================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A (AMENDMENT NO. 2) CURRENT REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) : JUNE 30, 2002 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) ================================================================================
ITEM 5. OTHER INFORMATION On June 30, 2002, TEPPCO Partners, L.P. (the "Partnership") purchased the Val Verde Gathering System from Burlington Resources Gathering Inc., a subsidiary of Burlington Resources Inc., for $443.6 million. That acquisition was reported in the Registrant's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on July 2, 2002 (the "Form 8-K"). Such Form 8-K was amended by the Registrant's Current Report on Form 8-K/A filed with the Commission on August 12, 2002, to include historical financial statements of the acquired company and pro forma financial statements of the Registrant as more specifically identified therein, including interim financial statements for the three month periods ended March 31, 2002 and 2001, all as required by Regulation S-X of the SEC. The purpose of this filing is to amend the Form 8-K/A filed on August 12, 2002, to include interim financial statements of the acquired company for the six month periods ended June 30, 2002 and 2001 and pro forma financial statements of the Registrant for those periods, thereby allowing such financial statements to be incorporated by reference in certain filings made and to be made by the Registrant and its affiliates under the Securities Act of 1933, as amended. Accordingly, included in this filing are historical combined financial statements of Burlington Resources Gathering Inc. Val Verde Gathering and Processing System as of and for the years ended December 31, 2001 and 2000 and as of and for the six months ended June 30, 2002 and 2001. Unaudited pro forma financial information for the Partnership has been provided to reflect updated purchase price allocations for the Val Verde Gathering and Processing System and subsequent proceeds received from the issuance of limited partner units and the related general partner contributions to repay a portion of debt incurred to finance the acquisition. Pro forma financial information is being provided for the six months ended June 30, 2002 and for the year ended December 31, 2001. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED: Val Verde System (as defined in the Purchase and Sale Agreement between Burlington Resources Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer): Burlington Resources Gathering Inc. Val Verde Gathering and Processing System Combined Financial Statements as of and For the Years Ended December 31, 2001 and 2000 and as of and For the Six Months Ended June 30, 2002 and 2001: Report of Independent Accountants............................................................. F-1 Combined Balance Sheets as of June 30, 2002 (unaudited), and December 31, 2001 and 2000....... F-2 Combined Statements of Operations and Owner's Net Investment For the Six Months Ended June 30, 2002 and 2001 (unaudited) and For the Years Ended December 31, 2001 and 2000.......................................................... F-3 Combined Statements of Cash Flows For the Six Months Ended June 30, 2002 and 2001 (unaudited) and For the Years Ended December 31, 2001 and 2000............. F-4 Notes to the Combined Financial Statements.................................................... F-5 2
(b) PRO FORMA FINANCIAL INFORMATION:
REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholder of Burlington Resources Gathering Inc. and TEPPCO Partners, L.P. In our opinion, the accompanying combined balance sheets and the related combined statements of operations and owner's net investment and of cash flows present fairly, in all material respects, the financial position of Burlington Resources Gathering Inc. Val Verde Gathering and Processing System (the Val Verde System) at December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of Burlington Resources Gathering Inc. management and management of the Val Verde System; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 3 to the combined financial statements, the Val Verde System has significant transactions and relationships with affiliated entities. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. /s/ PricewaterhouseCoopers LLP August 7, 2002 Houston, Texas F-1
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM COMBINED BALANCE SHEETS - --------------------------------------------------------------------------------
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM COMBINED STATEMENTS OF OPERATIONS AND OWNER'S NET INVESTMENT - --------------------------------------------------------------------------------
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM COMBINED STATEMENTS OF CASH FLOWS - --------------------------------------------------------------------------------
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION DESCRIPTION OF BUSINESS The Burlington Resources Gathering Inc. Val Verde Gathering and Processing System (the Val Verde System) is located in San Juan and Rio Arriba counties, New Mexico and consists of a gathering system (the Gathering System) and an amine treating plant (the Val Verde Plant). The Gathering system gathers coal bed methane gas produced in the San Juan Basin located in New Mexico and southern Colorado for delivery to the Val Verde Plant. The Val Verde Plant is an amine treating plant designed to dehydrate and remove excess carbon dioxide from the natural gas delivered to the plant. The Val Verde Plant consists of eight trains and can process and treat up to 800 million cubic feet of natural gas per day. BASIS OF PRESENTATION The accompanying combined financial statements present, in conformity with accounting principles generally accepted in the United States of America, the assets, liabilities, revenues and expenses related to the historical operations of the Val Verde System of Burlington Resources Gathering Inc. (BRGI). The accompanying combined financial statements have been prepared from BRGI's historical accounting records and are presented on a carve-out basis to include the historical operations applicable to the Val Verde System. All assets and liabilities specifically identified with the Val Verde System have been included in the balance sheet except those specifically excluded pursuant to the Purchase and Sale Agreement (PSA) between BRGI and TEPPCO Partners, L.P. (TEPPCO). The owner's net investment in the Val Verde System has been presented in lieu of stockholder's equity in the combined financial statements. The combined financial information included herein includes certain allocations based on historical activity levels to reflect the combined financial statements in accordance with accounting principles generally accepted in the United States of America and may not necessarily reflect the financial position, results of operations and cash flows of the Val Verde System in the future or as if it had existed as a separate, stand-alone business during the periods presented. The allocations consist of general and administrative expenses (employee payroll and related benefit costs among other items) incurred on behalf of the Val Verde System by BRGI or its affiliates. This allocation has been made on a reasonable basis. The combined financial statements for the six months ended June 30, 2002 and 2001 presented herein are unaudited and do not contain all information required by generally accepted accounting principles to be included in a full set of financial statements. In the opinion of management, all material adjustments necessary to present fairly the results of operations have been included. All such adjustments are of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of the results of operations for the entire year. F-5
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 2. SIGNIFICANT ACCOUNTING POLICIES PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of plants, pipelines and related equipment and is recorded at historical cost. Depreciation is computed on a straight-line basis over the estimated useful life of the respective assets. Repair and maintenance costs are charged to expense as incurred while renewals and betterments are capitalized as additions to the related assets in the period incurred. Gains or losses from the disposal of property, plant and equipment are recorded in the period incurred. The carrying values of long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The asset is written down to its realizable value if estimated future undiscounted cash flows attributable to the asset is less than the recorded value of that asset. The impairment recorded is based on a comparison of discounted estimated future net cash flows to the net carrying value of the related asset. IMBALANCES Gathering imbalances occur when customers take more or less natural gas gathering volumes from the gathering system than they are entitled. If the customers take more natural gas gathering volumes than they are entitled, the Val Verde System records a receivable reflecting the amount due from customers but also records an accounts payable for the same amount reflecting the amounts due to connecting pipeline transporters. The result is reversed, and a payable is recorded, if the customers take less natural gas gathering volumes than they are entitled. At December 31, 2001 and 2000 and June 30, 2002, gathering imbalances totaling approximately $549 thousand, $3 million and $584 thousand, respectively. Each were recorded in accounts payable with a corresponding amount recorded in accounts receivable. ENVIRONMENTAL COSTS Environmental expenditures are expensed or capitalized, as appropriate, depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations, and do not have future economic benefit, are expensed. Liabilities related to future costs are recorded on an undiscounted basis when environmental assessments and/or remediation activities are probable and the costs can be reasonably estimated. REVENUE RECOGNITION Gathering and treating revenues are recognized in the period the services are provided. INCOME TAXES Deferred income taxes are provided to reflect the tax consequences in future years of differences between the financial statement and tax basis of assets and liabilities using the liability method in accordance with the provisions set forth in Statement of Financial Accounting Standards (SFAS) No. 109. Income taxes are provided based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. For all periods presented, income taxes have been calculated as if the Val Verde System had filed a separate return. F-6
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Val Verde System to concentrations of credit risk consist principally of accounts receivables that are primarily from companies in the oil and gas industry. The industry concentration has the potential to impact the Val Verde System's overall exposure to credit risk, either positively or negatively, in that the customers may be similarly affected by changes in economic, industry, market, commodity prices, or other conditions. The Val Verde System manages its exposure to credit risk through credit analysis, credit approvals, credit limits and monitoring procedures, and for certain transactions may utilize letters of credit, prepayments and guarantees. During the year ended December 31, 2001 and 2000 and the six months ended June 30, 2002 and 2001, the Val Verde System provided gathering and processing services to a variety of customers. Two customers accounted for approximately 48% and 18% and 54% and 13%, respectively, of the Val Verde System's revenues for the year ended December 31, 2001 and 2000. These two customers also accounted for approximately 51% and 16% and 47% and 20%, respectively, of the Val Verde System's revenues for the six months ended June 30, 2002 and 2001. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of accounts receivable, accounts payable and other current liabilities approximates their fair values due to the short-term maturity of these instruments. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from estimates. 3. RELATED PARTY TRANSACTIONS The Val Verde System provides gathering and processing services for an affiliate of BRGI. Revenues from these related party transactions totaled approximately $39 million, $48 million, $19 million and $20 million for the year ended December 31, 2001 and 2000 and the six months ended June 30, 2002 and 2001, respectively. During the year ended December 31, 2001 and 2000 and six months ended June 30, 2002 and 2001, the Val Verde System recorded interest income of approximately $12 million, $15 million, $4 million and $7 million, respectively, related to cash advances made to its owner under an inter-corporate cash management arrangement. Interest is accrued on the average monthly balance using a short-term Applicable Federal Rate (4.2%, 6.1%, 2.8% and 4.9% during the year ended December 31, 2001 and 2000 and six months ended June 30, 2002 and 2001; respectively). There is no intention by the owner to repay the advances nor the accrued interest, which at December 31, 2001 and 2000 and June 30, 2002 totaled approximately $311 million, $264 million and $335 million, respectively. Accordingly, the receivable is presented as a reduction of owner's net investment in the combined balance sheet. F-7
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- Management and other services are provided to the Val Verde System by BRGI or its affiliates. As a result, general and administrative costs related to these services of approximately $2.6 million, $3.2 million, $1.3 million and $1.4 million have been allocated to the Val Verde System for the year ended December 31, 2001 and 2000 and six months ended June 30, 2002 and 2001, respectively. 4. PROPERTY PLANT AND EQUIPMENT Property, plant and equipment consisted of the following at December 31:
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- The reconciliation of the differences between the Val Verde System's tax expense for income taxes and taxes at the statutory rate is as follows.
BURLINGTON RESOURCES GATHERING INC. VAL VERDE GATHERING AND PROCESSING SYSTEM NOTES TO COMBINED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- TRANSITION SERVICES AGREEMENT TEPPCO, commencing with the closing of the PSA with the Val Verde System, executed a transition services agreement (the Transition Services Agreement) with BRGI to provide certain transition services, on an as requested basis, beginning July 1, 2002 through September 30, 2002 or such other period as the parties may mutually agree. BRGI and TEPPCO shall act as independent contractors under terms of the Transition Services Agreement that encompasses certain support functions at applicable market hourly rates. ENVIRONMENTAL INDEMNITY The Val Verde System is subject to various environmental laws and regulations. The Val Verde System may be obligated to take remedial action as a result of the enactment of laws or the issuance of new regulations. Pursuant to the terms of the PSA between BRGI and TEPPCO, TEPPCO is entitled to identification of certain environmental matters, as defined, in excess of $5 million in the aggregate up to a maximum of $35 million and limited to $50 million in the aggregate for environmental and other matters. BRGI and TEPPCO plan to enter into an environmental insurance policy to cover potential environmental issues regarding the Val Verde System and Plant. LEASES Rental expense under operating leases was $325 thousand, $581 thousand, $155 thousand and $134 thousand for the year ended December 31, 2001 and 2000 and the six months ended June 30, 2002 and 2001, respectively. The Val Verde System leases equipment under various noncancelable operating lease agreements with month-to-month terms. F-10
TEPPCO PARTNERS, L.P. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME The following tables reflect summary unaudited pro forma condensed combined statements of income which are presented to give effect to the purchase of all of the partnership interests of Jonah Gas Gathering Company ("Jonah"), which was completed on September 30, 2001 (please see the Registrant's current report on Form 8-K/A filed with the Securities and Exchange Commission on November 9, 2001), and the purchase of the assets of the Val Verde Gathering System ("Val Verde"), which was completed on June 30, 2002. The pro forma results of Val Verde have been adjusted from the pro forma statements of income filed on Form 8-K/A on August 12, 2002, to reflect updated purchase price allocations and the issuance of additional limited partner units and the related general partner contributions to repay a portion of debt incurred to finance a portion of the purchase price. The information was prepared based on the following assumptions: o The purchases were accounted for pursuant to the purchase method of accounting in accordance with accounting principles generally accepted in the United States of America. o The statements of income assume that the purchases were consummated on January 1, 2001. o The expected cost savings through improved operating efficiencies and revenue growth are excluded from the pro forma combined financial statements. o Jonah was acquired on September 30, 2001, therefore, pro forma information is included for the year ended December 31, 2001 to present a full year of operations. o The Partnership financed the Val Verde acquisition by drawing down $168 million under the Three Year Facility and $72 million under its Short-term Revolver. An additional $200 million of the purchase price was funded with a $200 million Six-Month Term Loan arranged by SunTrust Bank. The remaining purchase price was funded through working capital sources of cash. In July, August and September 2002, the Partnership issued an aggregate of 7,545,000 limited partner units for net proceeds of $215.6 million and related general partner contributions of $4.4 million and repaid the $200 million Six-Month Term Loan and $20 million of the outstanding balance under its Short-term Revolver. Thus, these pro forma financial statements assume that the acquisition of Val Verde was financed by drawing down $168 million under the Three Year Facility and $52 million under the Short-term Revolver and with equity proceeds of $220 million. The unaudited pro forma condensed combined statements of income are presented for illustration purposes only and are not necessarily indicative of the results of operations which would have occurred had the purchases been consummated on the dates indicated above, nor are they necessarily indicative of future results of operations. The unaudited pro forma condensed combined statements of income should be read in conjunction with the historical consolidated financial statements of the Partnership, as on file with the Securities and Exchange Commission, and the historical combined financial statements of Val Verde included in this report. F-11
TEPPCO PARTNERS, L.P. Unaudited Pro Forma Condensed Combined Statement of Income Six months ended June 30, 2002 (in thousands, except per Unit amounts) Historical Pro Forma ---------------------------------------- --------------------------- TEPPCO Partners, L.P. Val Verde Combined Adjustments Combined -------------- --------- --------- ----------- --------- Operating revenues: Sales of crude oil and petroleum products $1,345,315 $ - $1,345,315 $ - $1,345,315 Transportation - Refined products 56,947 - 56,947 56,947 Transportation - LPGs 34,173 - 34,173 34,173 Transportation - Crude oil and NGLs 30,073 - 30,073 30,073 Gathering - Natural gas 20,974 37,785 58,759 58,759 Mont Belvieu operations 7,395 - 7,395 7,395 Other 24,589 - 24,589 24,589 ---------- ------- ---------- -------- ---------- Total operating revenues 1,519,466 37,785 1,557,251 - 1,557,251 ---------- ------- ---------- -------- ---------- Costs and expenses: Purchases of crude oil and petroleum products 1,321,142 - 1,321,142 1,321,142 Operating, general and administrative 66,528 9,843 76,371 76,371 Operating fuel and power 15,832 - 15,832 15,832 Depreciation and amortization 33,640 9,029 42,669 (9,029)(a) 48,885 4,653 (b) 10,592 (b) Taxes - other than income taxes 7,979 1,280 9,259 9,259 ---------- ------- ---------- -------- ---------- Total costs and expenses 1,445,121 20,152 1,465,273 6,216 1,471,489 ---------- ------- ---------- -------- ---------- Operating income 74,345 17,633 91,978 (6,216) 85,762 Interest expense (33,616) (33,616) (3,059)(c) (37,063) (388)(c) Interest capitalized 3,138 - 3,138 3,138 Equity earnings 5,986 - 5,986 5,986 Other income - net 1,332 3,844 5,176 (3,844)(d) 1,332 ---------- ------- ---------- -------- ---------- Income before minority interest and income tax provision 51,185 21,477 72,662 (13,507) 59,155 Minority interest - - - Income tax provisions - 8,578 8,578 (8,578)(e) - ---------- ------- ---------- -------- ---------- Net income $ 51,185 $12,899 $ 64,084 $ (4,929) $ 59,155 ========== ======= ========== ======== ========== Net Income Allocation: Limited Partner Unitholders 35,061 40,520 Class B Unitholder 3,234 3,738 General Partner 12,890 14,897 ---------- ---------- Total net income allocated $ 51,185 $ 59,155 ========== ========== Basic and diluted net income per Limited Partner and Class B Unit $ 0.84 $ 0.84 ========== ========== Weighted Average Limited Partner and Class B Units 45,457 7,545 53,002 ========== ======== ========== See accompanying notes to unaudited pro forma condensed combined statements of income. F-12
TEPPCO PARTNERS, L.P. Unaudited Pro Forma Condensed Combined Statement of Income Year ended December 31, 2001 (in thousands, except per Unit amounts) Historical Pro Forma ------------------------------------------------ ---------------------------------------- TEPPCO Jonah Val Verde Partners, L.P. Jonah Val Verde Combined Adjustments Adjustments Combined -------------- -------- --------- ----------- ----------- ----------- --------- Operating revenues: Sales of crude oil and petroleum products $ 3,219,816 $ - $ - $ 3,219,816 $ - $ - $3,219,816 Transportation - Refined products 139,315 - - 139,315 139,315 Transportation - LPGs 77,823 - - 77,823 77,823 Transportation - Crude oil and NGLs 44,925 - - 44,925 44,925 Gathering - Natural gas 8,824 22,383 79,812 111,019 111,019 Mont Belvieu operations 14,116 - - 14,116 14,116 Other 51,594 888 - 52,482 52,482 --------- -------- -------- --------- --------- --------- ---------- Total operating revenues 3,556,413 23,271 79,812 3,659,496 - - 3,659,496 --------- -------- -------- --------- --------- --------- ---------- Costs and expenses: Purchases of crude oil and petroleum products 3,173,607 - - 3,173,607 3,173,607 Operating, general and administrative 135,253 6,386 21,286 162,925 162,925 Operating fuel and power 36,575 - - 36,575 36,575 Depreciation and amortization 45,899 7,165 16,759 69,823 (7,165)(f) (16,759)(a) 90,290 9,645 (g) 21,184 (b) 4,255 (g) 9,307 (b) Taxes - other than income taxes 14,090 - 2,409 16,499 16,499 Loss on sale of property and equipment - (1,155) - (1,155) 1,155 (i) - --------- -------- -------- --------- --------- --------- ---------- Total costs and expenses 3,405,424 12,396 40,454 3,458,274 7,890 13,732 3,479,896 --------- -------- -------- --------- --------- --------- ---------- Operating income 150,989 10,875 39,358 201,222 (7,890) (13,732) 179,600 Interest expense (66,057) - - (66,057) (9,801)(h) (6,118)(c) (83,777) (1,025)(h) (776)(c) Interest capitalized 4,000 - - 4,000 4,000 Equity earnings 17,398 - - 17,398 17,398 Other income - net 3,601 50 10,073 13,724 1,155 (i) (11,954)(d) 2,925 --------- -------- -------- --------- --------- --------- ---------- Income before minority interest and income tax provision 109,931 10,925 49,431 170,287 (17,561) (32,580) 120,146 Minority interest (800) - - (800) 39 (j) (99)(j) (860) Income tax provision - 19,743 19,743 (19,743)(e) - --------- -------- -------- --------- --------- --------- ---------- Net income $ 109,131 $ 10,925 $ 29,688 $ 149,744 $ (17,522) $ (12,936) $ 119,286 ========= ======== ======== ========= ========= ========= ========== Net Income Allocation: Limited Partner Unitholders 76,986 84,150 Class B Unitholder 8,642 9,446 General Partner 23,503 25,690 --------- ---------- Total net income allocated $ 109,131 $ 119,286 ========= ========== Basic and diluted net income per Limited Partner and Class B Unit $ 2.18 $ 2.00 ========= ========== Weighted Average Limited Partner and Class B Units 39,258 7,545 46,803 ========= ======== ========== See accompanying notes to unaudited pro forma condensed combined statements of income. F-13
TEPPCO PARTNERS, L.P. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME The Val Verde acquisition was accounted for using the purchase method of accounting. Under this method of accounting, the Partnership recorded the assets and liabilities of the acquired entities at the estimated fair market value as of the date of closing. The acquisitions of Jonah and Val Verde are reflected in the historical TEPPCO Partners, L.P. balance sheet. The following notes set forth the explanations and assumptions used in the preparation of the unaudited pro forma condensed combined statements of income. The pro forma adjustments have been updated and are based on the best estimate of the Partnership using information currently available. The Partnership is in the process of completing the final purchase priced allocation of Val Verde. Consequently, the final purchase price allocation may be different from the pro forma purchase price allocation included herein. However, the Partnership does not currently anticipate that the difference will be material to the pro forma financial position or results of operations included herein. The updated pro forma allocation of the purchase price paid for Val Verde and the financing of the acquisition are summarized as follows (in thousands): Updated purchase price paid:
TEPPCO PARTNERS, L.P. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (CONTINUED) The following adjustments were made to the unaudited pro forma condensed combined statements of income pursuant to the purchase method of accounting: (a) To reverse the historical depreciation expense of Val Verde. (b) To record pro forma depreciation expense and amortization expense on the Val Verde purchase price allocation to depreciable and amortizable assets. Intangibles for production contracts are to be amortized over the expected lives of the contracts (approximately 20 years) and property, plant, and equipment over an estimated remaining life of 25 years. Amortization for contracts is recorded over the expected lives of the contracts in proportion to the timing of expected contractual volumes, while depreciation of property, plant and equipment is recorded on a straight line basis. (c) To reflect the increase in interest expense resulting from borrowings under the Partnership's Three Year Facility and Short-term Revolver to finance a portion of the purchase price of Val Verde and the related estimated debt issue costs on the two facilities. The interest rate on the borrowings under the Three Year Facility and the Short-term Revolver used to finance a portion of the purchase price is 2.8%. Debt issue costs related to the two credit facilities of approximately $1.8 million are being amortized over the terms of the related facilities. For purposes of the pro forma financial information, the debt incurred to acquire Val Verde is assumed to remain outstanding for the periods presented. However, if the debt incurred to acquire Val Verde remains outstanding for the periods presented, the Partnership could potentially violate debt covenants and would need to obtain waivers of those covenants. Assuming market interest rates change by 1/8 percent, the potential annual change in interest expense is approximately $0.3 million. (d) To reverse interest income from affiliates as the Partnership is not assuming this amount. (e) To eliminate Val Verde's income tax provision as the Partnership is not a taxable entity. (f) To reverse the historical depreciation expense and amortization expense of Jonah. (g) To record pro forma depreciation and amortization expense on the Jonah purchase price allocation to depreciable and amortizable assets. Intangibles for production contracts are to be amortized over the expected lives of the contracts (approximately 16 years) and property, plant, and equipment over an estimated remaining life of 25 years. Amortization for contracts is recorded over the expected lives of the contracts in proportion to the timing of expected contractual volumes, while depreciation of property, plant and equipment is recorded on a straight line basis. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, goodwill associated with the Jonah acquisition is not being amortized. F-15
TEPPCO PARTNERS, L.P. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME (CONTINUED) (h) To reflect the increase in interest expense resulting from borrowings under the credit agreement for the purchase of Jonah and the related estimated debt issuance costs. The interest rate on the credit agreement is 3.63%. Debt issue costs of approximately $1.0 million are being amortized over the anticipated life of the credit agreement, which is nine months. For purposes of the pro forma financial information the debt incurred to acquire Jonah is assumed to remain outstanding for the year ended December 31, 2001. Assuming market interest rates change by 1/8 percent, the potential annual change in interest expense is approximately $0.5 million. This credit agreement was terminated by the Partnership in February 2002. (i) To reclassify loss on sale of property, plant and equipment to other income - net. (j) To record the effect of the pro forma statement of income adjustments on minority interest expense. F-16
EXHIBIT INDEX
EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (File No. 33-81976) and Form S-8 (File No. 333-82892) of TEPPCO Partners, L.P. of our report dated August 7, 2002 relating to the combined financial statements of the Burlington Resources Gathering Inc. Val Verde Gathering and Processing System for the years ended December 31, 2001 and 2000, which appears in the Current Report on Form 8-K/A of TEPPCO Partners, L.P. filed October 8, 2002. /s/ PricewaterhouseCoopers LLP Houston, Texas October 8, 2002