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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 JUNE 30, 1998
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)
COMMISSION FILE NO. 1-13603
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0329620
(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 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
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PRELIMINARY NOTE
TEPPCO Partners, L.P. (the "Parent Partnership") is a holding company
that owns all of its assets and conducts all of its business through TE Products
Pipeline Company, Limited Partnership (the "Operating Partnership"), and TEPPCO
Colorado, LLC ("TEPPCO Colorado"), which is a wholly-owned subsidiary of the
Operating Partnership. The Operating Partnership is owned 99% by the Parent
Partnership and 1% by Texas Eastern Products Pipeline Company, which serves as
general partner of the Parent Partnership and the Operating Partnership. No
separate financial information for the Operating Partnership has been provided
or incorporated by reference in this report because: (i) the Parent Partnership
does not itself conduct any operations but rather all operations of the Parent
Partnership and its subsidiaries are conducted by the Operating Partnership and
its subsidiary; (ii) the Parent Partnership has no material assets other than
its ownership interest in the Operating Partnership; and (iii) all of the assets
and liabilities shown in the consolidated financial statements for the Parent
Partnership are located at the Operating Partnership and TEPPCO Colorado.
Collectively, the Parent Partnership, the Operating Partnership and TEPPCO
Colorado are referred to as "the Partnership."
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ 39,755 $ 43,961
Short-term investments ........................................ 840 2,105
Accounts receivable, trade .................................... 13,833 19,826
Inventories ................................................... 22,146 21,094
Other ......................................................... 3,189 4,173
------------- ------------
Total current assets ....................................... 79,763 91,159
------------- ------------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $181,536 and $170,063) ....... 566,702 567,681
Investments ..................................................... 9,171 10,010
Intangible assets ............................................... 37,844 --
Other assets .................................................... 5,366 5,059
------------- ------------
Total assets ............................................... $ 698,846 $ 673,909
============= ============
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities, First Mortgage Notes ...................... $ -- $ 17,000
Accounts payable and accrued liabilities ...................... 8,032 9,615
Accounts payable, general partner ............................. 3,615 3,735
Accrued interest .............................................. 12,119 10,539
Other accrued taxes ........................................... 6,320 6,246
Other ......................................................... 5,915 6,740
------------- ------------
Total current liabilities .................................. 36,001 53,875
------------- ------------
First Mortgage Notes ............................................ -- 309,512
Senior Notes .................................................... 389,707 --
Other long-term debt ............................................ 38,000 --
Other liabilities and deferred credits .......................... 4,174 4,462
Minority interest ............................................... 2,335 3,093
Partners' capital:
General partner's interest .................................... (865) 5,760
Limited partners' interests ................................... 229,494 297,207
------------- ------------
Total partners' capital .................................... 228,629 302,967
------------- ------------
Total liabilities and partners' capital .................... $ 698,846 $ 673,909
============= ============
See accompanying Notes to Consolidated Financial Statements.
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TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ ------------ ------------
Operating revenues:
Transportation - Refined products ............. $ 32,755 $ 30,957 $ 55,217 $ 52,661
Transportation - LPGs ......................... 9,762 13,805 31,577 37,744
Mont Belvieu operations ....................... 2,418 2,857 5,088 5,620
Other ......................................... 6,625 5,030 9,883 12,049
------------ ------------ ------------ ------------
Total operating revenues ................... 51,560 52,649 101,765 108,074
------------ ------------ ------------ ------------
Costs and expenses:
Operating, general and administrative ......... 16,972 16,440 32,816 31,890
Operating fuel and power ...................... 6,575 7,342 12,765 14,130
Depreciation and amortization ................. 6,625 5,933 12,705 11,701
Taxes - other than income taxes ............... 2,459 2,418 5,036 4,892
------------ ------------ ------------ ------------
Total costs and expenses ................... 32,631 32,133 63,322 62,613
------------ ------------ ------------ ------------
Operating income ........................... 18,929 20,516 38,443 45,461
Interest expense ................................ (7,521) (8,367) (14,677) (16,971)
Interest capitalized ............................ 233 317 517 972
Other income - net .............................. 1,033 793 1,680 1,774
------------ ------------ ------------ ------------
Income before minority interest and
extraordinary loss on debt extinguishment . 12,674 13,259 25,963 31,236
Minority interest ............................... (128) (134) (262) (316)
------------ ------------ ------------ ------------
Income before extraordinary loss
on debt extinguishment .................. 12,546 13,125 25,701 30,920
------------ ------------ ------------ ------------
Extraordinary loss on debt extinguishment,
net of minority interest ...................... -- -- (72,767) --
------------ ------------ ------------ ------------
Net income (loss) .......................... $ 12,546 $ 13,125 $ (47,066) $ 30,920
============ ============ ============ ============
Basic income (loss) per Limited Partner Unit:*
Income before extraordinary loss ........... $ 0.39 $ 0.42 $ 0.80 $ 0.99
Extraordinary loss ......................... -- -- (2.28) --
------------ ------------ ------------ ------------
Net income (loss) .......................... $ 0.39 $ 0.42 $ (1.48) $ 0.99
============ ============ ============ ============
Diluted income (loss) per Limited Partner Unit:*
Income before extraordinary loss ........... $ 0.39 $ 0.42 $ 0.80 $ 0.99
Extraordinary loss ......................... -- -- (2.28) --
------------ ------------ ------------ ------------
Net income (loss) .......................... $ 0.39 $ 0.42 $ (1.48) $ 0.99
============ ============ ============ ============
See accompanying Notes to Consolidated Financial Statements.
* Per Limited Partner Unit amounts have been adjusted to reflect the
two-for-one Unit split announced on July 21, 1998.
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TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1998 1997
---------- ----------
Cash flows from operating activities:
Net income (loss) .................................................. $ (47,066) $ 30,920
Adjustments to reconcile net income (loss) to cash provided by
operating activities:
Depreciation and amortization .................................. 12,705 11,701
Extraordinary loss on early extinguishment of debt,
net of minority interest ................................... 72,767 --
Gain on sale of property, plant and equipment .................. (356) --
Decrease in accounts receivable, trade ......................... 5,993 1,472
Decrease (increase) inventories ................................ (1,052) 1,235
Decrease (increase) in other current assets .................... 984 (1,045)
Decrease in accounts payable and accrued expenses .............. (874) (3,189)
Other .......................................................... (425) (614)
---------- ----------
Net cash provided by operating activities ..................... 42,676 40,480
---------- ----------
Cash flows from investing activities:
Proceeds from investments ............................................. 2,105 15,970
Purchases of investments .............................................. -- (3,906)
Insurance proceeds related to damaged asset ........................... -- 1,046
Purchase of fractionator assets and related intangible assets ......... (40,000) --
Proceeds from the sale of property, plant and equipment ............... 525 --
Capital expenditures .................................................. (9,530) (15,420)
---------- ----------
Net cash used in investing activities ......................... (46,900) (2,310)
---------- ----------
Cash flows from financing activities:
Principal payment, First Mortgage Notes ............................... (326,512) (13,000)
Prepayment premium, First Mortgage Notes .............................. (70,093) --
Issuance of Senior Notes .............................................. 389,694 --
Debt issuance costs, Senior Notes ..................................... (3,651) --
Proceeds from term-loan ............................................... 38,000 --
Distributions ......................................................... (27,420) (23,554)
---------- ----------
Net cash provided by (used in) financing activities ........... 18 (36,554)
---------- ----------
Net increase (decrease) in cash and cash equivalents .................... (4,206) 1,616
Cash and cash equivalents at beginning of period ........................ 43,961 34,047
---------- ----------
Cash and cash equivalents at end of period .............................. $ 39,755 $ 35,663
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest) ........... $ 12,292 $ 16,121
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Basis of Presentation
TEPPCO Partners, L.P. (the "Parent Partnership") is a Delaware limited
partnership which operates through TE Products Pipeline Company, Limited
Partnership (the "Operating Partnership"), a Delaware limited partnership, in
which TEPPCO Partners, L.P. holds a 99% interest as the sole limited partner.
TEPPCO Colorado, LLC ("TEPPCO Colorado"), a Delaware limited liability company,
is a wholly-owned subsidiary of the Operating Partnership. Texas Eastern
Products Pipeline Company (the "Company"), an indirect wholly-owned subsidiary
of Duke Energy Corporation ("Duke Energy"), owns a 1% general partner interest
in both the Parent Partnership and the Operating Partnership. Collectively, the
Parent Partnership, the Operating Partnership and TEPPCO Colorado are referred
to as "the Partnership." The Company's 1% general partner interest in the
Operating Partnership, is accounted for as a minority interest. The Company
executed an Amended and Restated Agreement of Limited Partnership of both the
Parent Partnership and the Operating Partnership, effective July 21, 1998 (the
"Restated Partnership Agreements"). The Restated Partnership Agreements
eliminate or update obsolete provisions of the prior partnership agreements and
make certain other changes, none of which adversely affect any Unitholder of the
Partnership.
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 June 30, 1998, and the results of operations and cash
flows for the periods presented. The results of operations for the six months
ended June 30, 1998, are not necessarily indicative of results of operations for
the full year 1998. 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, 1997. Certain amounts from the prior year have
been reclassified to conform to current presentation.
On July 21, 1998, the Partnership announced a two-for-one split of the
Parent Partnership's outstanding Units. The Unit split will entitle
Unitholders of record at the close of business on August 10, 1998 to receive one
additional Unit for each Unit held. Certificates for the additional Units will
be issued and mailed on or about August 21, 1998. All references to the number
of Units and per Unit amounts in the consolidated financial statements and
related notes have been restated to reflect the two-for-one split for all
periods presented.
Basic net income per Limited Partner Unit is computed by dividing net
income, after deduction of the general partner's interest, by the weighted
average number of Limited Partner Units outstanding (a total of 29,000,000 Units
as of June 30, 1998, including the effect of the two-for-one split noted above).
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
7. Cash Distributions). The general partner was allocated $4.1 million (8.78%)
of the net loss for the six months ended June 30, 1998, and $2.1 million (6.72%)
of the net income for the six months ended June 30, 1997.
Diluted net income per Limited Partner Unit is similar to the
computation of basic net income per Limited Partner 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 quarters ended June
30, 1998 and 1997, the denominator was increased by 50,896 Units and 30,552
Units, respectively. For the six months ended June 30, 1998 and 1997, the
denominator was increased by 48,732 Units and 31,436 Units, respectively.
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Note 2. Accounting Policy Changes
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." This
statement establishes standards for reporting and display of comprehensive
income and its components in a full set of financial statements. The Partnership
adopted SFAS No. 130 during the first quarter of 1998 without impact on its
financial condition or results of operations.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires that enterprises report selected
information about operating segments in interim reports. The Partnership will
adopt this standard during the fourth quarter of 1998. As SFAS No. 131
establishes standards for reporting and display, the Partnership does not expect
the adoption of this statement to have a material impact on its financial
condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes standards for
and disclosures of derivative instruments and hedging activities. This statement
is effective for fiscal years beginning after June 15, 1999. The Partnership
does not expect the adoption of this statement to have a material impact on its
financial condition or results of operations.
NOTE 3. RELATED PARTY TRANSACTIONS
As of March 31, 1998, TEPPCO Colorado purchased two fractionation
facilities located in Weld County, Colorado, from Duke Energy Field Services,
Inc. ("DEFS"), a wholly-owned subsidiary of Duke Energy. TEPPCO Colorado and
DEFS entered into a twenty year fractionation agreement ("Fractionation
Agreement"), whereby TEPPCO Colorado will receive a variable fee for all
fractionated volumes delivered to DEFS. The purchase price of these transactions
was $40 million. Intangible assets include $38 million of value assigned to the
Fractionation Agreement, which will be amortized on a straight-line method over
the term of the Fractionation Agreement. The remaining purchase price of $2.0
million was allocated to the fractionator facilities purchased. TEPPCO Colorado
and DEFS also entered into a Operations and Management Agreement whereby DEFS
will operate and maintain the fractionation facilities. TEPPCO Colorado will pay
DEFS a set volumetric rate for all fractionated volumes delivered to DEFS.
NOTE 4. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments
as part of it cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash equivalents. At June 30, 1998,
short-term investments included $0.8 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 June 30, 1998.
LONG-TERM INVESTMENTS
At June 30, 1998, the Partnership had $9.2 million invested in
investment-grade corporate notes, which have varying maturities from 1999
through 2002. These securities are classified as held-to-maturity securities and
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
are stated at amortized cost. At June 30, 1998, the aggregate fair value and
unrealized gain for these securities was $9.3 million and $0.1 million,
respectively. Such investments included a $0.9 million investment in Duke Power
Company corporate notes as of June 30, 1998.
NOTE 5. 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):
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
Gasolines ................. $ 3,568 $ 3,779
Propane ................... 6,062 6,872
Butanes ................... 4,448 3,152
Fuel oils ................. 701 82
Other products ............ 3,383 3,099
Materials and supplies .... 3,984 4,110
-------- ------------
Total ........... $ 22,146 $ 21,094
======== ============
The costs of inventories were lower than market at June 30, 1998, and
December 31, 1997.
NOTE 6. LONG TERM DEBT
SENIOR NOTES
On January 27, 1998, the Operating Partnership 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
"Senior Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption
prior to January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at
any time after January 15, 2008, at the option of the Operating Partnership, in
whole or in part, at a premium. Net proceeds from the issuance of the Senior
Notes totaled approximately $386 million and was used to repay in full the $61.0
million principal amount of the 9.60% Series A First Mortgage Notes, due 2000,
and the $265.5 million principal amount 10.20% Series B First Mortgage Notes,
due 2010. The premium for the early redemption of the First Mortgage Notes
totaled $70.1 million. The Partnership recorded an extraordinary charge of $73.5
million during the first quarter of 1998 (including $0.7 million allocated to
minority interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year, commencing July 15, 1998. The Senior Notes are unsecured obligations
of the Operating Partnership and will rank on a parity with all other unsecured
and unsubordinated indebtedness of the Operating Partnership. The indenture
governing the Senior Notes contains covenants, including, but not limited to,
covenants limiting (i) the creation of liens securing indebtedness and (ii) sale
and leaseback transactions. However, the indenture does not limit the
Partnership's ability to incur additional indebtedness.
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
OTHER LONG TERM DEBT
In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998. TEPPCO
Colorado paid interest to DEFS at a per annum rate of 5.75% on the amount of the
total purchase price outstanding for the period from March 31, 1998 until April
21, 1998. The SunTrust loan bears interest at a rate of 6.53%, which is payable
quarterly beginning in July 1998. The principal balance of the loan is payable
in full on April 21, 2001. The Operating Partnership is guarantor on the loan.
The loan agreement contains a restrictive covenant which was amended effective
June 29, 1998 to increase the leverage ratio.
NOTE 7. 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.
On May 8, 1998, the Partnership paid the first quarter cash
distribution of $0.425 per Unit (adjusted for the two-for-one Unit split
discussed in Note 1) to Unitholders of record on April 30, 1998. Additionally,
on July 21, 1998, the Partnership declared a cash distribution of $0.45 per Unit
(adjusted for the two-for-one Unit split discussed in Note 1) for the quarter
ended June 30, 1998, which represents an annualized increase of $0.10 per Unit.
The second quarter distribution was paid on August 7, 1998, to Unitholders of
record on July 31, 1998.
The Company receives incremental incentive distributions of 15%, 25%
and 50% on quarterly distributions of Available Cash that exceed $0.275, $0.325
and $0.45 per Unit, respectively (adjusted for the two-for-one Unit split
discussed in Note 1). During the six months ended June 30, 1998 and 1997,
incentive distributions paid to the Company totaled $2.3 million and $1.4
million, respectively.
NOTE 8. 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
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.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
The Partnership is currently negotiating with IDEM the clean-up levels to be
attained at the Seymour terminal. The Partnership estimates that the costs of
the remediation program to be proposed by the Partnership for the Seymour
terminal will
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
not exceed the amount accrued therefore (approximately $1.5 million at June 30,
1998). In the opinion of the Company, 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's financial condition, results
of operations or liquidity.
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000 issue."
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership expects
to incur internal staff costs as well as consulting and other expenses related
to testing and conversion of these assets. The Company continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized. The
Company estimates that the amounts required to address the Year 2000 issue
during 1998 and 1999 will range between approximately $4.0 million and $6.0
million. Testing and conversion is expected to be completed by mid-year 1999.
The Partnership has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Partnership
is vulnerable to those third parties' failure to remediate their own Year 2000
issues. However, there can be no assurance that the systems of other companies,
on which the Partnership's systems rely, will be timely converted, or converted
in a manner that is compatible with the Partnership's systems, or that any such
failures by such other companies would not have a material adverse effect on the
Partnership.
Substantially all of the petroleum products transported and stored by
the Partnership are owned by the Partnership's customers. At June 30, 1998, the
Partnership had approximately 19.8 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 it believes to be adequate to cover product losses through
circumstances beyond its control.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership's operations consist primarily of the transportation,
storage and terminaling of petroleum products. 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 Northeast for propane, a major fuel for
residential heating.
The Partnership's revenues are derived primarily from the
transportation of refined products and LPGs, the storage and short-haul shuttle
transportation of LPGs at the Mont Belvieu, Texas, complex, sale of product
inventory and other ancillary services. Labor and electric power costs comprise
the two largest operating expense items of the Partnership. Effective March 31,
1998, the Partnership's operations included the fractionation of natural gas
liquids (see Note 3 - Related Party Transactions in Item 1).
The following information is provided to facilitate increased
understanding of the 1998 and 1997 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, future plans and contingencies. Throughout these discussions, management
addresses items that are reasonably likely to materially affect future liquidity
or earnings.
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 1998 was $12.5 million,
compared with net income of $13.1 million for the 1997 second quarter. The
decrease in net income resulted primarily from a $1.1 million decrease in
operating revenues and a $0.5 million increase in costs and expenses. These
decreases in net income were partially offset by a $0.8 million decrease in
interest expense and a $0.2 million increase in other income.
For the six months ended June 30, 1998, the Partnership reported a net
loss of $47.1 million. The net loss included an extraordinary loss for early
extinguishment of debt of $72.8 million, net of $0.7 million allocated to
minority interest. Excluding the extraordinary loss, net income would have been
$25.7 million for the first six months of 1998, compared with net income of
$30.9 million for the corresponding period in 1997. The $5.2 million decrease in
income before loss on debt extinguishment resulted primarily from a $6.3 million
decrease in operating revenues, a $0.7 million increase in costs and expenses
and a $0.5 million decrease in capitalized interest. These variances were
partially offset by a $2.3 million decrease in interest expense. See discussion
below of factors affecting net income for the comparative periods.
See volume and average tariff information below:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, PERCENTAGE JUNE 30, PERCENTAGE
------------------------- INCREASE ------------------------- INCREASE
1998 1997 (DECREASE) 1998 1997 (DECREASE)
---------- ---------- ------------ ---------- ---------- ------------
VOLUMES DELIVERED
(in thousands of barrels)
Refined products 35,183 34,389 2% 59,694 59,594 --
LPGs 5,660 7,947 (29%) 15,811 20,011 (21%)
Mont Belvieu operations 5,518 6,631 (17%) 11,462 12,819 (11%)
---------- ---------- ------------ ---------- ---------- ------------
Total 46,361 48,967 (5%) 86,967 92,424 (6%)
========== ========== ============ ========== ========== ============
AVERAGE TARIFF PER BARREL
Refined products $ 0.93 $ 0.90 3% $ 0.93 $ 0.88 6%
LPGs 1.72 1.74 (1%) 2.00 1.89 6%
Mont Belvieu operations 0.15 0.13 15% 0.16 0.14 14%
Average system tariff $ 0.94 $ 0.93 1% $ 1.02 $ 1.00 2%
========== ========== ============ ========== ========== ============
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RESULTS OF OPERATIONS - (CONTINUED)
Refined products transportation revenues increased $1.8 million for the
quarter ended June 30, 1998, compared with the prior-year quarter, as a result
of higher deliveries of motor fuel and blend stocks in the Midwest market area
and increased utilization of delivery capacity from the expansion of the
Ark-La-Tex system between Shreveport, Louisiana, and El Dorado, Arkansas, which
was placed in service on March 31, 1997. Additionally, $0.3 million of deficit
transportation payments received and deferred in prior periods was recognized as
revenue in June 1998. The increase in the refined products average tariff per
barrel reflects an increase in the percentage of long-haul deliveries, higher
tariff rates on the Ark-La-Tex system and tariff rate increases on selective
refined products tariffs, averaging 1.7%, effective July 1, 1997.
LPGs transportation revenues decreased $4.0 million for the quarter
ended June 30, 1998, compared with the second quarter of 1997, due primarily to
the 29% decrease in volumes delivered. Increased Canadian imports negatively
impacted demand for Gulf Coast supply in the Midwest and Northeast market areas.
Additionally, the termination of a throughput agreement and a turnaround at a
Midwest refinery reduced isobutane deliveries during the second quarter of 1998.
For the six months ended June 30, 1998, refined products transportation
revenues increased $2.6 million, compared with the corresponding period in 1997,
due to a (i) 6% increase in the refined products average tariff per barrel,
which reflects the full-period impact of new tariff structures for volumes
transported on the expanded portion of the Partnership's pipeline between
Shreveport, Louisiana, and El Dorado, Arkansas, which was placed in service on
March 31, 1997, (ii) higher tariff rates on barrels originating from the
pipeline connection with Colonial Pipeline Company's ("Colonial") pipeline at
Beaumont, which was placed in service on May 1, 1997, and (iii) tariff rate
increases on selective refined products tariffs, averaging 1.7%, effective July
1, 1997. Refined products transportation volumes increased slightly due to
higher demand for motor fuels during the second quarter of 1998, partially
offset by decreased short-haul deliveries of methyl tertiary butyl ether
("MTBE") at the Partnership's marine terminal near Beaumont, Texas.
LPGs transportation revenues decreased $6.2 million during the six
months ended June 30, 1998, compared with the same period in 1997, due primarily
to a 21% decrease in propane deliveries in the Midwest and Northeast market
areas attributable to warmer winter and spring weather during 1998 and
unfavorable differentials versus competing Canadian product. Additionally,
short-haul propane deliveries decreased 51% as a result of operational
constraints at a petrochemical facility on the upper Texas Gulf Coast served by
the Partnership. These decreases were partially offset by a 19% increase in
butane deliveries due to favorable Midwest price differentials and the
resumption of operations during the second quarter of 1997 at a Northeast area
refinery served by the Partnership. The 6% increase in the LPGs average tariff
per barrel resulted primarily from the decrease in the short-haul propane
deliveries, which have lower tariffs, along the upper Texas Gulf Coast.
Revenues generated from Mont Belvieu operations decreased during both
the quarter and six months ended June 30, 1998, compared with the corresponding
periods in 1997, due primarily to lower storage revenue and lower product
receipt charges. Mont Belvieu shuttle deliveries decreased during both the
quarter and six months ended June 30, 1998, compared with the prior year
periods, but was largely offset by a higher percentage of non-contract
deliveries, which generally carry higher tariffs.
Other operating revenues increased $1.6 million during the second
quarter of 1998, as compared with the second quarter of 1997, due primarily to
$1.9 million of operating revenues from the fractionator facilities acquired on
March 31, 1998, partially offset by lower refined products terminaling revenues
and lower product sales during 1998.
During the six months ended June 30, 1998, other operating revenues
decreased $2.2 million, as compared to the same period in 1997, due primarily to
decreased product inventory volumes sold, unfavorable product location exchange
differentials incurred to position system inventory, decreased terminaling
revenues and lower
12
13
RESULTS OF OPERATIONS - (CONTINUED)
propane imports received at the marine terminal at Providence, Rhode Island.
These decreases were partially offset by operating revenues from the
fractionator facilities acquired on March 31, 1998.
Costs and expenses increased $0.5 million for the quarter ended June
30, 1998, compared with the second quarter of 1997, primarily due to a $0.5
million increase in operating, general and administrative expenses and a $0.7
million increase in depreciation and amortization expense, partially offset by a
$0.8 million volume-related decrease in operating fuel and power expense. The
increase in operating, general and administrative expenses was primarily
attributable to $0.5 million of expense to write down the book-value of product
inventory to market-value at June 30, 1998, and increased benefits expense,
partially offset by lower insurance expense and insurance reimbursement of past
litigation costs related to the Partnership's Seymour, Indiana, terminal.
Depreciation and amortization expense increased as a result of amortization of
the value assigned to the Fractionation Agreement beginning on March 31, 1998.
Costs and expenses increased $0.7 million for the six-months ended June
30, 1998, compared with the same period in 1997, primarily due to a $0.9 million
increase in operating, general and administrative expenses and a $1.0 million
increase in depreciation and amortization expense, partially offset by a $1.4
million volume-related decrease in operating fuel and power expense. The
increase in operating, general and administrative expenses was primarily due to
the same factors noted above related to the second quarter, as well as the
full-period impact of expense related to the capacity lease with Colonial, which
commenced in May 1997. Depreciation and amortization expense increased as a
result of the completion of capital projects subsequent to the first quarter of
1997, coupled with second-quarter 1998 amortization of the value assigned to the
Fractionation Agreement.
Interest expense decreased during both the quarter and six-months ended
June 30, 1998, compared with the same periods in 1997, as a result of the
payment on January 27, 1998 of the remaining $326.5 million principal balance of
the First Mortgage Notes, partially offset by interest expense on the Senior
Notes issued on January 27, 1998. The decrease in interest expense for the
second quarter of 1998 was partially offset by interest expense of the $38
million term-loan used to finance the purchase of the fractionation assets on
March 31, 1998. Additionally, the $13 million principal payment on the First
Mortgage Notes in March 1997, resulted in lower interest expense during the
six-month period ended June 30, 1998, compared with the same period in 1997.
Capitalized interest decreased $0.5 million during the six-month period
ended June 30, 1998, compared with the corresponding period in 1997, as a result
of lower construction balances related to capital projects.
Other income increased during the quarter ended June 30, 1998, compared
with the second quarter of 1997, due primarily to a $0.4 million gain on the
disposition of non-carrier assets in June 1998, partially offset by lower
interest income as a result of lower cash balances in 1998.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations for the six-month period ended June 30, 1998,
totaled $42.7 million, comprised of $38.4 million of income before extraordinary
loss on early extinguishment of debt and charges for depreciation and
amortization and $4.3 million provided by working capital changes. This compares
with cash flows from operations of $40.5 million for the corresponding period in
1997, which was comprised of $42.6 million of income before charges for
depreciation and amortization, partially offset by $2.1 million used for working
capital changes. The increase in cash provided by working capital changes during
the six month period ended June 30, 1998, as compared with the same period in
1997, resulted primarily from lower interest payments during 1998 and increased
collection of accounts receivable balances. Net cash from operations for the six
months ended June 30, 1998 included interest payments related to the First
Mortgage Notes of $12.8 million paid on January 27, 1998 in connection with
repayment of the outstanding balance of the First Mortgage Notes. Net cash from
operations for the six months ended June 30, 1997 included interest payments
related to the First Mortgage Notes of $17.1 million paid in March 1997.
13
14
FINANCIAL CONDITION AND LIQUIDITY - (CONTINUED)
Cash flows used in investing activities during the first six months of
1998 included $40.0 million for the purchase price of the fractionation assets
and related intangible assets and $9.5 million of capital expenditures,
partially offset by $2.1 million from investment maturities and $0.5 million
received from the sale of non-carrier assets. Cash flows used in investing
activities during the first six months of 1997 included $15.4 million of capital
expenditures and $3.9 million of additional cash investments, partially offset
by $16.0 million from investment maturities and $1.0 million of insurance
proceeds related 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. Capital expenditures are expected to total
approximately $23 million for the full year of 1998. The Partnership revises
capital spending periodically in response to changes in cash flows and
operations. Interest income earned on all investments is included in cash from
operations.
On January 27, 1998, the Operating Partnership 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
"Senior Notes"). The 6.45% Senior Notes due 2008 are not subject to redemption
prior to January 15, 2008. The 7.51% Senior Notes due 2028 may be redeemed at
any time after January 15, 2008, at the option of the Operating Partnership, in
whole or in part, at a premium. Net proceeds from the issuance of the Senior
Notes totaled approximately $386 million and was used to repay in full the $61.0
million principal amount of the 9.60% Series A First Mortgage Notes, due 2000,
and the $265.5 million principal amount of the 10.20% Series B First Mortgage
Notes, due 2010. The premium for the early redemption of the First Mortgage
Notes totaled $70.1 million. The repayment of the First Mortgage Notes and the
issuance of the Senior Notes reduced the level of cash required for debt service
until 2008. The Partnership recorded an extraordinary charge of $73.5 million
during the first quarter of 1998 (including $0.7 million allocated to minority
interest), which represents the redemption premium of $70.1 million and
unamortized debt issue costs related to the First Mortgage Notes of $3.4
million.
The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year, commencing July 15, 1998. The Senior Notes are unsecured obligations
of the Operating Partnership and will rank on a parity with all other unsecured
and unsubordinated indebtedness of the Operating Partnership. The indenture
governing the Senior Notes contains covenants, including, but not limited to,
covenants limiting (i) the creation of liens securing indebtedness and (ii) sale
and leaseback transactions. However, the indenture does not limit the
Partnership's ability to incur additional indebtedness.
In connection with the purchase of the fractionation assets from DEFS
as of March 31, 1998, TEPPCO Colorado received a $38 million bank loan from
SunTrust Bank. Proceeds from the loan were received on April 21, 1998. The loan
bears interest at a rate of 6.53%, which is payable quarterly beginning in July
1998. The principal balance of the loan is payable in full on April 21, 2001.
The Operating Partnership is guarantor on the loan. The loan agreement contains
a restrictive covenant which was amended effective June 29, 1998 to increase the
leverage ratio.
On July 21, 1998, the Partnership announced a two-for-one split of the
Parent Partnership's outstanding Units. The Unit split will entitle Unitholders
of record at the close of business on August 10, 1998 to receive one additional
Unit for each Unit held. Certificates for the additional Units will be issued
and mailed on or about August 21, 1998.
The Partnership paid cash distributions of $27.4 million during the six
months ended June 30, 1998. Additionally, on July 21, 1998, the Partnership
declared a cash distribution of $0.45 per Unit (adjusted for the two-for-one
split) for the three months ended June 30, 1998, increasing the annualized
distribution to $1.80 per Unit from $1.70 per Unit (adjusted for the two-for-one
split). The second quarter cash distribution was paid on August 7, 1998 to
Unitholders of record on July 31, 1998.
14
15
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. 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.
The Partnership and the Indiana Department of Environmental Management
("IDEM") have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site groundwater contamination
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
The Partnership is currently negotiating with IDEM the clean-up levels to be
attained at the Seymour terminal. The Partnership estimates that the costs of
the remediation program to be proposed by the Partnership for the Seymour
terminal will not exceed the amount accrued therefore (approximately $1.5
million at June 30, 1998). In the opinion of the Company, 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's
financial condition, results of operations or liquidity.
In 1997, the Company initiated a program to prepare the Partnership's
process controls and business computer systems for the "Year 2000 issue."
Process controls are the automated equipment including hardware and software
systems which run operational activities. Business computer systems are the
computer hardware and software used by the Partnership. The Partnership expects
to incur internal staff costs as well as consulting and other expenses related
to testing and conversion of these assets. The Company continues to evaluate
appropriate courses of corrective action, including replacement of certain
systems whose associated costs would be recorded as assets and amortized. The
Company estimates that the amounts required to address the Year 2000 issue
during 1998 and 1999 will range between approximately $4.0 million and $6.0
million. Testing and conversion is expected to be completed by mid-year 1999.
The Partnership has initiated formal communications with all of its significant
suppliers and large customers to determine the extent to which the Partnership
is vulnerable to those third parties' failure to remediate their own Year 2000
issues. However, there can be no assurance that the systems of other companies,
on which the Partnership's systems rely, will be timely converted, or converted
in a manner that is compatible with the Partnership's systems, or that any such
failures by such other companies would not have a material adverse effect on the
Partnership.
The matters discussed herein 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 the Partnership expects or anticipates 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 the
Partnership's 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 made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnership's 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 the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking statements
made in this document are qualified by these cautionary statements and there can
be no assurance that actual results or developments anticipated by the
Partnership will be realized or, even if substantially
15
16
OTHER MATTERS - (CONTINUED)
realized, that they will have the expected consequences to or effect on the
Partnership or its business or operations. For additional discussion of such
risks and uncertainties, see TEPPCO Partners, L.P.'s 1997 Annual Report on Form
10-K.
16
17
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 the Partnership
(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 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).
3.3 Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., effective July 21, 1998
(Filed as Exhibit 3.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated July 21, 1998
and incorporated herein by reference).
3.4 Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form
8-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) dated July 21, 1998 and incorporated herein by
reference).
4.1 Form of Certificate representing 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
Partnership's Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein
by reference).
10.1 Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation
and the Company (Filed as Exhibit 10.8 to the
Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein
by reference).
10.2 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).
10.3 Agreement Regarding Environmental Indemnities and
Certain Assets (Filed as Exhibit 10.5 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 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).
10.5 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).
10.6 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).
17
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED).
10.7 Employees' Savings Plan of Panhandle Eastern
Corporation and Participating Affiliates (Effective
January 1, 1991) (Filed as Exhibit 10.10 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).
10.8 Retirement Income Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1,
1991) (Filed as Exhibit 10.11 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).
10.9 Panhandle Eastern Corporation Key Executive Retirement
Benefit Equalization Plan, adopted December 20, 1993;
effective January 1, 1994 (Filed as Exhibit 10.12 to
Form 10-K of Panhandle Eastern Corporation (Commission
File No. 1-8157) for the year ended December 31, 1993
and incorporated herein by reference).
10.10 Employment Agreement with William L. Thacker, Jr.
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1992 and incorporated herein by
reference).
10.11 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).
10.12 Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994
(Filed as Exhibit 10.2 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).
10.13 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).
10.14 Credit Agreement between TEPPCO Colorado, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
April 21, 1998 (Filed as Exhibit 10.15 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).
10.15* First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998.
22.1 Subsidiaries of the Partnership (Filed as Exhibit 22.1
to the Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein
by reference).
27* Financial Data Schedules as of and for the six months
ended June 30, 1998.
-----------------------
* Filed herewith.
(b) Reports on Form 8-K: None
Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.
18
19
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
Senior Vice President, Chief Financial Officer
and Treasurer
TE Products Pipeline Company, Limited Partnership
(Registrant)
By: Texas Eastern Products Pipeline Company,
General Partner
/s/ CHARLES H. LEONARD
---------------------------------------------------
Charles H. Leonard
Senior Vice President, Chief Financial Officer
and Treasurer
Date: August 7, 1998
19
20
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Limited Partnership of the Partnership
(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 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).
3.3 Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., effective July 21, 1998
(Filed as Exhibit 3.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated July 21, 1998
and incorporated herein by reference).
3.4 Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership,
effective July 21, 1998 (Filed as Exhibit 3.2 to Form
8-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) dated July 21, 1998 and incorporated herein by
reference).
4.1 Form of Certificate representing 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
Partnership's Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein
by reference).
10.1 Assignment and Assumption Agreement, dated March 24,
1988, between Texas Eastern Transmission Corporation
and the Company (Filed as Exhibit 10.8 to the
Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein
by reference).
10.2 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).
10.3 Agreement Regarding Environmental Indemnities and
Certain Assets (Filed as Exhibit 10.5 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 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).
10.5 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).
10.6 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).
21
10.7 Employees' Savings Plan of Panhandle Eastern
Corporation and Participating Affiliates (Effective
January 1, 1991) (Filed as Exhibit 10.10 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).
10.8 Retirement Income Plan of Panhandle Eastern Corporation
and Participating Affiliates (Effective January 1,
1991) (Filed as Exhibit 10.11 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).
10.9 Panhandle Eastern Corporation Key Executive Retirement
Benefit Equalization Plan, adopted December 20, 1993;
effective January 1, 1994 (Filed as Exhibit 10.12 to
Form 10-K of Panhandle Eastern Corporation (Commission
File No. 1-8157) for the year ended December 31, 1993
and incorporated herein by reference).
10.10 Employment Agreement with William L. Thacker, Jr.
(Filed as Exhibit 10 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter
ended September 30, 1992 and incorporated herein by
reference).
10.11 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).
10.12 Panhandle Eastern Corporation Key Executive Deferred
Compensation Plan established effective January 1, 1994
(Filed as Exhibit 10.2 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).
10.13 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).
10.14 Credit Agreement between TEPPCO Colorado, LLC,
SunTrust Bank, Atlanta, and Certain Lenders, dated
April 21, 1998 (Filed as Exhibit 10.15 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).
10.15* First Amendment to Credit Agreement between TEPPCO
Colorado, LLC, SunTrust Bank, Atlanta, and Certain
Lenders, effective June 29, 1998.
22.1 Subsidiaries of the Partnership (Filed as Exhibit 22.1
to the Registration Statement of TEPPCO Partners, L.P.
(Commission File No. 33-32203) and incorporated herein
by reference).
27* Financial Data Schedules as of and for the six months
ended June 30, 1998.
-----------------------
* Filed herewith.
1
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS DOCUMENT is entered into as of July 28, 1998, but is effective as
of June 29, 1998, between TEPPCO COLORADO, LLC, a Delaware limited liability
company ("Borrower"), the Lenders named below, and SUNTRUST BANK, ATLANTA, as
Agent for Lenders ("Agent").
Borrower, Lenders, and Agent are party to the Credit Agreement (as it
may have been renewed, extended, and amended through the date of this document,
the "Credit Agreement") dated as of April 21, 1998, providing for a $38,000,000
term loan to Borrower. Borrower, Lenders, and Agent have agreed, upon the
following terms and conditions, to amend the Credit Agreement as provided in
Paragraph 2 below. Accordingly, for adequate and sufficient consideration,
Borrower, Lenders, and Agent agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this document (A)
terms defined in the Credit Agreement have the same meanings when used in this
document and (B) references to "Sections," "Schedules," and "Exhibits" are to
the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The Credit Agreement is amended as follows:
(A) The words "90 days" in Section 6.1(f) are amended to read "150
days".
(B) The table in Section 8.1 and Table 2 in Exhibit C are entirely
amended as follows:
============================= =============
Quarter(s) Ending Ratio
============================= =============
06/30/98 through 03/31/99 0.70 to 1.00
06/30/99 through 12/31/99 0.67 to 1.00
03/31/00 and thereafter 0.65 to 1.00
============================= =============
3. CONDITIONS PRECEDENT. Notwithstanding any contrary provision, the
foregoing paragraph in this document is not effective unless and until (A) the
representations and warranties in this document are true and correct and (B)
Agent receives counterparts of this document executed by each party named on the
signature page of this document.
4. REPRESENTATIONS. To induce Lenders and Agent to enter into this
document, Borrower represents and warrants to Lenders and Agent that as of the
date of this document (A) Borrower has all requisite authority and power to
execute, deliver, perform its obligations under this document, which execution,
delivery, and performance have been duly authorized by all necessary corporate
action, require no action by or filing with any Governmental Authority, do not
violate any of its Constituent Documents or (except where not a Material-Adverse
Event) violate any Legal Requirements applicable to it or any material agreement
to which it or its assets are bound, (B) upon execution and delivery by all
parties to it, this document will constitute Borrower's legal and binding
obligation, enforceable against it in accordance with this document's terms
except as that enforceability may be limited by Debtor Laws and general
principles of equity, (C) all other representations and warranties in the Credit
Documents are true and correct in all material respects except to the extent
that (1) any of them speak to a different specific date or (2) the facts on
which any of them were based have been changed by transactions contemplated or
permitted by the Credit Agreement, and (E) no Material-Adverse Event, Event of
Default or Potential Default exists.
5. EXPENSES. Borrower shall pay all costs, fees, and expenses paid or
incurred by Agent incident to this document, including, without limitation, the
reasonable fees and expenses of Agent's special counsel in
First Amendment
2
connection with the negotiation, preparation, delivery, and execution of this
document and any related documents.
6. MISCELLANEOUS. All references in the Credit Documents to the "Credit
Agreement" refer to the Credit Agreement as amended by this document. This
document is a "Credit Document" referred to in the Credit Agreement; therefore,
the provisions relating to Credit Documents in Sections 1 and 12 are
incorporated in this document by reference. Except as specifically amended and
modified in this document, the Credit Agreement is unchanged and continues in
full force and effect. This document may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document. All counterparts must be construed together to constitute one and the
same instrument. This document binds and inures to each of the undersigned and
their respective successors and permitted assigns, subject to Section 12.10.
This document and the other Credit Documents represent the final agreement
between the parties in respect of the matters covered by the Credit Documents
and may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements by the parties. There are no unwritten oral agreements between
the parties.
REMAINDER OF PAGE INTENTIONALLY BLANK.
SIGNATURE PAGE FOLLOWS.
First Amendment
3
EXECUTED as of the date first stated in this First Amendment to
Credit Agreement.
TEPPCO COLORADO, LLC, as Borrower SUNTRUST BANK, ATLANTA, as
Agent and a Lender
By: TE Products Pipeline Company, Limited
Partnership, as Sole Member
By /s/ JOHN A. FIELDS
By: Texas Eastern Products Pipeline -----------------------------------
Company, as General Partner John A. Fields, Jr., Vice President
By /s/ CHARLES H. LEONARD
-----------------------
Charles H. Leonard, By /s/ STEVEN J. NEWBY
Senior Vice President, -----------------------------------
Chief Financial Officer, Name: Steven J. Newby
and Treasurer -----------------------------
Title: Corporate Banking Officer
-----------------------------
BANK ONE, TEXAS, N.A., as a Lender
By /s/ GARY STONE
-----------------------------------------
Gary Stone, Senior Vice President
CONSENT AND AGREEMENT
To induce Lender to enter into this document, the undersigned (a)
consents and agrees to this document's execution and delivery, (b) ratifies and
confirms that the guaranty granted to Agent and Lenders under the Credit
Documents (as it may have been renewed, extended, and amended) is not released,
diminished, impaired, reduced, or otherwise adversely affected by this document
and continues to guarantee, the full payment and performance of all present and
future Obligation, and (c) waives notice of acceptance of this consent and
agreement, which consent and agreement binds the undersigned and its successors
and permitted assigns and inures to Agent and Lenders and their respective
successors and permitted assigns.
TE PRODUCTS PIPELINE COMPANY, LIMITED
PARTNERSHIP, as Guarantor
By: TEXAS EASTERN PRODUCTS PIPELINE
COMPANY, as General Partner
By /s/ CHARLES H. LEONARD
----------------------------------------------
Charles H. Leonard, Senior Vice
President, Chief Financial Officer, and
Treasurer
5
0000857644
TEPPCO PARTNERS, L.P.
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
39,755
840
13,833
0
22,146
79,763
748,238
181,536
698,846
36,001
389,707
0
0
0
228,629
698,846
0
101,765
0
63,322
0
0
14,677
25,963
0
25,701
0
(72,767)
0
(47,066)
$0.80
$0.80
Reflects a two-for-one Unit split announced on July 21, 1998. Prior Financial
Date Schedules have not been restated to reflect the split.
5
0001045548
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
1,000
6-MOS
DEC-31-1998
JAN-01-1998
JUN-30-1998
39,755
840
13,833
0
22,146
79,763
748,238
181,536
698,846
36,001
389,707
0
0
0
228,629
698,846
0
101,765
0
63,322
0
0
14,677
25,963
0
25,701
0
(72,767)
0
(47,066)
$0.80
$0.80
Reflects a two-to-one Unit split announced on July 21, 1998. Prior
Financial Data Schedules have not been restated to reflect the split.
