Enterprise Products Partners L.P.

SEC Filings

10-Q
TEPPCO PARTNERS LP filed this Form 10-Q on 05/06/1997
Entire Document
 


<PAGE>   1
===============================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                       OR

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

             FOR THE QUARTER ENDED MARCH 31, 1997



                          COMMISSION FILE NO. 1-10403


                             TEPPCO PARTNERS, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           DELAWARE                                         76-0291058
     (STATE OF INCORPORATION                             (I.R.S. EMPLOYER
         OR ORGANIZATION)                              IDENTIFICATION NUMBER)


                               2929 ALLEN PARKWAY
                                 P.O. BOX 2521
                           HOUSTON, TEXAS 77252-2521
          (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)


                                 (713) 759-3636
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


         Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding twelve 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
                                                   ---   ---
===============================================================================




<PAGE>   2




                         PART I. FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

                             TEPPCO PARTNERS, L.P.

                          CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                MARCH 31,  DECEMBER 31,
                                                                  1997        1996
                                                                --------    --------
                                                               (UNAUDITED) 
<S>                                                             <C>         <C>     
                                ASSETS

Current Assets:
     Cash and cash equivalents ..............................   $ 22,803    $ 34,047
     Short-term investments .................................     16,070      24,085
     Accounts receivable, trade .............................     16,060      18,326
     Inventories ............................................     17,611      18,914
     Other ..................................................      4,568       3,371
                                                                --------    --------
          Total current assets ..............................     77,112      98,743
                                                                --------    --------
Property, plant and equipment, at cost (net of accumulated
   depreciation and amortization of $155,451 and $149,597) ..    562,422     561,068
Investments .................................................      6,936       6,936
Other assets ................................................      4,653       4,494
                                                                --------    --------
         Total assets .......................................   $651,123    $671,241
                                                                ========    ========

                   LIABILITIES AND PARTNERS' CAPITAL

Current liabilities:

     Current maturities, First Mortgage Notes ...............   $ 17,000   $ 13,000
     Accounts payable and accrued liabilities ...............      6,455      8,300
     Accounts payable, general partner ......................      3,320      3,007
     Accrued interest .......................................      2,304     10,930
     Other accrued taxes ....................................      4,480      5,455
     Other ..................................................      4,870      6,861
                                                                --------   --------
          Total current liabilities .........................     38,429     47,553
                                                                --------   --------
First Mortgage Notes ........................................    309,512    326,512
Other liabilities and deferred credits ......................      3,708      3,902
Minority interest ...........................................      3,026      2,963
Partners' capital:
     General partner's interest .............................      5,028      4,616
     Limited partners' interests ............................    291,420    285,695
                                                                --------   --------
          Total partners' capital                                296,448    290,311
                                                                --------   --------
          Total liabilities and partners' capital ...........   $651,123   $671,241
                                                                ========   ========
</TABLE>



          See Accompanying Notes To Consolidated Financial Statements.




                                       2


<PAGE>   3



                             TEPPCO PARTNERS, L.P.

                       CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)




<TABLE>
<CAPTION>
                                                THREE MONTHS    THREE MONTHS
                                                   ENDED           ENDED
                                                  MARCH 31,      MARCH 31,
                                                    1997            1996
                                                ------------    ------------
<S>                                             <C>             <C>         
Operating Revenues:
     Transportation - Refined products ......   $     21,704    $     21,883
     Transportation - LPGs ..................         23,939          27,114
     Gain on sale of inventory ..............          1,497           1,543
     Mont Belvieu operations ................          2,763           2,840
     Other ..................................          5,522           5,469
                                                ------------    ------------
          Total operating revenues ..........         55,425          58,849
                                                ------------    ------------

Costs and Expenses:
     Operating, general and administrative ..         22,238          23,009
     Depreciation and amortization ..........          5,768           5,968
     Taxes - other than income taxes ........          2,474           2,336
                                                ------------    ------------
          Total costs and expenses ..........         30,480          31,313
                                                ------------    ------------

Operating income ............................         24,945          27,536

Interest expense, First Mortgage Notes ......         (8,604)         (8,867)
Interest costs capitalized ..................            655             170
Other income - net ..........................            981           1,492
                                                ------------    ------------
          Income before minority interest ...         17,977          20,331
Minority interest ...........................           (182)           (205)
                                                ------------    ------------


          Net income ........................   $     17,795    $     20,126
                                                ============    ============

          Net income per Unit ...............   $       1.14    $       1.32
                                                ============    ============
</TABLE>




          See accompanying Notes to Consolidated Financial Statements.

















                                       3


<PAGE>   4



                             TEPPCO PARTNERS, L.P.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
                                 (IN THOUSANDS)




<TABLE>
<CAPTION>
                                                                     THREE MONTHS    THREE MONTHS
                                                                        ENDED           ENDED
                                                                       MARCH 31,       MARCH 31,
                                                                         1997            1996
                                                                     ------------    ------------
<S>                                                                  <C>             <C>         
Cash flows from operating activities:
     Net income ..................................................   $     17,795    $     20,126
     Adjustments to reconcile net income to cash provided by
       operating activities:
          Depreciation and amortization ..........................          5,768           5,968
          Decrease in accounts receivable, trade .................          2,266           6,144
          Decrease in inventories ................................          1,303           2,748
          Increase in other current assets .......................         (1,197)         (1,162)
          Decrease in accounts payable and accrued expenses ......        (13,124)        (16,703)
          Other ..................................................           (155)           (101)
                                                                     ------------    ------------
            Net cash provided by operating activities ............         12,656          17,020
                                                                     ------------    ------------

Cash flows from investing activities:
     Proceeds from investments ...................................          7,970           4,861
     Investments .................................................             --          (5,786)
     Insurance proceeds related to damaged asset .................          1,046              --
     Restricted investments designated for property additions ....             --            (141)
     Capital expenditures ........................................         (8,139)         (4,145)
                                                                     ------------    ------------
            Net cash provided by (used in) investing activities ..            877          (5,211)
                                                                     ------------    ------------

Cash flows from financing activities:
     Principal payment, First Mortgage Notes .....................        (13,000)        (10,000)
     Distributions ...............................................        (11,777)        (10,810)
                                                                     ------------    ------------
            Net cash used in financing activities ................        (24,777)        (20,810)
                                                                     ------------    ------------

Net decrease in cash and cash equivalents ........................        (11,244)         (9,001)

Cash and cash equivalents at beginning of period .................         34,047          39,663
                                                                     ------------    ------------
Cash and cash equivalents at end of period .......................   $     22,803    $     30,662
                                                                     ============    ============

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest) ....   $     16,438    $     17,403
                                                                     ============    ============
</TABLE>




          See accompanying Notes to Consolidated Financial Statements.



                                       4


<PAGE>   5

                             TEPPCO PARTNERS, L.P.


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

     TEPPCO Partners, L.P. is a Delaware limited partnership which operates
through TE Products Pipeline Company, Limited Partnership, a Delaware limited
partnership (collectively the "Partnership"), in which TEPPCO Partners, L.P.
holds a 99% interest as the sole limited partner. Texas Eastern Products
Pipeline Company and Subsidiary Companies (the "Company"), a wholly owned
subsidiary of PanEnergy Corp (PanEnergy), is the general partner of the
Partnership and has agreed not to voluntarily withdraw as the general partner
of the Partnership, subject to certain limited exceptions, prior to January 1,
2000.

     The accompanying unaudited consolidated financial statements reflect all
adjustments, which are, in the opinion of management, of a normal and recurring
nature and necessary for a fair statement of the financial position of the
Partnership as of March 31, 1997, and the results of operations and cash flows
for the periods presented. The results of operations for the three months ended
March 31, 1997, are not necessarily indicative of results of operations for the
full year 1997. The interim financial statements should be read in conjunction
with the Partnership's consolidated financial statements and notes thereto
presented in the TEPPCO Partners, L. P. Annual Report on Form 10-K for the year
ended December 31, 1996.

     Net income per Unit is computed by dividing net income, after deduction of
the general partner's interest, by the weighted average number of Units
outstanding (a total of 14,500,000 Units as of March 31, 1997). The general
partner's percentage interest in net income is based on its percentage of cash
distributions from Available Cash for each period (see Note 5). The general
partner was allocated 6.72% and 5.15% of net income for the three months ended
March 31, 1997 and 1996, respectively.

NOTE 2. INVESTMENTS

SHORT-TERM INVESTMENTS

     The Partnership routinely invests cash in liquid short-term investments as
part of its cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash equivalents. At March 31, 1997,
short-term investments included $16.1 million of investment-grade corporate
notes, which mature within one year. All short-term investments are classified
as held-to-maturity securities and are stated at amortized cost. The aggregate
fair value of such securities approximates amortized cost at March 31, 1997.

LONG-TERM INVESTMENTS

     At March 31, 1997, the Partnership had $6.9 million invested in
investment-grade corporate notes, which have varying maturities from 1998
through 2001. These securities are classified as held-to-maturity securities
and are stated at amortized cost. The aggregate fair value of such securities
approximates amortized cost at March 31, 1997.

NOTE 3. FIRST MORTGAGE NOTES

     In connection with its formation, TE Products Pipeline Company, Limited
Partnership issued 9.60% Series A First Mortgage Notes, due 2000, and 10.20%
Series B First Mortgage Notes, due 2010 (collectively the "Notes"). The Notes,
which are secured by a mortgage on substantially all property, plant and
equipment of the Partnership, have mandatory annual prepayments at par through
March 7, 2010. Interest is payable semiannually on each March 7 and September 7
until retirement of the Notes. On March 7, 1997, the Partnership paid $13.0
million for current maturities due on the Notes. At March 31, 1997, the current
maturities of the Notes were $17.0 million, which are payable on March 6, 1998.

                                       5


<PAGE>   6

                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                  (UNAUDITED)


     The agreements relating to the Notes contain certain covenant
restrictions, including limitations on cash distributions and on the amount of
future indebtedness, none of which are expected to have a material adverse
effect on the Partnership's operations.

NOTE 4. 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):



<TABLE>
<CAPTION>
                                                       MARCH 31,    DECEMBER 31,
                                                         1997           1996
                                                     ------------   ------------
<S>                                                  <C>            <C>         
          Gasolines ..............................   $      3,570   $      3,232
          Propane ................................          5,613          6,550
          Butanes ................................          2,760          4,023
          Fuel oils ..............................             71             --
          Other products .........................          2,222          2,021
          Materials and supplies .................          3,375          3,088
                                                     ------------   ------------
                    Total ........................   $     17,611   $     18,914
                                                     ============   ============
</TABLE>


     The costs of inventories were lower than market at March 31, 1997, and
December 31, 1996.

NOTE 5. CASH DISTRIBUTIONS

     The Partnership makes quarterly cash distributions of all of its Available
Cash, generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the general partner in its sole
discretion or as required by the terms of the Notes.

     On February 7, 1997, the Partnership paid a cash distribution of $0.75 per
Unit for the fourth quarter of 1996. Additionally, on April 11, 1997, the
Partnership declared a cash distribution of $0.75 per Unit for the quarter
ended March 31, 1997. The distribution is payable on May 9, 1997, to
Unitholders of record on April 30, 1997.

     The Company receives incremental incentive distributions of 15%, 25% and
50% on quarterly distributions of Available Cash that exceed $0.55, $0.65 and
$0.90 per Unit, respectively. During the three months ended March 31, 1997 and
1996, incentive distributions paid to the Company totaled $0.7 million and $0.5
million, respectively.

NOTE 6. COMMITMENTS AND CONTINGENCIES

     The Partnership is involved in various claims and legal proceedings
incidental to its business. In the opinion of management, these claims and
legal proceedings will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.

      The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes the operations of the pipeline system are in material
compliance with applicable environmental regulations, risks of significant
costs and liabilities are inherent in pipeline operations, and there can be no
assurance 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

                                       6


<PAGE>   7


                             TEPPCO PARTNERS, L.P.

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                  (UNAUDITED)

claims for damages to property or persons resulting from the operations of the
pipeline system, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.

     As part of the Agreed Order entered into between the Partnership and the
Indiana Department of Environmental Management (IDEM), the Partnership has
completed the remedial investigation phase II sampling plan for groundwater
contamination at the Seymour, Indiana, terminal. Additionally, as a part of the
Agreed Order, the Partnership has presented a scope of work for the final
remedial investigation report for the Seymour terminal. The Agreed Order
entered into between the Partnership and IDEM will ultimately result in a
remediation program for any on-site and off-site environmental problems
attributable to the Partnership's operations at Seymour. In the opinion of the
general partner, the completion of the remediation program to be proposed by
the Partnership, if such program is approved by IDEM, will not have a material
adverse impact on the Partnership.

     Substantially all of the petroleum products transported and stored by the
Partnership are owned by the Partnership's customers. At March 31, 1997, the
Partnership had approximately 11.1 million barrels of products in its custody
owned by customers. The Partnership is obligated for the transportation,
storage and delivery of such products on behalf of its customers. The
Partnership maintains insurance adequate to cover product losses through
circumstances beyond its control.

                                       7


<PAGE>   8



I
TEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following information is provided to facilitate increased
understanding of the 1997 and 1996 interim consolidated financial statements
and accompanying notes presented in Item 1. 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. Discussion included in "Other Matters" addresses
key trends, futures plans and contingencies. Throughout these discussions,
management addresses items that are reasonably likely to materially affect
future liquidity or earnings.

RESULTS OF OPERATIONS

     The Partnership's operations consist of the transportation, storage and
terminaling of refined petroleum products and liquefied petroleum gases (LPGs).
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. 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
Midwest and Northeast for propane, a major fuel for residential heating, and
higher demand for butane, an additive for gasoline blending.

     Net income for the quarter ended March 31, 1997 was $17.8 million,
compared with net income of $20.1 million for the 1996 first quarter. The $2.3
million decrease in net income resulted primarily from a $3.4 million decrease
in operating revenues, which was partially offset by a $0.8 million decrease in
operating, general and administrative expenses. See discussion below of factors
affecting net income for the comparative periods.

      See volume and average tariff information below:


<TABLE>
<CAPTION>
                                         QUARTER ENDED MARCH 31,   PERCENTAGE
                                         -----------------------    INCREASE
                                            1997         1996      (DECREASE)
                                         ---------    ----------   -----------
<S>                                      <C>          <C>               <C>
VOLUMES DELIVERED
(in thousands of barrels)
   Refined products                          25,205       25,920       (3%)
   LPGs                                      12,064       12,845       (6%)
   Mont Belvieu operations                    6,188        4,963       25%
                                         ----------   ----------   ----------
      Total                                  43,457       43,728       (1%)
                                         ==========   ==========   ==========

AVERAGE TARIFF PER BARREL
   Refined products                      $     0.86   $    0.84         2%
   LPGs                                        1.98        2.11        (6%)
   Mont Belvieu operations                     0.16        0.18       (11%)
      Average system tariff per barrel   $     1.07   $    1.14        (6%)
                                         ==========   ==========   ==========
</TABLE>


     Refined products transportation revenues decreased $0.2 million for the
quarter ended March 31, 1997, compared with the prior-year quarter, as a result
of lower deliveries of motor fuel and distillate due primarily to increased
refinery utilization in the Midwest market areas, coupled with lower refinery
production along the upper Texas Gulf Coast. These decreases were partially
offset by increased deliveries of jet fuel attributable to the pipeline
connection at the Little Rock Air Force Base, which was completed in June 1996,
and increased demand at commercial airports served by the pipeline system.
Additionally, deliveries of gasoline blend stocks, primarily methyl tertiary
butyl ether (MTBE) and toluene, were higher than the prior year due to
increased barge deliveries at the Partnership's marine terminal near Beaumont,
Texas, as well as higher demand in the Midwest.



                                       8


<PAGE>   9


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

RESULTS OF OPERATIONS - (CONTINUED)

     LPGs transportation revenues decreased $3.2 million for the quarter ended
March 31, 1997, compared with the first quarter of 1996, due primarily to a 12%
decrease in propane deliveries in the Midwest and Northeast market areas
attributable to warmer winter weather in 1997. Additionally, butane deliveries
decreased 27% during the 1997 first quarter as a result of increased Canadian
imports into the Midwest as well as lower Gulf Coast supply. These decreases
were partially offset by higher petrochemical demand for propane along the
upper Texas Gulf Coast. The decrease in long-haul propane deliveries to the
Northeast, coupled with the increase in short-haul Gulf Coast deliveries,
resulted in the 6% decrease in the LPGs average system tariff per barrel.

     Revenues generated from Mont Belvieu operations decreased slightly during
the first quarter of 1997, compared with the first quarter of 1996, due
primarily to lower storage revenues attributable to lower shipper inventory
levels, partially offset by a 25% increase in shuttle deliveries. The Mont
Belvieu operations average tariff per barrel for shuttle deliveries decreased
during 1997 as a result of higher contract deliveries, which generally carry
lower tariffs.

     Operating, general and administrative expenses decreased $0.8 million
during the quarter ended March 31, 1997, compared with the prior-year quarter,
due primarily to decreased product measurement losses, decreased expenses for
legal services and lower insurance premiums. These decreases were partially
offset by increased expenses for pensions and benefits costs.

     Interest expense decreased $0.3 million during the first quarter of 1997,
compared with 1996, due to principal payments on the First Mortgage Notes of
$10.0 million and $13.0 million during March 1996 and March 1997, respectively.
Capitalized interest increased $0.5 million over the prior year quarter as a
result of increased capitalized spending during 1997. Lower interest expense
was partially offset by a $0.5 million decrease in other income as a result of
lower interest income earned on cash investments.

FINANCIAL CONDITION AND LIQUIDITY

     Net cash from operations for the three months ended March 31, 1997 totaled
$12.7 million, compared with $17.0 million for the corresponding period in
1996. The decrease resulted from a $2.5 million decrease in income before
charges for depreciation and amortization, and a $1.8 million decrease in other
working capital changes. The decrease in working capital sources of cash was
due primarily to lower accounts receivable balances outstanding at the
beginning of 1997, partially offset by lower cash payments for accrued expenses
during the first quarter of 1997. Net cash from operations for the three months
ended March 31, 1997 and 1996 reflect semi-annual interest payments related to
the Notes of $17.1 million and $17.6 million, respectively.

     Cash flows from investing activities during the first quarter of 1997
included proceeds from investments of $8.0 million and insurance proceeds of
$1.0 million, offset by $8.1 million of capital expenditures. The insurance
proceeds received during the first quarter of 1997 relate to the replacement
value of a 20-inch diameter auxiliary pipeline at the Red River in central
Louisiana, which was damaged in 1994 and subsequently removed from service.
Cash flows from investing activities during the first quarter of 1996 included
proceeds from investments of $4.9 million, offset by $5.8 million of additional
investments and capital expenditures of $4.1 million. The increase in capital
expenditures in 1997 reflects the continuation of construction projects which
commenced during the later part of 1996. The Partnership revises capital
spending periodically in response to changes in cash flows and operations.

     The Partnership paid the fourth quarter 1996 cash distribution of $11.8
million ($0.75 per Unit) on February 7, 1997. Additionally, on April 11, 1997,
the Partnership declared a cash distribution of $0.75 per Unit for the three
months ended March 31, 1997. The distribution is payable on May 9, 1997 to
Unitholders of record on April 30, 1997.



                                       9


<PAGE>   10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

FINANCIAL CONDITION AND LIQUIDITY - (CONTINUED)

     The Notes, which are secured by a mortgage on substantially all property,
plant and equipment of the Partnership, require annual principal payments
through March 2010. Interest is payable semi-annually on March 7 and September
7. Cash and cash equivalents were reduced by the $13.0 million principal
payment related to the Notes on March 7, 1997. At March 31, 1997, the current
maturities of the Notes were $17.0 million. The note agreement relating to the
Notes limits the amount of cash distributions that can be made by TE Products
Pipeline Company, Limited Partnership to TEPPCO Partners, L.P. Such restriction
is not anticipated to preclude the Partnership from making quarterly
distributions to Unitholders of at least $0.75 per Unit during 1997.

OTHER MATTERS

     The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes the operations of the pipeline system are in material
compliance with applicable environmental regulations, risks of significant
costs and liabilities are inherent in pipeline operations, and there can be no
assurance 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 the operations of the
pipeline system could result in substantial costs and liabilities to the
Partnership.

     As part of the Agreed Order entered into between the Partnership and the
Indiana Department of Environmental Management (IDEM), the Partnership has
completed the remedial investigation phase II sampling plan for groundwater
contamination at the Seymour, Indiana, terminal. Additionally, as a part of the
Agreed Order, the Partnership has presented a scope of work for the final
remedial investigation report for the Seymour terminal. The Agreed Order
entered into between the Partnership and IDEM will ultimately result in a
remediation program for any on-site and off-site environmental problems
attributable to the Partnership's operations at Seymour. In the opinion of the
general partner, the completion of the remediation program to be proposed by
the Partnership, if such program is approved by IDEM, will not have a material
adverse impact on the Partnership.

     During the first quarter of 1997, the Partnership completed its Midwest
mainline expansion project, which added 50,000 barrels per day of capacity
between El Dorado, Arkansas, and Seymour, Indiana. On March 31, 1997, the
Partnership placed in service the expansion of the Ark-La-Tex system between
Shreveport, Louisiana, and El Dorado. This project provides an additional
25,000 barrels per day of refined products transportation capacity.
Additionally, on May 1, 1997, the Partnership placed in service the connection
of the pipeline system to Colonial Pipeline Company's (Colonial) pipeline at
Beaumont, Texas. The Partnership has entered into a 10-year capacity lease with
Colonial, whereby the Partnership has guaranteed a minimum monthly throughput
rate for the new connection. The Ark-La-Tex system expansion and the connection
to the Colonial pipeline system relieve origin constraints of refined products
to the Partnership's mainline system allowing additional capacity created by
the Midwest expansion project to be utilized.











                                       10


<PAGE>   11




 
                          PART II. OTHER INFORMATION



ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits:

            Exhibit
            Number     Description
            ------     -----------

             10        Texas Eastern Products Pipeline Company 1997 Employee
                       Incentive Compensation Plan executed on January 29, 1997.

             27        Financial Data Schedule as of and for the three months 
                       ended March 31, 1997.


      (b)   Reports on Form 8-K: None



Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.






                                       11


<PAGE>   12



                                   SIGNATURE

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED DULY AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER.


                                  TEPPCO Partners, L.P.
                                      (Registrant)

                                  By: Texas Eastern Products Pipeline Company,
                                      General Partner



                                         /s/ CHARLES H. LEONARD
                                  -------------------------------------------
                                             Charles H. Leonard
                                  Sr. Vice President, Chief Financial Officer
                                               and Treasurer
















Date: May 6, 1997

                                       12







<PAGE>   1
                                                                     EXHIBIT 10.

                    TEXAS EASTERN PRODUCTS PIPELINE COMPANY
                   1997 EMPLOYEE INCENTIVE COMPENSATION PLAN





         Texas Eastern Products Pipeline Company ("TEPPCO") hereby establishes,
effective as of January 1, 1997, the Texas Eastern Products Pipeline Company
1997 Employee Incentive Compensation Plan providing as follows:

I.       PURPOSE

         The Plan is intended to provide a method whereby eligible employees of
TEPPCO may be motivated through personal financial gain linked to the
performance of TEPPCO Partners, L.P. (the "Partnership"), to strive to further
enhance the Partnership's financial performance.

II.      DEFINITIONS

         Unless the meaning is clearly different when used in context, these
terms shall have the meanings set forth below.  Wherever applicable, the
masculine pronoun as used herein shall be deemed to mean the feminine, the
feminine pronoun the masculine, the singular the plural and the plural the
singular.

         A.      "Attainable Earnings Level" shall mean the earnings level,
expressed in terms of net income, that the Committee determines, for purposes
of this Plan, that the Partnership might expect for its fiscal year coinciding
with a particular Plan Year, assuming current business activity, expected new
projects,
 and some growth or other improvement.

         B.      "Award Amount" shall have the meaning set forth in Article
V.B. of this Plan.

         C.      "Board" shall mean the Board of Directors of TEPPCO.

         D.      "Eligible Employee" shall mean a person who is a regular,
full-time employee of TEPPCO and performs services on a full-time

<PAGE>   2
basis for TEPPCO and/or the Partnership, but who is not eligible to participate
in the TEPPCO MICP and who is not a member of the Committee identified in
Article III.

         E.      "L.P. Unit" shall mean a single unit representing a limited
partnership interest in TEPPCO Partners, L.P.

         F.      "Incentive Unit" shall mean an award unit attributable to a
specified earnings level as set forth in Article V, but shall not represent or
be construed in any way as being a L.P. Unit.

         G.      "Net Income" shall mean the Partnership's year end net income
as set forth in the Partnership's publicly reported consolidated financial
statements for the Partnership's fiscal year, except, that the Committee, in
its sole discretion, may adjust net income to disregard any financial item that
it determines to be inappropriate for Plan purposes and may utilize such
adjusted net income as net income for all Plan purposes.

         H.      "PanEnergy" shall mean PanEnergy Corp. and its Subsidiaries.

         I.       "Plan" shall mean the Texas Eastern Products Pipeline Company
1997 Employee Incentive Compensation Plan.

         J.      "Plan Year" shall mean each 12-month period beginning on
January 1 and ending on December 31, with the initial Plan Year beginning
January 1, 1997.

         K.      "Stretch Earnings Level" shall mean the earnings level,
expressed in terms of net income, that the Committee determines, for purposes
of the Plan, that the Partnership might expect for its fiscal year coinciding
with a particular Plan year, assuming better than anticipated operating
conditions, growth or other earnings improvement.

         L.      "Subsidiary" shall mean any corporation in which





                                       2

<PAGE>   3
PanEnergy directly or indirectly owns more than 50% of the issued and
outstanding voting stock.

         M.      "Sustainable Earnings Level" shall mean the earnings level,
expressed in terms of net income, that the Committee determines, for purposes
of this Plan, that the Partnership might expect for its fiscal year coinciding
with a particular Plan Year, assuming continuation of base business and normal
operating conditions.

         N.      "TEPPCO MICP" shall mean the Texas Eastern Products Pipeline
Company Management Incentive Compensation Plan.

III.     ADMINISTRATION AND INTERPRETATION

         A.      The Plan shall be administered by a committee of the Board
consisting of not less than three members appointed by the Board and serving at
the Board's pleasure (the "Committee").  Each member of the Committee shall be
a member of the Board and no Committee member shall be eligible to participate
in the Plan.  Any vacancy occurring in the membership of the Committee shall be
filled by appointment by the Board.

         B.      The Committee shall, in its discretion, have full authority to
administer and interpret the Plan and to make all determinations under the
Plan, and may prescribe, amend, and rescind rules and procedures and take such
other action as it deems necessary or advisable for the administration of the
Plan, except as otherwise expressly reserved to the Board in the Plan.  Any
interpretation, determination or other action made or taken by the Committee
shall be final, binding and conclusive upon all parties.

         C.      The Committee may authorize persons other than its members to
carry out its duties, including the authority to approve an individual's
becoming a Participant, subject to the limitations





                                       3

<PAGE>   4
and guidelines set by the Committee.  Subject to the provisions of the Plan,
any person to whom such authority is delegated may continue to be a Participant
provided that any non-ministerial determination with respect to such person's
participation in the Plan shall be made directly by the Committee and
independent of such delegation.

IV.      ELIGIBLE EMPLOYEES

         A.      Each individual who is an Eligible Employee on January 1,
1997, shall become a Participant for the 1997 Plan Year.

         B.      An individual who is an Eligible Employee on the first day of
any subsequent Plan Year shall become a Participant for such Plan Year.

         C.      Except as otherwise provided in Section A above, in the case
of an individual who is an Eligible Employee during a Plan Year, but not on the
first day of such Plan year, the individual shall become a Participant for such
Plan Year only with the approval of the Committee or its authorized
representative.





                                       4

<PAGE>   5
V.       AWARDS

         A.      During April of the 1997 Plan Year, and during January of each
subsequent Plan Year, the Committee shall determine the sustainable Earnings
Level, the Attainable Earnings Level and the Stretch Earnings Level, each with
a corresponding number of Incentive Units, that shall apply to each Participant
for such Plan Year, and shall cause such information to be communicated to such
Participants.  Following the end of a Plan Year and the public announcement of
the Partnership's net income for the Partnership's fiscal year coinciding with
the Plan Year, the Committee shall credit each Participant for the Plan Year
who is an Eligible Employee as of the last day of such Plan Year with the
appropriate number of Incentive Units, determined on the basis of which one, if
any, of the Sustainable, Attainable or Stretch Earnings Levels has been
achieved by such net income.  For purposes of the preceding sentence, a
Participant who ceases to be an Eligible Employee on account of death,
disability or retirement under a retirement plan in which TEPPCO participates,
nevertheless, shall be deemed to be an  Eligible Employee as of the last day of
such Plan Year.

         B.      The Committee shall credit each Participant for a Plan Year
with an Award Amount for the Plan Year equal to the dollar amount produced by
multiplying the total number of Incentive Units credited to such participant
for such Plan Year times the total quarterly cash distributions paid by the
Partnership on one (1) L.P. Unit with respect to the Partnership's fiscal
quarters covered by such Plan Year.  It is intended that the resulting monetary
amount will be substantially equivalent to the total distributions that would
have been paid by the Partnership to the Participant had the Participant been
the owner during the respective period of a





                                       5

<PAGE>   6
number of L.P. Units equal to the number of Incentive Units credited to the
Participant for the Plan Year.  Notwithstanding the foregoing, in the case of a
Participant who is not an Eligible Employee for any portion of a Partnership
fiscal quarter covered by a Plan Year (other than on account of termination
after TEPPCO employment by reason of death, disability or retirement under a
retirement plan in which TEPPCO participates), such Participant shall not
receive credit for any distributions paid by the Partnership with respect to
such fiscal quarter.

VI.      PAYMENT OF AWARDED AMOUNT

         A.      A Participant's Award Amount for a Plan Year shall be paid in
a cash lump sum, subject to withholding for taxes and other lawful purposes, as
of February 15 following the close of the Plan Year (except that if February 15
is not a business day, the first succeeding business day).

         B.      If a Participant dies before payment of an unforfeited Award
Amount, such unpaid Award Amount shall be paid to the Participant's surviving
spouse, or if no surviving spouse exists, to the Participant's estate or legal
representative.

VII.     LIMITATIONS

         A.       No Participant or any other person shall have any interest in
TEPPCO, the Partnership, TE Products Pipeline Company, Limited Partnership, or
PanEnergy, any fund or in any specific asset or assets of TEPPCO, the
Partnership, TE Products Pipeline Company, Limited Partnership, or PanEnergy by
reason of participation in the Plan.  No Participant shall have the right to
assign, pledge or otherwise dispose of or otherwise encumber any Plan benefit,
nor shall such Participant's contingent interest in such benefit be subject to
garnishment, attachment, transfer by





                                       6

<PAGE>   7
operation of law, or any legal process.

         B.      Participation in the Plan does not confer any right of
continued TEPPCO employment or any right to receive any payment under the Plan.

         C.      Any unpaid Award Amount credited to a Participant shall be
forfeited in the following circumstances (unless the Committee, in its sole
discretion, determines otherwise):

                 1.       The Participant engages in willful, deliberate or
                          gross misconduct during TEPPCO employment; or

                 2.       If the Participant engages in activities competitive
                          with, or activities otherwise to the detriment of,
                          TEPPCO, the Partnership or PanEnergy, following
                          termination of TEPPCO employment.

VIII.    NATURE OF PLAN

         The obligation to make cash payments under the Plan shall be a
general, unsecured obligation of TEPPCO payable solely from the general assets
of TEPPCO, and no Participant shall have any interest in any assets of TEPPCO
by virtue of this Plan.  Nothing in this Article VIII shall be construed to
prevent TEPPCO from implementing or setting aside funds in a grantor trust
subject to the claims of TEPPCO's creditors.  The establishment and operation
of the Plan or the setting aside of any funds shall not be deemed to create a
trust.  Legal and equitable title to any funds set aside for the purposes of
the Plan, other than any grantor trust subject to the claims of TEPPCO's
creditors, shall remain in TEPPCO and shall remain subject to the general
creditors of TEPPCO, present and future.

IX.      AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN

         The Board may at any time amend, suspend or terminate the





                                       7

<PAGE>   8
Plan, in whole or in part, except that no amendment, suspension or termination
shall reduce any Award Amount credited to a Participant prior to the date of
such amendment, suspension or termination.  The Texas Eastern Products Pipeline
Company 1995 Employee Incentive Compensation Plan shall terminate as of the
1997 Plan Year, except for any awards to be made thereunder.

X.       SUCCESSORS AND ASSIGNS

         The provisions of the Plan shall be binding upon TEPPCO and its
successors and assigns and upon the Participant, his or her surviving spouse,
estate (including heirs, legatees, executors and administrators) or other legal
representative.

XI.      GOVERNING LAW

         The Plan shall be governed by, and construed and enforced in
accordance with, the laws of the State of Texas applicable to transactions that
take place entirely within the State of Texas, and, where applicable, the laws
of the United States of America.



         IN WITNESS WHEREOF, the undersigned have executed this Plan this 29th
day of January, 1997.

                                  TEXAS EASTERN PRODUCTS PIPELINE COMPANY



ATTEST:



  John Merli                      By:   W. L. Thacker               
- --------------------                 --------------------------------




                                       8



<TABLE> <S> <C>

<ARTICLE> 5
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   3-MOS
<FISCAL-YEAR-END>                          DEC-31-1997
<PERIOD-START>                             JAN-01-1997
<PERIOD-END>                               MAR-31-1997
<CASH>                                          22,803
<SECURITIES>                                    16,070
<RECEIVABLES>                                   16,060
<ALLOWANCES>                                         0
<INVENTORY>                                     17,611
<CURRENT-ASSETS>                                77,112
<PP&E>                                         717,873
<DEPRECIATION>                                 155,451
<TOTAL-ASSETS>                                 651,123
<CURRENT-LIABILITIES>                           38,429
<BONDS>                                        309,512
<PREFERRED-MANDATORY>                                0
<PREFERRED>                                          0
<COMMON>                                             0
<OTHER-SE>                                     296,448
<TOTAL-LIABILITY-AND-EQUITY>                   651,123
<SALES>                                              0
<TOTAL-REVENUES>                                55,425
<CGS>                                                0
<TOTAL-COSTS>                                   30,480
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               8,604
<INCOME-PRETAX>                                 17,977
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                             17,795
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    17,795
<EPS-PRIMARY>                                     1.14
<EPS-DILUTED>                                     1.14
        

</TABLE>