assets are included in the Midstream Segment.
27
Results of Operations
The following table summarizes financial data by business segment (in
thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2002
2001
2002
2001
$
54,656
$
78,546
$
114,242
$
140,847
809,779
987,775
1,363,667
1,704,104
24,366
7,361
42,736
13,966
(472
)
(1,179
)
888,329
1,073,682
1,519,466
1,858,917
18,577
41,314
42,224
69,594
6,703
7,163
12,672
11,028
11,717
4,592
19,449
8,753
36,997
53,069
74,345
89,375
16,457
41,363
39,432
69,936
11,841
12,335
22,601
21,547
11,879
4,583
19,630
8,744
40,177
58,281
81,663
100,227
(16,829
)
(15,392
)
(33,616
)
(31,686
)
1,029
590
3,138
935
(441
)
(703
)
$
24,377
$
43,038
$
51,185
$
68,773
Below is a detailed analysis of the results of operations, including
reasons for changes in results, by each of our operating segments.
Downstream Segment
The following table presents volume and average rate information for the
three months and six months ended June 30, 2002, and 2001:
Three Months Ended
Six Months Ended
June 30,
Percentage
June 30,
Percentage
Increase
Increase
2002
2001
(Decrease)
2002
2001
(Decrease)
(in thousands, except tariff information)
35,344
33,360
6
%
61,109
60,548
1
%
7,056
6,907
2
%
19,091
18,558
3
%
5,586
4,571
22
%
15,257
10,836
41
%
47,986
44,838
7
%
95,457
89,942
6
%
$
0.90
$
0.97
(7
%)
$
0.93
$
0.97
(4
%)
1.53
1.96
(22
%)
1.79
2.07
(14
%)
0.13
0.18
(28
%)
0.14
0.17
(18
%)
$
0.90
$
1.04
(14
%)
$
0.98
$
1.10
(11
%)
28
Three Months ended June 30, 2002 compared to Three Months ended June 30, 2001
Our Downstream Segment reported earnings before interest of $16.5 million for the three months ended June 30, 2002, compared with earnings before interest of $41.4 million for the three months ended June 30, 2001. Earnings before interest decreased $24.9 million primarily due to a decrease of $23.9 million in operating revenues and losses of $2.2 million from equity investments, partially offset by a decrease of $1.2 million in costs and expenses. We discuss the factors influencing these variances below.
Revenues from refined products transportation decreased $19.6 million for the three months ended June 30, 2002, compared with the three months ended June 30, 2001, due primarily to $18.9 million of revenue recognized in the 2001 period from a cash settlement received from a canceled transportation agreement with Pennzoil-Quaker State Company (Pennzoil) and the recognition of $1.7 million of previously deferred revenue related to the approval of market-based-rates during the second quarter of 2001. These decreases were partially offset by a 6% increase in refined products volumes delivered during the second quarter of 2002, primarily due to barrels received into our pipeline from Centennial at Creal Springs, Illinois. Centennial commenced refined products deliveries to us beginning in April 2002. The overall increase in refined products deliveries was partially offset by a 0.7 million barrel decrease in methyl tertiary butyl ether (MTBE) deliveries as a result of the expiration of contract deliveries to our marine terminal near Beaumont, Texas, effective April 2001. As a result of the contract expiration, we no longer transport MTBE through our Products pipeline system. The refined products average rate per barrel decreased 7% from the prior-year period due to the impact of the Midwest origin point for volumes received from Centennial, which was partially offset by decreased short-haul MTBE volumes delivered and higher market-based tariff rates, which went into effect in July 2001.
Revenues from LPGs transportation decreased $2.7 million for the three months ended June 30, 2002, compared with the three months ended June 30, 2001, primarily due to decreased deliveries of propane in the upper Midwest and Northeast market areas caused by lower prices from competing Canadian and mid-continent propane supply as compared to propane originating from the Gulf Coast. Total LPGs volumes delivered increased 2% as a result of increased short-haul deliveries to a petrochemical facility on the upper Texas Gulf Coast. The LPGs average rate per barrel decreased 22% from the prior-year period as a result of a decreased percentage of long-haul deliveries during the three months ended June 30, 2002.
Revenues generated from Mont Belvieu operations decreased $0.1 million during the three months ended June 30, 2002, compared with the three months ended June 30, 2001, as a result of increased contract shuttle deliveries, which generally carry lower rates. Total Mont Belvieu shuttle volumes delivered increased 22% during the three months ended June 30, 2002, compared with the three months ended June 30, 2001, due to increased petrochemical demand.
Other operating revenues decreased $1.5 million during the three months ended June 30, 2002, compared with the three months ended June 30, 2001, primarily due to lower propane deliveries at our Providence, Rhode Island, import facility, lower refined product rental charges and lower margins on product inventory sales. These decreases were partially offset by increased refined products and LPGs loading fees.
Costs and expenses decreased $1.2 million for the three months ended June 30, 2002, compared with the three months ended June 30, 2001. The decrease was comprised of a $3.7 million decrease in operating fuel and power expense, partially offset by a $1 million increase in operating, general and administrative expenses, a $0.7 million increase in depreciation and amortization expense, and a $0.8 million increase in taxes other than income taxes. Operating fuel and power expense decreased as a result of decreased mainline throughput and lower electric power costs. Operating, general and administrative expenses increased primarily due to increased consulting and contract services, increased rental charges and increased labor costs. Depreciation expense increased from the prior-year period because of assets placed in service during 2001. Taxes other than income taxes increased as a result of a higher property base in 2002.
Net losses from equity investments totaled $2.2 million during the three months ended June 30, 2002, due to start-up expenses of Centennial. Centennial commenced operations in early April 2002.
29
Six Months Ended June 30, 2002 compared to Six Months Ended June 30, 2001
Our Downstream Segment reported earnings before interest of $39.4 million for the six months ended June 30, 2002, compared with earnings before interest of $69.9 million for the six months ended June 30, 2001. Earnings before interest decreased $30.5 million primarily due to a decrease of $26.6 million in operating revenues, an increase of $0.8 million in costs and expenses and losses of $3 million from equity investments. We discuss the factors influencing these variances below.
Revenues from refined products transportation decreased $20.6 million for the six months ended June 30, 2002, compared with the six months ended June 30, 2001, due primarily to $18.9 million of revenue recognized in the 2001 period from a cash settlement received from a canceled transportation agreement with Pennzoil and the recognition of $1.7 million of previously deferred revenue related to the approval of market-based-rates during the second quarter of 2001. These decreases were partially offset by a 1% increase in refined products volumes delivered during the six months ended June 30, 2002, primarily due to barrels received into our pipeline from Centennial at Creal Springs, Illinois. Centennial commenced refined products deliveries to us beginning in April 2002. The overall increase in refined products deliveries was partially offset by a 1.3 million barrel decrease in MTBE deliveries as a result of the expiration of contract deliveries to our marine terminal near Beaumont, Texas, effective April 2001. As a result of the contract expiration, we no longer transport MTBE through our Products pipeline system. The refined products average rate per barrel decreased 4% from the prior-year period due to the impact of the Midwest origin point for volumes received from Centennial, which was partially offset by decreased short-haul MTBE volumes delivered and higher market-based tariff rates, which went into effect in July 2001.
Revenues from LPGs transportation decreased $4.3 million for the six months ended June 30, 2002, compared with the six months ended June 30, 2001, primarily due to decreased deliveries of propane in the upper Midwest and Northeast market areas attributable to warmer than normal weather. The decrease is also due to lower prices from competing Canadian and mid-continent propane supply as compared to propane originating from the Gulf Coast. Total LPGs volumes delivered increased 3% as a result of increased short-haul deliveries to a petrochemical facility on the upper Texas Gulf Coast. The LPGs average rate per barrel decreased 14% from the prior-year period as a result of a decreased percentage of long-haul deliveries during the six months ended June 30, 2002.
Revenues generated from Mont Belvieu operations increased $1.5 million during the six months ended June 30, 2002, compared with the six months ended June 30, 2001, as a result of increased storage revenue and brine service revenue. Mont Belvieu shuttle volumes delivered increased 41% during the six months ended June 30, 2002, compared with the six months ended June 30, 2001, due to increased petrochemical demand. The Mont Belvieu average rate per barrel decreased during the six months ended June 30, 2002, as a result of increased contract shuttle deliveries, which generally carry lower rates.
Other operating revenues decreased $3.1 million during the six months ended June 30, 2002, compared with the six months ended June 30, 2001, primarily due to lower propane deliveries at our Providence, Rhode Island, import facility, lower refined product rental charges, lower margins on product inventory sales, and increased losses as a result of exchanging products at different geographic points of delivery to position product in the Midwest market area. These decreases were partially offset by increased refined products and LPGs loading fees.
Costs and expenses increased $0.8 million for the six months ended June 30, 2002, compared with the six months ended June 30, 2001. The increase was made up of a $3.6 million increase in operating, general and administrative expenses, a $0.8 million increase in depreciation and amortization expense, and a $1 million increase in taxes other than income taxes. These increases were partially offset by a $4.6 million decrease in operating fuel and power expense. Operating, general and administrative expenses increased, primarily due to higher environmental remediation expenses, increased consulting and contract services and increased labor costs. Depreciation expense increased from the prior-year period because of assets placed in service during 2001. Operating fuel and power expense decreased as a result of decreased mainline throughput and lower power costs. Taxes other than income taxes increased as a result of a higher property base in 2002.
30
Net losses from equity investments totaled $3 million during the six months ended June 30, 2002, due to pre-operating expenses and start-up costs of Centennial. Centennial commenced operations in early April 2002.
Upstream Segment
We calculate the margin of the Upstream Segment as revenues generated from
the sale of crude oil and lubrication oil, and transportation of crude oil,
less the costs of purchases of crude oil and lubrication oil. Margin is a more
meaningful measure of financial performance than operating revenues and
operating expenses due to the significant fluctuations in revenues and expenses
caused by variations in the level of marketing activity and prices for products
marketed. Margin and volume information for the three months and six months
ended June 30, 2002, and 2001 is presented below (in thousands, except per
barrel and per gallon amounts):
Three Months Ended
Six Months Ended
June 30,
Percentage
June 30,
Percentage
Increase
Increase
2002
2001
(Decrease)
2002
2001
(Decrease)
$
9,721
$
8,921
9
%
$
18,909
$
17,046
11
%
5,306
6,276
(16
%)
10,070
9,827
3
%
2,543
2,546
4,874
4,674
4
%
1,230
984
25
%
2,365
2,118
12
%
$
18,800
$
18,727
$
36,218
$
33,665
8
%
21,672
21,851
(1
%)
42,788
37,596
14
%
42,927
44,026
(3
%)
73,279
72,451
1
%
33,064
32,460
2
%
62,339
57,122
9
%
2,698
2,134
26
%
4,892
4,389
12
%
$
0.449
$
0.408
10
%
$
0.442
$
0.453
(3
%)
0.124
0.143
(13
%)
0.137
0.136
1
%
0.077
0.078
(2
%)
0.078
0.082
(4
%)
0.456
0.461
(1
%)
0.483
0.483
Three Months ended June 30, 2002 compared to Three Months ended June 30, 2001
Our Upstream Segment reported earnings before interest of $11.8 million for the three months ended June 30, 2002, compared with earnings before interest of $12.3 million for the three months ended June 30, 2001. Earnings before interest decreased $0.5 million primarily due to a $0.2 million decrease in equity earnings of Seaway and a $0.4 million decrease in other revenue. We discuss the factors influencing these variances below.
Our margin increased $0.1 million during the three months ended June 30, 2002, compared with the three months ended June 30, 2001. Crude oil transportation margin increased $0.8 million primarily due to higher revenues on our Basin and West Texas systems. Lubrication oil sales margin increased $0.3 million due to increased volumes related to the acquisition of a lubrication oil distributor in Amarillo, Texas, in the fourth quarter of 2001. Crude oil marketing margin decreased $1 million primarily due to reduced volumes marketed on Seaway by our marketing affiliate, partially offset by renegotiated supply contracts and lower trucking expenses.
31
Other operating revenues of the Upstream Segment decreased $0.4 million for the three months ended June 30, 2002, compared with the three months ended June 30, 2001, due to lower revenue from documentation and other services to support customers trading activity at Midland, Texas, and Cushing, Oklahoma.
Costs and expenses, excluding expenses associated with purchases of crude oil and lubrication oil, decreased slightly during the three months ended June 30, 2002, compared with the three months ended June 30, 2001. Taxes other than income taxes decreased by $1 million due to a reduction in estimated property taxes for the period. Depreciation and amortization expense decreased by $0.7 million due to the adoption of SFAS 142 effective January 1, 2002, (see Note 3. Goodwill and Other Intangible Assets), in which goodwill and excess investment are no longer being amortized, and operating fuel and power expense decreased by $0.1 million due to lower electric power costs. These decreases were offset by a $1.7 million increase in operating, general and administrative expenses primarily due to increased labor related costs and increased general and administrative supplies and services expense.
Equity earnings in Seaway for the three months ended June 30, 2002, decreased $1 million from the three months ended June 30, 2001, due to our portion of equity earnings being decreased from 80 percent to 60 percent on a pro-rated basis in 2002 (averaging approximately 67 percent for the year ended December 31, 2002), coupled with lower third-party transportation volumes.
Six Months ended June 30, 2002 compared to Six Months ended June 30, 2001
Our Upstream Segment reported earnings before interest of $22.6 million for the six months ended June 30, 2002, compared with earnings before interest of $21.5 million for the six months ended June 30, 2001. Earnings before interest increased $1.1 million primarily due to a $2.6 million increase in margin and a $0.4 million increase in other income net. These increases were partially offset by a $1 million decrease in equity earnings of Seaway, a $0.6 million decrease in other revenue and a $0.1 million increase in costs and expenses (excluding purchases of crude oil and lubrication oil). We discuss the factors influencing these variances below.
Our margin increased $2.6 million during the six months ended June 30, 2002, compared with the six months ended June 30, 2001. Crude oil transportation margin increased $1.9 million primarily due to volumes transported on the pipeline assets acquired from Valero Energy Corp. (formerly Ultramar Diamond Shamrock Corporation) (UDS) in March 2001, and higher revenues on our Basin and West Texas systems. Crude oil marketing margin increased $0.2 million primarily due to increased volumes marketed, renegotiated supply contracts and lower trucking expenses. Crude oil terminaling margin increased $0.2 million as a result of higher pumpover volumes at Midland, Texas, and Cushing, Oklahoma. Lubrication oil sales margin increased $0.3 million due to increased volumes related to the acquisition of a lubrication oil distributor in Amarillo, Texas, in the fourth quarter of 2001.
Other operating revenues of the Upstream Segment decreased $0.6 million for the six months ended June 30, 2002, compared with the six months ended June 30, 2001, due to lower revenue from documentation and other services to support customers trading activity at Midland, Texas, and Cushing, Oklahoma.
Costs and expenses, excluding expenses associated with purchases of crude oil and lubrication oil, increased $0.1 million during the six months ended June 30, 2002, compared with the six months ended June 30, 2001. The increase was comprised of a $1.2 million increase in operating, general and administrative expenses due to increased labor related costs and increased general and administrative supplies and services expense, and a $0.3 million increase in operating fuel and power expense. These increases were partially offset by a $0.9 million decrease in taxes other than income taxes due to reductions in property tax accruals. Depreciation and amortization expense decreased by $0.4 million due to the adoption of SFAS 142 effective January 1, 2002, in which goodwill and excess investment are no longer being amortized, partially offset by increased depreciation expense on the assets acquired from UDS.
32
Equity earnings in Seaway for the six months ended June 30, 2002,
decreased $1 million from the six months ended June 30, 2001, due to our
portion of equity earnings being decreased from 80 percent to 60 percent on a
pro rated basis in 2002 (averaging approximately 67 percent for the year ended
December 31, 2002), coupled with lower third-party transportation volumes.
Midstream Segment
The following table presents volume and average rate information for the
three months and six months ended June 30, 2002, and 2001:
Three Months Ended
Six Months Ended
June 30,
Percentage
June 30,
Percentage
Increase
Increase
2002
2001
(Decrease)
2002
2001
(Decrease)
59,805
109,976
66,493
122,221
$
0.172
$
0.172
15,557
5,436
186
%
23,471
10,198
130
%
$
0.678
$
1.024
(34
%)
$
0.718
$
1.024
(30
%)
1,032
1,044
(1
%)
2,043
2,059
(1
%)
$
1.840
$
1.831
1
%
$
1.827
$
1.805
1
%
18.3
50.6
$
28.37
$
23.99
Three Months ended June 30, 2002 compared to Three Months ended June 30, 2001
Our Midstream Segments earnings before interest totaled $11.9 million for the three months ended June 30, 2002, compared with earnings before interest of $4.6 million for the three months ended June 30, 2001. The $7.3 million increase in earnings before interest was due to a $17 million increase in operating revenues, partially offset by a $9.9 million increase in costs and expenses. We discuss the factors influencing these variances below.
Operating revenues increased $17 million during the three months ended June 30, 2002, compared with the three months ended June 30, 2001. Natural gas gathering revenues from the Jonah system (acquired on September 30, 2001) totaled $11.5 million and volumes delivered totaled 59.8 billion cubic feet. Other revenues increased $0.5 million due to sales of gas condensate from the Jonah system. NGL transportation revenues increased $5.1 million, primarily due to the acquisition of Chaparral on March 1, 2002, partially offset by lower revenues on a take-or-pay contract on the Dean system that was in effect until the bankruptcy of Enron Corp. in December 2001. The decrease in the NGL transportation average rate per barrel resulted from the cancellation of the Enron Corp. take-or-pay contract, and a lower average rate per barrel on volumes transported on Chaparral.
Costs and expenses increased $9.9 million during the three months ended
June 30, 2002, compared with the three months ended June 30, 2001. The increase
was comprised of a $6.7 million increase in depreciation and amortization
expense, a $2.4 million increase in operating, general and administrative
expense and a $0.8 million increase in operating fuel and power costs. Of
these increases, $10.3 million related to the Jonah and Chaparral
33
assets acquired on September 30, 2001, and March 1, 2002, respectively,
partially offset by a $0.4 million decrease in expenses related to the other
assets of the Midstream Segment.
Six Months ended June 30, 2002 compared to Six Months ended June 30, 2001
Our Midstream Segments earnings before interest totaled $19.6 million for
the six months ended June 30, 2002, compared with earnings before interest of
$8.7 million for the six months ended June 30, 2001. The $10.9 million
increase in earnings before interest was due to a $28.8 million increase in
operating revenues, partially offset by an $18.1 million increase in costs and
expenses. We discuss the factors influencing these variances below.
Operating revenues increased $28.8 million during the six months ended
June 30, 2002, compared with the six months ended June 30, 2001. Natural gas
gathering revenues from the Jonah system totaled $21 million and volumes
delivered totaled 110 billion cubic feet. Other revenues increased $1.2
million due to sales of gas condensate from the Jonah system. NGL
transportation revenues increased $6.6 million, primarily due to the
acquisition of Chaparral on March 1, 2002, partially offset by lower revenues
on a take-or-pay contract on the Dean system that was in effect until the
bankruptcy of Enron Corp. in December 2001. The decrease in the NGL
transportation average rate per barrel resulted from the cancellation of the
Enron Corp. take-or-pay contract, and a lower average rate per barrel on
volumes transported on Chaparral.
Costs and expenses increased $18.1 million during the six months ended
June 30, 2002, compared with the six months ended June 30, 2001. The increase
was comprised of a $12.5 million increase in depreciation and amortization
expense, a $3.8 million increase in operating, general and administrative
expense, a $1.4 million increase in operating fuel and power costs and a $0.4
million increase in taxes other than income taxes. Of these increases,
$18.7 million related to the Jonah and Chaparral assets acquired on September
30, 2001, and March 1, 2002, respectively, partially offset by a $0.6 million
decrease in expenses related to the other assets of the Midstream Segment.
Interest Expense and Capitalized Interest
Three Months ended June 30, 2002 compared to Three Months ended June 30, 2001
Interest expense increased $1.4 million during the three months ended June
30, 2002, compared with the three months ended June 30, 2001, primarily due to
higher outstanding debt, partially offset by lower LIBOR rates in effect during
2002.
Capitalized interest increased $0.4 million during the three months ended
June 30, 2002, compared with the three months ended June 30, 2001, due to
increased balances on construction work-in-progress during the second quarter
of 2002.
Six Months ended June 30, 2002 compared to Six Months ended June 30, 2001
Interest expense increased $1.9 million during the six months ended June
30, 2002, compared with the six months ended June 30, 2001, primarily due to
higher outstanding debt, partially offset by lower LIBOR rates in effect during
2002.
Capitalized interest increased $2.2 million during the six months ended
June 30, 2002, compared with the six months ended June 30, 2001, due to
increased balances during 2002 on construction work-in-progress and the
investment during the construction of Centennial.
Financial Condition and Liquidity
Net cash from operations totaled $97.5 million for the six months ended
June 30, 2002. This cash was made up of $84.8 million of income before charges
for depreciation and amortization and $12.7 million of cash
34
Table of Contents
Table of Contents
provided by working capital changes. This compares with net cash from operations of $61.5 million for the corresponding period in 2001, comprised of $89.5 million of income before charges for depreciation and amortization, partially offset by $28 million of cash used for working capital changes. Net cash from operations for the six months ended June 30, 2002, and 2001, included interest payments of $19.5 million and $32.2 million, respectively.
Cash flows used in investing activities during the six months ended June 30, 2002, was comprised of $7.3 million for the final purchase price adjustments on the acquisition of Jonah, $63.6 million of capital expenditures, $7.7 million of cash contributions for our interest in Centennial, $132.1 million for the purchase of Chaparral on March 1, 2002, and $444.2 million for the purchase of Val Verde on June 30, 2002. These uses of cash were partially offset by $3.4 million in cash proceeds from the sale of assets. Cash flows used in investing activities during the six months ended June 30, 2001, were comprised of $20 million for the purchase of assets from UDS on March 1, 2001, $33.4 million of capital expenditures, and $25.1 million of cash contributions for our interest in Centennial. These uses of cash were partially offset by $1.3 million of cash received from the sale of vehicles and $3.2 million received on matured cash investments.
Centennial entered into credit facilities totaling $150 million. The proceeds were used to fund construction and conversion costs of its pipeline system. As of June 30, 2002, Centennial had borrowed $140 million under its credit facility. TE Products has guaranteed one-third of the debt of Centennial up to a maximum amount of $50 million.
Credit Facilities and Interest Rate Swap Agreements
On July 14, 2000, we entered into a $475 million revolving credit facility (Three Year Facility) to finance the acquisition of the ARCO assets and to refinance existing bank credit facilities. On April 6, 2001, the Three Year Facility was amended to provide for revolving borrowings of up to $500 million including the issuance of letters of credit of up to $20 million. The term of the revised Three Year Facility was extended to April 6, 2004. The interest rate is based, at our option, on either the lenders base rate plus a spread, or LIBOR plus a spread in effect at the time of the borrowings. The credit agreement for the Three Year Facility contains restrictive financial covenants that require us to maintain a minimum level of partners capital as well as maximum debt-to-EBITDA (earnings before interest expense, income tax expense and depreciation and amortization expense) and minimum fixed charge coverage ratios. On November 13, 2001, certain lenders under the agreement elected to withdraw from the facility, and the available borrowing capacity was reduced to $411 million. On February 20, 2002, we repaid $115.7 million of the then outstanding balance of the Three Year Facility with proceeds from the issuance of our 7.625% Senior Notes. On March 1, 2002, we borrowed $132 million under the Three Year Facility to finance the acquisition of Chaparral. On March 22, 2002, we repaid a portion of the Three Year Facility with proceeds we received from the issuance of additional Limited Partner Units. On March 27, 2002, the Three Year Facility was amended to increase the borrowing capacity to $500 million. To facilitate our financing of a portion of the purchase price of the Val Verde assets, on June 27, 2002, the Three Year Facility was amended to increase the maximum debt-to-EBITDA ratio covenant to allow us to incur additional indebtedness. We then drew down the existing capacity of the Three Year Facility. At June 30, 2002, $500 million was outstanding under the Three Year Facility at a weighted average interest rate of 3.5%. As of June 30, 2002, we were in compliance with the covenants contained in this credit agreement.
On April 6, 2001, we entered into a 364-day, $200 million revolving credit
agreement (Short-term Revolver). The interest rate is based, at our option,
on either the lenders base rate plus a spread, or LIBOR plus a spread in
effect at the time of the borrowings. The credit agreement contains restrictive
financial covenants that require us to maintain a minimum level of partners
capital as well as maximum debt-to-EBITDA and minimum fixed charge coverage
ratios. On March 27, 2002, the Short-term Revolver was extended for an
additional period of 364 days, ending in April 2003. To facilitate our
financing of a portion of the purchase price of the Val Verde assets, on June
27, 2002, the Short-term Revolver was amended to increase the maximum
debt-to-EBITDA ratio covenant to allow us to incur additional indebtedness. We
then drew down $72 million under the Short-term
35
Revolver. At June 30, 2002, $72 million was outstanding under the Short-term
Revolver at an interest rate of 3.5%. As of June 30, 2002, we were in
compliance with the covenants contained in this credit agreement.
On September 28, 2001, we entered into a $400 million credit facility with
SunTrust Bank (Bridge Facility). We borrowed $360 million under the Bridge
Facility to acquire the Jonah assets (see Note 5. Acquisitions). The Bridge
Facility was payable in June 2002. During the fourth quarter of 2001, we
repaid $160 million of the outstanding principal from proceeds received from
the issuance of Limited Partner Units in November 2001. On February 5, 2002,
we drew down an additional $15 million under the Bridge Facility. On February
20, 2002, we repaid the outstanding balance of the Bridge Facility of $215
million, with proceeds from the issuance of the 7.625% Senior Notes and
canceled the facility.
On February 20, 2002, we received $494.6 million in net proceeds from the
issuance of $500 million principal amount of 7.625% Senior Notes due 2012. The
7.625% Senior Notes were issued at a discount and are being accreted to their
face value over the term of the notes. We used the proceeds from the offering
to reduce a portion of the outstanding balances of our credit facilities,
described above, including those issued in connection with the acquisition of
Jonah. The Senior Notes may be redeemed at any time at our option with the
payment of accrued interest and a make-whole premium determined by discounting
remaining interest and principal payments using a discount rate equal to the
rate of the United States Treasury securities of comparable remaining maturity
plus 35 basis points. The indenture governing the 7.625% Senior Notes contains
covenants, including, but not limited to, covenants limiting the creation of
liens securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit our ability to incur additional indebtedness. As of
June 30, 2002, we were in compliance with the covenants of these Senior Notes.
On June 27, 2002, we entered into a $200 million six-month term loan with
SunTrust Bank (Six-Month Term Loan). We borrowed $200 million under the
Six-Month Term Loan to acquire the Val Verde assets (see Note 5.
Acquisitions). The Six-Month Term Loan is payable in December 2002. The
interest rate is based, at our option, on either the lenders base rate plus a
spread, or LIBOR plus a spread in effect at the time of the borrowings. The
credit agreement contains restrictive financial covenants that require us to
maintain a minimum level of partners capital as well as maximum debt-to-EBITDA
and minimum fixed charge coverage ratios. At June 30, 2002, $200 million was
outstanding under the Six-Month Term Loan at an interest rate of 3.3%. As of
June 30, 2002, we were in compliance with the covenants contained in this
credit agreement.
We entered into interest rate swap agreements to hedge our exposure to
cash flows and fair value changes. These agreements are more fully described
in Item 3. Quantitative and Qualitative Disclosures About Market Risk.
36
The following table summarizes our credit facilities as of June 30, 2002
(in millions):
Distributions and Issuance of Additional Limited Partner Units
We paid cash distributions of $68.5 million ($1.15 per Unit) and $49.5
million ($1.05 per Unit) for each of the six months ended June 30, 2002, and
2001, respectively. Additionally, on July 18, 2002, we declared a cash
distribution of $0.60 per Limited Partner Unit and Class B Unit for the quarter
ended June 30, 2002. We paid the distribution of $39.8 million on August 8,
2002, to unitholders of record on July 31, 2002.
On February 6, 2001, we issued by public offering 2 million Limited
Partner Units at $25.50 per Unit. The proceeds from the offering, net of
underwriting discount, totaled approximately $48.7 million and were used to
reduce borrowings under the Three Year Facility. On March 6, 2001, 250,000
Units were issued in connection with the over-allotment provision of the
offering on February 6, 2001. Proceeds from the Units issued from the
over-allotment totaled $6.1 million and were used for general purposes.
On November 14, 2001, we issued by public offering 5.5 million Limited
Partner Units at $34.25 per Unit. The proceeds from the offering, net of
underwriting discount, totaled approximately $180.3 million and were used to
repay $160 million under the Bridge Facility that was used to fund the Jonah
acquisition. The remaining proceeds were used to finance contributions to
Centennial and for other capital expenditures.
On March 22, 2002, we issued by public offering 1.92 million Limited
Partner Units (which included the overallotment provision) at $29.85 per Unit.
The proceeds from the offering, net of underwriting discount, totaled
approximately $57.3 million and were used to repay $50 million of the
outstanding balance on the Three Year Facility with the remaining amount being
used for general purposes.
On July 11, 2002, we issued by public offering 3 million Limited Partner
Units at $30.15 per Unit. The proceeds from the offering, net of underwriting
discount, totaled approximately $86.6 million and were used to reduce
borrowings under our Six-Month Term Loan. In accordance with SFAS No. 6,
Classification of Short-term Obligations Expected to be Refinanced,
the amount
repaid on July 11, 2002, $86.6 million, is classified as long-term debt at June
30, 2002. On August 14, 2002, 175,000 Units were issued in
connection with the over-allotment provision of the offering on July
11, 2002. Proceeds from the over-allotment totaled $5.1 million and
were used for general purposes.
Future Capital Needs and Commitments
We estimate that capital expenditures, excluding acquisitions, for 2002
will be approximately $139 million (which includes $6 million of capitalized
interest). We expect to use approximately $100 million for revenue generating
projects, approximately $23 million for maintenance capital spending and
approximately $10 million for system upgrade projects. Revenue generating
projects will include approximately $45 million for Phase II expansion of the
Jonah system, $17 million for expansion of other Midstream assets and $38
million to expand our service capabilities including the installation of a
brine pond at our Mont Belvieu LPGs storage facility, the installation of
improvements at our Princeton, Indiana, LPGs truck loading facilities, and the
completion of facilities to support receipt and delivery locations with
Centennial. We expect to use approximately $4.1 million of maintenance
capital spending for pipeline rehabilitation projects to comply with
regulations enacted by the United States Department of Transportation Office of
Pipeline Safety. We continually review and evaluate potential capital
improvements and expansions that would be complementary to our present business
segments. These expenditures can vary greatly depending on the magnitude of our
transactions. We may finance capital expenditures through internally generated
funds, debt or the issuance of additional equity.
Our debt repayment obligations consist of payments for principal and
interest on (i) outstanding principal amounts under the Six-Month Term Loan due
in December 2002 ($200 million at June 30, 2002), (ii) outstanding principal
amounts under the Short-term Revolver due in April 2004 ($72 million at June
30, 2002), (iii) outstanding principal amounts under the Three Year Facility
due in April 2004 ($500 million at June 30, 2002), (iv) the TE
37
Products Senior Notes, $180 million principal amount due January 15, 2008,
and $210 million principal amount due January 15, 2028, and (v) our $500
million 7.625% Senior Notes due February 15, 2012.
TE Products is contingently liable as guarantor for the lesser of
one-third or $50 million principal amount (plus interest) of the borrowings of
Centennial. We expect to contribute an additional $3 million to Centennial for
the remaining six months of 2002. We do not rely on off-balance sheet
borrowings to fund our acquisitions. We have no off-balance sheet commitments
for indebtedness other than the limited guarantee of Centennial debt and leases
covering assets utilized in several areas of our operations.
The following table summarizes our debt repayment obligations and material
contractual commitments as of June 30, 2002 (in millions).
We expect to repay the long-term, senior unsecured obligations and bank
debt through the issuance of additional long-term senior unsecured debt at the
time the 2008, 2012 and 2028 debt matures, issuance of additional equity,
proceeds from dispositions of assets, or any combination of the above items.
Sources of Future Capital
Historically, we have funded our capital commitments from operating cash
flow and borrowings under bank credit facilities or bridge loans. We repaid
these loans in part by the issuance of long term debt in capital markets and
the public offering of Limited Partner Units. We expect future capital needs
to be similarly funded to the extent not otherwise available from excess cash
flow from operations after payment of distributions to unitholders.
As of June 30, 2002, we had approximately $128 million in available
borrowing capacity under the Short-term Revolver.
We expect cash flows from operating activities will be adequate to fund
cash distributions and capital additions necessary to maintain existing
operations. However, expansionary capital projects and acquisitions may
require funding through proceeds from the sale of additional debt or equity
capital markets offerings.
On May 29, 2002, Moodys Investors Service downgraded our senior unsecured
debt rating to Baa3 from Baa2. Our subsidiary, TE Products was also included
in this downgrade. These ratings were given with stable outlooks, and followed
our announcement of the $444 million acquisition of Val Verde. The downgrades
reflect Moodys concern that we have a high level of debt relative to many of
our peers and that our debt may be continually higher than our long-term
targets if we continue to make a series of acquisitions of increasingly larger
size. Because of our high distribution rate, we are particularly reliant on
external financing to finance our acquisitions. Moodys
38
Table of Contents
Table of Contents
As of June 30, 2002
Available
Outstanding
Borrowing
Maturity
Description:
Principal
Capacity
Date
$
72.0
$
128.0
April 2003
200.0
December 2002
500.0
April 2004
180.0
January 2008
210.0
January 2028
500.0
February 2012
Table of Contents
Amount of Commitment Expiration Per Period
Less than
After 5
Total
1 Year
2-3 Years
4-5 Years
Years
$
200.0
$
200.0
$
$
$
72.0
72.0
500.0
500.0
180.0
180.0
210.0
210.0
500.0
500.0
3.0
3.0
35.6
9.1
15.9
10.3
0.3
$
1,700.6
$
284.1
$
515.9
$
10.3
$
890.3
(1)
Obligations of TE Products.
Table of Contents
indicated that our cash flows are becoming less predictable as a result of our acquisitions and expansion into the crude oil and natural gas gathering businesses. We are evaluating alternatives to lowering our debt-to-EBITDA ratio. Further reductions in our credit ratings could increase the debt financing costs or possibly reduce the availability of financing. A rating reflects only the view of a rating agency and is not a recommendation to buy, sell or hold any indebtedness. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant such a change.
Other Considerations
Our operations are subject to federal, state and local laws and regulations governing the discharge of materials into the environment. Failure to comply with these laws and regulations may result in the assessment of administrative, civil, and criminal penalties, imposition of injunctions delaying or prohibiting certain activities, and the need to perform investigatory and remedial activities. Although we believe our operations are in material compliance with applicable environmental laws and regulations, risks of significant costs and liabilities are inherent in pipeline operations, and we cannot assure you that significant costs and liabilities will not be incurred. Moreover, it is possible that other developments, such as increasingly strict environmental laws and regulations and enforcement policies thereunder, and claims for damages to property or persons resulting from our operations, could result in substantial costs and liabilities to us. We believe that changes in environmental laws and regulations will not have a material adverse effect on our financial position, results of operations or cash flows in the near term.
In 1994, we entered into an Agreed Order with the IDEM that resulted in the implementation of a remediation program for groundwater contamination attributable to our operations at the Seymour, Indiana, terminal. In 1999, the IDEM approved a Feasibility Study, which includes our proposed remediation program. We expect the IDEM to issue a Record of Decision formally approving the remediation program. After the Record of Decision is issued, we will enter into a subsequent Agreed Order for the continued operation and maintenance of the remediation program. We have an accrued liability of $0.5 million at June 30, 2002, for future remediation costs at the Seymour terminal. We do not expect that the completion of the remediation program will have a future material adverse effect on our financial position, results of operations or cash flows.
In 1994, the LDEQ issued a compliance order for environmental contamination at our Arcadia, Louisiana, facility. This contamination may be attributable to our operations, as well as adjacent petroleum terminals operated by other companies. In 1999, our Arcadia facility and adjacent terminals were directed by the Remediation Services Division of the LDEQ to pursue remediation of this containment phase. At June 30, 2002, we have an accrued liability of $0.3 million for remediation costs at our Arcadia facility. We do not expect that the completion of the remediation program that we have proposed will have a future material adverse effect on our financial position, results of operations or cash flows.
During 2001, we accrued $8.6 million to complete environmental remediation activities at certain of our Upstream Segment sites. In establishing this accrual, we expensed $4.4 million for these environmental remediation costs and recorded a receivable of $4.2 million for the remainder. The receivable is based on a contractual indemnity obligation for specified environmental liabilities that DEFS owes to us in connection with our acquisition of the Upstream Segment from DEFS in November 1998. Under this indemnity obligation, we are responsible for the first $3 million in specified environmental liabilities, and DEFS is responsible for those environmental liabilities in excess of $3 million, up to a maximum amount of $25 million. The majority of the indemnified costs relate to remediation activities at the Velma crude oil site in Stephens County, Oklahoma, attributable to operations prior to our acquisition of the Upstream Segment. Remediation activities at the Velma crude oil site are being conducted according to a work plan approved by the Oklahoma Corporation Commission. At June 30, 2002, an accrual of $5.3 million remains outstanding related to TCTM environmental remediation activities. We do not expect that the completion of remediation programs associated with this release will have a future material adverse effect on our financial position, results of operations or cash flows.
39
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations . SFAS 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which we incur a legal obligation for the retirement of tangible long-lived assets. A corresponding asset is also recorded and depreciated over the life of the asset. After the initial measurement of the asset retirement obligation, the obligation will be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. We are required to adopt SFAS 143 effective January 1, 2003. We are currently evaluating the impact of adopting SFAS 143.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets . SFAS 144 supercedes SFAS No. 121, Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of , but retains its fundamental provisions for reorganizing and measuring impairment losses on long-lived assets held for use and long-lived assets to be disposed of by sale. We adopted SFAS 144 effective January 1, 2002. The adoption of SFAS 144 did not have a material effect on our financial position, results of operations or cash flows.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other non-substantive technical corrections to existing pronouncements. SFAS 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. We are required to adopt SFAS 145 effective January 1, 2003. We do not believe that the adoption of SFAS 145 will have a material effect on our financial position, results of operations or cash flows.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities . SFAS 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) . SFAS 146 requires recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred, as opposed to when the entity commits to an exit plan under EITF No. 94-3. SFAS 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. We do not believe that the adoption of SFAS 146 will have a material effect on our financial position, results of operations or cash flows.
Forward-Looking Statements
The matters discussed in this Report include forward-looking statements within the meaning of various provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. All statements, other than statements of historical facts, included in this document that address activities, events or developments that we expect or anticipate will or may occur in the future, including such things as estimated future capital expenditures (including the amount and nature thereof), business strategy and measures to implement strategy, competitive strengths, goals, expansion and growth of our business and operations, plans, references to future success, references to intentions as to future matters and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses based on our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results and developments will conform with our expectations and predictions is subject to a number of risks and uncertainties, including general economic, market or business conditions, the opportunities (or lack thereof) that may be presented to and pursued by us, competitive actions by other pipeline companies, changes in laws or regulations, and other factors, many of which are beyond our control. Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements and we cannot assure you that actual results or developments that we anticipate will be realized or, even if substantially realized, will have the expected consequences to or effect on us or our business or operations. For additional discussion of such risks and uncertainties, see our 2001 Annual Report on Form 10-K, as amended, and other filings we have made with the Securities and Exchange Commission.
40
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We may be exposed to market risk through changes in commodity prices and interest rates as discussed below. We do not have foreign exchange risks. Our Risk Management Committee has established policies to monitor and control these market risks. The Risk Management Committee is comprised, in part, of senior executives of the Company.
We have utilized and expect to continue to utilize derivative financial instruments with respect to a portion of our interest rate and fair value risks and our crude oil marketing activities. These transactions generally are swaps and forwards, and we enter into them with major financial institutions or commodities trading institutions. The derivative financial instrument related to our interest rate risk is intended to reduce our exposure to increases in the benchmark interest rates underlying our variable rate revolving credit facility. The derivative financial instruments related to our fair value risks are intended to reduce our exposure to changes in the fair value of the fixed rate Senior Notes resulting from changes in interest rates. Our Upstream Segment uses derivative financial instruments to reduce our exposure to fluctuations in the market price of crude oil. Gains and losses from financial instruments used in our Upstream Segment have been recognized in revenues for the periods to which the derivative financial instruments relate, and gains and losses from our interest rate financial instruments have been recognized in interest expense for the periods to which the derivative financial instrument relate. As of June 30, 2002, the Upstream Segment had no open positions on derivative financial contracts.
At June 30, 2002, our subsidiary, TE Products had outstanding $180 million principal amount of 6.45% Senior Notes due 2008, and $210 million principal amount of 7.51% Senior Notes due 2028 (collectively the TE Products Senior Notes). At June 30, 2002, the estimated fair value of the TE Products Senior Notes was approximately $371 million. At June 30, 2002, $500 million principal amount of 7.625% Senior Notes due 2012 was outstanding. At June 30, 2002, the estimated fair value of the $500 million Senior Notes was approximately $497.8 million.
As of June 30, 2002, TE Products had an interest rate swap agreement in place to hedge its exposure to changes in the fair value of its fixed rate 7.51% TE Products Senior Notes due 2028. We have designated this swap agreement, which hedges exposure to changes in the fair value of the TE Products Senior Notes, as a fair value hedge. The swap agreement has a notional amount of $210 million and matures in January 2028 to match the principal and maturity of the TE Products Senior Notes. Under the swap agreement, TE Products pays a floating rate based on a three month U.S. Dollar LIBOR rate, plus a spread, and receives a fixed rate of interest of 7.51%. During the six months ended June 30, 2002, we recognized a gain of $3.6 million, recorded as a reduction of interest expense, on the interest rate swap. During the quarter ended June 30, 2002, we measured the hedge effectiveness of this interest rate swap, and noted that no gain or loss from ineffectiveness was required to be recognized.
As of June 30, 2002, we had an interest rate swap agreement in place to hedge our exposure to increases in the benchmark interest rate underlying our variable rate revolving credit facilities. We have designated this swap agreement, which hedges exposure to variability in expected future cash flows attributed to changes in interest rates, as a cash flow hedge. The swap agreement is based on a notional amount of $250 million. Under the swap agreement, we pay a fixed rate of interest of 6.955% and receive a floating rate based on a three month U.S. Dollar LIBOR rate. Since this swap is designated as a cash flow hedge, the changes in fair value, to the extent the swap is effective, are recognized in other comprehensive income until the hedged interest costs are recognized in earnings. During the six months ended June 30, 2002, and 2001, we recognized $6.3 million and $2.2 million, respectively, in losses, included in interest expense, on the interest rate swap attributable to interest costs occurring in 2002 and 2001. During the quarter ended June 30, 2002, we measured the hedge effectiveness of this interest rate swap, and noted that no gain or loss from ineffectiveness was required to be recognized. The fair value of the interest rate swap agreement was a loss of approximately $20 million and $20.3 million at June 30, 2002, and December 31, 2001, respectively. We anticipate that approximately $10.6 million of the fair value will be transferred into earnings over the next twelve months.
41
As of June 30, 2002, we had interest rate swap agreements in place to hedge our exposure to changes in the fair value of our fixed rate 7.625% Senior Notes due 2012. We have designated these swap agreements, which hedge exposure to changes in the fair value of the Senior Notes, as fair value hedges. The swap agreements have a combined notional amount of $500 million and mature in 2012 to match the principal and maturity of the Senior Notes. Under the swap agreements, we pay a floating rate based on a six month U.S. Dollar LIBOR rate, plus a spread, and receive a fixed rate of interest of 7.625%. During the six months ended June 30, 2002, we recognized a gain of $6.9 million, recorded as a reduction of interest expense, on the interest rate swaps. During the quarter ended June 30, 2002, we measured the hedge effectiveness of these interest rate swaps, and noted that no gain or loss from ineffectiveness was required to be recognized.
On July 16, 2002, we terminated our interest rate swap agreements that were designated as hedges to our exposure to changes in the fair value of our $500 million principal amount of 7.625% fixed rate Senior Notes due 2012. The fair value upon termination of the interest rate swap agreements was $25.8 million. Approximately $7.8 million had been recognized as a reduction to interest expense from the inception of the swap agreement on February 20, 2002, through its termination on July 16, 2002. The remaining gain of $18 million will be amortized as a reduction to future interest expense over the remaining term of the Senior Notes.
Additionally, on July 16, 2002, we entered into new interest rate swap agreements to hedge our future exposure to changes in the fair value of our $500 million principal amount of 7.625% fixed rate Senior Notes due 2012. We have designated these swap agreements as fair value hedges. The swap agreements have a combined notional amount of $500 million and mature in 2012 to match the principal and maturity of the Senior Notes. Under these swap agreements, we pay a floating rate based on a six month U.S. Dollar LIBOR rate, plus a spread, which increased by approximately 50 basis points from the previous swap agreements, and receive a fixed rate of interest of 7.625%.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
Number
Description
3.1
Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
3.2
Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).
4.1
Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).
4.2
Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).
4.3
Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).
42
Exhibit
Number
Description
4.4
Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by
reference).
4.5
First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by
reference).
4.6*
Supplemental Indenture, dated as of June 27, 2002, among
TEPPCO Partners, L.P., as issuer, TE Products Pipeline Company,
Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P.,
and Jonah Gas Gathering Company, as Initial Subsidiary Guarantors,
and Val Verde Gas Gathering Company, L.P., as New Subsidiary
Guarantor, and Wachovia Bank, National Association, formerly known
as First Union National Bank, as trustee.
10.1+
Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997 (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.2+
Texas Eastern Products Pipeline Company Management Incentive
Compensation Plan executed on January 30, 1992 (Filed as Exhibit 10
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1992, and incorporated herein by
reference).
10.3+
Texas Eastern Products Pipeline Company Long-Term Incentive
Compensation Plan executed on October 31, 1990 (Filed as Exhibit
10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1990 and incorporated
herein by reference).
10.4+
Form of Amendment to Texas Eastern Products Pipeline Company
Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7 to Form
10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1995 and incorporated herein by
reference).
10.5+
Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).
10.6+
Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).
10.7+
Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).
10.8+
Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).
10.9+
Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).
43
Exhibit
Number
Description
10.10
Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1998 and incorporated herein by reference).
10.11
Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).
10.12
Guaranty Agreement by Duke Energy Natural Gas Corporation
for the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
10.13
Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital Corporation and TCTM,
L.P., dated November 30, 1998 (Filed as Exhibit 10.19 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
10.14+
Form of Employment Agreement between the Company and Thomas R.
Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).
10.15
Agreement Between Owner and Contractor between TE Products
Pipeline Company, Limited Partnership and Eagleton Engineering
Company, dated February 4, 1999 (Filed as Exhibit 10.21 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by
reference).
10.16
Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by
reference).
10.17
Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).
10.18+
Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1999 and incorporated herein by
reference).
10.19+
Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).
10.20+
Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).
10.21+
Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.22+
Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).
44
Exhibit
Number
Description
10.23
Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of
ARCO Pipe Line Company, dated as of May 10, 2000. (Filed as
Exhibit 2.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 2000 and
incorporated herein by reference).
10.24+
Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).
10.25+
TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).
10.26+
Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).
10.27
Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by
reference).
10.28
Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).
10.29
Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).
10.30
Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, dated as
of September 28, 2001 ($400,000,000 Term Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).
10.31
Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).
10.32
Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).
10.33
Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).
10.34
Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by
reference).
45
Exhibit
Number
Description
10.35
Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).
10.36
Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).
10.37
Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.38
Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).
10.39
Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).
10.40
Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).
10.41
Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).
10.42
Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).
10.43
Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).
10.44
Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).
10.45
Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).
10.46
Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit
Facility) (Filed as Exhibit 99.3 to Form 8-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) dated as of July
2, 2002 and incorporated herein by reference).
46
Exhibit
Number
Description
10.47
Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).
10.48*
Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002.
10.49+*
Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002.
12.1*
Statement of Computation of Ratio of Earnings to Fixed Charges.
21*
Subsidiaries of the Partnership.
99.1*
Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2*
Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* | Filed herewith. | |
+ | A management contract or compensation plan or arrangement. |
(b) | Reports on Form 8-K filed during the quarter ended June 30, 2002: |
Reports on Form 8-K were filed on April 16, 2002, April 24, 2002 and June 4, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on its behalf by the undersigned duly authorized officer and principal financial officer.
TEPPCO Partners, L.P.
(Registrant) (A Delaware Limited Partnership) |
||||
By: |
Texas Eastern Products Pipeline
Company, LLC, as General Partner |
|||
By: |
/s/ BARRY R. PEARL
Barry R. Pearl, President and Chief Executive Officer |
|||
By: |
/s/ CHARLES H. LEONARD
Charles H. Leonard, Senior Vice President and Chief Financial Officer |
Date: August 14, 2002
47
EXHIBIT INDEX
48
49
50
51
Exhibit
Number
Description
3.1
Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).
3.2
Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).
4.1
Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).
4.2
Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).
4.3
Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).
4.4
Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by
reference).
4.5
First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by
reference).
4.6*
Supplemental Indenture, dated as of June 27, 2002, among
TEPPCO Partners, L.P., as issuer, TE Products Pipeline Company,
Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P.,
and Jonah Gas Gathering Company, as Initial Subsidiary Guarantors,
and Val Verde Gas Gathering Company, L.P., as New Subsidiary
Guarantor, and Wachovia Bank, National Association, formerly known
as First Union National Bank, as trustee.
10.1+
Texas Eastern Products Pipeline Company 1997 Employee
Incentive Compensation Plan executed on July 14, 1997 (Filed as
Exhibit 10 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.2+
Texas Eastern Products Pipeline Company Management Incentive
Compensation Plan executed on January 30, 1992 (Filed as Exhibit 10
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1992, and incorporated herein by
reference).
10.3+
Texas Eastern Products Pipeline Company Long-Term Incentive
Compensation Plan executed on October 31, 1990 (Filed as Exhibit
10.9 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 1990 and incorporated
herein by reference).
10.4+
Form of Amendment to Texas Eastern Products Pipeline Company
Long-Term Incentive Compensation Plan (Filed as Exhibit 10.7 to Form
10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
year ended December 31, 1995 and incorporated herein by
reference).
10.5+
Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).
10.6+
Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).
10.7+
Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).
10.8+
Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).
10.9+
Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).
Table of Contents
Exhibit
Number
Description
10.10
Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 1998 and incorporated herein by reference).
10.11
Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).
10.12
Guaranty Agreement by Duke Energy Natural Gas Corporation
for the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
10.13
Letter Agreement regarding Payment Guarantees of Certain
Obligations of TCTM, L.P. between Duke Capital Corporation and TCTM,
L.P., dated November 30, 1998 (Filed as Exhibit 10.19 to Form 10-K
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).
10.14+
Form of Employment Agreement between the Company and Thomas R.
Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).
10.15
Agreement Between Owner and Contractor between TE Products
Pipeline Company, Limited Partnership and Eagleton Engineering
Company, dated February 4, 1999 (Filed as Exhibit 10.21 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by
reference).
10.16
Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by
reference).
10.17
Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).
10.18+
Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1999 and incorporated herein by
reference).
10.19+
Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).
10.20+
Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).
10.21+
Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).
10.22+
Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).
Table of Contents
Exhibit
Number
Description
10.23
Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of
ARCO Pipe Line Company, dated as of May 10, 2000. (Filed as
Exhibit 2.1 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended March 31, 2000 and
incorporated herein by reference).
10.24+
Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).
10.25+
TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).
10.26+
Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).
10.27
Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by
reference).
10.28
Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).
10.29
Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).
10.30
Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, dated as
of September 28, 2001 ($400,000,000 Term Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).
10.31
Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).
10.32
Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).
10.33
Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).
10.34
Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by
reference).
Table of Contents
Exhibit
Number
Description
10.35
Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).
10.36
Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).
10.37
Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).
10.38
Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).
10.39
Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).
10.40
Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).
10.41
Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).
10.42
Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).
10.43
Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).
10.44
Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).
10.45
Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).
10.46
Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit
Facility) (Filed as Exhibit 99.3 to Form 8-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) dated as of July
2, 2002 and incorporated herein by reference).
Table of Contents
Exhibit
Number
Description
10.47
Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).
10.48*
Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002.
10.49+*
Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002.
12.1*
Statement of Computation of Ratio of Earnings to Fixed Charges.
21*
Subsidiaries of the Partnership.
99.1*
Certification of Chief Executive Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
99.2*
Certification of Chief Financial Officer Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
*
Filed herewith.
+
A management contract or compensation plan or arrangement.
52
EXHIBIT 4.6
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this Supplemental Indenture ), dated as of June 27, 2002, among TEPPCO Partners, L.P. , a Delaware limited partnership (the Partnership ), TE Products Pipeline Company, Limited Partnership , a Delaware limited partnership ( TE Products ), TCTM, L.P. , a Delaware limited partnership ( TCTM ), TEPPCO Midstream Companies, L.P. , a Delaware limited partnership ( TEPPCO Midstream ), Jonah Gas Gathering Company , a Wyoming general partnership ( Jonah Gas , and together with TE Products, TCTM and TEPPCO Midstream, collectively, the Initial Subsidiary Guarantors ), Val Verde Gas Gathering Company, L.P. , a Delaware limited partnership (the New Subsidiary Guarantor ), and Wachovia Bank, National Association (formerly known as First Union National Bank ), as trustee under the indenture referred to below (in such capacity, the Trustee ).
WITNESSETH:
WHEREAS, the Partnership and the Initial Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture dated as of February 20, 2002 (the Original Indenture ), providing for the Partnerships issuance, from time to time, of its Debt Securities in one or more series unlimited as to principal amount, and the Guarantees by each of the Subsidiary Guarantors of the Debt Securities;
WHEREAS, the Partnership and the Initial Subsidiary Guarantors have heretofore executed and delivered to the Trustee a First Supplemental Indenture dated as of February 20, 2002 (the First Supplemental Indenture , and together with the Original Indenture, the Indenture ), providing for the Partnerships issuance of the initial series of its Debt Securities under the Indenture, such series known as the Partnerships 7.625% Senior Notes due 2012 (the 2012 Notes );
WHEREAS, Section 4.14 of the Indenture provides that if a Subsidiary of the Partnership guarantees any Funded Debt of the Partnership, the Partnership shall cause each such Subsidiary to execute and deliver to the Trustee an indenture supplemental to the Indenture pursuant to which each such Subsidiary shall unconditionally and absolutely guarantee, to the extent set forth in the Indenture and subject to the provisions of the Indenture, the due and punctual payment of the principal of, and the premium, if any, and interest on, the 2012 Notes and all other amounts due and payable under the Indenture and the 2012 Notes by the Partnership;
WHEREAS, the New Subsidiary Guarantor is a Subsidiary of the Partnership, and pursuant to the provisions of Section 4.14 of the Indenture, the Partnership is required to cause the New Subsidiary Guarantor to so guarantee the 2012 Notes;
WHEREAS, Section 9.01(g) of the Indenture authorizes the Partnership, the Subsidiary Guarantors and the Trustee, from time to time and at any time, and without the consent of the Holders, to enter into one or more indentures supplemental to the Indenture to add Subsidiary Guarantors with respect to any or all Debt Securities;
WHEREAS, the Partnership desires to cause the New Subsidiary Guarantor, and the New Subsidiary Guarantor desires, to become a Subsidiary Guarantor with respect to the 2012 Notes;
WHEREAS, Section 9.01 of the Indenture authorizes the Trustee to join with the Partnership and the Subsidiary Guarantors in the execution of this Supplemental Indenture for the
Val Verde Gas Gathering Company, L.P.
Supplemental Indenture (Additional Guarantor)
-1-
purpose of adding a Subsidiary Guarantor, and further provides that any such supplemental Indenture may be executed by the Partnership, the Subsidiary Guarantors and the Trustee without the consent of the Holders of any Debt Securities at the time Outstanding; and
WHEREAS, all things necessary have been done to make the Guarantee of the 2012 Notes by the New Subsidiary Guarantor the valid obligation of the New Subsidiary Guarantor and to make this Supplemental Indenture a valid agreement of the Partnership and the New Subsidiary Guarantor, in accordance with their respective terms;
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, and reasonably equivalent valuable, the receipt of which is hereby acknowledged, the Partnership, the Initial Subsidiary Guarantors, the New Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal and proportionate benefit of the Holders of the 2012 Notes as follows:
1. Capitalized Terms . Capitalized terms used and not defined herein shall have the meanings assigned in the Indenture.
2. Agreement to Guarantee . The New Subsidiary Guarantor hereby agrees, jointly and severally with all other Subsidiary Guarantors, unconditionally and absolutely to guarantee, to the extent set forth in the Indenture and subject to the provisions of the Indenture, the due and punctual payment of the principal of, and the premium, if any, and interest on, the 2012 Notes and all other amounts due and payable under the Indenture and the 2012 Notes by the Partnership and to be bound by all other applicable provisions of the Indenture. Further, the New Subsidiary Guarantor acknowledges and agrees that its obligations to the Holders of the 2012 Notes and to the Trustee pursuant to the Guarantee and the Indenture are expressly set forth in Article XIV of the Indenture, and reference is hereby made to the Indenture for the precise terms of the Guarantee.
3. No Recourse Against Others . The General Partner and its directors, officers, employees, incorporators and stockholders, as such, shall have no liability for any obligations of the Partnership or the Subsidiary Guarantors under the 2012 Notes, the Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. By accepting a 2012 Note, each Holder waived and released all such liability. The waiver and release are a part of the consideration for issuance of the 2012 Notes.
4. NEW YORK LAW TO GOVERN . THIS SUPPLEMENTAL INDENTURE SHALL BE DEEMED TO BE A NEW YORK CONTRACT AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
5. Counterparts . The parties may sign any number of counterparts of this Supplemental Indenture, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument.
6. Effect of Headings . The headings herein are for convenience only and shall not affect the construction hereof.
7. The Trustee . The recitals and statements contained in this Supplemental Indenture shall be taken as recitals and statements of the Partnership, and the Trustee assumes no responsibility for the correctness of same. The Trustee makes no representation or warranty as to
Val Verde Gas Gathering Company, L.P.
Supplemental Indenture (Additional Guarantor)
-2-
the validity or sufficiency of this Supplemental Indenture, except that it is duly authorized to execute and deliver this instrument.
IN WITNESS WHEREOF, the parties have caused this Supplemental Indenture to be duly executed and delivered, all as of the date first above written.
Dated: June 27, 2002
TEPPCO Partners, L.P. | ||||
By |
Texas Eastern Products Pipeline Company, LLC
Its General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President and Chief Financial Officer |
||||
TE Products Pipeline Company, Limited Partnership | ||||
By |
TEPPCO GP, Inc.
Its General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President |
||||
TCTM, L.P. | ||||
By |
TEPPCO GP, Inc.
Its General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President |
||||
TEPPCO Midstream Companies, L.P. | ||||
By |
TEPPCO GP, Inc.
Its General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President |
Val Verde Gas Gathering Company, L.P.
Supplemental Indenture (Additional Guarantor)
-3-
Jonah Gas Gathering Company | ||||
By |
TEPPCO GP, Inc.
Its Managing General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President |
||||
Val Verde Gas Gathering Company, L.P. | ||||
By |
TEPPCO NGL Pipelines, LLC
Its General Partner |
|||
By: | /s/ CHARLES H. LEONARD | |||
|
||||
Charles H. Leonard
Senior Vice President |
||||
Wachovia Bank, National Association
,
as Trustee |
||||
By: | /s/ KEVIN M. DOBRAVA | |||
|
||||
Kevin M. Dobrava
Vice President |
Val Verde Gas Gathering Company, L.P.
Supplemental Indenture (Additional Guarantor)
-4-
EXHIBIT 10.48
AGREEMENT OF LIMITED PARTNERSHIP
OF
VAL VERDE GAS GATHERING COMPANY, L.P.
This Agreement of Limited Partnership (this Agreement) of Val Verde Gas Gathering Company, L.P. (the Partnership), dated as of May 29, 2002 (the Effective Date) is entered into by and among TEPPCO NGL Pipelines, LLC, a Delaware limited liability company, as general partner, and TEPPCO Midstream Companies, L.P. (TEPPCO Midstream), as the sole limited partner.
ARTICLE I
DEFINITIONS
The following definitions shall for all purposes, unless otherwise clearly indicated to the contrary, apply to the terms used in this Agreement.
Certificate of Limited Partnership means the Certificate of Limited Partnership filed with the Secretary of State of the State of Delaware as described in the first sentence of Section 2.5, as amended and restated from time to time.
Delaware Act means the Delaware Revised Uniform Limited Partnership Act, as amended from time to time, and any successor to such act.
General Partner means TEPPCO NGL Pipelines, LLC, a Delaware limited liability company, in its capacity as the general partner of the Partnership, and any successor to TEPPCO NGL Pipelines, LLC, as general partner.
Limited Partner means TEPPCO Midstream or any assignee or successor of TEPPCO Midstream.
Partner means the General Partner or any Limited Partner and Partners means the General Partner and the Limited Partner.
Partnership means Val Verde Gas Gathering Company, L.P., a Delaware limited partnership.
Percentage Interest means, 99.999% with respect to the Limited Partner, and 0.001% with respect to the General Partner.
ARTICLE II
ORGANIZATIONAL MATTERS
Section 2.1 Formation . Subject to the provisions of this Agreement, the General Partner and the Limited Partner have formed the Partnership as a limited partnership pursuant to the provisions of the Delaware Act. The General Partner and the Limited Partner hereby enter into this Agreement to set forth the rights and obligations of the Partners and certain matters related thereto. Except as expressly provided herein to the contrary, the rights and obligations of the Partners and the administration, dissolution and termination of the Partnership shall be governed by the Delaware Act.
Section 2.2 Name . The name of the Partnership shall be, and the business of the Partnership shall be conducted under the name of Val Verde Gas Gathering Company, L.P.
Section 2.3 Principal Office; Registered Office
(a) The principal office of the Partnership shall be at 2929 Allen Parkway, Suite 3200, Houston, Texas 77019 or such other place as the General Partner may from time to time designate to the Limited Partner. The Partnership may maintain offices at such other places as the General Partner deems advisable. |
(b) The address of the Partnerships registered office in the State of Delaware shall be c/o 1209 Orange Street, Wilmington, Delaware 19801 and the name of the Partnerships registered agent for service of process at such address shall be The Corporation Trust Company. |
Section 2.4 Term . The Partnership commenced its existence on the effective date of the filing of the Certificate and shall continue in existence until it is dissolved and terminated as provided herein.
Section 2.5 Organization Certificate . A Certificate of Limited Partnership of the Partnership has been filed by the General Partner with the Secretary of State of the State of Delaware as required by the Delaware Act. The General Partner shall cause to be filed such other certificates or documents as may be required for the formation, operation and qualification of a limited partnership in the State of Delaware and any state in which the Partnership may elect to do business. The General Partner shall thereafter file any necessary amendments to the Certificate of Limited Partnership and any such other certificates and documents and do all things requisite to the maintenance of the Partnership as a limited partnership (or as a partnership in which the Limited Partners have limited liability) under the laws of Delaware and any state or jurisdiction in which the Partnership may elect to do business.
ARTICLE III
PURPOSE
The purpose and business of the Partnership shall be to engage in any lawful activity for which limited partnerships may be organized under the Delaware Act.
ARTICLE IV
CAPITAL CONTRIBUTIONS
Effective as of the date hereof, the Limited Partner has delivered and contributed to the Partnership, as a capital contribution $999.99, in exchange for the Percentage Interest as limited partner of the Partnership.
Effective as of the date hereof, the General Partner has delivered and contributed to the Partnership as a capital contribution $0.01, in exchange for the Percentage Interest as the general partner of the Partnership.
ARTICLE V
ALLOCATIONS; DISTRIBUTIONS
Section 5.1 Allocations . Each item of income, gain, loss, deduction and credit of the Partnership shall be allocated among the Partners in accordance with their respective Percentage Interests.
Section 5.2 Distributions . From time to time, but not less often than quarterly, the General Partner shall review the Partnerships accounts to determine whether distributions are appropriate. The General Partner may make such cash distributions as it, in its sole discretion, may determine without being limited to current or accumulated income or gains from Partnership funds, including, without limitation, Partnership revenues, capital contributions or borrowed funds; provided, however, that no such distribution shall be made if, after giving effect thereto, the liabilities of the Partnership exceed the fair market value of the assets of the Partnership. In its sole discretion, the General Partner may, subject to the foregoing proviso, also distribute to all the Partners other Partnership property, or other securities of the Partnership or other entities. All distributions by the General Partner shall be made in accordance with the Percentage Interests of the Partners.
ARTICLE VI
MANAGEMENT AND OPERATIONS OF BUSINESS
Except as otherwise expressly provided in this Agreement, all powers to control and manage the business and affairs of the Partnership shall be vested exclusively in the General Partner; the Limited Partner shall not have any power to control or manage the business and affairs of the Partnership.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
No Limited Partner shall have any liability under this Agreement.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION
The Partnership shall dissolve and its affairs shall be wound upon the unanimous agreement of the Partners to dissolve. All assets of the Partnership shall be distributed to the Partners in proportion to their Percentage Interests.
ARTICLE IX
AMENDMENT OF PARTNERSHIP AGREEMENT
The General Partner may amend any provision of this Agreement without the consent of the Limited Partners and may execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Addresses and Notices . Any notice to the Partnership, the General Partner or the Limited Partner shall be deemed given if received by it in writing at the principal office of the Partnership designated pursuant to Section 2.3(a).
Section 10.2 Binding Effect . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns.
Section 10.3 Integration . This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.
Section 10.4 Severability . If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof, or of such provision in other respects, shall not be affected thereby.
Section 10.5 Applicable Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, this Agreement has been duly executed by the General Partner and the Limited Partner as of the date first above written.
GENERAL PARTNER: | ||||
TEPPCO NGL Pipelines, LLC
, a Delaware
limited liability company |
||||
By: | /s/ ALLISON A. NELSON | |||
|
||||
Name:
Title: |
Allison A. Nelson
Assistant Secretary |
|||
LIMITED PARTNER: | ||||
TEPPCO MIDSTREAM COMPANIES, L.P.
, a
Delaware limited partnership |
||||
By: | TEPPCO GP, Inc., its general partner | |||||
By: | /s/ ALLISON A. NELSON | |||||
|
||||||
Name:
Title: |
Allison A. Nelson
Assistant Secretary |
EXHIBIT 10.49
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
2002 PHANTOM UNIT PLAN
Effective June 1, 2002
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
2002 PHANTOM UNIT PLAN
WHEREAS, Texas Eastern Products Pipeline Company, LLC, a Delaware limited liability company (TEPPCO), desires to establish the Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit Plan (the Plan) for certain key employees so as to offer them a further incentive to increase the earnings of TEPPCO Partners, L.P.;
WHEREAS, it is intended that the Plan shall constitute a bonus program within the meaning of Department of Labor Regulation section 2510.3-2(c) that is exempt from coverage under the Employee Retirement Income Security Act of 1974, as amended;
NOW, THEREFORE, TEPPCO adopts the Plan as follows:
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
2002 PHANTOM UNIT PLAN
TABLE OF CONTENTS
Section | |||||
|
|||||
ARTICLE I PLAN PURPOSE AND TERM
|
|||||
Purpose
|
1.1 | ||||
Effective Date of Plan
|
1.2 | ||||
ARTICLE II DEFINITIONS
|
|||||
Account
|
2.1 | ||||
Affiliate
|
2.2 | ||||
Award
|
2.3 | ||||
Award Agreement
|
2.4 | ||||
Board
|
2.5 | ||||
Change in Control
|
2.6 | ||||
Code
|
2.7 | ||||
Committee
|
2.8 | ||||
Employee
|
2.9 | ||||
Fair Market Value
|
2.10 | ||||
Grantee
|
2.11 | ||||
Partnership
|
2.12 | ||||
Phantom Unit
|
2.13 | ||||
Plan
|
2.14 | ||||
Separation From Service
|
2.15 | ||||
TEPPCO
|
2.16 | ||||
Unit
|
2.17 | ||||
Vested Interest
|
2.18 | ||||
Year of Service
|
2.19 | ||||
ARTICLE III AWARDS
|
|||||
Granting of Awards
|
3.1 | ||||
Terms of Awards
|
3.2 | ||||
Special Ledger
|
3.3 | ||||
ARTICLE IV CALCULATION AND PAYMENT OF BENEFITS
|
|||||
Periodic Payments
|
4.1 | ||||
Terminal Value Payments
|
4.2 | ||||
Form of Payment Under an Award
|
4.3 | ||||
No Interest on Award
|
4.4 | ||||
Adjustments Due to Changes in the Partnerships Capital Structure
|
4.5 |
-i-
ARTICLE V VESTING OF AWARDS
|
|||||
ARTICLE VI ADMINISTRATION
|
|||||
General
|
6.1 | ||||
Powers of Committee
|
6.2 | ||||
Committee Discretion
|
6.3 | ||||
Disqualification of Committee Member
|
6.4 | ||||
ARTICLE VII AMENDMENT OR TERMINATION OF PLAN
|
|||||
ARTICLE VIII FUNDING
|
|||||
Payments Under the Plan Are the Obligation of TEPPCO
|
8.1 | ||||
Grantees Must Rely Solely on the General Credit of TEPPCO
|
8.2 | ||||
Unfunded Arrangement
|
8.3 | ||||
ARTICLE IV MISCELLANEOUS
|
|||||
No Employment Obligation
|
9.1 | ||||
Tax Withholding
|
9.2 | ||||
Indemnification of the Committee
|
9.3 | ||||
Gender and Number
|
9.4 | ||||
Headings
|
9.5 | ||||
Other Compensation Plans
|
9.6 | ||||
Rights of Company and Affiliates
|
9.7 | ||||
Nonalienation of Benefits
|
9.8 | ||||
No Rights as an Owner
|
9.9 | ||||
Governing Law
|
9.10 |
-ii-
ARTICLE I
PLAN PURPOSE AND TERM
1.1 Purpose. The Plan is intended to provide those persons who have substantial responsibility for the management and growth of TEPPCO with additional incentives to increase the earnings of TEPPCO Partners, L.P.
1.2 Effective Date of Plan. The Plan is effective June 1, 2002.
I-1
ARTICLE II
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set out in these definitions throughout the Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning.
2.1 Account means a bookkeeping ledger maintained by the Committee that reflects the number of Phantom Units awarded to the Grantee which have not been redeemed or forfeited.
2.2 Affiliate means an entity that is treated as a single employer together with TEPPCO for certain employee benefit purposes under section 414 of the Code.
2.3 Award means a bonus opportunity granted under the Plan.
2.4 Award Agreement means the written agreement between TEPPCO and a Grantee that sets forth the terms of an Award.
2.5 Board means the board of directors of TEPPCO.
2.6 Change in Control means
(i) any person becomes the beneficial owner, directly or in- directly, of securities of the Partnership representing 66 percent or more of the Partnerships then outstanding Units; or
(ii) any person becomes the beneficial owner, directly or indirectly, of 50 percent or more of the Units and TEPPCO delivers notice of withdrawal or is otherwise removed as the general partner of the Partnership; or
(iii) the merger or consolidation of the Partnership with one or more corporations, business trusts, common law trusts or unincorporated businesses, including, without limitation, a general partnership, a limited partnership or a limited liability company, pursuant to a written agreement of merger or consolidation in accordance with Article 16 of the Second Amended and Restated Agreement of Limited Partnership of TEPPCO Partners, L.P., dated November 30, 1998, as it may be amended from time to time, and TEPPCO delivers notice of withdrawal or is otherwise removed as the general partner of the Partnership; or
(iv) any person is or becomes the beneficial owner, directly or indirectly, of securities of TEPPCO representing more than 50 percent of the combined voting power of TEPPCOs then outstanding voting securities; or
II-1
(v) all or substantially all of the assets and business of TEPPCO, the Partnership, TE Products Pipeline Company, Limited Partnership or TCTM, L.P. are sold, transferred or assigned to, or otherwise acquired by, any person or persons; or
(vi) the dissolution or liquidation of the Partnership, TE Products Pipeline Company, Limited Partnership, TCTM, L.P. or TEPPCO; or
(vii) the adoption by the Board of a resolution to the effect that any person has acquired effective control of the business and affairs of TEPPCO, the Partnership or TE Products Pipeline Company, Limited Partnership or TCTM, L.P.
For purposes of this definition, the term beneficial owner shall have the meaning set forth in Section 13(d) of the Securities Exchange Act of 1934, as amended, and in the regulations promulgated thereunder. The term person shall mean an individual, corporation, partnership, trust, unincorporated organization, association or other entity provided that the term person shall not include (a) Duke Energy Corporation (Duke), (b) any affiliate of Duke, or (c) any employee benefit plan maintained by Duke or any affiliate of Duke. For purposes of this definition, the term affiliate or affiliates shall mean when used with respect to a specified person or entity, any other person or entity directly or indirectly controlled by, controlling, or under direct or indirect common control with the specified person or entity. For the purpose of this definition, control or controlled when used with respect to any specified person or entity means the power to direct the management and policies of that person or entity whether through the ownership of voting securities, membership interest or by contract. |
2.7 Code means the Internal Revenue Code of 1986, as amended.
2.8 Committee means members of the Compensation Committee of the Board.
2.9 Employee means a person who is employed by TEPPCO as a common law employee.
2.10 Fair Market Value means the closing price of a Unit as reported on the New York Stock Exchange, Inc. Composite Transactions Reporting System on the applicable date, or if there have been no reported sales on such date, on the last preceding date on which reported sales were effected.
2.11 Grantee means an Employee who has been granted an Award under the Plan.
2.12 Partnership means TEPPCO Partners, L.P., a Delaware limited partnership.
2.13 Phantom Units means a conditional promise by TEPPCO to make payment to a Grantee in cash, determined by reference to Units and in accordance with the terms of the Plan and the applicable Award Agreement.
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2.14 Plan means the Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit Plan, as set forth in this document and as it may be amended from time to time.
2.15 Separation From Service means the termination of the employment relationship between the Grantee and TEPPCO and all Affiliates.
2.16 TEPPCO means Texas Eastern Products Pipeline Company, LLC, a Delaware limited liability company.
2.17 Unit means a limited partnership unit in the Partnership.
2.18 Vested Interest means a Grantees nonforfeitable interest in his or her Award determined in accordance with Article V.
2.18 Year of Service means a consecutive 12-month period that commences on the date of grant of the applicable Award or an anniversary thereof.
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ARTICLE III
AWARDS
3.1 Granting of Awards. The Committee may grant to those regular, full-time salaried employees of TEPPCO as it shall determine Awards under the terms and conditions of the Plan.
3.2 Terms of Awards. The terms of each Award shall be specified in an Award Agreement. An Award Agreement shall specify (a) the number of Phantom Units subject to the Award, (b) the date on which the Award is granted, and (c) any other provisions that the Committee deems appropriate which are not inconsistent with the terms of the Plan.
3.3 Special Ledger. The Committee shall establish or cause to be established an appropriate record that will reflect the name of each Grantee and all other information necessary to properly reflect each Grantees Awards made by the Committee.
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ARTICLE IV
CALCULATION AND PAYMENT OF BENEFITS
4.1 Periodic Payments. Each time a quarterly cash distribution is paid to a Unit owner, TEPPCO shall pay to the Grantee, an amount equal to the product of the number of Phantom Units then credited to the Grantees Account and the amount of the cash distribution paid per Unit by the Partnership.
4.2 Redemption Payments. As soon as administratively practicable after the Grantee attains a Vested Interest in a Phantom Unit, TEPPCO shall pay the Grantee an amount equal to the Fair Market Value of a Unit determined as of the date the Grantee attains a Vested Interest in the Phantom Unit. Upon the redemption of the Phantom Unit the Phantom Unit shall no longer be credited to the Grantees Account.
4.3 Form of Payment Under an Award. All payments under Awards shall be in the form of cash.
4.4 No Interest on Award. No interest shall be credited with respect to any Award or any payment under an Award.
4.5 Adjustments Due to Changes in the Partnerships Capital Structure. If the Partnership shall effect a subdivision or consolidation of Units or other capital readjustment, or other increase or reduction of the number of Units outstanding, without receiving compensation for it in money, services or property, then the number of Phantom Units subject to outstanding Awards under the Plan shall be appropriately adjusted by the Committee in such a manner as to entitle a Grantee to receive the equivalent compensation he or she would have received under the Award had there been no event requiring the adjustment.
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ARTICLE V
VESTING OF AWARDS
A Grantee shall have a Vested Interest in the following percentage of
the number of Phantom Units initially granted under his or her Award (as
adjusted pursuant to Section 4.5);
Number of Years of Service
Vested Percentage
0
10
20
30
40
100
Except as specified above, a Grantee has no Vested Interest in the Phantom Units credited to his or her Account; [ provided, however , that upon the occurrence of a Change in Control prior to the Grantees Separation From Service, the Grantee shall have a 100 percent Vested Interest in the Phantom Units credited to his or her Account]. Upon a Grantees Separation From Service, the Grantee shall not earn any additional Years of Service and to the extent that the Grantee does not then have a Vested Interest in the Phantom Units credited to his or her Account such Phantom Units shall be immediately forfeited.
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ARTICLE VI
ADMINISTRATION
6.1 General. The Plan shall be administered by the Committee. All questions of interpretation and application of the Plan and Awards shall be subject to the determination of the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held.
6.2 Powers of Committee. The Committee shall have the exclusive responsibility for the general administration of the Plan according to the terms and provisions of the Plan and will have all the powers necessary to accomplish those purposes, including but not by way of limitation the right, power and authority:
(a) to make rules, regulations and administrative guidelines for the administration of the Plan;
(b) to construe all terms, provisions, conditions and limitations of the Plan;
(c) to correct any defect, supply any omission or reconcile any inconsistency that may appear in the Plan in the manner and to the extent it deems expedient to carry the Plan into effect for the greatest benefit of all parties at interest;
(d) to determine all controversies relating to the administration of the Plan, including but not limited to:
(1) differences of opinion arising between TEPPCO and a Grantee; and
(2) any question it deems advisable to determine in order to promote the uniform administration of the Plan for the benefit of all parties at interest;
(e) to determine the Employees who shall participate in the Plan from time to time;
(f) to determine the number of Phantom Units to be awarded to each Grantee; and
(g) to determine the terms and conditions, if any, not inconsistent with the terms of the Plan that are to be placed upon the Award or Awards given to a particular Grantee.
6.3 Committee Discretion. The Committee in exercising any power or authority granted under the Plan or in making any determination under the Plan shall perform or refrain
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from performing those acts in its sole discretion and judgment. Any decision made by the Committee or any refraining to act or any act taken by the Committee in good faith shall be final and binding on all parties. The Committees decisions shall never be subject to de novo review, but instead shall only be overturned if found to be arbitrary or capricious by an arbitrator or a court of law.
6.4 Disqualification of Committee Member. A member of the Committee shall not vote or act on any Plan matter relating solely to himself.
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ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole and absolute discretion. However, no amendment or termination of the Plan may, without the consent of a Grantee, reduce the Grantees right to a payment under the Plan that he or she is entitled to receive under the terms of the Plan in effect prior to the amendment or termination.
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ARTICLE VIII
FUNDING
8.1 Payments Under the Plan Are the Obligation of TEPPCO. Benefits due under the Plan will be paid by TEPPCO.
8.2 Grantees Must Rely Solely on the General Credit of TEPPCO. The Plan is only a general corporate commitment of TEPPCO and each Grantee must rely solely upon the general credit of TEPPCO for the fulfillment of its obligations hereunder. Under all circumstances the rights of the Grantee to any asset held by TEPPCO will be no greater than the rights expressed in the Plan. Nothing contained in the Plan or an Award will constitute a guarantee by TEPPCO that the assets of TEPPCO will be sufficient to pay any benefits under the Plan or would place the Grantee in a secured position ahead of general creditors of TEPPCO; the Grantees are only unsecured creditors of TEPPCO with respect to their Plan benefits and the Plan constitutes a mere promise by TEPPCO to make benefit payments in the future. No specific assets of TEPPCO have been or will be set aside, or will be pledged in any way for the performance of TEPPCOs obligations under the Plan which would remove such assets from being subject to the general creditors of TEPPCO.
8.3 Unfunded Arrangement. It is intended that the Plan shall be unfunded for tax purposes and for purposes of Title of the Employee Retirement Income Security Act of 1974, as amended.
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ARTICLE IX
MISCELLANEOUS
9.1 No Employment Obligation. The granting of any Award shall not constitute an employment contract, express or implied, nor impose upon TEPPCO or any Affiliate any obligation to employ or continue to employ the Grantee. The right of TEPPCO or any Affiliate to terminate the employment of any person shall not be diminished or affected by reason of the fact that an Award has been granted to him.
9.2 Tax Withholding. TEPPCO shall be entitled to deduct from payments made under an Award or other compensation payable to each Grantee any sums required by federal, state, or local tax law to be withheld with respect to payments under the Award.
9.3 Indemnification of the Committee. TEPPCO shall indemnify each present and future member of the Committee against, and each member of the Committee shall be entitled without further act on his or her part to indemnity from TEPPCO for, all expenses (including attorneys fees, the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to TEPPCO itself) reasonably incurred by him or her in connection with or arising out of any action, suit, or proceeding in which he or she may be involved by reason of his or her being or having been a member of the Committee, whether or not he or she continues to be a member of the Committee at the time of incurring the expenses including, without limitation, matters as to which he or she shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his or her duty as a member of the Committee. However, this indemnity shall not include any expenses incurred by any member of the Committee in respect of matters as to which he or she shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his or her duty as a member of the Committee. In addition, no right of indemnification under the Plan shall be available to or enforceable by any member of the Committee unless, within 60 days after institution of any action, suit or proceeding, he or she shall have offered TEPPCO, in writing, the opportunity to handle and defend same at its own expense. This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and shall be in addition to all other rights to which a member of the Committee may be entitled as a matter of law, contract, or otherwise.
9.4 Gender and Number. If the context requires, words of one gender when used in the Plan shall include the other and words used in the singular or plural shall include the other.
9.5 Headings. Headings of Articles and Sections are included for convenience of reference only and do not constitute part of the Plan and shall not be used in construing the terms of the Plan.
9.6 Other Compensation Plans. The adoption and maintenance of the Plan shall not affect any other stock option, incentive or other compensation or benefit plans in effect for TEPPCO or any Affiliate or preclude TEPPCO from establishing any other forms of incentive or other compensation for employees of TEPPCO or any Affiliate.
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9.7 Rights of Company and Affiliates. The existence of Phantom Units shall not affect in any way the right or power of TEPPCO or an Affiliate to (a) make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in TEPPCOs or an Affiliates structure or business, (b) approve and consummate any merger or consolidation of TEPPCO or an Affiliate with or into any entity, (c) issue any bonds, debentures or Company or Affiliate interests of any nature whatsoever to any person, (d) approve and consummate the dissolution or liquidation of TEPPCO or an Affiliate or any sale or transfer of all or any part of TEPPCOs or an Affiliates assets or business or (e) approve and consummate any other act or proceeding whether of a similar character or otherwise.
9.8 Nonalienation of Benefits. No benefit provided under the Plan shall be transferable by the Grantee except pursuant to a state domestic relations order. No right or benefit under the Plan shall be subject to anticipation, alienation, sale, assignment, pledge, encumbrance or charge. Any attempt to anticipate, alienate, sell, assign, pledge, encumber or charge any right or benefit under the Plan shall be void. No right or benefit under the Plan shall, in any manner, be liable for or subject to any debts, contracts, liabilities or torts of the person entitled to the right or benefit. If any Grantee becomes bankrupt or attempts to anticipate, alienate, assign, pledge, sell, encumber or charge any right or benefit under the Plan then the right or benefit shall, in the discretion of the Committee, cease. In that event, TEPPCO and/or one or more Affiliates may hold or apply the right or benefit or any part of the right or benefit for the benefit of the Grantee, his or her spouse, children or other dependents or any of them in the manner and in the proportion that the Committee shall deem proper, in its sole discretion, but is not required to do so. The restrictions in this Section 9.8 shall not apply to state domestic relations orders.
9.9 No Rights as an Owner. No Grantee shall have any rights as a Unit owner as a result of his or her Award. No Award will permit any Grantee to exercise any managerial rights or powers with respect to TEPPCO, the Partnership or any Affiliate.
9.10 Governing Law. The validity, interpretation, construction and enforceability of the Plan shall be governed by the laws of the State of Texas.
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IN WITNESS WHEREOF, TEPPCO has caused this Agreement to be executed by its authorized officer on this 1st day of June, 2002, effective as of June 1, 2002.
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC | ||||
By: | /s/ BARRY R. PEARL | |||
|
||||
Title: | President and Chief Executive Officer | |||
|
EXHIBIT 12.1
Statement of Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
Six months
ended
1997
1998
1999
2000
2001
June 30, 2002
(in thousands)
61,925
53,885
72,856
65,951
92,533
45,199
35,458
30,915
34,305
55,621
72,217
37,089
40,800
16,838
(1,478
)
(795
)
(2,133
)
(4,559
)
(4,000
)
(3,138
)
95,905
84,005
105,028
117,013
201,550
95,988
33,707
29,784
31,563
48,982
66,057
33,616
1,478
795
2,133
4,559
4,000
3,138
273
336
609
2,080
2,160
335
35,458
30,915
34,305
55,621
72,217
37,089
2.70
2.72
3.06
2.10
2.79
2.59
* | Excludes minority interest, extraordinary loss and undistributed equity earnings. |
EXHIBIT 21
Subsidiaries of the Partnership
TEPPCO Partners, L.P. (Delaware)
TEPPCO GP, Inc. (Delaware)
TE Products Pipeline Company, Limited Partnership (Delaware)
TEPPCO Colorado, LLC (Delaware)
TEPPCO Midstream Companies, L.P. (Delaware)
TEPPCO NGL Pipelines, LLC (Delaware)
Chaparral Pipeline Company, L.P. (Delaware)
Quanah Pipeline Company, L.P. (Delaware)
Panola Pipeline Company, L.P. (Delaware)
Dean Pipeline Company, L.P. (Delaware)
Wilcox Pipeline Company, L.P. (Delaware)
Val Verde Gas Gathering Company, L.P. (Delaware)
Jonah Gas Gathering Company (Wyoming general partnership)
TCTM, L.P. (Delaware)
TEPPCO Crude GP, LLC (Delaware)
TEPPCO Crude Pipeline, L.P. (Delaware)
TEPPCO Seaway, L.P. (Delaware)
TEPPCO Crude Oil, L.P. (Delaware)
Lubrication Services, L.P. (Delaware)
EXHIBIT 99.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, being the Chief Executive Officer of Texas Eastern Products Pipeline Company, LLC, the sole general partner of TEPPCO Partners, L.P. (the Company), hereby certifies that, to his knowledge, the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated, August 14, 2002
/s/ BARRY R. PEARL
|
|
Name: Barry R. Pearl |
|
Title: President and Chief Executive Officer | |
EXHIBIT 99.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, being the Chief Financial Officer of Texas Eastern Products Pipeline Company, LLC, the sole general partner of TEPPCO Partners, L.P. (the Company), hereby certifies that, to his knowledge, the Companys Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002, filed with the United States Securities and Exchange Commission pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated, August 14, 2002 |
/s/ CHARLES H. LEONARD
|
|
Name: Charles H. Leonard | |
Title: Senior Vice President and Chief Financial Officer | |