<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1997
COMMISSION FILE NO. 1-10403
TEPPCO PARTNERS, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0291058
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NUMBER)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(713) 759-3636
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TEPPCO PARTNERS, L.P.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 35,663 $ 34,047
Short-term investments ................................... 10,174 24,085
Accounts receivable, trade ............................... 16,854 18,326
Inventories .............................................. 17,679 18,914
Other .................................................... 4,416 3,371
---------- ----------
Total current assets ................................... 84,786 98,743
---------- ----------
Property, plant and equipment, at cost (Net of accumulated
depreciation and amortization of $159,638 and $149,597) .. 563,884 561,068
Investments ................................................ 8,735 6,936
Other assets ............................................... 4,831 4,494
---------- ----------
Total assets ........................................... $ 662,236 $ 671,241
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities, First Mortgage Notes ................. $ 17,000 $ 13,000
Accounts payable and accrued liabilities ................. 6,282 8,300
Accounts payable, general partner ........................ 3,736 3,007
Accrued interest ......................................... 10,539 10,930
Other accrued taxes ...................................... 5,568 5,455
Other .................................................... 5,239 6,861
---------- ----------
Total current liabilities .............................. 48,364 47,553
---------- ----------
First Mortgage Notes ....................................... 309,512 326,512
Other liabilities and deferred credits ..................... 3,479 3,902
Minority interest .......................................... 3,040 2,963
Partners' capital:
General partner's interest ............................... 5,127 4,616
Limited partners' interests .............................. 292,714 295,695
---------- ----------
Total partners' capital ................................ 297,841 290,311
---------- ----------
Total liabilities and partners' capital ................ $ 662,236 $ 671,241
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE> 3
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating revenues:
Transportation - Refined products ........ $ 30,957 $ 26,339 $ 52,661 $ 48,222
Transportation - LPGs .................... 13,805 12,469 37,744 39,583
Gain on sale of inventory ................ 559 2,029 2,056 3,572
Mont Belvieu operations .................. 2,857 2,778 5,620 5,618
Other .................................... 4,471 5,331 9,993 10,800
----------- ----------- ----------- -----------
Total operating revenues ............... 52,649 48,946 108,074 107,795
----------- ----------- ----------- -----------
Costs and expenses:
Operating, general and administrative .... 23,782 23,261 46,020 46,270
Depreciation and amortization ............ 5,933 5,925 11,701 11,893
Taxes - other than income taxes .......... 2,418 2,263 4,892 4,599
----------- ----------- ----------- -----------
Total costs and expenses ............... 32,133 31,449 62,613 62,762
----------- ----------- ----------- -----------
Operating income ....................... 20,516 17,497 45,461 45,033
Interest expense, First Mortgage Notes ..... (8,367) (8,685) (16,971) (17,552)
Interest costs capitalized ................. 317 210 972 380
Other income - net ......................... 793 1,388 1,774 2,880
----------- ----------- ----------- -----------
Income before minority interest ........ 13,259 10,410 31,236 30,741
Minority interest .......................... (134) (106) (316) (311)
----------- ----------- ----------- -----------
Net income ............................. $ 13,125 $ 10,304 $ 30,920 $ 30,430
=========== =========== =========== ===========
Net income per Unit .................... 0.85 $ 0.67 $ 1.99 $ 1.99
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
TEPPCO PARTNERS, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................... $ 30,920 $ 30,430
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization ............................... 11,701 11,893
Decrease in accounts receivable, trade ...................... 1,472 6,994
Decrease in inventories ..................................... 1,235 5,920
Increase in other current assets ............................ (1,045) (1,223)
Decrease in accounts payable and accrued expenses ........... (3,189) (6,594)
Other ....................................................... (614) 128
----------- -----------
Net cash provided by operating activities ................. 40,480 47,548
----------- -----------
Cash flows from investing activities:
Proceeds from investments .................................... 15,970 9,861
Investments .................................................. (3,906) (14,436)
Insurance proceeds related to damaged asset .................. 1,046 --
Restricted investments designated for property additions ..... -- (285)
Capital expenditures ......................................... (15,420) (15,635)
----------- -----------
Net cash used in investing activities ..................... (2,310) (20,495)
----------- -----------
Cash flows from financing activities:
Principal payment, First Mortgage Notes ..................... (13,000) (10,000)
Distributions ................................................ (23,554) (21,620)
----------- -----------
Net cash used in financing activities ..................... (36,554) (31,620)
----------- -----------
Net increase (decrease) in cash and cash equivalents .......... 1,616 (4,567)
Cash and cash equivalents at beginning of period .............. 34,047 39,663
----------- -----------
Cash and cash equivalents at end of period .................... $ 35,663 $ 35,096
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Interest paid during the period (net of capitalized interest).. $ 16,121 $ 17,193
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
TEPPCO Partners, L.P. is a Delaware limited partnership which operates
through TE Products Pipeline Company, Limited Partnership, a Delaware limited
partnership (collectively the "Partnership"), in which TEPPCO Partners, L.P.
holds a 99% interest as the sole limited partner. Texas Eastern Products
Pipeline Company and Subsidiary Companies (the "Company"), is the general
partner of the Partnership and has agreed not to voluntarily withdraw as the
general partner of the Partnership, subject to certain limited exceptions,
prior to January 1, 2000. On June 18, 1997, PanEnergy Corp and Duke Power
Company completed a previously announced merger. At closing, the combined
companies became Duke Energy Corporation (Duke Energy). The Company, previously
a wholly-owned subsidiary of PanEnergy Corp, became an indirect wholly-owned
subsidiary of Duke Energy on the date of the merger.
The accompanying unaudited consolidated financial statements reflect all
adjustments, which are, in the opinion of management, of a normal and recurring
nature and necessary for a fair statement of the financial position of the
Partnership as of June 30, 1997, and the results of operations and cash flows
for the periods presented. The results of operations for the six months ended
June 30, 1997, are not necessarily indicative of results of operations for the
full year 1997. The interim financial statements should be read in conjunction
with the Partnership's consolidated financial statements and notes thereto
presented in the TEPPCO Partners, L.P. Annual Report on Form 10-K for the year
ended December 31, 1996.
Net income per Unit is computed by dividing net income, after deduction of
the general partner's interest, by the weighted average number of Units
outstanding (a total of 14,500,000 Units as of June 30, 1997). The general
partner's percentage interest in net income is based on its percentage of cash
distributions from Available Cash for each period (see Note 6). The general
partner was allocated 6.72% and 5.15% of net income for the six months ended
June 30, 1997 and 1996, respectively.
NOTE 2. ACCOUNTING POLICY CHANGE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share."
This statement establishes standards for computing and presenting net income
per Unit and requires, among other things, dual presentation of basic and
diluted net income per Unit on the face of the consolidated statements of
income. This statement is effective for financial statements for periods ending
after December 15, 1997. The Partnership will adopt SFAS 128 by December 31,
1997, and does not expect the adoption to have a material impact on its
calculation of net income per Unit.
NOTE 3. INVESTMENTS
SHORT-TERM INVESTMENTS
The Partnership routinely invests cash in liquid short-term investments as
part of its cash management program. Investments with maturities at date of
purchase of 90 days or less are considered cash and cash equivalents. At June
30, 1997, short-term investments included $10.2 million of investment-grade
medium-term corporate debt securities, which mature within one year. All
short-term investments are stated at amortized cost, which approximates the
aggregate fair value at June 30, 1997, and are classified as held-to-maturity
securities.
5
<PAGE> 6
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
LONG-TERM INVESTMENTS
At June 30, 1997, the Partnership had $8.7 million invested in
investment-grade medium-term corporate debt securities, which have varying
maturities from 1999 through 2001. These securities are classified as
held-to-maturity securities and are stated at amortized cost. At June 30, 1997,
the aggregate fair value and unrealized gain for these securities was $8.8
million and $0.1 million, respectively. Such investments included a $0.9
million investment in Duke Power Company corporate notes as of June 30, 1997.
NOTE 4. FIRST MORTGAGE NOTES
In connection with its formation, TE Products Pipeline Company, Limited
Partnership issued 9.60% Series A First Mortgage Notes, due 2000, and 10.20%
Series B First Mortgage Notes, due 2010 (collectively the "Notes"). The
Notes, which are secured by a mortgage on substantially all property, plant and
equipment of the Partnership, have mandatory annual prepayments at par through
March 7, 2010. Interest is payable semiannually on each March 7 and September 7
until retirement of the Notes. On March 7, 1997, the Partnership paid $13.0
million for current maturities due on the Notes. At June 30, 1997, the current
maturities of the Notes were $17.0 million, which are payable on March 6, 1998.
The agreements relating to the Notes contain certain covenant
restrictions, including limitations on cash distributions and on the amount of
future indebtedness, none of which is expected to have a material adverse
effect on the Partnership's operations.
NOTE 5. INVENTORIES
Inventories are carried at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Gasolines ........................................ $ 1,545 $ 3,232
Propane .......................................... 5,698 6,550
Butanes .......................................... 4,354 4,023
Fuel oils ........................................ 402 --
Other products ................................... 1,633 2,021
Materials and supplies ........................... 4,047 3,088
----------- -----------
Total ............................................ $ 17,679 $ 18,914
=========== ===========
</TABLE>
The costs of inventories were lower than market at June 30, 1997, and
December 31, 1996.
NOTE 6. CASH DISTRIBUTIONS
The Partnership makes quarterly cash distributions of all of its Available
Cash, generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the general partner in its sole
discretion or as required by the terms of the Notes.
6
<PAGE> 7
TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
On May 9, 1997, the Partnership paid the first quarter cash distribution
of $0.75 per Unit to Unitholders of record on April 30, 1997. Additionally, on
July 14, 1997, the Partnership declared a cash distribution of $0.80 per Unit
for the quarter ended June 30, 1997, which represents an increase of $0.05 per
Unit in the quarterly distribution. The second quarter distribution is payable
on August 8, 1997, to Unitholders of record on July 31, 1997.
The Company receives incremental incentive distributions of 15%, 25% and
50% on quarterly distributions of Available Cash that exceed $0.55, $0.65 and
$0.90 per Unit, respectively. During the six months ended June 30, 1997 and
1996, incentive distributions paid to the Company totaled $1.4 million and $0.9
million, respectively.
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Partnership is involved in various claims and legal proceedings
incidental to its business. In the opinion of management, these claims and
legal proceedings will not have a material adverse effect on the Partnership's
consolidated financial position or results of operations.
The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes the operations of the pipeline system are in material
compliance with applicable environmental regulations, risks of significant
costs and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
pipeline system, could result in substantial costs and liabilities to the
Partnership. The Partnership does not anticipate that changes in environmental
laws and regulations will have a material adverse effect on its financial
position, operations or cash flows in the near term.
The Partnership and the Indiana Department of Environmental Management
(IDEM) have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site environmental problems
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
As part of the Agreed Order, the Partnership has completed the remedial
investigation sampling for groundwater contamination and has submitted to IDEM
the final remedial investigation report for the Seymour terminal. In the
opinion of the general partner, the completion of the remediation program to be
proposed by the Partnership, if such program is approved by IDEM, will not have
a material adverse impact on the Partnership.
Substantially all of the petroleum products transported and stored by the
Partnership are owned by the Partnership's customers. At June 30, 1997, The
Partnership had approximately 16.9 million barrels of products in its custody
owned by customers. The Partnership is obligated for the transportation,
storage and delivery of such products on behalf of its customers. The
Partnership maintains insurance adequate to cover product losses through
circumstances beyond its control.
7
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information is provided to facilitate increased
understanding of the 1997 and 1996 interim consolidated financial statements
and accompanying notes presented in Item 1. Material period-to-period variances
in the consolidated statements of income are discussed under "Results of
Operations." The "Financial Condition and Liquidity" section analyzes cash
flows and financial position. Discussion included in "Other Matters" addresses
key trends, future plans and contingencies. Throughout these discussions,
management addresses items that are reasonably likely to materially affect
future liquidity or earnings.
RESULTS OF OPERATIONS
The Partnership's operations consist of the transportation, storage and
terminaling of refined petroleum products and liquefied petroleum gases (LPGs).
Operations are somewhat seasonal with higher revenues generally realized during
the first and fourth quarters of each year. Refined products volumes are
generally higher during the second and third quarters because of greater demand
for gasolines during the spring and summer driving seasons. LPGs volumes are
generally higher from November through March due to higher demand in the
Midwest and Northeast for propane, a major fuel for residential heating, and
higher demand for butane, an additive for gasoline blending.
Net income for the quarter ended June 30, 1997 was $13.1 million,
compared with net income of $10.3 million for the 1996 second quarter. The
increase in net income resulted from a $3.7 million increase in operating
revenues and a $0.3 million decrease in interest expense. These increases were
partially offset by a $0.7 million increase in costs and expenses and a $0.6
million decrease in other income.
Net income for the six months ended June 30, 1997 increased $0.5
million to $30.9 million, compared with net income of $30.4 million for the six
months ended June 30, 1996, due primarily to a $0.3 million increase in
operating revenues, a $0.6 million decrease in interest expense and a $0.6
million increase in interest costs capitalized, partially offset by a $1.1
million decrease in other income. See discussion below of factors affecting net
income for the comparative periods.
See volume and average tariff information below:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, Percentage June 30, Percentage
---------------------- Increase --------------------- Increase
1997 1996 (Decrease) 1997 1996 (Decrease)
------- ------- ---------- ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
VOLUMES DELIVERED
(in thousands of barrels)
Refined products 34,389 30,621 12% 59,594 56,541 5%
LPGs 7,947 7,309 9% 20,011 20,154 (1%)
Mont Belvieu operations 6,631 6,383 4% 12,819 11,346 13%
------- ------- --- ------ -------- ---
Total 48,967 44,313 11% 92,424 88,041 5%
======= ======= === ====== ======== ===
AVERAGE TARIFF PER BARREL
Refined products $ 0.90 $ 0.86 5% $ 0.88 $ 0.85 4%
LPGs 1.74 1.71 2% 1.89 1.96 (4%)
Mont Belvieu operations 0.13 0.17 (24%) 0.14 0.17 (18%)
Average system tariff $ 0.93 $ 0.90 3% $ 1.00 1.02 (2%)
======= ======= === ====== ======== ===
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
Refined products transportation revenues increased $4.6 million for the
quarter ended June 30, 1997, compared with the prior-year quarter, as a result
of higher deliveries of motor fuel, distillate, natural gasoline and jet fuel.
The increase in refined products transportation revenue reflects the
utilization of increased delivery capacity from the expansion of the Ark-La-Tex
system between Shreveport, Louisiana, and El Dorado, Arkansas, which was placed
in service on March 31, 1997, and the connection of the pipeline system to
Colonial Pipeline Company's (Colonial) pipeline at Beaumont, Texas.
Additionally, jet fuel volumes increased as a result of the pipeline connection
at the Little Rock Air Force base, which was completed in June 1996. Natural
gasoline deliveries increased primarily from favorable blending economics in
Midwest market areas. The increase in the refined products average tariff per
barrel reflects an increase in the percentage of long-haul deliveries as well
as higher tariff rates on the Ark-La-Tex system.
LPGs transportation revenues increased $1.3 million for the quarter
ended June 30, 1997, compared with the second quarter of 1996, due primarily to
increased propane deliveries in the upper Midwest and Northeast attributable to
colder weather continuing into the second quarter of 1997, favorable price
differentials and lower competing local supply in the Northeast. Additionally,
isobutane transportation revenue increased from the prior year quarter due to
the resumption during the second quarter of 1997 of operations at a Northeast
refinery that was shut down throughout 1996. The 2% increase in the LPGs
average tariff per barrel resulted from the higher percentage of long-haul
propane and isobutane deliveries to the Northeast.
For the six months ended June 30, 1997, refined products transportation
revenues increased $4.4 million, compared with the corresponding period in
1996, due to a 5% increase in volumes delivered and a 4% increase in the
refined products average tariff per barrel. The increase in refined products
transportation volumes was attributable to the factors discussed above during
the second quarter of 1997, partially offset by lower deliveries of motor fuel
and distillates during the first quarter of 1997 due to increased refinery
utilization in the Midwest market areas and lower refinery production along the
upper Texas Gulf Coast. The increase in the refined products average tariff per
barrel during 1997 reflects a higher percentage of long-haul transportation
deliveries and the higher tariff rate on the Ark-La-Tex system.
LPGs transportation revenues decreased $1.8 million during the six
months ended June 30, 1997, compared with the same period in 1996, due
primarily to lower propane deliveries attributable to warmer winter weather in
the first quarter of 1997, and a decrease in butane deliveries as a result of
increased competing product being imported from Canada into the Midwest. These
decreases were partially offset by favorable price differentials of propane in
the Northeast market area during the second quarter of 1997, and stronger
demand for isobutane as a refinery feedstock due to the resumption during the
second quarter of 1997 of operations at a Northeast refinery that was shut down
throughout 1996. The 4% decrease in the LPGs average tariff per barrel resulted
from lower long-haul propane deliveries during the first quarter of 1997, as
well as increased demand for short-haul deliveries along the upper Texas Gulf
Coast.
Revenues generated from Mont Belvieu operations increased slightly
during both the quarter and six months ended June 30, 1997, compared with the
corresponding periods in 1996, due primarily to higher terminaling fees on
butane received into the system and higher petrochemical demand along the upper
Texas Gulf Coast. These increases were largely offset by the decrease in the
Mont Belvieu operations average tariff per barrel for shuttle deliveries during
1997, which resulted from higher contract deliveries, which generally carry
lower tariffs.
Gains on the sale of inventory decreased during both the quarter and
six months ended June 30, 1997, compared with the corresponding periods in
1996, as a result of lower volumes of gasoline being sold during the second
quarter of 1997.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - (CONTINUED)
Other operating revenues decreased during both the quarter and six
months ended June 30, 1997, as compared to the corresponding periods in 1996,
due to write downs of product inventory recorded during the second quarter of
1997 and lower propane imports received at the marine terminal at Providence,
Rhode Island, due primarily to warmer winter weather during the first quarter
of 1997. These decreases were partially offset by higher refined products
terminaling fees attributable to the increase in refined products
transportation volumes delivered in 1997.
Costs and expenses increased $0.7 million during the second quarter of
1997, compared with the prior year, due to a $0.5 million increase in
operating, general and administrative expenses and a $0.2 million increase in
taxes - other than income taxes. The increase in operating, general and
administrative expenses resulted primarily from increased rental expense
associated with the capacity lease with Colonial, which began in May 1997, and
increased throughput-related costs and labor costs. These increases were
partially offset by lower environmental remediation expenses and lower product
measurement losses. The increase in taxes - other than income taxes resulted
from higher property tax assessments.
Costs and expenses decreased slightly during the first six months of
1997, compared with the same period in 1996, due primarily to lower operating,
general and administrative expenses attributable to lower outside services for
system maintenance and remediation and lower product measurement losses. These
decreases were partially offset by increased thoughput-related costs, increased
labor and benefits expenses and the Colonial capacity lease. Lower operating,
general and administrative expenses were partially offset by higher property
tax assessments for 1997.
Interest expense decreased during both the quarter and six-month
periods in 1997, compared with the same periods in 1996, due to principal
payments on the First Mortgage Notes of $10.0 million and $13.0 million in
March 1996 and 1997, respectively. Capitalized interest increased $0.6 million
during the six month period ended June 30, 1997, compared with the same period
in 1996 as a result of higher construction balances related to capital
projects, which commenced during 1996, and were completed during 1997. Other
income, primarily interest, decreased during both the quarter and six months
ended June 30, 1997, compared with the corresponding periods in 1996, as a
result of lower cash balances in 1997.
FINANCIAL CONDITION AND LIQUIDITY
Net cash from operations totaled $40.5 million for the six-month period
ended June 30, 1997, compared with $47.5 million for the corresponding period
in 1996. The decrease resulted primarily from a decrease in working capital
sources of cash. The decrease in working capital sources of cash was primarily
due to higher accounts receivable balances related to increased operating
revenues during the second quarter of 1997 and lower inventory sales during
1997, partially offset by lower cash payments for accrued expenses during 1997.
Net cash from operations for the six months ended June 30, 1997 and 1996
reflect semi-annual interest payments related to the Notes of $17.1 million and
$17.6 million, respectively.
Cash flows used in investing activities during the first six months of
1997 included $15.4 million of capital expenditures and $3.9 million of
additional cash investments, partially offset by $16.0 million from investment
maturities and $1.0 million of insurance proceeds related to the replacement
value of a 20-inch diameter auxiliary pipeline at the Red River in central
Louisiana, which was damaged in 1994 and subsequently removed from service.
Cash flows used in investing activities during the first six months of 1996
included $15.6 million of capital expenditures and additional investments of
$14.4 million, partially offset by matured investments of $9.9 million. Capital
expenditures are expected to total approximately $35 million for the full year
of 1997. The Partnership revises capital spending periodically in response to
changes in cash flows and operations. Interest income earned on all investments
is included in cash from operations.
10
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Liquidity - (Continued)
The Partnership paid cash distributions of $23.6 million during the six
months ended June 30, 1997. Additionally, on July 14, 1997, the Partnership
declared a cash distribution of $0.80 per Unit for the three months ended June
30, 1997, increasing the annualized distribution to $3.20 per Unit from $3.00
per Unit. The second quarter cash distribution is payable on August 8, 1997 to
Unitholders of record on July 31, 1997.
The Notes, which are secured by a mortgage on substantially all
property, plant and equipment of the Partnership, require annual principal
payments through March 2010. Interest is payable semi-annually on March 7 and
September 7. Cash and cash equivalents were reduced by the $13.0 million
principal payment related to the Notes on March 7, 1997. At June 30, 1997, the
current maturities of the Notes were $17.0 million. The note agreement relating
to the Notes limits the amount of cash distributions that can be made by TE
Products Pipeline Company, Limited Partnership to TEPPCO Partners, L.P. Such
restriction is not anticipated to preclude the Partnership from making
quarterly distributions to Unitholders of at least $0.80 per Unit during the
remainder of 1997.
OTHER MATTERS
The operations of the Partnership are subject to federal, state and
local laws and regulations relating to protection of the environment. Although
the Partnership believes the operations of the pipeline system are in material
compliance with applicable environmental regulations, risks of significant
costs and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from the operations of the
pipeline system could result in substantial costs and liabilities to the
Partnership.
The Partnership and the Indiana Department of Environmental Management
(IDEM) have entered into an Agreed Order that will ultimately result in a
remediation program for any on-site and off-site environmental problems
attributable to the Partnership's operations at the Seymour, Indiana, terminal.
As part of the Agreed Order, the Partnership has completed the remedial
investigation sampling for groundwater contamination and has submitted to IDEM
the final remedial investigation report for the Seymour terminal. In the
opinion of the general partner, the completion of the remediation program to be
proposed by the Partnership, if such program is approved by IDEM, will not have
a material adverse impact on the Partnership
During June 1997, the Partnership filed rate increases on selective
refined products tariffs and LPGs tariffs, averaging 1.7%. These rate increases
became effective July 1, 1997 without suspension or refund obligation.
The matters discussed herein include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 based on current management expectations that
involve risk and uncertainties which could cause actual results to differ
materially from those anticipated. For additional discussion of such risks and
uncertainties, see the Partnership's 1996 Annual Report on Form 10-K.
11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
27 Financial Data Schedule as of and for
the six months ended June 30, 1997
(b) Reports on FORM 8-K: None
Items 1, 2, 3, 4 and 5 of Part II were not applicable and have been omitted.
12
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
TEPPCO PARTNERS, L.P.
(Registrant)
By: Texas Eastern Products Pipeline Company,
General Partner
CHARLES H. LEONARD
--------------------------------------------
Charles H. Leonard
Sr. Vice President, Chief Financial Officer
and Treasurer
Date: August 7, 1997
13
<PAGE> 14
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule as of and for the
six months ended June 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 35,663
<SECURITIES> 10,174
<RECEIVABLES> 16,854
<ALLOWANCES> 0
<INVENTORY> 17,679
<CURRENT-ASSETS> 84,786
<PP&E> 723,522
<DEPRECIATION> 159,638
<TOTAL-ASSETS> 662,236
<CURRENT-LIABILITIES> 48,364
<BONDS> 309,512
0
0
<COMMON> 0
<OTHER-SE> 297,841
<TOTAL-LIABILITY-AND-EQUITY> 662,236
<SALES> 0
<TOTAL-REVENUES> 108,074
<CGS> 0
<TOTAL-COSTS> 62,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,971
<INCOME-PRETAX> 31,236
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,920
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.99
</TABLE>
