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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934




Commission File Number 1-13603

TE Products Pipeline Company, Limited Partnership

(Exact name of Registrant as specified in its charter)


|                                                  |  |                                                   
|------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State of Incorporation or Organization) |  | 76-0329620
(I.R.S. Employer 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)

Securities registered pursuant to Section 12(b) of the Act:

|                                                                                  |  |                                                
|--------------------------------------------------------------------------------- |  | -----------------------------------------------
|                                                                                  |  | Name of each exchange on                       
|Title of each class                                                               |  | which registered                               
|                                                                                  |  |                                                
|6.45% Senior Notes, due January 15, 2008
7.51% Senior Notes, due January 15, 2028 |  | New York Stock Exchange
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding twelve months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes þ No o

Documents Incorporated by Reference: None



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|                                             |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                             | Items 1 and 2. Business and Properties                                                                 
|                                             | Item 3. Legal Proceedings                                                                              
|                                             | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                     
|                                             | Item 5. Market for Registrants Common Equity and Related Partnership Interest Matters                 
|                                             | Item 6. Selected Financial Data                                                                        
|                                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                             | Item 7A. Quantitative and Qualitative Disclosures About Market Risks                                   
|                                             | Item 8. Financial Statements and Supplementary Data                                                    
|                                             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|                                             | Item 9A. Controls and Procedures                                                                       
|PART III                                    
|                                             | Item 10. Directors and Executive Officers of the Registrant                                            
|                                             | Item 11. Executive Compensation                                                                        
|                                             | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                             | Item 13. Certain Relationships and Related Transactions                                                
|                                             | Item 14. Principal Accounting Fees and Services                                                        
|PART IV                                     
|                                             | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                  
|EXHIBIT INDEX                               
|Consent of KPMG LLP                         
|Certification of CEO pursuant to Section 302
|Certification of CFO pursuant to Section 302
|Certification of CEO pursuant to Section 906
|Certification of CFO pursuant to Section 906



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TABLE OF CONTENTS

|         |  |                                                                                       |  |  |          |  |  |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -------- |  |  |  | 
|         |  |                                                                                       |  |  | PART I   |  |  |  | 
|ITEMS 1. |  | Business and Properties                                                               |  |  | 1        | 
|AND 2.  
|ITEM 3.  |  | Legal Proceedings                                                                     |  |  | 13       | 
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 14       | 
|         |  |                                                                                       |  |  | PART II  |  |  |  | 
|ITEM 5.  |  | Market for Registrants Units and Related Unitholder Matters                          |  |  | 14       | 
|ITEM 6.  |  | Selected Financial Data                                                               |  |  | 15       | 
|ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 16       | 
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 30       | 
|ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  |  | 31       | 
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 31       | 
|ITEM 9A. |  | Controls and Procedures                                                               |  |  | 31       | 
|         |  |                                                                                       |  |  | PART III |  |  |  | 
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  |  | 31       | 
|ITEM 11. |  | Executive Compensation                                                                |  |  | 31       | 
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 31       | 
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  |  | 32       | 
|ITEM 14. |  | Principal Accounting Fees and Services                                                |  |  | 33       | 
|         |  |                                                                                       |  |  | PART IV  |  |  |  | 
|ITEM 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 34       | 





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FORWARD-LOOKING STATEMENTS

The matters discussed in this Report include forward-looking statements
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such things as estimated future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of our business
and operations, plans, references to future success, references to intentions
as to future matters and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses made by us in
light of our experience and our perception of historical trends, current
conditions and expected future developments as well as other factors we believe
are appropriate under the circumstances. However, whether actual results and
developments will conform with our expectations and predictions is subject to a
number of risks and uncertainties, including general economic, market or
business conditions, the opportunities (or lack thereof) that may be presented
to and pursued by us, competitive actions by other pipeline companies, changes
in laws or regulations and other factors, many of which are beyond our control.
Consequently, all of the forward-looking statements made in this document are
qualified by these cautionary statements, and we cannot assure you that actual
results or developments that we anticipate will be realized or, even if
substantially realized, will have the expected consequences to or effect on us
or our business or operations.




Items 1 and 2.Business and Properties

General

TE Products Pipeline Company, Limited Partnership (the Partnership), a
Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P.
(the Parent Partnership) owns a 99.999% interest in us as the sole limited
partner. TEPPCO GP, Inc. (TEPPCO GP or General Partner), a subsidiary of
the Parent Partnership, holds a 0.001% General Partner interest in us. Texas
Eastern Products Pipeline Company, LLC (the Company), a Delaware limited
liability company, serves as the general partner of our Parent Partnership.
The Company is a wholly owned subsidiary of Duke Energy Field Services, LLC
(DEFS), a joint venture between Duke Energy Corporation (Duke Energy) and
ConocoPhillips. Duke Energy holds an interest of approximately 70% in DEFS,
and ConocoPhillips holds the remaining 30%. TEPPCO GP, as general partner,
performs all of the management and operating functions required for us
according to the Agreement of Limited Partnership of TE Products Pipeline
Company, Limited Partnership (the Partnership Agreement). We reimburse our
General Partner and the Company for all reasonable direct and indirect expenses
that they incur in managing us.

As used in this Report, we, us, and our means TE Products Pipeline
Company, Limited Partnership.

We operate and report in one business segment: transportation and storage
of refined products, liquefied petroleum gases (LPGs) and petrochemicals. Our
interstate transportation operations, including rates charged to customers, are
subject to regulations prescribed by the Federal Energy Regulatory Commission
(FERC). We refer to refined products, LPGs and petrochemicals in this
Report, collectively, as petroleum products or products.

Effective January 1, 2002, our Parent Partnership realigned its business
segments to reflect its entry into the natural gas gathering business and the
expanded scope of its natural gas liquids (NGLs) operations. As part of this
realignment, on May 31, 2002, we transferred our investment in TEPPCO Colorado,
LLC (TEPPCO Colorado), which fractionates NGLs, to TEPPCO Midstream
Companies, L.P. (TEPPCO Midstream) for the book value of TEPPCO Colorados
net assets, which was $4.1 million. In connection with the transfer, we
received $4.1 million in cash from TEPPCO Midstream. As a result of the
transfer, the results of operations of TEPPCO Colorado for the periods
presented are reflected as discontinued operations (see Note 19. Discontinued
Operations in the Notes to Consolidated Financial Statements). We have
reclassified prior periods presented to reflect the current presentation.

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Our strategy is to expand and improve service in our current markets,
maintain the integrity of our pipeline systems and pursue growth initiatives
that are balanced between internal projects and acquisitions. We intend to
leverage the advantages inherent in our pipeline systems to maintain our status
as a preferred provider in our market areas. We also intend to grow by
acquiring assets, from both third parties and affiliates, which complement
existing businesses or to establish new core businesses. We routinely evaluate
opportunities to acquire assets and businesses that will complement existing
operations with a view to increasing earnings and cash available for
distribution. We may fund additional acquisitions with cash flow from
operations, borrowings and capital contributions from the Parent Partnership,
the issuance of debt in the capital markets or any combination thereof.

Operations

We own, operate or have investments in properties located in 14 states.
We also conduct business through our 50% owned equity investments in Centennial
Pipeline LLC (Centennial) and Mont Belvieu Storage Partners, L.P. (MB
Storage). Our operations consist of interstate transportation, storage and
terminaling of petroleum products; short-haul shuttle transportation of LPGs at
the Mont Belvieu, Texas, complex through MB Storage; intrastate transportation
of petrochemicals and other ancillary services.

As an interstate common carrier, our pipeline offers interstate
transportation services, pursuant to tariffs filed with the FERC, to any
shipper of refined petroleum products and LPGs who requests these services,
provided that the products tendered for transportation satisfy the conditions
and specifications contained in the applicable tariff. In addition to the
revenues received by our pipeline system from our interstate tariffs, we also
provide storage and marketing services at key points along our pipeline
systems. Substantially all of the petroleum products transported and stored in
our pipeline systems are owned by our customers. Petroleum products are
received at terminals located principally on the southern end of the pipeline
system, stored, scheduled into the pipeline in accordance with customer
nominations and shipped to delivery terminals for ultimate delivery to the
final distributor (including gas stations and retail propane distribution
centers) or to other pipelines. Pipelines are generally the lowest cost method
for intermediate and long-haul overland transportation of petroleum products.
Our pipeline system is the only pipeline that transports LPGs from the upper
Texas Gulf Coast to the Northeast.

We depend in large part on the level of demand for refined petroleum
products and LPGs in the geographic locations that we serve and the ability and
willingness of customers having access to the pipeline system to supply this
demand. We cannot predict the impact of future fuel conservation measures,
alternate fuel requirements, governmental regulation or technological advances
in fuel economy and energy-generation devices, all of which could reduce the
demand for refined petroleum products and LPGs in the areas we serve.

The following table lists the material properties and investments of and
ownership percentages in our assets as of December 31, 2003:

|                                                                    |  |           |     |  
|------------------------------------------------------------------- |  | --------- | --- | -
|                                                                    |  | Our      
|                                                                    |  | Ownership
|                                                                    |  |          
|Refined products and LPGs pipelines                                 |  |           | 100 | %
|Mont Belvieu, Texas, to Port Arthur, Texas, petrochemical pipelines |  |           | 100 | %
|Centennial Pipeline LLC (1)                                         |  |           | 50  | %
|Mont Belvieu Storage Partners, L.P. (2)                             |  |           | 50  | %



---

|(1) |  | Accounted for as an equity investment. Effective February 10,
2003, we acquired an additional 16.7% interest in Centennial, bringing
our ownership percentage to 50%.                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Accounted for as an equity investment. Effective January 1, 2003,
we contributed substantially all of our Mont Belvieu LPG assets to MB
Storage, a newly formed partnership with Louis Dreyfus Energy Services
L.P. (Louis Dreyfus).

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Centennial Pipeline Equity Investment

In August 2000, we entered into agreements with Panhandle Eastern Pipeline
Company (PEPL), a subsidiary of CMS Energy Corporation, and Marathon Ashland
Petroleum LLC (Marathon) to form Centennial. Each participant originally
owned a one-third interest in Centennial. Centennial, which commenced
operations in April 2002, owns an interstate refined petroleum products
pipeline extending from the upper Texas Gulf Coast to central Illinois.
Centennial constructed a 74-mile, 24-inch diameter pipeline connecting our
facility in Beaumont, Texas, with an existing 720-mile, 26-inch diameter
pipeline extending from Longville, Louisiana, to Bourbon, Illinois. The
Centennial pipeline intersects our existing mainline pipeline near Creal
Springs, Illinois, where Centennial constructed a new two million barrel
refined petroleum products storage terminal. Marathon operates the mainline
Centennial pipeline, and we operate the Beaumont origination point and the
Creal Springs terminal.

Our interest in Centennial is not subject to any encumbrances from
mortgages or other secured debt. Centennial has unsecured debt, one third of
which, up to $50.0 million in principal, was originally guaranteed by each
owner, including us. On February 10, 2003, we and Marathon each acquired an
additional interest in Centennial from PEPL for $20.0 million each, increasing
our percentage ownerships in Centennial to 50% each. We and Marathon have each
guaranteed one-half of Centennials debt, up to a maximum of $75.0 million
each. Through December 31, 2003, including the amount paid for the acquisition
of the additional ownership interest in February 2003, we have invested $104.9
million in Centennial.

Mont Belvieu Storage Equity Investment

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus in which our Mont Belvieu LPGs storage and shuttle
transportation system was jointly marketed by Louis Dreyfus and us. The
purpose of the alliance was to expand services to the upper Texas Gulf Coast
energy marketplace by increasing pipeline throughput and the mix of products
handled through the existing system and establishing new receipt and delivery
connections. The alliance was a service-oriented, fee-based venture with no
commodity trading activity. We operated the facilities for the alliance. The
alliance stipulated that if certain earnings thresholds were achieved, a
partnership between Louis Dreyfus and us was to be created effective January 1,
2003. All terms and earnings thresholds were met; therefore, as of January 1,
2003, we and Louis Dreyfus formed MB Storage.

The economic terms of the MB Storage partnership are the same as those
under the joint marketing and development alliance. We contributed property,
plant and equipment with a net book value of $67.4 million to MB Storage. We
continue to operate the facilities for MB Storage. Louis Dreyfus had invested
$6.1 million for expansion projects for MB Storage that we were required to
reimburse if the original joint development and marketing agreement was
terminated by either party. This deferred liability was also contributed and
converted to the capital account of Louis Dreyfus in MB Storage. We and Louis
Dreyfus each own a 50% ownership interest in MB Storage. Through December 31,
2003, excluding the contribution of property, plant and equipment upon
formation of the partnership, we have contributed $2.5 million to MB Storage.
In December 2003, we received a distribution of $5.3 million from MB Storage.

Our interest in MB Storage is not subject to any encumbrances from
mortgages or other secured debt. We receive the first $1.8 million per quarter
(or $7.15 million on an annual basis) of MB Storages gross income less
mandatory capital expenditures plus capital contributions, as defined in the
operating agreement. Any amount of MB Storages gross income in excess of the
$7.15 million is allocated evenly between Louis Dreyfus and us, except for
depreciation expense. Each partner is allocated depreciation expense based
upon assets each originally contributed to MB Storage. Depreciation expense on
assets constructed or acquired by MB Storage is allocated evenly between Louis
Dreyfus and us. For the year ended December 31, 2003, our sharing ratio in the
earnings of MB Storage was approximately 70.4%.

MB Storages asset base in the Mont Belvieu fractionation and storage
complex, which is the largest complex of its kind in the United States, serving
the fractionation, refining and petrochemical industries, provides substantial
capacity and flexibility for the transportation, terminaling and storage of
NGLs, LPGs and refined products. MB Storage receives revenue from the
shuttling of product from refineries and fractionators to pipelines, refineries
and petrochemical facilities on the upper Texas Gulf Coast. MB Storage has
approximately 33 million

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barrels of LPGs storage capacity and approximately 5 million barrels of refined
products storage capacity, including storage capacity leased to outside
parties, at the Mont Belvieu fractionation and storage complex. MB Storage
includes a short-haul transportation shuttle system, consisting of a complex
system of pipelines and interconnects, that ties Mont Belvieu to virtually
every refinery and petrochemical facility on the upper Texas Gulf Coast. MB
Storage also provides truck and rail car loading capability. Total shuttle
volumes for the three years ended December 31, 2003, 2002 and 2001, were 33.1
million barrels, 28.9 million barrels and 23.1 million barrels, respectively.

Refined Products, LPGs and Petrochemical Pipeline Systems

We are one of the largest pipeline common carriers of refined petroleum
products and LPGs in the United States. We own and operate an approximately
4,600-mile pipeline system (together with the receiving, storage and
terminaling facilities mentioned below, the Pipeline System) extending from
southeast Texas through the central and midwestern United States to the
northeastern United States. Our Pipeline System includes delivery terminals for
outloading product to other pipelines, tank trucks, rail cars or barges, and
substantial storage facilities at numerous locations. We also own two marine
receiving terminals, one near Beaumont and the other at Providence, Rhode
Island. The Providence terminal is not physically connected to the Pipeline
System. Our Pipeline System also includes three parallel 12-inch diameter
petrochemical pipelines between Mont Belvieu and Port Arthur, each
approximately 70 miles in length.

All properties comprising our Pipeline System are wholly owned by us and
none are mortgaged or encumbered to secure funded debt. We have guaranteed up
to $75.0 million of Centennials unsecured debt (see Centennial Pipeline Equity
Investment above) and have also guaranteed the unsecured debt of our Parent
Partnership (see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Financial Condition and Liquidity).

Products are transported in liquid form from the upper Texas Gulf Coast
through two parallel underground pipelines that extend to Seymour, Indiana.
From Seymour, segments of our Pipeline System extend to the Chicago, Illinois;
Lima, Ohio; Selkirk, New York; and Philadelphia, Pennsylvania, areas. Our
Pipeline System east of Todhunter, Ohio, is dedicated solely to LPGs
transportation and storage services, primarily for propane.

Excluding the storage facilities of Centennial and MB Storage, our
Pipeline System includes 27 storage facilities with an aggregate storage
capacity of 16 million barrels of refined petroleum products and 6 million
barrels of LPG storage, including storage capacity leased to outside parties.
Our Pipeline System makes deliveries to customers at 56 locations including 19
truck racks, rail car facilities and marine facilities that we own. Deliveries
to other pipelines occur at various facilities owned by us or by third parties.

Our Pipeline System is comprised of a 20-inch diameter line extending in a
generally northeasterly direction from Baytown, Texas (located approximately 30
miles east of Houston), to a point in southwest Ohio near Lebanon and
Todhunter. A second line, which also originates at Baytown, is 16 inches in
diameter until it reaches Beaumont, at which point it reduces to a 14-inch
diameter line. This second line extends along the same path as the 20-inch
diameter line to our Pipeline Systems terminal in El Dorado, Arkansas, before
continuing as a 16-inch diameter line to Seymour. Our Pipeline System also has
smaller diameter lines that extend laterally from El Dorado to Helena,
Arkansas, from Tyler, Texas, to El Dorado and from McRae, Arkansas, to West
Memphis, Arkansas. The line from El Dorado to Helena has a 10-inch diameter.
The line from Tyler to El Dorado varies in diameter from 8 inches to 10 inches.
The line from McRae to West Memphis has a 12-inch diameter. Our Pipeline
System also includes a 14-inch diameter line from Seymour to Chicago, Illinois,
and a 10-inch diameter line running from Lebanon to Lima, Ohio. This 10-inch
diameter pipeline connects to the Buckeye Pipe Line Company system that serves,
among others, markets in Michigan and eastern Ohio. Our Pipeline System also
has a 6-inch diameter pipeline connection to the Greater Cincinnati/Northern
Kentucky International Airport and an 8-inch diameter pipeline connection to
the George Bush Intercontinental Airport in Houston. In addition, our Pipeline
System contains numerous lines, ranging in size from 6 inches to 20 inches in
diameter, associated with the gathering and distribution system, extending from
Baytown to Beaumont; Texas City to Baytown; Pasadena, Texas to Baytown and
Baytown to Mont Belvieu.

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Our Pipeline System continues eastward from Todhunter, Ohio, to
Greensburg, Pennsylvania, at which point it branches into two segments, one
ending in Selkirk, New York (near Albany), and the other ending at Marcus Hook,
Pennsylvania (near Philadelphia). Our Pipeline System east of Todhunter and
ending in Selkirk is an 8-inch diameter line, and the line starting at
Greensburg and ending at Marcus Hook varies in diameter from 6 inches to 8
inches.

In December 2002, we completed an upgrade of our Princeton, Indiana, LPG
truck rack to increase its capacity. During the fourth quarter of 2003, we
completed a Phase I project to expand our delivery capacity of LPGs in the
Northeast. The Phase I expansion increased delivery capability to the
Northeast during the peak winter months by approximately one million barrels.
The expansion consisted of the construction of three new pump stations located
between Middletown, Ohio, and Coshocton, Ohio. During the fourth quarter of
2003, we began projects to increase our truck rack capacity in the Northeast at
locations in New York and Pennsylvania in order to improve customer service to
those areas. These projects are scheduled to be completed in early 2004.
Additionally, in 2004, we have begun a Phase II project to further expand our
delivery capability to the Northeast by constructing three new pump stations
located between Coshocton and Greensburg, Pennsylvania, and two new pump
stations located between Greensburg and Watkins Glen, New York. The Phase II
projects are anticipated to be completed during the fourth quarter of 2004. We
have also approved a project for construction of a new truck loading terminal
in Bossier City, Louisiana, which is scheduled to be completed by the end of
2004.

We also own three 12-inch diameter common carrier petrochemical pipelines
between Mont Belvieu and Port Arthur. Each of these pipelines is approximately
70 miles in length. The pipelines transport ethylene, propylene and natural
gasoline. We entered into a 20-year agreement in 2002 with a major
petrochemical producer for guaranteed throughput commitments. During the years
ended December 31, 2003, 2002 and 2001, we recognized $11.9 million, $11.9
million and $10.7 million, respectively, of revenue under the throughput and
deficiency contract. We began transporting product through these pipelines in
September 2001.

We believe that our Pipeline System is in compliance with applicable
federal, state and local laws and regulations and accepted industry standards
and practices. We perform regular maintenance on all the facilities of our
Pipeline System and have an ongoing process of inspecting our Pipeline System
and making repairs and replacements when necessary or appropriate. In addition,
we conduct periodic air patrols of our Pipeline System to monitor pipeline
integrity and third-party right of way encroachments.

Major Business Sector Markets

Our major operations are the transportation, storage and terminaling of
refined petroleum products and LPGs along our mainline system. Product
deliveries, in millions of barrels (MMBbls) on a regional basis, for the years
ended December 31, 2003, 2002 and 2001, were as follows:

|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ------------------------------------ | ------------------------ |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                                      |                          |  | Product Deliveries (MMBbls)
|                                          |                                      |                          |  | Years Ended December 31,   
|                                          |                                      |                          |  |                            
|                                          |                                      |                          |  | 2003                        |       | 2002 |  | 2001
|                                          |                                      |                          |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                                      |                          |  |                             |       |      |  |      |       |  |  |     
|                                          | Central (1)                          |                          |  | 67.0                        |       |      |  | 62.9 |       |  |  | 62.0 |      
|                                          | Midwest (2)                          |                          |  | 57.7                        |       |      |  | 49.6 |       |  |  | 37.4 |      
|                                          | Ohio and Kentucky                    |                          |  | 29.4                        |       |      |  | 25.7 |       |  |  | 23.5 |      
|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                 |  |                             | 154.1 |      |  |      | 138.2 |  |  |      | 122.9 | 
|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                                      |                          |  |                             |       |      |  |      |       |  |  |     
|                                          | Central, Midwest and Kentucky (1)(2) |                          |  | 23.4                        |       |      |  | 25.4 |       |  |  | 23.8 |      
|                                          | Ohio and Northeast (3)               |                          |  | 19.1                        |       |      |  | 15.1 |       |  |  | 16.2 |      
|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                 |  |                             | 42.5  |      |  |      | 40.5  |  |  |      | 40.0  | 
|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Total Product Deliveries |  |                             | 196.6 |      |  |      | 178.7 |  |  |      | 162.9 | 
|                                          |                                      |                          |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Arkansas, Louisiana, Missouri and Texas.
|--- |  | ----------------------------------------
|   
|(2) |  | Illinois and Indiana.                   
|   
|(3) |  | New York and Pennsylvania.              

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The mix of products delivered varies seasonally. Gasoline demand is
generally stronger in the spring and summer months and LPGs demand is generally
stronger in the fall and winter months. Weather and economic conditions in the
geographic areas served by our Pipeline System also affect the demand for, and
the mix of, the products delivered.

Refined products and LPGs deliveries for the years ended December 31,
2003, 2002 and 2001, were as follows:

|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | --------------- | ------------------------ |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                 |                          |  | Product Deliveries (MMBbls)
|                                          |                 |                          |  | Years Ended December 31,   
|                                          |                 |                          |  |                            
|                                          |                 |                          |  | 2003                        |       | 2002 |  | 2001
|                                          |                 |                          |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                 |                          |  |                             |       |      |  |      |       |  |  |     
|                                          | Gasoline        |                          |  | 89.8                        |       |      |  | 81.9 |       |  |  | 69.4 |      
|                                          | Jet Fuels       |                          |  | 26.4                        |       |      |  | 25.3 |       |  |  | 25.4 |      
|                                          | Distillates (1) |                          |  | 37.9                        |       |      |  | 31.0 |       |  |  | 28.1 |      
|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                 | Subtotal                 |  |                             | 154.1 |      |  |      | 138.2 |  |  |      | 122.9 | 
|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                 |                          |  |                             |       |      |  |      |       |  |  |     
|                                          | Propane         |                          |  | 34.5                        |       |      |  | 32.9 |       |  |  | 32.8 |      
|                                          | Butanes         |                          |  | 8.0                         |       |      |  | 7.6  |       |  |  | 7.2  |      
|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                 | Subtotal                 |  |                             | 42.5  |      |  |      | 40.5  |  |  |      | 40.0  | 
|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                 | Total Product Deliveries |  |                             | 196.6 |      |  |      | 178.7 |  |  |      | 162.9 | 
|                                          |                 |                          |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Primarily diesel fuel, heating oil and other middle distillates.
|--- |  | ----------------------------------------------------------------

Refined Products Mainline Transportation

Our Pipeline System transports refined petroleum products from the upper
Texas Gulf Coast, eastern Texas and southern Arkansas to the Central and
Midwest regions of the United States with deliveries in Texas, Louisiana,
Arkansas, Missouri, Illinois, Kentucky, Indiana and Ohio. At these points,
refined petroleum products are delivered to terminals that we own, connecting
pipelines and customer-owned terminals.

The volume of refined petroleum products transported by our Pipeline
System is directly affected by the demand for refined products in the
geographic regions that our system serves. This market demand varies based upon
the different end uses to which the refined products deliveries are applied.
Demand for gasoline, which accounted for approximately 58% of the volume of
refined products transported through the Pipeline System during 2003, depends
upon price, prevailing economic conditions and demographic changes in the
markets that we serve. Demand for distillates is affected by truck and
railroad freight, the price of natural gas used by utilities, which use
distillates as a substitute for natural gas when the price of natural gas is
high, and usage for agricultural operations, which is affected by weather
conditions, government policy and crop prices. Demand for jet fuel depends
upon prevailing economic conditions and military usage.

Market prices for refined petroleum products affect the demand in the
markets we serve. Therefore, quantities and mix of products transported may
vary. Transportation tariffs of refined petroleum products vary among specific
product types. As a result, market price volatility may affect transportation
volumes and revenues from period to period.

LPGs Mainline Transportation

Our Pipeline System transports LPGs from the upper Texas Gulf Coast to the
Central, Midwest and Northeast regions of the United States. The Pipeline
System east of Todhunter, Ohio, is devoted solely to the transportation of
LPGs. Because propane demand is generally sensitive to weather in the winter
months, year-to-year variations of propane deliveries have occurred and will
likely continue to occur. Our Pipeline System also transports normal butane
and isobutane in the Midwest and Northeast for use in the production of motor
gasoline.

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Our ability to serve propane markets in the Northeast is enhanced by our
marine import terminal at Providence. This facility includes a 400,000-barrel
refrigerated storage tank along with ship unloading and truck loading
facilities. Effective May 2001, we entered into an agreement with an affiliate
of DEFS to commit sole utilization of the Providence terminal to an affiliate
of DEFS. We operate the terminal and provide propane loading services to an
affiliate of DEFS. The agreement, with an affiliate of DEFS, terminates in May
2004, and we are currently renegotiating the agreement. During the years ended
December 31, 2003, 2002 and 2001, revenues of $3.2 million, $2.3 million and
$1.5 million from an affiliate of DEFS, respectively, were recognized pursuant
to this agreement.

Other Operating Revenues

We also earn revenue from terminaling activities and other ancillary
services associated with the transportation and storage of refined petroleum
products and LPGs. From time to time, we sell excess product inventory. Other
operating revenues include revenues related to intrastate transportation of
petrochemicals under a throughput and deficiency contract.

Customers

Our customers for the transportation of refined petroleum products include
major integrated oil companies, independent oil companies, the airline industry
and wholesalers. End markets for these deliveries are primarily retail service
stations, truck stops, railroads, agricultural enterprises, refineries and
military and commercial jet fuel users.

Propane customers include wholesalers and retailers who, in turn, sell to
commercial, industrial, agricultural and residential heating customers, as well
as utilities who use propane as a back-up fuel source. Refineries constitute
our major customers for butane and isobutane, which are used as a blend stock
for gasolines and as a feed stock for alkylation units, respectively.

At December 31, 2003, we had approximately 130 customers. During the year
ended December 31, 2003, total revenues (and percentage of total revenues)
attributable to the top 10 customers were $149.5 million (57%), of which
Marathon Ashland Petroleum LLC accounted for approximately 18% of total
revenues. During the years ended December 31, 2002 and 2001, total revenues
(and percentage of total revenues) attributable to the top 10 customers were
$101.6 million (51%) and $115.0 million (44%), respectively. During the years
ended December 31, 2002 and 2001, no single customer accounted for 10% or more
of our revenues.

Credit Policies and Procedures

We manage our exposure to credit risk through credit analysis, credit
approvals, credit limits and monitoring procedures. We utilize letters of
credit and guarantees for certain of our receivables. However, these
procedures and policies do not fully eliminate customer credit risk. During
the years ended December 31, 2003 and 2002, a few of our small to medium-sized
customers filed for bankruptcy protection. During the years ended December 31,
2003 and 2002, we expensed approximately $0.8 million and $0.7 million,
respectively, of uncollectible receivables related to customer bankruptcies or
other non-payments.

Competition

Our Pipeline System conducts operations without the benefit of exclusive
franchises from government entities. Interstate common carrier transportation
services are provided through the system pursuant to tariffs filed with the
FERC.

Because pipelines are generally the lowest cost method for intermediate
and long-haul overland movement of refined petroleum products and LPGs, our
Pipeline Systems most significant competitors (other than indigenous

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production in our markets) are pipelines in the areas where the Pipeline
System delivers products. Competition among common carrier pipelines is based
primarily on transportation charges, quality of customer service and proximity
to end users. We believe our Pipeline System is competitive with other
pipelines serving the same markets; however, comparison of different pipelines
is difficult due to varying product mix and operations.

Trucks, barges and railroads competitively deliver products in some of the
areas served by our Pipeline System. Trucking costs, however, render that mode
of transportation less competitive for longer hauls or larger volumes. Barge
fees for the transportation of refined products are generally lower than our
tariffs. We face competition from rail movements of LPGs from Sarnia, Ontario,
Canada, and waterborne imports into New Hampshire.

Title to Properties

We believe we have satisfactory title to all of our assets. The properties
are subject to liabilities in certain cases, such as customary interests
generally contracted in connection with acquisition of the properties, liens
for taxes not yet due, easements, restrictions and other minor encumbrances.
We believe none of these liabilities materially affect the value of our
properties or our interest in the properties or will materially interfere with
their use in the operation of our business.

Capital Expenditures

Capital expenditures, excluding acquisitions, totaled $58.4 million for
the year ended December 31, 2003. Revenue generating projects include those
projects which expand service into new markets or expand capacity into current
markets. Capital expenditures to sustain existing operations include projects
required by regulatory agencies or required life-cycle replacements. System
upgrade projects improve operational efficiencies or reduce cost. We
capitalize interest costs incurred during the period that construction is in
progress. The following table identifies capital expenditures for the year
ended December 31, 2003 (in millions):

|                               |       |   |      |      | 
|------------------------------ | ----- | - | ---- | ---- | 
|Revenue generating             |       | $ | 26.4 |     
|Sustaining existing operations |       |   | 18.2 |     
|System upgrades                |       |   | 11.5 |     
|Capitalized interest           |       |   | 2.3  |     
|                               |       |   |      |     
|                               | Total |   | $    | 58.4 | 
|                               |       |   |      |     

Revenue
generating capital spending totaled $26.4 million and was used
primarily for the expansion of our pumping capacity of LPGs into the Northeast
markets, expansion of our North Houston terminal facility, increased storage
capacity at the Princeton, Indiana, terminal and expansion of delivery capacity
at various other locations. In order to sustain existing operations,
we spent $18.2 million for various pipeline projects. An additional $11.5 million was
spent on system upgrade projects.

We estimate that capital expenditures, excluding acquisitions, for 2004
will be approximately $66.3 million (which includes $2.0 million of capitalized
interest). We expect to spend approximately $48.2 million for revenue
generating projects and facility improvements which will include the expansion
of our pipelines extending from Seymour to Indianapolis, Indiana, further
expansions of our Northeast pipeline system and construction of a new truck
loading terminal in Bossier City, Louisiana. We expect to spend approximately
$16.1 million to sustain existing operations, including life-cycle replacements
for equipment at various facilities and pipeline and tank replacements. We
continually review and evaluate potential capital improvements and expansions
that would be complementary to our present system. These expenditures can vary
greatly depending on the magnitude of our transactions. We may finance capital
expenditures through internally generated funds, debt or capital contributions
from our Parent Partnership or any combination thereof.

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Regulation

Our interstate common carrier pipeline operations are subject to rate
regulation by the FERC under the provisions of the Interstate Commerce Act, the
Energy Policy Act of 1992 and rules and orders promulgated thereunder. FERC
regulation requires that interstate petroleum products and crude oil pipeline
rates be posted publicly and that these rates be just and reasonable and
nondiscriminatory.

Rates of interstate petroleum products pipeline companies, like us, are
currently regulated by the FERC primarily through an index methodology, which
allows a pipeline to change its rates based on the change from year to year in
the Producer Price Index for finished goods (PPI Index). Effective as of
February 24, 2003, FERC Order on Remand modified the PPI Index from PPI  1% to
PPI. On April 22, 2003, several shippers filed a petition in the United States
Court of Appeals for the District of Columbia Circuit, Flying J. Inc., Lion Oil
Company, Sinclair Oil Corporation and Tesoro Refining and Marketing Company vs.
Federal Energy Regulatory Commission, Docket No. 03-1107, seeking a review of
whether the FERCs adoption of the PPI Index was reasonable and supported by
the evidence. Oral arguments are scheduled for early 2004.

As an alternative to using the PPI Index, interstate petroleum products
pipeline companies may elect to support rate filings by using a cost-of-service
methodology, competitive market showings (Market-Based Rates) or agreements
between shippers and petroleum products pipeline companies that the rate is
acceptable.

We have been granted permission by the FERC to utilize Market-Based Rates
for all of our refined products movements other than the Little Rock, Arkansas,
Arcadia and Shreveport-Arcadia, Louisiana destination markets, which are
currently subject to the PPI Index. With respect to LPG movements, we use the
PPI Index.

In a 1995 decision involving an unrelated 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
pipeline limited partnership, the FERC held that the pipeline limited
partnership may not claim an income tax allowance for income attributable to
non-corporate limited partners. These FERC decisions do not affect our current
rates and rate structure because we do not use the cost-of-service methodology
to support our rates. However, the FERC decisions might become relevant to us
should we (i) elect in the future to use the cost-of-service methodology or
(ii) be required to use such methodology to defend initial rates or our indexed
rates against a shipper protest alleging that an indexed rate increase
substantially exceeds actual cost increases. Should these circumstances arise,
there can be no assurance with respect to the effect of these precedents on our
rates in view of the uncertainties involved in this issue.

Environmental Matters

Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.

Water

The Federal Water Pollution Control Act of 1972, as renamed and amended as
the Clean Water Act (CWA), and analogous state laws impose strict controls
against the discharge of oil and its derivatives into navigable waters. The CWA
provides penalties for any discharges of petroleum products in reportable
quantities and imposes substantial potential liability for the costs of
removing petroleum or other hazardous substances. State laws for the control of
water pollution also provide varying civil and criminal penalties and
liabilities in the case of a

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release of petroleum or its derivatives in navigable waters or into
groundwater. Spill prevention control and countermeasure requirements of
federal laws require appropriate containment berms and similar structures to
help prevent a petroleum tank release from impacting navigable waters.

Contamination resulting from spills or releases of petroleum products is
an inherent risk within the petroleum pipeline industry. To the extent that
groundwater contamination requiring remediation exists along our pipeline
systems as a result of past operations, we believe any such contamination could
be controlled or remedied without having a material adverse effect on our
financial position, but such costs are site specific, and we cannot assure you
that the effect will not be material in the aggregate.

The primary federal law for oil spill liability is the Oil Pollution Act
of 1990 (OPA), which addresses three principal areas of
oil pollution -- prevention, containment and cleanup, and liability. OPA applies to vessels,
offshore platforms and onshore facilities, including terminals, pipelines and
transfer facilities. In order to handle, store or transport oil, shore
facilities are required to file oil spill response plans with the appropriate
federal agency being either the United States Coast Guard, the United States
Department of Transportation Office of Pipeline Safety (OPS) or the
Environmental Protection Agency (EPA). Numerous states have enacted laws
similar to OPA. Under OPA and similar state laws, responsible parties for a
regulated facility from which oil is discharged may be liable for removal costs
and natural resource damages.

The EPA has adopted regulations that require us to have permits in order
to discharge certain storm water run-off. Storm water discharge permits may
also be required by certain states in which we operate. These permits may
require us to monitor and sample the storm water run-off.

Air Emissions

Our operations are subject to the federal Clean Air Act (the Clean Air
Act) and comparable state laws. Amendments to the Clean Air Act, as well as
recent or soon to be adopted changes to state implementation plans for
controlling air emissions in regional, non-attainment areas, may require our
operations to incur future capital expenditures in connection with the addition
or modification of existing air emission control equipment and strategies. In
addition, some of our facilities are included within the categories of
hazardous air pollutant sources, which are subject to increasing regulation
under the Clean Air Act. The Clean Air Act requires federal operating permits
for major sources of air emissions. Under this program, a federal operating
permit (a Title V permit) may be issued. The permit acts as an umbrella that
includes other federal, state and local preconstruction and/or operating permit
provisions, emission standards, grandfathered rates and record keeping,
reporting and monitoring requirements in a single document. The federal
operating permit is the tool that the public and regulatory agencies use to
review and enforce a sites compliance with all aspects of clean air regulation
at the federal, state and local level. We have completed applications for the
facilities for which these regulations apply.

Risk Management Plans

We are subject to the EPAs Risk Management Plan (RMP) regulations at
certain locations. This regulation is intended to work with the Occupational
Safety and Health Act (OSHA) Process Safety Management regulation (see
Safety Matters below) to minimize the offsite consequences of catastrophic
releases. The regulation requires a regulated source, in excess of threshold
quantities, to develop and implement a risk management program that includes a
five-year accident history, an offsite consequence analysis, a prevention
program and an emergency response program. We believe the operating expenses of
the RMP regulations will not have a material adverse effect on our financial
position, results of operations or cash flows.

Solid Waste

We generate hazardous and non-hazardous solid wastes that are subject to
requirements of the federal Resource Conservation and Recovery Act (RCRA) and
comparable state statutes. We also utilize waste minimization and recycling
processes to reduce the volumes of our waste. Amendments to RCRA required the
EPA to promulgate regulations banning the land disposal of all hazardous wastes
unless the wastes meet certain treatment standards or the land-disposal method
meets certain waste containment criteria. From time to time, the EPA considers
the adoption of stricter disposal standards for non-hazardous wastes, including
crude oil and gas wastes.

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The adoption of such stricter standards for non-hazardous wastes, or any
future re-designation of non-hazardous wastes as hazardous wastes will likely
increase our operating expenses as well as for the industry in general.

Superfund

The Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as Superfund, imposes liability, without regard to
fault or the legality of the original act, on certain classes of persons who
contributed to the release of a hazardous substance into the environment.
These persons include the owner or operator of a facility where a release
occurred and companies that disposed or arranged for the disposal of the
hazardous substances found at a facility. Under CERCLA, these persons may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment, for damages
to natural resources and for the costs of certain health studies. CERCLA also
authorizes the EPA and, in some instances, third parties to take actions in
response to threats to the public health or the environment and to seek to
recover the costs they incur from the responsible classes of persons. It is
not uncommon for neighboring landowners and other third parties to file claims
for personal injury and property damage allegedly caused by hazardous
substances or other pollutants released into the environment. In the course of
our ordinary operations, our pipeline systems generate wastes that may fall
within CERCLAs definition of a hazardous substance. In the event a disposal
facility previously used by us requires clean up in the future, we may be
responsible under CERCLA for all or part of the costs required to clean up
sites at which such wastes have been disposed.

Other Environmental Proceedings

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
to adjacent petroleum terminals operated by other companies. In 1999, our
Arcadia facility and adjacent terminals were directed by the Remediation
Services Division of the LDEQ to pursue remediation of this contamination. At
December 31, 2003, we have an accrued liability of $0.3 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program proposed to the LDEQ will have a future material adverse
effect on our financial position, results of operations or cash flows.

In December 1999, we were notified by the EPA of potential liability for
alleged waste disposal at Container Recycling, Inc., located in Kansas City,
Kansas. We were also asked to respond to an EPA Information Request. Our
response to the information request has been filed with the EPA Region VII
office. Based on information we have received from the EPA, as well as through
our internal investigations, we are pursuing dismissal from this matter.

In November 2002, we were notified by the EPA of a potential liability for
alleged waste disposal at Industrial Pollution Control located in Jackson,
Mississippi. Based on the pro-rata share of waste disposed of at the facility,
the potentially responsible parties were requested to file a tolling agreement.
We filed this agreement with the EPA in December 2002. Our contribution of
total waste disposed of at the facility was estimated to be less than 1%, and
we agreed in August 2003 to pay our pro-rata share of the remediation costs
which amounted to $12,000. This matter has been fully resolved with the EPA,
and no further action is expected.

On March 17, 2003, we experienced a release of 511 barrels of jet fuel
from a storage tank at our Blue Island terminal located in Cook County,
Illinois. As a result of the release, we have entered into an Agreed Order
with the State of Illinois. The Agreed Order requires us, in part, to complete
a site investigation plan to delineate the scope of any potential contamination
resulting from the release and to remediate any contamination present above
regulatory standards. This site investigation plan has been completed and
submitted to the State of Illinois. The Agreed Order does not contain any
provision for any fines or penalties; however, it does not preclude the State
of Illinois from assessing these at a later date. We do not expect that the
completion of the remediation program will have a future material adverse
effect on our financial position, results of operations or cash flows.

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DOT Pipeline Compliance Matters

We are subject to regulation by the United States Department of
Transportation (DOT) under the Accountable Pipeline and Safety Partnership
Act of 1996, sometimes referred to as the Hazardous Liquid Pipeline Safety Act
(HLPSA), and comparable state statutes relating to the design, installation,
testing, construction, operation, replacement and management of our pipeline
facilities. The HLPSA covers petroleum and petroleum products and requires any
entity that owns or operates pipeline facilities to comply with such
regulations, to permit access to and copying of records and to file certain
reports and provide information as required by the Secretary of Transportation.
The HLPSA was reauthorized in 2002. We believe we are in material compliance
with these HLPSA regulations.

We are subject to the DOT regulation requiring qualification of pipeline
personnel. The regulation requires pipeline operators to develop and maintain
a written qualification program for individuals performing covered tasks on
pipeline facilities. The intent of this regulation is to ensure a qualified
work force and to reduce the probability and consequence of incidents caused by
human error. The regulation establishes qualification requirements for
individuals performing covered tasks, and amends certain training requirements
in existing regulations. A written qualification program was completed in
April 2001, and our employees performing a covered task were qualified by the
October 2002 deadline. We believe we are in material compliance with these DOT
regulations.

We are also subject to the OPS Integrity Management regulations which
specify how companies with greater than 500 miles of pipeline should assess,
evaluate, validate and maintain the integrity of pipeline segments that, in the
event of a release, could impact High Consequence Areas (HCA). HCA are
defined as highly populated areas, unusually sensitive environmental areas and
commercially navigable waterways. The regulation requires the development and
implementation of an Integrity Management Program (IMP) that utilizes
internal pipeline inspection, pressure testing, or other equally effective
means to assess the integrity of HCA pipeline segments. The regulation also
requires periodic review of HCA pipeline segments to ensure adequate
preventative and mitigative measures exist and that companies take prompt
action to address integrity issues raised by the assessment and analysis. In
compliance with these OPS regulations, we identified our HCA pipeline segments
and developed an IMP by the March 31, 2002 deadline. The regulations require
that initial HCA baseline integrity assessments must be conducted within seven
years, with all subsequent assessments conducted on a five-year cycle. During
2003, we continued with the baseline evaluation efforts initiated in 2002 and
completed the evaluation and associated repair of approximately 1,200 miles of
our pipeline system.

Safety Matters

We are also subject to the requirements of the federal OSHA and comparable
state statutes. We believe we are in material compliance with OSHA and state
requirements, including general industry standards, record keeping requirements
and monitoring of occupational exposures.

The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and comparable state statutes require us to organize and
disclose information about the hazardous materials used in our operations.
Certain parts of this information must be reported to employees, state and
local governmental authorities and local citizens upon request. We are subject
to OSHA Process Safety Management (PSM) regulations, which are designed to
prevent or minimize the consequences of catastrophic releases of toxic,
reactive, flammable or explosive chemicals. These regulations apply to any
process which involves a chemical at or above the specified thresholds or any
process which involves a flammable liquid or gas, as defined in the
regulations, stored on-site in one location, in a quantity of 10,000 pounds or
more. We utilize certain covered processes and maintain storage of LPGs in
pressurized tanks, caverns and wells, in excess of 10,000 pounds at various
locations. Flammable liquids stored in atmospheric tanks below their normal
boiling point without benefit of chilling or refrigeration are exempt. We
believe we are in material compliance with the OSHA regulations.

In general, we expect to increase our expenditures during the next decade
to comply with stricter industry and regulatory safety standards such as those
described above. While such expenditures cannot be accurately

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estimated at this time, we do not believe that they will have a future
material adverse effect on our financial position, results of operations or
cash flows.

Employees

We do not have any employees, officers or directors. The General Partner
is responsible for our management. The Company is responsible for the
management of our Parent Partnership. As of December 31, 2003, the Company had
1,061 employees.

Available Information

We file annual, quarterly and other reports and other information with the
Securities and Exchange Commission (SEC) under the Securities Exchange Act of
1934 (the Exchange Act). You may read and copy any materials that we file
with the SEC at the SECs Public Reference Room at 450 Fifth Street, NW,
Washington, DC 20549. You may obtain additional information about the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains an Internet site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the SEC, including us.

We also make available free of charge on or through our Internet website
(http://www.teppco.com) or through our Investor Relations Department
(1-800-659-0059) our Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and other information statements and, if
applicable, amendments to those reports filed or furnished pursuant to Section
13(a) of the Exchange Act as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the SEC.




Item 3.Legal Proceedings

In the fall of 1999 and on December 1, 2000, the Company and the Parent
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, styled Ryan E. McCleery and Marcia S.
McCleery, et al. v. Texas Eastern Corporation, et al.(including the Company
and the Parent Partnership) and Gilbert Richards and Jean Richards v. Texas
Eastern Corporation, et al.(including the Company and Parent Partnership). In
both cases, the plaintiffs contend, among other things, that we and other
defendants stored and disposed of toxic and hazardous substances and hazardous
wastes in a manner that caused the materials to be released into the air, soil
and water. They further contend that the release caused damages to the
plaintiffs. In their complaints, the plaintiffs allege strict liability for
both personal injury and property damage together with gross negligence,
continuing nuisance, trespass, criminal mischief and loss of consortium. The
plaintiffs are seeking compensatory, punitive and treble damages. We have
filed an answer to both complaints, denying the allegations, as well as various
other motions. These cases are not covered by insurance. Discovery is
ongoing, and we are defending ourselves vigorously against the lawsuits. The
plaintiffs have not stipulated the amount of damages that they are seeking in
the suits. We cannot estimate the loss, if any, associated with these pending
lawsuits.

On December 21, 2001, we were named as a defendant in a lawsuit in the
10th Judicial District, Natchitoches Parish, Louisiana, styled Rebecca L.
Grisham et al. v. TE Products Pipeline Company, Limited Partnership. In this
case, the plaintiffs contend that our pipeline, which crosses the plaintiffs
property, leaked toxic products onto their property and, consequently, caused
damages to them. We have filed an answer to the plaintiffs petition denying
the allegations, and we are defending ourselves vigorously against the lawsuit.
The plaintiffs have not stipulated the amount of damages they are seeking in
the suit; however, this case is covered by insurance. We do not believe that
the outcome of this lawsuit will have a material adverse effect on our
financial position, results of operations or cash flows.

In May 2003, the Company was named as a defendant in a lawsuit styled John
R. James, et al. v. J Graves Insulation Company, et al., as filed in the first
Judicial District Court, Caddo Parish, Louisiana. There are numerous

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plaintiffs identified in the action that are alleged to have suffered
damages as the result of alleged exposure to asbestos-containing products and
materials. According to the petition and as a result of a preliminary
investigation, the Company believes that the only claim asserted against it
results from one individual for the period from July 1971 through June 1972,
who is alleged to have worked on a facility owned by the Companys predecessor.
This period represents a small portion of the total alleged exposure period
from January 1964 through December 2001 for this individual. The individuals
claims involve numerous employers and alleged job sites. Currently, the
Company has been unable to confirm involvement by the Company or its
predecessors with the alleged location, and it is currently uncertain whether
this case is covered by insurance. Discovery is planned, and the Company
intends to defend itself vigorously against this lawsuit. The plaintiffs have
not stipulated the amount of damages that they are seeking in this suit. We
are obligated to reimburse the Company for any costs it incurs related to this
lawsuit. We cannot estimate the loss, if any, associated with this pending
lawsuit. We do not believe that the outcome of this lawsuit will have a
material adverse effect on our financial position, results of operations or
cash flows.

On April 2, 2003, Centennial was served with a petition in a matter styled
Adams, et al. v. Centennial Pipeline Company LLC, et al. This matter involves
approximately 2,000 plaintiffs who allege that over 200 defendants, including
Centennial, generated, transported, and/or disposed of hazardous and toxic
waste at two sites in Bayou Sorrell, Louisiana, an underground injection well
and a landfill. The plaintiffs allege personal injuries, allergies, birth
defects, cancer and death. The underground injection well has been in
operation since May 1976. Based upon current information, Centennial appears
to be a de minimiscontributor, having used the disposal site during the two
month time period of December 2001 to January 2002. Marathon has been handling
this matter for Centennial under its operating agreement with Centennial. We
have a 50% ownership interest in Centennial. Based upon Centennials limited
involvement with the disposal site, we do not believe that the outcome of this
matter will have a material adverse effect on our financial position, results
of operations or cash flows

On December 16, 2003, Centennial, the Company, the Parent Partnership and
other Parent Partnership entities were named as defendants in a lawsuit in the
128th District Court of Orange County, Texas, styled Elwood Karr et al. v.
Centennial Pipeline, LLC et al. In this case, the plaintiffs contend that our
pipeline leaked toxic substances on their property, causing them property
damage. We have filed an answer to the plaintiffs petition, denying the
allegations, and we are defending ourselves vigorously against this lawsuit.
This case is covered by insurance. We do not believe that the outcome of this
lawsuit will have a material adverse effect on our financial position, results
of operations or cash flows.

In addition to the litigation discussed above, we have been, in the
ordinary course of business, a defendant in various lawsuits and a party to
various other legal proceedings, some of which are covered in whole or in part
by insurance. We believe that the outcome of these lawsuits and other
proceedings will not individually or in the aggregate have a future material
adverse effect on our consolidated financial position, results of operations or
cash flows.




Item 4.Submission of Matters to a Vote of Security Holders

None.




PART II




Item 5.Market for Registrants Common Equity and Related Partnership Interest Matters

TEPPCO Partners, L.P. owns a 99.999% interest as the sole limited partner
interest and TEPPCO GP, Inc. owns a 0.001% general partner interest in us.
There is no established public trading market for our ownership interests.

14



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##### Table of Contents



We make periodic distributions of our available cash to our partners.
Available cash consists generally of all cash receipts less cash disbursements
and cash reserves necessary for working capital, anticipated capital
expenditures and contingencies we deem appropriate and necessary.

We are a limited partnership, and we are not subject to federal income
tax. Instead, the partners are required to report their allocable share of our
income, gain, loss, deduction and credit, regardless of whether we make
distributions.




Item 6.Selected Financial Data

The following tables set forth, for the periods and at the dates
indicated, our selected consolidated financial and operating data. The
financial data was derived from our consolidated financial statements and
should be read in conjunction with our audited consolidated financial
statements included in the Index to Financial Statements on page F-1 of this
Report. See also Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations.

|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |        | 
|-------------------------- | --------------------------------------- | --------------------------------- | ------------------------------------- | ------- | ------------------------ | ------ | ---- | ------- | ------- | ------ | ---- | ------- | ------- | ------ |  | ------- | ------- | ------ |  | ------- | ------- | ------ | 
|                           |                                         |                                   |                                       |         | Years Ended December 31,
|                           |                                         |                                   |                                       |         |                         
|                           |                                         |                                   |                                       |         | 2003                     |        | 2002 |         | 2001    |        | 2000 |         | 1999   
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |        
|                           |                                         |                                   |                                       |         | (in thousands)          
|Income Statement Data: (1) |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |        
|                           | Operating revenues:                     |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |        
|                           |                                         | Transportation  refined products |                                       | $       | 138,926                  |        |      | $       | 123,476 |        |      | $       | 139,315 |        |  | $       | 119,331 |        |  | $       | 123,004 |       
|                           |                                         | Transportation  LPGs             |                                       |         | 91,787                   |        |      |         | 74,577  |        |      |         | 77,823  |        |  |         | 73,896  |        |  |         | 67,701  |       
|                           |                                         | Mont Belvieu operations           |                                       |         |                         |        |      |         | 15,238  |        |      |         | 14,116  |        |  |         | 13,334  |        |  |         | 12,849  |       
|                           |                                         | Other                             |                                       |         | 31,254                   |        |      |         | 30,247  |        |      |         | 32,979  |        |  |         | 22,673  |        |  |         | 19,361  |       
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                         | Total operating revenues          |                                       |         | 261,967                  |        |      |         | 243,538 |        |      |         | 264,233 |        |  |         | 229,234 |        |  |         | 222,915 |       
|                           | Operating expenses                      |                                   |                                       | 150,341 |                          |        |      | 130,324 |         |        |      | 119,856 |         |        |  | 118,065 |         |        |  | 112,941 |        
|                           | Depreciation and amortization           |                                   |                                       | 31,066  |                          |        |      | 30,116  |         |        |      | 26,699  |         |        |  | 25,728  |         |        |  | 25,094  |        
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                         | Operating income                  |                                       |         | 80,560                   |        |      |         | 83,098  |        |      |         | 117,678 |        |  |         | 85,441  |        |  |         | 84,880  |       
|                           | Interest expense  net                  |                                   |                                       | (27,219 | )                        |        |      | (22,742 | )       |        |      | (27,044 | )       |        |  | (27,529 | )       |        |  | (26,682 | )      
|                           | Equity earnings                         |                                   |                                       | (4,086  | )                        |        |      | (6,815  | )       |        |      | (1,149  | )       |        |  |        |         |        |  |        |        
|                           | Other income  net                      |                                   |                                       | 226     |                          |        |      | 832     |         |        |      | 1,537   |         |        |  | 1,651   |         |        |  | 1,471   |        
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                         |                                   | Income before discontinued operations |         |                          | 49,481 |      |         |         | 54,373 |      |         |         | 91,022 |  |         |         | 59,563 |  |         |         | 59,669 | 
|                           | Income from discontinued operations (2) |                                   |                                       |        |                          |        |      | 912     |         |        |      | 1,674   |         |        |  | 1,751   |         |        |  | 2,183   |        
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                         | Net income                        |                                       | $       | 49,481                   |        |      | $       | 55,285  |        |      | $       | 92,696  |        |  | $       | 61,314  |        |  | $       | 61,852  |       
|                           |                                         |                                   |                                       |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       

|                        |                                            |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------- | ------------------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                        |                                            |  | December 31,  
|                        |                                            |  |               
|                        |                                            |  | 2003           |         | 2002 |  | 2001 |         | 2000 |  | 1999
|                        |                                            |  |                |         |      |  |      |         |      |  |     
|                        |                                            |  | (in thousands)
|Balance Sheet Data: (1) |                                            |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        
|                        | Property, plant and equipment  net        |  | $              | 682,385 |      |  | $    | 722,848 |      |  | $    | 697,178 |  |  | $ | 640,656 |  |  | $ | 609,870 | 
|                        | Total assets                               |  |                | 900,648 |      |  |      | 881,101 |      |  |      | 879,834 |  |  |   | 755,507 |  |  |   | 724,216 | 
|                        | Long-term debt (net of current maturities) |  |                | 603,478 |      |  |      | 557,521 |      |  |      | 420,594 |  |  |   | 437,820 |  |  |   | 414,753 | 
|                        | Total debt                                 |  |                | 603,478 |      |  |      | 557,521 |      |  |      | 493,084 |  |  |   | 437,820 |  |  |   | 414,753 | 
|                        | Partners capital                          |  |                | 222,788 |      |  |      | 242,739 |      |  |      | 270,112 |  |  |   | 234,915 |  |  |   | 228,229 | 

|                    |                                                     |  |                          |          |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------- | --------------------------------------------------- |  | ------------------------ | -------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                    |                                                     |  | Years Ended December 31,
|                    |                                                     |  |                         
|                    |                                                     |  | 2003                     |          | 2002 |  | 2001 |         | 2000 |  | 1999
|                    |                                                     |  |                          |          |      |  |      |         |      |  |     
|                    |                                                     |  | (in thousands)          
|Cash Flow Data: (1) |                                                     |  |                          |          |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                    | Net cash provided by operating activities           |  | $                        | 96,088   |      |  | $    | 107,600 |      |  | $    | 123,070 |   |  | $ | 87,456  |   |  | $ | 85,606  |  
|                    | Capital expenditures to sustain existing
operations |  |                          | (18,169  | )    |  |      | (13,592 | )    |  |      | (12,724 | ) |  |   | (15,402 | ) |  |   | (22,139 | )
|                    | Distributions paid                                  |  |                          | (106,465 | )    |  |      | (94,921 | )    |  |      | (80,914 | ) |  |   | (70,767 | ) |  |   | (61,608 | )



---

|(1) |  | Amounts have been reclassified to reflect TEPPCO Colorado as
discontinued operations.
|--- |  | -------------------------------------------------------------------------------------
|   
|(2) |  | Discontinued operations relates to the sale of TEPPCO Colorado in
May 2002.          

15



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##### Table of Contents






Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations

The following information is provided to facilitate increased
understanding of our 2003, 2002 and 2001 consolidated financial statements and
our accompanying notes listed in the Index to Financial Statements on page F-1
of this Report. Accounting policies that are among the most critical to the
portrayal of our financial condition and results of operations are discussed
under -Critical Accounting Policies. Material period-to-period variances in
the consolidated statements of income are discussed under -Results of
Operations. The -Financial Condition and Liquidity section analyzes cash
flows and financial condition. Discussion included in -Other Considerations
addresses trends, future plans and contingencies that are reasonably likely to
materially affect future liquidity or earnings.

Overview

TE Products Pipeline Company, Limited Partnership, a Delaware limited
partnership, was formed in March 1990. TEPPCO Partners, L.P. owns a 99.999%
interest in us as the sole limited partner. TEPPCO GP, a subsidiary of the
Parent Partnership, holds a 0.001% General Partner interest in us. Texas
Eastern Products Pipeline Company, LLC, a Delaware limited liability company,
serves as the general partner of our Parent Partnership. The Company is a
wholly owned subsidiary of Duke Energy Field Services, LLC, a joint venture
between Duke Energy and ConocoPhillips. Duke Energy holds an interest of
approximately 70% in DEFS, and ConocoPhillips holds the remaining 30%. TEPPCO
GP, as general partner, performs all of our management and operating functions
required according to the Agreement of Limited Partnership of TE Products
Pipeline Company, Limited Partnership. We reimburse our General Partner and
the Company for all reasonable direct and indirect expenses that they incur in
managing us.

We are one of three operating subsidiaries of our Parent Partnership. Our
Parent Partnership is managed by its general partner, the Company, which has
approximately 1,000 employees dedicated to the operations and management of the
operating subsidiaries. Our Parent Partnership allocates operating, general
and administrative expenses to us for legal, insurance, financial,
communication and other administrative services based upon the estimated level
of effort devoted to our various operations. We believe that the method for
allocating corporate operating, general and administrative expenses to us is
reasonable.

We operate and report in one business segment: transportation and storage
of refined products, LPGs and petrochemicals. We own, operate or have
investments in properties located in 14 states, and our revenues are earned
from transportation and storage of refined products and LPGs, intrastate
transportation of petrochemicals, sale of product inventory and other ancillary
services. Our two largest operating expense items are labor and electric
power. We generally realize higher revenues during the first and fourth
quarters of each year since our operations are somewhat seasonal. Refined
products volumes are generally higher during the second and third quarters
because of greater demand for gasolines during the spring and summer driving
seasons. LPGs volumes are generally higher from November through March due to
higher demand in the Northeast for propane, a major fuel for residential
heating. Our results also include our equity investments in Centennial and MB
Storage (see Note 6. Equity Investments).

We are subject to economic and other factors that affect our industry.
The demand for petroleum products is dependent on the price of the products
produced and the demand for petrochemicals, which is dependent on prices for
products produced from petrochemicals. We are also subject to regulatory
factors which have an effect on the amounts we are allowed to charge our
customers for the services we provide on our regulated pipeline systems.

We are focused on opportunities, challenges and risks that are inherent in
our business segment as discussed in this Report. These include the safe,
reliable and efficient operation of the pipelines and facilities that we own or
operate while meeting increased regulations that govern the operation of our
assets and the costs associated with such regulations. We are also focused on
our continued growth through expansion of the assets that we own and through
acquisition of assets that compliment the business in which we operate.

16



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##### Table of Contents



In 2003, our results reflect record refined product and propane
deliveries, as a result of a 10% increase in volumes delivered during the
period. Revenues from the transportation of refined products and LPGs
increased $32.7 million during 2003, primarily as a result of the additional
capacity provided by the lease agreement with Centennial that we entered into
in February 2003. The lease agreement has allowed us to utilize Centennials
pipeline capacity in a manner that has provided additional delivery capability
for our customers.

Our costs were higher than expected, largely as a result of pipeline
integrity expenses. The goal of our on-going pipeline integrity program has
always been to maintain the long-term reliability and safety of our pipeline
systems, while minimizing the impact to our customers. During the year, we
spent $46.4 million on revenue generating capital projects,
which includes $20.0 million to acquire an additional interest in
Centennial, which we believe
will provide earnings, cash flow and growth opportunities. We funded these
projects by cash generated from operations and from our Parent Partnerships
credit facilities and debt and equity offerings.

We continued building a base for long-term growth by enhancing existing
systems and pursuing new business opportunities. We increased throughput on our
pipeline systems, constructed new pipelines and expanded and upgraded our
existing infrastructure. Among the highlights of 2003:



| |  |  | We acquired an additional interest in Centennial for $20.0 million,
bringing our ownership interest to 50%. Additionally, Centennial has
provided additional capacity through our lease agreement that has
enabled us to transport record refined product volumes in 2003.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | During the fourth quarter of 2003, we completed a $12.0 million
expansion project that was part of a system-wide effort to increase our
deliverability of LPGs to the Northeast markets.                                                                                  
|
| |  |  | We spent an additional $14.4 million on other revenue generating
projects, including the expansion of our terminal storage and delivery
capacity.                                                                                                                         

We remain confident that our current strategy and focus will provide
continued growth in earnings and cash distributions. With respect to 2004,
these opportunities include:



| |  |  | Construction of a new truck loading facility in Bossier City, Louisiana.   
| | - |  | ---------------------------------------------------------------------------
|
| |  |  | Continued development of refined products and propane market opportunities.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as well as the disclosure of contingent assets and liabilities at
the date of the financial statements. Such estimates and assumptions also
affect the reported amounts of revenues and expenses during the reporting
period. Changes in these estimates could materially affect our financial
position, results of operations or cash flows. Although we believe that these
estimates are reasonable, actual results could differ from these estimates.
Key estimates used by our management include estimates used to record revenue
and expense accruals, environmental costs, depreciation and amortization and
asset impairment. Significant accounting policies that we employ are presented
in the notes to the consolidated financial statements (see Note 2. Summary of
Significant Accounting Policies).

Critical accounting policies are those that are most important to the
portrayal of our financial position and results of operations. These policies
require managements most difficult, subjective or complex judgments, often
employing the use of estimates about the effect of matters that are inherently
uncertain. Our most critical accounting policies pertain to revenue and
expense accruals, environmental costs and property, plant and equipment.

Revenue and Expense Accruals

We routinely make accruals for both revenues and expenses due to the
timing of compiling billing information, receiving certain third party
information and reconciling our records with those of third parties. The
delayed information from third parties includes, among other things, actual
volumes of products transported,

17



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##### Table of Contents



adjustments to inventory and invoices for operating expenses. We make
accruals to reflect estimates for these items based on our internal records and
information received from third parties. Most of the estimated accruals are
reversed in the following month when actual information is received from third
parties and our internal records have been reconciled.

The most difficult accruals to estimate are power costs and property
taxes. Power cost accruals generally involve a two to three month estimate,
and the amount varies primarily for actual power usage. Power costs are
dependent upon the actual volumes transported through our pipeline systems and
the various power rates charged by numerous power companies along the pipeline
system. Peak demand rates, which are difficult to predict, drive the
variability of the power costs. Property tax accruals involve significant tax
rate estimates among numerous jurisdictions. Actual property taxes are often
not known until the tax bill is settled in subsequent periods, and the tax
amount can vary for tax rate changes and changes in tax methods or elections.
Each of these accruals requires managements subjective judgments, requiring
estimates regarding the effects of items that are inherently uncertain.

Environmental Costs

At December 31, 2003, we have accrued a liability for our estimate of the
future payments we expect to pay for environmental costs to remediate existing
conditions attributable to past operations. Environmental costs include
initial site surveys and environmental studies of potentially contaminated
sites, costs for remediation and restoration of sites determined to be
contaminated and ongoing monitoring costs, as well as damages and other costs,
when estimable. We monitor the balance of accrued undiscounted environmental
liabilities on a regular basis. We record liabilities for environmental costs
at a specific site when our liability for such costs is probable and a
reasonable estimate of the associated costs can be made. Adjustments to
initial estimates are recorded, from time to time, to reflect changing
circumstances and estimates based upon additional information developed in
subsequent periods. Estimates of our ultimate liabilities associated with
environmental costs are particularly difficult to make with certainty due to
the number of variables involved, including the early stage of investigation at
certain sites, the lengthy time frames required to complete remediation
alternatives available and the evolving nature of environmental laws and
regulations. For information concerning environmental regulation and
environmental costs and contingencies, see Items 1 and 2. Business and
Properties  Environmental Matters.

Property, Plant and Equipment

We record property, plant and equipment at its acquisition cost.
Additions to property, plant and equipment, including major replacements or
betterments, are recorded at cost. We charge replacements and renewals of
minor items of property that do not materially increase values or extend useful
lives to maintenance expense. The cost of property, plant and equipment, less
estimated salvage value, is generally depreciated on a straight-line basis
using rates based upon expected useful lives of various classes of assets
(ranging from 2% to 20% per year). Useful lives are based on historical
experience and are adjusted when changes in planned use, technological advances
or other factors show that a different life would be more appropriate. Changes
in useful lives that do not result in the impairment of an asset are recognized
prospectively.

We review long-lived assets for impairment in accordance with Statement of
Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of the
carrying amount of assets to be held and used is measured by a comparison of
the carrying amount of the asset to future net cash flows expected to be
generated by the asset. Estimates of future net cash flows include anticipated
future revenues, expected future operating costs and other estimates. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower
of the carrying amount or fair value less costs to sell.

During the second quarter of 2001, Pennzoil-Quaker State Company
(Pennzoil) sold its Shreveport, Louisiana, refinery. Under its
transportation agreement with us, Pennzoil had a throughput commitment of
25,000 barrels per day. We negotiated a settlement of $18.9 million with
Pennzoil to terminate the long-term transportation agreement from the
Shreveport origin point on the Pipeline System. The termination payment was
recorded as refined products transportation revenue in 2001. In connection
with the termination of the transportation agreement,

18



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##### Table of Contents



we evaluated its impact on the pipeline segment from Shreveport to El
Dorado, Arkansas, in accordance with SFAS 144. The evaluation did not result
in an impairment of the carrying value of the related transportation assets,
which was $28.1 million at December 31, 2003. We are pursuing a plan to make
system changes to allow for bi-directional product flow and deliveries into the
Shreveport market area. We have completed feasibility studies, and we are in
discussions with potential customers regarding the transportation of volumes
through this pipeline. We have approved a project for construction of a new
truck loading terminal in Bossier City, Louisiana, and the reversal of the
pipeline. Engineering design work and property acquisition for the terminal
site are currently under way, and the project is scheduled to be completed by
the end of 2004. If the successful completion of the plan is not realized on
this pipeline segment, an impairment may be recorded for the excess of the
carrying value over discounted future net cash flows.

Results of Operations

The following table presents volumes delivered in barrels and average
tariff per barrel for the years ended December 31, 2003, 2002 and 2001:

|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |    |    |    |   
|-------------------------- | ---------------- |  | -------------------------------- | ------- | ----------------------------------------- | ------- | ---------- | ------- | ---- | ------- | ---- | ------- | ---- | ------- |  | -- | ---------- | -- | - | -- | -- | -- | --
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    | Percentage
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    | Increase  
|                           |                  |  |                                  |         | Years Ended December 31,                  |         | (Decrease)
|                           |                  |  |                                  |         |                                           |         |           
|                           |                  |  |                                  |         | 2003                                      |         | 2002       |         | 2001 |         | 2003 |         | 2002
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |     
|                           |                  |  |                                  |         | (in thousands, except tariff information) |         |            |         |      |         |      |         |     
|Volumes Delivered:         |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |   
|                           | Refined products |  |                                  | 154,061 |                                           |         |            | 138,164 |      |         |      | 122,947 |      |         |  | 12 | %          |    |   | 12 | % 
|                           | LPGs             |  |                                  | 42,543  |                                           |         |            | 40,490  |      |         |      | 39,957  |      |         |  | 5  | %          |    |   | 1  | % 
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |    |   
|                           |                  |  | Total                            |         |                                           | 196,604 |            |         |      | 178,654 |      |         |      | 162,904 |  |    |            | 10 | % |    |    | 10 | % 
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |    |   
|Average Tariff per Barrel: |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |   
|                           | Refined products |  | $                                | 0.90    |                                           |         | $          | 0.89    |      |         | $    | 0.98    | (1)  |         |  | 1  | %          |    |   | (9 | %)
|                           | LPGs             |  |                                  | 2.16    |                                           |         |            | 1.84    |      |         |      | 1.95    |      |         |  | 17 | %          |    |   | (6 | %)
|                           |                  |  | Average system tariff per
barrel |         | $                                         | 1.17    |            |         | $    | 1.11    |      |         | $    | 1.22    |  |    |            | 5  | % |    |    | (9 | %)
|                           |                  |  |                                  |         |                                           |         |            |         |      |         |      |         |      |         |  |    |            |    |   |    |   



---

|(1) |  | Excludes $18.9 million received from Pennzoil in 2001 for canceled
transportation agreement discussed below.
|--- |  | ------------------------------------------------------------------------------------------------------------

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

We reported net income of $49.5 million for the year ended December 31,
2003, compared with net income of $55.3 million for the year ended December 31,
2002. Net income decreased $5.8 million primarily due to an increase of $21.0
million in costs and expenses, an increase of $3.6 million in interest expense,
a decrease of $0.9 million in interest capitalized, a decrease of $0.6 million
in other income  net and a decrease of $0.9 million in income from
discontinued operations, partially offset by an increase of $18.5 million in
operating revenues and increased income of $2.7 million from equity
investments. We discuss factors influencing our operating performance below.

Revenues from refined products transportation increased $15.5 million for
the year ended December 31, 2003, compared with the year ended December 31,
2002, due to an overall increase of 12% in the refined products volumes
delivered. This increase was primarily due to deliveries of products received
into our pipeline from Centennial at Creal Springs, Illinois. Centennial,
which began operations in April 2002, has provided our system with additional
pipeline capacity for products originating in the U.S. Gulf Coast area. In
February 2003, we entered into a lease agreement with Centennial that increased
our capacity to deliver refined products to our market areas. Prior to the
lease agreement with Centennial, deliveries on our pipeline system were based
upon a proration policy, which limited customer transportation. During 2003,
with the expanded capacity through our lease agreement with Centennial, our
pipeline system was not prorated during portions of 2003 and was better able to
serve markets which increased transportation on our system. In addition, in
December 2002, we raised the operating pressure of our Chicago lateral pipeline
which resulted in an increase in capacity for deliveries into the Indianapolis
and Chicago

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markets. With this incremental pipeline capacity, our previously constrained
system has expanded deliveries in markets both south and north of Creal
Springs. Volume increases were due to increased demand and market share for
products supplied from the U.S. Gulf Coast into Midwest markets. The refined
products average rate per barrel increased 1% from the prior year period
primarily due higher market-based tariff rates which went into effect in July
2003, partially offset by the impact of the Midwest origin point for barrels
received from Centennial, which resulted in an increase in short-haul barrels
transported on our system.

Revenues from LPGs transportation increased $17.2 million for the year
ended December 31, 2003, compared with the year ended December 31, 2002,
primarily due to increased deliveries of propane in the upper Midwest and
Northeast market areas attributable to colder than normal weather during the
first quarter of 2003 and due to low inventories at competing supply locations
during the second and third quarters of 2003. The U.S. Gulf Coast had higher
propane inventory during 2003 as compared to the previous year because of
higher than normal foreign propane imports at Mont Belvieu, which resulted in a
lower propane price in this market area. This lower price contributed to
increased transportation deliveries to the mid-continent market areas.
Additional pipeline capacity for expanded propane movements was available due
to a shift of refined product volumes to Centennial. Butane deliveries also
increased due to the increased demand by refineries for normal butane for use
in gasoline blending and increased isobutane deliveries to Chicago area
refineries. The LPGs average rate per barrel increased 17% from the prior year
period as a result of an increased percentage of long-haul deliveries during
the year ended December 31, 2003, and an increase in LPG tariff rates, which
went into effect in July 2003.

Effective January 1, 2003, our 50% ownership interest in MB Storage is
accounted for as an equity investment. Revenues generated from Mont Belvieu
operations totaled $15.2 million for the year ended December 31, 2002. As a
result of the formation of MB Storage, revenues and expenses related to Mont
Belvieu operations are now recorded within equity earnings. See discussion
regarding changes in equity earnings/losses below.

Other operating revenues increased $1.0 million for the year ended
December 31, 2003, compared with the year ended December 31, 2002, primarily
due to higher propane deliveries at our Providence, Rhode Island import
facility and higher refined product loading fees, offset by lower revenues from
product location exchanges which are used to position product in the Midwest
market area and lower volume of product inventory sales.

Costs and expenses increased $21.0 million for the year ended December 31,
2003, compared with the year ended December 31, 2002. The increase was made up
of a $22.6 million increase in operating, general and administrative expenses
and a $1.0 million increase in depreciation and amortization expense, partially
offset by a $2.4 million decrease in taxes  other than income taxes and a $0.2
million decrease in operating fuel and power. Operating, general and
administrative expenses increased primarily due to higher pipeline maintenance
expenses, due in part to pipeline rehabilitation expenses associated with our
integrity management program, increased consulting and contract services,
increased labor costs primarily due to an increase in the number of employees
between years, increased insurance expense, expense from the Centennial
pipeline capacity lease agreement that we entered into in 2003 and the
write-off of receivables of $0.8 million related to customer bankruptcies or
other customer non-payments. Depreciation and amortization expense increased
from the prior year period because of assets placed in service during the year,
which resulted in increased depreciation expense. In addition, we wrote off
assets taken out of service during the period to depreciation expense, which
also increased depreciation expense. These increases in depreciation expense
were partially offset by lower depreciation expense from assets retired during
the year, which reduced the asset base, and due to the transfer of assets to MB
Storage. Taxes  other than income taxes decreased as a result of actual
property taxes being lower than previously estimated and due to the transfer of
assets to MB Storage. Operating fuel and power expense decreased as a result
of lower power costs due to a slight decrease in the price of natural gas,
partially offset by increased mainline throughput.

Interest expense increased $3.6 million for the year ended December 31,
2003, compared with the year ended December 31, 2002, as a result of higher
outstanding debt balances under the note payable with our Parent Partnership,
and an increased percentage of fixed-rate debt in 2003 by the Parent
Partnership. Interest capitalized decreased $0.9 million for the year ended
December 31, 2003, compared with the year ended December 31, 2002, as a result
of decreased construction work-in-progress balances.

Net losses from equity investments decreased $2.7 million for the year
ended December 31, 2003, compared with the year ended December 31, 2002. On
February 10, 2003, we acquired an additional 16.7% interest

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in Centennial, bringing our ownership interest to 50%. Centennial, which
commenced operations in April 2002, accounted for $11.4 million of the equity
losses for the year ended December 31, 2003, resulting in an increase of $4.7
million in equity losses as compared with the year ended December 31, 2002.
During the year ended December 31, 2003, we recognized increased equity losses
from our investment in Centennial due to the acquisition of the additional
16.7% ownership interest in February 2003. In April 2003, we entered into a pipeline capacity lease with Centennial for a period of five years in
order to expand our capacity to deliver refined products to our market areas.
The losses from Centennial are partially offset by equity earnings of $7.4
million from our equity ownership interest in MB Storage, which was formed
effective January 1, 2003. Amounts in the prior year period related to Mont
Belvieu operations which were recorded to revenues and costs and expenses are
now being recorded within equity earnings based upon our equity ownership
interest in MB Storage, effective with its formation on January 1, 2003. If
the 2002 revenues and costs and expenses from the Mont Belvieu operations had
been accounted for under the same method as in 2003, equity earnings from MB
Storage would have increased $0.2 million in 2003, compared with the prior
year, due to increased shuttle deliveries and increased storage revenue,
partially offset by increases in depreciation expense and rehabilitation
expenses on MB Storage assets.

Other income  net decreased $0.6 million for the year ended December 31,
2003, compared with the year ended December 31, 2002, primarily due to lower
interest income earned on cash investments.

We are dependent in large part on the demand for refined petroleum
products in the markets that we serve. Reductions in that demand adversely
affect our pipeline business. Market demand varies based upon the different
end uses of the refined products that we ship. Demand for gasoline, which in
recent years has accounted for approximately one-half of our refined products
transportation revenues, depends upon price, prevailing economic conditions and
demographic changes in the markets that we serve. Demand for distillates is
affected by truck and railroad freight, the price of natural gas used by
utilities, which use distillates as a substitute for natural gas when the price
of natural gas is high, and usage for agricultural operations, which is
affected by weather conditions, government policy and crop prices. Demand for
jet fuel, which in recent years has accounted for approximately one-quarter of
our refined products revenues, depends on prevailing economic conditions and
military usage. Propane deliveries are generally sensitive to the weather and
meaningful year-to-year variances have occurred in the past and will likely
continue to occur in the future.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

We reported net income of $55.3 million for the year ended December 31,
2002, compared with net income of $92.7 million for the year ended December 31,
2001. Net income decreased $37.4 million primarily due to a decrease of $20.7
million in operating revenues, an increase of $13.9 million in costs and
expenses, additional losses of $5.7 million from equity investments, a decrease
of $0.6 million in other income  net, a decrease of $0.3 million in interest
capitalized and a decrease of $0.8 million in income from discontinued
operations. The decreases to net income were partially offset by a decrease of
$4.6 million in interest expense. We discuss factors influencing our operating
performance below.

Revenues from refined products transportation decreased $15.8 million for
the year ended December 31, 2002, compared with the year ended December 31,
2001, primarily due to $18.9 million of revenue recognized in 2001 from a cash
settlement received from a canceled transportation agreement with Pennzoil and
the recognition of $1.7 million of previously deferred revenue related to the
approval of market-based rates during the second quarter of 2001. See further
discussion regarding these factors included in Other Considerations. These
decreases were partially offset by a 12% increase in refined products volumes
delivered during the year ended December 31, 2002, primarily due to barrels
received into our pipeline from Centennial at Creal Springs, Illinois.
Centennial commenced refined products deliveries to us beginning in April 2002.
The overall increase in refined products deliveries was partially offset by a
1.3 million barrel decrease in methyl tertiary butyl ether (MTBE) deliveries
as a result of the expiration of contract deliveries to our marine terminal
near Beaumont effective April 2001. As a result of the contract expiration, we
no longer transport MTBE through our Pipeline System. The refined products
average rate per barrel decreased 9% from the prior year due to the impact of
the Midwest origin point for volumes received from Centennial, which was
partially offset by decreased short-haul MTBE volumes delivered, and higher
market-based tariff rates, which went into effect in July 2001.

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Revenues from LPGs transportation decreased $3.2 million for the year
ended December 31, 2002, compared with the year ended December 31, 2001,
primarily due to decreased deliveries of propane in the upper Midwest and
Northeast market areas attributable to warmer than normal weather in the first
quarter of 2002. The decrease was also due to lower prices from competing
Canadian and mid-continent propane supply as compared to propane originating
from the Gulf Coast. Total LPGs volumes delivered increased 1% as a result of
increased short-haul deliveries to a petrochemical facility on the upper Texas
Gulf Coast. The LPGs average rate per barrel decreased 6% from the prior year
as a result of a decreased percentage of long-haul deliveries during the year
ended December 31, 2002.

Revenues generated from Mont Belvieu operations increased $1.1 million for
the year ended December 31, 2002, compared with the year ended December 31,
2001, as a result of increased storage revenue and receipt revenue. Mont
Belvieu shuttle volumes delivered increased 25% during the year ended December
31, 2002, compared with the year ended December 31, 2001, due to increased
petrochemical demand. The Mont Belvieu average rate per barrel decreased 17%
during the year ended December 31, 2002, as a result of increased contract
shuttle deliveries, which generally carry lower rates.

Other operating revenues decreased $2.8 million for the year ended
December 31, 2002, compared with the year ended December 31, 2001, primarily
due to lower propane deliveries at our Providence import facility, lower
refined products storage revenue, lower margins on product inventory sales and
lower revenues from product location exchanges which are used to position
product in the Midwest market area. These decreases were partially offset by
increased refined products and LPGs loading fees.

Costs and expenses increased $13.9 million for the year ended December 31,
2002, compared with the year ended December 31, 2001. The increase was
comprised of an $11.8 million increase in operating, general and administrative
expenses, a $3.4 million increase in depreciation and amortization expense and
a $3.1 million increase in taxes  other than income taxes. These increases
were partially offset by a $4.4 million decrease in operating fuel and power
expense. Operating, general and administrative expenses increased primarily
due to higher pipeline rehabilitation expenses associated with our integrity

management program, increased consulting and contract services, increased labor
costs and increased general and administrative supplies expense. Depreciation
expense increased from the prior year because of assets placed in service
during 2002. Taxes  other than income taxes increased as a result of a higher
property base in 2002. Operating fuel and power expense decreased as a result
of decreased long-haul volumes delivered related to Midwest volumes received
from Centennial and lower power costs.

Interest expense decreased $4.6 million for the year ended December 31,
2002, compared with the year ended December 31, 2001, due to lower interest
rates on the note payable with the Parent Partnership. Interest capitalized
decreased $0.3 million for the year ended December 31, 2002, compared with the
year ended December 31, 2001, due to decreased balances during 2002 on
construction work-in-progress partially offset by interest capitalized on our
investment in Centennial during the first quarter of 2002.

Net losses from equity investments increased $5.7 million for the year
ended December 31, 2002 compared with the year ended December 31, 2001. The
increase is primarily due to pre-operating expenses and start-up costs of
Centennial, which commenced operations in early April 2002.

Other income  net decreased $0.8 million for the year ended December 31,
2002, compared with the year ended December 31, 2001. The decrease was
primarily due to lower interest income earned on cash investments.

Discontinued Operations

Effective January 1, 2002, our Parent Partnership realigned its business
segments to reflect its entry into the natural gas gathering business and the
expanded scope of its NGLs operations. As part of this realignment, on May 31,
2002, we entered into an Assignment and Assumption Agreement with TEPPCO
Midstream to transfer our investment in TEPPCO Colorado, which fractionates
NGLs, to TEPPCO Midstream at the book value of TEPPCO Colorados net assets
(see Note 19. Discontinued Operations). SFAS 144 requires that long-lived
assets to be disposed of should be recorded at the lower of their carrying
amount or fair value less costs to sell. As a result, in

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the quarter ended June 30, 2002, we compared the fair value of TEPPCO Colorado
to its carrying value and noted no indication of impairment.

As a result of the transfer, our financial position and results of
operations have been reclassified to reflect revenue, expenses, assets and
liabilities of TEPPCO Colorado as discontinued operations. Condensed
statements of income are shown below for TEPPCO Colorado for the years ended
December 31, 2002 and 2001 (in thousands):

|                                      |                  |   |              |       |      |   |        |       | 
|------------------------------------- | ---------------- | - | ------------ | ----- | ---- | - | ------ | ----- | 
|                                      |                  |   | Years Ended 
|                                      |                  |   | December 31,
|                                      |                  |   |             
|                                      |                  |   | 2002         |       | 2001
|                                      |                  |   |              |       |     
|Revenues                              |                  | $ | 3,115        |       |      | $ | 7,394  |      
|Operating, general and administrative |                  |   | 369          |       |      |   | 880    |      
|Depreciation and amortization         |                  |   | 840          |       |      |   | 2,015  |      
|                                      |                  |   |              |       |      |   |        |      
|                                      | Operating income |   |              | 1,906 |      |   |        | 4,499 | 
|Interest expense                      |                  |   | (1,015       | )     |      |   | (2,899 | )    
|Other income  net                    |                  |   | 21           |       |      |   | 74     |      
|                                      |                  |   |              |       |      |   |        |      
|                                      | Net income       |   | $            | 912   |      |   | $      | 1,674 | 
|                                      |                  |   |              |       |      |   |        |      

The following table presents volumes fractionated and average rate per
barrel for TEPPCO Colorado for the years ended December 31, 2002 and 2001:

|                      |                         |  |              |       |                       |  |      |       |  |  |  |       |   
|--------------------- | ----------------------- |  | ------------ | ----- | --------------------- |  | ---- | ----- |  |  |  | ----- | --
|                      |                         |  | Years Ended  |       | Percentage           
|                      |                         |  | December 31, |       | Increase / (Decrease)
|                      |                         |  |              |       |                      
|                      |                         |  | 2002         |       | 2001                  |  | 2002
|                      |                         |  |              |       |                       |  |     
|Fractionation  NGLs: |                         |  |              |       |                       |  |      |       |  |  |  |      
|                      | Thousand barrels        |  |              | 2,043 |                       |  |      | 4,078 |  |  |  | (49.9 | %)
|                      | Average rate per barrel |  | $            | 1.827 |                       |  | $    | 1.813 |  |  |  | 0.8   | % 

Financial Condition and Liquidity

Cash flows
for the years ended December 31, 2003, 2002 and 2001, were as follows (in
millions):

|                            |                      |  |                          |       |      |  |      |       |   |  |   |        |  
|--------------------------- | -------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|                            |                      |  | Years Ended December 31,
|                            |                      |  |                         
|                            |                      |  | 2003                     |       | 2002 |  | 2001
|                            |                      |  |                          |       |      |  |     
|Cash provided by (used in): |                      |  |                          |       |      |  |      |       |   |  |   |       
|                            | Operating activities |  | $                        | 96.1  |      |  | $    | 107.6 |   |  | $ | 123.1  |  
|                            | Investing activities |  |                          | (84.2 | )    |  |      | (64.3 | ) |  |   | (142.1 | )
|                            | Financing activities |  |                          | (12.2 | )    |  |      | (46.5 | ) |  |   | 13.5   |  

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Operating Activities

Net cash from operating activities for the years ended December 31, 2003,
2002 and 2001, were comprised of the following (in millions):

|                                                     |  |                          |      |      |  |      |       |  |  |   |       |  
|---------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                     |  | Years Ended December 31,
|                                                     |  |                         
|                                                     |  | 2003                     |      | 2002 |  | 2001
|                                                     |  |                          |      |      |  |     
|Net income                                           |  | $                        | 49.5 |      |  | $    | 54.4  |  |  | $ | 91.0  |  
|Depreciation and amortization                        |  |                          | 31.1 |      |  |      | 30.1  |  |  |   | 26.7  |  
|Losses in equity investments                         |  |                          | 4.1  |      |  |      | 6.8   |  |  |   | 1.0   |  
|Distributions from equity investments                |  |                          | 5.3  |      |  |      |      |  |  |   |      |  
|Non-cash portion of interest expense                 |  |                          | 0.1  |      |  |      | 0.1   |  |  |   | 0.6   |  
|Cash provided by (used in) working capital and other |  |                          | 6.0  |      |  |      | 15.0  |  |  |   | (2.7  | )
|                                                     |  |                          |      |      |  |      |       |  |  |   |       |  
|Net cash provided by continuing operations           |  |                          | 96.1 |      |  |      | 106.4 |  |  |   | 116.6 |  
|Net cash provided by discontinued operations         |  |                          |     |      |  |      | 1.2   |  |  |   | 6.5   |  
|                                                     |  |                          |      |      |  |      |       |  |  |   |       |  
|Net cash from operating activities                   |  | $                        | 96.1 |      |  | $    | 107.6 |  |  | $ | 123.1 |  
|                                                     |  |                          |      |      |  |      |       |  |  |   |       |  

For a discussion of changes in net income, depreciation and amortization
and equity earnings, see Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations. Cash provided by operating
activities decreased for the year ended December 31, 2003, compared with the
years ended December 31, 2002 and 2001, primarily due to changes in working
capital components resulting from the timing of cash receipts and cash
disbursements.

We believe that we will continue to have adequate liquidity to fund future
recurring operating and investing activities. Our primary cash requirements
consist of normal operating expenses, capital expenditures to sustain existing
operations and revenue generating expenditures, interest payments on our Senior
Notes and on borrowings under our Parent Partnerships credit facilities and
distributions to our Parent Partnership. Short-term cash requirements, such as
operating expenses, capital expenditures to sustain existing operations and
quarterly distributions to our Parent Partnership, are expected to be funded
through operating cash flows. Long-term cash requirements for expansion
projects are expected to be funded by several sources, including cash flows
from operating activities, borrowings under our Parent Partnerships credit
facilities and the issuance by our Parent Partnership of additional equity and
debt securities. The timing of any debt or offerings by our Parent Partnership
will depend on various factors, including prevailing market conditions,
interest rates and our Parent Partnerships financial condition and credit
rating at the time.

At December 31, 2003 and 2002, we had working capital deficits of $12.3
million and $1.4 million, respectively. Cash generated from operations and
from our Parent Partnerships credit facilities and debt and equity offerings
are our primary sources of liquidity. We are a wholly owned subsidiary of the
Parent Partnership. We expect that our Parent Partnership will make capital
contributions, loans or otherwise provide liquidity to us as needed, but the
Parent Partnership has no contractual obligation to do so. We anticipate that
the Parent Partnership will provide the necessary liquidity to protect its
investment in us. At December 31, 2003, our Parent Partnership had $340.0
million in available borrowing capacity under its revolving credit facility to
cover any working capital shortfalls, and expects that cash flows from
operating activities, the sale of additional debt or equity offerings will
provide necessary liquidity. For further discussion regarding our Parent
Partnerships sources of liquidity, please see Item 7. Managements Discussion
and Analysis of Financial Condition and Results of Operations  Financial
Condition and Liquidity in our Parent Partnerships Annual Report on Form 10-K
for the Year Ended December 31, 2003.

Net cash from operating activities for the years ended December 31, 2003,
2002 and 2001, included interest payments, net of amounts capitalized, of $30.3
million, $25.0 million and $31.0 million, respectively. Excluding the effects
of hedging activities and interest capitalized, during the year ended December
31, 2004, we expect interest payments on our Senior Notes to be approximately
$27.4 million. We expect to pay our interest payments with cash flows from
operating activities.

Investing Activities

Cash flows used in investing activities totaled $84.2 million for the year
ended December 31, 2003, and were comprised of $58.4 million of capital
expenditures, $20.0 million for our acquisition of an additional 16.7% interest
in Centennial, $4.0 million of cash contributions to Centennial and $2.5
million of cash contributions to MB Storage. These uses of cash were partially
offset by $0.7 million received on matured cash investments. Cash flows used
in investing activities totaled $64.3 million for the year ended December 31,
2002, and were comprised of $60.9 million of capital expenditures and $10.9
million of cash contributions to Centennial, partially offset by $3.4 million
of cash proceeds from the sale of assets and $4.1 million of cash proceeds from
the sale of TEPPCO Colorado. Cash flows used in investing activities totaled
$142.1 million for the year ended December 31, 2001, and were comprised of
$81.4 million of capital expenditures and $64.9 million of cash contributions
to Centennial, partially offset by $4.2 million of net proceeds received from
cash investments.

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Financing Activities

Cash flows used in financing activities totaled $12.2 million for the year
ended December 31, 2003, and were comprised of $106.5 million of distributions
paid to our Parent Partnership and $53.6 million of repayments on our term
loan, partially offset by $110.9 million of proceeds from our term loan and
$37.0 million of equity contributions received from our Parent Partnership.
Cash flows used in financing activities totaled $46.5 million for the year
ended December 31, 2002, and were comprised of $94.9 million of distributions
paid to our Parent Partnership and $150.0 million of repayments on our term
loan, partially offset by $186.1 million of proceeds from our term loan and
$12.3 million of equity contributions received from our Parent Partnership.
Cash flows provided by financing activities totaled $13.5 million for the year
ended December 31, 2001, and were comprised of $166.1 million of proceeds from
our term loan, $1.2 million of advances from our Parent Partnership and $24.0
million of equity contributions from our Parent Partnership, partially offset
by $96.9 million of repayments on our term loan and $80.9 million of
distributions paid to our Parent Partnership.

Centennial entered into credit facilities totaling $150.0 million, and as
of December 31, 2003, $150.0 million was outstanding under those credit
facilities. The proceeds were used to fund construction and conversion costs
of its pipeline system. We and Marathon have each guaranteed one-half of
Centennials debt, up to a maximum of $75.0 million each.

Parent Partnership Credit Facilities

We currently utilize debt financing available from our Parent Partnership
through intercompany notes. The terms of the intercompany notes generally match
the principal and interest payment dates under the Parent Partnerships credit
agreements. The interest rates charged by the Parent Partnership include the
stated interest rate of the Parent Partnership, plus a premium to cover debt
issuance costs. The interest rate is also decreased or increased to cover
gains and losses, respectively, on any interest rate swaps that the Parent
Partnership may have in place on its respective credit agreements. These
credit facilities of the Parent Partnership are described below.

On April 6, 2001, our Parent Partnership entered into a $500.0 million
revolving credit facility including the issuance of letters of credit of up to
$20.0 million (Three Year Facility). The interest rate was based, at our
Parent Partnerships option, on either the lenders base rate plus a spread, or
LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement for the Three Year Facility contained certain restrictive financial
covenant ratios. During 2002, our Parent Partnerships borrowings under the
Three Year Facility were used to finance the acquisitions of the Chaparral NGL
system on March 1, 2002, and the Val Verde Gas Gathering System (Val Verde)
on June 30, 2002, and for general Parent Partnership purposes. During 2002,
our Parent Partnership made repayments on the Three Year Facility with proceeds
from the issuance of its 7.625% Senior Notes, proceeds from the issuance of
additional Limited Partner Units and proceeds from the termination of interest
rate swaps. During the first quarter of 2003, our Parent Partnership repaid
$182.0 million of the outstanding balance of the Three Year Facility with
proceeds from the issuance of its 6.125% Senior Notes on January 30, 2003. On
June 27, 2003, our Parent Partnership repaid the outstanding balance under the
Three Year Facility with borrowings under a new credit facility and canceled
the Three Year Facility.

On June 27, 2003, our Parent Partnership entered into a $550.0 million
revolving credit facility with a three year term, including the issuance of
letters of credit of up to $20.0 million (Revolving Credit Facility). The
interest rate is based, at our Parent Partnerships option, on either the
lenders base rate plus a spread, or LIBOR plus a spread in effect at the time
of the borrowings. The credit agreement for the Revolving Credit Facility
contains certain restrictive financial covenant ratios. Our Parent Partnership
borrowed $263.0 million under the Revolving Credit Facility and repaid the
outstanding balance of the Three Year Facility. At December 31, 2003, $210.0
million was outstanding under the Revolving Credit Facility.

On April 6, 2001, our Parent Partnership entered into a 364-day, $200.0
million revolving credit agreement (Short-term Revolver). The interest rate
was based, at our Parent Partnerships option, on either the lenders base rate
plus a spread, or LIBOR plus a spread in effect at the time of the borrowings.
The credit agreement contained certain restrictive financial covenant ratios.
On March 28, 2002, the Short-term Revolver was extended for an additional
period of 364 days, ending in March 2003. During 2002, the Parent
Partnerships borrowings under the Short-term Revolver were used to finance the
acquisition of the Val Verde assets and for other purposes. During

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2002, the Parent Partnership repaid the existing amounts outstanding under
the Short-term Revolver with proceeds it received from the issuance of Limited
Partner Units in 2002. The Short-term Revolver expired on March 27, 2003.

On February 20, 2002, our Parent Partnership issued $500.0 million
principal amount of 7.625% Senior Notes due 2012. The 7.625% Senior Notes were
issued at a discount of $2.2 million and are being accreted to their face value
over the term of the notes. The Parent Partnership used the proceeds from the
offering to reduce a portion of the outstanding balances of its credit
facilities. The Senior Notes may be redeemed at any time at our Parent
Partnerships option with the payment of accrued interest and a make-whole
premium determined by discounting remaining interest and principal payments
using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing these 7.625% Senior Notes contains covenants, including,
but not limited to, covenants limiting the creation of liens securing
indebtedness and sale and leaseback transactions. However, the indenture does
not limit our Parent Partnerships ability to incur additional indebtedness.

On January 30, 2003, our Parent Partnership issued $200.0 million
principal amount of 6.125% Senior Notes due 2013. The 6.125% Senior Notes were
issued at a discount of $1.4 million and are being accreted to their face value
over the term of the notes. The Parent Partnership used $182.0 million of the
proceeds from the offering to reduce the outstanding principal on the Three
Year Facility to $250.0 million. The balance of the net proceeds received was
used for general Parent Partnership purposes. The Senior Notes may be redeemed
at any time at our Parent Partnerships option with the payment of accrued
interest and a make-whole premium determined by discounting remaining interest
and principal payments using a discount rate equal to the rate of the United
States Treasury securities of comparable remaining maturity plus 35 basis
points. The indenture governing the 6.125% Senior Notes contains covenants,
including, but not limited to, covenants limiting the creation of liens
securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit the Parent Partnerships ability to incur additional
indebtedness.

At December 31, 2003 and 2002, we had intercompany notes payable to our
Parent Partnership of $211.3 million and $154.1 million, respectively, which
represented borrowings under the Parent Partnerships Revolving Credit
Facility, 7.625% Senior Notes and 6.125% Senior Notes. The weighted average
interest rate on the note payable to the Parent Partnership at December 31,
2003, was 5.8%. At December 31, 2003, accrued interest includes $3.3 million
due to our Parent Partnership. For the year ended December 31, 2003, interest
costs incurred on the note payable to our Parent Partnership totaled $11.1
million.

Senior Notes

On January 27, 1998, we completed the issuance of $180.0 million principal
amount of 6.45% Senior Notes due 2008, and $210.0 million principal amount of
7.51% Senior Notes due 2028 (collectively the Senior Notes). The 6.45%
Senior Notes were issued at a discount of $0.3 million and are being accreted
to their face value over the term of the notes. The 6.45% Senior Notes due
2008 are not subject to redemption prior to January 15, 2008. The 7.51% Senior
Notes due 2028, issued at par, may be redeemed at any time after January 15,
2008, at our option, in whole or in part, at a premium.

The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations and rank on a parity
with all of our other unsecured and unsubordinated indebtedness. The indenture
governing the Senior Notes contains covenants, including, but not limited to,
covenants limiting the creation of liens securing indebtedness and sale and
leaseback transactions. However, the indenture does not limit our ability to
incur additional indebtedness. As of December 31, 2003, we were in compliance
with the covenants of the Senior Notes.

We have entered into an interest rate swap agreement to hedge our exposure
to changes in the fair value on a portion of the Senior Notes, as more fully
described in Item 7A. Quantitative and Qualitative Disclosures About Market
Risk.

26



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##### Table of Contents



Cash Distributions

For the years ended December 31, 2003, 2002 and 2001, cash distributions
paid to our Parent Partnership totaled $106.5 million, $94.9 million and $80.9
million, respectively. The distribution increases reflect our success in
improving cash flow levels. On February 6, 2004, we paid a cash distribution
of $28.9 million to our Parent Partnership for the quarter ended December 31,
2003.

Future Capital Needs and Commitments

We estimate that capital expenditures, excluding acquisitions, for 2004
will be approximately $66.3 million (which includes $2.0 million of capitalized
interest). We expect to spend approximately $48.2 million for revenue
generating projects and facility improvements which will include the expansion
of our pipelines extending from Seymour to Indianapolis, Indiana, further
expansions of our Northeast pipeline system and construction of a new truck
loading terminal in Bossier City, Louisiana. We expect to spend approximately
$16.1 million to sustain existing operations, including life-cycle replacements
for equipment at various facilities and pipeline and tank replacements. We
continually review and evaluate potential capital improvements and expansions
that would be complementary to our present system. These expenditures can vary
greatly depending on the magnitude of our transactions. We may finance capital
expenditures through internally generated funds, debt or capital contributions
from our Parent Partnership or any combination thereof.

Our debt repayment obligations consist of payments for principal and
interest on (i) our $180.0 million 6.45% Senior Notes due January 15, 2008,
(ii) our $210.0 million 7.51% Senior Notes due January 15, 2028, and (iii)
$211.3 million principal amount due to the Parent Partnership related to our
share of the Parent Partnerships Revolving Credit Facility due in June 2006,
7.625% Senior Notes due in February 2012 and 6.125% Senior Notes due in
February 2013.

We are also contingently liable as guarantor for the lesser of one-half or
$75.0 million principal amount (plus interest) of the borrowings of Centennial.
In January 2003, we entered into a pipeline capacity lease agreement with
Centennial for a period of five years that contains a minimum throughput
requirement. During the year ended December 31, 2003, we exceeded the minimum
throughput requirements on the lease agreements. On February 10, 2003, we
acquired an additional 16.7% interest in Centennial, bringing our ownership
percentage to 50%. We are also contingently liable as guarantor for $500.0
million principal amount of 7.625% Senior Notes due 2012 issued in February
2002 and for $200.0 million principal amount of 6.125% Senior Notes due 2013
issued in January 2003 by our Parent Partnership.

During the years ended December 31, 2003, 2002 and 2001, we contributed
$4.0 million, $10.9 million and $65.0 million, respectively, to Centennial to
cover operating shortfalls and capital expenditures. During the year ended
December 31, 2003, we contributed $2.5 million to MB Storage for capital
expenditures. During 2004, we may be required to contribute cash to both
Centennial and MB Storage to cover capital expenditures or other operating
shortfalls.

We do not rely on off-balance sheet borrowings to fund our acquisitions.
We have no off-balance sheet commitments for indebtedness other than the
limited guaranty of the Centennial debt, the Parent Partnership debt and leases
covering assets utilized in several areas of our operations.

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##### Table of Contents



The following table summarizes our debt repayment obligations and material
contractual commitments as of December 31, 2003 (in millions):

|                                 |               |   |                                            |       |      |   |             |      |           |   |         |       |  |   |       |       |           |   |       |       | 
|-------------------------------- | ------------- | - | ------------------------------------------ | ----- | ---- | - | ----------- | ---- | --------- | - | ------- | ----- |  | - | ----- | ----- | --------- | - | ----- | ----- | 
|                                 |               |   | Amount of Commitment Expiration Per Period
|                                 |               |   |                                           
|                                 |               |   |                                            |       |      |   | Less than 1 |      |           |   |         |       |  |   |       |       | More than
|                                 |               |   | Total                                      |       | Year |   | 1-3 Years   |      | 3-5 Years |   | 5 Years
|                                 |               |   |                                            |       |      |   |             |      |           |   |        
|Note payable, Parent Partnership |               | $ | 211.3                                      |       |      | $ |            |      |           | $ | 211.3   |       |  | $ |      |       |           | $ |      |      
|6.45% Senior Notes due 2008 (1)  |               |   | 180.0                                      |       |      |   |            |      |           |   |        |       |  |   | 180.0 |       |           |   |      |      
|7.51% Senior Notes due 2028 (1)  |               |   | 210.0                                      |       |      |   |            |      |           |   |        |       |  |   |      |       |           |   | 210.0 |      
|                                 |               |   |                                            |       |      |   |             |      |           |   |         |       |  |   |       |       |           |   |       |      
|                                 | Debt subtotal |   |                                            | 601.3 |      |   |             |     |           |   |         | 211.3 |  |   |       | 180.0 |           |   |       | 210.0 | 
|                                 |               |   |                                            |       |      |   |             |      |           |   |         |       |  |   |       |       |           |   |       |      
|Operating leases                 |               |   | 56.5                                       |       |      |   | 11.6        |      |           |   | 21.0    |       |  |   | 13.1  |       |           |   | 10.8  |      
|                                 |               |   |                                            |       |      |   |             |      |           |   |         |       |  |   |       |       |           |   |       |      
|                                 | Total         |   | $                                          | 657.8 |      |   | $           | 11.6 |           |   | $       | 232.3 |  |   | $     | 193.1 |           |   | $     | 220.8 | 
|                                 |               |   |                                            |       |      |   |             |      |           |   |         |       |  |   |       |       |           |   |       |      



---

|(1) |  | We entered into an interest rate swap agreement to hedge our
exposure to changes in the fair value of our 7.51% Senior Notes due
2028. At December 31, 2003, the 7.51% Senior Notes include an
adjustment to increase the fair value of the debt by $2.3 million
related to this interest rate swap agreement. At December 31, 2003,
our 6.45% Senior Notes include $0.1 million of unamortized debt
discount. The fair value adjustment and unamortized debt discount are
excluded from this table.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expect to repay the long-term, senior unsecured obligations and note
payable to our Parent Partnership through the issuance of additional long-term
senior unsecured debt at the time the 2008 and 2028 debts mature, with proceeds
from the dispositions of assets, cash flows from operations, contributions from
our Parent Partnership or any combination of the above items.

Sources of Future Capital

We expect that our cash flow from operating activities will be adequate to
fund cash distributions and capital additions necessary to sustain existing
operations. However, expansionary capital projects and acquisitions may
require additional capital contributions from our Parent Partnership. The
Parent Partnership has funded its capital commitments from operating cash flow,
borrowings under bank credit facilities, the issuance of long term debt in
capital markets and the public offering of Limited Partner Units. We expect
future capital needs would be similarly funded.

Our Parent Partnerships senior unsecured debt is rated BBB by Standard
and Poors (S&P) and Baa3 by Moodys Investors Service (Moodys). Our
senior unsecured debt is also rated BBB by S&P and Baa3 by Moodys. Both
ratings are stable. A rating reflects only the view of a rating agency and is
not a recommendation to buy, sell or hold any indebtedness. Any rating can be
revised upward or downward or withdrawn at any time by a rating agency if it
determines that the circumstances warrant such a change.

Other Considerations

Credit Risks

Risks of non-payment and nonperformance by customers are a major
consideration in our business. Our credit procedures and policies do not fully
eliminate customer credit risk. During the years ended December 31, 2003, 2002
and 2001, a few small to medium-sized customers filed for bankruptcy
protection. During the years ended December 31, 2003 and 2002, we expensed
approximately $0.8 million and $0.7 million, respectively, of uncollectible
receivables due to customer bankruptcies and other customer non-payments.

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Terrorist Threats

On September 11, 2001, the United States was the target of terrorist
attacks of unprecedented scale. Since the September 11 attacks, the United
States government has issued warnings that energy assets, specifically the
nations pipeline infrastructure, could be a future target of terrorist
organizations. These developments have subjected our operations to increased
risks. Any terrorist attack on our facilities, customers facilities and, in
some cases, those of other pipelines, could have a material adverse effect on
our business. We have increased security initiatives and are working with
various governmental agencies to minimize risks associated with additional
terrorist attacks.

Environmental

Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.

In 1994, the LDEQ issued a compliance order for environmental
contamination at our Arcadia, Louisiana, facility. This contamination may be
attributable to our operations, as well as to adjacent petroleum terminals
operated by other companies. In 1999, our Arcadia facility and adjacent
terminals were directed by the Remediation Services Division of the LDEQ to
pursue remediation of this contamination. At December 31, 2003, we have an
accrued liability of $0.3 million for remediation costs at our Arcadia
facility. We do not expect that the completion of the remediation program
proposed to the LDEQ will have a future material adverse effect on our
financial position, results of operations or cash flows.

On March 17, 2003, we experienced a release of 511 barrels of jet fuel
from a storage tank at our Blue Island terminal located in Cook County,
Illinois. As a result of the release, we have entered into an Agreed Order
with the State of Illinois. The Agreed Order requires us, in part, to complete
a site investigation plan to delineate the scope of any potential contamination
resulting from the release and to remediate any contamination present above
regulatory standards. This site investigation plan has been completed and
submitted to the State of Illinois. The Agreed Order does not contain any
provision for any fines or penalties; however, it does not preclude the State
of Illinois from assessing these at a later date. We do not expect that the
completion of the remediation program will have a future material adverse
effect on our financial position, results of operations or cash flows.

Market-Based Rates

On May 11, 1999, we filed an application with the FERC requesting
permission to charge Market-Based Rates for substantially all refined products
transportation tariffs. On July 31, 2000, the FERC issued an order granting us
Market-Based Rates in certain markets and set for hearing our application for
Market-Based Rates in certain destination markets and origin markets. After
the matter was set for hearing, we and the protesting shippers entered into a
settlement agreement resolving their respective differences. On April 25,
2001, the FERC issued an order approving the offer of settlement. As a result
of the settlement, we recognized approximately $1.7 million of previously
deferred transportation revenue in the second quarter of 2001. As a part of
the settlement, we withdrew the application for Market-Based Rates to the
Little Rock, Arkansas, and Arcadia and Shreveport-Arcadia, Louisiana,
destination markets, which are currently subject to the PPI Index. As a
result, we made refunds of approximately $1.0 million in the third quarter of
2001 for those destination markets.

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##### Table of Contents



Recent Accounting Pronouncements

See discussion of new accounting pronouncements in Note 2. Summary of
Significant Accounting Policies  New Accounting Pronouncements in the
accompanying consolidated financial statements.

Disclosures About Effects of Transactions with Related Parties

We have no employees and are managed by TEPPCO GP, a wholly owned
subsidiary of our Parent Partnership. The Parent Partnership is managed by the
Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an
interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining
30%. See Item 10. Directors and Executive Officers of the Registrant and Item
13. Certain Relationships and Related Transactions for discussion regarding
transactions between us, our Parent Partnership, DEFS, Duke Energy and
ConocoPhillips.




Item 7A.Quantitative and Qualitative Disclosures About Market Risks

We may be exposed to market risk through changes in commodity prices and
interest rates. We do not have foreign exchange risks. Our Risk Management
Committee has established policies to monitor and control these market risks.
The Risk Management Committee is comprised, in part, of senior executives of
the Company.

We have utilized and expect to continue to utilize interest rate swap
agreements to hedge a portion of our fair value risks. Interest rate swap
agreements are used to manage the fixed interest rate mix of our debt portfolio
and overall cost of borrowing. The interest rate swap related to our fair
value risk is intended to reduce our exposure to changes in the fair value of
our fixed rate Senior Notes. The interest rate swap agreement involves the
periodic exchange of payments without the exchange of the notional amount upon
which the payments are based. The related amount payable to or receivable from
counterparties is included as an adjustment to accrued interest.

At December 31, 2003, we had outstanding $180.0 million principal amount
of 6.45% Senior Notes due 2008 and $210.0 million principal amount of 7.51%
Senior Notes due 2028. At December 31, 2003, the estimated fair values of the
6.45% Senior Notes and 7.51% Senior Notes were approximately $204.8 million and
$228.0 million, respectively.

As of December 31, 2003, we had an interest rate swap agreement in place
to hedge our exposure to changes in the fair value of our fixed rate 7.51%
Senior Notes due 2028. We designated this swap agreement as a fair value hedge.
The swap agreement has a notional amount of $210.0 million and matures in
January 2028 to match the principal and maturity of the Senior Notes. Under
the swap agreement, we pay a floating rate of interest based on a three-month
U.S. Dollar LIBOR rate, plus a spread, and receive a fixed rate of interest of
7.51%. During the years ended December 31, 2003 and 2002, we recognized
reductions in interest expense of $10.0 million and $8.6 million, respectively,
related to the difference between the fixed rate and the floating rate of
interest on the interest rate swap. During the year ended December 31, 2003,
we measured the hedge effectiveness of this interest rate swap and noted that
no gain or loss from ineffectiveness was required to be recognized. The fair
value of this interest rate swap agreement was a gain of approximately $2.3
million and $13.6 million at December 31, 2003 and 2002, respectively.
Utilizing the balance of the 7.51% Senior Notes outstanding at December 31,
2003, and including the effects of hedging activities, assuming market interest
rates increase 100 basis points, the potential annual increase in interest
expense is $2.1 million.

As of December 31, 2003 and 2002, we had intercompany notes payable to our
Parent Partnership of $211.3 million and $154.1 million, respectively. Our
intercompany notes payable at December 31, 2003 and 2002, represent borrowings
by us under the Parent Partnerships Revolving Credit Facility and Senior
Notes. The weighted average interest rate on the note payable to our Parent
Partnership at December 31, 2003, was 5.8%. At December 31, 2003, accrued
interest includes $3.3 million due to the Parent Partnership. For the year
ended December 31, 2003, interest costs incurred on the note payable to our
Parent Partnership totaled $11.1 million.

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##### Table of Contents






Item 8.Financial Statements and Supplementary Data

Our consolidated financial statements, together with the independent
auditors report of KPMG LLP, begin on page F-1 of this Report.




Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.




Item 9A. Controls and Procedures

The principal executive officer and principal financial officer of the
Company, after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
December 31, 2003, have concluded that, as of such date, our disclosure
controls and procedures are adequate and effective to ensure that material
information relating to us and our consolidated subsidiaries would be made
known to them by others within those entities.

During the fourth quarter of 2003, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect, those internal controls subsequent to
the date of the evaluation. As a result, no corrective actions were required
or undertaken.




PART III




Item 10.Directors and Executive Officers of the Registrant

We do not have employees, officers or directors, as is commonly the case
with publicly traded partnerships. Our operations and activities are managed
by the General Partner, a wholly owned subsidiary of our Parent Partnership.
All officers and directors of the General Partner are appointed annually by the
Parent Partnership by action of the board of directors of the Company. The
directors of the General Partner, TEPPCO GP, are Barry R. Pearl, James C. Ruth
and Charles H. Leonard. The Executive Officers of the General Partner are also
Executive Officers of the Company. Information concerning the Executive
Officers of the General Partner and the Company is contained in Item 10 of the
Parent Partnerships Annual Report on Form 10-K for the Year Ended December 31,
2003 (the Parent Partnership Form 10-K), and is incorporated by reference in
this Report.




Item 11.Executive Compensation

We do not have any employees, officers or directors, and the General
Partner manages and operates our business. The Executive Officers of the
General Partner are employees of the Company. Certain employees of the Company
may devote all or a portion of their time to us, and we reimburse the Company
for the services of these persons. The information contained in Item 11 of the
Parent Partnership Form 10-K is incorporated by reference in this Report.




Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The Parent Partnership owns a 99.999% interest as the sole limited partner
interest and the General Partner owns a 0.001% general partner interest in us.
Information identifying security ownership of the Parent Partnership is
contained in Item 12 of the Parent Partnership Form 10-K and is incorporated by
reference in this Report.

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##### Table of Contents






Item 13.Certain Relationships and Related Transactions

Our Management

We have no employees, and we are managed by TEPPCO GP, a wholly owned
subsidiary of our Parent Partnership. The Parent Partnership is managed by the
Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an
interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining
30%. According to the Partnership Agreement, the General Partner and the
Company are entitled to reimbursement of all direct and indirect expenses
related to our business activities.

For the years ended December 31, 2003, 2002 and 2001, we incurred direct
expenses of $45.5 million, $46.6 million and $41.3 million, respectively, which
were charged to us by DEFS. Substantially all of these costs were related to
payroll and payroll related expenses. For the years ended December 31, 2003,
2002 and 2001, expenses for administrative services and overhead allocated to
us by the Company (including Duke Energy and its affiliates) were $1.0 million,
$0.8 million and $0.5 million, respectively.

Our Parent Partnership allocates
operating, general and administrative expenses to us for legal,
insurance, financial, communication and other administrative services
based upon the estimated level of effort devoted to our various
operations. In addition, we make cash payments on behalf of the
Parent Partnership for various expenses. At December 31, 2003, we had
a net payable of $8.9 million to the Parent Partnership, and at
December 31, 2002, we had a net receivable of $1.8 million from the
Parent Partnership related to these affiliated activities.

Transactions with DEFS

Effective with the purchase of the fractionation facilities on March 31,
1998, TEPPCO Colorado and DEFS entered into a 20-year Fractionation Agreement,
under which TEPPCO Colorado received a variable fee for all fractionated
volumes delivered to DEFS. Revenues recognized from the fractionation
facilities totaled $3.1 million and $7.4 million for the years ended December
31, 2002 and 2001, respectively. TEPPCO Colorado and DEFS also entered into an
Operation and Maintenance Agreement, whereby DEFS operated and maintained the
fractionation facilities. For these services, TEPPCO Colorado paid DEFS a set
volumetric rate for all fractionated volumes delivered to DEFS. Expenses
related to the Operation and Maintenance Agreement totaled $0.4 million and
$0.9 million for the years ended December 31, 2002 and 2001, respectively. On
May 31, 2002, TEPPCO Colorado was transferred to TEPPCO Midstream.

Effective May 2001, we entered into an agreement with an affiliate of DEFS
to commit sole utilization of our Providence terminal to an affiliate of DEFS.
We operate the terminal and provide propane loading services to an affiliate of
DEFS. The agreement terminates in May 2004, and we are currently renegotiating
the agreement. During the years ended December 31, 2003, 2002 and 2001,
revenues of $3.2 million, $2.3 million and $1.5 million from an affiliate of
DEFS, respectively, were recognized pursuant to this agreement.

At December 31, 2003 and 2002, we had a receivable from DEFS of $0.2
million and $0.1 million, respectively, related to payroll related expenses
owed by DEFS. At December 31, 2003 and 2002, we had a payable to DEFS of $0.8 million
and $5.7 million, respectively, related to payroll and administrative services provided by DEFS.

The Parent Partnership contracts with Bison Insurance Company Limited
(Bison), a wholly owned subsidiary of Duke Energy, for a majority of its
insurance coverage, including property, liability, auto and directors and
officers insurance coverage. The Parent Partnership allocates insurance
expense to us, and we believe that the total insurance expense allocated to us
is representative of the insurance costs we would have incurred as a separate
entity. For the years ended December 31, 2003 and 2002, the Parent Partnership
paid insurance premiums to Bison and allocated $3.3 million and $2.1
million, respectively, of insurance expense to us. At December 31, 2003 and 2002, we had insurance reimbursement
receivables due from Bison of $1.9 million and $1.1 million, respectively.

At December 31, 2003, we had a loan of propane outstanding to DEFS with a
total value of $1.4 million. We will earn a nominal rental fee of $0.1 million
on this transaction. This propane will be returned to us in February 2004. We
regularly loan inventory for a fee to third parties and affiliates as part of
our inventory management practice.

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##### Table of Contents



Interests of Duke Energy in the Parent Partnership

In connection with the formation of our Parent Partnership, the Company
received 2,500,000 Deferred Participation Interests (DPIs). Effective April
1, 1994, the DPIs began participating in distributions of cash and allocations
of profit and loss in a manner identical to the Parent Partnerships Limited
Partner Units and are treated as Limited Partner Units. These Limited Partner
Units were assigned to Duke Energy when ownership of the Company was
transferred from Duke Energy to DEFS in 2000. Pursuant to our Parent
Partnerships Partnership Agreement, the Parent Partnership has registered the
resale by Duke Energy of these Limited Partner Units with the Securities and
Exchange Commission. As of December 31, 2003, none of the Limited Partner
Units had been sold by Duke Energy.




Item 14.Principal Accounting Fees and Services

Our Parent Partnerships audit engagement with KPMG includes the fees for
the professional audit services rendered to us by KPMG as we do not have a
separate audit engagement with KPMG. We are allocated a portion of the audit
services expense (see Note 2. Summary of Significant Accounting
Policies).

The following table describes fees for professional audit services
rendered by KPMG, our Parent Partnerships principal accountant, for the audit
of the financial statements of all of the Parent Partnerships entities for the
years ended December 31, 2003 and 2002, and for fees billed for other services
rendered by KPMG during those periods.

|                       |       |      |                          |       |  |   |     |       | 
|---------------------- | ----- | ---- | ------------------------ | ----- |  | - | --- | ----- | 
|                       |       |      | Years Ended December 31,
|                       |       |      |                         
|Type of Fee            |       | 2003 |                          | 2002 
|                       |       |      |                          |      
|                       |       |      | (in thousands)          
|Audit Fees             |       | $    | 953                      |       |  | $ | 915 |      
|Audit Related Fees (1) |       |      | 58                       |       |  |   | 15  |      
|Tax Fees (2)           |       |      | 183                      |       |  |   | 17  |      
|All Other Fees (3)     |       |      | 656                      |       |  |   | 106 |      
|                       |       |      |                          |       |  |   |     |      
|                       | Total |      | $                        | 1,850 |  |   | $   | 1,053 | 
|                       |       |      |                          |       |  |   |     |      



---

|(1) |  | Audit related fees consisted principally of fees for audits of financial
statements for certain employee benefit plans and certain internal control
documentation assistance.                                                                                                                                                              
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Tax fees consisted of fees for sales and use tax consultation and tax
compliance services.                                                                                                                                                                                                                                                 
|   
|(3) |  | All Other Fees include the aggregate fees our Parent Partnership paid
during the years ended December 31, 2003 and 2002, for products and
services provided by KPMG, other than the services reported above. The
majority of the other fees are fees for litigation support services
related to the Parent Partnerships legal proceedings.

Procedures For Audit Committee Pre-Approval of Audit and Permissible Non-Audit
Services of Independent Auditor

Pursuant to its charter, the Audit Committee of the Parent Partnerships
Board of Directors is responsible for reviewing and approving, in advance, any
audit and any permissible non-audit engagement or relationship between the
Parent Partnership and its independent auditors. KPMGs engagement to conduct
our audit was approved by the Parent Partnerships Audit Committee on April 28,
2003. Additionally, all permissible non-audit engagements with KPMG and the
Parent Partnership have been reviewed and
approved by the Parent Partnerships Audit Committee, pursuant to pre-approval
policies and procedures established by the Parent Partnerships Audit
Committee.

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##### Table of Contents






PART IV




Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



| | (a) |  | The following documents are filed as a part of this Report:
| | --- |  | -----------------------------------------------------------



| | (1) |  | Financial Statements: See Index to Financial on page
F-1 of this Report for financial statements filed as part of
this Report.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Financial Statement Schedules: None.                                                                                          
|
| | (3) |  | Exhibits.                                                                                                                     

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|3.1     |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, effective
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001, and incorporated herein by reference).                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.1     |  | Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.2     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.3     |  | First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.4     |  | Second Supplemental Indenture, dated as of June 27, 2002,
among TEPPCO Partners, L.P., as issuer, TE Products Pipeline
Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., and Jonah Gas Gathering Company, as Initial
Subsidiary Guarantors, and Val Verde Gas Gathering Company, L.P., as
New Subsidiary Guarantor, and Wachovia Bank, National Association,
formerly known as First Union National Bank, as trustee (Filed as
Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 2002 and incorporated
herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|4.5     |  | Third Supplemental Indenture among TEPPCO Partners, L.P. as
issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., Jonah Gas Gathering Company
and Val Verde Gas Gathering Company, L.P. as Subsidiary Guarantors,
and Wachovia Bank, National Association, as trustee, dated as of
January 30, 2003 (Filed as Exhibit 4.7 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002, and incorporated herein by reference).                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1+   |  | Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).                                                                                                                                                                                                                                                                                                                                                                                              

34



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.2+   |  | Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.3+   |  | Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.4+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.5+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.6+   |  | Texas Eastern Products Pipeline Company Non-employee
Directors Unit Accumulation Plan, effective April 1, 1999 (Filed as
Exhibit 10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.7+   |  | Texas Eastern Products Pipeline Company Non-employee
Directors Deferred Compensation Plan, effective November 1, 1999
(Filed as Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended September 30,
1999 and incorporated herein by reference).                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.8+   |  | Texas Eastern Products Pipeline Company Phantom Unit
Retention Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 1999 and incorporated herein by
reference).                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.9+   |  | Form of Employment Agreement between the Company and Thomas
R. Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.10+  |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.11   |  | Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.12   |  | Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.13+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.14+  |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                         
|10.15   |  | Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).

35



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.16   |  | Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.17   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by reference).                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.18   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.19   |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.20   |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.21   |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.22   |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.23   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.24   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.25   |  | Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit Facility) (Filed
as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of July 2, 2002 and incorporated herein
by reference).                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.26   |  | Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).                                                                        

36



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.27+  |  | Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002 (Filed as Exhibit 10.49 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended June 30, 2002, and incorporated herein by
reference).                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.28+  |  | Amended and Restated TEPPCO Supplemental Benefit Plan, effective
November 1, 2002 (Filed as Exhibit 10.44 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended
December 31, 2002, and incorporated herein by reference).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.29+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Second Amendment and Restatement, effective January
1, 2003 (Filed as Exhibit 10.45 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
2002, and incorporated herein by reference).                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.30+  |  | Amended and Restated Texas Eastern Products Pipeline Company, LLC
Management Incentive Compensation Plan, effective January 1, 2003
(Filed as Exhibit 10.46 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002,
and incorporated herein by reference).                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.31+  |  | Amended and Restated TEPPCO Retirement Cash Balance Plan,
effective January 1, 2002 (Filed as Exhibit 10.47 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 2002, and incorporated herein by reference).                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.32   |  | Formation Agreement between Panhandle Eastern Pipe Line
Company and Marathon Ashland Petroleum LLC and TE Products Pipeline
Company, Limited Partnership, dated as of August 10, 2000 (Filed as
Exhibit 10.48 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002, and incorporated
herein by reference).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.33   |  | Amended and Restated Limited Liability Company Agreement of
Centennial Pipeline LLC dated as of August 10, 2000 (Filed as
Exhibit 10.49 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2002, and incorporated
herein by reference).                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.34   |  | Guaranty Agreement, dated as of September 27, 2002, between
TE Products Pipeline Company, Limited Partnership and Marathon
Ashland Petroleum LLC for Note Agreements of Centennial Pipeline LLC
(Filed as Exhibit 10.50 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2002,
and incorporated herein by reference).                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.35   |  | LLC Membership Interest Purchase Agreement By and Between
CMS Panhandle Holdings, LLC, As Seller and Marathon Ashland
Petroleum LLC and TE Products Pipeline Company, Limited Partnership,
Severally as Buyers, dated February 10, 2003 (Filed as Exhibit 10.51
to Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 2002, and incorporated herein by
reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.36   |  | Joint Development Agreement between TE Products Pipeline
Company, Limited Partnership and Louis Dreyfus Plastics Corporation
dated February 10, 2000 (Filed as Exhibit 10.52 to Form 10-Q of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter
ended March 31, 2003, and incorporated herein by reference).                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.37   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and LC Issuing Bank and The
Lenders Party Hereto, as Lenders, dated as of June 27, 2003
($550,000,000 Revolving Facility) (Filed as Exhibit 10.52 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2003, and incorporated herein by reference).               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.38   |  | Agreement of Limited Partnership of Mont Belvieu Storage
Partners, L.P. dated effective January 21, 2003. (Filed as Exhibit
10.53 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2003, and incorporated
herein by reference).                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.39   |  | Letter of Agreement Clarifying Rights and Obligations of the
Parties Under the Mont Belvieu Storage Partners, L.P., Partnership
Agreement and the Mont Belvieu Venture, LLC, LLC Agreement, dated
October 13, 2003. (Filed as Exhibit 10.54 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2003, and incorporated herein by reference).                

37



---



##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                
|Number  |  | Description                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                
|23*     |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                
|31.1*   |  | Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                
|31.2*   |  | Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                
|32.1**  |  | Certification of Chief Executive Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                
|32.2**  |  | Certification of Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                
|99.1    |  | Charter of the Audit Committee of the Board of Directors of
Texas Eastern Products Pipeline Company, LLC (Filed as Exhibit 99.1
to Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the year ended December 31, 2003 and incorporated herein by
reference).



---

|*  |  | Filed herewith.                                                   
|-- |  | ------------------------------------------------------------------
|  
|** |  | Furnished herewith pursuant to Item 601(b)-(32) of Regulation S-K.
|  
|+  |  | A management contract or compensation plan or arrangement.        



|(b) |  | Reports on Form 8-K filed with or furnished to the Securities and
Exchange Commission during the quarter ended December 31, 2003:
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | No reports were filed on Form 8-K during the quarter ended December 31,
2003.
| |  |  | -----------------------------------------------------------------------------




SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

| |  |                                                   |  |     |  |                                       
| |  | ------------------------------------------------- |  | --- |  | --------------------------------------
| |  | TE Products Pipeline Company, Limited Partnership
| |  |                                                  
| |  | (Registrant)                                     
| |  | (A Delaware Limited Partnership)                 
| |  |                                                   |  |     |  |                                       
| |  |                                                   |  | By: |  | TEPPCO GP, Inc.,                      
| |  |                                                   |  |     |  | as General Partner                    
| |  |                                                   |  |     |  |                                       
| |  |                                                   |  | By: |  | /s/ BARRY R. PEARL                    
| |  |                                                   |  |     |  |                                       
| |  |                                                   |  |     |  | Barry R. Pearl,                       
| |  |                                                   |  |     |  | President, Chief Executive            
| |  |                                                   |  |     |  | Officer and Director                  
| |  |                                                   |  |     |  |                                       
| |  |                                                   |  | By: |  | /s/ CHARLES H. LEONARD                
| |  |                                                   |  |     |  |                                       
| |  |                                                   |  |     |  | Charles H. Leonard,                   
| |  |                                                   |  |     |  | Senior Vice President, Chief Financial
| |  |                                                   |  |     |  | Officer, and Director                 

Dated: February 27, 2004

38



---



##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENTS
OF TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS

|                      |                                                                                                   |  |      |     | 
|--------------------- | ------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                      |                                                                                                   |  | Page
|                      |                                                                                                   |  |     
|Financial Statements: |                                                                                                   |  |      |    
|                      | Independent Auditors Report                                                                      |  |      | F-2 | 
|                      | Consolidated Balance Sheets as of December 31, 2003 and 2002                                      |  |      | F-3 | 
|                      | Consolidated Statements of Income for the years ended December 31, 2003, 2002 and 2001            |  |      | F-4 | 
|                      | Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and
2001        |  |      | F-5 | 
|                      | Consolidated Statements of Partners Capital for the years ended December 31, 2003,
2002 and 2001 |  |      | F-6 | 
|                      | Notes to Consolidated Financial Statements                                                        |  |      | F-7 | 

F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Partners of
TE Products Pipeline Company, Limited Partnership:

We have audited the accompanying consolidated balance sheets of TE
Products Pipeline Company, Limited Partnership as of December 31, 2003 and
2002, and the related consolidated statements of income, cash flows and
partners capital for each of the years in the three-year period ended December
31, 2003. These consolidated financial statements are the responsibility of the
Partnerships management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards 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 statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TE Products
Pipeline Company, Limited Partnership as of December 31, 2003 and 2002, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.



| | KPMG LLP
| | --------

Houston, Texas
February 12, 2004

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |         |  |  | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | --------------------------------------- | --------------------------------- | ------- | ------- | ------------ | ------- | ------- | ------- |  |  | 
|                                       |                                                                                                                    |                                         |                                   |         |         | December 31,
|                                       |                                                                                                                    |                                         |                                   |         |         |             
|                                       |                                                                                                                    |                                         |                                   |         |         | 2003         |         | 2002   
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |        
|                                       |                                                                                                                    |                                         |                                   | ASSETS  |         |              |         |         |         |  |  | 
|Current assets:                        |                                                                                                                    |                                         |                                   |         |         |              |         |        
|                                       | Cash and cash equivalents                                                                                          |                                         | $                                 | 188     |         |              | $       | 485     |        
|                                       | Accounts receivable, trade (net of allowance for doubtful accounts of
$374 and $287)                               |                                         |                                   | 25,377  |         |              |         | 24,044  |        
|                                       | Accounts receivable, related parties                                                                               |                                         |                                   | 154     |         |              |         | 7,011   |        
|                                       | Inventories                                                                                                        |                                         |                                   | 11,186  |         |              |         | 11,738  |        
|                                       | Other                                                                                                              |                                         |                                   | 10,230  |         |              |         | 11,939  |        
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    | Total current assets                    |                                   |         | 47,135  |              |         |         | 55,217  | 
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |        
|                                       | Property, plant and equipment, at cost (net of accumulated
depreciation and amortization of $279,395 and $284,458) |                                         |                                   | 682,385 |         |              |         | 722,848 |        
|                                       | Equity investments                                                                                                 |                                         |                                   | 155,861 |         |              |         | 73,476  |        
|                                       | Other assets                                                                                                       |                                         |                                   | 15,267  |         |              |         | 29,560  |        
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    | Total assets                            |                                   | $       | 900,648 |              |         | $       | 881,101 | 
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    |                                         | LIABILITIES AND PARTNERS CAPITAL |         |         |              |         |         |         |  | 
|Current liabilities:                   |                                                                                                                    |                                         |                                   |         |         |              |         |        
|                                       | Accounts payable and accrued liabilities                                                                           |                                         | $                                 | 11,518  |         |              | $       | 18,999  |        
|                                       | Accounts payable, related parties                                                                                  |                                         |                                   | 12,277  |         |              |         | 9,947   |        
|                                       | Accrued interest                                                                                                   |                                         |                                   | 15,877  |         |              |         | 11,536  |        
|                                       | Other accrued taxes                                                                                                |                                         |                                   | 5,732   |         |              |         | 6,732   |        
|                                       | Other                                                                                                              |                                         |                                   | 13,983  |         |              |         | 9,397   |        
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    | Total current liabilities               |                                   |         | 59,387  |              |         |         | 56,611  | 
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |        
|Senior Notes                           |                                                                                                                    |                                         | 392,164                           |         |         |              | 403,428 |        
|Note payable, Parent Partnership       |                                                                                                                    |                                         | 211,314                           |         |         |              | 154,093 |        
|Other liabilities and deferred credits |                                                                                                                    |                                         | 14,995                            |         |         |              | 24,230  |        
|Commitments and contingencies          |                                                                                                                    |                                         |                                   |         |         |              |         |        
|Partners capital:                     |                                                                                                                    |                                         |                                   |         |         |              |         |        
|                                       | General partners interest                                                                                         |                                         |                                   | 2       |         |              |         | 2       |        
|                                       | Limited partners interest                                                                                         |                                         |                                   | 222,786 |         |              |         | 242,737 |        
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    | Total partners capital                 |                                   |         | 222,788 |              |         |         | 242,739 | 
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        
|                                       |                                                                                                                    | Total liabilities and partners capital |                                   | $       | 900,648 |              |         | $       | 881,101 | 
|                                       |                                                                                                                    |                                         |                                   |         |         |              |         |         |        

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF INCOME
(in thousands)

|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |         | 
|----------------------------------- | ------------------------------------- | ------------------------------------- | ------- | ------------------------ | ------- | ---- | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                    |                                       |                                       |         | Years Ended December 31,
|                                    |                                       |                                       |         |                         
|                                    |                                       |                                       |         | 2003                     |         | 2002 |         | 2001   
|                                    |                                       |                                       |         |                          |         |      |         |        
|Operating revenues:                 |                                       |                                       |         |                          |         |      |         |         |         |  |         |        
|                                    | Transportation  Refined products     |                                       | $       | 138,926                  |         |      | $       | 123,476 |         |  | $       | 139,315 |        
|                                    | Transportation  LPGs                 |                                       |         | 91,787                   |         |      |         | 74,577  |         |  |         | 77,823  |        
|                                    | Mont Belvieu operations               |                                       |         |                         |         |      |         | 15,238  |         |  |         | 14,116  |        
|                                    | Other                                 |                                       |         | 31,254                   |         |      |         | 30,247  |         |  |         | 32,979  |        
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|                                    |                                       | Total operating revenues              |         |                          | 261,967 |      |         |         | 243,538 |  |         |         | 264,233 | 
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|Costs and expenses:                 |                                       |                                       |         |                          |         |      |         |         |         |  |         |        
|                                    | Operating, general and administrative |                                       |         | 112,683                  |         |      |         | 90,034  |         |  |         | 78,270  |        
|                                    | Operating fuel and power              |                                       |         | 28,792                   |         |      |         | 28,998  |         |  |         | 33,401  |        
|                                    | Depreciation and amortization         |                                       |         | 31,066                   |         |      |         | 30,116  |         |  |         | 26,699  |        
|                                    | Taxes  other than income taxes       |                                       |         | 8,866                    |         |      |         | 11,292  |         |  |         | 8,185   |        
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|                                    |                                       | Total costs and expenses              |         |                          | 181,407 |      |         |         | 160,440 |  |         |         | 146,555 | 
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|                                    |                                       | Operating income                      |         |                          | 80,560  |      |         |         | 83,098  |  |         |         | 117,678 | 
|Interest expense  net              |                                       |                                       | (27,219 | )                        |         |      | (22,742 | )       |         |  | (27,044 | )      
|Equity losses                       |                                       |                                       | (4,086  | )                        |         |      | (6,815  | )       |         |  | (1,149  | )      
|Other income  net                  |                                       |                                       | 226     |                          |         |      | 832     |         |         |  | 1,537   |        
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|                                    |                                       | Income before discontinued operations |         |                          | 49,481  |      |         |         | 54,373  |  |         |         | 91,022  | 
|Income from discontinued operations |                                       |                                       |        |                          |         |      | 912     |         |         |  | 1,674   |        
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        
|                                    |                                       | Net income                            |         | $                        | 49,481  |      |         | $       | 55,285  |  |         | $       | 92,696  | 
|                                    |                                       |                                       |         |                          |         |      |         |         |         |  |         |         |        

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |         |          |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------- | -------- | ------------------------ | ------- | ------ | -------- | ------ | ------- | ------ | ------- | ------- | -------- | -
|                                                 |                                                                                                          |                                                              |                                                     |          | Years Ended December 31,
|                                                 |                                                                                                          |                                                              |                                                     |          |                         
|                                                 |                                                                                                          |                                                              |                                                     |          | 2003                     |         | 2002   |          | 2001  
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |       
|Cash flows from operating activities:            |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |        
|                                                 | Net income from continuing operations                                                                    |                                                              | $                                                   | 49,481   |                          |         | $      | 54,373   |        |         | $      | 91,022  |        
|                                                 | Adjustments to reconcile net income from continuing
operations to cash provided by operating activities: |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|                                                 |                                                                                                          | Depreciation and amortization                                |                                                     |          | 31,066                   |         |        |          | 30,116 |         |        |         | 26,699  |         
|                                                 |                                                                                                          | Equity in loss of affiliate, net of distributions            |                                                     |          | 9,349                    |         |        |          | 6,815  |         |        |         | 960     |         
|                                                 |                                                                                                          | Non-cash portion of interest expense                         |                                                     |          | 31                       |         |        |          | 31     |         |        |         | 626     |         
|                                                 |                                                                                                          | (Increase) decrease in accounts receivable                   |                                                     |          | (1,334                   | )       |        |          | (3,402 | )       |        |         | 3,367   |         
|                                                 |                                                                                                          | Decrease (increase) in inventories                           |                                                     |          | 552                      |         |        |          | (3,182 | )       |        |         | (2,606  | )       
|                                                 |                                                                                                          | Decrease (increase) in other current assets                  |                                                     |          | 959                      |         |        |          | (369   | )       |        |         | (15,987 | )       
|                                                 |                                                                                                          | (Decrease) increase in accounts payable and accrued
expenses |                                                     |          | (9,689                   | )       |        |          | 7,265  |         |        |         | 12,898  |         
|                                                 |                                                                                                          | Other                                                        |                                                     |          | 15,673                   |         |        |          | 14,775 |         |        |         | (446    | )       
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|                                                 |                                                                                                          |                                                              | Net cash provided by continuing operations          |          |                          | 96,088  |        |          |        | 106,422 |        |         |         | 116,533  |  
|                                                 |                                                                                                          |                                                              | Net cash provided by discontinued operations        |          |                          |        |        |          |        | 1,178   |        |         |         | 6,537    |  
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|                                                 |                                                                                                          |                                                              | Net cash provided by operating activities           |          |                          | 96,088  |        |          |        | 107,600 |        |         |         | 123,070  |  
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|Cash flows from investing activities:            |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |        
|                                                 | Proceeds from cash investments                                                                           |                                                              |                                                     | 750      |                          |         |        |         |        |         |        | 4,236   |        
|                                                 | Proceeds from sale of assets                                                                             |                                                              |                                                     |         |                          |         |        | 3,380    |        |         |        |        |        
|                                                 | Proceeds from sale of TEPPCO Colorado, LLC                                                               |                                                              |                                                     |         |                          |         |        | 4,096    |        |         |        |        |        
|                                                 | Investment in Centennial Pipeline LLC                                                                    |                                                              |                                                     | (4,000   | )                        |         |        | (10,882  | )      |         |        | (64,953 | )      
|                                                 | Acquisition of additional interest in Centennial Pipeline LLC                                            |                                                              |                                                     | (20,000  | )                        |         |        |         |        |         |        |        |        
|                                                 | Investment in Mont Belvieu Storage Partners, L.P.                                                        |                                                              |                                                     | (2,533   | )                        |         |        |         |        |         |        |        |        
|                                                 | Capital expenditures                                                                                     |                                                              |                                                     | (58,391  | )                        |         |        | (60,898  | )      |         |        | (81,410 | )      
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|                                                 |                                                                                                          |                                                              | Net cash used in investing activities               |          |                          | (84,174 | )      |          |        | (64,304 | )      |         |         | (142,127 | )
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|Cash flows from financing activities:            |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |        
|                                                 | Proceeds from term loan                                                                                  |                                                              |                                                     | 110,859  |                          |         |        | 186,099  |        |         |        | 166,148 |        
|                                                 | Repayment of term loan                                                                                   |                                                              |                                                     | (53,638  | )                        |         |        | (149,906 | )      |         |        | (96,917 | )      
|                                                 | Advances from Parent Partnership                                                                         |                                                              |                                                     |         |                          |         |        |         |        |         |        | 1,202   |        
|                                                 | Equity contribution  General Partner                                                                    |                                                              |                                                     |         |                          |         |        |         |        |         |        | 1       |        
|                                                 | Equity contribution  Parent Partnership                                                                 |                                                              |                                                     | 37,033   |                          |         |        | 12,263   |        |         |        | 24,025  |        
|                                                 | Distributions paid                                                                                       |                                                              |                                                     | (106,465 | )                        |         |        | (94,921  | )      |         |        | (80,914 | )      
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|                                                 |                                                                                                          |                                                              | Net cash provided by (used in) financing activities |          |                          | (12,211 | )      |          |        | (46,465 | )      |         |         | 13,545   |  
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|Net decrease in cash and cash equivalents        |                                                                                                          |                                                              | (297                                                | )        |                          |         | (3,169 | )        |        |         | (5,512 | )      
|Cash and cash equivalents at beginning of period |                                                                                                          |                                                              | 485                                                 |          |                          |         | 3,654  |          |        |         | 9,166  |        
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|Cash and cash equivalents at end of period       |                                                                                                          | $                                                            | 188                                                 |          |                          | $       | 485    |          |        | $       | 3,654  |        
|                                                 |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |         |        
|Non-cash investing activities:                   |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |        
|                                                 | Net assets transferred to Mont Belvieu Storage Partners, L.P.                                            |                                                              | $                                                   | 61,408   |                          |         | $      |         |        |         | $      |        |        
|Supplemental disclosure of cash flows:           |                                                                                                          |                                                              |                                                     |          |                          |         |        |          |        |         |        |        
|                                                 | Cash paid for interest (net of amounts capitalized)                                                      |                                                              | $                                                   | 30,286   |                          |         | $      | 24,975   |        |         | $      | 31,023  |        

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(in thousands)

|                                       |                                                           |   |           |        |           |   |         |          |   |   |         |          |  
|-------------------------------------- | --------------------------------------------------------- | - | --------- | ------ | --------- | - | ------- | -------- | - | - | ------- | -------- | -
|                                       |                                                           |   | General   |        | Limited   |   |         |          |  
|                                       |                                                           |   | Partners |        | Partners |   |         |          |  
|                                       |                                                           |   | Interest  |        | Interest  |   | Total  
|                                       |                                                           |   |           |        |           |   |        
|Partners capital at December 31, 2000 |                                                           | $ | 2,383     |        |           | $ | 232,532 |          |   | $ | 234,915 |         
|                                       | Ownership restructuring                                   |   |           | (2,601 | )         |   |         | 2,601    |   |   |         |         |  
|                                       | 2001 net income allocation                                |   |           | 614    |           |   |         | 92,082   |   |   |         | 92,696   |  
|                                       | 2001 cash distributions                                   |   |           | (394   | )         |   |         | (80,520  | ) |   |         | (80,914  | )
|                                       | Capital contributions                                     |   |           | 1      |           |   |         | 24,025   |   |   |         | 24,026   |  
|                                       | Option exercises, net of Limited Partner Unit repurchases |   |           |       |           |   |         | (611     | ) |   |         | (611     | )
|                                       |                                                           |   |           |        |           |   |         |          |   |   |         |         
|Partners capital at December 31, 2001 |                                                           |   | 3         |        |           |   | 270,109 |          |   |   | 270,112 |         
|                                       | 2002 net income allocation                                |   |           | 1      |           |   |         | 55,284   |   |   |         | 55,285   |  
|                                       | 2002 cash distributions                                   |   |           | (2     | )         |   |         | (94,919  | ) |   |         | (94,921  | )
|                                       | Capital contributions                                     |   |           |       |           |   |         | 9,816    |   |   |         | 9,816    |  
|                                       | Option exercises                                          |   |           |       |           |   |         | 2,447    |   |   |         | 2,447    |  
|                                       |                                                           |   |           |        |           |   |         |          |   |   |         |         
|Partners capital at December 31, 2002 |                                                           |   | 2         |        |           |   | 242,737 |          |   |   | 242,739 |         
|                                       | 2003 net income allocation                                |   |           | 1      |           |   |         | 49,480   |   |   |         | 49,481   |  
|                                       | 2003 cash distributions                                   |   |           | (1     | )         |   |         | (106,464 | ) |   |         | (106,465 | )
|                                       | Capital contributions                                     |   |           |       |           |   |         | 34,988   |   |   |         | 34,988   |  
|                                       | Option exercises                                          |   |           |       |           |   |         | 2,045    |   |   |         | 2,045    |  
|                                       |                                                           |   |           |        |           |   |         |          |   |   |         |         
|Partners capital at December 31, 2003 |                                                           | $ | 2         |        |           | $ | 222,786 |          |   | $ | 222,788 |         
|                                       |                                                           |   |           |        |           |   |         |          |   |   |         |         

See accompanying Notes to Consolidated Financial Statements.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY,
LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. PARTNERSHIP ORGANIZATION

TE Products Pipeline Company, Limited Partnership (the Partnership), a
Delaware limited partnership, was formed in March 1990. TEPPCO Partners, L.P.
(the Parent Partnership) owns a 99.999% interest in us as the sole limited
partner. TEPPCO GP, Inc. (TEPPCO GP or General Partner), a subsidiary of
the Parent Partnership, holds a 0.001% General Partner interest in us. Texas
Eastern Products Pipeline Company, LLC (the Company), a Delaware limited
liability company, serves as the general partner of our Parent Partnership.
The Company is a wholly owned subsidiary of Duke Energy Field Services, LLC
(DEFS), a joint venture between Duke Energy Corporation (Duke Energy) and
ConocoPhillips. Duke Energy holds an interest of approximately 70% in DEFS,
and ConocoPhillips holds the remaining 30%. TEPPCO GP, as general partner,
performs all of the management and operating functions required for us
according to the Agreement of Limited Partnership of TE Products Pipeline
Company, Limited Partnership (the Partnership Agreement). We reimburse our
General Partner and the Company for all reasonable direct and indirect expenses
that they incur in managing us.

As used in this Report, we, us, and our means TE Products Pipeline
Company, Limited Partnership.

On July 26, 2001, the Company restructured its general partner ownership
of us to cause us to be wholly owned by the Parent Partnership. TEPPCO GP
succeeded the Company as our general partner. All of our remaining partner
interests not already owned by the Parent Partnership were transferred to the
Parent Partnership. In exchange for this contribution, the Companys interest
as general partner of the Parent Partnership was increased to 2%. The
increased percentage is the economic equivalent of the aggregate interest that
the Company had prior to the restructuring through its combined interests in
the Parent Partnership and us. As a result, the Parent Partnership holds a
99.999% limited partner interest in us and TEPPCO GP holds a 0.001% general
partner interest. In this Report, the General Partner refers to the Company
prior to the restructuring and to TEPPCO GP thereafter. This reorganization
was undertaken to simplify our required financial reporting when we issue
guarantees of our Parent Partnerships debt.

At December 31, 2003 and 2002, we had working capital deficits of $12.3
million and $1.4 million, respectively. Cash generated from operations and
from our Parent Partnerships credit facilities and debt and equity offerings
are our primary sources of liquidity. Working capital deficits can occur
primarily due to the timing of operating cash receipts from customers, payment
of cash distributions, and the payment of normal operating expenses and capital
expenditures. Our Parent Partnership has historically made capital
contributions, loans or otherwise provided liquidity to us as needed, but the
Parent Partnership has no contractual obligation to do so. At December 31,
2003, our Parent Partnership had $340.0 million in available borrowing capacity
under its revolving credit facility and has agreed to cover any working capital
shortfalls, if required.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We adhere to the following significant accounting policies in the
preparation of our consolidated financial statements.

Basis of Presentation and Principles of Consolidation

The financial statements include our accounts and the accounts of TEPPCO
Colorado, LLC (TEPPCO Colorado) on a consolidated basis until its sale in May
2002. All amounts relating to TEPPCO Colorado have been reclassified to
reflect TEPPCO Colorado as discontinued operations for all periods presented
(see Note 19. Discontinued Operations). We have eliminated all significant
intercompany items in consolidation. We have reclassified certain amounts from
prior periods to conform with the current presentation.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires our management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Business Segments

We report and operate in one business segment: transportation and storage
of refined products, liquefied petroleum gases (LPGs) and petrochemicals.
Our interstate transportation operations, including rates charged to customers,
are subject to regulations prescribed by the Federal Energy Regulatory
Commission (FERC). We refer to refined products, LPGs and petrochemicals in
this Report, collectively, as petroleum products or products.

Effective January 1, 2002, our Parent Partnership realigned its business
segments to reflect its entry into the natural gas gathering business and the
expanded scope of its natural gas liquids (NGLs) operations. As part of this
realignment, on May 31, 2002, we transferred our investment in TEPPCO Colorado,
which fractionates NGLs, to TEPPCO Midstream Companies, L.P. (TEPPCO
Midstream). As a result of the transfer, the results of operations of TEPPCO
Colorado for the periods presented are reflected as discontinued operations
(see Note 19. Discontinued Operations). We have reclassified prior periods
presented to reflect the current presentation.

Revenue Recognition

Our revenues are earned from transportation and storage of refined
products and LPGs, intrastate transportation of petrochemicals, sale of product
inventory and other ancillary services. Transportation revenues are recognized
as products are delivered to customers. Storage revenues are recognized upon
receipt of products into storage and upon performance of storage services.
Terminaling revenues are recognized as products are out-loaded. Revenues from
the sale of product inventory are recognized when the products are sold.

Cash and Cash Equivalents

Cash equivalents are defined as all highly marketable securities with
maturities of three months or less when purchased. The carrying value of cash
and cash equivalents approximates fair value because of the short-term nature
of these investments.

Allowance for Doubtful Accounts

We establish provisions for losses on accounts receivable if we determine
that we will not collect all or part of the outstanding balance.
Collectibility is reviewed regularly and an allowance is established or
adjusted, as necessary, using the specific identification method. The
following table presents the activity of our allowance for doubtful accounts
for the years ended December 31, 2003 and 2002 (in thousands):

|                               |                          |   |                          |     |      |   |     |     | 
|------------------------------ | ------------------------ | - | ------------------------ | --- | ---- | - | --- | --- | 
|                               |                          |   | Years Ended December 31,
|                               |                          |   |                         
|                               |                          |   | 2003                     |     | 2002
|                               |                          |   |                          |     |     
|Balance at beginning of period |                          | $ | 287                      |     |      | $ |    |    
|Charges to costs and expenses  |                          |   | 788                      |     |      |   | 287 |    
|Deductions and other           |                          |   | (701                     | )   |      |   |    |    
|                               |                          |   |                          |     |      |   |     |    
|                               | Balance at end of period |   | $                        | 374 |      |   | $   | 287 | 
|                               |                          |   |                          |     |      |   |     |    

Inventories

Inventories consist primarily of petroleum products which are valued at
the lower of cost (weighted average cost method) or market. We acquire and
dispose of various products under exchange agreements. Receivables and payables
arising from these transactions are usually satisfied with products rather than
cash. The net balances of

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

exchange receivables and payables are valued at weighted average cost and
included in inventories. Inventories of materials and supplies, used for
ongoing replacements and expansions, are carried at the lower of fair value or
cost.

Property, Plant and Equipment

We record property, plant and equipment at its acquisition cost.
Additions to property, plant and equipment, including major replacements or
betterments, are recorded at cost. We charge replacements and renewals of
minor items of property that do not materially increase values or extend useful
lives to maintenance expense. Depreciation expense is computed on the
straight-line method using rates based upon expected useful lives of various
classes of assets (ranging from 2% to 20% per annum).

We evaluate impairment of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of the
carrying amount of assets to be held and used is measured by a comparison of
the carrying amount of the asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

Capitalization of Interest

We capitalize interest on borrowed funds related to capital projects only
for periods that activities are in progress to bring these projects to their
intended use. The weighted average rate used to capitalize interest on borrowed
funds was 4.68%, 5.47% and 6.36% for the years ended December 31, 2003, 2002
and 2001, respectively. During the years ended December 31, 2003, 2002 and
2001, the amount of interest capitalized was $2.3 million, $3.3 million and
$3.5 million, respectively.

Intangible Assets

Intangible
assets at December 31, 2003 and 2002, consist of
$1.1 million and $1.2 million, respectively, of
transportation agreements with customers and are being amortized using a
straight line method over the term of the related agreement (approximately 20
years). At December 31, 2001, intangible assets also included the TEPPCO
Colorado fractionation agreement with DEFS (see Note 7. Related
Party Transactions). The fractionation agreement with
DEFS was entered into in 1998 upon acquisition of TEPPCO Colorado and was being
amortized over a period of 20 years. On May 31, 2002, we transferred our investment in TEPPCO Colorado to TEPPCO
Midstream.

Environmental Expenditures

We accrue for environmental costs that relate to existing conditions
caused by past operations. Environmental costs include initial site surveys
and environmental studies of potentially contaminated sites, costs
for remediation and restoration of sites determined to be contaminated and
ongoing monitoring costs, as well as damages and other costs, when estimable.
We monitor the balance of accrued undiscounted environmental liabilities on a
regular basis. We record liabilities for environmental costs at a specific
site when our liability for such costs is probable and a reasonable estimate of
the associated costs can be made. Adjustments to initial estimates are
recorded, from time to time, to reflect changing circumstances and estimates
based upon additional information developed in subsequent periods. Estimates
of our ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

stage of investigation at certain sites, the
lengthy time frames required to complete remediation alternatives available and
the evolving nature of environmental laws and regulations.

The following table presents the activity of our environmental reserve for
the years ended December 31, 2003, 2002 and 2001 (in thousands):

|                               |                          |   |                          |       |      |   |        |       |  |   |        |       | 
|------------------------------ | ------------------------ | - | ------------------------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                               |                          |   | Years Ended December 31,
|                               |                          |   |                         
|                               |                          |   | 2003                     |       | 2002 |   | 2001  
|                               |                          |   |                          |       |      |   |       
|Balance at beginning of period |                          | $ | 2,051                    |       |      | $ | 1,222  |       |  | $ | 665    |      
|Charges to expense             |                          |   | 1,490                    |       |      |   | 2,901  |       |  |   | 1,582  |      
|Deductions and other           |                          |   | (1,848                   | )     |      |   | (2,072 | )     |  |   | (1,025 | )    
|                               |                          |   |                          |       |      |   |        |       |  |   |        |      
|                               | Balance at end of period |   | $                        | 1,693 |      |   | $      | 2,051 |  |   | $      | 1,222 | 
|                               |                          |   |                          |       |      |   |        |       |  |   |        |      

Operating, General and Administrative Expenses

The Parent Partnership allocates operating, general and administrative
expenses to us for legal, insurance, financial, communication and other
administrative services based upon the estimated level of effort devoted to our
various operations. We believe that the method for allocating corporate
operating, general and administrative expenses is reasonable. Total operating,
general and administrative expenses reflected in the accompanying consolidated
financial statements are representative of the total operating, general and
administrative costs we would have incurred as a separate entity.

Income Taxes

We are a limited partnership. As such, we are not a taxable entity for
federal and state income tax purposes and do not directly pay federal and state
income tax. Our taxable income or loss, which may vary substantially from the
net income or net loss we report in our consolidated statements of income, is
includable in the federal and state income tax returns of each unitholder.
Accordingly, no recognition has been given to federal income taxes for our
operations. The aggregate difference in the basis of our net assets for
financial and tax reporting purposes cannot be readily determined as we do not
have access to information about each unitholders tax attributes in the
Partnership.

Comprehensive Income

SFAS No. 130, Reporting Comprehensive Incomerequires certain items such
as foreign currency translation adjustments, minimum pension liability
adjustments and unrealized gains and losses on certain investments to be
reported in a financial statement. For the years ended December 31, 2003,
2002, and 2001, our comprehensive income equaled our reported net income.

Use of Derivatives

We account for derivative financial instruments in accordance with SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities,and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of FASB Statement No. 133.These statements establish
accounting and reporting standards requiring that derivative instruments
(including certain derivative instruments embedded in other contracts) be
recorded on the balance sheet at fair value as either assets or liabilities.
The accounting for changes in the fair value of a derivative instrument depends
on the intended use of the derivative and the resulting designation, which is
established at the inception of a derivative.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Our
derivative instrument consists of an interest rate swap. For
all hedging relationships, we formally document at inception the hedging
relationship and its risk-management objective and strategy for undertaking the
hedge, the hedging instrument, the item, the nature of the risk being hedged,
how the hedging instruments effectiveness in offsetting the hedged risk will
be assessed and a description of the method of measuring ineffectiveness. This
process includes linking all derivatives that are designated as fair value or
cash flow to specific assets and liabilities on the balance sheet or to
specific firm commitments or forecasted transactions. We also formally assess,
both at the hedges inception and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items. If it is determined that
a derivative is not highly effective as a hedge or that it has ceased to be a
highly effective hedge, we discontinue hedge accounting prospectively.

For derivative instruments designated as fair value hedges, gains and
losses on the derivative instrument are offset against related results on the
hedged item in the statement of income. Changes in the fair value of a
derivative that is highly effective and that is designated and qualifies as a
fair value hedge along with the loss or gain on the hedged asset or liability
or unrecognized firm commitment of the hedged item that is attributable to the
hedged risk, are recorded in earnings. Changes in the fair value of a
derivative that is highly effective and that is designated and qualifies as a
cash flow hedge are recorded in other comprehensive income to the extent that
the derivative is effective as a hedge, until earnings are affected by the
variability in cash flows of the designated hedged item. Hedge effectiveness is
measured at least quarterly based on the relative cumulative changes in fair
value between the derivative contract and the hedged item over time. The
ineffective portion of the change in fair value of a derivative instrument that
qualifies as either a fair value hedge or a cash flow hedge is reported
immediately in earnings.

According to SFAS 133, as amended, we are required to discontinue hedge
accounting prospectively when it is determined that the derivative is no longer
effective in offsetting changes in the fair value or cash flows of the hedged
item, the derivative expires or is sold, terminated, or exercised, the
derivative is dedesignated as a hedging instrument, because it is unlikely that
a forecasted transaction will occur, a hedged firm commitment no longer meets
the definition of a firm commitment, or management determines that designation
of the derivative as a hedging instrument is no longer appropriate.

When hedge accounting is discontinued because it is determined that the
derivative no longer qualifies as an effective fair value hedge, we continue to
carry the derivative on the balance sheet at its fair value and no longer
adjust the hedged asset or liability for changes in fair value. The adjustment
of the carrying amount of the hedged asset or liability is accounted for in the
same manner as other components of the carrying amount of that asset or
liability. When hedge accounting is discontinued because the hedged item no
longer meets the definition of a firm commitment, we continue to carry the
derivative on the balance sheet at its fair value, remove any asset or
liability that was recorded pursuant to recognition of the firm
commitment from the balance sheet, and recognize any gain or loss in earnings. When hedge
accounting is discontinued because it is probable that a forecasted transaction
will not occur, we continue to carry the derivative on the balance sheet at its
fair value with subsequent changes in fair value included in earnings, and
gains and losses that were accumulated in other comprehensive income are
recognized immediately in earnings.
In all other situations in which hedge accounting is discontinued, we continue
to carry the derivative at its fair value on the balance sheet and recognize
any subsequent changes in its fair value in earnings.

The adoption of SFAS 133 and SFAS 138 had no impact on us.

Unit Option Plan

Our Parent Partnership has not granted options for any periods presented.
For options outstanding under the 1994 Long Term Incentive Plan (see Note 15.
Unit-Based Compensation), the Parent Partnership followed the intrinsic value
method of accounting for recognizing stock-based compensation expense. Under
this method, the Parent Partnership records no compensation expense for unit
options granted when the exercise price of the options

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

granted is equal to, or greater than, the market price of our Parent
Partnerships Limited Partner Units on the date of the grant During the year
ended December 31, 2003, all remaining outstanding unit options were exercised.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosurewas issued. SFAS 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation, and provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002, and are included in Note 15. Unit-Based Compensation.

Assuming the Parent Partnership had used the fair value method of
accounting for its unit option plan, pro forma net income for the years ended
December 31, 2002 and 2001, would be lower than reported net income by an
immaterial amount. Pro forma net income would equal reported net income for
the year ended December 31, 2003. The adoption of SFAS 148 did not have an
effect on our financial position, results of operations or cash flows.

New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 46, Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51(FIN 46). FIN 46 requires certain variable
interest entities to be consolidated by the primary beneficiary of the entity
if the equity investors in the entity do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. We are required to apply FIN 46 to all new
variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, we
were required to apply FIN 46 on July 1, 2003. In connection with the adoption
of FIN 46, we evaluated our investments in Centennial Pipeline LLC and Mont
Belvieu Storage Partners, L.P. and determined that these entities are not
variable interest entities as defined by FIN 46, and thus we have accounted for
them as equity method investments (see Note 6. Equity Investments). The
adoption of FIN 46 did not have an effect on our financial position, results of
operations or cash flows.

In December 2003, the FASB revised FIN 46. The revised statement, FASB
Interpretation No. 46(R), Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51(FIN 46(R)) clarifies some of the requirements
of FIN 46, eases some implementation problems that companies experienced
implementing FIN 46, adds new scope exceptions, and makes the probability more
likely for many companies that potential variable interest entities will be
identified and consolidated. We are required to apply the new requirements
detailed in FIN 46(R) as of March 31, 2004. We are evaluating our investments
in Centennial Pipeline LLC and Mont Belvieu Storage Partners, L.P. to determine
the impact, if any, of the adoption of FIN 46(R). We do not believe the
adoption of FIN 46(R) will have a material effect on our financial position,
results of operations or cash flows.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends SFAS 133 to
conform and incorporate derivative implementation issues and subsequently
issued accounting guidance. SFAS 149 clarifies under what circumstances a
contract with an initial net investment meets the characteristics of a
derivative, clarifies when a derivative contains a financing component, amends
the definition of an underlying to conform it to language used in FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Othersand amends
certain other existing pronouncements. SFAS 149 is effective for contracts
entered into or modified after June 30, 2003, and should be applied
prospectively. However, certain SFAS 133 implementation issues that were
effective for all fiscal quarters prior to June 15, 2003, should continue to be
applied in accordance with their respective effective dates. We adopted SFAS
149 effective July 1, 2003. The adoption of SFAS 149 did not have an effect on
our financial position, results of operations or cash flows.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
SFAS 150 establishes standards for how an issuer classifies and measures
certain freestanding financial instruments with characteristics of both
liabilities and equity. SFAS 150 requires that an issuer classify a financial
instrument that is within its scope as a liability (or asset in some
circumstances). We adopted SFAS 150 effective July 1, 2003. The adoption of
SFAS 150 did not have an effect on our financial position, results of
operations or cash flows.

In May 2003, the EITF reached consensus in EITF 01-08, Determining Whether
an Arrangement Contains a Lease, to clarify the requirements of identifying
whether an arrangement should be accounted for as a lease at its inception.
The guidance in the consensus is designed to mandate reporting revenue as
rental or leasing income that otherwise would be reported as part of product
sales or service revenue. EITF 01-08 requires both parties in an arrangement
to determine whether a service contract or similar arrangement is or includes a
lease within the scope of SFAS No. 13, Accounting For Leases. We have
historically leased storage capacity to outside parties and entered into
pipeline capacity lease agreements both as the lessee and as the lessor. The
accounting requirements under the consensus could affect the timing of revenue
and expense recognition, and revenues reported as transportation and storage
services might have to be reported as rental or leasing income. Should
capital-lease treatment be necessary, purchasers of transportation and storage
services in the arrangements would have to recognize new assets on their
balance sheets. The consensus is to be applied prospectively to arrangements
agreed to, modified, or acquired in business combinations in fiscal periods
beginning after May 28, 2003. Previous arrangements that would be leases or
would contain a lease according to the consensus will continue to be accounted
for as transportation and storage purchases or sales arrangements. As we enter
into new arrangements, we will assess the impact of EITF 01-08 on the
arrangement. The adoption of EITF 01-08 did not have a material effect on our
financial position, results of operations or cash flows.

In July 2003, the EITF reached consensus in EITF 03-11, Reporting Gains
and Losses on Derivative Instruments That Are Subject to FASB Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, and Not Held
for Trading Purposes. In a 2002 Issue, the EITF reached a consensus that all
gains and losses (realized and unrealized) on derivative instruments within the
scope of SFAS 133 should be shown net in the income statement, whether or not
settled physically, if the derivative instruments are held for trading
purposes. However, the EITF recognized that there may be contracts within the
scope of SFAS 133 considered not held for trading purposes that warrant further
consideration as to the appropriate income statement classification of the
gains and losses. In EITF 03-11, the EITF clarified certain criteria to use in
determining whether gains and losses related to non-trading derivative
instruments should be shown net in the income statement. The adoption of EITF
03-11 did not have a material effect on our financial position, results of
operations or cash flows.

On December 8, 2003, President Bush signed into a law a bill that expands
Medicare, primarily adding a prescription drug benefit for Medicare-eligible
retirees starting in 2006. We anticipate that the benefits our Parent
Partnership pays after 2006 could be lower as a result of the new Medicare
provisions; however, at this time the retiree medical obligations and costs
reported do not reflect any changes as a result of this legislation. Deferring
the recognition of the new Medicare provisions impact is permitted by FASB
Staff Position 106-1, Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003,due to
open questions about some of the new Medicare provisions and a lack of
authoritative accounting guidance about certain matters. The final accounting
guidance could require changes to previously reported information. We do not
believe that this regulation will have a material adverse effect on our
financial position, results of operations or cash flows.

NOTE 3. INTANGIBLE ASSETS

We account for our intangible assets under SFAS No. 142, Goodwill and
Other Intangible Assetswhich was issued by the FASB in July 2001. SFAS 142
prohibits amortization of goodwill and intangible assets with

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

indefinite useful lives, but instead requires testing for impairment at least
annually. SFAS 142 requires that intangible assets with finite useful lives be
amortized over their respective estimated useful lives. If an intangible asset
has a finite useful life, but the precise length of that life is not known,
that intangible asset shall be amortized over the best estimate of its useful
life. At a minimum, we will assess the useful lives and residual values of all
intangible assets on an annual basis to determine if adjustments are required.

The following table reflects the components of amortized intangible
assets, included in other assets on the consolidated balance sheets at December
31, 2003 and 2002 (in thousands):

|                             |                           |  |                   |       |                   |  |                |      |              |  |   |       |  |  |   |      |  
|---------------------------- | ------------------------- |  | ----------------- | ----- | ----------------- |  | -------------- | ---- | ------------ |  | - | ----- |  |  | - | ---- | -
|                             |                           |  | December 31, 2003 |       | December 31, 2002
|                             |                           |  |                   |       |                  
|                             |                           |  | Gross Carrying    |       | Accumulated       |  | Gross Carrying |      | Accumulated 
|                             |                           |  | Amount            |       | Amortization      |  | Amount         |      | Amortization
|                             |                           |  |                   |       |                   |  |                |      |             
|Amortized intangible assets: |                           |  |                   |       |                   |  |                |      |              |  |   |       |  |  |   |     
|                             | Transportation agreements |  | $                 | 1,328 |                   |  | $              | (194 | )            |  | $ | 1,328 |  |  | $ | (127 | )

At December 31, 2003, we had $33.4 million of excess investment in our
equity investment in Centennial Pipeline LLC, which was created upon formation
of the company (see Note 6. Equity Investments). The excess investment is
included in our equity investments account at December 31, 2003. This excess
investment is accounted for as an intangible asset with an indefinite life. We
completed an impairment analysis of the excess investment in Centennial
Pipeline LLC during the year ended December 31, 2003, and we noted no
indication of impairment. We will assess the intangible asset for impairment
on an annual basis.

Upon the adoption of SFAS 142, we were required to reassess the useful
lives and residual values of all intangible assets acquired, and make necessary
amortization period adjustments by the end of the first interim period after
adoption. We completed this analysis during the year ended December 31, 2002,
resulting in no change to the amortization period for our intangible assets.
We will continue to reassess the useful lives and residual values of all
intangible assets on an annual basis.

Amortization expense on intangible assets was $0.1 million for each of the
years ended December 31, 2003, 2002 and 2001.

Estimated amortization expense on intangible assets will be $0.1 million
for each of the years ending December 31, 2004 through 2008.

NOTE 4. INTEREST RATE SWAP

On October 4, 2001, we entered into an interest rate swap agreement to
hedge our exposure to changes in the fair value of our fixed rate 7.51% Senior
Notes due 2028. We designated this swap agreement as a fair value hedge. The
swap agreement has a notional amount of $210.0 million and matures in January
2028 to match the principal and maturity of the 7.51% Senior Notes. Under the
swap agreement, we pay a floating rate of interest based on a three-month U.S.
Dollar LIBOR rate, plus a spread, and receive a fixed rate of interest of
7.51%. During the years ended December 31, 2003, and 2002, we recognized
reductions in interest expense of $10.0 million and $8.6 million, respectively,
related to the difference between the fixed rate and the floating rate of
interest on the interest rate swap. During the quarter ended December 31,
2003, we measured the hedge effectiveness of this interest rate swap and noted
that no gain or loss from ineffectiveness was required to be recognized. The
fair value of this interest rate swap was a gain of approximately $2.3 million
and $13.6 million at December 31, 2003, and 2002, respectively.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 5. ASSET RETIREMENT OBLIGATIONS

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires us to record the fair value of an
asset retirement obligation as a liability in the period in which we incur a
legal obligation for the retirement of tangible long-lived assets. A
corresponding asset is also recorded and depreciated over the life of the
asset. After the initial measurement of the asset retirement obligation, the
liability will be adjusted at the end of each reporting period to reflect
changes in the estimated future cash flows underlying the obligation.
Determination of any amounts recognized upon adoption is based upon numerous
estimates and assumptions, including future retirement costs, future inflation
rates and the credit-adjusted risk-free interest rates.

Our assets consist primarily of an interstate trunk pipeline system and a
series of storage facilities that originate along the upper Texas Gulf Coast
and extend through the Midwest and northeastern United States. We transport
refined products, LPGs and petrochemicals through the pipeline system. These
products are primarily received in the south end of the system and stored
and/or transported to various points along the system per customer nominations.

We have completed our assessment of SFAS 143, and we have determined that
we are obligated by contractual or regulatory requirements to remove facilities
or perform other remediation upon retirement of our assets. However, we are
not able to reasonably determine the fair value of the asset retirement
obligations for our trunk and interstate pipelines and our surface facilities,
since future dismantlement and removal dates are indeterminate. It is
impossible to predict when demand for transportation of the related products
will cease. Our right-of-way agreements allow us to maintain the right-of-way
rather than remove the pipe. In addition, we can evaluate our trunk pipelines
for alternative uses, which can be and have been found.

We will record such asset retirement obligations in the period in which
more information becomes available for us to reasonably estimate the settlement
dates of the retirement obligations. The adoption of SFAS 143 did not have an
effect on our financial position, results of operations or cash flows.

NOTE 6. EQUITY INVESTMENTS

In August 2000, we entered into agreements with Panhandle Eastern Pipeline
Company (PEPL), a former subsidiary of CMS Energy Corporation, and Marathon
Ashland Petroleum LLC (Marathon) to form Centennial Pipeline LLC
(Centennial). Centennial owns an interstate refined petroleum products
pipeline extending from the upper Texas Gulf Coast to central Illinois.
Through February 9, 2003, each participant owned a one-third interest in
Centennial. On February 10, 2003, we and Marathon each acquired an additional
interest in Centennial from PEPL for $20.0 million each, increasing our
percentage ownerships in Centennial to 50% each. During the year ended
December 31, 2003, including the amount paid for the acquisition of the
additional ownership interest, we invested $24.0 million in Centennial, which
is included in the equity investment balance at December 31, 2003.

As of January 1, 2003, we and Louis Dreyfus Energy Services, L.P. (Louis
Dreyfus) formed Mont Belvieu Storage Partners, L.P. (MB Storage). We and
Louis Dreyfus each own a 50% ownership interest in MB Storage. The purpose of
MB Storage is to expand services to the upper Texas Gulf Coast energy
marketplace by increasing pipeline throughput and the mix of products handled
through the existing system and establishing new receipt and delivery
connections. MB Storage is a service-oriented, fee-based venture with no
commodity trading activity. We continue to operate the facilities for MB
Storage. Effective January 1, 2003, we contributed property, plant and
equipment with a net book value of $67.4 million to MB Storage. Additionally,
as of the contribution date, Louis Dreyfus had invested $6.1 million for
expansion projects for MB Storage that we were required to reimburse if the
original joint development and marketing agreement was terminated by either
party. This deferred liability was also contributed and converted to the
capital account of Louis Dreyfus in MB Storage.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

We receive the first $1.8 million per quarter (or $7.15 million on an
annual basis) of MB Storages gross income less mandatory capital expenditures
plus capital contributions, as defined in the operating agreement. Any amount
of MB Storages gross income in excess of the $7.15 million is allocated evenly
between Louis Dreyfus and us, except for depreciation expense. Each partner is
allocated depreciation expense based upon assets each originally contributed to
MB Storage. Depreciation expense on assets constructed or acquired by MB
Storage is allocated evenly between Louis Dreyfus and us. For the year ended
December 31, 2003, our sharing ratio in the earnings of MB Storage was
approximately 70.4%. During the year ended December 21, 2003, excluding the
contribution of property, plant and equipment, we contributed $2.5 million to
MB Storage. In December 2003, we received a distribution of $5.3 million from
MB Storage.

We use the equity method of accounting to account for our investments in
Centennial and MB Storage. Summarized combined financial information for
Centennial and MB Storage for the year ended December 31, 2003, and for
Centennial for the year ended December 31, 2002, is presented below (in
thousands):

|         |  |              |        |      |  |   |         |  
|-------- |  | ------------ | ------ | ---- |  | - | ------- | -
|         |  | Years Ended 
|         |  | December 31,
|         |  |             
|         |  | 2003         |        | 2002
|         |  |              |        |     
|Revenues |  | $            | 54,035 |      |  | $ | 16,460  |  
|Net loss |  |              | (5,111 | )    |  |   | (21,503 | )

Summarized combined balance sheet data for Centennial and MB Storage as of
December 31, 2003, and for Centennial as of December 31, 2002, is presented
below (in thousands):

|                       |  |              |         |      |  |   |         | 
|---------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                       |  | December 31,
|                       |  |             
|                       |  | 2003         |         | 2002
|                       |  |              |         |     
|Current assets         |  | $            | 26,771  |      |  | $ | 8,184   | 
|Noncurrent assets      |  |              | 351,241 |      |  |   | 285,885 | 
|Current liabilities    |  |              | 35,032  |      |  |   | 19,949  | 
|Long-term debt         |  |              | 140,000 |      |  |   | 140,000 | 
|Noncurrent liabilities |  |              | 13,182  |      |  |   | 14,875  | 
|Partners capital      |  |              | 189,798 |      |  |   | 119,245 | 

Our investment in Centennial includes an excess net investment amount of
$33.4 million (see Note 3. Intangible Assets). Excess investment is the
amount by which our investment balance exceeds our proportionate share of the
net assets of the investment.

NOTE 7. RELATED PARTY TRANSACTIONS

Parent Partnership, Duke Energy, DEFS and Affiliates

We have no employees, and we are managed by TEPPCO GP, a wholly owned
subsidiary of our Parent Partnership. The Parent Partnership is managed by the
Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an
interest of approximately 70% in DEFS, and ConocoPhillips holds the remaining
30%. According to the Partnership Agreement, the General Partner and the
Company are entitled to reimbursement of all direct and indirect expenses
related to our business activities.

For the years ended December 31, 2003, 2002 and 2001, we incurred direct
expenses of $45.5 million, $46.6 million and $41.3 million, respectively, which
were charged to us by DEFS. Substantially all of these costs

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

were related to payroll and payroll related expenses. For the years ended
December 31, 2003, 2002 and 2001, expenses for administrative services and
overhead allocated to us by the Company (including Duke Energy and its
affiliates) were $1.0 million, $0.8 million and $0.5 million, respectively.

Our Parent Partnership allocates
operating, general and administrative expenses to us for legal,
insurance, financial, communication and other administrative services
based upon the estimated level of effort devoted to our various
operations. In addition, we make cash payments on behalf of the
Parent Partnership for various expenses. At December 31, 2003, we had
a net payable of $8.9 million to the Parent Partnership, and at
December 31, 2002, we had a net receivable of $1.8 million from the
Parent Partnership related to these affiliated activities.

Effective with the purchase of the fractionation facilities on March 31,
1998, TEPPCO Colorado and DEFS entered into a 20-year Fractionation Agreement,
under which TEPPCO Colorado received a variable fee for all fractionated
volumes delivered to DEFS. Revenues recognized from the fractionation
facilities totaled $3.1 million and $7.4 million for the years ended December
31, 2002 and 2001, respectively. TEPPCO Colorado and DEFS also entered into an
Operation and Maintenance Agreement, whereby DEFS operated and maintained the
fractionation facilities. For these services, TEPPCO Colorado paid DEFS a set
volumetric rate for all fractionated volumes delivered to DEFS. Expenses
related to the Operation and Maintenance Agreement totaled $0.4 million and
$0.9 million for the years ended December 31, 2002 and 2001, respectively. On
May 31, 2002, TEPPCO Colorado was transferred to TEPPCO Midstream.

Effective May 2001, we entered into an agreement with an affiliate of DEFS
to commit sole utilization of our Providence terminal to an affiliate of DEFS.
We operate the terminal and provide propane loading services to an affiliate of
DEFS. During the years ended December 31, 2003, 2002 and 2001, revenues of
$3.2 million, $2.3 million and $1.5 million from an affiliate of DEFS,
respectively, were recognized pursuant to this agreement.

At December 31, 2003 and 2002, we had a receivable from DEFS of $0.2
million and $0.1 million, respectively, related to payroll related expenses
owed by DEFS. At December 31, 2003 and 2002, we had a payable to DEFS of $0.8 million
and $5.7 million, respectively, related to payroll and administrative services provided by DEFS.

The Parent Partnership contracts with Bison Insurance Company Limited
(Bison), a wholly owned subsidiary of Duke Energy, for a majority of its
insurance coverage, including property, liability, auto and directors and
officers insurance coverage. The Parent Partnership allocates insurance expense
to us, and we believe that the total insurance expense allocated to us is
representative of the insurance costs we would have incurred as a separate
entity. For the years ended December 31, 2003 and 2002, the Parent Partnership
paid insurance premiums to Bison and allocated $3.3 million and $2.1
million, respectively, of insurance expense to us. At December 31, 2003 and 2002, we had insurance reimbursement
receivables due from Bison of $1.9 million and $1.1 million, respectively.

At December 31, 2003, we had a loan of propane outstanding to DEFS with a
total value of $1.4 million. We will earn a nominal rental fee of $0.1 million
on this transaction. This propane will be returned to us in February 2004. We
regularly loan inventory for a fee to third parties and affiliates as part of
our inventory management practice.

Centennial

In August 2000, we entered into agreements with PEPL and Marathon to form
Centennial (see Note 6. Equity Investments). At December 31, 2003, we had a
50% ownership interest in Centennial. We have entered into a management
agreement with Centennial to operate Centennials terminal at Creal Springs and
pipeline connection in Beaumont, Texas. For each of the years ended December
31, 2003 and 2002, we recognized management fees of $0.2 million from
Centennial, and actual operating expenses billed to Centennial were $4.4
million and $4.0 million, respectively.

We also have a joint tariff with Centennial to deliver products at our
locations using Centennials pipeline as part of the delivery route to
connecting carriers. As the delivering pipeline, we invoice the shippers for
the entire delivery rate, record only the net rate attributable to us as
transportation revenues and record a liability for the amounts due to
Centennial for its share of the tariff. At December 31, 2003 and 2002, we had
a payable balance of $2.3 million and $1.0 million, respectively, to Centennial
for its share of the joint tariff deliveries. In addition, we

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

perform ongoing construction services for Centennial and bill Centennial
for labor and other costs to perform the construction. At December 31, 2003
and 2002, we had a receivable balance of $1.3 million and $1.9 million,
respectively, due from Centennial for reimbursement of construction services
provided to Centennial.

In January 2003, we entered into a pipeline capacity lease agreement with
Centennial for a period of five years that contains a minimum throughput
requirement. For the year ended December 31, 2003, we incurred $3.8 million of
rental charges related to the lease of pipeline capacity on Centennial.

MB Storage

Effective January 1, 2003, we entered into agreements with Louis Dreyfus
to form MB Storage (see Note 6. Equity Investments). We operate the
facilities for MB Storage. We and MB Storage have entered into a pipeline
capacity lease agreement, and for the year ended December 31, 2003, we
recognized $0.1 million in rental revenue related to this lease agreement. We
also billed MB Storage $2.3 million for direct payroll and payroll related
expenses for operating MB Storage during the year ended December 31, 2003. At
December 31, 2003, we had a payable balance to MB Storage of $0.2 million for
advances MB Storage paid for operating costs, including payroll and related
expenses.

NOTE 8. OTHER CURRENT ASSETS

The major components of other current assets were as follows (in
thousands):

|                                            |       |   |              |        |      |   |       |        | 
|------------------------------------------- | ----- | - | ------------ | ------ | ---- | - | ----- | ------ | 
|                                            |       |   | December 31,
|                                            |       |   |             
|                                            |       |   | 2003         |        | 2002
|                                            |       |   |              |        |     
|Interest receivable from interest rate swap |       | $ | 4,680        |        |      | $ | 3,986 |       
|Reimbursable receivables                    |       |   | 1,378        |        |      |   | 3,508 |       
|Prepaid insurance and other                 |       |   | 1,449        |        |      |   | 2,308 |       
|Insurance receivable                        |       |   | 1,933        |        |      |   | 1,133 |       
|Short-term investments                      |       |   |             |        |      |   | 750   |       
|Other                                       |       |   | 790          |        |      |   | 254   |       
|                                            |       |   |              |        |      |   |       |       
|                                            | Total |   | $            | 10,230 |      |   | $     | 11,939 | 
|                                            |       |   |              |        |      |   |       |       

NOTE 9. INVENTORIES

Inventories are valued at the lower of cost (based on weighted average
cost method) or market. The costs of inventories did not exceed market values
at December 31, 2003 and 2002. The major components of inventories were as
follows (in thousands):

|                       |       |   |              |        |      |   |       |        | 
|---------------------- | ----- | - | ------------ | ------ | ---- | - | ----- | ------ | 
|                       |       |   | December 31,
|                       |       |   |             
|                       |       |   | 2003         |        | 2002
|                       |       |   |              |        |     
|Refined products       |       | $ | 6,632        |        |      | $ | 5,164 |       
|LPGs                   |       |   | 517          |        |      |   | 1,991 |       
|Other products         |       |   |             |        |      |   | 845   |       
|Materials and supplies |       |   | 4,037        |        |      |   | 3,738 |       
|                       |       |   |              |        |      |   |       |       
|                       | Total |   | $            | 11,186 |      |   | $     | 11,738 | 
|                       |       |   |              |        |      |   |       |       

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 10. PROPERTY, PLANT AND EQUIPMENT

Major categories of property, plant and equipment were as follows (in thousands):

|                              |                                                |                                   |         |              |         |      |         |           |         | 
|----------------------------- | ---------------------------------------------- | --------------------------------- | ------- | ------------ | ------- | ---- | ------- | --------- | ------- | 
|                              |                                                |                                   |         | December 31,
|                              |                                                |                                   |         |             
|                              |                                                |                                   |         | 2003         |         | 2002
|                              |                                                |                                   |         |              |         |     
|Land and right of way         |                                                | $                                 | 34,203  |              |         | $    | 33,724  |          
|Line pipe and fittings        |                                                |                                   | 575,656 |              |         |      | 570,229 |          
|Storage tanks                 |                                                |                                   | 96,036  |              |         |      | 116,215 |          
|Buildings and improvements    |                                                |                                   | 30,055  |              |         |      | 9,046   |          
|Machinery and equipment       |                                                |                                   | 161,613 |              |         |      | 215,973 |          
|Construction work in progress |                                                |                                   | 64,217  |              |         |      | 62,119  |          
|                              |                                                |                                   |         |              |         |      |         |          
|                              | Total property, plant and equipment            |                                   | $       | 961,780      |         |      | $       | 1,007,306 |        
|                              | Less accumulated depreciation and amortization |                                   |         | 279,395      |         |      |         | 284,458   |        
|                              |                                                |                                   |         |              |         |      |         |          
|                              |                                                | Net property, plant and equipment |         | $            | 682,385 |      |         | $         | 722,848 | 
|                              |                                                |                                   |         |              |         |      |         |          

Depreciation expense on property, plant and equipment was $31.0 million,
$30.1 million and $26.7 million for the years ended December 31, 2003, 2002 and
2001, respectively.

NOTE 11. OTHER CURRENT LIABILITIES

The major components of other current liabilities were as follows (in
thousands):

|                                    |       |   |              |        |      |   |       |       | 
|----------------------------------- | ----- | - | ------------ | ------ | ---- | - | ----- | ----- | 
|                                    |       |   | December 31,
|                                    |       |   |             
|                                    |       |   | 2003         |        | 2002
|                                    |       |   |              |        |     
|Compensation accruals               |       | $ | 8,168        |        |      | $ | 5,355 |      
|Inventory payables                  |       |   | 417          |        |      |   | 322   |      
|Current portion of deferred revenue |       |   | 1,013        |        |      |   | 1,153 |      
|Retainage                           |       |   | 631          |        |      |   | 408   |      
|Other                               |       |   | 3,754        |        |      |   | 2,159 |      
|                                    |       |   |              |        |      |   |       |      
|                                    | Total |   | $            | 13,983 |      |   | $     | 9,397 | 
|                                    |       |   |              |        |      |   |       |      

NOTE 12. DEBT

Senior Notes

On January 27, 1998, we completed the issuance of $180.0 million principal
amount of 6.45% Senior Notes due 2008, and $210.0 million principal amount of
7.51% Senior Notes due 2028 (collectively the Senior Notes). The 6.45%
Senior Notes were issued at a discount of $0.3 million and are being accreted
to their face value over the term of the notes. The 6.45% Senior Notes due
2008 are not subject to redemption prior to January 15, 2008. The 7.51% Senior
Notes due 2028, issued at par, may be redeemed at any time after January 15,
2008, at our option in whole or in part, at a premium.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations and rank on a parity
with all of our other unsecured and unsubordinated indebtedness. The indenture
governing the Senior Notes contains covenants, including, but not limited to,
covenants limiting the creation of liens securing indebtedness and sale and
leaseback transactions. However, the indenture does not limit our ability to
incur additional indebtedness. As of December 31, 2003, we were in compliance
with the covenants of the Senior Notes.

We have entered into an interest rate swap agreement to hedge our exposure
to changes in the fair value on a portion of the Senior Notes discussed above.
At December 31, 2003 and 2002, the Senior Notes include the fair value of our
interest rate swap of $2.3 million and $13.6 million, respectively. See Note
4. Interest Rate Swap.

At December 31, 2003, the estimated fair values of the 6.45% Senior Notes
and 7.51% Senior Notes were approximately $204.8 million and $228.0 million,
respectively. Market prices for recent transactions and rates currently
available to us for debt with similar terms and maturities were used to
estimate fair value.

Other Long Term Debt and Credit Facilities

We currently utilize debt financing available from our Parent Partnership
through intercompany notes. The terms of the intercompany notes generally match
the principal and interest payment dates under the Parent Partnerships credit
agreements. The interest rates charged by the Parent Partnership include the
stated interest rate of the Parent Partnership, plus a premium to cover debt
issuance costs. The interest rate is also decreased or increased to cover
gains and losses, respectively, on any interest rate swaps that the Parent
Partnership may have in place on its respective credit agreements. These
credit facilities of the Parent Partnership are described below.

On April 6, 2001, our Parent Partnership entered into a $500.0 million
revolving credit facility including the issuance of letters of credit of up to
$20.0 million (Three Year Facility). The interest rate was based, at our
Parent Partnerships option, on either the lenders base rate plus a spread, or
LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement for the Three Year Facility contained certain restrictive financial
covenant ratios. During 2002, our Parent Partnerships borrowings under the
Three Year Facility were used to finance the acquisitions of the Chaparral NGL
system on March 1, 2002, and the Val Verde Gas Gathering System (Val Verde)
on June 30, 2002, and for general Parent Partnership purposes. During 2002,
our Parent Partnership made repayments on the Three Year Facility with proceeds
from the issuance of its 7.625% Senior Notes, proceeds from the issuance of
additional Limited Partner Units and proceeds from the termination of interest
rate swaps. During the first quarter of 2003, our Parent Partnership repaid
$182.0 million of the outstanding balance of the Three Year Facility with
proceeds from the issuance of its 6.125% Senior Notes on January 30, 2003. On
June 27, 2003, our Parent Partnership repaid the outstanding balance under the
Three Year Facility with borrowings under a new credit facility and canceled
the Three Year Facility.

On February 20, 2002, our Parent Partnership issued $500.0 million
principal amount of 7.625% Senior Notes due 2012. The 7.625% Senior Notes were
issued at a discount of $2.2 million and are being accreted to their face value
over the term of the notes. The Parent Partnership used the proceeds from the
offering to reduce a portion of the outstanding balances of its credit
facilities. The Senior Notes may be redeemed at any time at our Parent
Partnerships option with the payment of accrued interest and a make-whole
premium determined by discounting remaining interest and principal payments
using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing these 7.625% Senior Notes contains covenants, including,
but not limited to, covenants limiting the creation of liens securing
indebtedness and sale and leaseback transactions. However, the indenture does
not limit our Parent Partnerships ability to incur additional indebtedness.

On January 30, 2003, our Parent Partnership issued $200.0 million
principal amount of 6.125% Senior Notes due 2013. The 6.125% Senior Notes were
issued at a discount of $1.4 million and are being accreted to their

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

face value over the term of the notes. The Parent Partnership used $182.0
million of the proceeds from the offering to reduce the outstanding principal
on the Three Year Facility to $250.0 million. The balance of the net proceeds
received was used for general Parent Partnership purposes. The Senior Notes
may be redeemed at any time at our Parent Partnerships option with the payment
of accrued interest and a make-whole premium determined by discounting
remaining interest and principal payments using a discount rate equal to the
rate of the United States Treasury securities of comparable remaining maturity
plus 35 basis points. The indenture governing the 6.125% Senior Notes contains
covenants, including, but not limited to, covenants limiting the creation of
liens securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit the Parent Partnerships ability to incur additional
indebtedness.

On June 27, 2003, our Parent Partnership entered into a $550.0 million
revolving credit facility with a three year term, including the issuance of
letters of credit of up to $20.0 million (Revolving Credit Facility). The
interest rate is based, at our Parent Partnerships option, on either the
lenders base rate plus a spread, or LIBOR plus a spread in effect at the time
of the borrowings. The credit agreement for the Revolving Credit Facility
contains certain restrictive financial covenant ratios. Our Parent Partnership
borrowed $263.0 million under the Revolving Credit Facility and repaid the
outstanding balance of the Three Year Facility. At December 31, 2003, $210.0
million was outstanding under the Revolving Credit Facility.

As of December 31, 2003 and 2002, we had an intercompany note payable to
our Parent Partnership of $211.3 million and $154.1 million, respectively,
which represented borrowings under the Parent Partnerships Revolving Credit
Facility, 7.625% Senior Notes and 6.125% Senior Notes. The weighted average
interest rate on the note payable to the Parent Partnership at December 31,
2003, was 5.8%. At December 31, 2003, accrued interest includes $3.3 million
due to the Parent Partnership. For the year ended December 31, 2003, interest
costs incurred on the note payable to our Parent Partnership totaled $11.1
million.

Short Term Credit Facilities

On April 6, 2001, our Parent Partnership entered into a 364-day, $200.0
million revolving credit agreement (Short-term Revolver). The interest rate
was based, at our Parent Partnerships option, on either the lenders base rate
plus a spread, or LIBOR plus a spread in effect at the time of the borrowings.
The credit agreement contained certain restrictive financial covenant ratios.
On March 28, 2002, the Short-term Revolver was extended for an additional
period of 364 days, ending in March 2003. During 2002, the Parent
Partnerships borrowings under the Short-term Revolver were used to finance the
acquisition of the Val Verde assets and for other purposes. During 2002, our
Parent Partnership repaid the existing amounts outstanding under the Short-term
Revolver with proceeds received from the issuance of Limited Partner Units in
2002. The Short-term Revolver expired on March 27, 2003.

NOTE 13. CONCENTRATIONS OF CREDIT RISK

Our primary market areas are located in the Northeast, Midwest and
Southwest regions of the United States. We have a concentration of trade
receivable balances due from major integrated oil companies, independent oil
companies and other pipelines and wholesalers. These concentrations of
customers may affect our overall credit risk in that the customers may be
similarly affected by changes in economic, regulatory or other factors. We
thoroughly analyze our customers historical and future credit positions prior
to extending credit. We manage our exposure to credit risk through credit
analysis, credit approvals, credit limits and monitoring procedures, and for
certain transactions may utilize letters of credit, prepayments and guarantees.

For the year ended December 31, 2003, we had one customer, Marathon
Ashland Petroleum LLC, which accounted for 18% of our total consolidated
revenues. No other customer accounted for 10% or more of our total
consolidated revenues for the years ended December 31, 2003, 2002 or 2001.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The carrying amount of cash and cash equivalents, accounts receivable,
inventories, other current assets, accounts payable and accrued liabilities,
other current liabilities and notes payable approximates their fair value due
to their short-term nature.

NOTE 14. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. We pay distributions of 99.999% to the Parent Partnership and
0.001% to the General Partner.

For the years ended December 31, 2003, 2002 and 2001, cash distributions
paid to our Parent Partnership totaled $106.5 million, $94.9 million and $80.9
million, respectively. The distribution increases reflect our success in
improving cash flow levels. On February 6, 2004, we paid a cash distribution
to our Parent Partnership of $28.9 million for the quarter ended December 31,
2003.

NOTE 15. UNIT-BASED COMPENSATION

1994 Long Term Incentive Plan

During 1994, the Company adopted the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan (1994 LTIP). The 1994 LTIP provides
certain key employees with an incentive award whereby a participant is granted
an option to purchase Limited Partner Units of the Parent Partnership (Parent
LPU). These same employees are also granted a stipulated number of
Performance Units, the cash value of which may be used to pay for the exercise
of the respective Parent LPU options awarded. Under the provisions of the 1994
LTIP, no more than one million options and two million Performance Units may be
granted.

When our Parent Partnerships calendar year earnings per unit (exclusive
of certain special items) exceeds a stated threshold, each participant receives
a credit to their respective Performance Unit account equal to the earnings per
unit excess multiplied by the number of Performance Units awarded. The balance
in the Performance Unit account may be used to offset the cost of exercising
Parent LPU options granted in connection with the Performance Units or may be
withdrawn two years after the underlying options expire, usually 10 years from
the date of grant. Any unused balance previously credited is forfeited upon
termination. The Parent Partnership accrues compensation expense for the
Performance Units awarded annually based upon the terms of the plan discussed
above. We are allocated a portion of the compensation expense (see Note 2.
Summary of Significant Accounting Policies).

Under the agreement for such Parent LPU options, the options become
exercisable in equal installments over periods of one, two, and three years
from the date of the grant. At December 31, 2003, 42,000 Performance Units
granted in 1995 with an earnings threshold of $1.25 remain outstanding. The
Performance Units expire in 2005.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

A summary of Parent LPU options granted under the terms of the 1994 LTIP
is presented below:

|                    |                                  |                    |  |             |         |             |  |          |         |   |   |                |                | 
|------------------- | -------------------------------- | ------------------ |  | ----------- | ------- | ----------- |  | -------- | ------- | - | - | -------------- | -------------- | 
|                    |                                  |                    |  | Options     |         | Options     |  | Exercise
|                    |                                  |                    |  | Outstanding |         | Exercisable |  | Range   
|                    |                                  |                    |  |             |         |             |  |         
|Parent LPU Options: |                                  |                    |  |             |         |             |  |          |         |   |   |               
|                    | Outstanding at December 31, 2000 |                    |  | 290,864     |         |             |  | 160,529  |         |   | $ | 13.81 - $25.69 |               
|                    |                                  | Forfeited          |  |             | (2,800  | )           |  |          |        |   |   | $              | 25.25          | 
|                    |                                  | Became exercisable |  |             |        |             |  |          | 81,669  |   |   | $              | 25.25 - $25.69 | 
|                    |                                  | Exercised          |  |             | (98,376 | )           |  |          | (98,376 | ) |   | $              | 13.81 - $25.69 | 
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |               
|                    | Outstanding at December 31, 2001 |                    |  | 189,688     |         |             |  | 143,822  |         |   | $ | 13.81 - $25.69 |               
|                    |                                  | Became exercisable |  |             |        |             |  |          | 45,866  |   |   | $              | 25.25          | 
|                    |                                  | Exercised          |  |             | (99,597 | )           |  |          | (99,597 | ) |   | $              | 13.81 - $25.69 | 
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |               
|                    | Outstanding at December 31, 2002 |                    |  | 90,091      |         |             |  | 90,091   |         |   | $ | 13.81 - $25.69 |               
|                    |                                  | Exercised          |  |             | (90,091 | )           |  |          | (90,091 | ) |   | $              | 13.81 - $25.69 | 
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |               
|                    | Outstanding at December 31, 2003 |                    |  |            |         |             |  |         |         |   |   |                |               
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |               

Our Parent Partnership has not granted options for any periods presented.
During the year ended December 31, 2003, all remaining outstanding Parent LPU
options were exercised. For options previously outstanding, the Parent
Partnership followed the intrinsic value method for recognizing stock-based
compensation expense. The exercise price of all options awarded under the 1994
LTIP equaled the market price of the Parent LPUs on the date of grant.
Accordingly, the Parent Partnership recognized no compensation expense at the
date of grant. Had compensation expense been determined consistent with SFAS
No. 123, Accounting for Stock-Based Compensation, compensation expense related
to option grants would have been immaterial for the years ended December 31,
2002 and 2001, and no compensation expense would have been recognized for the
year ended December 31, 2003.

1999 and 2002 Phantom Unit Plans

Effective September 1, 1999, the Company adopted the Texas Eastern
Products Pipeline Company, LLC 1999 Phantom Unit Retention Plan (1999 PURP).
Effective June 1, 2002 the Company adopted the Texas Eastern Products Pipeline
Company, LLC 2002 Phantom Unit Retention Plan (2002 PURP). The 1999 PURP and
the 2002 PURP provide key employees with incentive awards whereby a participant
is granted phantom units. These phantom units are automatically redeemed for
cash based on the vested portion of the fair market value of the phantom units
at stated redemption dates. The fair market value of each phantom unit is
equal to the closing price of a Parent LPU as reported on the New York Stock
Exchange on the redemption date.

Under the agreement for the phantom units, each participant will vest 10%
of the number of phantom units initially granted under his or her award at the
end of each of the first four years and will vest the final 60% at the end of
the fifth year. Each participant is required to redeem their units as they
vest. They are also entitled to quarterly cash distributions equal to the
product of the number of phantom units outstanding for the participant and the

amount of the cash distribution that the Parent Partnership paid per unit to
Parent LPU unitholders. A total of 26,040 phantom units granted under the 1999
PURP remain outstanding at December 31, 2003. A total of 67,230 phantom units
granted under the 2002 PURP remain outstanding at December 31, 2003. The
Parent Partnership accrues compensation expense annually based upon the terms
of the 1999 PURP and 2002 PURP discussed above. We are allocated a portion of
the compensation expense (see Note 2. Summary of Significant Accounting
Policies). At December 31, 2003 and 2002, we had an accrued liability balance
of $1.6 million and $0.8 million, respectively, for compensation related to the
1999 PURP and 2002 PURP.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

2000 Long Term Incentive Plan

Effective January 1, 2000, the Company established the Texas Eastern
Products Pipeline Company, LLC 2000 Long Term Incentive Plan (2000 LTIP) to
provide key employees incentives to achieve improvements in our financial
performance. Generally, upon the close of a three-year performance period, if
the participant is then still an employee of the Company, the participant will
receive a cash payment in an amount equal to (1) the applicable performance
percentage specified in the award multiplied by (2) the number of phantom
Parent LPUs granted under the award multiplied by (3) the average of the
closing prices of a Parent LPU over the ten consecutive trading days
immediately preceding the last day of the performance period. Generally, a
participants performance percentage is based upon the improvement of our
Parent Partnerships Economic Value Added during a three-year performance
period over the Economic Value Added during the three-year period immediately
preceding the performance period. If a participant incurs a separation from
service during the performance period due to death, disability or retirement
(as such terms are defined in the 2000 LTIP), the participant will be entitled
to receive a cash payment in an amount equal to the amount computed as
described above multiplied by a fraction, the numerator of which is the number
of days that have elapsed during the performance period prior to the
participants separation from service and the denominator of which is the
number of days in the performance period. At December 31, 2003, phantom Parent
LPUs outstanding were 31,800, 22,300 and 24,103 for awards granted in 2003,
2002 and 2001, respectively.

Economic Value Added means our Parent Partnerships average annual EBITDA
for the performance period minus the product of our Parent Partnerships
average asset base and cost of capital for the performance period. For
purposes of the 2000 LTIP for plan years 2000 through 2002, EBITDA means our
Parent Partnerships earnings before net interest expense, depreciation and
amortization and its proportional interest in EBITDA of its joint ventures as
presented in its consolidated financial statements prepared in accordance with
generally accepted accounting principles, except that in its discretion the
Compensation Committee of the Company may exclude gains or losses from
extraordinary, unusual or non-recurring items. For the year ended December 31,
2003, EBITDA means, in addition to the above, earnings before other income 
net. Average asset base means the quarterly average, during the performance
period, of its gross value of property, plant and equipment, plusproducts and
crude oil operating oil supply and the gross value of intangibles and equity
investments. The Parent Partnerships cost of capital is approved by the
Compensation Committee at the date of award grant.

In addition to the payment described above, during the performance period,
the Company will pay to the Participant the amount of cash distributions that
the Parent Partnership would have paid to its unitholders had the participant
been the owner of the number of Parent LPUs equal to the number of phantom
Parent LPUs granted to the participant under this award. The Parent
Partnership accrues compensation expense annually based upon the terms of the
2000 LTIP discussed above. We are allocated a portion of the compensation
expense (see Note 2. Summary of Significant Accounting Policies). At December
31, 2003 and 2002, we had an accrued liability balance of $2.9 million and $1.8
million, respectively, for compensation related to the 2000 LTIP.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 16. OPERATING LEASES

We use leased assets in several areas of our operations. Total rental
expense for the years ended December 31, 2003, 2002, and 2001 was $16.0
million, $8.5 million and $7.1 million, respectively. The following table sets
forth our minimum rental payments under our various operating leases for the
years ending December 31 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2004       |  | $ | 11,643 | 
|2005       |  |   | 11,111 | 
|2006       |  |   | 9,905  | 
|2007       |  |   | 8,166  | 
|2008       |  |   | 4,918  | 
|Thereafter |  |   | 10,778 | 
|           |  |   |        | 
|           |  | $ | 56,521 | 
|           |  |   |        | 

NOTE 17. EMPLOYEE BENEFITS

Retirement Plans

The Parent Partnership has adopted the TEPPCO Retirement Cash Balance Plan
(TEPPCO RCBP), which is a noncontributory, trustee-administered pension plan.
In addition, certain executive officers participate in the TEPPCO Supplemental
Benefit Plan (TEPPCO SBP), which is a noncontributory, nonqualified, defined
benefit retirement plan. The TEPPCO SBP was established to restore benefit
reductions caused by the maximum benefit limitations that apply to qualified
plans. The benefit formula for all eligible employees is a cash balance
formula. Under a cash balance formula, a plan participant accumulates a
retirement benefit based upon pay credits and current interest credits. The
pay credits are based on a participants salary, age and service. We use a
December 31 measurement date for these plans.

The components of net pension benefits costs allocated to us for the
TEPPCO RCBP and the TEPPCO SBP for the years ended December 31, 2003, 2002 and
2001, were as follows (in thousands):

|                                              |                            |   |       |       |      |   |       |       |  |   |       |       | 
|--------------------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                              |                            |   | 2003  |       | 2002 |   | 2001 
|                                              |                            |   |       |       |      |   |      
|Service cost benefit earned during the year   |                            | $ | 2,160 |       |      | $ | 1,957 |       |  | $ | 1,833 |      
|Interest cost on projected benefit obligation |                            |   | 347   |       |      |   | 221   |       |  |   | 100   |      
|Expected return on plan assets                |                            |   | (432  | )     |      |   | (291  | )     |  |   | (128  | )    
|Amortization of prior service cost            |                            |   | 7     |       |      |   | 7     |       |  |   | 8     |      
|Recognized net actuarial loss                 |                            |   | 18    |       |      |   | 7     |       |  |   |      |      
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      
|                                              | Net pension benefits costs |   | $     | 2,100 |      |   | $     | 1,901 |  |   | $     | 1,813 | 
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      

Other Postretirement Benefits

Effective January 1, 2001, the Parent Partnership provides employees with
certain health care and life insurance benefits for retired employees on a
contributory and non-contributory basis (TEPPCO OPB). Employees become
eligible for these benefits if they meet certain age and service requirements
at retirement, as defined in the plans. The Parent Partnership provides a
fixed dollar contribution, which does not increase from year to year, towards
retired employee medical costs. The retiree pays all health care cost
increases due to medical inflation. We use a December 31 measurement date for
this plan.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The components of net postretirement benefits cost allocated to us for the
TEPPCO OPB for the years ended December 31, 2003, 2002 and 2001, were as
follows (in thousands):

|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |     | 
|-------------------------------------------------------------- | --------------------------------- | - | ---- | --- | ---- | - | ---- | --- |  | - | --- | --- | 
|                                                               |                                   |   | 2003 |     | 2002 |   | 2001
|                                                               |                                   |   |      |     |      |   |     
|Service cost benefit earned during the year                    |                                   | $ | 91   |     |      | $ | 75   |     |  | $ | 72  |    
|Interest cost on accumulated postretirement benefit obligation |                                   |   | 117  |     |      |   | 101  |     |  |   | 100 |    
|Amortization of prior service cost                             |                                   |   | 112  |     |      |   | 112  |     |  |   | 112 |    
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |    
|                                                               | Net postretirement benefits costs |   | $    | 320 |      |   | $    | 288 |  |   | $   | 284 | 
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |    

The Parent Partnership employs a building block approach in determining
the long-term rate of return for plan assets. Historical markets are studied
and long-term historical relationships between equities and fixed-income are
preserved consistent with widely accepted capital market principle that assets
with higher volatility generate a greater return over the long run. Current
market factors such as inflation and interest rates are evaluated before
long-term capital market assumptions are determined. The long-term portfolio
return is established via a building block approach with proper consideration
of diversification and rebalancing. Peer data and historical returns are
reviewed to check for reasonability and appropriateness.

The weighted average assumptions used to determine benefit obligations for
the retirement plans and other postretirement benefit plans at December 31,
2003 and 2002, were as follows:

|                                                 |  |                  |      |          |  |      |      |      |  |                      |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------- |  | ---- | ---- | ---- |  | -------------------- | ---- | - |  |  | ---- | -
|                                                 |  |                  |      |          |  |      |      |      |  | Other Postretirement
|                                                 |  | Pension Benefits |      | Benefits
|                                                 |  |                  |      |         
|                                                 |  | 2003             |      | 2002     |  | 2003 |      | 2002
|                                                 |  |                  |      |          |  |      |      |     
|Discount rate                                    |  |                  | 6.25 | %        |  |      | 6.75 | %    |  |                      | 6.25 | % |  |  | 6.75 | %
|Increase in compensation levels                  |  |                  | 5.00 | %        |  |      | 5.00 | %    |  |                      |     |   |  |  |     |  
|Expected long-term rate of return on plan assets |  |                  | 8.00 | %        |  |      | 9.00 | %    |  |                      |     |   |  |  |     |  

The weighted average assumptions used to determine net periodic benefit
cost for the retirement plans and other postretirement benefit plans for the
years ended December 31, 2003 and 2002, were as follows:

|                                                 |  |                  |      |                      |  |      |      |      |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                 |  |                  |      | Other
Postretirement
|                                                 |  | Pension Benefits |      | Benefits            
|                                                 |  |                  |      |                     
|                                                 |  | 2003             |      | 2002                 |  | 2003 |      | 2002
|                                                 |  |                  |      |                      |  |      |      |     
|Discount rate                                    |  |                  | 6.75 | %                    |  |      | 7.25 | %    |  |  | 6.75 | % |  |  | 7.25 | %
|Increase in compensation levels                  |  |                  | 5.00 | %                    |  |      | 5.00 | %    |  |  |     |   |  |  |     |  
|Expected long-term rate of return on plan assets |  |                  | 9.00 | %                    |  |      | 9.00 | %    |  |  |     |   |  |  |     |  

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table sets forth the Parent Partnerships pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets and funded status as of December 31, 2003 and 2002 (in thousands):

|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|------------------------------- | ---------------------------------------------- |  | ---------------- | ----- | -------- |  | ---- | ----- | ---- |  | -------------------- | ------ | - |  | - | ------ | -
|                                |                                                |  |                  |       |          |  |      |       |      |  | Other Postretirement
|                                |                                                |  | Pension Benefits |       | Benefits
|                                |                                                |  |                  |       |         
|                                |                                                |  | 2003             |       | 2002     |  | 2003 |       | 2002
|                                |                                                |  |                  |       |          |  |      |       |     
|Change in benefit obligation    |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Benefit obligation at beginning of year        |  | $                | 5,231 |          |  | $    | 2,900 |      |  | $                    | 1,691  |   |  | $ | 1,563  |  
|                                | Transfers to Parent Partnership subsidiary (1) |  |                  |      |          |  |      | (84   | )    |  |                      |       |   |  |   | (12    | )
|                                | Service cost                                   |  |                  | 2,160 |          |  |      | 1,957 |      |  |                      | 91     |   |  |   | 75     |  
|                                | Interest cost                                  |  |                  | 347   |          |  |      | 221   |      |  |                      | 117    |   |  |   | 101    |  
|                                | Actuarial (gain)/loss                          |  |                  | 186   |          |  |      | 359   |      |  |                      | 204    |   |  |   | (24    | )
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 47     |   |  |   | 24     |  
|                                | Benefits paid                                  |  |                  | (220  | )        |  |      | (122  | )    |  |                      | (62    | ) |  |   | (36    | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|                                | Benefit obligation at end of year              |  | $                | 7,704 |          |  | $    | 5,231 |      |  | $                    | 2,088  |   |  | $ | 1,691  |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|Change in plan assets           |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Fair value of plan assets at beginning of year |  | $                | 4,867 |          |  | $    | 3,041 |      |  | $                    |       |   |  | $ |       |  
|                                | Transfer to Parent Partnership subsidiary (1)  |  |                  |      |          |  |      | (61   | )    |  |                      |       |   |  |   |       |  
|                                | Actual return on plan assets                   |  |                  | 459   |          |  |      | (71   | )    |  |                      |       |   |  |   |       |  
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 47     |   |  |   | 24     |  
|                                | Employer contributions                         |  |                  | 2,567 |          |  |      | 2,080 |      |  |                      | 15     |   |  |   | 12     |  
|                                | Benefits paid                                  |  |                  | (220  | )        |  |      | (122  | )    |  |                      | (62    | ) |  |   | (36    | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|                                | Fair value of plan assets at end of year       |  | $                | 7,673 |          |  | $    | 4,867 |      |  | $                    |       |   |  | $ |       |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|Reconciliation of funded status |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Funded status                                  |  | $                | (30   | )        |  | $    | (364  | )    |  | $                    | (2,088 | ) |  | $ | (1,691 | )
|                                | Unrecognized prior service cost                |  |                  | 40    |          |  |      | 47    |      |  |                      | 1,001  |   |  |   | 1,113  |  
|                                | Unrecognized actuarial loss                    |  |                  | 924   |          |  |      | 783   |      |  |                      | 233    |   |  |   | 28     |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Net amount recognized                          |  | $                | 934   |          |  | $    | 466   |      |  | $                    | (854   | ) |  | $ | (550   | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       



---



|(1) |  | Indicates transfer of employees from us to another subsidiary of the
Parent Partnership.
|--- |  | ----------------------------------------------------------------------------------------

Plan Assets

Our Parent Partnership employs a total return investment approach whereby
a mix of equities and fixed income investments are used to maximize the
long-term return of plan assets for a prudent level of risk. Risk tolerance is
established through careful consideration of plan liabilities, plan funded
status and corporate financial condition. The investment portfolio contains a
diversified blend of equity and fixed-income investments. Furthermore, equity
investments are diversified across U.S. and non-U.S. stocks, both growth and
value equity style, and small, mid and large capitalizations. Investment risk
and return parameters are reviewed and evaluated periodically to ensure
compliance with stated investment objectives and guidelines. This
comprehensive review incorporates investment portfolio performance, annual
liability measurements and periodic asset/liability studies.

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table sets forth the weighted average asset allocations for
the retirement plans and other postretirement benefit plans as of December 31,
2003 and 2002, by asset category (in thousands):

|                              |       |      |              |      |   |  |    |     |  
|----------------------------- | ----- | ---- | ------------ | ---- | - |  | -- | --- | -
|                              |       |      | December 31,
|                              |       |      |             
|Asset Category                |       | 2003 |              | 2002
|                              |       |      |              |     
|Equity securities             |       |      | 47           | %    |   |  | 21 | %  
|Debt securities               |       |      | 30           | %    |   |  | 56 | %  
|Other (money market and cash) |       |      | 23           | %    |   |  | 23 | %  
|                              |       |      |              |      |   |  |    |    
|                              | Total |      |              | 100  | % |  |    | 100 | %
|                              |       |      |              |      |   |  |    |    

The Parent Partnership expects to contribute approximately $3.0 million to
the retirement plans and other postretirement benefit plans in 2004. We expect
to be allocated a share of these contributions (see Note 2. Summary of
Significant Accounting Policies).

Other Plans

DEFS also sponsors an employee savings plan, which covers substantially
all employees. Plan contributions on behalf of the Company of $3.1 million,
$2.6 million and $2.1 million were expensed during the years ended December 31,
2003, 2002 and 2001, respectively.

NOTE 18. COMMITMENTS AND CONTINGENCIES

In the fall of 1999 and on December 1, 2000, the Company and the Parent
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, styled Ryan E. McCleery and Marcia S.
McCleery, et al. v. Texas Eastern Corporation, et al.(including the Company
and the Parent Partnership) and Gilbert Richards and Jean Richards v. Texas
Eastern Corporation, et al.(including the Company and the Parent Partnership).
In both cases, the plaintiffs contend, among other things, that we and other
defendants stored and disposed of toxic and hazardous substances and hazardous
wastes in a manner that caused the materials to be released into the air, soil
and water. They further contend that the release caused damages to the
plaintiffs. In their complaints, the plaintiffs allege strict liability for
both personal injury and property damage together with gross negligence,
continuing nuisance, trespass, criminal mischief and loss of consortium. The
plaintiffs are seeking compensatory, punitive and treble damages. We have
filed an answer to both complaints, denying the allegations, as well as various
other motions. These cases are not covered by insurance. Discovery is
ongoing, and we are defending ourselves vigorously against the lawsuits. The
plaintiffs have not stipulated the amount of damages that they are seeking in
the suits. We cannot estimate the loss, if any, associated with these pending
lawsuits.

On December 21, 2001, we were named as a defendant in a lawsuit in the
10th Judicial District, Natchitoches Parish, Louisiana, styled Rebecca L.
Grisham et al. v. TE Products Pipeline Company, Limited Partnership. In this
case, the plaintiffs contend that our pipeline, which crosses the plaintiffs
property, leaked toxic products onto their property and, consequently caused
damages to them. We have filed an answer to the plaintiffs petition denying
the allegations, and we are defending ourselves vigorously against the lawsuit.
The plaintiffs have not stipulated the amount of damages they are seeking in
the suit; however, this case is covered by insurance. We do not believe that
the outcome of this lawsuit will have a material adverse effect on our
financial position, results of operations or cash flows.

In May 2003, the Company was named as a defendant in a lawsuit styled John
R. James, et al. v. J Graves Insulation Company, et al.as filed in the first
Judicial District Court, Caddo Parish, Louisiana. There are numerous

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

plaintiffs identified in the action that are alleged to have suffered
damages as the result of alleged exposure to asbestos-containing products and
materials. According to the petition and as a result of a preliminary
investigation, the Company believes that the only claim asserted against it
results from one individual for the period from July 1971 through June 1972,
who is alleged to have worked on a facility owned by the Companys predecessor.
This period represents a small portion of the total alleged exposure period
from January 1964 through December 2001 for this individual. The individuals
claims involve numerous employers and alleged job sites. Currently, the
Company has been unable to confirm involvement by the Company or its
predecessors with the alleged location, and it is currently uncertain whether
this case is covered by insurance. Discovery is planned, and the Company
intends to defend itself vigorously against this lawsuit. The plaintiffs have
not stipulated the amount of damages that they are seeking in this suit. We
are obligated to reimburse the Company for any costs it incurs related to this
lawsuit. We cannot estimate the loss, if any, associated with this pending
lawsuit. We do not believe that the outcome of this lawsuit will have a
material adverse effect on our financial position, results of operations or
cash flows.

On April 2, 2003, Centennial was served with a petition in a matter styled
Adams, et al. v. Centennial Pipeline Company LLC, et al. This matter involves
approximately 2,000 plaintiffs who allege that over 200 defendants, including
Centennial, generated, transported, and/or disposed of hazardous and toxic
waste at two sites in Bayou Sorrell, Louisiana, an underground injection well
and a landfill. The plaintiffs allege personal injuries, allergies, birth
defects, cancer and death. The underground injection well has been in
operation since May 1976. Based upon current information, Centennial appears
to be a de minimiscontributor, having used the disposal site during the two
month time period of December 2001 to January 2002. Marathon has been handling
this matter for Centennial under its operating agreement with Centennial. We
have a 50% ownership interest in Centennial. Based upon Centennials limited
involvement with the disposal site, we do not believe that the outcome of this
matter will have a material adverse effect on our financial position, results
of operations or cash flows.

On December 16, 2003, Centennial, the Company, the Parent Partnership and
other Parent Partnership entities were named as defendants in a lawsuit in the
128th District Court of Orange County, Texas, styled Elwood Karr et al. v.
Centennial Pipeline, LLC et al. In this case, the plaintiffs contend that our
pipeline leaked toxic substances on their property, causing them property
damage. We have filed an answer to the plaintiffs petition, denying the
allegations, and we are defending ourselves vigorously against this lawsuit.
This case is covered by insurance. We do not believe that the outcome of this
lawsuit will have a material adverse effect on our financial position, results
of operations or cash flows.

In addition to the litigation discussed above, we have been, in the
ordinary course of business, a defendant in various lawsuits and a party to
various other legal proceedings, some of which are covered in whole or in part
by insurance. We believe that the outcome of these lawsuits and other
proceedings will not individually or in the aggregate have a future material
adverse effect on our consolidated financial position, results of operations or
cash flows.

Our operations are subject to federal, state and local laws and
regulations governing the discharge of materials into the environment. Failure
to comply with these laws and regulations may result in the assessment of
administrative, civil and criminal penalties, imposition of injunctions
delaying or prohibiting certain activities and the need to perform
investigatory and remedial activities. Although we believe our operations are
in material compliance with applicable environmental laws and regulations,
risks of significant costs and liabilities are inherent in pipeline operations,
and we cannot assure you that significant costs and liabilities will not be
incurred. Moreover, it is possible that other developments, such as
increasingly strict environmental laws and regulations and enforcement policies
thereunder, and claims for damages to property or persons resulting from our
operations, could result in substantial costs and liabilities to us. We
believe that changes in environmental laws and regulations will not have a
material adverse effect on our financial position, results of operations or
cash flows in the near term.

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our

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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

operations, as well as to adjacent petroleum terminals operated by other
companies. In 1999, our Arcadia facility and adjacent terminals were directed
by the Remediation Services Division of the LDEQ to pursue remediation of this
contamination. At December 31, 2003, we have an accrued liability of $0.3
million for remediation costs at our Arcadia facility. We do not expect that
the completion of the remediation program proposed to the LDEQ will have a
future material adverse effect on our financial position, results of operations
or cash flows.

On March 17, 2003, we experienced a release of 511 barrels of jet fuel
from a storage tank at our Blue Island terminal located in Cook County,
Illinois. As a result of the release, we have entered into an Agreed Order
with the State of Illinois. The Agreed Order requires us, in part, to complete
a site investigation plan to delineate the scope of any potential contamination
resulting from the release and to remediate any contamination present above
regulatory standards. This site investigation plan has been completed and
submitted to the State of Illinois. The Agreed Order does not contain any
provision for any fines or penalties; however, it does not preclude the State
of Illinois from assessing these at a later date. We do not expect that the
completion of the remediation program will have a future material adverse
effect on our financial position, results of operations or cash flows.

Centennial entered into credit facilities totaling $150.0 million, and as
of December 31, 2003, $150.0 million was outstanding under those credit
facilities. The proceeds were used to fund construction and conversion costs
of its pipeline system. We and Marathon have each guaranteed one-half of
Centennials debt, up to a maximum amount of $75.0 million each.

Rates of interstate petroleum products pipeline companies, like us, are
currently regulated by the FERC primarily through an index methodology, which
allows a pipeline to change its rates based on the change from year to year in
the Producer Price Index for finished goods (PPI Index). Effective as of
February 24, 2003, FERC Order on Remand modified the PPI Index from PPI  1% to
PPI. On April 22, 2003, several shippers filed a petition in the United States
Court of Appeals for the District of Columbia Circuit, Flying J. Inc., Lion Oil
Company, Sinclair Oil Corporation and Tesoro Refining and Marketing Company vs.
Federal Energy Regulatory Commission, Docket No. 03-1107, seeking a review of
whether the FERCs adoption of the PPI Index was reasonable and supported by
the evidence. Oral arguments are scheduled for early 2004.

As an alternative to using the PPI Index, interstate petroleum products
pipeline companies may elect to support rate filings by using a cost-of-service
methodology, competitive market showings (Market-Based Rates) or agreements
between shippers and petroleum products pipeline companies that the rate is
acceptable.

Substantially all of the petroleum products that we transport and store
are owned by our customers. At December 31, 2003, we had approximately 17.3
million barrels of products in our custody that was owned by customers. We are
obligated for the transportation, storage and delivery of such products on
behalf of our customers. Our Parent Partnership maintains insurance adequate
to cover product losses through circumstances beyond our control.

Our Parent Partnership carries insurance coverage consistent with
companies engaged in similar operations with similar type properties. The
Parent Partnership allocates insurance expense to us, and we believe that the
total insurance expense allocated to us is representative of the insurance
costs we would have incurred as a separate entity. Our insurance coverage
includes (1) commercial general public liability insurance for liabilities to
third parties for bodily injury and property damage resulting from our
operations; (2) workers compensation liability coverage to required statutory
limits; (3) automobile liability insurance for all owned, non-owned and hired
vehicles covering liabilities to third parties for bodily injury and property
damage, and (4) property insurance covering the replacement value of all real
and personal property damage, including damages arising from earthquake, flood
damage and business interruption/extra expense. For select assets, our Parent
Partnership also carries pollution liability insurance that provides coverage
for historical and gradual pollution events. All coverages are subject to
certain deductibles, terms and conditions common for companies with similar
types of operations.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Our Parent Partnership also maintains excess liability insurance coverage
above the established primary limits for commercial general liability and
automobile liability insurance. Limits, terms, conditions and deductibles are
comparable to those carried by other energy companies of similar size. The
cost of our general insurance coverages continued to fluctuate over the past
year reflecting the changing conditions of the insurance markets. These
insurance policies, except for the pollution liability policies, are with Bison
Insurance Company Limited, an insurance company that is wholly owned by Duke
Energy (see Note 7. Related Party Transactions).

NOTE 19. DISCONTINUED OPERATIONS

Effective January 1, 2002, our Parent Partnership realigned its business
segments to reflect its entry into the natural gas gathering business and the
expanded scope of its NGLs operations. As part of this realignment, on May 31,
2002, we entered into an Assignment and Assumption Agreement with TEPPCO
Midstream to transfer our investment in TEPPCO Colorado to TEPPCO Midstream at
the book value of TEPPCO Colorados net assets. SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assetsrequires that long-lived assets
to be disposed of should be recorded at the lower of their carrying amount or
fair value less costs to sell. As a result, in the quarter ended June 30,
2002, we compared the fair value of TEPPCO Colorado to its carrying value and
noted no indication of impairment.

The transfer of TEPPCO Colorado to TEPPCO Midstream was recorded at the
book value of TEPPCO Colorados net assets, which was $4.1 million. In
connection with the transfer, we received $4.1 million in cash from TEPPCO
Midstream. TEPPCO Midstream assumed the outstanding debt of TEPPCO Colorado of
$32.0 million as part of the transaction. As a result of the transfer, our
financial position and results of operations have been reclassified to reflect
revenue, expenses, assets and liabilities of TEPPCO Colorado as discontinued
operations for the periods presented.

Condensed statements of income are shown below for TEPPCO Colorado for the
years ended December 31, 2002 and 2001 (in thousands):

|                                      |                  |   |              |       |      |   |        |       | 
|------------------------------------- | ---------------- | - | ------------ | ----- | ---- | - | ------ | ----- | 
|                                      |                  |   | Years Ended 
|                                      |                  |   | December 31,
|                                      |                  |   |             
|                                      |                  |   | 2002         |       | 2001
|                                      |                  |   |              |       |     
|Revenues                              |                  | $ | 3,115        |       |      | $ | 7,394  |      
|Operating, general and administrative |                  |   | 369          |       |      |   | 880    |      
|Depreciation and amortization         |                  |   | 840          |       |      |   | 2,015  |      
|                                      |                  |   |              |       |      |   |        |      
|                                      | Operating income |   |              | 1,906 |      |   |        | 4,499 | 
|Interest expense                      |                  |   | (1,015       | )     |      |   | (2,899 | )    
|Other income  net                    |                  |   | 21           |       |      |   | 74     |      
|                                      |                  |   |              |       |      |   |        |      
|                                      | Net income       |   | $            | 912   |      |   | $      | 1,674 | 
|                                      |                  |   |              |       |      |   |        |      

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (1)

|                                      |  |         |        |         |  |                |        |         |  |   |        |  |  |   |        | 
|------------------------------------- |  | ------- | ------ | ------- |  | -------------- | ------ | ------- |  | - | ------ |  |  | - | ------ | 
|                                      |  | First   |        | Second  |  | Third          |        | Fourth 
|                                      |  | Quarter |        | Quarter |  | Quarter        |        | Quarter
|                                      |  |         |        |         |  |                |        |        
|                                      |  |         |        |         |  | (in thousands) |        |         |  |  
|2003                                  |  |         |        |         |  |                |        |         |  |   |        |  |  |   |        | 
|Operating revenues                    |  | $       | 66,969 |         |  | $              | 58,805 |         |  | $ | 63,741 |  |  | $ | 72,452 | 
|Operating income                      |  |         | 28,634 |         |  |                | 15,899 |         |  |   | 16,625 |  |  |   | 19,402 | 
|Net income                            |  |         | 20,567 |         |  |                | 8,773  |         |  |   | 8,796  |  |  |   | 11,345 | 
|2002                                  |  |         |        |         |  |                |        |         |  |   |        |  |  |   |        | 
|Operating revenues                    |  | $       | 59,586 |         |  | $              | 54,656 |         |  | $ | 58,754 |  |  | $ | 70,542 | 
|Operating income                      |  |         | 23,649 |         |  |                | 18,577 |         |  |   | 19,728 |  |  |   | 21,144 | 
|Income before discontinued operations |  |         | 17,929 |         |  |                | 9,753  |         |  |   | 11,797 |  |  |   | 14,894 | 
|Income from discontinued operations   |  |         | 402    |         |  |                | 510    |         |  |   |       |  |  |   |       | 
|Net income                            |  |         | 18,331 |         |  |                | 10,263 |         |  |   | 11,797 |  |  |   | 14,894 | 



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|(1) |  | Amounts have been reclassified to reflect TEPPCO Colorado as discontinued
operations.
|--- |  | -------------------------------------------------------------------------------------

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EXHIBIT INDEX

|       |  |                                                                                                    
|------ |  | ---------------------------------------------------------------------------------------------------
|23*    |  | Consent of KPMG LLP.                                                                               
|       |  |                                                                                                    
|31.1*  |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|       |  |                                                                                                    
|31.2*  |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|       |  |                                                                                                    
|32.1** |  | Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|       |  |                                                                                                    
|32.2** |  | Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|       |  |                                                                                                    



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* Filed herewith.


** Furnished herewith pursuant to
Item 601(b)-(32) of Regulation S-K.