FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-14323
ENTERPRISE PRODUCTS PARTNERS L.P.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0568219
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2727 NORTH LOOP WEST
HOUSTON, TEXAS
77008-1037
(Address of principal executive offices) (Zip code)
(713) 880-6500
(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 ___
The registrant had 45,552,915 Common Units outstanding as of May 11, 2000.
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ENTERPRISE PRODUCTS PARTNERS L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
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Page
No.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENTERPRISE PRODUCTS PARTNERS L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets, March 31, 2000 and December 31, 1999 1
Statements of Consolidated Operations
for the Three Months ended March 31, 2000 and 1999 2
Statements of Consolidated Cash Flows
for the Three Months ended March 31, 2000 and 1999 3
Notes to Unaudited Consolidated Financial Statements 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 28
Signature Page
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PART 1. FINANCIAL INFORMATION.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.
ENTERPRISE PRODUCTS PARTNERS L.P.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
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MARCH 31,
2000 DECEMBER 31,
ASSETS (UNAUDITED) 1999
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CURRENT ASSETS
Cash and cash equivalents $ 50,142 $ 5,230
Accounts receivable - trade, net of allowance for doubtful accounts of
$15,871 at December 31, 1999 and $15,926 at March 31, 2000 320,355 262,348
Accounts receivable - affiliates 23,908 56,075
Inventories 10,506 39,907
Current maturities of participation in notes receivable from
unconsolidated affiliate 3,232 6,519
Prepaid and other current assets 11,659 14,459
----------------------------------
Total current assets 419,802 384,538
PROPERTY, PLANT AND EQUIPMENT, NET 871,251 767,069
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES 286,872 280,606
INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION OF $1,345 AT
DECEMBER 31, 1999 AND $2,204 AT MARCH 31, 2000 57,868 61,619
OTHER ASSETS 2,938 1,120
==================================
TOTAL $ 1,638,731 $ 1,494,952
==================================
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ - $ 129,000
Accounts payable - trade 77,029 69,294
Accounts payable - affiliate 24,189 64,780
Accrued gas payables 280,373 233,360
Accrued expenses 5,569 16,510
Other current liabilities 4,721 18,176
----------------------------------
Total current liabilities 391,881 531,120
LONG-TERM DEBT 404,000 166,000
OTHER LONG-TERM LIABILITIES 6,656 296
MINORITY INTEREST 8,465 8,071
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY
Common Units (45,552,915 Units outstanding at December 31, 1999
and March 31, 2000) 445,864 428,707
Subordinated Units (21,409,870 Units outstanding at December 31, 1999
and March 31, 2000) 139,724 131,688
Special Units (14,500,000 Units outstanding at December 31, 1999
and March 31, 2000) 238,543 225,855
Treasury Units acquired by Trust, at cost (267,200 Units outstanding at
December 31, 1999 and March 31, 2000) (4,727) (4,727)
General Partner
8,325 7,942
----------------------------------
Total Partners' Equity 827,729 789,465
==================================
TOTAL $ 1,638,731 $ 1,494,952
==================================
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See Notes to Unaudited Consolidated Financial Statements
1
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ENTERPRISE PRODUCTS PARTNERS L.P.
STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per Unit amounts)
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THREE MONTHS
ENDED MARCH 31,
-------------------------------------
2000 1999
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REVENUES
Revenues from consolidated operations $ 746,281 $ 147,314
Equity income in unconsolidated affiliates 7,443 1,563
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Total 753,724 148,877
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COST AND EXPENSES
Operating costs and expenses 672,906 133,809
Selling, general and administrative 5,384 3,000
-------------------------------------
Total 678,290 136,809
-------------------------------------
OPERATING INCOME 75,434 12,068
OTHER INCOME (EXPENSE)
Interest expense (7,774) (2,263)
Interest income from unconsolidated affiliates 144 397
Dividend income from unconsolidated affiliates 1,234 -
Interest income - other 1,481 284
Other, net (363) 75
-------------------------------------
Other income (expense) (5,278) (1,507)
-------------------------------------
INCOME BEFORE MINORITY INTEREST 70,156 10,561
MINORITY INTEREST (709) (106)
=====================================
NET INCOME $ 69,447 $ 10,455
=====================================
ALLOCATION OF NET INCOME TO:
Limited partners $ 68,753 $ 10,350
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General partner $ 694 $ 105
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BASIC EARNINGS PER COMMON UNIT
Income before minority interest $ 1.04 $ 0.16
=====================================
Net income per common unit $ 1.03 $ 0.16
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DILUTED EARNINGS PER COMMON UNIT
Income before minority interest $ 0.86 $ 0.16
=====================================
Net income per common unit $ 0.85 $ 0.16
=====================================
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See Notes to Unaudited Consolidated Financial Statements
2
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ENTERPRISE PRODUCTS PARTNERS L.P
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in Thousands)
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THREE MONTHS ENDED
MARCH 31,
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2000 1999
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OPERATING ACTIVITIES
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Net income $ 69,447 $ 10,455
Adjustments to reconcile net income to cash flows provided by
(used for) operating activities:
Depreciation and amortization 9,048 4,905
Equity in income of unconsolidated affiliates (7,443) (1,563)
Leases paid by EPCO 2,637 2,639
Minority interest 709 106
Gain on sale of assets - (3)
Net effect of changes in operating accounts 2,632 3,808
-------------------------------------
Operating activities cash flows 77,030 20,347
-------------------------------------
INVESTING ACTIVITIES
Capital expenditures (111,449) (1,672)
Proceeds from sale of assets 2 11
Collection of notes receivable from unconsolidated affiliates 3,287 3,684
Unconsolidated affiliates:
Investments in and advances to (5,972) (28,866)
Distributions received 7,149 2,505
-------------------------------------
Investing activities cash flows (106,983) (24,338)
-------------------------------------
FINANCING ACTIVITIES
Long-term debt borrowings 464,000 40,000
Long-term debt repayments (355,000) (20,000)
Cash dividends paid to partners (33,820) (30,437)
Cash dividends paid to minority interest by Operating Partnership (345) (311)
Units acquired by consolidated trust - (4,727)
Cash contributions from EPCO to minority interest 30 28
-------------------------------------
Financing activities cash flows 74,865 (15,447)
-------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 44,912 (19,438)
CASH AND CASH EQUIVALENTS, JANUARY 1 5,230 24,103
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CASH AND CASH EQUIVALENTS, MARCH 31 $ 50,142 $ 4,665
=====================================
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
3
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ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. GENERAL
In the opinion of Enterprise Products Partners L.P. (the "Company"), the
accompanying unaudited consolidated financial statements include all adjustments
consisting of normal recurring accruals necessary for a fair presentation of the
Company's consolidated financial position as of March 31, 2000, consolidated
results of operations for the three month periods ended March 31, 2000 and 1999,
and consolidated cash flows for the three month periods ended March 31, 2000 and
1999. Although the Company believes the disclosures in these financial
statements are adequate to make the information presented not misleading,
certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These unaudited financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report on Form 10-K (File No. 1-14323) for the
year ended December 31, 1999.
The results of operations for the three month period ended March 31, 2000 are
not necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made to prior years' financial statements to
conform to the presentation of the current period financial statements.
Dollar amounts presented in the tabulations within the notes to the consolidated
financial statements are stated in thousands of dollars, unless otherwise
indicated.
2. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES
At March 31, 2000, the Company's significant unconsolidated affiliates accounted
for by the equity method included the following:
Belvieu Environmental Fuels ("BEF") - a 33.33% economic interest in a Methyl
Tertiary Butyl Ether ("MTBE") production facility located in southeast Texas.
Baton Rouge Fractionators LLC ("BRF") - an approximate 31.25% economic interest
in a natural gas liquid ("NGL") fractionation facility located in southeastern
Louisiana.
Baton Rouge Propylene Concentrator, LLC ("BRPC") - a 30.0% economic interest in
a propylene concentration unit located in southeastern Louisiana which is under
construction and scheduled to become operational in the third quarter of 2000.
EPIK Terminalling L.P. and EPIK Gas Liquids, LLC (collectively, "EPIK") - a 50%
aggregate economic interest in a refrigerated NGL marine terminal loading
facility located in southeast Texas.
Wilprise Pipeline Company, LLC ("Wilprise") - a 33.33% economic interest in a
NGL pipeline system located in southeastern Louisiana.
Tri-States NGL Pipeline LLC ("Tri-States") - an aggregate 33.33% economic
interest in a NGL pipeline system located in Louisiana, Mississippi, and
Alabama.
Belle Rose NGL Pipeline LLC ("Belle Rose") - a 41.7% economic interest in a NGL
pipeline system located in south Louisiana.
K/D/S Promix LLC ("Promix") - a 33.33% economic interest in a NGL fractionation
facility and related storage facilities located in south Louisiana.
4
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The Company's investments in and advances to unconsolidated affiliates also
includes Venice Energy Services Company, LLC ("VESCO") and Dixie Pipeline
Company ("Dixie"). The VESCO investment consists of a 13.1% economic interest in
a LLC owning a natural gas processing plant, fractionation facilities, storage,
and gas gathering pipelines in Louisiana. The Dixie investment consists of an
11.5% interest in a corporation owning a 1,301-mile propane pipeline and the
associated facilities extending from Mont Belvieu, Texas to North Carolina.
These investments are accounted for using the cost method.
During the third quarter of 1999, the Company acquired the remaining interest in
Mont Belvieu Associates , 51%, ("MBA") and Entell NGL Services, LLC, 50%,
("Entell"). Accordingly, after the acquisition of the remaining interest, the
aforementioned entities became wholly owned subsidiaries of the Company and are
included as a consolidated entity from that point forward.
The following table shows investments in and advances to unconsolidated
affiliates at:
MARCH 31, DECEMBER 31,
2000 1999
-------------------------------------
Accounted for on equity basis:
BEF $ 60,787 $ 63,004
Promix 51,100 50,496
BRF 33,425 36,789
Tri-States 29,566 28,887
EPIK 18,505 15,258
Belle Rose 12,223 12,064
BRPC 18,823 11,825
Wilprise 9,443 9,283
MBA
Accounted for on cost basis:
VESCO 33,000 33,000
Dixie 20,000 20,000
=====================================
Total $ 286,872 $ 280,606
=====================================
The following table shows equity in income (loss) of unconsolidated affiliates
for the quarters ended March 31, 2000 and 1999:
FOR QUARTER ENDED MARCH 31,
2000 1999
-------------------------------------
BEF $ 2,505 $ 301
MBA - 760
BRF 529 (143)
BRPC 10 -
EPIK 1,792 397
Wilprise 88 -
Tri-States 678 -
Promix 1,662 -
Belle Rose 179 -
Other - 248
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Total $ 7,443 $ 1,563
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5
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BEF
The Company owns a 33.33% economic interest in the BEF partnership that owns the
MTBE production facility located within the Company's Mont Belvieu complex. The
production of MTBE is driven by oxygenated fuels programs enacted under the
federal Clean Air Act Amendments of 1990 and other legislation. Any changes to
these programs that enable localities to opt out of these programs, lessen the
requirements for oxygenates or favor the use of non-isobutane based oxygenated
fuels reduce the demand for MTBE and could have an adverse effect on the
Company's results of operations.
In recent years, MTBE has been detected in water supplies. The major source of
the ground water contamination appears to be leaks from underground storage
tanks. Although these detections have been limited and the great majority of
these detections have been well below levels of public health concern, there
have been actions calling for the phase-out of MTBE in motor gasoline in various
federal and state governmental agencies.
In light of these developments, the Company is formulating a contingency plan
for use of the BEF facility if MTBE were banned or significantly curtailed.
Management is exploring a possible conversion of the BEF facility from MTBE
production to alkylate production. At present the forecast cost of this
conversion would be in the $20 million to $25 million range, with the Company's
share being $6.7 million to $8.3 million.
3. ACQUISITIONS
Effective August 1, 1999, the Company acquired Tejas Natural Gas Liquids, LLC
("TNGL") from a subsidiary of Tejas Energy, LLC, now Coral Energy, LLC, an
affiliate of Shell Oil Company ("Shell") for $166 million in cash and the
issuance of 14.5 million non-distribution bearing, convertible Special Units.
All references hereafter to "Shell", unless the context indicates otherwise,
shall refer collectively to Shell Oil Company, its subsidiaries and affiliates.
TNGL engages in natural gas processing and NGL fractionation, transportation,
storage and marketing in Louisiana and Mississippi. TNGL's assets include a
20-year natural gas processing agreement with Shell ("Shell Processing
Agreement") and varying interests in eleven natural gas processing plants, four
NGL fractionation facilities; four NGL storage facilities and approximately
1,500 miles in pipelines. Shell has the opportunity to earn an additional 6.0
million non-distribution bearing, convertible special Contingency Units over the
next two years upon the achievement of certain gas production thresholds under
the Shell Processing Agreement.
Effective July 1, 1999, the Company acquired Kinder Morgan Operating LP "A"'s
25% indirect ownership interest and Enterprise Products Company's ("EPCO") 0.5%
indirect ownership interest in a 210,000 barrel per day NGL fractionation
facility located in Mont Belvieu, Texas for approximately $42 million in cash
and the assumption of approximately $4 million in debt.
Both acquisitions were accounted for using the purchase method of accounting,
and accordingly, the purchase price of each has been allocated to the assets
purchased and liabilities assumed based on their estimated fair value at the
effective date of each transaction.
PRO FORMA EFFECT OF ACQUISITIONS
The following table presents unaudited pro forma information for the quarter
ended March 31, 1999 as if the acquisition of TNGL from Shell and the Mont
Belvieu NGL fractionation facility from Kinder Morgan and EPCO had been made as
of January 1, 1999:
6
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Revenues $ 300,510
=================
Net income $ 13,281
=================
Allocation of net income to
Limited partners $ 13,148
=================
General Partner $ 133
=================
Units used in earning per Unit calculations
Basic 66,756
=================
Diluted 81,256
=================
Income per Unit before minority interest
Basic $ 0.20
=================
Diluted $ 0.16
=================
Net income per Unit
Basic $ 0.20
=================
Diluted $ 0.16
=================
4. LONG-TERM DEBT
GENERAL. Long-term debt at March 31, 2000 was comprised of $350 million in
5-year public Senior Notes issued by Enterprise Products Operating L.P. (the
"Operating Partnership") and $54 million in Taxable Industrial Development Bonds
("Revenue Bonds") issued by the Mississippi Business Finance Corporation
("MBFC"). The issuance of the $350 Million Senior Notes represented a partial
takedown of the $800 million universal shelf registration (the "Registration
Statement") that was filed with the Securities and Exchange Commission in
December 1999. The proceeds from the $350 Million Senior Notes and the $54
million Revenue Bonds were used to extinguish all outstanding balances owed
under the $200 Million Bank Credit Facility and the $350 Million Bank Credit
Facility.
The following table summarizes long-term debt at:
MARCH 31, DECEMBER 31,
2000 1999
------------------------------------
Borrowings under:
$200 Million Bank Credit Facility $ 129,000
$350 Million Bank Credit Facility 166,000
$350 Million Senior Notes $ 350,000
$54 Million Revenue Bonds 54,000
------------------------------------
Total 404,000 295,000
Less current maturities of long-term debt - 129,000
------------------------------------
====================================
Long-term debt $ 404,000 $ 166,000
====================================
At March 31, 2000, the Operating Partnership had a total of $40 million of
standby letters of credit available of which approximately $13.3 million were
outstanding under letter of credit agreements with the banks.
$200 MILLION BANK CREDIT FACILITY. In July 1998, the Operating Partnership
entered into a $200 million bank credit facility that included a $50 million
working capital facility and a $150 million revolving term loan facility. On
7
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March 15, 2000, the Operating Partnership used $169 million of the proceeds from
the issuance of the $350 Million Senior Notes to retire the outstanding balance
of this credit facility in accordance with its agreement with the banks.
$350 MILLION BANK CREDIT FACILITY. In July 1999, the Operating Partnership
entered into a $350 Million Bank Credit Facility that includes a $50 million
working capital facility and a $300 million revolving term loan facility. The
$300 million revolving term loan facility includes a sublimit of $40 million for
letters of credit. Borrowings under the $350 Million Bank Credit Facility will
bear interest at either the bank's prime rate or the Eurodollar rate plus the
applicable margin as defined in the facility. The Operating Partnership elects
the basis for the interest rate at the time of each borrowing.
This facility will expire in July 2001 and all amounts borrowed thereunder shall
be due and payable at that time. There must be no amount outstanding under the
working capital facility for at least 15 consecutive days during each fiscal
year. In March 2000, the Operating Partnership used $179 million of the proceeds
from the issuance of the $350 Million Senior Notes and $47 million from the
issuance of the $54 million Revenue Bonds to payoff the outstanding balance on
this credit facility. No amount was outstanding on this credit facility at March
31, 2000.
The credit agreement relating to this facility contains a prohibition on
distributions on, or purchases or redemptions of Units if any event of default
is continuing. In addition, the bank credit facility contains various
affirmative and negative covenants applicable to the ability of the Operating
Partnership to, among other things, (i) incur certain additional indebtedness,
(ii) grant certain liens, (iii) sell assets in excess of certain limitations,
(iv) make investments, (v) engage in transactions with affiliates and (vi) enter
into a merger, consolidation, or sale of assets. The bank credit facility
requires that the Operating Partnership satisfy the following financial
covenants at the end of each fiscal quarter: (i) maintain Consolidated Tangible
Net Worth (as defined in the bank credit facility) of at least $250.0 million,
(ii) maintain a ratio of EBITDA (as defined in the bank credit facility) to
Consolidated Interest Expense (as defined in the bank credit facility) for the
previous 12-month period of at least 3.5 to 1.0 and (iii) maintain a ratio of
Total Indebtedness (as defined in the bank credit facility) to EBITDA of no more
than 3.0 to 1.0. The Operating Partnership was in compliance with the
restrictive covenants at March 31, 2000.
$350 MILLION SENIOR NOTES. On March 13, 2000, the Operating Partnership
completed a public offering of $350 million in principal amount of 8.25%
fixed-rate Senior Notes due March 15, 2005 ( "Senior Notes") at a price to the
public of 99.948% per Senior Note. The Operating Partnership received proceeds,
net of underwriting discounts and commissions, of approximately $347.7 million.
The proceeds were used to pay the entire $169 million outstanding principal
balance on the $200 Million Bank Credit Facility and to pay approximately $179
million of the $226 million outstanding principal balance on the $350 Million
Bank Credit Facility.
The Senior Notes are subject to a make-whole redemption right by the Operating
Partnership. The Senior Notes are an unsecured obligation of the Operating
Partnership and rank equally with its existing and future unsecured and
unsubordinated indebtedness and senior to any future subordinated indebtedness.
The Senior Notes are guaranteed by the Company through an unsecured and
unsubordinated guarantee. The Senior Notes were issued under an indenture
containing certain restrictive covenants. These covenants restrict the ability
of the Company and the Operating Partnership, with certain exceptions, to incur
debt secured by liens; and engage in sale and leaseback transactions. The
Company and Operating Partnership were in compliance with the restrictive
covenants at March 31, 2000.
Settlement was completed on March 15, 2000. The issuance of the Senior Notes was
a takedown under the Company's $800 million Registration Statement; therefore,
the amount of securities available under the Registration Statement have been
reduced to $450 million.
$54 MILLION REVENUE BONDS. On March 27, 2000, the Operating Partnership executed
a $54 million loan agreement with the MBFC which was funded with proceeds from
the sale of Taxable Industrial Revenue Bonds ("Bonds") by the MBFC. The Bonds
issued by the MBFC are 10-year bonds with a maturity date of March 1, 2010 and
bear a fixed-rate interest coupon of 8.70%. The Operating Partnership received
proceeds from the sale of the Bonds, net of underwriting discounts and
commissions, of approximately $53.6 million. The proceeds were used to pay the
remaining $47 million outstanding principal balance on the $350 Million Bank
Credit Facility and for working capital and other general partnership purposes.
8
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In general, the proceeds of the Bonds were used to reimburse the Operating
Partnership for costs incurred in acquiring and constructing the Pascagoula,
Mississippi natural gas processing plant.
The Bonds were issued at par and are subject to a make-whole redemption right by
the Operating Partnership. The Bonds are guaranteed by the Company through an
unsecured and unsubordinated guarantee. The loan agreement contains certain
covenants including maintaining appropriate levels of insurance on the
Pascagoula natural gas processing facility and restrictions regarding mergers.
The Company was in compliance with the restrictive covenants at March 31, 2000.
5. CAPITAL STRUCTURE AND EARNINGS PER UNIT
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF THE COMPANY. The
Second Amended and Restated Agreement of Limited Partnership of the Company (the
"Partnership Agreement") contains specific provisions for the allocation of net
earnings and losses to the Common Units, Subordinated Units, Special Units and
the General Partner. The Partnership Agreement also sets forth the calculation
to be used to determine the amount and priority of cash distributions that the
Common Unitholders, Subordinated Unitholders and the General Partner will
receive.
The Partnership Agreement generally authorizes the Company to issue an unlimited
number of additional limited partner interests and other equity securities of
the Company for such consideration and on such terms and conditions as shall be
established by the General Partner in its sole discretion without the approval
of the Unitholders. During the Subordination Period, however, the Company may
not issue equity securities ranking senior to the Common Units for an aggregate
of more than 22,775,000 Common Units (except for Common Units upon conversion of
Subordinated Units, pursuant to employee benefit plans, upon conversion of the
general partner interest as a result of the withdrawal of the General Partner or
in connection with acquisitions or capital improvements that are accretive on a
per Unit basis) or an equivalent number of securities ranking on a parity with
the Common Units, without the approval of the holders of at least a Unit
Majority. A Unit Majority is defined as at least a majority of the outstanding
Common Units (during the Subordination Period), excluding Common Units held by
the General Partner and its affiliates, and at least a majority of the
outstanding Common Units (after the Subordination Period).
In April 2000, the Company mailed a Proxy Statement to its public unitholders
asking them to consider and vote for a proposal to amend the Partnership
Agreement to increase the number of additional Common Units that may be issued
during the Subordination Period without the approval of a Unit Majority from
22,775,000 Common Units to 47,775,000 Common Units. The primary purpose of the
requested increase is to improve the future financial flexibility of the Company
since the TNGL acquisition used 20,500,000 Common Units of the 22,775,000 Common
Units available to the partnership during the Subordination Period. If the
public unitholders vote in favor of the proposal, the Company would have
27,275,000 Common Units at its disposal for general partnership purposes.
SUBORDINATED UNITS. The Subordinated Units have no voting rights until converted
into Common Units at the end of the Subordination Period (as defined below). The
Subordination Period for the Subordinated Units will generally extend until the
first day of any quarter beginning after June 30, 2003 when the Conversion Test
has been satisfied. Generally, the Conversion Test will have been satisfied when
the Company has paid from Operating Surplus and generated from Adjusted
Operating Surplus the minimum quarterly distribution on all Units for the three
preceding four-quarter periods. Upon expiration of the Subordination Period, all
remaining Subordinated Units will convert into Common Units on a one-for-one
basis and will thereafter participate pro rata with the other Common Units in
distributions of Available Cash.
If the Conversion Test has been met for any quarter ending on or after June 30,
2001, 25% of the Subordinated Units will convert into Common Units. If the
Conversion Test has been met for any quarter ending on or after June 30, 2002,
an additional 25% of the Subordinated Units will convert into Common Units. The
early conversion of the second 25% of Subordinated Units may not occur until at
least one year following the early conversion of the first 25% of Subordinated
Units.
SPECIAL UNITS. The 14.5 million Special Units issued do not accrue distributions
and are not entitled to cash distributions until their conversion into Common
Units, which occurs automatically with respect to 1.0 million Units on August 1,
9
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2000 (or the day following the record date for determining units entitled to
receive distributions in the second quarter of 2000), 5.0 million Units on
August 1, 2001 and 8.5 million Units on August 1, 2002.
Shell has the opportunity to earn an additional 6 million non-distribution
bearing, convertible Contingency Units over the next two years based on certain
performance criteria. Shell will earn 3 million convertible Contingency Units if
at any point during calendar year 2000 (or extensions thereto due to force
majeure events), gas production by Shell from its offshore Gulf of Mexico
producing properties and leases is 950 million cubic feet per day for 180
not-necessarily-consecutive days or 375 billion cubic feet on a cumulative
basis. Shell will earn another 3 million convertible Contingency Units if at any
point during calendar year 2001 (or extensions thereto due to force majuere
events) such gas production is 900 million cubic feet per day for 180
not-necessarily-consecutive days or 350 billion cubic feet on a cumulative
basis. If either or both of the preceding performance tests is not met but
Shell's offshore Gulf of Mexico gas production reaches 725 billion cubic feet on
a cumulative basis in calendar years 2000 and 2001 (or extensions thereto due to
force majeure events), Shell would still earn 6 million non-distribution
bearing, convertible Contingency Units. If all of the Contingency Units are
earned, 1 million Contingency Units would convert into Common Units on August 1,
2002 and 5 million Contingency Units would convert into Common Units on August
1, 2003. The Contingency Units do not accrue distributions and are not entitled
to cash distributions until conversion into Common Units.
Under the rules of the New York Stock Exchange, conversion of the Special Units
into Common Units requires approval of the Company's Unitholders. The General
Partner has agreed to call a special meeting of the Unitholders for the purpose
of soliciting such approval. EPC Partners II, Inc. ("EPC II"), which owns in
excess of 81% of the outstanding Common Units, has agreed to vote its Units in
favor of such approval, which will satisfy the approval requirement.
UNITS ACQUIRED BY TRUST. During the first quarter of 1999, the Company
established a revocable grantor trust (the "Trust") to fund future liabilities
of a long-term incentive plan. At March 31, 2000, the Trust had purchased a
total of 267,200 Common Units (the "Trust Units") which are accounted for in a
manner similar to treasury stock under the cost method of accounting. The Trust
Units are considered outstanding and will receive distributions; however, they
are excluded from the calculation of net income per Unit.
EARNINGS PER UNIT. The Company has no dilutive securities that would require
adjustment to net income for the computation of diluted earnings per Unit. The
following is a reconciliation of the number of units used in the computation of
basic and diluted earnings per Unit for all periods presented.
AT MARCH 31,
2000 1999
------------------------------
Weighted average number of Common
and Subordinated Units outstanding 66,696 66,756
Weighted average number of Special
Units to be converted to Common Units 14,500
------------------------------
Units used to compute diluted
earnings per Unit 81,196 66,756
==============================
The Contingency Units (described above) to be issued upon achieving certain
performance criteria have been excluded from diluted earnings per Unit because
such tests have not been met at March 31, 2000.
6. DISTRIBUTIONS
The Company intends, to the extent there is sufficient available cash from
Operating Surplus, as defined by the Partnership Agreement, to distribute to
each holder of Common Units at least a minimum quarterly distribution of $0.45
per Common Unit. The minimum quarterly distribution is not guaranteed and is
subject to adjustment as set forth in the Partnership Agreement. With respect to
each quarter during the subordination period, which will generally not end
before June 30, 2003, the Common Unitholders will generally have the right to
10
<PAGE>
receive the minimum quarterly distribution, plus any arrearages thereon, and the
General Partner will have the right to receive the related distribution on its
interest before any distributions of available cash from Operating Surplus are
made to the Subordinated Unitholders.
On January 17, 2000, the Company declared an increase in its quarterly cash
distribution to $0.50 per Unit.
The following is a summary of cash distributions to partnership interests since
the first quarter of 1999:
<TABLE>
<CAPTION>
CASH DISTRIBUTIONS
--------------------------------------------------------------------------
PER COMMON PER SUBORDINATED RECORD PAYMENT
UNIT UNIT DATE DATE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
First Quarter $ 0.45 $ 0.45 January 29, 1999 February 11, 1999
Second Quarter $ 0.45 $ 0.07 April 30, 1999 May 12, 1999
Third Quarter $ 0.45 $ 0.37 July 30, 1999 August 11, 1999
Fourth Quarter $ 0.45 $ 0.45 October 29, 1999 November 10, 1999
2000
First Quarter $ 0.50 $ 0.50 January 31, 2000 February 10, 2000
Second Quarter $ 0.50 $ 0.50 April 28, 2000 May 10, 2000
(through May 11, 2000)
</TABLE>
7. SUPPLEMENTAL CASH FLOW DISCLOSURE
The net effect of changes in operating assets and liabilities is as follows:
THREE MONTHS ENDED
MARCH 31,
2000 1999
-------------------------------------
(Increase) decrease in:
Accounts receivable $ (25,840) $ 5,796
Inventories 29,401 (199)
Prepaid and other current assets 2,800 (1,941)
Other assets (2,742) -
Increase (decrease) in:
Accounts payable - trade (32,856) (1,517)
Accrued gas payable 47,013 10,527
Accrued expenses (10,941) (3,728)
Other current liabilities (13,455) (5,130)
Other liabilities 9,252 -
=====================================
Net effect of changes in operating accounts $ 2,632 $ 3,808
=====================================
Capital expenditures for the first quarter of 2000 were $111.4 million compared
to $1.7 million for the same period in 1999. Capital expenditures for the first
quarter of 2000 included $99.6 million for the purchase of the Lou-Tex Propylene
Pipeline, $7.7 million for construction costs on the Lou-Tex NGL Pipeline, and
$3.4 million for construction costs on the Neptune gas processing facility.
The purchase of the Lou-Tex Propylene Pipeline and related assets from Concha
Chemical Pipeline Company, an affiliate of Shell, was completed on February 25,
2000. The effective date of the transaction was March 1, 2000. The Lou-Tex
Propylene Pipeline is a 263-mile, 10" pipeline that transports chemical grade
propylene from Sorrento, Louisiana to Mont Belvieu, Texas. Also acquired in this
transaction was 27.5 miles of 6" ethane pipeline between Sorrento and Norco,
Louisiana, and a 0.5 million barrel storage cavern at Sorrento, Louisiana.
11
<PAGE>
8. RECENTLY ISSUED ACCOUNTING STANDARDS
On June 6, 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133-an amendment of FASB Statement No. 133" which effectively
delays the application of SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" for one year, to fiscal years beginning after June 15,
2000. Management is currently studying SFAS No. 133 for possible impact on the
consolidated financial statements when it is adopted in 2001.
9. FINANCIAL INSTRUMENTS
The Company enters into swaps and other contracts to hedge the price risks
associated with inventories, commitments and certain anticipated transactions.
The Company does not currently hold or issue financial instruments for trading
purposes. The swaps and other contracts are with established energy companies
and major financial institutions. The Company believes its credit risk is
minimal on these transactions, as the counterparties are required to meet
stringent credit standards. There is continuous day-to-day involvement by senior
management in the hedging decisions, operating under resolutions adopted by the
board of directors.
INTEREST RATE SWAPS. In March 2000, the Operating Partnership entered into
interest rate swaps whereby the fixed-rate of interest on a portion of the $350
Million Senior Notes and the $54 Million Revenue Bonds was swapped for floating
rates tied to the six month London Interbank Offering Rate ("LIBOR"). Interest
rate swaps are used to manage the partnership's exposure to changes in interest
rates and to lower overall costs of financing. Interest rate swaps allow the
Company to raise funds at fixed rates and effectively swap them into floating
rates that are lower than those available to the partnership if floating-rate
borrowings were made directly. These agreements involve the exchange of
fixed-rate payments for floating-rate payments without the exchange of the
underlying principal amount.
At March 31, 2000, the Operating Partnership had three interest rate swaps
outstanding with banks. The notional amount of these swaps totaled $154 million,
with $100 million expiring in five years and $54 million expiring in ten years.
The notional amount is used to measure the volume of these contracts and does
not represent exposure to credit loss. In the event of default by a
counterparty, the risk in these transactions is the cost of replacing the
interest-rate contract at current market rates. The Operating Partnership
monitors its positions and the credit ratings of its counterparties. Management
believes the risk of incurring losses is remote, and that if incurred, such
losses would be immaterial.
The following table summarizes the interest rate swap agreements entered into by
the Operating Partnership:
Interest Rate Swaps related to the $350 Million Senior Notes:
<TABLE>
<CAPTION>
FIXED-RATE FLOATING-RATE FLOATING-RATE
COUPON COUPON SPREAD IN EARLY
NOTIONAL AMOUNT AMOUNT SWAP EFFECTIVE TERMINATION CANCELLATION
BANK AMOUNT SWAPPED RECEIVED AGREEMENT DATE DATE OPTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
The Chase Manhattan Bank $50 million 8.25000% 6.95000% 1.30000% March 22, 2000 March 15, 2005 March 13, 2001
The Bank of Nova Scotia $50 million 8.25000% 6.95500% 1.29500% March 22, 2000 March 15, 2005 March 13, 2001
</TABLE>
Interest Rate Swaps related to the $54 Million Revenue Bonds:
<TABLE>
<CAPTION>
FIXED-RATE FLOATING-RATE FLOATING-RATE
COUPON COUPON SPREAD IN EARLY
NOTIONAL AMOUNT AMOUNT SWAP EFFECTIVE TERMINATION CANCELLATION
BANK AMOUNT SWAPPED RECEIVED AGREEMENT DATE DATE OPTION
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Union National Bank $ 54 million 8.70000% 7.24750% 1.45250% March 23, 2000 March 1, 2010 March 1, 2003
</TABLE>
12
<PAGE>
10. SEGMENT INFORMATION
The Company has five reportable operating segments: Fractionation, Pipeline,
Processing, Octane Enhancement and Other. Fractionation includes NGL
fractionation, polymer grade propylene fractionation and butane isomerization
(converting normal butane into high purity isobutane) services. Pipeline
consists of pipeline, storage and import/export terminal services. Processing
includes the natural gas processing business and its related NGL merchant
activities. Octane Enhancement represents the Company's 33.33% ownership
interest in a facility that produces motor gasoline additives to enhance octane
(currently producing MTBE). The Other operating segment consists of fee-based
marketing services and other plant support functions.
Operating segments are components of a business about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance and deciding
how to allocate resources to segments.
The management of the Company evaluates segment performance on the basis of
gross operating margin. Gross operating margin reported for each segment
represents earnings before depreciation and amortization, lease expense
obligations retained by EPCO, gains and losses on the sale of assets and general
and administrative expenses. In addition, segment gross operating margin is
exclusive of interest expense, interest income (from unconsolidated affiliates
or others), dividend income from unconsolidated affiliates, minority interest,
extraordinary charges and other income and expense transactions. The Company's
equity earnings from unconsolidated affiliates are included in segment gross
operating margin.
Segment assets consists of property, plant and equipment and the amount of
investments in and advances to unconsolidated affiliates. The principal
reconciling item between consolidated property, plant and equipment and segment
assets is construction-in-progress. Segment assets are defined as those
facilities and projects that generate segment gross margin amounts. Since assets
under construction do not generally contribute to segment earnings, these assets
are not included in the segment totals until they are deemed operational.
Segment gross operating margin is inclusive of intersegment revenues. These
revenues have been eliminated from the consolidated totals.
13
<PAGE>
Information by operating segment, together with reconciliations to the
consolidated totals, is presented in the following table:
<TABLE>
<CAPTION>
OPERATING SEGMENTS ADJUSTMENTS
----------------------------------------------------------------------
OCTANE AND CONSOLIDATED
FRACTIONATION PIPELINES PROCESSING ENHANCEMENT OTHER ELIMINATIONS TOTALS
--------------------------------------------------------------------------------------------------
Revenues from
external customers
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter ended March 31, 2000 $ 98,825 $ 9,814 $646,857 $ 2,505 $515 $ (4,792) $ 753,724
Quarter ended March 31, 1999 53,696 3,742 102,873 301 96 (11,734) 148,974
Intersegment revenues
Quarter ended March 31, 2000 40,191 13,265 142,230 - 94 (195,780) -
Quarter ended March 31, 1999 12,223 8,031 22 - - (20,276) -
Total revenues
Quarter ended March 31, 2000 139,016 23,079 789,087 2,505 609 (200,572) 753,724
Quarter ended March 31, 1999 65,919 11,773 102,895 301 96 (32,010) 148,974
Gross operating margin
by segment
Quarter ended March 31, 2000 34,331 14,635 39,554 2,505 554 91,579
Quarter ended March 31, 1999 16,322 4,501 1,091 301 204 22,419
Segment assets
At March 31, 2000 359,793 355,577 126,151 95 29,635 871,251
At December 31, 1999 362,198 249,453 122,495 113 32,810 767,069
Investments in and advances
to unconsolidated affiliates
At March 31, 2000 103,348 89,737 33,000 60,787 286,872
At December 31, 1999 99,110 85,492 33,000 63,004 280,606
</TABLE>
A reconciliation of segment gross operating margin to consolidated income before
minority interest follows:
<TABLE>
<CAPTION>
FOR QUARTER ENDED MARCH 31,
2000 1999
-------------------------------------
<S> <C> <C>
Total segment gross operating margin $ 91,579 $ 22,419
Depreciation and amortization (8,124) (4,688)
Retained lease expense, net (2,637) (2,666)
Gain on sale of assets - 3
Selling, general and administrative (5,384) (3,000)
-------------------------------------
Consolidated operating income 75,434 12,068
Interest expense (7,774) (2,263)
Interest income from unconsolidated affiliates 144 397
Dividend income from unconsolidated affiliates 1,234 -
Interest income - other 1,481 284
Other, net (363) 75
=====================================
Consolidated income before minority interest $ 70,156 $ 10,561
=====================================
</TABLE>
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FOR THE INTERIM PERIODS ENDED MARCH 31, 2000 AND 1999
The following discussion and analysis should be read in conjunction
with the unaudited consolidated financial statements and notes thereto of
Enterprise Products Partners L.P. ("Enterprise" or the "Company") included
elsewhere herein.
THE COMPANY
ENTERPRISE PRODUCTS PARTNERS L.P. (the "Company") is a leading
integrated North American provider of processing and transportation services to
domestic and foreign producers of natural gas liquids ("NGL" or "NGLs") and
other liquid hydrocarbons and domestic and foreign consumers of NGLs and liquid
hydrocarbon products. The Company manages a fully integrated and diversified
portfolio of midstream energy assets and is engaged in NGL processing and
transportation through direct and indirect ownership and operation of NGL
fractionators. It also operates and or manages NGL processing facilities,
storage facilities, pipelines, rail transportation facilities, a methyl tertiary
butyl ether ("MTBE") facility, a propylene production complex and other
transportation facilities in which it has a direct and indirect ownership. As a
result of acquisitions completed in 1999, the Company is also engaged in natural
gas processing.
The Company is a publicly traded master limited partnership (NYSE,
symbol "EPD") that conducts substantially all of its business through ENTERPRISE
PRODUCTS OPERATING L.P. (the "Operating Partnership"), the Operating
Partnership's subsidiaries, and a number of joint ventures with industry
partners. The Company was formed in April 1998 to acquire, own, and operate all
of the NGL processing and distribution assets of Enterprise Products Company
("EPCO"). The general partner of the Company, Enterprise Products GP, LLC (the
"General Partner"), a majority-owned subsidiary of EPCO, holds a 1.0% general
partner interest in the Company and a 1.0101% general partner interest in the
Operating Partnership.
The principal executive office of the Company is located at 2727 North
Loop West, Houston, Texas, 77008-1038, and the telephone number of that office
is 713-880-6500. References to, or descriptions of, assets and operations of the
Company in this Quarterly Report include the assets and operations of the
Operating Partnership and its subsidiaries as well as the predecessors of the
Company.
GENERAL
The Company (i) processes natural gas; (ii) fractionates for a
processing fee mixed NGLs produced as by-products of oil and natural gas
production into their component products: ethane, propane, isobutane, normal
butane and natural gasoline; (iii) converts normal butane to isobutane through
the process of isomerization; (iv) produces MTBE from isobutane and methanol;
and (v) transports NGL products to end users by pipeline and railcar. The
Company also separates high purity propylene from refinery-sourced
propane/propylene mix and transports high purity propylene to plastics
manufacturers by pipeline. Products processed by the Company generally are used
as feedstocks in petrochemical manufacturing, in the production of motor
gasoline and as fuel for residential and commercial heating.
The Company's NGL operations are concentrated in the Texas, Louisiana,
and Mississippi Gulf Coast area. A large portion is concentrated in Mont
Belvieu, Texas, which is the hub of the domestic NGL industry and is adjacent to
the largest concentration of refineries and petrochemical plants in the United
States. The facilities the Company operates at Mont Belvieu include: (i) one of
the largest NGL fractionation facilities in the United States with an average
production capacity of 210,000 barrels per day ("BPD"); (ii) the largest butane
isomerization complex in the United States with an average isobutane production
capacity of 80,000 BPD; (iii) one of the largest MTBE production facilities in
the United States with an average production capacity of 14,800 BPD; and (iv)
two propylene fractionation units with an average combined production capacity
of 31,000 BPD. The Company owns all of the assets at its Mont Belvieu facility
except for the NGL fractionation facility, in which it owns an effective 62.5%
economic interest; one of the propylene fractionation units, in which it owns a
54.6% interest and controls the remaining interest through a long-term lease;
the MTBE production facility, in which it owns a 33.33% interest; and one of its
15
<PAGE>
three isomerization units and one deisobutanizer which are held under long-term
leases with purchase options. The Company's operations in Louisiana and
Mississippi include varying interests in eleven natural gas processing plants
with a combined capacity of 11.0 billion cubic feet per day ("Bcfd") and net
capacity of 3.1 Bcfd and four NGL fractionation facilities with a combined gross
capacity of 281,000 BPD and net capacity of 131,500 BPD. In addition, the
Company owns and operates a NGL fractionation facility in Petal, Mississippi
with an average production capacity of 7,000 BPD.
The Company owns and operates approximately 28 million barrels of
storage capacity at Mont Belvieu and 7 million barrels of storage capacity in
Petal, Mississippi that are an integral part of its processing operations. The
Company has interests in four NGL storage facilities in Louisiana and
Mississippi with approximately 28.8 million barrels of gross capacity and 8.8
million barrels of net capacity. The Company also leases and operates one of
only two commercial NGL import/export terminals on the Gulf Coast.
Lastly, the Company has operating and non-operating ownership interests
in over 2,400 miles of NGL pipelines along the Gulf Coast (including an 11.5%
interest in the 1,301 mile Dixie Pipeline).
Industry Environment
Because certain NGL products compete with other refined petroleum
products in the fuel and petrochemical feedstock markets, NGL product prices are
set by or in competition with refined petroleum products. Increased production
and importation of NGLs and NGL products in the United States may decrease NGL
product prices in relation to refined petroleum alternatives and thereby
increase consumption of NGL products as NGL products are substituted for other
more expensive refined petroleum products. Conversely, a decrease in the
production and importation of NGLs and NGL products could increase NGL product
prices in relation to refined petroleum product prices and thereby decrease
consumption of NGLs. However, because of the relationship of crude oil and
natural gas production to NGL production, the Company believes any imbalance in
the prices of NGLs and NGL products and alternative products would be temporary.
When the price of crude oil nears a multiple of ten (or higher) to the
price of natural gas (i.e., crude oil $20 per barrel and natural gas $2 per
million British Thermal Unit ("MMBtu")), NGL pricing has been strong due to
increased use in manufacturing petrochemicals. In the first quarter of 2000, the
industry experienced a multiple of approximately eleven (i.e., crude oil
averaged $28.88 per barrel (based on the quarterly average Cushing crude oil
price) and natural gas averaged $2.62 per MMBtu (based on the quarterly average
Henry Hub price)), which caused petrochemical manufacturing demand to prefer
NGLs rather than crude oil derivatives. In contrast, during the first quarter of
1999 when the multiple was approximately seven, petrochemical manufacturing
demand relied more heavily on crude oil derivatives which depressed NGL prices.
The increased use of NGLs in petrochemical manufacturing resulted in the
increasing of both production and pricing of NGLs. In the NGL industry, revenues
and cost of goods sold can fluctuate significantly up or down based on current
NGL prices. However, operating margins will generally remain constant except for
the effect of inventory price adjustments or increased operating expenses.
RESULTS OF OPERATION OF THE COMPANY
The Company has five reportable operating segments: Fractionation,
Pipeline, Processing, Octane Enhancement and Other. Fractionation includes NGL
fractionation, polymer grade propylene fractionation and butane isomerization
(converting normal butane into high purity isobutane) services. Pipeline
consists of pipeline, storage and import/export terminal services. Processing
includes the natural gas processing business and its related NGL merchant
activities. Octane Enhancement represents the Company's 33.33% ownership
interest in a facility that produces motor gasoline additives to enhance octane
(currently producing MTBE). The Other operating segment consists of fee-based
marketing services and other plant support functions.
The management of the Company evaluates segment performance on the
basis of gross operating margin. Gross operating margin reported for each
segment represents earnings before depreciation and amortization, lease expense
obligations retained by EPCO, gains and losses on the sale of assets and general
and administrative expenses. In addition, segment gross operating margin is
exclusive of interest expense, interest income (from unconsolidated affiliates
or others), dividend income from unconsolidated affiliates, minority interest,
16
<PAGE>
extraordinary charges and other income and expense transactions. The Company's
equity earnings from unconsolidated affiliates are included in segment gross
operating margin.
The Company's gross operating margin by segment (in thousands of
dollars) along with a reconciliation to consolidated operating income for the
quarters ended March 31, 2000 and 1999 were as follows:
FOR QUARTER ENDED MARCH 31,
2000 1999
---------------------------
Gross Operating Margin by segment:
Fractionation $ 34,331 $ 16,322
Pipeline 14,635 4,501
Processing 39,554 1,091
Octane enhancement 2,505 301
Other 554 204
--------------------------
Gross Operating margin total 91,579 22,419
Depreciation and amortization 8,124 4,688
Retained lease expense, net 2,637 2,666
Gain on sale of assets - (3)
Selling, general, and administrative expenses 5,384 3,000
==========================
Consolidated operating income $ 75,434 $ 12,068
==========================
The Company's significant plant production and other volumetric data
(in thousands of barrels per day on an equity basis) for the quarters ended
March 31, 2000 and 1999 were as follows:
FOR QUARTER ENDED MARCH 31,
2000 1999
------------------------------------
Plant production data:
NGL Production 68 N/A
NGL Fractionation 228 56
Isomerization 67 67
Propylene Fractionation 30 23
MTBE 4 4
Major Pipelines 397 159
1999 Acquisitions
The Company completed two significant acquisitions during the third
quarter of 1999. Effective August 1, 1999, the Company acquired Tejas Natural
Gas Liquids, LLC ("TNGL") from Tejas Energy, LLC, now Coral Energy, LLC, an
affiliate of Shell Oil Company ("Shell", including subsidiaries and affiliates),
in exchange for 14.5 million non-distribution bearing, convertible special
partnership Units of the Company and $166 million in cash. The Company also
agreed to issue up to 6.0 million additional non-distribution bearing special
partnership Units to Shell in the future if the volumes of natural gas that the
Company processes for Shell reach agreed upon levels in 2000 and 2001.
The businesses acquired from Shell include natural gas processing and
NGL fractionation, transportation and storage in Louisiana and Mississippi and
its NGL supply and merchant business. The assets acquired include varying
interests in eleven natural gas processing plants, four NGL fractionation
facilities, four NGL storage facilities, operator and non-operator ownership
interests in approximately 1,500 miles of NGL pipelines, and a 20-year natural
gas processing agreement with Shell. The Company accounted for this acquisition
using the purchase method.
17
<PAGE>
Effective July 1, 1999, a subsidiary of the Operating Partnership
acquired an additional 25% interest in the Mont Belvieu NGL fractionation
facility from Kinder Morgan Operating LP "A" ("Kinder Morgan") for a purchase
price of approximately $41.2 million in cash and the assumption of $4 million in
debt. An additional 0.5% interest in the same facility was purchased from EPCO
for a cash purchase price of $0.9 million. This acquisition (referred to as the
"MBA acquisition") increased the Company's effective economic interest in the
Mont Belvieu NGL fractionation facility from 37.0% to 62.5%. As a result of this
acquisition, the results of operations after July 1, 1999 were consolidated
rather than included in equity in earnings of unconsolidated affiliates.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,1999
Revenues, Costs and Expenses and Operating Income. The Company's
revenues increased by 406.2% to $753.7 million in 2000 compared to $148.9
million in 1999. The Company's costs and expenses increased by 402.9% to $672.9
million in 2000 versus $133.8 million in 1999. Operating income before selling,
general and administrative expenses ("SG&A") increased to $80.8 million in 2000
from $15.1 million in 1999. The principal factors behind the $65.7 million
increase in operating income before SG&A were the additional earnings associated
with the assets acquired in the TNGL acquisition and the overall improvement in
NGL product prices in 2000 over 1999 levels.
Fractionation. The Company's gross operating margin for the
Fractionation segment increased to $34.3 million in 2000 from $16.3 million in
1999 primarily due to higher overall volumes and NGL pricing and the addition of
margins from the assets acquired from TNGL. NGL Fractionation gross operating
margin increased to $17.2 million in 2000 from $1.6 million in 1999 primarily
the result of substantially higher volumes. Net NGL fractionation volumes were
227,824 BPD in 2000 compared to 55,549 BPD in 1999. The increase is attributable
to the four NGL fractionators acquired in August 1999 as a result of the TNGL
acquisition and the completion of the BRF NGL fractionation facility in July
1999. Of the $15.6 million increase in NGL fractionation gross margin from
quarter to quarter, $13.8 million is derived from the NGL fractionators acquired
in the TNGL acquisition (including equity earnings of $1.7 million from Promix)
with $0.7 million arising from higher equity earnings from BRF. The Mont Belvieu
NGL fractionation facility contributed the remaining $1.1 million rise in
earnings. Margins from the Mont Belvieu facility increased due to higher volumes
and the additional ownership interest acquired in July 1999 as a result of the
MBA acquisition.
Gross operating margin from the isomerization business increased to
$9.6 million in 2000 from $7.5 million in 1999. Sales of byproducts from the
isomerization business benefited from higher prices in 2000 compared to 1999.
For example, the price of normal butane, a byproduct of the isomerization
process, increased to an average of 64 cents per gallon in 2000 from an average
of 29 cents per gallon in 1999. Isomerization production rates were solid at
66,975 BPD in 2000 and 66,944 BPD in 1999. The Company's gross operating margin
on its propylene production facilities increased $1.6 million to $7.4 million in
2000 due to strong demand for polymer grade propylene. Contract prices for
polymer grade propylene increased from an average of 12 cents per pound in the
first quarter of 1999 to 21 cents per pound in the first quarter of 2000.
Propylene production volumes increased from 23,136 BPD in 1999 to 30,298 BPD in
2000.
Pipeline. The Company's gross operating margin for the Pipeline segment
was $14.6 million in 2000 compared to $4.5 million in 1999. The Louisiana
Pipeline Distribution System gross margin for 2000 was $7.9 million versus $1.6
million in 1999 due primarily to a 201% increase in throughput volumes stemming
from pipeline assets acquired in the TNGL acquisition. The gross operating
margin of the Houston Ship Channel Distribution system increased to $3.0 million
in 2000 from $2.0 million in 1999 on the strength of increased export volumes at
the EPIK loading facility.
On February 25, 2000, the purchase of the Lou-Tex Propylene Pipeline
and related assets from Concha Chemical Pipeline Company, an affiliate of Shell,
was completed at a cost of approximately $100 million. The effective date of the
transaction was March 1, 2000. The Lou-Tex Propylene Pipeline is a 263-mile, 10"
pipeline that transports chemical grade propylene from Sorrento, Louisiana to
Mont Belvieu, Texas. Also acquired in this transaction was 27.5 miles of 6"
ethane pipeline between Sorrento and Norco, Louisiana, and a 0.5 million barrel
storage cavern at Sorrento, Louisiana. For the month of March 2000, the Lou-Tex
Propylene Pipeline gross operating margin was $0.8 million on volumes of 23,735
BPD. Due to customer demand, a project is currently underway and should be
18
<PAGE>
completed in the second quarter of 2000 to increase the capacity of this
pipeline to 50,000 BPD.
Equity earnings from unconsolidated affiliates in the Pipeline segment
increased from $0.4 million in 1999 to $2.7 million in 2000. The greatest
improvement in equity earnings was from EPIK which posted a $1.4 million
increase to $1.8 million in 2000 from $0.4 million in 1999. EPIK's higher
earnings are attributable to a 174% increase in export volumes due to the new
chiller unit that began operations in the fourth quarter of 1999. The Company
recorded a combined $1.0 million in equity income from the Wilprise, Tri-States,
and Belle Rose Systems. Individually, equity earnings from Wilprise, Tri-States,
and Belle Rose were $0.1 million, $0.7 million and $0.2 million, respectively.
Processing. The Company's gross operating margin for Processing was
$39.6 million in 2000 compared to a $1.1 million in 1999. The increase is
attributable to the gas processing operations acquired in the TNGL acquisition.
The gas processing operations benefited from a favorable NGL pricing environment
where the ratio of crude oil to natural gas prices averaged 11 to 1 during the
first quarter of 2000. Equity NGL production was 68,009 BPD during the quarter.
Octane Enhancement. The Company's gross operating margin for Octane
Enhancement increased to $2.5 million in 2000 from $0.3 million in 1999. This
segment consists entirely of the Company's equity earnings and 33.33% investment
in BEF, a joint venture facility that currently produces MTBE. The 1999 results
included the impact of a $4.5 million non-cash write-off of the unamortized
balance of deferred start-up costs. The Company's share of this non-cash charge
was $1.5 million. MTBE production, on an equity basis, increased slightly in
2000 to 3,855 BPD from 3,841 BPD in 1999.
Other. The Company's gross operating margin for the Other segment was
$0.6 million in 2000 compared to $0.2 million in 1999. Beginning in the fourth
quarter of 1999, this segment includes fee-based marketing services. The Company
acquired its fee-based marketing services business as part of the TNGL
acquisition. For the first quarter of 2000, this business earned $0.5 million.
Apart from this portion of the segment's operations, the gross margin
contribution of the other aspects of this segment were insignificant in both
2000 and 1999.
Selling, general and administrative expenses. SG&A expenses increased
to $5.4 million in the first quarter of 2000 from $3.0 million during the same
period in 1999. The primary reason for the higher costs was an increase in the
administrative services fee charged by EPCO to $1.55 million per month beginning
in January 2000 versus the $1.0 million per month charged in the first quarter
of 1999. The remainder of the $0.7 million increase is attributable to
additional administrative support and accrued employee incentive plan costs
related to the TNGL acquisition.
Interest expense. The Company's interest expense increased to $7.8
million in the first quarter of 2000 from $2.3 million in the first quarter of
1999. The increase is primarily attributable to a rise in average debt levels to
$345 million in the first quarter of 2000 from $123 million in the first quarter
of 1999. Debt levels have increased over the last year due to acquisitions and
capital expenditures. Specifically, $215 million was borrowed to complete the
TNGL and MBA acquisitions in the third quarter of 1999 and approximately $60
million was borrowed to fund a portion of the purchase of the Lou-Tex Propylene
Pipeline in the first quarter of 2000.
Dividend income from unconsolidated affiliates. The Company's
investment in Dixie and VESCO are recorded using the cost method as prescribed
by generally accepted accounting principles. In accordance with these
guidelines, the Company records as dividend income the cash distributions from
these investments as opposed to recording equity earnings. Both the Dixie and
VESCO investments were acquired as part of the TNGL acquisition. For the first
quarter of 2000, the Company recorded dividend income totaling $1.2 million from
Dixie and VESCO in the amounts of $0.6 million each.
PRO FORMA IMPACT OF ACQUISITIONS
As noted above under 1999 Acquisitions, the Company acquired TNGL and
MBA in the third quarter of 1999. As a result of these acquisitions, revenues,
operating costs and expenses, interest expense, and other amounts shown on the
Statements of Consolidated Operations for first quarter of 2000 have increased
significantly over the amounts shown for the first quarter of 1999. The
following table presents certain unaudited pro forma information for the quarter
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ended March 31, 1999 as if the acquisition of TNGL from Shell and the Mont
Belvieu fractionator facility from Kinder Morgan and EPCO had been made as of
January 1, 1999:
Revenues $ 300,510
=================
Net income $ 13,281
=================
Allocation of net income to
Limited partners $ 13,148
=================
General Partner $ 133
=================
Units used in earning per Unit calculations
Basic 66,756
=================
Diluted 81,256
=================
Income per Unit before minority interest
Basic $ 0.20
=================
Diluted $ 0.16
=================
Net income per Unit
Basic $ 0.20
=================
Diluted $ 0.16
=================
LIQUIDITY AND CAPITAL RESOURCES
General. The Company's primary cash requirements, in addition to normal
operating expenses, are debt service, maintenance capital expenditures,
expansion capital expenditures, and quarterly distributions to the partners. The
Company expects to fund future cash distributions and maintenance capital
expenditures with cash flows from operating activities. Capital expenditures for
future expansion activities and asset acquisitions are expected to be funded
with cash flows from operating activities and borrowings under the revolving
bank credit facility or issuance of additional Common Units.
Cash flows from operating activities were a $77.0 million inflow for
the first quarter of 2000 compared to a $20.3 million inflow for the comparable
period of 1999. Cash flows from operating activities primarily reflect the
effects of net income, depreciation and amortization, extraordinary items,
equity income of unconsolidated affiliates and changes in working capital. Net
income increased significantly as a result of improved overall margins and the
TNGL acquisition. Depreciation and amortization increased a combined $4.1
million in the first quarter of 2000 over the comparable 1999 levels primarily
as a result of additional capital expenditures and the TNGL and Mont Belvieu
fractionator acquisitions in the third quarter of 1999. Amortization expense
increased by $1.6 million due to amortization of the intangible asset associated
with the Shell Processing Agreement ($0.8 million), the write-off of prepaid
loan costs associated with the payoff of the $200 Million Bank Credit Facility
in March 2000 ($0.2 million) and the continued amortization of excess costs and
other prepaid loan costs ($0.6 million). The net effect of changes in operating
accounts from year to year is generally the result of timing of NGL sales and
purchases near the end of the period.
Cash outflows used in investing activities were $107.0 million in the
first quarter of 2000 and $24.3 million for the comparable period of 1999. Cash
outflows included capital expenditures of $111.4 million for the first quarter
of 2000 versus $1.7 million for the same period in 1999. Capital expenditures
for the first quarter of 2000 included $99.6 million for the purchase of the
Lou-Tex Propylene Pipeline, $7.7 million for construction costs on the Lou-Tex
NGL Pipeline, and $3.4 million for construction costs on the Neptune gas
processing facility. Included in the capital expenditures amounts for both the
first quarter of 2000 and first quarter of 1999 are maintenance capital
expenditures of $0.3 million. Investing cash outflows in 2000 also included $6.0
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million in advances to and investments in unconsolidated affiliates versus $28.9
million for 1999. The $22.9 million decrease stems primarily from the completion
of the BRF facility and the Tri-States and Wilprise pipeline systems in 1999.
The first quarter of 1999 included $20.5 million in investments in and advances
to these projects because each was still under construction or nearing
completion at the time. On March 8, 2000, the Company's offer of February 23,
2000 to buy the remaining 88.5% ownership interests in Dixie Pipeline Company
from the other seven owners expired, with no interest being purchased.
During the first quarter of 2000, the Company received $3.3 million in
payments from the participation in the BEF note that was purchased during 1998
with the proceeds from the Company's IPO. The $3.2 million outstanding balance
of notes receivable from unconsolidated affiliates represents the remaining
balance on the BEF note that will be collected in May 2000.
Cash flows from financing activities were a $74.9 million inflow in the
first quarter of 2000 versus a $15.4 million outflow for the same period in
1999. Cash flows from financing activities are primarily affected by repayments
of long-term debt, borrowings under the long-term debt agreements and
distributions to the partners. The first quarter of 2000 includes the proceeds
from the sale of the $350 Million Senior Notes and the $54 Million Revenue
Bonds. Also included are the March 2000 payments made to retire the outstanding
balances on the $200 Million and $350 Million Bank Credit Facilities using the
proceeds of the Senior Notes and Revenue Bonds. For a complete discussion of the
Senior Notes and Revenue Bonds, see the section below entitled "Senior Notes and
Revenue Bonds." Cash flows from financing activities for 1999 also reflected the
net purchase of $4.7 million of Common Units by a consolidated trust.
Future Capital Expenditures. The Company estimates that its share of
capital expenditures in the projects of its unconsolidated affiliates will be
approximately $7.6 million in fiscal 2000 (including $6.0 million for the BRPC
propylene fractionator). In addition, the Company forecasts that $142.0 million
will be spent in 2000 on capital projects that will be recorded as property,
plant, and equipment. Of this amount, the most significant projects and their
remaining expenditures for 2000 are as follows:
- $72.1 million for the Lou-Tex NGL Pipeline;
- $17.4 million for the Garyville, Louisiana to Norco, Louisiana butane
pipelines;
- $15.0 million for the Venice, Louisiana to Grand Isle, Louisiana
pipeline; and
- $ 7.0 million for the Norco fractionator ethane liquefaction facility.
The Company expects to fund these expenditures with operating cash flows,
borrowings under its bank credit facility, and offerings of debt and/or equity
securities. As of March 31, 2000, the Company had $20.2 million in outstanding
purchase commitments attributable to its capital projects. Of this amount, $13.2
million is related to the construction of the Lou-Tex NGL Pipeline and $0.6
million is associated with capital projects which will be recorded as additional
investments in unconsolidated affiliates.
DISTRIBUTIONS AND DIVIDENDS FROM UNCONSOLIDATED AFFILIATES
Distributions from unconsolidated affiliates. The Company received $7.2
million in distributions from its equity method investments in the first quarter
of 2000 compared to $2.5 million for the same period in 1999. Of the $4.7
million increase in distributions, $3.2 million was from EPIK. As noted before,
EPIK's earnings increased in the first quarter of 2000 due to higher export
activity. In addition, the first quarter of 2000 reflects $1.7 million in cash
receipts from Promix which was acquired as a result of the TNGL acquisition in
August 1999.
Dividends received from unconsolidated affiliates. The Company received
$1.2 million in cash dividend payments from its cost method investments in Dixie
and VESCO. Specifically, dividends paid by Dixie and VESCO were $0.6 million
each. Distributions received from these investments are recorded by the Company
as "Dividend income from unconsolidated affiliates" in the Statements of
Consolidated Operations. Both Dixie and VESCO were acquired in August 1999 as
part of the TNGL acquisition.
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LONG-TERM DEBT
Long-term debt at March 31, 2000 was comprised of $350 million in
5-year public Senior Notes (the "Senior Notes") and $54 million in Taxable
Industrial Development Bonds (the "Revenue Bonds") issued by the Mississippi
Business Finance Corporation ("MBFC"). The issuance of the $350 Million Senior
Notes represented a partial takedown of the $800 million universal shelf
registration (the "Registration Statement") that was filed with the Securities
and Exchange Commission in December 1999. The proceeds from the $350 Million
Senior Notes and the $54 million Revenue Bonds were used to extinguish all
outstanding balances owed under the $200 Million Bank Credit Facility and the
$350 Million Bank Credit Facility.
The following table summarizes long-term debt at:
MARCH 31, DECEMBER 31,
2000 1999
---------------------------------
Borrowings under:
$200 Million Bank Credit Facility $ 129,000
$350 Million Bank Credit Facility 166,000
$350 Million Senior Notes $ 350,000
$54 Million Revenue Bonds 54,000
---------------------------------
Total 404,000 295,000
Less current maturities of long-term debt - 129,000
---------------------------------
=================================
Long-term debt $ 404,000 $ 166,000
=================================
At March 31, 2000, the Company had a total of $40 million of standby
letters of credit available, and approximately $13.3 million of letters of
credit outstanding under letter of credit agreements with the banks.
Bank Credit Facilities
$200 Million Bank Credit Facility. In July 1998, the Enterprise
Products Operating L.P. (the "Operating Partnership") entered into a $200
Million Bank Credit Facility that included a $50 million working capital
facility and a $150 million revolving term loan facility. On March 15, 2000, the
Company used $169 million of the proceeds from the issuance of the $350 Million
Senior Notes to retire the outstanding balance on this credit facility in
accordance with its agreement with the banks.
$350 Million Bank Credit Facility. In July 1999, the Operating
Partnership entered into a $350 Million Bank Credit Facility that includes a $50
million working capital facility and a $300 million revolving term loan
facility. The $300 million revolving term loan facility includes a sublimit of
$40 million for letters of credit. Borrowings under the $350 Million Bank Credit
Facility will bear interest at either the bank's prime rate or the Eurodollar
rate plus the applicable margin as defined in the facility. The Company elects
the basis for the interest rate at the time of each borrowing.
This facility will expire in July 2001 and all amounts borrowed
thereunder shall be due and payable at that time. There must be no amount
outstanding under the working capital facility for at least 15 consecutive days
during each fiscal year. In March 2000, the Company used $179 million of the
proceeds from the issuance of the $350 Million Senior Notes and $47 million from
the issuance of the $54 million Revenue Bonds to payoff the outstanding balance
on this credit facility. No amount was outstanding on this credit facility at
March 31, 2000.
The credit agreement relating to this facility contains a prohibition
on distributions on, or purchases or redemptions of Units if any event of
default is continuing. In addition, the bank credit facility contains various
affirmative and negative covenants applicable to the ability of the Company to,
among other things, (i) incur certain additional indebtedness, (ii) grant
certain liens, (iii) sell assets in excess of certain limitations, (iv) make
investments, (v) engage in transactions with affiliates and (vi) enter into a
merger, consolidation, or sale of assets. The bank credit facility requires that
the Operating Partnership satisfy the following financial covenants at the end
of each fiscal quarter: (i) maintain Consolidated Tangible Net Worth (as defined
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<PAGE>
in the bank credit facility) of at least $250.0 million, (ii) maintain a ratio
of EBITDA (as defined in the bank credit facility) to Consolidated Interest
Expense (as defined in the bank credit facility) for the previous 12-month
period of at least 3.5 to 1.0 and (iii) maintain a ratio of Total Indebtedness
(as defined in the bank credit facility) to EBITDA of no more than 3.0 to 1.0.
The Company was in compliance with the restrictive covenants at March 31, 2000.
Senior Notes and Revenue Bonds
$350 Million Senior Notes. On March 13, 2000, the Operating Partnership
completed a public offering of $350 million in principal amount of 8.25%
fixed-rate Senior Notes due March 15, 2005 ( "Senior Notes") at a price to the
public of 99.948% per Senior Note. In the offering, the Operating Partnership
received proceeds, net of underwriting discounts and commissions, of
approximately $347.7 million. The proceeds were used to pay the entire $169
million outstanding principal balance on the $200 Million Bank Credit Facility
and to pay approximately $179 million of the $226 million outstanding principal
balance on the $350 Million Bank Credit Facility.
The Senior Notes are subject to a make-whole redemption right by the
Operating Partnership. The Senior Notes are an unsecured obligation of the
Operating Partnership and rank equally with its existing and future unsecured
and unsubordinated indebtedness and senior to any future subordinated
indebtedness. The Senior Notes are guaranteed by the Company through an
unsecured and unsubordinated guarantee. The Senior Notes were issued under an
indenture containing certain restrictive covenants. These covenants restrict the
ability of the Company and the Operating Partnership, with certain exceptions,
to incur debt secured by liens; and engage in sale and leaseback transactions.
Settlement was completed on March 15, 2000. The offering of the Senior
Notes was a takedown under the Company's $800 million Registration Statement;
therefore, the amount of securities available under the Registration Statement
is reduced to $450 million.
$54 Million Revenue Bonds. On March 27, 2000, the Operating Partnership
executed a $54 million loan agreement with the MBFC which was funded by the
proceeds from the sale of Revenue Bonds by the MBFC. The Revenue Bonds issued by
the MBFC are 10-year bonds with a maturity date of March 1, 2010 and bear a
fixed-rate interest coupon of 8.70 percent. The Operating Partnership received
proceeds from the sale of the Revenue Bonds, net of underwriting discounts and
commissions, of approximately $53.6 million. The proceeds were used to pay the
remaining $47 million outstanding principal balance on the $350 Million Bank
Credit Facility and for working capital and other general partnership purposes.
In general, the proceeds of the Revenue Bonds were used to reimburse the
Operating Partnership for costs it incurred in acquiring and constructing the
Pascagoula, Mississippi natural gas processing plant.
The Revenue Bonds were issued at par and are subject to a make-whole
redemption right by the Operating Partnership. The Revenue Bonds are guaranteed
by the Company through an unsecured and unsubordinated guarantee. The loan
agreement contains certain covenants including maintaining appropriate levels of
insurance on the Pascagoula natural gas processing facility and restrictions
regarding mergers.
Interest Rate Swaps
In March 2000, the Operating Partnership entered into interest rate
swaps whereby the fixed-rate of interest on a portion of the $350 Million Senior
Notes and the $54 Million Revenue Bonds was swapped for floating rates tied to
the six month London Interbank Offering Rate ("LIBOR"). Interest rate swaps are
used to manage the partnership's exposure to changes in interest rates and to
lower overall costs of financing. Interest rate swaps allow the Company to raise
funds at fixed rates and effectively swap them into floating rates that are
lower than those available to the partnership if floating-rate borrowings were
made directly. These agreements involve the exchange of fixed-rate payments for
floating-rate payments without the exchange of the underlying principal amount.
At March 31, 2000, the Operating Partnership had three interest rate
swaps outstanding with banks. The notional amount of these swaps totaled $154
million, with $100 million expiring in five years on the Senior Notes and $54
million expiring in ten years on the Revenue Bonds. The notional amount is used
to measure the volume of these contracts and does not represent exposure to
credit loss. In the event of default by a counterparty, the risk in these
transactions is the cost of replacing the interest-rate contract at current
market rates. The
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<PAGE>
Operating Partnership monitors its positions and the credit ratings of its
counterparties. Management believes the risk of incurring losses is remote, and
that if incurred, such losses would be immaterial. At March 31, 2000, the two
interest rate swaps on the Senior Notes had effectively reduced the fixed-rate
interest of 8.25% to floating-rate interest of 6.95% on a notional amount of $50
million and to floating-rate interest of 6.955% on an additional notional amount
of $50 million. With regards to the interest rate swap associated with the
Revenue Bonds, the swap had effectively reduced the fixed-rate interest of 8.70%
to 7.2475% on a notional amount of $54 million. The effective date of the
interest rate swap agreements related to the Senior Notes was March 22, 2000 and
the Revenue Bonds was March 23, 2000.
PROXY MATERIAL REGARDING AMENDMENT TO PARTNERSHIP AGREEMENT
The Partnership Agreement generally authorizes the Company to issue an
unlimited number of additional limited partner interests and other equity
securities of the Company for such consideration and on such terms and
conditions as shall be established by the General Partner in its sole discretion
without the approval of the Unitholders. During the Subordination Period,
however, the Company may not issue equity securities ranking senior to the
Common Units for an aggregate of more than 22,775,000 Common Units (except for
Common Units upon conversion of Subordinated Units, pursuant to employee benefit
plans, upon conversion of the general partner interest as a result of the
withdrawal of the General Partner or in connection with acquisitions or capital
improvements that are accretive on a per Unit basis) or an equivalent number of
securities ranking on a parity with the Common Units, without the approval of
the holders of at least a Unit Majority. A Unit Majority is defined as at least
a majority of the outstanding Common Units (during the Subordination Period),
excluding Common Units held by the General Partner and its affiliates, and at
least a majority of the outstanding Common Units (after the Subordination
Period).
In April 2000, the Company mailed a Proxy Statement to its public
unitholders asking them to consider and vote for a proposal to amend the
Partnership Agreement to increase the number of additional Common Units that may
be issued during the Subordination Period without the approval of a Unit
Majority from 22,775,000 Common Units to 47,775,000 Common Units. The primary
purpose of the requested increase is to improve the future financial flexibility
of the Company since the TNGL acquisition used 20,500,000 Common Units of the
22,775,000 Common Units available to the partnership during the Subordination
Period. If the public unitholders vote in favor of the proposal, the Company
would have 27,275,000 Common Units at its disposal for general partnership
purposes.
MTBE FACILITY
The Company owns a 33.33% economic interest in the BEF partnership that
owns the MTBE production facility located within the Company's Mont Belvieu
complex. The production of MTBE is driven by oxygenated fuels programs enacted
under the federal Clean Air Act Amendments of 1990 and other legislation. Any
changes to these programs that enable localities to opt out of these programs,
lessen the requirements for oxygenates or favor the use of non-isobutane based
oxygenated fuels reduce the demand for MTBE and could have an adverse effect on
the Company's results of operations.
In recent years, MTBE has been detected in water supplies. The major
source of the ground water contamination appears to be leaks from underground
storage tanks. Although these detections have been limited and the great
majority of these detections have been well below levels of public health
concern, there have been actions calling for the phase-out of MTBE in motor
gasoline in various federal and state governmental agencies.
In light of these developments, the Company is formulating a
contingency plan for use of the BEF facility if MTBE were banned or
significantly curtailed. Management is exploring a possible conversion of the
BEF facility from MTBE production to alkylate production. At present the
forecast cost of this conversion would be in the $20 million to $25 million
range, with the Company's share being $6.7 million to $8.3 million. Management
anticipates that if MTBE is banned alkylate demand will rise as producers use it
to replace MTBE as an octane enhancer. Alkylate production would be expected to
generate spot market margins comparable to those of MTBE. Greater alkylate
production would be expected to increase isobutane consumption nationwide and
result in improved isomerization margins for the Company.
24
<PAGE>
Sun, the MTBE facility's major customer and one of the partners of BEF,
has entered into a contract with BEF to take all of the MTBE production through
September 2004. Under the terms of its agreement with BEF, Sun is required to
pay through May 2000, the higher of a floor price or a market-based price for
the first 193,450,000 gallons per contract year (running June 1 through May 31)
of production from the BEF facility, subject to quarterly adjustments on certain
volumes. The floor price arrangement coincided with the five-year term loan
amortization of BEF. Sun is required to pay a market-based priced for volumes
produced in excess of 193,450,000 gallons per contract year. Generally, the
floor price charged by BEF to Sun has been above the spot market price for MTBE.
For example, the floor price for March 2000 was approximately $1.15 per gallon
compared to the average Gulf Coast MTBE spot price of $1.03 per gallon. For the
first quarter of 2000, the floor price averaged $1.18 per gallon versus the
average Gulf Coast MTBE spot price of $.97 per gallon. Beginning in June 2000,
pricing on all volumes will convert to market-based rates with the final payment
on the BEF term loan occurring in May 2000.
YEAR 2000 READINESS DISCLOSURE
The Company's efforts at preparing its computer systems for the Year
2000 were successful and no significant problems were encountered. The Year 2000
Readiness team reported that all systems functioned properly as the date changed
from December 31, 1999 to January 1, 2000. The Company is also pleased to note
that no problems were reported to it by its customers or vendors as a result of
the Year 2000 issue. The Company continues to be vigilant in monitoring its
systems for any potential Year 2000 problems that may arise in the short-term.
There is no assurance that residual Year 2000 issues will not arise in the
future which could have a material adverse effect on the operations of the
Company.
ACCOUNTING STANDARDS
On June 6, 1999, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 137, "Accounting
for Derivative Instruments and Hedging Activities-Deferral of the Effective Date
of FASB Statement No. 133-an amendment of FASB Statement No. 133" which
effectively delays the application of SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" for one year, to fiscal years beginning
after June 15, 2000. Management is currently studying SFAS No. 133 for possible
impact on the consolidated financial statements when it is adopted in 2001.
UNCERTAINTY OF FORWARD-LOOKING STATEMENTS AND INFORMATION
This quarterly report contains various forward-looking statements and
information that are based on the belief of the Company and the General Partner,
as well as assumptions made by and information currently available to the
Company and the General Partner. When used in this document, words such as
"anticipate," "estimate," "project," "expect," "plan," "forecast," "intend,"
"could," and "may," and similar expressions and statements regarding the plans
and objectives of the Company for future operations, are intended to identify
forward-looking statements. Although the Company and the General Partner believe
that the expectations reflected in such forward-looking statements are
reasonable, they can give no assurance that such expectations will prove to be
correct. Such statements are subject to certain risks, uncertainties, and
assumptions. If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, estimated, projected, or expected. Among the key risk factors
that may have a direct bearing on the Company's results of operations and
financial condition are: (a) competitive practices in the industries in which
the Company competes, (b) fluctuations in oil, natural gas, and NGL product
prices and production, (c) operational and systems risks, (d) environmental
liabilities that are not covered by indemnity or insurance, (e) the impact of
current and future laws and governmental regulations (including environmental
regulations) affecting the NGL industry in general, and the Company's operations
in particular, (f) loss of a significant customer, and (g) failure to complete
one or more new projects on time or within budget.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to financial market risks, including changes in
interest rates with respect to a portion of its debt obligations and changes in
commodity prices. The Company may use derivative financial instruments (i.e.,
futures, forwards, swaps, options, and other financial instruments with similar
characteristics) to mitigate these risks. The Company does not use derivative
financial instruments for speculative (or trading) purposes.
Beginning with the fourth quarter of 1999, the Company adopted a
commercial policy to manage exposures to the risks generated by the NGL
businesses acquired in the TNGL acquisition. The objective of the policy is to
assist the Company in achieving its profitability goals while maintaining a
portfolio of conservative risk, defined as remaining with the position limits
established by the Board of Directors of the General Partner. The Company will
enter into risk management transactions to manage price risk, basis risk,
physical risk or other risks related to energy commodities on both a short-term
(less than 30 days) and long-term basis, not to exceed 18 months. The General
Partner has established a Risk Committee (the "Committee") that will oversee
overall strategies associated with physical and financial risks. The Committee
will approve specific commercial policies of the Company subject to this policy,
including authorized products, instruments and markets. The Committee is also
charged with establishing specific guidelines and procedures for implementing
the policy and ensuring compliance with the policy.
INTEREST RATE RISK
Variable-rate Debt. At March 31, 2000 and December 31, 1999, the
Company had no derivative instruments in place to cover any potential interest
rate risk on its variable-rate debt obligations. Variable interest rate debt
obligations do expose the Company to possible increases in interest expense and
decreases in earnings if interest rates were to rise. The Company's long-term
debt associated with the $200 Million and $350 Million Bank Credit Facilities is
at variable interest rates.
If the weighted average base interest rates selected on the
variable-rate long-term debt at December 31, 1999 were to have been 10% higher
than the weighted average of the actual base interest rates selected, assuming
no changes in weighted average variable debt levels, interest expense would have
increased by approximately $1.4 million with a corresponding decrease in
earnings before minority interest. No calculation has been made on the
variable-rate debt for March 31, 2000 since no amount was outstanding under
either the $200 Million or $350 Million Bank Credit Facility.
Fixed-rate Debt. In March 2000, the Operating Partnership entered into
interest rate swaps whereby the fixed-rate of interest on a portion of the $350
Million Senior Notes and the $54 Million Revenue Bonds was swapped for floating
rates tied to the six month London Interbank Offering Rate ("LIBOR"). Interest
rate swaps are used to manage the partnership's exposure to changes in interest
rates and to lower overall costs of financing. Interest rate swaps allow the
Company to raise funds at fixed rates and effectively swap them into floating
rates that are lower than those available to the partnership if floating-rate
borrowings were made directly. These agreements involve the exchange of
fixed-rate payments for floating-rate payments without the exchange of the
underlying principal amount.
At March 31, 2000, the Operating Partnership had three interest rate
swaps outstanding with banks. The notional amount of these swaps totaled $154
million, with $100 million expiring in five years on the Senior Notes and $54
million expiring in ten years on the Bonds. The notional amount is used to
measure the volume of these contracts and does not represent exposure to credit
loss. In the event of default by a counterparty, the risk in these transactions
is the cost of replacing the interest-rate contract at current market rates. The
Operating Partnership monitors its positions and the credit ratings of its
counterparties. Management believes the risk of incurring losses is remote, and
that if incurred, such losses would be immaterial. At March 31, 2000, the two
interest rate swaps on the Senior Notes had effectively reduced the fixed-rate
interest of 8.25% to floating-rate interest of 6.95% on a notional amount of $50
million and to floating-rate interest of 6.955% on an additional notional amount
of $50 million. With regards to the interest rate swap associated with the
Bonds, the swap had effectively reduced the fixed-rate interest of 8.70% to
7.2475% on a notional amount of $54 million. The effective date of the interest
rate swap agreements related to the Senior Notes was March 22, 2000 and the
Bonds was March 23, 2000.
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If the six month LIBOR rates on the notional amounts of fixed-rate
long-term debt at March 31, 2000 were to have been 10% higher than the six month
LIBOR rates actually used in the swap agreement, assuming no changes in weighted
average fixed-rate debt levels, interest expense for the first quarter of 2000
would have increased by approximately $26,500 with a corresponding decrease in
earnings before minority interest.
Other. At March 31, 2000 and December 31, 1999, the Company had $50.1
million and $5.2 million invested in cash and cash equivalents, respectively.
All cash equivalent investments other than cash are highly liquid, have original
maturities of less than three months, and are considered to have insignificant
interest rate risk.
COMMODITY PRICE RISK
The Company is exposed to commodity price risk through its NGL
businesses acquired in the TNGL acquisition. In order to effectively manage this
risk, the Company may enter into swaps, forwards, commodity futures, options and
other derivative commodity instruments with similar characteristics that are
permitted by contract or business custom to be settled in cash or with another
financial instrument. The purpose of these risk management activities is to
hedge exposure to price risks associated with natural gas, NGL inventories,
commitments and certain anticipated transactions. The table below presents the
hypothetical changes in fair values arising from immediate selected potential
changes in the quoted market prices of derivative commodity instruments
outstanding at December 31, 1999 and March 31, 2000. Gain or loss on these
derivative commodity instruments would be offset by a corresponding gain or loss
on the hedged commodity positions, which are not included in the table. The fair
value of the commodity futures at December 31, 1999 and March 31, 2000 was
estimated at $0.5 million payable and $0.7 million receivable, respectively,
based on quoted market prices of comparable contracts and approximate the gain
or loss that would have been realized if the contracts had been settled at the
balance sheet date. The change in fair value of the commodity futures since
December 31, 1999 is primarily due to an increase in volumes hedged, change in
composition of commodities hedged and higher natural gas prices.
<TABLE>
<CAPTION>
(MILLIONS OF DOLLARS) NO CHANGE 10% INCREASE 10% DECREASE
--------- ------------ ------------
IMPACT OF CHANGES IN QUOTED FAIR FAIR INCREASE FAIR INCREASE
MARKET PRICES ON: VALUE VALUE (DECREASE) VALUE (DECREASE)
- ------------------------------------------------------------------------------------------------------------------
Commodity futures
<S> <C> <C> <C> <C> <C>
At December 31, 1999 $ (0.5) $ 1.2 $ 1.7 $ (2.2) $ (1.7)
At March 31, 2000 $ 0.7 $ 1.9 $ 1.2 $ (0.4) $ (1.1)
</TABLE>
27
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following table shows the Use of Proceeds from the $350 Million
Senior Notes and the $54 Million Revenue Bonds completed in March 2000. The
Senior Notes represented a takedown of the Company's $800 million Registration
Statement filed with the Securities and Exchange Commission in December 1999.
All amounts are in millions unless noted otherwise.
Sources of funds:
8.25%, 5-year Senior Notes $ 350
8.70%, 10-year Revenue Bonds 54
--------------
==============
Total sources of funds $ 404
==============
Uses of funds:
Retire balance on $200 Million Bank Credit Facility $ (169)
Retire balance on $350 Million Bank Credit Facility (226)
Other general partnership purposes (9)
--------------
==============
Total uses of funds $ (404)
==============
See Note 4 of the Notes to Consolidated Financial Statements for a
description of the Senior Notes and Revenue Bonds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
*1.1 Underwriting Agreement dated March 10, 2000, among Enterprise Products
Partners L.P., Enterprise Products Operating L.P., Chase Securities
Inc., Lehman Brothers Inc., Banc One Capital Markets, Inc.,
FleetBoston Robertson Stephens Inc., First Union Securities, Inc.,
Scotia Capital (USA) Inc. and SG Cowen Securities Corp. (Exhibit 1.1
on Form 8-K filed March 10, 2000).
*3.1 Form of Amended and Restated Agreement of Limited Partnership of
Enterprise Products Partners L.P. (Exhibit 3.1 to Registration
Statement on Form S-1, File No. 333-52537, filed on May 13, 1998).
*3.2 Form of Amended and Restated Agreement of Limited Partnership of
Enterprise Products Operating L.P. (Exhibit 3.2 to Registration
Statement on Form S-1/A, File No. 333-52537, filed on July 21, 1998).
*3.3 LLC Agreement of Enterprise Products GP (Exhibit 3.3 to Registration
Statement on Form S-1/A, File No. 333-52537, filed on July 21, 1998).
*3.4 Second Amended and Restated Agreement of Limited Partnership of
Enterprise Products Partners L.P. dated September 17, 1999. (The
Company incorporates by reference the above document included in the
Schedule 13D filed September 27, 1999 by Tejas Energy LLC ; filed as
Exhibit 99.7 on Form 8-K dated October 4, 1999).
*3.5 First Amended and Restated Limited Liability Company Agreement of
Enterprise Products GP, LLC dated September 17, 1999. (Exhibit 99.8 on
Form 8-K/A-1 filed October 27, 1999).
*4.1 Form of Common Unit certificate (Exhibit 4.1 to Registration Statement
on Form S-1/A, File No. 333-52537, filed on July 21, 1998).
*4.2 $200 million Credit Agreement among Enterprise Products Operating
L.P., the Several Banks from Time to Time Parties Hereto, Den Norske
Bank ASA, and Bank of Tokyo-Mitsubishi, Ltd., Houston Agency as
Co-Arrangers, The Bank of Nova Scotia, as Co-Arranger and as
Documentation Agent and The Chase Manhattan Bank as Co-Arranger and as
Agent dated as of July 27, 1998 as Amended and Restated as of
September 30, 1998. (Exhibit 4.2 on Form 10-K for year ended December
31, 1998, filed March 17, 1999).
28
<PAGE>
*4.3 First Amendment to $200 million Credit Agreement dated July 28, 1999
among Enterprise Products Operating L.P. and the several banks
thereto. (Exhibit 99.9 on Form 8-K/A-1 filed October 27, 1999).
*4.4 $350 million Credit Agreement among Enterprise Products Operating
L.P., BankBoston, N.A., Societe Generale, Southwest Agency and First
Union National Bank, as Co-Arrangers, The Chase Manhattan Bank, as
Co-Arranger and as Administrative Agent, The First National Bank of
Chicago, as Co-Arranger and as Documentation Agent, The Bank of Nova
Scotia, as Co-Arranger and Syndication Agent, and the Several Banks
from Time to Time parties hereto with First Union Capital Markets
acting as Managing Agent and Chase Securities Inc. acting as Lead
Arranger and Book Manager dated July 28, 1999 (Exhibit 99.10 on Form
8-K/A-1 filed October 27, 1999).
*4.5 Unitholder Rights Agreement among Tejas Energy LLC, Tejas Midstream
Enterprises, LLC, Enterprise Products Partners L.P., Enterprise
Products Operating L.P., Enterprise Products Company, Enterprise
Products GP, LLC and EPC Partners II, Inc. dated September 17, 1999.
(The Company incorporates by reference the above document included in
the Schedule 13D filed September 27, 1999 by Tejas Energy LLC; filed
as Exhibit 99.5 on Form 8-K dated October 4, 1999).
*4.6 Form of Indenture dated as of March 15, 2000, among Enterprise
Products Operating L.P., as Issuer, Enterprise Products Partners L.P.,
as Guarantor, and First Union National Bank, as Trustee. (Exhibit 4.1
on Form 8-K filed March 10, 2000).
*4.7 Form of Global Note representing all 8.25% Senior Notes Due 2005.
(Exhibit 4.2 on Form 8-K filed March 10, 2000).
*4.8 Second Amendment, dated as of January 24, 2000, to $200 Million Credit
Agreement dated as of July 27, 1998, as Amended and Restated as of
September 30, 1998, among Enterprise Products Operating L.P. and the
several banks thereto. (Exhibit 4.3 on Form 8-K filed March 10, 2000).
*4.9 First Amendment, dated as of January 24, 2000, to $350 Million Credit
Agreement among Enterprise Products Operating L.P., BankBoston, N.A.,
Societe Generale, Southwest Agency and First Union National Bank, as
Co-Arrangers, The Chase Manhattan Bank, as Co-Arranger and as
Administrative Agent, BankOne N.A., as Co- Arranger and as
Documentation Agent, The Bank of Nova Scotia, as Co-Arranger and as
Syndication Agent, and the several Banks from time to time parties
thereto, with First Union Capital Markets acting as Managing Agent and
Chase Securities Inc. acting as Lead Arranger and Manager dated as of
July 28, 1999. (Exhibit 4.4 on Form 8-K filed March 10, 2000).
*4.10 Second Amendment, dated as of March 7, 2000, to $350 Million Credit
Agreement among Enterprise Products Operating L.P., BankBoston, N.A.,
Societe Generale, Southwest Agency and First Union National Bank, as
Co-Arrangers, The Chase Manhattan Bank, as Co-Arranger and as
Administrative Agent, BankOne N.A., as Co- Arranger and as
Documentation Agent, The Bank of Nova Scotia, as Co-Arranger and as
Syndication Agent, and the several Banks from time to time parties
thereto, with First Union Capital Markets acting as Managing Agent and
Chase Securities Inc. acting as Lead Arranger and Manager dated as of
July 28, 1999. (Exhibit 4.5 on Form 8-K filed March 10, 2000).
*4.11 Guaranty Agreement, dated as of March 7, 2000, by Enterprise Products
Partners L.P. in favor of The Chase Manhattan Bank, as Administrative
Agent, with respect to the $350 Million Credit Agreement referred to
in Exhibits 4.4 and 4.5. (Exhibit 4.6 on Form 8-K filed March 10,
2000).
*10.1 Articles of Merger of Enterprise Products Company, HSC Pipeline
Partnership, L.P., Chunchula Pipeline Company, LLC, Propylene Pipeline
Partnership, L.P., Cajun Pipeline Company, LLC and Enterprise Products
Texas Operating L.P. dated June 1, 1998 (Exhibit 10.1 to Registration
Statement on Form S-1/A, File No: 333-52537, filed on July 8, 1998).
29
<PAGE>
*10.2 Form of EPCO Agreement between Enterprise Products Partners L.P.,
Enterprise Products Operating L.P., Enterprise Products GP, LLC and
Enterprise Products Company (Exhibit 10.2 to Registration Statement on
Form S-1/A, File No. 333-52537, filed on July 21, 1998).
*10.3 Transportation Contract between Enterprise Products Operating L.P. and
Enterprise Transportation Company dated June 1, 1998 (Exhibit 10.3 to
Registration Statement on Form S-1/A, File No. 333-52537, filed on
July 8, 1998).
*10.4 Venture Participation Agreement between Sun Company, Inc. (R&M),
Liquid Energy Corporation and Enterprise Products Company dated May 1,
1992 (Exhibit 10.4 to Registration Statement on Form S-1, File No.
333-52537, filed on May 13, 1998).
*10.5 Partnership Agreement between Sun BEF, Inc., Liquid Energy Fuels
Corporation and Enterprise Products Company dated May 1, 1992 (Exhibit
10.5 to Registration Statement on Form S-1, File No. 333-52537, filed
on May 13, 1998).
*10.6 Amended and Restated MTBE Off-Take Agreement between Belvieu
Environmental Fuels and Sun Company, Inc. (R&M) dated August 16, 1995
(Exhibit 10.6 to Registration Statement on Form S-1, File No.
333-52537, filed on May 13, 1998).
*10.7 Articles of Partnership of Mont Belvieu Associates dated July 17, 1985
(Exhibit 10.7 to Registration Statement on Form S-1, File No.
333-52537, filed on May 13, 1998).
*10.8 First Amendment to Articles of Partnership of Mont Belvieu Associates
dated July 15, 1996 (Exhibit 10.8 to Registration Statement on Form
S-1, File No. 333-52537, filed on May 13, 1998).
*10.9 Propylene Facility and Pipeline Agreement between Enterprise
Petrochemical Company and Hercules Incorporated dated December 13,
1978 (Exhibit 10.9 to Registration Statement on Form S-1, File No.
333-52537, dated May 13, 1998).
*10.10 Restated Operating Agreement for the Mont Belvieu Fractionation
Facilities Chambers County, Texas between Enterprise Products Company,
Texaco Producing Inc., El Paso Hydrocarbons Company and Champlin
Petroleum Company dated July 17, 1985 (Exhibit 10.10 to Registration
Statement on Form S-1/A, File No. 333-52537, filed on July 8, 1998).
*10.11 Ratification and Joinder Agreement relating to Mont Belvieu Associates
Facilities between Enterprise Products Company, Texaco Producing Inc.,
El Paso Hydrocarbons Company, Champlin Petroleum Company and Mont
Belvieu Associates dated July 17, 1985 (Exhibit 10.11 to Registration
Statement on Form S-1/A, File No. 333-52537, filed on July 8, 1998).
*10.12 Amendment to Propylene Facility and Pipeline Sales Agreement between
HIMONT U.S.A., Inc. and Enterprise Products Company dated January 1,
1993 (Exhibit 10.12 to Registration Statement on Form S-1/A, File No.
333-52537, filed on July 8, 1998).
*10.13 Amendment to Propylene Facility and Pipeline Agreement between HIMONT
U.S.A., Inc. and Enterprise Products Company dated January 1, 1995
(Exhibit 10.13 to Registration Statement on Form S-1/A, File No.
333-52537, filed on July 8, 1998).
*10.14 Fourth Amendment to Conveyance of Gas Processing Rights between Tejas
Natural Gas Liquids, LLC and Shell Oil Company, Shell Exploration &
Production Company, Shell Offshore Inc., Shell Deepwater Development
Inc., Shell Land & Energy Company and Shell Frontier Oil & Gas Inc.
dated August 1, 1999. (Exhibit 10.14 to Form 10-Q filed on November
15, 1999).
*12.1 Computation of ratio of earnings to fixed charges for the year ended
December 31, 1999. (Exhibit 12.1 on Form 8-K filed March 10, 2000).
30
<PAGE>
*25.1 Statement of Eligibility and Qualification under the Trust Indenture
Act of 1939 on Form T-1 of First Union National Bank. (Exhibit 25.1 on
Form 8-K filed March 10, 2000).
*99.1 Contribution Agreement between Tejas Energy LLC, Tejas Midstream
Enterprises, LLC, Enterprise Products Partners L.P., Enterprise
Products Operating L.P., Enterprise Products Company, Enterprise
Products GP, LLC and EPC Partners II, Inc. dated September 17, 1999.
(The Company incorporates by reference the above document included in
the Schedule 13D filed September 27, 1999 by Tejas Energy LLC; filed
as Exhibit 99.4 on Form 8-K dated October 4, 1999).
*99.2 Registration Rights Agreement between Tejas Energy LLC and Enterprise
Products Partners L.P. dated September 17, 1999. (The Company
incorporates by reference the above document included in the Schedule
13D filed September 27, 1999 by Tejas Energy LLC ; filed as Exhibit
99.6 on Form 8-K dated October 4, 1999).
27.1 Financial Data Schedule
- ---------------------
* Asterisk indicates exhibits incorporated by reference as indicated; all other
exhibits are filed herewith
(b) REPORTS ON FORM 8-K
Three reports on Form 8-K were filed during the first quarter of fiscal
2000.
On March 2, 2000, a Form 8-K was filed whereby the Company filed the
Consent of Deloitte & Touche LLP regarding the incorporation of their reports
into the Registration Statement No. 333-93239 of the Company and into
Registration Statement No. 333-93239-01 of the Operating Partnership. Deloitte &
Touche also consented to the reference to their firm under the caption "Experts"
in those registration statements.
On March 10, 2000, a Form 8-K was filed whereby the Company and the
Operating Partnership announced that they had entered into an underwriting
agreement for the public offering of $350 million of 8.25% Senior Notes due 2005
of the Operating Partnership, which Senior Notes are unconditionally guaranteed
by the Company. One of the purposes of this Form 8-K was to file certain
exhibits related to the offering of the Senior Notes and amendments to the $200
Million Bank Credit Facility and the $350 Million Bank Credit Facility.
On March 20, 2000, a Form 8-K was filed whereby the Company announced
that the Neptune natural gas processing plant had commenced operations. Neptune,
with the capacity to process 300 million cubic feet per day ("MMcfd") of natural
gas, is located in St. Mary Parish, Louisiana and processes natural gas that is
transported on the Nautilus pipeline system. The Company operates the plant and
has a 66 percent ownership interest, with Marathon Oil Company holding the
remaining 34 percent interest.
31
<PAGE>
SIGNATURES
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 thereunto duly authorized.
ENTERPRISE PRODUCTS PARTNERS L.P.
(A Delaware Limited Partnership)
By: Enterprise Products GP, LLC
as General Partner
Date: May 11, 2000 /s/ Gary L. Miller
___________________________
Executive Vice President
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
COMBINED FINANCIAL STATEMENTS AND IS QUALIFIED IN TIS ENTIRETY BY
REFERENCE TO SUCH FIANCIAL STATEMENTS
</LEGEND>
<CIK> 0001061219
<NAME> ENTERPRISE PRODUCTS PARTNERS L.P.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 50142
<SECURITIES> 0
<RECEIVABLES> 336281
<ALLOWANCES> 15926
<INVENTORY> 10506
<CURRENT-ASSETS> 419802
<PP&E> 1140455
<DEPRECIATION> 269204
<TOTAL-ASSETS> 1638731
<CURRENT-LIABILITIES> 391881
<BONDS> 404000
0
0
<COMMON> 0
<OTHER-SE> 827729
<TOTAL-LIABILITY-AND-EQUITY> 1638731
<SALES> 746281
<TOTAL-REVENUES> 753724
<CGS> 672906
<TOTAL-COSTS> 672906
<OTHER-EXPENSES> 5384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7774
<INCOME-PRETAX> 67660
<INCOME-TAX> 0
<INCOME-CONTINUING> 69447
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69447
<EPS-BASIC> 1.03
<EPS-DILUTED> 0.85
</TABLE>
