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As filed with the Securities and Exchange Commission on May 16, 2000
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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TEPPCO PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0291058
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(713) 759-3636
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
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JAMES C. RUTH
2929 ALLEN PARKWAY
P.O. BOX 2521
HOUSTON, TEXAS 77252-2521
(713) 759-3636
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
FULBRIGHT & JAWORSKI L.L.P.
1301 MCKINNEY, SUITE 5100
HOUSTON, TX 77010
(713) 651-5151
ATTENTION: JOHN A. WATSON
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective, as determined by
market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum
Title of each Class of Amount to Aggregate Offering Amount of
Securities to Be Registered Be Registered Price(1) Registration Fee
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Limited Partnership Units -- -- --
Debt Securities -- -- --
Total $600,000,000 $158,400
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE, AND WE MAY CHANGE IT.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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SUBJECT TO COMPLETION, DATED MAY 16, 2000
PROSPECTUS
TEPPCO PARTNERS, L.P.
LIMITED PARTNERSHIP UNITS
DEBT SECURITIES
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We, TEPPCO Partners, L.P., may from time to time offer and sell limited
partnership units and debt securities. This prospectus describes the general
terms of these securities and the general manner in which we will offer the
securities. The specific terms of any securities we offer will be included in a
supplement to this prospectus. The prospectus supplement will also describe the
specific manner in which we will offer the securities.
The New York Stock Exchange has listed our limited partnership units
under the symbol "TPP." On May 11, 2000, the closing price of the limited
partnership units on the New York Stock Exchange was $20-3/4 per unit.
Our address is 2929 Allen Parkway, P.O. Box 2521, Houston, Texas
77252-2521, and our telephone number is (713) 759-3636.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is , 2000
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TABLE OF CONTENTS
Page
ABOUT TEPPCO PARTNERS............................................................................................3
ABOUT THIS PROSPECTUS.............................................................................................3
WHERE YOU CAN FIND MORE INFORMATION...............................................................................3
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS...................................................................4
RISK FACTORS......................................................................................................5
Risks Inherent in Our Business...............................................................................5
Risks Relating to Year 2000 Problems.........................................................................6
Risks Relating to Our Partnership Structure..................................................................7
TEPPCO PARTNERS..................................................................................................11
USE OF PROCEEDS..................................................................................................12
RATIO OF EARNINGS TO FIXED CHARGES...............................................................................12
DESCRIPTION OF DEBT SECURITIES...................................................................................12
Specific Terms of Each Series of Debt Securities in the Prospectus Supplement...............................13
No Indenture Limitation on Amount of Debt Securities........................................................13
Registration of Debt Securities.............................................................................13
No Personal Liability of General Partner....................................................................13
Consolidation, Merger or Sale...............................................................................13
Modification of Indentures..................................................................................14
Events of Default...........................................................................................14
Payment and Transfer........................................................................................15
Discharging Our Obligations.................................................................................15
Provisions Only in the Senior Indenture.....................................................................16
Provisions Only in Subordinated Indenture...................................................................20
Book Entry, Delivery and Form...............................................................................21
The Trustee.................................................................................................22
CASH DISTRIBUTIONS...............................................................................................23
General.....................................................................................................23
Quarterly Distributions of Available Cash...................................................................24
Adjustment of the Target Distributions......................................................................25
Distributions of Cash Upon Liquidation......................................................................25
Defined Terms...............................................................................................27
TAX CONSIDERATIONS...............................................................................................29
Partnership Status..........................................................................................29
Partner Status..............................................................................................31
Tax Consequences of Unit Ownership..........................................................................32
Allocation of Partnership Income, Gain, Loss and Deduction..................................................34
Uniformity of Units.........................................................................................34
Tax Treatment of Operations.................................................................................35
Disposition of Units........................................................................................39
Administrative Matters......................................................................................40
STATE AND OTHER TAX CONSIDERATIONS...............................................................................43
INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS.......................................................................44
PLAN OF DISTRIBUTION.............................................................................................46
LEGAL............................................................................................................46
EXPERTS..........................................................................................................46
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You should rely only on the information contained in this prospectus,
any prospectus supplement and the documents we have incorporated by reference.
We have not authorized anyone else to give you different information. We are not
offering these securities in any state where they do not permit the offer. We
will disclose any material changes in our affairs in an amendment to this
prospectus, a prospectus supplement or a future filing with the SEC incorporated
by reference in this prospectus.
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ABOUT TEPPCO PARTNERS
We are a publicly held Delaware limited partnership engaged in the
transportation of refined products and liquefied petroleum gases and the
transportation and marketing of crude oil and natural gas liquids. Texas Eastern
Products Pipeline Company, LLC (formerly Texas Eastern Products Pipeline
Company) serves as our general partner. Our general partner is owned through
subsidiaries by Duke Energy Company and Phillips Petroleum Company. Duke Energy
Field Services, LLC is owned through a subsidiary by Duke Energy Company and
Phillips Petroleum Company. Duke Energy owns a majority interest in the
subsidiary.
As used in this prospectus, "we," "us," "our" and "TEPPCO Partners"
mean TEPPCO Partners, L.P. and, where the context requires, include our
subsidiary operating companies.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed
with the Securities and Exchange Commission using a "shelf" registration
process. Under this shelf registration process, we may sell up to $600 million
in principal amount of the limited partnership units or debt securities
described in this prospectus in one or more offerings. This prospectus generally
describes us and the limited partnership units and debt securities. Each time we
sell limited partnership units or debt securities with this prospectus, we will
provide a prospectus supplement that will contain specific information about the
terms of that offering. The prospectus supplement may also add to, update or
change information in this prospectus. The information in this prospectus is
accurate as of May 16, 2000. You should carefully read both this prospectus and
any prospectus supplement and the additional information described under the
heading "Where You Can Find More Information."
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and other reports and other information with
the SEC. You may read and copy any document we file at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
SEC's regional offices at Seven World Trade Center, New York, New York 10048,
and at 500 West Madison Street, Chicago, Illinois 60661. Please call the SEC at
1-800-732-0330 for further information on their public reference room. Our SEC
filings are also available at the SEC's web site at http://www.sec.gov. You can
also obtain information about us at the offices of the New York Stock Exchange,
20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we have
filed with the SEC. This means that we can disclose important information to you
without actually including the specific information in this prospectus by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus. Information that we file later with the
SEC will automatically update and may replace information in this prospectus and
information previously filed with the SEC. The documents listed below and any
future filings made with the SEC under Sections 13(a), 13(c), 14, or 15(d) of
the Securities Exchange Act of 1934 are incorporated by reference in this
prospectus until we sell all of the units offered by this prospectus.
o Annual Report on Form 10-K for the fiscal year ended December 31,
1999.
o Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2000.
You may request a copy of this filing, at no cost, by writing or
calling us at the following address:
Investor Relations Department
TEPPCO Partners, L.P.
2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(713) 759-3636
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FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This prospectus, any accompanying prospectus supplement and the
documents we have incorporated by reference contain forward-looking statements.
The words "believe," "expect," "estimate" and "anticipate" and similar
expressions identify forward-looking statements. Forward-looking statements
include those that address activities, events or developments that we expect or
anticipate will or may occur in the future. These include the following:
o the amount and nature of future capital expenditures,
o business strategy and measures to carry out strategy,
o competitive strengths,
o goals and plans,
o expansion and growth of our business and operations,
o references to intentions as to future matters and
o other similar matters.
A forward-looking statement may include a statement of the assumptions
or bases underlying the forward-looking statement. We believe we have chosen
these assumptions or bases in good faith and that they are reasonable. However,
we caution you that assumed facts or bases almost always vary from actual
results, and the differences between assumed facts or bases and actual results
can be material, depending on the circumstances. When considering
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this prospectus, any prospectus supplement and the
documents we have incorporated by reference. We will not update these statements
unless the securities laws require us to do so.
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RISK FACTORS
Before you invest in our securities, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus, any prospectus supplement and the documents we have incorporated by
reference into this document before purchasing our securities.
If any of the following risks actually occur, our business, financial
condition or results of operations could be materially adversely affected. In
that event, we may be unable to make distributions to our unitholders or pay
interest on, or the principal of, any debt securities, the trading price of our
limited partnership units could decline, or you may lose all of your investment.
RISKS INHERENT IN OUR BUSINESS
We may be required to refund a portion of our tariffs.
The Federal Energy Regulatory Commission, pursuant to the Interstate
Commerce Act, regulates the tariff rates for our interstate common carrier
pipeline operations. To be lawful under that Act, tariff rates must be just and
reasonable and not unduly discriminatory. Shippers may protest, and the FERC may
investigate, the lawfulness of new or changed tariff rates. The FERC can suspend
those tariff rates for up to seven months. It can also require refunds of
amounts collected under rates ultimately found unlawful. The FERC may also
challenge tariff rates that have become final and effective. Because of the
complexity of rate making, the lawfulness of any rate is never assured.
The FERC's primary rate making methodology is price indexing. In the
alternative, pipelines may elect to support rate filings by using a
cost-of-service methodology, competitive market showings or agreements between
shippers and the pipeline that the rate is acceptable. In May, 1999, we filed an
application with the FERC for substantially all our refined products
transportation tariffs. That application is currently under review by the FERC.
In July 1999 some of our shippers filed protests with the FERC on our
application for market based rates in four destination markets. Under the price
indexing methodology, our rates would have been reduced by approximately 1.83%
effective July 1, 1999. However, the FERC approved our request to waive this
adjustment while our application for market based rates is under review. If any
portion of our application for market based rates is denied by the FERC, we must
refund with interest the amounts we collect after June 30, 1999 that exceed the
rates under the price indexing methodology. We have deferred all revenue
recognition of rates in excess of those applicable under the price index method.
At March 31, 2000, we had accrued approximately $1.2 million, including
interest, for possible rate refunds.
We face uncertainties in calculating cost of service for rate-making
purposes.
In a 1995 decision involving an unrelated oil pipeline limited
partnership, the FERC partially disallowed the inclusion of income taxes in that
partnership's cost of service. In another FERC proceeding involving a different
oil pipeline limited partnership, the FERC held that the oil pipeline limited
partnership may not claim an income tax allowance for income attributable to
non-corporate limited partners, both individuals and other entities. This issue
does not currently affect us because we do not use the cost-of-service
methodology to support our rates. However, these decisions might affect us
should we elect in the future to use the cost-of-service methodology or be
required to use that methodology to defend our rates. If those circumstances
arise, there can be no assurance with respect to the effect of these precedents
on our rates.
Competition could adversely affect our operating results.
Our refined products and LPGs transportation business competes with
other pipelines in the areas where we deliver products. We also compete with
trucks, barges and railroads in some of the areas we serve. Competitive
pressures may adversely affect our tariff rates or volumes shipped. The crude
oil gathering and marketing business is characterized by thin margins and
intense competition for supplies of lease crude oil. A decline in domestic crude
oil production has intensified competition among gatherers and marketers. Our
crude oil transportation business
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competes with common carriers and proprietary pipelines owned and operated by
major oil companies, large independent pipeline companies and other companies in
the areas where our pipeline systems deliver crude oil and natural gas liquids
("NGLs"). Some of our competitors in each of our business segments have
financial resources substantially greater than ours.
We face credit risks in our crude oil marketing business.
Risks of nonpayment and nonperformance by customers is a major
consideration in our crude oil marketing business. We attempt to manage our
exposure to credit risks through credit analysis, credit approvals, credit
limits and monitoring procedures. We also use letters of credit, prepayments and
guarantees for some of our receivables. We are nevertheless subject to risks of
loss resulting from nonpayment or nonperformance by our customers.
Our crude oil marketing business involves risks relating to product
prices.
Generally, as we purchase crude oil we simultaneously establish a
margin by selling crude oil for physical delivery to third party users or by
entering into a future delivery obligation with respect to futures contracts on
the New York Mercantile Exchange. We seek to maintain a balanced position until
we make physical delivery of the crude oil, thereby minimizing or eliminating
exposure to price fluctuations occurring after the initial purchase. It is our
policy not to acquire crude oil, future contracts or other derivative products
for the purpose of speculating on price changes. Even so, certain basis risks
cannot be completely hedged or eliminated. These are the risks that price
relationships between delivery points, classes of products or delivery periods
will change from time to time.
Reduced demand could affect shipments on the pipelines.
Our products pipeline business depends in large part on the demand for
refined petroleum products in the markets served by our pipelines. Reductions in
that demand adversely affect our pipeline business. Market demand varies based
upon the different end uses of the refined products we ship. Demand for
gasoline, which accounts for a substantial portion of our shipments, depends
upon price, prevailing economic conditions and demographic changes in the
markets we serve. Weather conditions, government policy and crop prices affect
the demand for refined products used in agricultural operations. Demand for jet
fuel depends on prevailing economic conditions and military usage.
Governmental regulation, technological advances in fuel economy, energy
generation devices and future fuel conservation measures could reduce the demand
for refined petroleum products in the market areas we serve.
We face risks of environmental costs and liabilities.
Our operations are subject to federal, state and local laws and
regulations relating to protection of the environment. Although we believe that
our operations comply with applicable environmental regulations, risks of
substantial costs and liabilities are inherent in pipeline operations and
terminaling operations. We cannot assure you that we will not incur substantial
costs and liabilities. We currently own or lease, and have in the past owned or
leased, many properties that have been used for many years to terminal or store
crude oil, petroleum products or other chemicals. Owners, tenants or users of
these properties have disposed of or released hydrocarbons or solid wastes on or
under them. Additionally, some sites we operate are located near current or
former refining and terminaling operations. There is a risk that contamination
has migrated from those sites to ours. Increasingly strict environmental laws,
regulations and enforcement policies and claims for damages and other similar
developments could result in substantial costs and liabilities.
RISKS RELATING TO YEAR 2000 PROBLEMS
In 1997 we initiated a program to prepare our process controls and
business computer systems for the "Year 2000" issue. We incurred approximately
$5.6 million of expense related to this program. We did not encounter any
critical system application or hardware failure from the date rollover to the
year 2000. We have not experienced any disruptions of business activities as a
result of Year 2000 failures encountered by customers,
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suppliers or service providers. However, we cannot assure you that Year 2000
problems will not be discovered in the future.
RISKS RELATING TO OUR PARTNERSHIP STRUCTURE
We are a holding company and depend entirely on our operating
subsidiaries' distributions to service our debt obligations.
We are a holding company with no material operations. If we cannot
receive cash distributions from our operating subsidiaries, we will not be able
to meet our debt service obligations. Our operating subsidiaries may from time
to time incur additional indebtedness under agreements that contain restrictions
which could further limit each operating subsidiary's ability to make
distributions to us.
The debt securities will be issued by the parent partnership and will
be structurally subordinated to the claims of our operating subsidiaries'
creditors. Holders of the debt securities will not be creditors of our operating
partnerships. The claims to the assets of our operating subsidiaries derive from
our own partnership interests in those operating subsidiaries. Claims of our
operating subsidiaries' creditors will generally have priority as to the assets
of our operating subsidiaries over our own partnership interest claims and will
therefore have priority over the holders of our debt, including the debt
securities. Our operating subsidiaries' creditors may include:
o general creditors,
o trade creditors,
o secured creditors,
o taxing authorities, and
o creditors holding guarantees.
As of March 31, 2000, we had debt of approximately $390 million
outstanding under our Senior Notes due 2008 and 2028, $38 million under a bank
term loan, $45 million under a bank loan to finance three new pipelines, and $3
million under a bank line for our crude oil segment, all from Sun Trust Bank and
other lenders.
We may sell additional limited partnership interests, diluting existing
interests of unitholders.
Our partnership agreement allows us to issue additional limited
partnership units and other equity securities without unitholder approval. There
is no limit on the total number of limited partnership units and other equity
securities we may issue. When we issue additional limited partnership units or
other equity securities, the proportionate partnership interest of our existing
unitholders will decrease. The issuance could negatively affect the amount of
cash distributed to unitholders and the market price of limited partnership
units. Issuance of additional units will also diminish the relative voting
strength of the previously outstanding units.
Our general partner and its affiliates may have conflicts with our
partnership.
The directors and officers of our general partner and its affiliates
have duties to manage the general partner in a manner that is beneficial to its
stockholder. At the same time, the general partner has duties to manage us in a
manner that is beneficial to us. Therefore, the general partner's duties to us
may conflict with the duties of its officers and directors to its stockholder.
Such conflicts may include, among others, the following:
o decisions of our general partner regarding the amount and timing
of cash expenditures, borrowings and issuances of additional
limited partnership units or other securities can affect the
amount of incentive compensation payments we make to our general
partner;
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o under our partnership agreement we reimburse the general partner
for the costs of managing and operating the partnership; and
o under our partnership agreement, it is not a breach of our general
partner's fiduciary duties for affiliates of our general partner
to engage in activities that compete with us.
We may acquire additional businesses or properties directly or
indirectly for the issuance of additional units. At our current level of cash
distributions, our general partner receives as incentive distributions
approximately 50% of any incremental increase in our distributions. As a result,
acquisitions funded though the issuance of units have in the past and may in the
future benefit our general partner more than our unitholders. We would not
expect to make an acquisition unless our general partner believes that the
transaction is likely to increase our cash distributions per unit to our
unitholders.
Unitholders have limited voting rights and control of management.
Our general partner manages and controls our activities and the
activities of our operating partnerships. Unitholders have no right to elect the
general partner or the directors of the general partner on an annual or other
ongoing basis. However, if the general partner resigns or is removed, its
successor may be elected by holders of a majority of the limited partnership
units. Unitholders may remove the general partner only by a vote of the holders
of at least 80% of the limited partnership units and only after receiving state
regulatory approvals required for the transfer of control of a public utility.
As a result, unitholders will have limited influence on matters affecting our
operations, and third parties may find it difficult to gain control of us or
influence our actions.
Our partnership agreement limits the liability of our general partner.
Our general partner owes duties of loyalty and care to the unitholders.
Provisions of our partnership agreement and the partnership agreements for each
of the operating partnerships, however, contain language limiting the liability
of the general partner to the unitholders for actions or omissions taken in good
faith. In addition, the partnership agreements grant broad rights of
indemnification to the general partner and its directors, officers, employees
and affiliates for acts taken in good faith in a manner believed to be in or not
opposed to our best interests.
Unitholders may not have limited liability in some circumstances.
The limitations on the liability of holders of limited partnership
interests for the obligations of a limited partnership have not been clearly
established in some states. If it were determined that we had been conducting
business in any state without compliance with the applicable limited partnership
statute, or that the unitholders as a group took any action pursuant to our
partnership agreement that constituted participation in the "control" of our
business, then the unitholders could be held liable under some circumstances for
our obligations to the same extent as a general partner.
TAX RISKS
Tax treatment is dependent on partnership status.
The availability to a unitholder of the federal income tax benefits of
an investment in the limited partnership units depends, in large part, on our
classification as a partnership for federal income tax purposes. Under current
law, in order to continue to be classified as a partnership for federal income
tax purposes, at least 90% of our gross income for each taxable year must be
"qualifying income" within the meaning of Section 7704 of the Internal Revenue
Code. Whether we will continue to be classified as a partnership in part depends
on our ability to meet this qualifying income test in the future.
If we were classified as a corporation for federal income tax purposes,
we would pay tax on our income at corporate rates (currently a 35% federal
rate), distributions would generally be taxed a second time in the hands of
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the unitholders as corporate distributions, and no income, gains, losses or
deductions would flow through to the unitholders. Our treatment as a taxable
entity would result in a material reduction in the anticipated cash flow and
after-tax return to the unitholders, and this would likely result in a
substantial reduction in the value of the limited partnership units.
We cannot assure you that the law will not be changed so as to cause us
to be treated as an association taxable as a corporation for federal income tax
purposes or otherwise to be subject to entity-level taxation.
Unitholders may have negative tax consequences if we default on our
debt or sell assets.
If we default on any of our debt, the lenders will have the right to
sue us for non-payment. Such an action could cause an investment loss and
negative tax consequences for unitholders through the realization of taxable
income by unitholders without a corresponding cash distribution. Likewise, if we
were to dispose of assets and realize a taxable gain while there is substantial
debt outstanding and proceeds of the sale were applied to the debt, unitholders
could have increased taxable income without a corresponding cash distribution.
Ownership of limited partnership units raises issues for tax-exempt
entities and other investors.
An investment in our limited partnership units by tax-exempt entities
(including employee benefit plans, individual retirement accounts, Keogh plans
and other retirement plans), regulated investment companies and foreign persons
raises issues unique to them. Virtually all of the income derived from limited
partnership units by a tax-exempt entity will be unrelated business taxable
income. This income will be taxable to the tax-exempt entity. Additionally, no
significant part of our gross income will be considered qualifying income for
purposes of determining whether a unitholder will qualify as a regulated
investment company. Further, a unitholder who is a nonresident alien, a foreign
corporation or other foreign person will be required to file federal income tax
returns and to pay taxes on his share of our taxable income because he will be
regarded as being engaged in a trade or business in the United States as a
result of his ownership of a limited partnership unit.
A unitholder's tax liability could exceed cash distributions on his
units.
A unitholder will be required to pay federal income taxes and, in some
cases, state and local income taxes on his allocable share of our income, even
if he receives no cash distributions from us. We cannot guarantee that a
unitholder will receive cash distributions equal to his allocable share of our
taxable income. Further, a unitholder will recognize a gain or loss equal to the
difference between the amount realized by him on the sale and his tax basis for
the limited partnership units sold. Both the amount realized by a unitholder on
a sale and his tax basis will include his share of our nonrecourse debt. All or
a portion of the consideration realized by the unitholder, whether or not it
represents gain, may be ordinary income. A unitholder will incur an expense to
the extent that his tax liability exceeds the amount distributed to him or the
amount he receives on the sale or other disposition of his limited partnership
units.
Because we are a registered tax shelter, a unitholder may face an
increased risk of an IRS audit resulting in taxes payable on our income as
well as income not related to us.
We are registered with the Secretary of the Treasury as a "tax
shelter." We cannot assure unitholders that we will not be audited by the IRS or
that adjustments to our income or losses will not be made. Any unitholder owning
less than a 1% profit interest in us has very limited rights to participate in
the income tax and audit process. Further, any adjustments in our tax returns
will lead to adjustments in the unitholders' tax returns and may lead to audits
of unitholders' tax returns and adjustments of items unrelated to us. Each
unitholder is responsible for any tax owed as the result of an examination of
his personal tax return.
We treat a purchaser of limited partnership units as having the same
tax benefits as the seller; the IRS may challenge this treatment which could
adversely affect the value of the limited partnership units.
Because we cannot match transferors and transferees of units and
because of other reasons, we have adopted depreciation and amortization
conventions that do not conform with all aspects of specified proposed and final
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Treasury Regulations. A successful IRS challenge to those conventions could
adversely affect the amount of tax benefits available to a purchaser of units
and could have a negative impact on the value of the units.
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TEPPCO PARTNERS
We are a publicly held Delaware limited partnership engaged in the
transportation of refined products and liquefied petroleum gases and the
transportation and marketing of crude oil and natural gas liquids. The following
chart shows our organization and ownership structure as of the date of this
prospectus before giving effect to this offering. Except in the following chart,
the ownership percentages referred to in this prospectus reflect the approximate
effective ownership interest in us and our subsidiary companies on a combined
basis.
[organizational chart]
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USE OF PROCEEDS
Except as otherwise provided in the applicable prospectus supplement,
we will use the net proceeds we receive from the sale of the securities to
acquire properties as suitable opportunities arise and to pay indebtedness
outstanding at the time.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the periods
indicated is as follows:
Three Months
Twelve Months Ended December 31, Ended March 31,
----------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
Ratio of Earnings to Fixed Charges.......... 2.26x 2.59x 2.70x 2.72x 3.06x 3.44x
For purposes of calculating the ratio of earnings to fixed charges:
o "fixed charges" represent interest expense (including amounts
capitalized), amortization of debt costs and the portion of
rental expense representing the interest factor; and
o "earnings" represent the aggregate of income from continuing
operations (before adjustment for minority interest) and
fixed charges, less capitalized interest.
DESCRIPTION OF DEBT SECURITIES
The debt securities will be:
o our direct unsecured general obligations;
o either senior debt securities or subordinated debt
securities; and
o issued under one or more separate indentures between us and a
trustee to be named in the prospectus supplement.
Senior debt securities will be issued under a Senior Indenture and
subordinated debt securities will be issued under a Subordinated Indenture.
Together the Senior Indentures and the Subordinated Indentures are called
Indentures.
We have summarized selected provisions of the Indentures below. The
forms of the Indentures have been filed as exhibits to the registration
statement. You should read the Indentures for provisions that may be important
to you, because the Indentures, and not this description, govern your rights as
a holder of debt securities. In the summary below, we have included references
to section numbers of the applicable Indentures so that you can easily locate
these provisions. Capitalized terms used in the summary have the meanings
specified in the Indentures.
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SPECIFIC TERMS OF EACH SERIES OF DEBT SECURITIES IN THE PROSPECTUS SUPPLEMENT
A prospectus supplement and a supplemental indenture relating to any
series of debt securities being offered will include specific terms relating to
the offering. These terms will include some or all of the following:
o the form and title of the debt securities;
o the total principal amount of the debt securities;
o the date or dates on which the debt securities may be issued;
o the portion of the principal amount which will be payable if
the maturity of the debt securities is accelerated;
o any right we may have to defer payments of interest by
extending the dates payments are due and whether interest on
those deferred amounts will be payable as well;
o the dates on which the principal and premium, if any, of the
debt securities will be payable;
o the interest rate which the debt securities will bear and the
interest payment dates for the debt securities;
o any optional redemption provisions;
o any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities;
o whether the debt securities will be issued in amounts other
than $1,000 each or multiples thereof;
o any changes to or additional Events of Default or covenants;
and
o any other terms of the debt securities.
NO INDENTURE LIMITATION ON AMOUNT OF DEBT SECURITIES
Neither of the Indentures limits the amount of debt securities that may
be issued under it. Each Indenture allows debt securities to be issued up to the
principal amount that may be authorized by us and may be in any currency or
currency unit designated by us.
REGISTRATION OF DEBT SECURITIES
Debt securities of a series may be issued in certificated or global
form.
NO PERSONAL LIABILITY OF GENERAL PARTNER
Our general partner and its directors, officers, employees and
stockholder will not have any liability for our obligations under the Indentures
or the debt securities. Each holder of debt securities by accepting a debt
security waives and releases our general partner and its directors, officers,
employees and stockholder from all such liability. The waiver and release are
part of the consideration for the issuance of the debt securities.
CONSOLIDATION, MERGER OR SALE
We will only consolidate or merge with or into any other partnership,
limited liability company or corporation or sell, lease or transfer all or
substantially all of our assets according to the terms and conditions of the
Indentures, which include the following requirements:
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o the remaining or acquiring partnership, limited liability
company or corporation is organized under the laws of the
United States, any state or the District of Columbia;
o the remaining or acquiring partnership, limited liability
company or corporation assumes our obligations under the
Indentures; and
o immediately after giving effect to the transaction no Default
or Event of Default exists.
The remaining or acquiring partnership, limited liability company or
corporation will be substituted for us in the Indentures with the same effect as
if it had been an original party to the Indenture. Thereafter, the successor may
exercise our rights and powers under any Indenture, in our name or in its own
name. Any act or proceeding required or permitted to be done by the general
partner's Board of Directors or any of the general partner's officers may be
done by the board of directors or officers of the successor. If we sell or
transfer all or substantially all of our assets, we will be released from all of
our liabilities and obligations under any Indenture and under the debt
securities. If we lease all or substantially all of our assets, we will not be
released from our obligations under the Indentures.
MODIFICATION OF INDENTURES
Under each Indenture, generally our rights and obligations and the
rights of the holders may be modified with the consent of the holders of a
majority in aggregate principal amount of the outstanding debt securities of
each series affected by the modification. No modification of the principal or
interest payment terms, and no modification reducing the percentage required for
modifications, is effective against any holder without its consent. We and the
Trustee may amend the Indentures without the consent of any holder of the debt
securities to make changes such as:
o correcting errors;
o providing for a successor trustee;
o providing security for any series of senior debt securities;
o adding covenants for the benefit of holders of debt
securities;
o qualifying the Indentures under the Trust Indenture Act; or
o establishing form and provisions relating to a particular
series of debt securities.
EVENTS OF DEFAULT
"Event of Default" when used in an Indenture, will mean any of the
following:
o failure to pay the principal of or any premium on any debt
security when due;
o failure to pay interest on any debt security when due, which
failure continues for 30 days;
o failure to perform any other covenant in the Indenture that
continues for 60 days after being given written notice by the
trustee or at the holders of at least 25% and a series
outstanding under the Indenture;
o specific events in bankruptcy, insolvency or reorganization of
the Partnership or its material subsidiaries; or
o any other Event of Default included in any Indenture or
supplemental indenture.
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An Event of Default for a particular series of debt securities does not
necessarily constitute an Event of Default for any other series of debt
securities issued under an Indenture. The Trustee may withhold notice to the
holders of debt securities of any default (except in the payment of principal or
interest) if it considers such withholding of notice to be in the interests of
the holders.
If an Event of Default for any series of debt securities occurs and
continues, the Trustee or the holders of at least 25% in aggregate principal
amount of the debt securities of that series may declare the entire principal of
all the debt securities of that series to be due and payable immediately. If
this happens, subject to specific conditions, the holders of a majority of the
aggregate principal amount of the debt securities of that series can void the
declaration.
Other than its duties in case of a default, a Trustee is not obligated
to exercise any of its rights or powers under any Indenture at the request,
order or direction of any holders, unless the holders offer the Trustee
reasonable indemnity. If they provide this reasonable indemnification, the
holders of a majority in principal amount of any series of debt securities may
direct the time, method and place of conducting any proceeding or any remedy
available to the Trustee, or exercising any power conferred upon the Trustee,
for any series of debt securities.
PAYMENT AND TRANSFER
Principal, interest and any premium on fully registered debt securities
will be paid at designated places. Payment will be made by check mailed to the
persons in whose names the debt securities are registered on days specified in
the Indentures or any prospectus supplement. Other forms of payment relating to
the debt securities will be paid at a place designated by us and specified in a
prospectus supplement.
Fully registered securities may be transferred or exchanged at the
corporate trust office of the Trustee or at any other office or agency
maintained by us for such purposes, without the payment of any service charge
except for any tax or governmental charge.
DISCHARGING OUR OBLIGATIONS
We may choose to either discharge our obligations on the debt
securities of any series in a legal defeasance, or to release ourselves from our
covenant restrictions on the debt securities of any series in a covenant
defeasance. We may do so at any time on the 91st day after we deposit with the
Trustee sufficient cash or government securities to pay the principal, interest,
any premium and any other sums due to the stated maturity date or a redemption
date of the debt securities of the series. If we choose the legal defeasance
option, the holders of the debt securities of the series will not be entitled to
the benefits of the Indenture except for registration of transfer and exchange
of debt securities, replacement of lost, stolen, destroyed or mutilated debt
securities, conversion or exchange of debt securities, sinking fund payments and
receipt of principal and interest on the original stated due dates or specified
redemption dates.
We may discharge our obligations under the Indentures or release
ourselves from covenant restrictions only if, in addition to making the deposit
with the Trustee, we meet some specific requirements. Among other things:
o we must deliver an opinion of our legal counsel that the
discharge will not result in holders having to recognize gain
or loss for federal income tax purposes and will be subject to
federal income tax on the same amount, in the same manner and
at the same time as if defeasance has not occurred. In the
case of legal defeasance, this opinion must be based on either
any published or private IRS letter ruling or a change in
federal tax law;
o we may not have a default on the debt securities discharged
on the date of deposit; and
o the discharge may not result in our becoming an investment
company in violation of the Investment Company Act of 1940.
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PROVISIONS ONLY IN THE SENIOR INDENTURE
General. The Senior Indenture contains provisions that limit our
ability to:
o put liens on our principal assets, and
o sell or transfer our principal assets and then lease back
those assets.
We describe below these provisions and some of the defined terms used
in them. In this section, references to the Partnership relate only to TEPPCO
Partners, L.P., the issuer of the debt securities, and not to our operating
subsidiaries.
Limitations on Liens. The Senior Indenture provides that the
Partnership will not, nor will it permit any of its Subsidiaries to, create,
assume or incur any lien upon any Principal Property (as defined below) or upon
any shares of capital stock of any Subsidiary (as defined below) of the
Partnership owning or leasing any Principal Property, whether owned or leased on
the date of the Senior Indenture or thereafter acquired, to secure any Debt (as
defined below) of the Partnership or any other person (other than the senior
debt securities issued thereunder), without in any such case making effective
provision whereby all the senior debt securities (together with, if the
Partnership shall so determine, any other Debt or obligations of the
Partnership) shall be secured equally and ratably with, or prior to, such Debt
so long as such debt shall be so secured. The following are excluded from this
restriction, and in the following list, the phrase "property or assets" also
includes shares of capital stock and other equity interests in and Subsidiary of
the Partnership:
(1) Permitted Liens (as defined below);
(2) any lien upon any property or assets created at the time of
acquisition of such property or assets by the Partnership or any
Subsidiary or within one year after such time to secure all or a
portion of the purchase price for such property or assets or
debt incurred to finance such purchase price, whether such debt
was incurred prior to, at the time of or within one year after
the date of such acquisition;
(3) any lien upon any property or assets to secure all or part of
the cost of construction, development, repair or improvements
thereon or to secure Debt incurred prior to, at the time of, or
within one year after, completion of such construction,
development, repair or improvements or the commencement of full
operations thereof (whichever is later), to provide funds for
any such purpose;
(4) any lien upon any current assets to secure Debt of the
Partnership or its Subsidiaries;
(5) any lien upon any property or assets existing thereon at the
time of the acquisition thereof by the Partnership or any of its
Subsidiaries (whether or not the obligations secured thereby are
assumed by the Partnership or any of its Subsidiaries);
(6) any lien upon any property or assets of a person existing
thereon at the time such person becomes a Subsidiary of the
Partnership by acquisition, merger or otherwise;
(7) any lien upon any property or assets of the Partnership or any
of its Subsidiaries in existence on the Issue Date or provided
for pursuant to agreements existing on the Issue Date;
(8) liens imposed by law or order as a result of any proceeding
before any court or regulatory body that is being contested in
good faith, and liens which secure a judgment or other
court-ordered award or settlement as to which the Partnership or
its applicable Subsidiary has not exhausted its appellate
rights;
(9) liens on capital stock of any Subsidiary of a Partnership which
owns an equity interest in a joint venture to secure Debt,
provided that the proceeds of such Debt which are received are
contributed or advanced to such joint venture;
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(10) any extension, renewal, refinancing, refunding or replacement,
or successive extensions, renewals, refinancings, refundings or
replacements, of liens, in whole or in part, referred to in
clauses (1) through (9) above, or any Debt secured thereby;;
(11) any lien resulting from the deposit of moneys or evidence of
indebtedness in trust for the purpose of defeasing debt of the
Partnership or any Subsidiary; or
(12) any lien upon any property or assets to secure Debt incurred by
the Partnership or any of its Subsidiaries, the proceeds of
which, in whole or part, were used to defease, in a legal
defeasance or a covenant defeasance, or obligations on any
series of Senior Debt Securities.
Notwithstanding the foregoing, under the Senior Indenture, the
Partnership may, and may permit any of its Subsidiaries to, create, assume or
incur, any lien upon any Principal Property or upon any shares of capital stock
of any of its Subsidiaries owning or leasing any Principal Property to secure
debt of the Partnership or any person other than the senior debt securities,
that is not excepted by clauses (1) through (12), inclusive, above without
securing the senior debt securities issued under the Senior Indenture, provided
that the aggregate principal amount of all Debt then outstanding secured by such
lien and all similar liens, together with all net sale proceeds from
Sale-Leaseback Transactions, excluding Sale-Leaseback Transactions permitted by
clauses (1) through (4), inclusive, of the first paragraph of the restriction on
sale-leasebacks covenant described below, do not exceed [10%] of Consolidated
Net Tangible Assets (as defined below).
"Consolidated Net Tangible Assets" means, at any date of determination,
the total amount of assets after deducting therefrom:
(1) all current liabilities excluding:
o any current liabilities that by their terms are extendable
or renewable at the option of the obligor thereon to a
time more than 12 months after the time as of which the
amount thereof is being computed; and
o current maturities of long-term debt;
and
(2) the value, net of any applicable reserves, of all
goodwill, trade names, trademarks, patents and other like
intangible assets, all as set forth, or on a pro-forma
basis would be set forth, on the consolidated balance
sheet of the Partnership and its consolidated Subsidiaries
for the Partnership's most recently completed fiscal
quarter, prepared in accordance with generally accepted
accounting principles.
"Debt" means an obligation of a Person to repay money borrowed and,
without duplication, any guarantee therefor,
"Issue Date" means with respect to any series of debt securities issued
under either Indenture the date on which debt securities of that series are
initially issued under that Indenture.
"Permitted Liens" means:
(1) liens upon rights-of-way for pipeline purposes;
(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics', repairmen's,
materialmen's, suppliers', carriers', landlords',
warehousemen's or similar lien incurred in the ordinary course
of business which is not yet due or which is being contested
in good faith by appropriate proceedings and any undetermined
lien which is incidental to construction, development,
improvement or repair;
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(3) the right reserved to, or vested in, any municipality or
public authority by the terms of any right, power, franchise,
grant, license, permit or by any provision of law, to purchase
or recapture or to designate a purchaser of, any property;
(4) liens of taxes and assessments which are:
o for the then current year,
o not at the time delinquent, or
o delinquent but the validity of which is being contested
at the time by the Partnership or any of its Subsidiaries
in good faith;
(5) liens of, or to secure performance of, leases;
(6) any lien upon, or deposits of, any assets in favor of any
surety company or clerk of court for the purpose of obtaining
indemnity or stay of judicial proceedings;
(7) any lien upon property or assets acquired or sold by the
Partnership or any of its Subsidiaries resulting from the
exercise of any rights arising out of defaults on receivables;
(8) any lien incurred in the ordinary course of business in
connection with workmen's compensation, unemployment
insurance, temporary disability, social security, retiree
health or similar laws or regulations or to secure obligations
imposed by statute or governmental regulations;
(9) any lien in favor of the Partnership or any of its
Subsidiaries;
(10) any lien in favor of the United States of America or any state
thereof, or any department, agency or instrumentality or
political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by the Partnership or any of its Subsidiaries for the
purpose of financing all or any part of the purchase price of,
or the cost of constructing, developing, repairing or
improving, the property or assets subject to such lien;
(11) any lien securing industrial development, pollution control or
similar revenue bonds;
(12) any lien securing debt of the Partnership or any of its
Subsidiaries, all or a portion of the net proceeds of which
are used, substantially concurrent with the funding thereof
(and for purposes of determining such "substantial
concurrence," taking into consideration, among other things,
required notices to be given to holders of outstanding
securities under the Senior Indenture (including the Senior
Debt Securities) in connection with such refunding,
refinancing or repurchase, and the required corresponding
durations thereof), to refinance, refund or repurchase all
outstanding securities under the Senior Indenture (including
the Senior Debt securities), including the amount of all
accrued interest thereon and reasonable fees and expenses and
premium, if any, incurred by the Partnership or any Subsidiary
in connection therewith;
(13) liens in favor of any Person to secure obligations under the
provisions of any letters of credit, bank guarantees, bonds or
surety obligations required or requested by any governmental
authority in connection with any contract or statute; or
(14) any lien upon or deposits of any assets to secure performance
of bids, trade contracts, leases or statutory obligations.
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"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust, other
entity, unincorporated organization or government or any agency or political
subdivision thereof.
"Principal Property" means, whether owned or leased on the Issue Date
or thereafter acquired:
(1) any pipeline assets of the Partnership or any of its
Subsidiaries, including any related facilities employed in the
transportation, distribution, storage or marketing of refined
petroleum products, that are located in the United States of
America or any territory or political subdivision thereof; and
(2) any processing or manufacturing plant or terminal owned or
leased by the Partnership or any of its Subsidiaries that is
located in the United States or any territory or political
subdivision thereof, except, in the case of either of the
foregoing clauses (1) or (2):
o any such assets consisting of inventories, furniture,
office fixtures vehicles and equipment used on, or useful
with, vehicles, and equipment, including data processing
equipment, and
o any such assets, plant or terminal which, in the good
faith opinion of the Board of Directors of our General
Partner, is not material in relation to the activities of
the Partnership or of the Partnership and its
Subsidiaries, taken as a whole.
"Sale-Leaseback Transaction" means the sale or transfer by the
Partnership or any of its Subsidiaries of any Principal Property to a Person
(other than the Partnership or any of its Subsidiaries) and the taking back by
the Partnership or any of its Subsidiaries, as the case may be, of a lease of
such Principal Property.
"Subsidiary" means:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of equity
interests entitled, without regard to the occurrence of any
contingency, to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or combination thereof; or
(2) in the case of a partnership, more than 50% of the partners'
equity interests, considering all partners' equity interests
as a single class is at the time owned or controlled, directly
or indirectly, by such Person or one or more of the other
Subsidiaries of such Person or combination thereof.
Limitations on Sale-Leasebacks. The Senior Indenture provides that the
Partnership will not, and will not permit any of its Subsidiaries to, engage in
a Sale-Leaseback Transaction, unless:
(1) such Sale-Leaseback Transaction occurs within one year from
the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, or development of, or substantial repair or
improvement on, or commencement of full operations of, such
Principal Property, whichever is later;
(2) the Sale-Leaseback Transaction involves a lease for a period,
including renewals, of not more than three years;
(3) the Attributable Indebtedness from that Sale-Leaseback
transaction is an amount equal to or less than the amount the
Partnership or such Subsidiary would be allowed to incur as
debt secured by a lien on the Principal Property subject
thereto without equally and ratably securing the senior debt
securities; or
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(4) the Partnership or such Subsidiary, within a one-year period
after such Sale-Leaseback Transaction, applies or causes to be
applied an amount not less than the net sale proceeds from
such Sale-Leaseback Transaction to (A) the prepayment,
repayment, redemption, reduction or retirement of any Pari
Passu Debt of the Partnership or any of its Subsidiaries, or
(B) the expenditure or expenditures for Principal Property
used or to be used in the ordinary course of business of the
Partnership or any of its Subsidiaries.
Notwithstanding the foregoing, under the Senior Indenture the Partnership may,
and may permit any of its Subsidiaries to, effect any Sale-Leaseback Transaction
that is not excepted by clauses (1) through (4), inclusive, of the above
paragraph, provided that the Attributable Indebtedness from such Sale-Leaseback
Transaction, together with the aggregate principal amount of then outstanding
Debt (other than the senior debt securities) secured by liens upon Principal
Properties not excepted by clauses (1) through (12), inclusive, of the first
paragraph of the limitation on liens covenant described above, do not exceed
[10%] of the Consolidated Net Tangible Assets.
"Attributable Indebtedness," when used with respect to any
Sale-Leaseback Transaction, means, as at the time of determination, the present
value, discounted at the rate set forth or implicit in the terms of the lease
included in such transaction, of the total obligations of the lessee for rental
payments, other than amounts required to be paid on account of taxes,
maintenance, repairs, insurance, assessments, utilities, operating and labor
costs and other items that do not constitute payments for property rights,
during the remaining term of the lease included in such Sale-Leaseback
Transaction, including any period for which such lease has been extended. In the
case of any lease that is terminable by the lessee upon the payment of a penalty
or other termination payment, such amount shall be the lesser of the amount
determined assuming termination upon the first date such lease may be
terminated, in which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered as required to
be paid under such lease subsequent to the first date upon which it may be so
terminated, or the amount determined assuming no such termination.
"Funded Debt" means all Debt maturing one year or more from the date of
the creation thereof, all Debt directly or indirectly renewable or extendible,
at the option of the debtor, by its terms or by the terms of any instrument or
agreement relating thereto, to a date one year or more from the date of the
creation thereof, and all Debt under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more.
"Pari Passu Debt" means any Funded Debt of the Partnership or any of
its Subsidiaries, whether outstanding on the Issue Date or thereafter created,
incurred or assumed, unless, in the case of any particular Funded Debt, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Funded Debt shall be subordinated in
right of payment to the Senior Debt Securities.
PROVISIONS ONLY IN SUBORDINATED INDENTURE
Subordination to Senior Debt. The subordinated debt securities will
rank junior in right of payment to all our Senior Debt. "Senior Debt" is defined
to include all Debt not expressly subordinate or junior in right of payment to
any other of our Debt.
Payment Blockages. The Subordinated Indenture provides that no payment
of principal, interest and any premium on the subordinated debt securities may
be made in the event:
o we or our property are involved in any voluntary or
involuntary liquidation or bankruptcy; or
o we fail to pay the principal, interest, any premium or any
other amounts on any Senior Debt when due; or
o we have a nonpayment default on any Senior Debt that imposes a
payment blockage on the subordinated debt securities for a
maximum of 179 days at any one time.
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BOOK ENTRY, DELIVERY AND FORM
The debt securities of a series may be issued in whole or in part in
the form of one or more global certificates that will be deposited with a
depositary identified in a prospectus supplement. Unless otherwise stated in any
prospectus supplement, The Depository Trust Company, New York, New York ("DTC")
will act as depositary. Book-entry notes of a series will be issued in the form
of a global note that will be deposited with DTC. This means that we will not
issue certificates to each holder. One global note will be issued to DTC who
will keep a computerized record of its participants (for example, your broker)
whose clients have purchased the notes. The participant will then keep a record
of its clients who purchased the notes. Unless it is exchanged in whole or in
part for a certificate note, a global note may not be transferred; except that
DTC, its nominees and their successors may transfer a global note as a whole to
one another.
Beneficial interests in global notes will be shown on, and transfers of
global notes will be made only through, records maintained by DTC and its
participants.
DTC has provided us the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered under the
provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds
securities that its participants ("Direct Participants") deposit with DTC. DTC
also records the settlement among Direct Participants of securities
transactions, such as transfers and pledges, in deposited securities through
computerized records for Direct Participant's accounts. This eliminates the need
to exchange certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and other organizations.
DTC's ability to perform its services properly dependent upon other
parties, including but not limited to:
o issuers and their agents;
o third party vendors from whom DTC licenses software and
hardware; and
o third party vendors on whom DTC relies for information or the
provisions of services, including telecommunication and
electrical utility service providers.
According to DTC, the foregoing information with respect to DTC has
been provided to the financial community for informational purposes only and is
not intended to serve as a representation, warranty or contract modification of
any kind.
DTC's book-entry system is also used by other organizations such as
securities brokers and dealers, banks and trust companies that work through a
Direct Participant. The rules that apply to DTC and its participants are on file
with the SEC.
DTC is owned by a number of its Direct Participants and by the New York
Stock Exchange, Inc., The American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc.
We will wire principal and interest payments to DTC's nominee. We and
the Trustee will treat DTC or its nominee as the owner of the global notes for
all purposes. Accordingly, we, the Trustee and any paying agent will have no
direct responsibility or liability to pay amounts due on the global notes to
owners of beneficial interests in the global notes.
It is DTC's current practice, upon receipt of any payment of principal
or interest, to credit Direct Participants' accounts on the payment date
according to their respective holdings of beneficial interests in the global
notes as shown on DTC's records. In addition, it is DTC's current practice to
assign any consenting or voting rights to Direct Participants whose accounts are
credited with notes on a record date, by using an omnibus proxy. Payments by
Direct Participants to owners of beneficial interests in the global notes, and
voting by Direct
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Participants, will be governed by the customary practices between the Direct
Participants and owners of beneficial interests, as is the case with notes held
for the account of customers registered in "street name." However, payments will
be the responsibility of the Direct Participants and not of DTC, the Trustee or
us.
Debt securities represented by a global note will be exchangeable for
certificated notes with the same terms in authorized denominations only if:
o DTC notifies us that it is unwilling or unable to continue as
depositary or if DTC ceases to be a clearing agency registered
under applicable law and a successor depositary is not
appointed by us within 90 days; or
o we determine not to require all of the Debt securities of a
series to be represented by a global note and notify the
Trustee of our decision.
THE TRUSTEE
We will name the trustee for each Indenture in the applicable
prospectus supplement. We anticipate that the same person initially will act as
trustee under the Senior Indenture and the Subordinated Indenture.
Resignation or Removal of Trustee. Under the Indentures and the Trust
Indenture Act of 1939, as amended, governing trustee conflicts of interest, any
uncured Event of Default with respect to any series of senior debt securities
will force the trustee to resign as trustee under either the Subordinated
Indenture or the Senior Indenture. Likewise, any uncured Event of Default with
respect to any series of subordinated debt securities will force the trustee to
resign as trustee under either the Senior Indenture or the Subordinated
Indenture. Any resignation will require the appointment of a successor trustee
under the applicable Indenture in accordance with its terms and conditions.
The trustee may resign or be removed by us with respect to one or more
series of debt securities and a successor trustee may be appointed to act with
respect to any such series. The holders of a majority in aggregate principal
amount of the debt securities of any series may remove the trustee with respect
to the debt securities of such series.
Limitations on Trustee if it is Our Creditor. Each Indenture contains
limitations on the right of the trustee thereunder, in the event that it becomes
a creditor of the Partnership, to obtain payment of claims in some cases, or to
realize on property received in respect of any such claim as security or
otherwise.
Certificates and Opinions to Be Furnished to Trustee. Each Indenture
provides that, in addition to other certificates or opinions that may be
specifically required by other provisions of an Indenture, every application by
us for action by the Trustee shall be accompanied by an officers' certificate
and an opinion of counsel stating that, in the opinion of the signers, all
conditions precedent to such action have been complied with.
Report to Holders of Debt Securities. The Trustee is required to submit
an annual report to the holders of the debt securities regarding, among other
things, the Trustee's eligibility to serve as such, the priority of the
Trustee's claims regarding advances made by it, and any action taken by the
Trustee materially affecting the debt securities.
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CASH DISTRIBUTIONS
GENERAL
We hold all of our assets and conduct all of our operations through our
subsidiaries. Our subsidiaries will generate all of our Cash from Operations.
The distribution of that cash from our subsidiaries to us is expected to be our
principal source of Available Cash from which we will make distributions.
"Available Cash" means generally, with respect to any calendar quarter, the sum
of all of our cash receipts plus net reductions to cash reserves less the sum of
all of our cash disbursements and net additions to cash reserves. Cash from
Operations, which is determined on a cumulative basis, generally means all cash
generated by our operations, after deducting related cash expenditures, reserves
and other items specified in our partnership agreement. It also includes the $20
million cash balance we had on the date of our initial public offering in 1990.
The full definitions of Available Cash and Cash from Operations are set forth in
"-Defined Terms."
Our subsidiary partnerships must, under their partnership agreements,
distribute 100% of their available cash. Available cash is defined in the
subsidiary partnership agreements in substantially the same manner as it is in
our partnership agreement. Our limited liability company subsidiaries have
adopted a dividend policy under which all available cash is to be distributed.
Accordingly, the following paragraphs describing distributions to unitholders
and the general partner, and the percentage interests in our distributions, are
stated on the basis of cash available for distribution by us and our
subsidiaries on a combined basis.
We will make distributions to unitholders and the general partner with
respect to each calendar quarter in an amount equal to 100% of our Available
Cash for the quarter, except in connection with our dissolution and liquidation.
Distributions of our Available Cash will be made 98% to unitholders and 2% to
the general partner, subject to the payment of incentive distributions to the
general partner if specified target levels of cash distributions to the
unitholders are achieved. The general partner's incentive distributions are
described below under "--Quarterly Distributions of Available
Cash--Distributions of Cash from Operations."
The following table sets forth the amount of distributions of Available
Cash constituting Cash from Operations effected with respect to the units for
the quarters in the periods shown.
Amount
Record Date Payment Date Per Unit(1)
----------- ------------ -----------
April 30, 1998 May 8, 1998 $ 0.425
July 31, 1998 August 7, 1998 0.450
October 30, 1998 November 6, 1998 0.450
January 29, 1999 February 5, 1999 0.450
April 30, 1999 May 7, 1999 0.450
July 30, 1999 August 6, 1999 0.475
October 29, 1999 November 5, 1999 0.475
January 31, 2000 February 4, 2000 0.475
April 28, 2000 May 5, 2000 0.500
- -----------------
(1) Restated to give effect to a 2-for-1 split of our outstanding
units paid to holders of record on August 10, 1998.
Cash distributions are characterized as either distributions of Cash
from Operations or Cash from Interim Capital Transactions. This distinction is
important because it affects the amount of cash that is distributed to the
unitholders relative to the general partner. See "-Quarterly Distributions of
Available Cash-Distributions of Cash from Operations" and "-Quarterly
Distributions of Available Cash-Distributions of Cash from Interim Capital
Transactions" below. We will ordinarily generate Cash from Interim Capital
Transactions by (1) borrowings and sales of debt securities other than for
working capital purposes, (2) sales of equity interests and (3) sales or other
dispositions of our assets.
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All Available Cash that we distribute on any date from any source will
be treated as if it were a distribution of Cash from Operations until the sum of
all Available Cash distributed as Cash from Operations to the unitholders and to
the general partner equals the aggregate amount of all Cash from Operations that
we generated since we commenced operations through the end of the prior calendar
quarter.
Any remaining Available Cash distributed on that date will be treated as if it
were a distribution of Cash from Interim Capital Transactions, except as
otherwise set forth below under the caption "--Distributions of Cash from
Interim Capital Transactions."
A more complete description of how we will distribute cash before we
commence to dissolve or liquidate is set forth below under "--Quarterly
Distributions of Available Cash." Distributions of cash in connection with our
dissolution and liquidation will be made as described below under
"--Distributions of Cash Upon Liquidation."
QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH
Distributions of Cash from Operations
Our distributions of Available Cash that constitutes Cash from
Operations in respect of any calendar quarter will be made in the following
priorities:
first, 98% to all unitholders pro rata and 2% to the general
partner until all unitholders have received distributions of $0.275 per
unit for such calendar quarter (the "First Target Distribution");
second, 85.87% to all unitholders pro rata and 14.13% to the
general partner until all unitholders have received distributions of
$0.325 per unit for such calendar quarter (the "Second Target
Distribution");
third, 75.77% to all unitholders pro rata and 24.23% to the
general partner until all unitholders have received distributions of
$0.450 per unit for such calendar quarter (the "Third Target
Distribution" and, together with the First Target Distribution and
Second Target Distribution, the "Target Distributions"); and
thereafter, 50.51% to all unitholders pro rata and 49.49% to the
general partner.
The following table illustrates the percentage allocation of
distributions of Available Cash that constitute Cash from Operations among the
unitholders and the general partner up to the various target distribution
levels.
Marginal Percentage Interest
in Distributions
----------------------------
Quarterly Amount: Unitholders General Partner
----------------- ----------- ----------------
up to $0.275 98.00% 2.00%
$0.276 to $0.325 85.87% 14.13%
$0.326 to $0.450 75.77% 24.23%
Thereafter 50.51% 49.49%
The Target Distributions are each subject to adjustment as described
below under "--Adjustment of the Target Distributions."
Distributions of Cash from Interim Capital Transactions
Distributions of Available Cash that constitutes Cash from Interim
Capital Transactions will be distributed 99% to all unitholders pro rata and 1%
to the general partner until a hypothetical holder of a unit acquired in our
initial public offering has received, with respect to that unit, distributions
of Available Cash constituting Cash from Interim Capital Transactions in an
amount per unit equal to $20.00. Thereafter, all Available Cash will be
distributed as if it were Cash from Operations. We have not distributed any
Available Cash that constitutes Cash from Interim Capital Transactions.
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ADJUSTMENT OF THE TARGET DISTRIBUTIONS
The Target Distributions will be proportionately adjusted in the event
of any combination or subdivision of units. In addition, if a distribution is
made of Available Cash constituting Cash from Interim Capital Transactions, the
Target Distributions will also be adjusted proportionately downward to equal the
product resulting from multiplying each of them by a fraction, of which the
numerator shall be the Unrecovered Capital immediately after giving effect to
such distribution and the denominator shall be the Unrecovered Capital
immediately before such distribution. For these purposes, "Unrecovered Capital"
means, at any time, an amount equal to the excess of (1) $10.00 over (2) the sum
of all distributions theretofore made in respect of a hypothetical unit offered
in our initial public offering out of Available Cash constituting Cash from
Interim Capital Transactions and all distributions in connection with our
liquidation.
The Target Distributions also may be adjusted if legislation is enacted
that causes us to be taxable as a corporation or to be treated as an association
taxable as a corporation for federal income tax purposes. In that event, the
Target Distributions for each quarter thereafter would be reduced to an amount
equal to the product of each of the Target Distributions multiplied by 1 minus
the sum of
(1) the maximum marginal federal corporate income tax rate plus
(2) any increase that results from such legislation in the effective
overall state and local income tax rate applicable to us for the
taxable year in which such quarter occurs after taking into
account the benefit of any deduction allowable for federal income
tax purposes with respect to the payment of state and local income
taxes.
DISTRIBUTIONS OF CASH UPON LIQUIDATION
We will dissolve on December 31, 2084, unless we are dissolved at an
earlier date pursuant to the terms of our partnership agreement. The proceeds of
our liquidation shall be applied first in accordance with the provisions of our
partnership agreement and applicable law to pay our creditors in the order of
priority provided by law. Thereafter, any remaining proceeds will be distributed
to unitholders and the general partner as set forth below. Upon our liquidation,
unitholders are entitled to share with the general partner in the remainder of
our assets. Their sharing will be in proportion to their capital account
balances, after giving effect to the following allocations of any gain or loss
realized from sales or other dispositions of assets following commencement of
our liquidation. Gain or loss will include any unrealized gain or loss
attributable to assets distributed in kind. Any such gain will be allocated as
follows:
first, to each partner having a deficit balance in his capital account in
the proportion that the deficit balance bears to the total deficit
balances in the capital accounts of all partners until each
partner has been allocated gain equal to that deficit balance;
second, 100% to the partners in accordance with their percentage interests
until the capital account in respect of each unit then outstanding
is equal to the Unrecovered Capital attributable to that unit.
third, 100% to the partners in accordance with their percentage interests
until the per-unit capital account in respect of each unit is
equal to the sum of
o the Unrecovered Capital attributable to that unit plus
o any cumulative arrearages in the payment of the Minimum
Quarterly Distribution in respect of that unit for any
quarter after December 31, 1994;
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fourth, 85.87% to all unitholders pro rata and 14.13% to the general
partner until the capital account of each outstanding unit is
equal to the sum of
o the Unrecovered Capital with respect to that unit plus
o any cumulative arrearages in the payment of the Minimum
Quarterly Distribution in respect of that unit for any
quarter after December 31, 1994 plus
o the excess of
(a) the First Target Distribution over the Minimum
Quarterly Distribution for each quarter of our
existence less
(b) the amount of any distributions of Cash from
Operations in excess of the Minimum Quarterly
Distribution which were distributed 85.87% to the
unitholders pro rata and 14.13% to the general
partner for each quarter of our existence ((a) less
(b) being the "Target Amount");
fifth, 75.77% to all unitholders pro rata and 24.23% to the general
partner, until the capital account of each outstanding unit is
equal to the sum of
o the Unrecovered Capital with respect to that unit plus
o the Target Amount plus
o the excess of
(a) the Second Target Distribution over the First Target
Distribution for each quarter of our existence less
(b) the amount of any distributions of Cash from
Operations in excess of the First Target Distribution
which were distributed 75.77% to the unitholders pro
rata and 24.23% to the general partner for each
quarter of our existence ((a) less (b) being the
"Second Target Amount");
thereafter, any then-remaining gain would be allocated 50.51% to all
unitholders pro rata and 49.49% to the general partner.
For these purposes, "Unrecovered Capital" means, at any time with respect to
any units,
o $10, less
o the sum of
(a) any distributions of Available Cash constituting Cash from
Interim Capital Transactions, and
(b) any distributions of cash and the fair value of any assets
distributed in kind in connection with our dissolution and
liquidation theretofore made in respect of a unit that was
sold in the initial offering of the units.
Any loss realized from sales or other dispositions of assets following
commencement of our dissolution and liquidation, including any unrealized gain
or loss attributable to assets distributed in kind, will be allocated to the
general partner and the unitholders: first, in proportion to the positive
balances in the partners' capital accounts until all balances are reduced to
zero; and second, to the general partner.
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DEFINED TERMS
"Available Cash" means, with respect to any calendar quarter, the sum
of:
o all our cash receipts during that quarter from all sources,
including distributions of cash received from subsidiaries,
plus
o any reduction in reserves established in prior quarters,
less the sum of
o all our cash disbursements during that quarter, including,
disbursements for taxes on us as an entity, debt service and
capital expenditures,
o any reserves established in that quarter in such amounts as
the general partner shall determine to be necessary or
appropriate in its reasonable discretion
o to provide for the proper conduct of our business, including
reserves for future rate refunds or capital expenditures, or
o to provide funds for distributions with respect to any of the
next four calendar quarters, and
o any other reserves established in that quarter in such amounts
as the general partner determines in its reasonable discretion
to be necessary because the distribution of such amounts would
be prohibited by applicable law or by any loan agreement,
security agreement, mortgage, debt instrument or other
agreement or obligation to which we are a party or by which we
are bound or our assets are subject.
Taxes that we pay on behalf of, or amounts withheld with respect to,
less than all of the unitholders shall not be considered cash disbursements by
us that reduce "Available Cash" but will be deemed to be a distribution of
Available Cash to those partners. Alternatively, in the discretion of our
general partner, those taxes that pertain to all partners may be considered to
be cash disbursements which reduce Available Cash and which will not be deemed
to be a distribution of Available Cash to the partners. Notwithstanding the
foregoing, "Available Cash" will not include any cash receipts or reductions in
reserves or take into account any disbursements made or reserves established
after commencement of our dissolution and liquidation.
"Cash from Interim Capital Transactions" means all cash distributed
other than Cash from Operations.
"Cash from Operations" means, at any date but before the commencement
of our dissolution and liquidation, on a cumulative basis,
o $20 million plus
o all our cash receipts during the period since the commencement of
our operations through that date, excluding any cash proceeds from
any Interim Capital Transactions or Termination Capital
Transactions,
less the sum of
(a) all our cash operating expenditures during that period including,
without limitation, taxes imposed on us as an entity,
(b) all our cash debt service payments during that period other than
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o payments or prepayments of principal and premium required by
reason of loan agreements or by lenders in connection with
sales or other dispositions of assets all cash distributed
other than Cash from Operations, and
o payments or prepayments of principal and premium made in
connection with refinancings or refundings of indebtedness,
provided that any payment or prepayment or principal, whether
or not then due, shall be determined at the election and in
the discretion of the general partner, to be refunded or
refinanced by any indebtedness incurred or to be incurred by
us simultaneously with or within 180 days before or after that
payment or prepayment to the extent of the principal amount of
such indebtedness so incurred,
(c) all our cash capital expenditures during that period other than
(1) cash capital expenditures made to increase the throughput or
deliverable capacity or terminaling capacity of our assets,
taken as a whole, from the throughput or deliverable capacity
or terminaling capacity existing immediately before those
capital expenditures and
(2) cash expenditures made in payment of transaction expenses
relating to Interim Capital Transactions,
(d) an amount equal to the incremental revenues collected pursuant to
a rate increase that are subject to possible refund,
(e) any reserves outstanding as of that date that the general partner
determines in its reasonable discretion to be necessary or
appropriate to provide for the future cash payment of items of the
type referred to in (a) through (c) above, and
(f) any reserves that the general partner determines to be necessary
or appropriate in its reasonable discretion to provide funds for
distributions with respect to any one or more of the next four
calendar quarters, all as determined on a consolidated basis and
after elimination of intercompany items and the general partner's
interest in our subsidiaries.
"Interim Capital Transactions" means our
o borrowings and sales of debt securities other than for working
capital purposes and other than for items purchased on open
account in the ordinary course of business,
o sales of partnership interests, and
o sales or other voluntary or involuntary dispositions of any assets
other than
o sales or other dispositions of inventory in the ordinary
course of business,
o sales or other dispositions of other current assets
including receivables and accounts or
o sales or other dispositions of assets as a part of normal
retirements or replacements,
in each case before the commencement of our dissolution and liquidation.
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TAX CONSIDERATIONS
This section was prepared by Fulbright & Jaworski L.L.P., our tax
counsel, and addresses all material income tax consequences to individuals who
are citizens or residents of the United States. Unless otherwise noted, this
section is our tax counsel's opinion with respect to the matters set forth
except for statements of fact and the representations and estimates of the
results of future operations of the general partner included in such discussion
as to which no opinion is expressed. Our tax counsel bases its opinions on its
interpretation of the Internal Revenue Code of 1986, as amended and Treasury
Regulations issued thereunder, judicial decisions, the facts set forth in this
prospectus and factual representations made by the general partner. Our tax
counsel's opinions are subject to both the accuracy of such facts and the
continued applicability of such legislative, administrative and judicial
authorities, all of which authorities are subject to changes and interpretations
that may or may not be retroactively applied.
We have not requested a ruling from the IRS with respect to our
classification as a partnership for federal income tax purposes or any other
matter affecting us. Accordingly, the IRS may adopt positions that differ from
our tax counsel's conclusions expressed herein. We may need to resort to
administrative or court proceedings to sustain some or all of our tax counsel's
conclusions, and some or all of these conclusions ultimately may not be
sustained. The costs of any contest with the IRS will be borne directly or
indirectly by some or all of the unitholders and the general partner.
Furthermore, neither we nor counsel can assure you that the tax consequences of
investing in units will not be significantly modified by future legislation or
administrative changes or court decisions. Any such modifications may or may not
be retroactively applied.
It is impractical to comment on all aspects of federal, state, local
and foreign laws that may affect the tax consequences of the transactions
contemplated by the sale of units made by this prospectus and of an investment
in such units. Moreover, taxpayers such as tax-exempt entities, regulated
investment companies and insurance companies may be subject to rules and
regulations unique to their status or form of organization in addition to those
rules and regulations described herein. A prospective unitholder may wish to
consult his own tax advisor about the tax consequences peculiar to his
circumstances.
PARTNERSHIP STATUS
A partnership is not a taxable entity and incurs no federal income tax
liability. Each partner must take into account in computing his federal income
tax liability his allocable share of our income, gains, losses, deductions and
credits, regardless of whether cash distributions are made. Distributions by a
partnership to a partner are generally not taxable unless the distribution
exceeds the partner's adjusted basis in his partnership interest.
Our tax counsel is of the opinion that under present law, and subject
to the conditions and qualifications set forth below, for federal income tax
purposes both we and each of our subsidiary partnerships will be treated as a
partnership. Our tax counsel's opinion as to our partnership status and that of
our subsidiary partnerships is based principally on its interpretation of the
factors set forth in Treasury Regulations under Sections 7701 and 7704 of the
Internal Revenue Code, its interpretation of Section 7704 of the Internal
Revenue Code, and upon representations made by the general partner.
The Treasury Regulations under Section 7701 pertaining to the
classification of entities such as us as partnerships or corporations for
federal income tax purposes were significantly revised effective January 1,
1997. Pursuant to these revised Treasury Regulations, known as the
"check-the-box" regulations, entities organized as limited partnerships under
domestic partnership statutes are treated as partnerships for federal income tax
purposes unless they elect to be treated as corporations. Domestic limited
partnerships in existence on January 1, 1997, are deemed to have elected their
classification under the prior Treasury Regulations on December 31, 1996, unless
they formally elect another form of classification. We have not filed an
election to be treated as a corporation under the "check-the-box" regulations,
and our tax counsel has rendered its opinion that we and our subsidiary
partnerships were treated as partnerships on December 31, 1996, under the prior
Treasury Regulations and continue to be so treated.
Notwithstanding the "check-the-box" regulations under Section 7701 of
the Internal Revenue Code, Section 7704 of the Internal Revenue Code provides
that publicly traded partnerships shall, as a general rule, be
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taxed as corporations despite the fact that they are not classified as
corporations under Section 7701. Section 7704 of the Internal Revenue Code
provides an exception to this general rule (the "Natural Resource Exception")
for a publicly traded partnership if 90% or more of its gross income for every
taxable year consists of "qualifying income." "Qualifying income" includes
income and gains derived from the exploration, development, mining or
production, processing, refining, transportation or marketing of any mineral or
natural resource. Transportation includes pipelines transporting gas, oil or
products thereof. Other types of "qualifying income" include interest,
dividends, real property rents, gains from the sale of real property, including
real property held by one considered to be a "dealer" in such property, and
gains from the sale or other disposition of capital assets held for the
production of income that otherwise constitutes "qualifying income."
Our pipelines, like other pipeline systems transporting petroleum
products, include ancillary storage facilities which are an integral component
of the system and are necessary for efficient and competitive operation. The
general partner advised our tax counsel that we provide storage of petroleum
products before transportation through our pipelines or after transportation
through our pipelines while awaiting delivery to our customers. Based on these
facts, and on statements made by Congressman Rostenkowski and Senator Bentsen on
the floors of the House of Representatives and Senate, respectively, indicating
that storage fees can be "qualifying income" for purposes of qualifying for the
Natural Resource Exception, our tax counsel is of the opinion that any fees
charged for such storage facilities are "qualifying income."
If we fail to meet the Natural Resource Exception to the general rule
of Section 7704 of the Internal Revenue Code, we will be treated as if we had
transferred all of our assets, subject to liabilities, to a newly formed
corporation on the first day of the year in which we fail to meet the Natural
Resource Exception in return for stock in such corporation, and then distributed
such stock to the unitholders in liquidation of their units. However, this
treatment will not apply if the IRS determines that the failure is inadvertent
and if it is cured within a reasonable time after its discovery.
In rendering its opinion as to periods before 1997 that we and our
subsidiary partnerships were each treated as a partnership for federal income
tax purposes, our tax counsel has relied on the following factual
representations that the general partner made about us and our subsidiary
partnerships:
o As to us and each of our subsidiary partnerships, the general
partner at all times while acting as general partner had a net
worth of at least $5.0 million computed by excluding any net worth
attributable to its interest in, and accounts and notes receivable
from, or payable to, us or any limited partnership in which it is
a general partner.
o Each such partnership operated and will continue to operate in
accordance with applicable state partnership statutes, the
partnership agreements and the statements and representations made
in this prospectus.
o Except as otherwise required by Section 704(c) of the Internal
Revenue Code, the general partner of each partnership had at least
a 1% interest in each material item of income, gain, loss,
deduction and credit of its respective partnership.
o For each taxable year, we derived and will continue to derive less
than 10% our aggregate gross income from sources other than
"qualifying income" as defined above.
o Our general partner and the general partner of each of our
subsidiary partnerships acted independently of the limited
partners of such partnerships.
Our tax counsel has rendered its opinion as to taxable years beginning after
1996 relying on the accuracy of the second and fourth representations listed
above together with the further representation by the general partner that
neither we nor any of our subsidiary partnerships has or will elect to be
treated as a corporation pursuant to the Section 7701 "check-the-box" Treasury
Regulations.
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Our tax counsel's opinion as to the classification of us and our
subsidiary partnerships is also based on the assumption that if the general
partner ceases to be a general partner, any successor general partner will make
and satisfy such representations. In this regard, if the general partner were to
withdraw as a general partner at a time when there is no successor general
partner, or if the successor general partner could not satisfy the above
representations, then the IRS might attempt to treat us or a subsidiary
partnership as an association taxable as a corporation.
If we or a subsidiary partnership were taxable as a corporation or
treated as an association taxable as a corporation in any taxable year, its
income, gains, losses, deductions and credits would be reflected only on its tax
return rather than being passed through to its partners and its net income would
be taxed at corporate rates. Losses that we realized would not flow through to
the unitholders. In addition, any distribution made to a unitholder would be
treated as either
o dividend income to the extent of our current or accumulated
earnings and profits,
o in the absence of earnings and profits, as a nontaxable return of
capital to the extent of the unitholder's basis in his units, or
o taxable capital gain, after the unitholder's basis in the units is
reduced to zero.
Accordingly, treatment of either us or a subsidiary partnership as a corporation
would probably result in a material reduction in a unitholder's cash flow and
after-tax return.
If legislation is enacted which causes us to become taxable as a
corporation or to be treated as an association taxable as a corporation for
federal income tax purposes, the Minimum Quarterly Distribution and the Target
Distributions for each quarter thereafter would be reduced to an amount equal to
the product of
(1) the otherwise applicable Minimum Quarterly Distribution and Target
Distributions, multiplied by
(2) 1 minus the sum of
(x) the maximum marginal federal income tax rate, expressed as a
fraction, and
(y) the effective overall state and local income tax rate,
expressed as a fraction, applicable to us for the taxable year
in which such quarter occurs.
The discussion below is based on the assumption that we and our
subsidiary partnerships each will be classified as a partnership for federal
income tax purposes. If that assumption proves to be erroneous, most, if not
all, of the tax consequences described below would not be applicable to
unitholders.
PARTNER STATUS
Unitholders who have become our limited partners pursuant to the
provisions of our partnership agreement will be treated as our partners for
federal income tax purposes.
The IRS has ruled that assignees of partnership interests who have not
been admitted to a partnership as partners, but who have the capacity to
exercise substantial dominion and control over the assigned partnership
interests, will be treated as partners for federal income tax purposes. On the
basis of such ruling, except as otherwise described herein, (1) assignees who
have executed and delivered transfer applications, and are awaiting admission as
limited partners, and (2) unitholders whose units are held in street name or by
another nominee will be treated as partners for federal income tax purposes. As
such ruling does not extend, on its facts, to assignees of units who are
entitled to execute and deliver transfer applications and thereby become
entitled to direct the exercise of attendant rights, but who fail to execute and
deliver transfer applications, the tax status of such unitholders is unclear and
our tax counsel expresses no opinion with respect to the status of such
assignees. Such unitholders should consult their own tax advisors with respect
to their status as partners for federal income tax purposes. A purchaser or
other
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transferee of units who does not execute and deliver a transfer application may
not receive federal income tax information or reports furnished to record
holders of units unless the units are held in a nominee or street name account
and the nominee or broker executes and delivers a transfer application with
respect to such units.
A beneficial owner of units whose units have been transferred to a
short seller to complete a short sale would appear to lose his status as a
partner with respect to such units for federal income tax purposes. These
holders should consult with their own tax advisors with respect to their status
as partners for federal income tax purposes. See "--Tax Treatment of
Operations--Treatment of Short Sales and Constructive Sales of Appreciated
Financial Positions."
TAX CONSEQUENCES OF UNIT OWNERSHIP
Flow-through of Taxable Income
Our income, gains, losses, deductions and credits will consist of our
allocable share of the income, gains, losses, deductions and credits of our
partnership subsidiaries and dividends from our corporate subsidiaries. Since we
are not a taxable entity and incur no federal income tax liability, each
unitholder will be required to take into account his allocable share of our
income, gain, loss and deductions for our taxable year ending within his taxable
year without regard to whether corresponding cash distributions are received by
unitholders. Consequently, a unitholder may be allocated income from us although
he has not received a cash distribution in respect of such income.
Treatment of Partnership Distributions
Our distributions generally will not be taxable to a unitholder for
federal income tax purposes to the extent of his basis in his units immediately
before the distribution. Cash distributions in excess of such basis generally
will be considered to be gain from the sale or exchange of the units, taxable in
accordance with the rules described under "--Disposition of Units." Any
reduction in a unitholder's share of our liabilities included in his basis in
his units will be treated as a distribution of cash to such unitholder. See
"--Basis of Units." If a unitholder's percentage interest decreases because we
offer additional units, then such unitholder's share of nonrecourse liabilities
will decrease, and this will result in a corresponding deemed distribution of
cash.
A non-pro rata distribution of money or property may result in ordinary
income to a unitholder, regardless of his basis in his units, if such
distribution reduces the unitholder's share of our "unrealized receivables,"
including depreciation recapture, and/or "inventory items" (both as defined in
Section 751 of the Internal Revenue Code) (collectively, "Section 751 Assets").
To that extent, the unitholder will be treated as having received his
proportionate share of the Section 751 Assets and having exchanged such assets
with us in return for the non-pro rata portion of the actual distribution made
to him. This latter deemed exchange will generally result in the unitholder's
realization of ordinary income under Section 751(b) of the Internal Revenue
Code. Such income will equal the excess of (1) the non-pro rata portion of such
distribution over (2) the unitholder's basis for the share of such Section 751
Assets deemed relinquished in the exchange.
Basis of Units
In general, a unitholder's tax basis for his units initially will be
equal to the amount paid for the units. A unitholder's tax basis will be
increased by
o his share of our taxable income and
o his share of our liabilities that are without recourse to any
Partner ("nonrecourse liabilities"), if any.
A unitholder's basis in his interest will be decreased, but not below zero, by
o his share of our distributions,
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o his share of decreases in our nonrecourse liabilities,
o his share of our losses and
o his share of our nondeductible expenditures that are not required
to be capitalized.
A unitholder's share of nonrecourse liabilities will generally be based
on his share of our profits. See "--Disposition of Units--Aggregate Tax Basis
for Units."
Limitations on Deductibility of Losses
The passive loss limitations contained in Section 469 of the Internal
Revenue Code generally provide that individuals, estates, trusts and closely
held C corporations and personal service corporations can only deduct losses
from passive activities that are not in excess of the taxpayer's income from
such passive activities or investments. Generally, passive activities are those
in which the taxpayer does not materially participate. The passive loss
limitations are to be applied separately with respect to each publicly traded
partnership. Consequently, losses that we generate, if any, will only be
available to offset future income that we generate and will not be available to
offset income from other passive activities or investments, including other
publicly traded partnerships, or salary or active business income. Passive
losses that are not deductible because they exceed the unitholder's share of our
income may be deducted in full when the unitholder disposes of his entire
investment in us to an unrelated party in a fully taxable transaction. The
passive activity loss rules are applied after other applicable limitations on
deductions such as the at risk rules and the basis limitation.
A unitholder's share of our net income may be offset by any suspended
passive losses we may have, but may not be offset by any other current or
carryover losses from other passive activities, including those attributable to
other publicly traded partnerships. According to an IRS announcement, Treasury
Regulations will be issued that characterize net passive income from a publicly
traded partnership as investment income for purposes of deducting investment
interest.
In addition to the foregoing limitations, a unitholder may not deduct
from taxable income his share of our losses, if any, to the extent that such
losses exceed the lesser of (1) the adjusted tax basis of his units at the end
of our taxable year in which the loss occurs and (2) the amount for which the
unitholder is considered "at risk" under Section 465 of the Internal Revenue
Code at the end of that year. In general, a unitholder will initially be "at
risk" to the extent of the purchase price of his units. A unitholder's "at risk"
amount increases or decreases as his adjusted basis in his units increases or
decreases, except that our nonrecourse liabilities, or increases or decreases in
such liabilities, generally do not affect his "at risk" amount. Losses
disallowed to a unitholder as a result of these rules can be carried forward and
will be allowable to the unitholder to the extent that his adjusted basis or "at
risk" amount, whichever was the limiting factor, is increased in a subsequent
year. The "at risk" rules apply to an individual unitholder, a shareholder of a
corporate unitholder that is an S corporation and a corporate unitholder if 50%
or more of the value of the corporation's stock is owned directly or indirectly
by five or fewer individuals.
Limitations on Interest Deductions
The deductibility of a non-corporate taxpayer's "investment interest
expense" is generally limited to the amount of such taxpayer's "net investment
income." A unitholder's net passive income from us will be treated as investment
income for this purpose. In addition, a unitholder's share of our portfolio
income will be treated as investment income. Investment interest expense
includes
o interest on indebtedness properly allocable to property held for
investment,
o a partnership's interest expense attributed to portfolio income
and
o the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income.
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The computation of a unitholder's investment interest expense will take into
account interest on any margin account borrowing or other loan incurred to
purchase or carry a unit to the extent attributable to our portfolio income. Net
investment income includes gross income from property held for investment and
amounts treated as portfolio income pursuant to the passive loss rules less
deductible expense other than interest directly connected with the production of
investment income, but generally does not include gains attributable to the
disposition of property held for investment.
ALLOCATION OF PARTNERSHIP INCOME, GAIN, LOSS AND DEDUCTION
Our partnership agreement requires that a capital account be maintained
for each unitholder, that the capital accounts generally be maintained in
accordance with the tax accounting principles set forth in applicable Treasury
Regulations under Section 704 of the Internal Revenue Code and that all
allocations to a unitholder be reflected by appropriate increases or decreases
in his capital account. Distributions upon our liquidation generally are to be
made in accordance with positive capital account balances.
In general, if we have a net profit, items of income, gain, loss and
deduction will be allocated among the general partner and the unitholders in
accordance with their respective interests in us. If we have a net loss, items
of income, gain, loss and deduction will generally be allocated (1) first, to
the general partner and the unitholders in accordance with their respective
interests in us to the extent of their positive capital accounts, and (2)
second, to the general partner.
Notwithstanding the above, as required by Section 704(c) of the
Internal Revenue Code, some items of income, gain, loss and deduction will be
allocated to account for the difference between the tax basis and fair market
value of property contributed to us ("Contributed Property"). In addition, items
of recapture income will be allocated to the extent possible to the partner
allocated the deduction giving rise to the treatment of such gain as recapture
income in order to minimize the recognition of ordinary income by some
unitholders. Finally, although we do not expect that our operations will result
in the creation of negative capital accounts, if negative capital accounts
nevertheless result, items of income and gain will be allocated in an amount and
manner sufficient to eliminate the negative balances as quickly as possible.
Under Section 704(c) of the Internal Revenue Code, the partners in a
partnership cannot be allocated more depreciation, gain or loss than the total
amount of any such item recognized by that partnership in a particular taxable
period (the "ceiling limitation"). To the extent the ceiling limitation is or
becomes applicable, our partnership agreement will require that items of income
and deduction be allocated in a way designed to effectively "cure" this problem
and eliminate the impact of the ceiling limitation. Such allocations will not
have substantial economic effect because they will not be reflected in the
capital accounts of the unitholders. Treasury Regulations under Section 704(c)
of the Internal Revenue Code permit a partnership to make reasonable curative
allocations to reduce or eliminate disparities between the tax basis and value
attributable to Contributed Properties. Recently proposed Treasury Regulations
that are apparently intended to modify existing laws to make interests in
partnerships generally fungible may, in fact, require Section 704(c) methods
that are unavailable to many publicly traded partnerships such as us. See
"--Uniformity of Units."
Because of the uncertainty created by the proposed Treasury Regulations
referred to in the preceding paragraph, our tax counsel is unable to opine that
the Section 704(c) allocations under our partnership agreement will be given
effect for federal income tax purposes in determining a partner's distributive
share of an item of income, gain, loss or deduction.
UNIFORMITY OF UNITS
There can arise a lack of uniformity in the intrinsic tax
characteristics of units sold pursuant to this offering and units subsequently
converted to units or units that we issue before or after this offering. Such
uniformity is often referred to as "fungibility." Without such uniformity,
compliance with several federal income tax requirements, both statutory and
regulatory, could be substantially diminished. In addition, such non-uniformity
could have a negative impact on the ability of a unitholder to dispose of his
interest in us. Such lack of uniformity can result from the application of
Treasury Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
1.197-2(g)(3) to
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our Section 743(b) adjustments or the determination that our Section 704(c)
curative allocations to prevent the application of "ceiling" limitations on our
ability to make allocations to eliminate disparities between the tax basis and
value attributable to Contributed Properties are unreasonable. Depreciation
conventions may be adopted or items of income and deduction may be specially
allocated in a manner that is intended to preserve the uniformity of intrinsic
tax characteristics among all units, despite the application of either Treasury
Regulation Section 1.167(c)-1(a)(6) and Proposed Treasury Regulation
1.197-2(g)(3) or the "ceiling" limitations to Contributed Properties. Any such
special allocation will be made solely for federal income tax purposes.
In January 1998, the IRS proposed new Regulations to update and clarify
the Treasury Regulations that impact our ability to maintain fungibility of
units. The IRS issued these Regulations in final form in December 1999. The
preamble of the proposed Regulations states that an intended result of the
Regulations is that "interests in a partnership will generally be fungible";
however, both the proposed Regulations and the final Regulations would provide
fungibility only for interests in partnerships that use the remedial method in
calculating their Section 704(c) allocations. Unfortunately, the remedial
allocation method can be adopted only with respect to property contributed to a
partnership on and after December 21, 1993, and a significant part of our assets
were acquired by contribution to us before that date. The General Partner has
adopted an accounting convention with respect to property contributed to us
before December 21, 1993, to preserve the uniformity of units despite its
inconsistency with the proposed and final Regulations under Section 743. In the
event the IRS disallows the use of our Section 704(c) curative allocations or
the depreciation and amortization conventions that we use in our Section 743(b)
adjustments, some or all of the adverse consequences described in the preceding
paragraph could result. See "--Allocation of Partnership Income, Gain, Loss and
Deduction" and "--Tax Treatment of Operations--Section 754 Election."
TAX TREATMENT OF OPERATIONS
Income and Deductions in General
We will not pay any federal income tax. Instead, each unitholder must
report on his income tax return his allocable share of our income, gains, losses
and deductions. Such items must be included on the unitholder's federal income
tax return without regard to whether we make a distribution of cash to the
unitholder. A unitholder is generally entitled to offset his allocable share of
our passive income with his allocable share of losses that we generate, if any.
See "--Tax Consequences of Unit Ownership--Limitations on Deductibility of
Losses."
A unitholder who owns units as of the first day of each month during a
quarter and who disposes of such units before the record date for a distribution
with respect to such quarter will be allocated items of our income and gain
attributable to the months in such quarter during which such units were owned
but will not be entitled to receive such cash distribution.
Accounting Method and Taxable Year
We use the calendar year as our taxable year and adopted the accrual
method of accounting for federal income tax purposes.
Depreciation Method
We elected to use depreciation methods that resulted in the largest
depreciation deductions in our early years. We may depreciate property that we
later acquire or construct using accelerated depreciation methods permitted by
Section 168 of the Internal Revenue Code.
Section 754 Election
We and our operating partnerships have each made the election permitted
by Section 754 of the Internal Revenue Code. Such election will generally permit
a purchaser of units to adjust his share of the basis in our properties pursuant
to Section 743(b) of the Internal Revenue Code. Such elections are irrevocable
without the consent of the IRS. The Section 743(b) adjustment is attributed
solely to a purchaser of units and is not added to the common basis of our
assets. Thus, for purposes of determining income, gains, losses and deductions,
the purchaser
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will have a special basis for those of our properties that are adjusted under
Section 743(b) of the Internal Revenue Code. The amount of the adjustment under
Section 743(b) is the difference between the unitholder's adjusted federal
income tax basis in his units and the unitholder's proportionate share of the
common basis of our assets attributable to the units pursuant to Section 743.
The aggregate amount of the adjustment computed under Section 743(b) is then
allocated among our various assets pursuant to the rules of Section 755. The
Section 743(b) adjustment provides the purchaser of units with the equivalent of
an adjusted tax basis in his share of our properties equal to the fair market
value of such share.
Treasury Regulations under Section 743 of the Internal Revenue Code
generally require the Section 743(b) adjustment attributable to recovery
property to be depreciated as if the total amount of such adjustment were
attributable to newly acquired recovery property placed in service when the
transfer occurs. The proposed regulations under Section 197 indicate that the
Section 743(b) adjustment attributable to an amortizable Section 197 intangible
should be similarly treated. Under Treasury Regulation Section 1.167(c)-1(a)(6),
a Section 743(b) adjustment attributable to property subject to depreciation
under Section 167 of the Internal Revenue Code rather than cost-recovery
deductions under Section 168 is generally required to be depreciated using
either the straight-line method or the 150 percent declining-balance method. We
utilize the 150 percent declining method on such property. The depreciation and
amortization methods and useful lives associated with the Section 743(b)
adjustment, therefore, may differ from the methods and useful lives generally
used to depreciate the common basis in such properties. This could adversely
affect the continued uniformity of the tax characteristics of our units. The
general partner has adopted an accounting convention under Section 743(b) to
preserve the uniformity of units despite its inconsistency with these Treasury
Regulations. See "Uniformity of Units."
Although our tax counsel is unable to opine as to the validity of such
an approach, we intend to depreciate the portion of a Section 743(b) adjustment
attributable to unrealized appreciation in the value of Contributed Property to
the extent of any unamortized disparity between the tax basis and value
attributable to Contributed Property. We will use a rate of depreciation or
amortization derived from the depreciation or amortization method and useful
life applied to the common basis of such property, despite its inconsistency
with Treasury Regulation Section 1.167(c)-1(a)(6), Proposed Treasury Regulation
1.743-1(j)(4)(i)(B)(1) and Treasury Regulation 1.197-2(g)(3). If we determine
that such position cannot reasonably be taken, we may adopt a depreciation or
amortization convention under which all purchasers acquiring units in the same
month would receive depreciation or amortization, whether attributable to common
basis or Section 743(b) basis, based on the same applicable rate as if they had
purchased a direct interest in our property. Such an aggregate approach may
result in lower annual depreciation or amortization deductions than would
otherwise be allowable to unitholders.
See "-- Uniformity of Units."
The allocation of the Section 743(b) adjustment must be made in
accordance with the principles of Section 1060 of the Internal Revenue Code.
Based on these principles, the IRS may seek to reallocate some or all of any
Section 743(b) adjustment that we do not allocate to goodwill which, as an
intangible asset, would be amortizable over a longer period of time than our
tangible assets. Alternatively, it is possible that the IRS might seek to treat
the portion of such Section 743(b) adjustment attributable to the underwriters'
discount as if it were allocable to a nondeductible syndication cost.
A Section 754 election is advantageous when the transferee's basis in
such units is higher than such units' share of the aggregate basis in our assets
immediately before the transfer. In such case, pursuant to the election, the
transferee will take a new and higher basis in his share of our assets for
purposes of calculating, among other items, his depreciation deductions and his
share of any gain or loss on a sale of our assets. Conversely, a Section 754
election would be disadvantageous if the transferee's basis in such units is
lower than such units' share of the aggregate basis in our assets immediately
before the transfer. Thus, the amounts that a unitholder would be able to obtain
on a sale or other disposition of his units may be affected favorably or
adversely by the elections under Section 754.
The calculations and adjustments in connection with the Section 754
election depend, among other things, on the date on which a transfer occurs and
the price at which the transfer occurs. To help reduce the complexity of those
calculations and the resulting administrative cost to us, the general partner
will apply the following method in making the necessary adjustments pursuant to
the Section 754 election on transfers after the transfers pursuant to
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this offering: the price paid by a transferee for his units will be deemed to be
the lowest quoted trading price for the units during the calendar month in which
the transfer was deemed to occur, without regard to the actual price paid. The
application of such convention yields a less favorable tax result, as compared
to adjustments based on actual price, to a transferee who paid more than the
"convention price" for his units. The calculations under Section 754 elections
are highly complex, and there is little legal authority concerning the mechanics
of the calculations, particularly in the context of publicly traded
partnerships. It is possible that the IRS will successfully assert that the
adjustments made by the general partner do not meet the requirements of the
Internal Revenue Code or the applicable regulations and require a different
basis adjustment to be made.
Should the IRS require a different basis adjustment to be made, and
should, in the general partner's opinion, the expense of compliance exceed the
benefit of the elections, the general partner may seek permission from the IRS
to revoke the Section 754 election it previously made for us. Such a revocation
may increase the ratio of a unitholder's distributive share of taxable income to
cash distributions and adversely affect the amount that a unitholder will
receive from the sale of his units.
Estimates of Relative Fair Market Values and Basis of Properties
The consequences of the acquisition, ownership and disposition of units
will depend in part on estimates by the general partner of the relative fair
market values and determinations of the initial tax basis of our assets. The
federal income tax consequences of such estimates and determinations of basis
may be subject to challenge and will not be binding on the IRS or the courts. If
the estimates of fair market value or determinations of basis were found to be
incorrect, the character and amount of items of income, gain, loss, deduction or
credit previously reported by unitholders might change, and unitholders might be
required to amend their previously filed tax returns or to file claims for
refund. See "--Administrative Matters--Valuation Overstatements."
Treatment of Short Sales and Constructive Sales of Appreciated
Financial Positions
Taxpayers are required to recognize gain but not loss on constructive
sales of appreciated financial positions that are entered into after June 8,
1997. These rules would apply to a constructive sale of units. Constructive
sales include short sales of the same or substantially identical property,
entering into a national principal contract on the same or substantially
identical property, and entering into a futures or forward contract to deliver
the same or substantially identical property. Thus, gain would be triggered if a
unitholder entered into a contract to sell his or her units for a fixed price on
a future date. If a constructive sale occurs, the taxpayer must recognize gain
as if the appreciated financial position were sold, assigned or otherwise
terminated at its fair market value on the date of the constructive sale.
Adjustments for the gain recognized on the constructive sale are made in the
amount of any gain or loss later realized by the taxpayer with respect to the
position.
It would appear that a unitholder whose units are lent to a "short
seller" to cover a short sale of units would be considered as having transferred
beneficial ownership of such units and would, thus, no longer be a partner with
respect to such units during the period of such loan. As a result, during such
period any Partnership income, gains, deductions, losses or credits with respect
to such units would appear not to be reportable by such unitholder, any cash
distributions the unitholder receives with respect to such units would be fully
taxable and all of such distributions would appear to be treated as ordinary
income. The IRS also may contend that a loan of units to a "short seller"
constitutes a taxable exchange. If such a contention were successfully made, the
lending unitholder may be required to recognize gain or loss. Unitholders
desiring to assure their status as partners should modify their brokerage
account agreements, if any, to prohibit their brokers from borrowing their
units. The IRS announced that it is actively studying issues relating to the tax
treatment of short sales of partnership interests.
Alternative Minimum Tax
Each unitholder will be required to take into account his share of any
items of Partnership income, gain or loss for purposes of the alternative
minimum tax. A portion of our depreciation deductions may be treated as an item
of tax preference for this purpose. A unitholder's alternative minimum taxable
income derived from us may be higher than his share of our net income because we
may use more accelerated methods of depreciation for purposes
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of computing federal taxable income or loss. Prospective unitholders should
consult with their tax advisors as to the impact of an investment in units on
their liability for the alternative minimum tax.
Tax-Exempt Entities, Regulated Investment Companies and Foreign
Investors
Ownership of units by employee benefit plans, other tax exempt
organizations, nonresident aliens, foreign corporations, other foreign persons
and regulated investment companies may raise issues unique to such persons and,
as described below, may have substantial adverse tax consequences.
Employee benefit plans and most other organizations exempt from federal
income tax, including individual retirement accounts and other retirement plans,
are subject to federal income tax on unrelated business taxable income. Under
Section 512 of the Internal Revenue Code, virtually all of the taxable income
such an organization derives from the ownership of a unit will be unrelated
business taxable income and thus will be taxable to such a unitholder.
Regulated investment companies are required to derive 90% or more of
their gross income from interest, dividends, gains from the sale of stocks or
securities or foreign currency or other qualifying income. We do not anticipate
that any significant amount of our gross income will be qualifying income for
regulated investment companies purposes.
Nonresident aliens and foreign corporations, trusts or estates that
acquire units will be considered to be engaged in business in the United States
on account of ownership of such units and as a consequence will be required to
file federal tax returns in respect of their distributive shares of Partnership
income, gain, loss, deduction or credit and pay federal income tax at regular
rates, net of credits including withholding, on such income. Generally, a
partnership is required to pay a withholding tax on the portion of the
partnership's income that is effectively connected with the conduct of a United
States trade or business and that is allocable to the foreign partners,
regardless of whether any actual distributions have been made to such partners.
However, under rules applicable to publicly traded partnerships, we will
withhold on actual cash distributions made quarterly to foreign unitholders. The
current rate for withholding is 39.6%. Each foreign unitholder must obtain a
taxpayer identification number from the IRS and submit that number to our
transfer agent on a Form W-8 in order to obtain credit for the taxes withheld. A
change in applicable law may require us to change these procedures.
Because a foreign corporation that owns units will be treated as
engaged in a United States trade or business, such a unitholder may be subject
to United States branch profits tax at a rate of 30%, in addition to regular
federal income tax, on its allocable share of our earnings and profits, as
adjusted for changes in the foreign corporation's "U.S. net equity," that are
effectively connected with the conduct of a United States trade or business.
Such a tax may be reduced or eliminated by an income tax treaty between the
United States and the country with respect to which the foreign corporate
unitholder is a "qualified resident." In addition, such a unitholder is subject
to special information reporting requirements under Section 6038C of the
Internal Revenue Code.
The IRS has ruled that a foreign unitholder who sells or otherwise
disposes of a unit will be subject to federal income tax on gain realized on the
disposition of such unit to the extent that such gain is effectively connected
with a United States trade or business of the foreign unitholder. We do not
expect that any material portion of any such gain will avoid United States
taxation. Moreover, Section 897 of the Internal Revenue Code, which is applied
before the above-referenced IRS ruling, may increase the portion of any gain
that is recognized by a foreign unitholder that is subject to United States
income tax if that foreign unitholder has held more than 5% in value of the
units during the five-year period ending on the date of the disposition or if
the units are not regularly traded on an established securities market at the
time of the disposition.
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DISPOSITION OF UNITS
Gain or Loss in General
If a unit is sold or otherwise disposed of, the determination of gain
or loss from the sale or other disposition will be based on the difference
between the amount realized and the unitholder's tax basis for such unit. See
"--Tax Consequences of Unit Ownership--Basis of Units." A unitholder's "amount
realized" will be measured by the sum of the cash or the fair market value of
other property received plus the portion of our nonrecourse liabilities
allocated to the units sold. To the extent that the amount of cash or property
received plus the allocable share of our nonrecourse liabilities exceeds the
unitholder's basis for the units disposed of, the unitholder will recognize
gain. The tax liability resulting from such gain could exceed the amount of cash
received upon the disposition of such units. See also, "Tax Treatment of
Operations--Treatment of Short Sales and Constructive Sales of Appreciated
Financial Positions."
The IRS has ruled that a partner must maintain an aggregate adjusted
tax basis for his interests in a single partnership, consisting of all interests
acquired in separate transactions. On a sale of a portion of such aggregate
interest, such partner would be required to allocate his aggregate tax basis
between the interest sold and the interest retained by some equitable
apportionment method. If applicable, the aggregation of tax basis of a
unitholder effectively prohibits a unitholder from choosing among units with
varying amounts of inherent gain or loss to control the timing of the
recognition of such inherent gain or loss as would be possible in a stock
transaction. Thus, the IRS ruling may result in an acceleration of gain or
deferral of loss on a sale of a portion of a unitholder's units. It is not clear
whether such ruling applies to publicly traded partnerships, such as us, the
interests in which are evidenced by separate registered certificates, providing
a verifiable means of identifying each separate interest and tracing the
purchase price of such interest. A unitholder considering the purchase of
additional units or a sale of units purchased at differing prices should consult
his tax advisor as to the possible consequences of that IRS ruling.
Gain or loss recognized by a unitholder, other than a "dealer" in
units, on the sale or exchange of a unit held more than one year will generally
be taxable as capital gain or loss. To the extent that a portion of the gain
upon the sale of a unit is attributable to a unitholder's share of our
"inventory items" and "unrealized receivables," as those terms are defined in
Section 751 of the Internal Revenue Code, such portion will be treated as
ordinary income. Unrealized receivables include (1) to the extent not previously
includable in our income, any rights to pay for services rendered or to be
rendered and (2) amounts that would be subject to depreciation recapture as
ordinary income if we had sold our assets at their fair market value at the time
of the transfer of a unit. Ordinary income attributable to inventory items and
unrealized receivables may exceed net taxable gain realized upon the sale of the
units and may be recognized even if there is a net taxable loss realized on the
sale of the units. Thus, a unitholder may recognize both ordinary income and a
capital loss upon disposition of the units.
Transferor/Transferee Allocations
In general, our taxable income and losses are determined annually and
are prorated on a monthly basis and subsequently apportioned among the
unitholders in proportion to the number of units owned by them as of the opening
of the NYSE on the first business day of the month. However, gain or loss
realized on a sale or other disposition of Partnership assets other than in the
ordinary course of business is allocated among the unitholders of record as of
the opening of the NYSE on the first business day of the month in which such
gain or loss is recognized. As a result of this monthly allocation, a unitholder
transferring units in the open market may be allocated income, gain, loss,
deduction and credit accrued after the transfer.
The use of the monthly conventions discussed above may not be permitted
by existing Treasury Regulations and, accordingly, our tax counsel is unable to
opine on the validity of the method of allocating income and deductions between
the transferors and transferees of units. If the IRS treats transfers of units
as occurring throughout each month and a monthly convention is not allowed by
the regulations, the IRS may contend that our taxable income or losses must be
reallocated among the unitholders. If any such contention were sustained, the
tax liabilities of some unitholders would be adjusted to the possible detriment
of other unitholders. The general partner is authorized to revise our method of
allocation (1) between transferors and transferees and (2) as among Partners
whose interests otherwise vary during a taxable period, to comply with any
future regulations.
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A unitholder who owns units at any time during a quarter and who
disposes of such units prior to the record date set for a cash distribution with
respect to such quarter will be allocated items of our income, gain, loss and
deductions attributable to such quarter but will not be entitled to receive that
cash distribution.
Constructive Termination or Dissolution of Partnership
Under Section 708(b)(1)(B) of the Internal Revenue Code, a partnership
will be considered to have been terminated if within a twelve-month period there
is a sale or exchange of 50% or more of the interests in partnership capital and
profits. A termination results in a closing of the partnership's taxable year
for all partners, and the partnership's assets are treated as having been
transferred by us to a new partnership in exchange for an interest in the new
partnership followed by a deemed distribution of interests in the new
partnership to the partners of the terminated partnership in liquidation of such
partnership. If a partnership is terminated by sale or exchange of interests in
us, a Section 754 election, including a Section 754 election made by the
terminated partnership, that is in effect for the taxable year of the terminated
partnership in which the sale occurs, applies with respect to the incoming
partner. Moreover, a Partner with a special basis adjustment in property held by
a partnership that terminates under section 708(b)(1)(B) will continue to have
the same special basis adjustment with respect to property deemed contributed by
the terminated partnership to the new partnership regardless of whether the new
partnership makes a Section 754 election. In the case of a unitholder reporting
on a fiscal year other than a calendar year, the closing of our tax year may
result in more than twelve months' of our taxable income or loss being
includable in his taxable income for the year of termination.
We may not have the ability to determine when a constructive
termination occurs as a result of transfers of units because the units will be
freely transferable under "street name" ownership. Thus, we may be subject to
penalty for failure to file a tax return and may fail to make partnership tax
elections in a timely manner, including the Section 754 election.
ADMINISTRATIVE MATTERS
Entity-Level Collections
If we are required under applicable law or elect to pay any federal,
state or local income tax on behalf of any unitholder or the general partner or
any former unitholder, the general partner is authorized to pay such taxes from
Partnership funds. Such payments, if made, will be treated as current
distributions to the unitholders for tax purposes, including the calculation of
capital accounts. However, such payments, if made on behalf of all unitholders,
will not be treated as current distributions of Available Cash for purposes of
determining whether (1) distributed cash constitutes Cash from Operations or
Cash from Interim Capital Transactions or (2) the Minimum Quarterly
Distribution, First Target Distribution, Second Target Distribution or Third
Target Distribution has been paid. If such payments are made on behalf of some
but not all unitholders, the payments will be treated as distributions of
Available Cash for all purposes including the determination of whether (1)
distributed cash constitutes Cash from Operations or Cash from Interim Capital
Transactions and (2) the Minimum Quarterly Distribution, First Target
Distribution, Second Target Distribution or Third Target Distribution has been
distributed on units held by unitholders on whose behalf such payments are made.
The general partner is authorized but not required to amend our
partnership agreement in the manner necessary to maintain uniformity of
intrinsic tax characteristics of units and to adjust subsequent distributions so
that, after giving effect to such deemed distributions, the priority and
characterization of distributions otherwise applicable under our partnership
agreement are maintained as nearly as practicable. If we are permitted but not
required under applicable law to pay any such taxes, the general partner is
authorized but not required to pay such taxes from our funds and to amend our
partnership agreement and adjust subsequent distributions as described above.
Our partnership agreement further provides that the general partner is
authorized but not required to attempt to collect tax deficiencies from persons
who were unitholders at the time such deficiencies arose and any amounts so
collected will become Partnership assets.
The amount we pay would be calculated based on the maximum rate of
income tax for individuals or corporations, whichever is higher. Thus, such a
payment by us could give rise to an overpayment of tax on behalf of
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an individual unitholder. In such event, the individual unitholder could file a
claim for credit or refund with respect to the overpayment.
Partnership Income Tax Information Returns and Partnership Audit
Procedures
We will use all reasonable efforts to furnish unitholders with tax
information within 75 days after the close of each taxable year. Specifically,
we intend to furnish to each unitholder a Schedule K-1 which sets forth his
allocable share of our income, gains, losses, deductions and credits, if any. In
preparing such information, the general partner will necessarily use various
accounting and reporting conventions to determine each unitholder's allocable
share of income, gains, losses, deductions and credits. Neither we nor our tax
counsel can assure you that any such conventions will yield a result that
conforms to the requirements of the Internal Revenue Code, regulations
thereunder or administrative pronouncements of the IRS. The general partner
cannot assure prospective unitholders that the IRS will not contend that such
accounting and reporting conventions are impermissible. Contesting any such
allegations could result in substantial expense to us. In addition, if the IRS
were to prevail, unitholders may incur substantial liabilities for taxes and
interest.
Our federal income tax information returns may be audited by the IRS.
The Internal Revenue Code contains partnership audit procedures that
significantly simplify the manner in which IRS audit adjustments of partnership
items are resolved. Adjustments, if any, resulting from such an audit may
require each unitholder to file an amended tax return, and possibly may result
in an audit of the unitholder's return. Any audit of a unitholder's return could
result in adjustments to items not related to our returns as well as those
related to our returns.
Under Sections 6221 through 6233 of the Internal Revenue Code,
partnerships generally are treated as separate entities for purposes of federal
tax audits, judicial review of administrative adjustments by the IRS and tax
settlement proceedings. The tax treatment of partnership items of income, gain,
loss, deduction and credit and the imposition of penalties and other additions
to unitholders' tax liability are determined at the partnership level in a
unified partnership proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code provides for one partner to be designated as
the "Tax Matters Partner" for these purposes. Our partnership agreement appoints
the general partner as our Tax Matters Partner.
The Tax Matters Partner is entitled to make elections for us and our
unitholders and can extend the statute of limitations for assessment of tax
deficiencies against unitholders with respect to Partnership items. In
connection with adjustments to Partnership tax returns proposed by the IRS, the
Tax Matters Partner may bind any unitholder with less than a 1% profits interest
in us to a settlement with the IRS unless the unitholder elects, by filing a
statement with the IRS, not to give such authority to the Tax Matters Partner.
The Tax Matters Partner may seek judicial review to which all the unitholders
are bound of a final Partnership administrative adjustment. If the Tax Matters
Partner fails to seek judicial review, such review may be sought by any
unitholder having at least a 1% profit interest in us and by unitholders having,
in the aggregate, at least a 5% profits interest. Only one judicial proceeding
will go forward, however, and each unitholder with an interest in the outcome
may participate.
The unitholders will generally be required to treat Partnership items
on their federal income tax returns in a manner consistent with the treatment of
the items on our information return. In general, that consistency requirement is
waived if the unitholder files a statement with the IRS identifying the
inconsistency. Failure to satisfy the consistency requirement, if not waived,
will result in an adjustment to conform the treatment of the item by the
unitholder to the treatment on our return. Even if the consistency requirement
is waived, adjustments to the unitholder's tax liability with respect to
Partnership items may result from an audit of our or the unitholder's tax
return. Intentional or negligent disregard of the consistency requirement may
subject a unitholder to substantial penalties.
Information Return Filing Requirements
A unitholder who sells or exchanges units is required by Section 6050K
of the Internal Revenue Code to notify us in writing of such sale or exchange,
and we are required to notify the IRS of such transaction and to furnish
information to the transferor and transferee. However, these reporting
requirements do not apply with respect to a sale by an individual who is a
citizen of the United States and who effects such sale through a broker. In
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addition, a transferor and a transferee of a unit will be required to furnish to
the IRS the amount of the consideration received for such unit that is allocated
to our goodwill or going concern value. Failure to satisfy such reporting
obligations may lead to the imposition of substantial penalties.
Nominee Reporting
Under Section 6031(c) of the Internal Revenue Code, persons who hold an
interest in us as a nominee for another person must report information to us.
Temporary Treasury Regulations provide that such information should include
o the name, address and taxpayer identification number of the
beneficial owners and the nominee;
o whether the beneficial owner is
o a person that is not a United States person,
o a foreign government, an international organization or any
wholly owned agency or instrumentality of either of the
foregoing, or
o a tax-exempt entity;
o the amount and description of units held, acquired or transferred
for the beneficial owners; and
o information including the dates of acquisitions and transfers,
means of acquisitions and transfers, and acquisition cost for
purchases, as well as the amount of net proceeds from sales.
Brokers and financial institutions are required to furnish additional
information, including whether they are a United States person and information
on units they acquire, hold or transfer for their own account. A penalty of $50
per failure, up to a maximum of $100,000 per calendar year, is imposed for
failure to report such information to us. The nominee is required to supply the
beneficial owner of the units with the information furnished to us.
Registration as a Tax Shelter
Section 6111 of the Internal Revenue Code requires that "tax shelters"
be registered with the Secretary of the Treasury. The temporary Treasury
Regulations interpreting the tax shelter registration provisions of the Internal
Revenue Code are extremely broad. Although it is arguable that we will not be
subject to the registration requirement, the general partner, as our principal
organizer, has registered us as a tax shelter with the IRS in the absence of
assurance that we will not be subject to tax shelter registration and in light
of the substantial penalties which might be imposed if registration is required
and not undertaken. We have received tax shelter registration number 90036000017
from the IRS. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN
INVESTMENT IN THE PARTNERSHIP OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED,
EXAMINED OR APPROVED BY THE IRS. We must furnish the registration number to the
unitholders, and a unitholder who sells or otherwise transfers a unit in a
subsequent transaction must furnish the registration number to the transferee.
The penalty for failure of the transferor of a unit to furnish such registration
number to the transferee is $100 for each such failure. The unitholder must
disclose our tax shelter registration number on Form 8271 to be attached to the
tax return on which any deduction, loss, credit or other benefit generated by us
is claimed or income from us is included. A unitholder who fails to disclose the
tax shelter registration number on his return, without reasonable cause for such
failure, will be subject to a $250 penalty for each such failure. Any penalties
discussed herein are not deductible for federal income tax purposes.
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STATE AND OTHER TAX CONSIDERATIONS
Unitholders may be subject to state and local income taxes,
unincorporated business taxes, and estate, inheritance or intangible taxes that
may be imposed by the various jurisdictions in which the Partners reside or in
which we or our subsidiary partnerships do business or own property. Although an
analysis of those various taxes cannot be presented here, each prospective
unitholder should consider the potential impact of such taxes on his investment
in units. Our operating subsidiaries own property and do business in Alabama,
Arkansas, Colorado, Illinois, Indiana, Kansas, Kentucky, Louisiana, Missouri,
Montana, Nebraska, New Mexico, New York, North Dakota, Ohio, Oklahoma,
Pennsylvania, Rhode Island, South Dakota, Texas, Utah, West Virginia and
Wyoming. A unitholder will likely be required to file state income tax returns
in such states, other than South Dakota, Texas, West Virginia and Wyoming, and
may be subject to penalties for failure to comply with such requirements. In
addition, an obligation to file tax returns or to pay taxes may arise in other
states. Moreover, in some states, tax losses may not produce a tax benefit in
the year incurred and also may not be available to offset income in subsequent
taxable years. This could occur, for example, if the unitholder has no income
from sources within that state. The general partner is authorized but not
required to cause us to pay any state or local income tax on behalf of all the
partners even though such payment may be greater than the amount that would have
been required to be paid if such payment had been made directly by a particular
partner or assignee; provided, however, that such tax payment shall be in the
same amount with respect to each unit and, in the general partner's sole
discretion, payment of such tax on behalf of all the partners or assignees is in
the best interests of the partners or the assignees as a whole. Any amount so
paid on behalf of all partners or assignees shall be deducted as a cash
operating expenditure of us in calculating "Cash from Operations."
It is the responsibility of each prospective unitholder to investigate
the legal and tax consequences, under the laws of pertinent states or
localities, of his investment in units. Accordingly, each prospective unitholder
should consult, and must depend on, his own tax counsel or other advisor with
regard to state and local tax matters. Further, it is the responsibility of each
unitholder to file all state and local, as well as federal, tax returns that may
be required of such unitholder.
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INVESTMENT IN US BY EMPLOYEE BENEFIT PLANS
An investment in us by an employee benefit plan is subject to
additional considerations because the investments of such plans are subject to
the fiduciary responsibility and prohibited transaction provisions of the
Employee Retirement Income Security Act of 1974, as amended, and restrictions
imposed by Section 4975 of the Internal Revenue Code. As used herein, the term
"employee benefit plan" includes, but is not limited to, qualified pension,
profit-sharing and stock bonus plans, Keogh plans, Simplified Employee Pension
Plans, and tax deferred annuities or Individual Retirement Accounts established
or maintained by an employer or employee organization. Among other things,
consideration should be given to
o whether such investment is prudent under Section 404(a)(1)(B) of
ERISA,
o whether in making such investment such plan will satisfy the
diversification requirement of Section 404(a)(1)(C) of ERISA,
o the fact that such investment could result in recognition of UBTI
by such plan even if there is no net income,
o the effect of an imposition of income taxes on the potential
investment return for an otherwise tax-exempt investor and
o whether, as a result of the investment, the plan will be required
to file an exempt organization business income tax return with the
IRS.
See "Federal Income Tax Considerations--Tax Treatment of Operations--Tax-Exempt
Entities, Regulated Investment Companies and Foreign Investors." The person with
investment discretion with respect to the assets of an employee benefit plan
should determine whether an investment in us is authorized by the appropriate
governing instrument and is a proper investment for such plan.
In addition, a fiduciary of an employee benefit plan should consider
whether such plan will, by investing in us, be deemed to own an undivided
interest in our assets. If so, the general partner also would be a fiduciary of
such plan, and we would be subject to the regulatory restrictions of ERISA,
including its prohibited transaction rules, as well as the prohibited
transaction rules of the Internal Revenue Code.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibit an employee benefit plan from engaging in transactions involving "plan
assets" with parties that are "parties in interest" under ERISA or "disqualified
persons" under the Internal Revenue Code with respect to the plan. These
provisions also apply to Individual Retirement Accounts which are not considered
part of an employee benefit plan. The Department of Labor issued final
regulations on November 13, 1986, that provide guidance with respect to whether
the assets of an entity in which employee benefit plans acquire equity interests
would be deemed "plan assets." Pursuant to these regulations, an entity's assets
would not be considered to be "plan assets" if, among other things,
(1) the equity interests acquired by employee benefit plans are
publicly offered securities, i.e., the equity interests are widely
held by 100 or more investors independent of the issuer and each
other, freely transferable and registered under the federal
securities laws,
(2) the entity is an "operating company," i.e., it is primarily
engaged in the production or sale of a product or service other
than the investment of capital either directly or through a
majority-owned subsidiary or subsidiaries, or
(3) there is no significant investment by benefit plan investors,
which is defined to mean that less than 25% of the value of each
class of equity interest is held by employee benefit plans (as
defined in Section 3(3) of ERISA), whether or not they are subject
to the provisions of Title I of ERISA, plans described in Section
4975(e)(1) of the Internal Revenue Code, and any entities whose
underlying assets include plan assets by reason of a plan's
investments in the entity.
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Our assets would not be considered "plan assets" under these
regulations because it is expected that the investment will satisfy the
requirements in (1) above, and also may satisfy requirements (2) and (3) above.
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PLAN OF DISTRIBUTION
We may sell the securities being offered hereby:
o directly to purchasers,
o through agents,
o through underwriters, and
o through dealers.
We, or agents designated by us, may directly solicit, from time to
time, offers to purchase the securities. Any such agent may be deemed to be an
underwriter as that term is defined in the Securities Act of 1933, as amended.
We will name the agents involved in the offer or sale of the securities and
describe any commissions payable by us to these agents in the prospectus
supplement. Unless otherwise indicated in the prospectus supplement, these
agents will be acting on a best efforts basis for the period of their
appointment. The agents may be entitled under agreements which may be entered
into with us to indemnification by us against specific civil liabilities,
including liabilities under the Securities Act. The agents may also be our
customers or may engage in transactions with or perform services for us in the
ordinary course of business.
If any underwriters are utilized in the sale of the securities in
respect of which this prospectus is delivered, we will enter into an
underwriting agreement with those underwriters at the time of sale to them. The
names of these underwriters and the terms of the transaction will be set forth
in the prospectus supplement, which will be used by the underwriters to make
resales of the securities in respect of which this prospectus is delivered to
the public. The underwriters may be entitled, under the relevant underwriting
agreement, to indemnification by us against specific liabilities, including
liabilities under the Securities Act. The underwriters may also be our customers
or may engage in transactions with or perform services for us in the ordinary
course of business.
If a dealer is utilized in the sale of the securities in respect of
which this prospectus is delivered, we will sell those securities to the dealer,
as principal. The dealer may then resell those securities to the public at
varying prices to be determined by the dealer at the time of resale. Dealers may
be entitled to indemnification by us against specific liabilities, including
liabilities under the Securities Act. The dealers may also be our customers or
may engage in transactions with, or perform services for us in the ordinary
course of business.
The place and time of delivery for the securities in respect of which
this prospectus is delivered are set forth in the accompanying prospectus
supplement.
LEGAL
Certain legal matters in connection with the securities will be passed
upon by Fulbright & Jaworski L.L.P., Houston, Texas, as our counsel. Any
underwriter will be advised about other issues relating to the offering by their
own legal counsel.
EXPERTS
The consolidated financial statements of TEPPCO Partners, L.P. and
subsidiaries as of December 31, 1999 and 1998 and for each of the years in the
three-year period ended December 31, 1999, incorporated by reference herein, and
the consolidated balance sheet of Texas Eastern Product Pipeline Company and
subsidiaries as of December 31, 1999, included herein, have been incorporated by
reference and included herein, respectively, in reliance upon the reports of
KPMG LLP, independent certified public accountants, incorporated by reference
and included herein, and upon the authority of said firm as experts in
accounting and auditing.
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INDEX TO FINANCIAL STATEMENTS
Texas Eastern Products Pipeline Company, LLC
Independent Auditors' Report........................................F-2
Consolidated Balance Sheet..........................................F-3
Notes to Consolidated Balance Sheet.................................F-4
F-1
49
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Texas Eastern Products Pipeline Company, LLC:
We have audited the accompanying consolidated balance sheet of Texas
Eastern Products Pipeline Company and Subsidiary Companies as of December 31,
1999 (see Note 1 of the Notes to the Consolidated Balance Sheets). This
consolidated financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this consolidated
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit of a balance sheet includes examining, on a test basis,
evidence supporting the amounts and disclosures in that balance sheet. An audit
of a balance sheet also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit of the balance sheet
provides a reasonable basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Texas Eastern
Products Pipeline Company and Subsidiary Companies as of December 31, 1999, in
conformity with generally accepted accounting principles.
KPMG LLP
Houston, Texas
April 21, 2000
F-2
50
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
AND SUBSIDIARY COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
2000 1999
--------------- ---------------
(Unaudited)
ASSETS
Current assets:
Accounts receivable, TE Products Pipeline Company,
Limited Partnership $ 3,144 $ 3,738
Accounts receivable, TCTM, L.P. 937 899
Accounts receivable, other 100 -
-------------- ---------------
Total current assets 4,181 4,637
-------------- ---------------
Advances to PanEnergy Corp - 21,070
Investment in TE Products Pipeline Company, Limited Partnership 2,365 2,310
Investment in TEPPCO Partners, L.P. 2,152 14,794
Investment in TCTM, L.P. 1,123 1,119
-------------- ---------------
Total investments 5,640 39,293
-------------- ---------------
Total assets $ 9,821 $ 43,930
============== ===============
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 217 $ 100
Accrued income taxes - 12,379
Other 145 555
-------------- ---------------
Total current liabilities 362 13,034
-------------- ---------------
Deferred income taxes - 42,442
Stockholder's equity (deficit):
Common stock 1 1
Additional paid-in capital 192,021 329,510
Notes receivable, PanEnergy Corp (10,000) (125,000)
Accumulated deficit (172,563) (216,057)
-------------- ---------------
Total stockholder's equity (deficit) 9,459 (11,546)
-------------- ---------------
Total liabilities and stockholder's equity $ 9,821 $ 43,930
============== ===============
See accompanying Notes to Consolidated Balance Sheets.
F-3
51
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
AND SUBSIDIARY COMPANY
NOTES TO CONSOLIDATED BALANCE SHEETS
INFORMATION AT MARCH 31, 2000 IS UNAUDITED
NOTE 1. BASIS OF PRESENTATION
The accompanying consolidated balance sheet as of December 31, 1999
includes the accounts of Texas Eastern Products Pipeline Company and its wholly
owned subsidiaries, TEPPCO Holdings, Inc. and TEPPCO Investments, Inc. On March
31, 2000, Texas Eastern Products Pipeline Company and TEPPCO Investments, Inc.
were converted to limited liability companies, with a resulting name change for
both companies to Texas Eastern Products Pipeline Company, LLC and TEPPCO
Investments, LLC, respectively, (collectively, the "Company"). Additionally on
March 31, 2000, Texas Eastern Products Pipeline Company, LLC (the "LLC")
distributed its ownership of TEPPCO Holdings, Inc. to Duke Energy Corporation
(Duke Energy), the Company's ultimate parent. The LLC also distributed to, and
Duke Energy assumed, all assets and liabilities of the LLC; except those
relating to the performance of its duties as general partner of the Partnership
and $10 million of the demand note receivable due from PanEnergy Corp, a
subsidiary of Duke Energy (see Note 4). Also on March 31, 2000, Duke Energy
indirectly contributed its remaining investment in the LLC to Duke Energy Field
Services Corporation (DEFS), a joint venture formed between Duke Energy and
Phillips Petroleum Corporation.
The Company is the general partner of TEPPCO Partners, L.P., TE
Products Pipeline Company, Limited Partnership and TCTM, L.P. (collectively the
"Partnership"). The Company, as general partner, performs all management and
operating functions required for the Partnership pursuant to the Agreements of
Limited Partnership of TEPPCO Partners, L.P., TE Products Pipeline Company,
Limited Partnership and TCTM, L.P. (the "Partnership Agreements"). The general
partner is reimbursed by the Partnership for all reasonable direct and indirect
expenses incurred in managing the Partnership.
These consolidated balance sheets should be read in conjunction with
the 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, 1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated balance sheets include the accounts of Texas Eastern
Products Pipeline Company and its subsidiaries as of December 31, 1999 and the
LLC and its subsidiary as of March 31, 2000 (see Note 1). Significant
intercompany items have been eliminated in consolidation. The Company's
investments in the Partnership are accounted for using the equity method.
CASH AND CASH EQUIVALENTS
Cash equivalents are defined as all highly marketable securities with a
maturity of three months or less when purchased. The Company generally does not
maintain cash balances. Cash transactions are generally settled through
intercompany accounts.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable and accounts payable approximate fair value due to
the short-term maturity of these financial instruments. The fair value of the
Company's note receivable is more fully described in Note 4, Note Receivable.
F-4
52
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
AND SUBSIDIARY COMPANY
NOTES TO CONSOLIDATED BALANCE SHEETS--(CONTINUED)
INFORMATION AT MARCH 31, 2000 IS UNAUDITED
USE OF ESTIMATES
The preparation of the consolidated balance sheet in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts of assets and liabilities,
and disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
INCOME TAXES
As discussed in Note 1, Basis of Presentation, as of March 31, 2000,
Texas Eastern Products Pipeline Company and TEPPCO Investments, Inc. were
converted to limited liability companies, and the Company's ownership of TEPPCO
Holdings, Inc. was distributed to Duke Energy. As such, the Company became a
nontaxable entity for federal income tax purposes as of March 31, 2000.
Prior to March 31, 2000, the Company followed the asset and liability
method of accounting for income tax. Under this method, deferred income taxes
reflect the impact of temporary differences between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by tax
laws and regulations. These deferred income taxes were measured by applying
enacted tax laws and statutory tax rates applicable to the period in which the
differences were expected to affect taxable income. Also prior to March 31,
2000, under an agreement with Duke Energy, the Company computed taxes as if it
was filing a separate consolidated tax return and paid such tax, if any, to Duke
Energy in lieu of taxes otherwise payable to the government.
INTERIM FINANCIAL STATEMENT
The accompanying interim unaudited consolidated balance sheet reflects
all adjustments, which are, in the opinion of management, of a normal and
recurring nature and necessary for a fair statement of financial position of the
Company as of March 31, 2000.
NOTE 3. RELATED PARTY TRANSACTIONS
Pursuant to the Partnership Agreements, the Company is entitled to
reimbursement of all direct and indirect expenses related to business activities
of the Partnership (see Note 1). These amounts are recorded in Accounts
Receivable, TE Products Pipeline Company, Limited Partnership and Accounts
Receivable, TCTM, L.P. on the consolidated balance sheets as of March 31, 2000
and December 31, 1999.
NOTE 4. NOTE RECEIVABLE
As of March 31, 2000 and December 31, 1999, the Company held a $10
million and a $125 million, respectively, demand note receivable due from
PanEnergy Corp. Interest is payable quarterly. The rate on the note fluctuates
quarterly based on the one-month Libor rate, plus 50 basis points, as of the
last day of the preceding calendar quarter. Under the terms of the note,
PanEnergy Corp may prepay the note, in whole or in part, without premium or
penalty. The Company is of the opinion that the amount included in the
consolidated balance sheet for the note receivable materially represents fair
value at December 31, 1999, as the underlying interest rate is based on market
rates. The note receivable due from PanEnergy Corp is classified as
contra-equity on the consolidated balance sheets as of March 31, 2000 and
December 31, 1999.
F-5
53
TEXAS EASTERN PRODUCTS PIPELINE COMPANY, LLC
AND SUBSIDIARY COMPANY
NOTES TO CONSOLIDATED BALANCE SHEETS--(CONTINUED)
INFORMATION AT MARCH 31, 2000 IS UNAUDITED
NOTE 5. INVESTMENTS
On March 7, 1990, in conjunction with the formation of the Partnership,
the Company contributed cash and conveyed all assets and liabilities (other than
certain intercompany and tax related items) to the Partnership in return for a
1.0101% general partner interest in TE Products Pipeline Company, Limited
Partnership and a 1% general partner interest in TEPPCO Partners, L.P.
In conjunction with the formation of the Partnership, the Company also
received 2,500,000 Deferred Participation Interests ("DPIs") in the Partnership,
which were valued at $17.25 million. The DPIs represented an effective 8.45%
limited partner interest in the Partnership. Effective April 1, 1994, the DPIs
began participating in distributions of cash and allocations of profit and loss
of the Partnership. As of December 31, 1999, 94% of the DPIs have been converted
into an equal number of Limited Partner Interests ("Units") of the Partnership,
and the balance of such DPIs may be converted immediately prior to the sale of
the DPIs by the Company. As of March 31, 2000, the DPIs were distributed to Duke
Energy via the distribution of TEPPCO Holdings, Inc., the holder of the DPIs
(see Note 1). The assets and liabilities of the Partnership are summarized below
(in thousands):
MARCH 31, DECEMBER 31,
2000 1999
----------------- ------------------
(Unaudited)
Current assets $ 308,819 $ 263,009
Property, plant and equipment, net 731,164 720,919
Other assets 56,767 57,445
----------------- ------------------
1,096,750 1,041,373
================= ==================
Current liabilities 273,348 243,492
Other long term debt 475,761 455,753
Other liabilities and deferred credits 2,914 3,073
Redeemable Class B Units held by related party 106,367 105,859
Minority interest 3,488 3,429
Partners' capital 234,872 229,767
----------------- ------------------
$ 1,096,750 $ 1,041,373
================= ==================
NOTE 6. INCOME TAXES
As discussed in Note 1, Basis of Presentation, as of March 31, 2000,
Texas Eastern Products Pipeline Company and TEPPCO Investments, Inc. were
converted to limited liability companies, and the Company's ownership of TEPPCO
Holdings, Inc. was distributed to Duke Energy. As such, the Company became a
nontaxable entity for federal income tax purposes as of March 31, 2000. The
deferred tax liability balance at March 31, 2000 was credited to tax expense on
the consolidated statement of income. Also discussed in Note 1, Basis of
Presentation, in connection with the contribution of the Company to DEFS on
March 31, 2000, the accrued income taxes of the Company for all of the periods
prior to March 31, 2000 were assumed by Duke Energy.
F-6
54
At December 31, 1999, accrued income taxes payable was comprised of
$11.4 million and $1.0 million for federal and state income taxes, respectively.
The tax effects of temporary differences that resulted in deferred
income tax assets and liabilities, included in Deferred income taxes on the
consolidated balance sheet, and a description of the significant financial
statements items that created these differences, are as follows (in thousands):
DECEMBER 31,
1999
------------------
Vacation Accrual $ 139
------------------
Total deferred income tax assets 139
Investments $ (38,858)
State deferred income tax, net of federal tax effect (3,517)
Other (206)
------------------
Total deferred income tax liabilities $ (42,581)
------------------
Net deferred income tax liability $ (42,442)
==================
F-7
55
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred in connection
with the issuance and distribution of the securities registered hereby:
Securities and Exchange Commission registration fee............................ $ 158,400
New York Stock Exchange listing fees........................................... *
Printing and engraving costs................................................... *
Legal fees and expenses........................................................ *
Accounting fees and expenses................................................... *
----------
Miscellaneous.................................................................. *
==========
Total.........................................................................
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The partnership agreements of the Registrant and its subsidiary
partnerships provide that they will, to the fullest extent permitted by law,
indemnify and advance expenses to the general partner, any Departing Partner (as
defined therein), any person who is or was an affiliate of the general partner
or any Departing Partner, any person who is or was an officer, director,
employee, partner, agent or trustee of the general partner or any Departing
Partner or any affiliate of the general partner or any Departing Partner, or any
person who is or was serving at the request of the general partner or any
affiliate of the general partner or any Departing Partner or any affiliate of
any Departing Partner as an officer, director, employee, partner, agent or
trustee of another person ("Indemnitees") from and against any and all losses,
claims, damages, liabilities (joint or several), expenses (including legal fees
and expenses), judgments, fines, settlements and other amounts arising from any
and all claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, in which any Indemnitee may be involved, or is
threatened to be involved, as a party or otherwise, by reason of its status as
the general partner, Departing Partner or an affiliate of either, an officer,
director, employee, partner, agent or trustee of the general partner, any
Departing Partner or affiliate of either or a person serving at the request of
the Registrant in another entity in a similar capacity, provided that in each
case the Indemnitee acted in good faith and in a manner which such Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Registrant. This indemnification would under certain circumstances include
indemnification for liabilities under the Securities Act. In addition, each
Indemnitee would automatically be entitled to the advancement of expenses in
connection with the foregoing indemnification. Any indemnification under these
provisions will be only out of the assets of the Registrant. The Registrant is
authorized to purchase insurance against liabilities asserted against and
expenses incurred by such persons in connection with the Registrant's
activities, whether or not the Registrant would have the power to indemnify such
person against such liabilities under the provisions described above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits*
--------
*1.1 -- Form of Underwriting Agreement.
*4.1 -- Form of Senior Indenture.
*4.2 -- Form of Subordinated Indenture.
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
12.1 -- Statement of Computation of Ratio of Earnings to Fixed
Charges.
23.1 -- Consent of KPMG LLP.
*23.2 -- Consent of Counsel (the consent of Fulbright &
Jaworski L.L.P. to the use of their opinion filed as
Exhibit 5.1 to the Registration Statement and the
reference to their firm in this Registration Statement
is contained in such opinion).
II-1
56
*23.3 -- Consent of Counsel (the consent of Fulbright &
Jaworski L.L.P. to the use of their opinion filed as
Exhibit 8.1 to the Registration Statement and the
reference to their firm in this Registration Statement
is contained in such opinion).
24.1 -- Powers of Attorney (included on page II-4 of this
Registration Statement as originally filed).
*26.1 -- Form T-1 Statement of Eligibility and Qualification.
- ---------------
* To be filed by amendment or as an exhibit to a current report on Form 8-K of
the registrant.
(b) Financial Statement Schedules
Not applicable.
ITEM 17. UNDERTAKINGS
I. The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement.
i. To include any prospectus required by
Section 10(a)(3) of the Securities Act;
ii. To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement; and
iii. To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in this Registration Statement;
provided, however, that paragraphs i and ii above do not apply
if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports
filed by the Registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by
reference in the Registration Statement.
(b) That, for the purpose of determining any liability
under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(c) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.
II. The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this Registration Statement shall
be deemed to be a new registration statement relating to the
securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
III. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the
provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the
II-2
57
payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer, or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
II-3
58
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on the 15th day of May,
2000.
TEPPCO PARTNERS, L.P.
By TEXAS EASTERN PRODUCTS PIPELINE COMPANY,
LLC, as General Partner
By: CHARLES H. LEONARD
Charles H. Leonard,
Senior Vice President, Chief Financial
Officer and Treasurer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Charles H. Leonard and James C. Ruth, and
each of them, either one of whom may act without joinder of the other, his true
and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all pre- and post- effective amendments to this
Registration Statement, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or the
substitute or substitutes of any or all of them, may lawfully do or cause to be
done by virtue hereof. Pursuant to the requirements of the Securities Act of
1933, this Registration Statement has been signed by the following persons, in
the capacities and on the date indicated.
POSITION WITH THE
SIGNATURE GENERAL PARTNER DATE
- ------------------------------------ --------------------------------------------------- --------------------
Chairman of the Board, President and Chief
WILLIAM L. THACKER Executive Officer of Texas Eastern Products
William L. Thacker Pipeline Company, LLC May 15, 2000
Senior Vice President, Chief Financial Officer
CHARLES H. LEONARD and Treasurer of Texas Eastern Products Pipeline
Charles H. Leonard Company, LLC (Principal Accounting and Financial
Officer) May 15, 2000
JIM W. MOGG Vice Chairman of the Board of Texas
Jim W. Mogg Eastern Products Pipeline Company, LLC May 15, 2000
MILTON CARROLL Director of Texas Eastern
Milton Carroll Products Pipeline Company, LLC May 15, 2000
II-4
59
POSITION WITH THE
SIGNATURE GENERAL PARTNER DATE
- ------------------------------------ --------------------------------------------------- ---------------------------
CARL D. CLAY Director of Texas Eastern
Carl D. Clay Products Pipeline Company, LLC May 15, 2000
DERRIILL CODY Director of Texas Eastern
Derrill Cody Products Pipeline Company, LLC May 15, 2000
JOHN P. DESBARRES Director of Texas Eastern
John P. DesBarres Products Pipeline Company, LLC May 15, 2000
FRED J. FOWLER Director of Texas Eastern
Fred J. Fowler Products Pipeline Company, LLC May 15, 2000
MARK A. BORER Director of Texas Eastern
Mark A. Borer Products Pipeline Company, LLC May 15, 2000
WILLIAM W. SLAUGHTER Director of Texas Eastern
William W. Slaughter Products Pipeline Company, LLC May 15, 2000
II-5
60
INDEX TO EXHIBITS
*1.1 -- Form of Underwriting Agreement.
*4.1 -- Form of Senior Indenture.
*4.2 -- Form of Subordinated Indenture.
*5.1 -- Opinion of Fulbright & Jaworski L.L.P.
12.1 -- Statement of Computation of Ratio of Earnings to Fixed
Charges.
23.1 -- Consent of KPMG LLP.
*23.2 -- Consent of Counsel (the consent of Fulbright &
Jaworski L.L.P. to the use of their opinion filed as
Exhibit 5.1 to the Registration Statement and the
reference to their firm in this Registration Statement
is contained in such opinion).
*23.3 -- Consent of Counsel (the consent of Fulbright &
Jaworski L.L.P. to the use of their opinion filed as
Exhibit 8.1 to the Registration Statement and the
reference to their firm in this Registration Statement
is contained in such opinion).
24.1 -- Powers of Attorney (included on page II-4 of this
Registration Statement as originally filed).
*26.1 -- Form T-1 Statement of Eligibility and Qualification.
- -----------
* To be filed by amendment or as an exhibit to a current report on Form 8-K of
the registrant.
1
EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
YEARS ENDED DECEMBER 31, THREE MONTHS
------------------------------------------- ENDED MARCH 31,
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------- -------
(in thousands)
EARNINGS
Income From Continuing Operations................ 47,194 59,246 61,925 53,885 72,856 24,125
Fixed Charges.................................... 36,883 36,485 35,458 30,915 34,305 9,492
Capitalized Interest............................. (857) (1,388) (1,478) (795) (2,133) (1,010)
------ ------ ------ ------ ------- -------
Total Earnings................................ 83,220 94,343 95,905 84,005 105,028 32,607
====== ====== ====== ====== ======= =======
FIXED CHARGES
Interest Expense................................. 35,844 34,922 33,707 29,784 31,563 8,434
Capitalized Interest............................. 857 1,388 1,478 795 2,133 1,010
Rental Interest Factor........................... 182 175 273 336 609 48
------ ------ ------ ------ ------- -------
Total Fixed Charges........................... 36,883 36,485 35,458 30,915 34,305 9,492
====== ====== ====== ====== ======= =======
RATIO: EARNINGS/FIXED CHARGES...................... 2.26 2.59 2.70 2.72 3.06 3.44
====== ====== ====== ====== ======= =======
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Texas Eastern Products Pipeline Company, LLC
We consent to the use of our reports included and incorporated by
reference herein and the reference to our firm under the heading "Experts" in
the prospectus.
KPMG LLP
Houston, Texas
May 15, 2000
