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UNITED STATES
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, 1996
COMMISSION FILE NO. 1-10403
TEPPCO PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0291058
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 759-3636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes /X/ No / /
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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,
1996 1995
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 35,096 $ 39,663
Short-term investments . . . . . . . . . . . . . . . . . . . . . . 24,799 18,587
Accounts receivable, trade . . . . . . . . . . . . . . . . . . . . 13,037 20,031
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,991 22,911
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,368 3,145
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 94,291 104,337
---------- ----------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $139,198 and $128,927) . . . . . 537,531 533,470
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,995 16,672
Restricted investments held in trust . . . . . . . . . . . . . . . . 10,838 10,553
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,689 4,883
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $ 662,344 $ 669,915
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities, First Mortgage Notes . . . . . . . . . . . . . $ 13,000 $ 10,000
Accounts payable and accrued liabilities . . . . . . . . . . . . . 7,044 12,224
Accounts payable, general partner . . . . . . . . . . . . . . . . . 3,217 3,001
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . 10,930 11,232
Other accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . 5,484 5,353
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,762 6,221
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . 44,437 48,031
---------- ----------
First Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . 326,512 339,512
Other liabilities and deferred credits . . . . . . . . . . . . . . . 3,072 3,170
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . 2,912 2,821
Partners' capital:
General partner's interest . . . . . . . . . . . . . . . . . . . . 4,026 3,561
Limited partners' interests . . . . . . . . . . . . . . . . . . . . 281,385 272,820
---------- ----------
Total partners' capital . . . . . . . . . . . . . . . . . . . . 285,411 276,381
---------- ----------
Total liabilities and partners' capital . . . . . . . . . . . . $ 662,344 $ 669,915
========== ==========
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,
1996 1995 1996 1995
--------- --------- --------- ---------
Operating revenues:
Transportation - Refined products . . $ 26,339 $ 25,353 $ 48,222 $ 46,279
Transportation - LPGs . . . . . . . . 12,469 9,835 39,583 33,074
Gain on sale of inventory . . . . . . 2,029 2,374 3,572 4,055
Mont Belvieu operations . . . . . . . 2,778 3,239 5,618 6,423
Other . . . . . . . . . . . . . . . . 5,331 5,667 10,800 9,814
--------- ---------- --------- ----------
Total operating revenues . . . . 48,946 46,468 107,795 99,645
--------- ---------- --------- ----------
Costs and expenses:
Operating, general and administrative 23,261 21,693 46,270 42,014
Depreciation and amortization . . . . 5,925 5,816 11,893 11,612
Taxes - other than income taxes . . . 2,263 2,376 4,599 4,920
--------- ---------- --------- ----------
Total costs and expenses . . . . 31,449 29,885 62,762 58,546
--------- ---------- --------- ----------
Operating income . . . . . . . . 17,497 16,583 45,033 41,099
Interest expense, First Mortgage Notes (8,685) (8,929) (17,552) (17,985)
Interest costs capitalized . . . . . . 210 212 380 427
Other income - net . . . . . . . . . . 1,388 1,394 2,880 2,820
--------- ---------- --------- ----------
Income before minority interest . 10,410 9,260 30,741 26,361
Minority interest . . . . . . . . . . . (106) (93) (311) (266)
--------- ---------- --------- ----------
Net income . . . . . . . . . . . $ 10,304 $ 9,167 $ 30,430 $ 26,095
========= ========== ========= ==========
Net income per Unit . . . . . . . $ 0.67 $ 0.61 $ 1.99 $ 1.73
========= ========== ========= ==========
See accompanying Notes to Consolidated Financial Statements.
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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,
1996 1995
----------- -----------
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,430 $ 26,095
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . 11,893 11,612
Decrease in accounts receivable, trade . . . . . . . . . . . . 6,994 7,015
Decrease in inventories . . . . . . . . . . . . . . . . . . . . 5,920 7,890
Increase in other current assets . . . . . . . . . . . . . . . (1,223) (1,206)
Decrease in accounts payable and accrued expenses . . . . . . . (6,594) (4,793)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 928
---------- ----------
Net cash provided by operating activities . . . . . . . . . 47,548 47,541
---------- ----------
Cash flows from investing activities:
Proceeds from investments . . . . . . . . . . . . . . . . . . . . . 9,861 33,685
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,436) (48,523)
Insurance proceeds related to damaged asset . . . . . . . . . . . . -- 9,750
Restricted investments designated for property additions . . . . . (285) (10,016)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (15,635) (12,133)
---------- ----------
Net cash used in investing activities . . . . . . . . . . . (20,495) (27,237)
---------- ----------
Cash flows from financing activities:
Principal payment, First Mortgage Notes . . . . . . . . . . . . . . (10,000) (7,000)
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . (21,620) (19,688)
---------- ----------
Net cash used in financing activities . . . . . . . . . . . (31,620) (26,688)
---------- ----------
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . (4,567) (6,384)
Cash and cash equivalents at beginning of period . . . . . . . . . . 39,663 28,567
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 35,096 $ 22,183
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest) . . . . $ 17,193 $ 17,482
========== ==========
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. is a Delaware limited partnership which operates
through TE Products Pipeline Company, Limited Partnership, a Delaware limited
partnership (collectively the "Partnership"), in which TEPPCO Partners, L.P.
holds a 99% interest as the sole limited partner. Texas Eastern Products
Pipeline Company and Subsidiary Companies (the "Company"), a wholly owned
subsidiary of PanEnergy Corp (PanEnergy), is the general partner of the
Partnership and has agreed not to voluntarily withdraw as the general partner
of the Partnership, subject to certain limited exceptions, prior to January 1,
2000.
The accompanying unaudited consolidated financial statements reflect all
adjustments, which are, in the opinion of management, of a normal and recurring
nature and necessary for a fair statement of the financial position of the
Partnership as of June 30, 1996, and the results of operations and cash flows
for the periods presented. The results of operations for the six months ended
June 30, 1996, are not necessarily indicative of results of operations for the
full year 1996. 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, 1995. Certain amounts for the prior year period have been
reclassified to conform to the current presentation.
Net income per Unit is computed by dividing net income, after deduction of
the general partner's interest, by the weighted average number of Units
outstanding (a total of 14,500,000 Units as of June 30, 1996). 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 6). The general
partner was allocated 5.15% and 3.77% of net income for the six months ended
June 30, 1996 and 1995, respectively.
NOTE 2. ACCOUNTING POLICY CHANGES
Effective January 1, 1996, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," with no impact to the
Partnership's consolidated financial statements. Assets are grouped and
evaluated based on the ability to identify their respective cash flows.
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
123, "Accounting for Stock-Based Compensation." This standard addresses the
timing and measurement of stock-based compensation expense. The Partnership
has elected to retain the approach of Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees," (the intrinsic value
method) for recognizing stock-based expense in the consolidated financial
statements. The Partnership will adopt SFAS 123 in 1996 with respect to the
disclosure requirements set forth therein for companies retaining the intrinsic
value approach of APB No. 25.
NOTE 3. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments as
part of its cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash and cash equivalents. At June
30, 1996, short-term investments included $24.8 million of investment-grade
medium-term corporate debt securities, which mature within one year. All
short-term investments are stated at amortized cost, which approximates the
aggregate fair value at June 30, 1996, and are classified as held-to-maturity
securities.
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
LONG-TERM INVESTMENTS
At June 30, 1996, the Partnership had $15.0 million invested in
investment-grade medium-term corporate debt securities, which have varying
maturities from 1997 through 2001. These securities are classified as
held-to-maturity securities and are stated at amortized cost. At June 30,
1996, the aggregate fair value and unrealized gain for these securities was
$15.1 million and $0.1 million, respectively.
NOTE 4. FIRST MORTGAGE NOTES
In connection with its formation, TE Products Pipeline Company, Limited
Partnership issued 9.60% Series A First Mortgage Notes, due 2000, and 10.20%
Series B First Mortgage Notes, due 2010 (collectively the "Notes"). The Notes,
which are secured by a mortgage on substantially all property, plant and
equipment of the Partnership, have mandatory annual prepayments at par through
March 7, 2010. Interest is payable semiannually on each March 7 and September
7 until retirement of the Notes. On March 7, 1996, the Partnership paid $10.0
million for current maturities due on the Notes. At June 30, 1996, the current
maturities of the Notes were $13.0 million, which is payable on March 7, 1997.
The agreements relating to the Notes contain certain covenant restrictions,
including limitations on cash distributions and on the amount of future
indebtedness, none of which is expected to have a material adverse effect on
the Partnership's operations.
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,
1996 1995
------------- ------------
Gasoline . . . . . . . . . . . . . . . . . . . . . . $ 992 $4,582
Propane . . . . . . . . . . . . . . . . . . . . . . . 4,845 6,624
Butanes . . . . . . . . . . . . . . . . . . . . . . . 4,785 6,868
Fuel oils . . . . . . . . . . . . . . . . . . . . . . 757 548
Other products . . . . . . . . . . . . . . . . . . . 2,399 1,440
Materials and supplies . . . . . . . . . . . . . . . 3,213 2,849
------- -------
Total . . . . . . . . . . . . . . . . . . . . $16,991 $22,911
======= =======
The costs of inventories were lower than market at June 30, 1996, and
December 31, 1995.
NOTE 6. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions of all of its Available
Cash, generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the general partner in its sole
discretion or as required by the terms of the Notes.
On May 10, 1996, the Partnership paid the first quarter cash distribution of
$0.70 per Unit to Unitholders of record on April 30, 1996. Additionally, on
July 15, 1996, the Partnership declared a cash distribution of $0.75 per Unit
for the quarter ended June 30, 1996, which represents an increase in the
quarterly distribution of $0.05 per Unit. The second quarter distribution is
payable on August 9, 1996, to Unitholders of record on July 31, 1996.
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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
The Company receives incremental incentive distributions of 15%, 25% and 50%
on quarterly distributions of Available Cash that exceed $0.55, $0.65 and $0.90
per Unit, respectively. During the six months ended June 30, 1996 and 1995,
incentive distributions paid to the Company totaled $0.9 million and $0.5
million, respectively.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company was involved in eight lawsuits, filed in 1988 and 1989, in the
United States District Court of the Southern District of Indiana, New Albany
Division, alleging various injuries to the health and property of persons
living near the Partnership's Seymour, Indiana, terminal. During 1995 and
early 1996, the Company settled six of the eight Seymour cases. The last two
cases were settled in April 1996.
The Indiana Department of Environmental Management (IDEM) has approved the
remedial investigation phase II sampling plan for the Seymour terminal. The
phase II sampling plan is part of the Agreed Order entered into between the
Partnership and IDEM that will ultimately result in a remediation program for
any on-site and off-site environmental problems attributable to the
Partnership's operations at Seymour. In the opinion of the general partner,
the completion of the remediation program to be proposed by the Partnership, if
such program is approved by IDEM, will not have a material adverse impact on
the Partnership.
The Partnership is involved in various other 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 general
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. At June 30, 1996, the Partnership had $2.4 million included in
accrued liabilities for environmental remediation programs at certain
facilities. The Partnership expects this amount will be paid during 1996 and
1997. The completion of these programs is not expected to have a future
material adverse impact on the Partnership.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Partnership's operations consist of the transportation, storage and
terminaling of refined petroleum products and liquefied petroleum gases (LPGs).
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Midwest and Northeast for propane, a major fuel for residential heating, and
higher demand for butane, an additive for gasoline blending.
Net income for the quarter ended June 30, 1996 was $10.3 million, compared
with net income of $9.2 million for the 1995 second quarter. The increase in
net income resulted from a $2.5 million increase in operating revenues and a
$0.2 million decrease in interest expense, partially offset by a $1.6 million
increase in operating, general and administrative expenses.
Net income for the six months ended June 30, 1996 increased $4.3 million to
$30.4 million, compared with net income of $26.1 million for the six months
ended June 30, 1995, due primarily to a $8.2 million increase in operating
revenues and a $0.4 million decrease in interest expense, partially offset by a
$4.3 million increase in operating, general and administrative expenses. See
discussion below of factors affecting net income for the comparative periods.
See volume and average tariff information below:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, PERCENTAGE JUNE 30, PERCENTAGE
-------------------- INCREASE ------------------- INCREASE
1996 1995 (DECREASE) 1996 1995 (DECREASE)
-------- -------- ---------- -------- -------- ----------
VOLUMES DELIVERED
(in thousands of barrels)
Refined products 30,621 28,539 7% 56,541 52,797 7%
LPGs 7,309 6,623 10% 20,154 19,114 5%
Mont Belvieu operations 6,383 7,328 (13%) 11,346 14,037 (19%)
------- ------- -------- ------- ------- -------
Total 44,313 42,490 4% 88,041 85,948 2%
======= ======= ======= ======= ======= =======
AVERAGE TARIFF PER BARREL
Refined products $ 0.86 $ 0.89 (3%) $ 0.85 $ 0.88 (3%)
LPGs 1.71 1.48 16% 1.96 1.73 13%
Mont Belvieu operations 0.17 0.14 21% 0.17 0.14 21%
Average system tariff per barrel $ 0.90 $ 0.85 6% $ 1.02 $ 0.95 7%
Refined products transportation revenues increased $1.0 million for the
quarter ended June 30, 1996, compared with the prior-year quarter, as a result
of higher deliveries of motor fuel, jet fuel and methyl tertiary butyl ether
(MTBE). The increase in motor fuel deliveries resulted from higher demand in
the Central and Midwest market areas, partially offset by lower demand for
reformulated gasoline in the Chicago market area. The increase in jet fuel
volumes delivered resulted from higher demand from commercial airlines in the
Midwest and the completion of the pipeline connection to the United States Air
Force Base at Little Rock, Arkansas, in June 1996. The increase in MTBE
deliveries was due to higher short-haul deliveries at the Partnership's marine
terminal near Beaumont, Texas, offset by lower long-haul deliveries in the
Midwest. These increases were partially offset by lower deliveries of natural
gasoline in the Midwest due to unfavorable blending economics.
LPGs transportation revenues increased $2.6 million for the quarter ended
June 30, 1996, compared with the second quarter of 1995, due primarily to
increased propane deliveries in the upper Midwest and Northeast
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
attributable to colder weather continuing into the second quarter of 1996,
coupled with lower inventory levels and favorable price differentials. The
increase in propane deliveries was partially offset by lower butane deliveries
due to increased Canadian supply being imported into the Midwest and the
shutdown of a refinery in the Northeast. The 16% increase in the LPGs average
tariff per barrel resulted from lower short-haul propane deliveries along the
upper Texas Gulf Coast, coupled with an increase in long-haul propane
deliveries.
For the six months ended June 30, 1996, refined products transportation
revenues increased $1.9 million, compared with the corresponding period in
1995, due primarily to a 7% increase in volumes delivered. Motor fuel and
distillate deliveries increased due primarily to higher demand in the Midwest,
coupled with lower refinery production in the region. Jet fuel deliveries
increased as a result of higher demand from commercial airlines and deliveries
to military facilities in the Midwest, which began in the later part of 1995.
Additionally, MTBE volumes delivered increased because of higher short-haul
deliveries at the Partnership's marine terminal near Beaumont, Texas, partially
offset by lower deliveries to the Midwest. These increases were partially
offset by lower demand for reformulated gasoline in the Chicago area and lower
natural gasoline deliveries in the Midwest attributable to unfavorable blending
economics.
LPGs transportation revenues increased $6.5 million during the six months
ended June 30, 1996, compared with the same period in 1995, due primarily to
higher long-haul propane deliveries attributable to colder winter in the upper
Midwest and Northeast, lower inventory supplies and favorable price
differentials. The increase in propane deliveries was partially offset by
lower butane deliveries due to increased Canadian supply being imported into
the Midwest and the shutdown of a refinery in the Northeast. The 13% increase
in the LPGs average tariff per barrel resulted from lower short-haul propane
deliveries along the upper Texas Gulf Coast, coupled with an increase in
long-haul propane deliveries.
Revenues generated from Mont Belvieu operations decreased during both the
quarter and six months ended June 30, 1996, compared with the corresponding
periods in 1995, due primarily to lower storage revenues and lower terminaling
fees on butane received into the system. Lower petrochemical demand along the
upper Texas Gulf Coast resulted in decreased Mont Belvieu operations shuttle
deliveries. However, the decrease in shuttle deliveries was more than offset
by the 21% increase in the Mont Belvieu operations average tariff per barrel
due to a more favorable mix in 1996 of non-contract volumes, which generally
carry higher tariffs.
Gains on the sale of inventory decreased during both the quarter and six
months ended June 30, 1996, compared with the corresponding periods in 1995, as
a result of lower volumes of propane and gasoline being sold.
Other operating revenues increased $1.0 million during the first six months
of 1996, compared to the same period in 1995, due to increased propane imports
at the Providence, Rhode Island, marine terminal attributable to colder weather
in the Northeast and increased refined products terminaling revenues. These
increases were partially offset by lower butane storage revenue in the Midwest
and lower barge receipts at the Partnership's marine terminal near Beaumont,
Texas.
Operating, general and administrative expenses increased $1.6 million and
$4.3 million during the quarter and six months ended June 30, 1996,
respectively, compared with the corresponding periods in 1995, due primarily to
increased outside services, power costs and labor related expenses. Outside
services increased as a result of higher environmental costs, increased system
maintenance and increased contract labor. The increase in power costs resulted
from higher refined products and LPGs transportation volumes delivered in 1996.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
Interest expense decreased during both the quarter and six-month periods in
1996, compared with the same periods in 1995, due to principal payments on the
First Mortgage Notes of $7.0 million and $10.0 million in March 1995 and 1996,
respectively.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations totaled approximately $47.5 million for both the
six-month periods ended June 30, 1996 and 1995. Income before charges for
depreciation and amortization increased $4.6 million during the 1996 period,
which was offset by lower amounts of cash received on sales of product
inventory and higher cash payments for accrued expenses. Net cash from
operations for the six months ended June 30, 1996 and 1995 reflect semi-annual
interest payments related to the Notes of $17.6 million and $17.9 million,
respectively.
Cash flows used in investing activities during the first six months of 1996
included additional investments of $14.4 million, partially offset by matured
investments of $9.9 million. Cash flows used in investing activities during
the first six months of 1995 included additional investments of $48.5 million,
partially offset by $33.7 million of matured investments. Interest income
earned on all investments is included in cash from operations.
Capital expenditures totaled $15.6 million during the six-month period ended
June 30, 1996, compared with capital expenditures of $12.1 million for the same
period in 1995. The increase in capital expenditures during 1996 reflects
higher spending for system expansion projects including the completion of
facilities to deliver jet fuel to the United States Air Force Base at Little
Rock, Arkansas, and the capacity expansion from a refinery near Shreveport,
Louisiana. Capital expenditures for the full year of 1996 are expected to
total approximately $51 million (including capitalized interest of $0.9
million). Approximately $16 million will be used to continue construction of
the expansion project near Shreveport and approximately $14 million will be
used to increase the mainline capacity by 50,000 barrels per day to the
Midwest. The remaining amount will be used for other revenue-generating and
system integrity projects. The Partnership revises capital spending
periodically in response to changes in cash flows and operations.
The Partnership paid cash distributions of $21.6 million during the six
months ended June 30, 1996. Additionally, on July 15, 1996, the Partnership
declared a cash distribution of $0.75 per Unit for the three months ended June
30, 1996, increasing the annualized distribution to $3.00 per Unit from $2.80
per Unit. The second quarter cash distribution is payable on August 9, 1996 to
Unitholders of record on July 31, 1996.
The Notes, which are secured by a mortgage on substantially all property,
plant and equipment of the Partnership, require annual principal payments
through March 2010. Interest is payable semi-annually on March 7 and September
7. Cash and cash equivalents were reduced by the $10.0 million principal
payment related to the Notes on March 7, 1996. At June 30, 1996, the current
maturities of the Notes were $13.0 million. The note agreement relating to the
Notes limits the amount of cash distributions that can be made by TE Products
Pipeline Company, Limited Partnership to TEPPCO Partners, L.P. Such
restriction is not anticipated to preclude the Partnership from making
quarterly distributions to Unitholders of at least $0.75 per Unit during the
remainder of 1996.
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 general
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
10
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OTHER MATTERS - (CONTINUED)
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 Company was involved in eight lawsuits, filed in 1988 and 1989, in the
United States District Court of the Southern District of Indiana, New Albany
Division, alleging various injuries to the health and property of persons
living near the Partnership's Seymour, Indiana, terminal. During 1995 and
early 1996, the Company settled six of the eight Seymour cases. The last two
cases were settled in April 1996.
The IDEM has approved the remedial investigation phase II sampling plan for
the Seymour terminal. The phase II sampling plan is part of the Agreed Order
entered into between the Partnership and IDEM that will ultimately result in a
remediation program for any on-site and off-site environmental problems
attributable to the Partnership's operations at Seymour. In the opinion of the
general partner, the completion of the remediation program to be proposed by
the Partnership, if such program is approved by IDEM, will not have a material
adverse impact on the Partnership.
Effective January 1, 1996, the Partnership adopted SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," with no impact to the Partnership's consolidated financial statements.
Assets are grouped and evaluated based on the ability to identify their
respective cash flows.
In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based
Compensation." This standard addresses the timing and measurement of
stock-based compensation expense. The Partnership has elected to retain the
approach of APB No. 25, "Accounting for Stock Issued to Employees," (the
intrinsic value method) for recognizing stock-based expense in the consolidated
financial statements. The Partnership will adopt SFAS 123 in 1996 with respect
to the disclosure requirements set forth therein for companies retaining the
intrinsic value approach of APB No. 25.
11
12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ -----------
27 Financial Data Schedule as of and for the six months ended June 30, 1996.
(b) Reports on Form 8-K: None
Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.
12
13
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED DULY AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER.
TEPPCO Partners, L.P.
(Registrant)
By: Texas Eastern Products Pipeline Company
General Partner
/s/ CHARLES H. LEONARD
----------------------------------------------
Charles H. Leonard
Sr. Vice President and Chief Financial Officer
Date: August 6, 1996
13
14
INDEX TO EXHIBITS
Exhibit 27 -- Financial Data Schedule
5
1,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
35,096
24,799
13,037
0
16,991
94,291
676,729
139,198
662,344
44,437
326,512
0
0
0
285,411
662,344
0
107,795
0
62,762
0
0
17,552
30,741
0
30,430
0
0
0
30,430
1.99
1.99
