================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 30, 2001 COMMISSION FILE NO. 1-10403 TEPPCO PARTNERS, L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 76-0291058 (STATE OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NUMBER) 2929 ALLEN PARKWAY P.O. BOX 2521 HOUSTON, TEXAS 77252-2521 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) (713) 759-3636 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) ================================================================================
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On September 30, 2001, TEPPCO Partners, L.P. (the "Partnership") purchased Jonah Gas Gathering Company from Alberta Energy Company for $360 million. The Partnership also assumed responsibility for completion of the current expansion of the Jonah gas gathering system and the remaining associated costs of approximately $25 million. The purchase was financed by a $400 million term loan from SunTrust Bank. The Jonah system consists of approximately 300 miles of pipelines ranging in size from four to 20 inches in diameter, four compressor stations with an aggregate of approximately 21,200 horsepower and related metering facilities. Gas gathered on the Jonah system is collected from approximately 300 producing wells in the Green River Basin in southwestern Wyoming. Gas is delivered to gas processing facilities owned by others. The Partnership owns a processing facility which extracts condensate prior to delivery of natural gas to DEFS' Overland Trail Transmission system and Questar. From these processing facilities, the natural gas is delivered to several interstate pipeline systems located in the region for transportation to end-use markets. Interstate pipelines in the region include the Overland Trail Transmission system, owned by our affiliate DEFS, Kern River, Northwest, Colorado Interstate Gas and Questar. These pipeline systems provide access for natural gas collected by the Jonah system to end-user markets throughout the Midwest, the West Coast and the Rocky Mountain regions. The Jonah assets will be commercially managed and operated by DEFS. The original Jonah system was constructed in 1992 and was significantly expanded in 1997. An additional expansion, consisting of 50 miles of new 20-inch diameter pipeline and compression facilities, is presently under construction with completion scheduled for early 2002. The system's current capacity is 450 million cubic feet per day and is expected to increase to 730 million cubic feet per day when the current expansion is placed in service. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. TEPPCO Partners, L.P. (Registrant) By: Texas Eastern Products Pipeline Company, LLC General Partner /S/ CHARLES H. LEONARD ---------------------------------------- Charles H. Leonard Sr. Vice President, Chief Financial Officer and Treasurer Date: November 9, 2001 2
JONAH GAS GATHERING COMPANY FINANCIAL STATEMENTS AS OF DECEMBER 31, 2000 AND FOR THE PERIODS JUNE 1 TO DECEMBER 31, 2000 AND JANUARY 1 TO MAY 31, 2000 (PREDECESSOR) 4
REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Jonah Gas Gathering Company: In our opinion, the accompanying balance sheet as of December 31, 2000 and the related statements of income and cash flows for the periods June 1 to December 31, 2000 and January 1 to May 31, 2000 (Predecessor) present fairly, in all material respects, the financial position of Jonah Gas Gathering Company at December 31, 2000, and the results of its operations and its cash flows for the periods June 1 to December 31, 2000 and January 1, 2000 to May 31, 2000 (Predecessor) in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. PricewaterhouseCoopers LLP Denver, Colorado October 31, 2001 5
JONAH GAS GATHERING COMPANY BALANCE SHEET DECEMBER 31
JONAH GAS GATHERING COMPANY STATEMENT OF INCOME
JONAH GAS GATHERING COMPANY STATEMENT OF CASH FLOWS
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. NATURE OF BUSINESS AND PRESENTATION Jonah Gas Gathering Company (the "Company") is a partnership that owns and operates natural gas pipelines and gathering systems in the Green River Basin of southwestern Wyoming. The Company typically enters into long-term agreements with natural gas producers for gathering and transportation services at market rates. These agreements typically call for the Company to incur costs to build pipeline extensions from their existing pipelines to new wells. Some of these agreements require a minimum volume to be gathered from any new well over a short time frame to ensure the recovery of such costs. The customers of the Company are typically major natural gas producers with operations in Wyoming. A major portion of the Company's revenue is derived from gathering natural gas owned by related parties. As of May 31, 2000, the Company was a subsidiary of McMurry Oil Company (Predecessor). On June 1, 2000, in connection with AEC Oil & Gas (USA) Inc.'s purchase of McMurry Oil Company, AEC Oil & Gas (USA) Inc. acquired all of the outstanding partnership interests in Jonah Gas Gathering Company for cash consideration and the assumption of debt, for an aggregate cost of approximately $208,000,000. On September 30, 2001, the Company was acquired by TEPPCO Partners, L.P. The acquisition by AEC Oil & Gas (USA) Inc. has been accounted for using the purchase method of accounting with the purchase price being allocated to assets and liabilities based upon fair value. The excess purchase price was allocated to the gathering systems and pipelines, including right of way and access rights. The purchase price has been allocated to the assets and liabilities acquired as follows:
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 (C) CASH AND CASH EQUIVALENTS Cash and cash equivalents include short term investments with an original maturity of three months or less when purchased. (D) PROPERTY AND EQUIPMENT Gathering systems and pipelines, including right of way and access rights, are carried at cost and depreciated using the straight line method over their estimated useful life of 25 years. Maintenance and repairs which neither add to the value of the property and equipment nor prolong its life are charged to expense as incurred. When property and equipment is sold or retired, their cost and accumulated depreciation are removed from the accounts. Gains or losses on dispositions of property and equipment are included in operations. (E) IMPAIRMENT OF LONG-LIVED ASSETS "Accounting for the Impairment of Long-Lived Assets to be Disposed of" ("SFAS No. 121") requires long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. In order to determine whether an impairment exists, the Company compares its net book value of the assets to the undiscounted expected future net cash flows, determined by applying future prices estimated by management over the lives of the related assets. If an impairment exists, the write-down is based upon expected future net cash flows discounted using an interest rate commensurate with the risk associated with the underlying asset. (F) CREDIT RISK The majority of the Company's receivables are within the oil and gas industry. The receivables are not collateralized. (G) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of financial instruments that are included in the balance sheet, other than due to affiliated companies, approximate their carrying amount due to the short term maturity of those instruments. It is not practical to estimate the fair value of amounts due to affiliated companies since these amounts represent non-interest bearing debt to related entities. (H) INCOME TAXES Federal and state income taxes are not payable by, nor provided for by the Company. An income tax provision is not required as the partners report their proportionate share of the Company's taxable income or loss on their respective tax returns. Such income or loss is proportionately allocated to the partners based upon their ownership interests. 10
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 3. PROPERTY AND EQUIPMENT A summary of property and equipment is as follows:
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 7. RECENT ACCOUNTING PRONOUNCEMENTS SFAS 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In 1998 and 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities and several amendments. SFAS No. 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The effective date of SFAS No. 133 for the Company is January 1, 2001. The Company anticipates the adoption of SFAS No. 133 will not have a material effect on its financial position or results of operations. SFAS 141 - BUSINESS COMBINATIONS On July 20, 2001, the FASB issued SFAS 141, Business Combinations , which represents a departure from the current practice. SFAS 141 supersedes Accounting Principles Board Opinion No. 16, Business Combinations . The most significant ways in which the provisions of SFAS 141 differ from those in APB 16 are as follows: (1) the purchase method of accounting must be used for all business combinations initiated after June 30, 2001 (i.e., the pooling-of-interests method is no longer permitted); (2) more specific guidance is provided on how to determine the accounting acquirer; (3) specific criteria are provided for recognizing intangible assets apart from goodwill; (4) unamortized negative goodwill must be written off immediately as an extraordinary gain (instead of being deferred and amortized); and (5) additional financial statement disclosures regarding business combinations are required. SFAS 142 - GOODWILL AND OTHER INTANGIBLE ASSETS On July 20, 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets , which supersedes Accounting Principles Board Opinion No. 17, Intangible Assets. SFAS 142 primarily addresses the accounting that must be applied to goodwill and intangible assets subsequent to their initial recognition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001; however, early adoption is permitted in certain instances. Among the new requirements and guidance set forth in SFAS 142, the following are the most significant changes from APB 17: (1) goodwill and indefinite-lived intangible assets will no longer be amortized; (2) goodwill will be tested for impairment at the reporting unit level (which is generally an operating segment or one reporting level below) at least annually; (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually; (4) the amortization period of intangible assets that have finite lives will no longer be limited to forty years; and (5) additional financial statement disclosures about goodwill and intangible assets will be required. The Company anticipates that the adoption of SFAS No. 142 will not have a material effect on its financial position or results of operations. SFAS 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS SFAS 143, Accounting for Asset Retirement Obligations, is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS 143 applies to legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The Company has not yet evaluated the effect that SFAS No. 143 will have on financial reporting. 13
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 SFAS 144 - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. SFAS 144 supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of . However, this SFAS 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 supercedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations --Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. However, SFAS 144 retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. The Company anticipates that the adoption of SFAS 144 will not have a material effect on its financial position or results of its operations. 14
JONAH GAS GATHERING COMPANY FINANCIAL STATEMENTS (UNAUDITED) AS OF SEPTEMBER 30, 2001 AND FOR THE PERIODS JANUARY 1 TO SEPTEMBER 30, 2001 AND JUNE 1 TO SEPTEMBER 30, 2000 AND JANUARY 1 TO MAY 31, 2000 (PREDECESSOR) 15
JONAH GAS GATHERING COMPANY BALANCE SHEET (UNAUDITED)
JONAH GAS GATHERING COMPANY STATEMENT OF INCOME AND PARTNERS' CAPITAL (UNAUDITED)
JONAH GAS GATHERING COMPANY STATEMENT OF CASH FLOWS (UNAUDITED)
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (UNAUDITED) 1. GENERAL The accompanying unaudited financial statements have been prepared by management in accordance with generally accepted accounting principles in the United States of America. In the opinion of management, the unaudited combined financial statements contain all adjustments (consisting only of normal recurring items) necessary to present fairly the financial position of Jonah Gas Gathering Company as of September 30, 2001, and the financial results and cash flows for the periods January 1 to September 30, 2001 and June 1 to September 30, 2000 and January 1 to May 31, 2000 (Predecessor). Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. Management believes the disclosures made are adequate to ensure that the information is not misleading in a material respect. The information should be read in conjunction with the historical financial statements and related notes of Jonah Gas Gathering Company herein. As of May 31, 2000, the Company was a subsidiary of McMurry Oil Company (Predecessor). On June 1, 2000, in connection with AEC Oil & Gas (USA) Inc.'s purchase of McMurry Oil Company, AEC Oil & Gas (USA) Inc. acquired all of the outstanding partnership interests in Jonah Gas Gathering Company. The acquisition by AEC Oil & Gas (USA) Inc. has been accounted for using the purchase method of accounting with the purchase price being allocated to assets and liabilities based upon fair value. The excess purchase price was allocated to the gathering systems and pipelines, including right of way and access rights. The results of operations in the accompanying statements of income and cash flows are reported separately for the periods June 1 to September 30, 2000 and January 1 to May 31, 2000 (Predecessor) due to the step up in basis resulting from the acquisition by AEC Oil & Gas (USA) Inc. On September 30, 2001, the Company was acquired by TEPPCO Partners, L.P. 2. RECENT ACCOUNTING PRONOUNCEMENTS SFAS 133 - ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In 1998 and 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities and several amendments. SFAS No. 133 addresses the accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The effective date of SFAS No. 133 for the Company is January 1, 2001. The Company anticipates the adoption of SFAS No. 133 will not have a material effect on its financial position or results of operations. SFAS 141 - BUSINESS COMBINATIONS On July 20, 2001, the FASB issued SFAS 141, Business Combinations , which represents a departure from the current practice. SFAS 141 supersedes Accounting Principles Board Opinion No. 16, Business Combinations . The most significant ways in which the provisions of SFAS 141 differ from those in APB 16 are as follows: (1) the purchase method of accounting must be used for all business combinations initiated after June 30, 2001 (i.e., the pooling-of-interests method is no longer permitted); (2) more specific guidance is provided on how to determine the accounting acquirer; (3) specific criteria are provided for recognizing intangible assets apart from goodwill; (4) unamortized negative goodwill must be written off immediately as an extraordinary gain (instead of being 19
JONAH GAS GATHERING COMPANY NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (UNAUDITED) deferred and amortized); and (5) additional financial statement disclosures regarding business combinations are required. SFAS 142 - GOODWILL AND OTHER INTANGIBLE ASSETS On July 20, 2001, the FASB issued SFAS 142, Goodwill and Other Intangible Assets , which supersedes Accounting Principles Board Opinion No. 17, Intangible Assets. SFAS 142 primarily addresses the accounting that must be applied to goodwill and intangible assets subsequent to their initial recognition (i.e., the post-acquisition accounting). The provisions of SFAS 142 will be effective for fiscal years beginning after December 15, 2001; however, early adoption is permitted in certain instances. Among the new requirements and guidance set forth in SFAS 142, the following are the most significant changes from APB 17: (1) goodwill and indefinite-lived intangible assets will no longer be amortized; (2) goodwill will be tested for impairment at the reporting unit level (which is generally an operating segment or one reporting level below) at least annually; (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually; (4) the amortization period of intangible assets that have finite lives will no longer be limited to forty years; and (5) additional financial statement disclosures about goodwill and intangible assets will be required. The Company anticipates that the adoption of SFAS No. 142 will not have a material effect on its financial position or results of operations. SFAS 143 - ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS SFAS 143, Accounting for Asset Retirement Obligations, is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS 143 applies to legal obligations associated with the retirement of a tangible long-lived asset that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. The Company has not yet evaluated the effect that SFAS No. 143 will have on financial reporting. SFAS 144 - ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, is effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years, with early application encouraged. SFAS 144 supercedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. However, this SFAS 144 retains the fundamental provisions of SFAS 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale. SFAS 144 supercedes the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for segments of a business to be disposed of. However, SFAS 144 retains the requirement of Opinion 30 to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of (by sale, by abandonment, or in a distribution to owners) or is classified as held for sale. The Company anticipates that the adoption of SFAS 144 will not have a material effect on its financial position or results of its operations. 20
TEPPCO PARTNERS, L.P. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS ITEM 7. STATEMENTS AND EXHIBITS (b) PRO FORMA FINANCIAL INFORMATION: The following tables set forth summary unaudited pro forma condensed combined financial statements which are presented to give effect to the purchase of certain assets of ARCO Pipe Line Company ("ARCO"), which was completed on July 21, 2000 (refer to Form 8-KA filed with the Securities and Exchange Commission on October 3, 2000), and of Jonah Gas Gathering Company ("Jonah"), which was completed on September 30, 2001. The information was prepared based on the following assumptions: o The purchases were accounted for pursuant to the purchase method of accounting in accordance with accounting principles generally accepted in the United States of America. o The statements of income assume that the purchases were consummated on January 1, 2000. o The expected cost savings through improved operating efficiencies and revenue growth are excluded from the pro forma combined financial statements. o See Item 2 above and TEPPCO Partners, L.P. (the "Partnership") Form 10-Q for the quarter ended September 30, 2001, for a description of the new credit agreement entered into in conjunction with the acquisition of Jonah. The unaudited pro forma condensed combined financial statements are presented for illustration purposes only and are not necessarily indicative of the results of operations which would have occurred had the merger been consummated on the date indicated above, nor are they necessarily indicative of future results of operations. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements of the Partnership, as on file with the Securities and Exchange Commission, and the historical combined financial statements of Jonah included in this document. Certain reclassifications have been made to Jonah's historical financial statements to reflect the Partnership's presentation of financial information. 21
TEPPCO PARTNERS, L.P. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
TEPPCO PARTNERS, L.P. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 2001 (IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
TEPPCO PARTNERS, L.P. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The acquisitions were accounted for using the purchase method of accounting. Under this method of accounting, the Partnership recorded the assets and liabilities of the acquired entities at fair market value as of the date of closing, with any excess purchase price reflected as goodwill. The following notes set forth the explanations and assumptions used in the preparation of the unaudited pro forma condensed combined financial statements. The pro forma adjustments are based on the best estimate of the Partnership using information currently available. The Partnership is in the process of completing the final purchase price allocation of Jonah, and consequently it is likely that the final purchase price allocation will be different from the pro forma purchase price allocation included herein. However, the Partnership does not currently anticipate that the difference will be material to the pro forma financial position included herein. The preliminary pro forma allocation of the purchase price paid for Jonah and the financing of the acquisition are summarized as follows (in thousands): Estimated purchase price paid:
TEPPCO PARTNERS, L.P. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS - (CONTINUED) (g) To record pro forma depreciation and amortization expense on the preliminary Jonah purchase price allocation to depreciable and amortizable assets. Intangibles for contracts are assumed to be amortized through the year 2015 and property, plant, and equipment over an estimated remaining life of 25 years. Amortization for contracts is recorded in proportion to the timing of expected contractual volumes, while depreciation is recorded on a straight line basis. In accordance with Statement of Financial Accounting Standards No. 141, Business Combinations, goodwill associated with the Jonah acquisition is not being amortized. (h) To reverse the historical depreciation expense and interest expense of Jonah. (i) To reflect the increase in interest expense resulting from borrowings under the new credit agreement for the purchase of Jonah and the related estimated debt issuance costs. The interest rate on the credit agreement is 3.63%. Debt issue costs of approximately $1.0 million are being amortized over the anticipated life of the credit agreement which is nine months. For purposes of the pro forma financial information the debt incurred to acquire Jonah is assumed to remain outstanding for the periods presented. Assuming market interest rates change by 1/8 percent, the potential annual change in interest expense is approximately $0.5 million. (j) To reclassify loss / (gain) on sale of property, plant, and equipment to other income - net. 25