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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

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

For the Fiscal Year ended December 31, 2002

Commission File Number 1-13603

TE Products Pipeline Company, Limited Partnership

(Exact name of Registrant as specified in its charter)


|                                         |  |                                        
|---------------------------------------- |  | ---------------------------------------
|Delaware                                 |  | 76-0329620                             
|(State of Incorporation or Organization) |  | (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 |  | New York Stock Exchange 
|7.51% Senior Notes, due
January 15, 2028 |  | 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
x 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 x 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           
|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. Controls and Procedures                                                                       
|PART IV                                 
|                                         | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                              
|CERTIFICATION                           
|INDEX TO EXHIBITS                       
|Consent of KPMG LLC                     
|Certification of Chief Executive Officer
|Certification of Chief Financial Officer



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TABLE OF CONTENTS

|               |  |                                                                                                |  |    |  |  |  |  |  | 
|-------------- |  | ---------------------------------------------------------------------------------------------- |  | -- |  |  |  |  |  | 
|PART I         |  |                                                                                                |  |   
|ITEMS 1.AND 2. |  | Business and Properties                                                                        |  | 1  |  |  |  | 
|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 Common Equity and Related Partnership Interest Matters                 |  | 14 |  |  |  | 
|ITEM 6.        |  | Selected Financial Data                                                                        |  | 14 |  |  |  | 
|ITEM 7.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 15 |  |  |  | 
|ITEM 7A.       |  | Quantitative and Qualitative Disclosures About Market Risks                                    |  | 29 |  |  |  | 
|ITEM 8.        |  | Financial Statements and Supplementary Data                                                    |  | 30 |  |  |  | 
|ITEM 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |  | 30 |  |  |  | 
|PART III       |  |                                                                                                |  |   
|ITEM 10.       |  | Directors and Executive Officers of the Registrant                                             |  | 30 |  |  |  | 
|ITEM 11.       |  | Executive Compensation                                                                         |  | 30 |  |  |  | 
|ITEM 12.       |  | Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |  | 30 |  |  |  | 
|ITEM 13.       |  | Certain Relationships and Related Transactions                                                 |  | 30 |  |  |  | 
|ITEM 14.       |  | Controls and Procedures                                                                        |  | 31 |  |  |  | 
|PART IV        |  |                                                                                                |  |   
|ITEM 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 32 |  |  |  | 

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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 approximate 70% interest 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 (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). Refined products, LPGs and petrochemicals are referred to 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 18. Discontinued
Operations in the Notes to Consolidated Financial Statements). We have
reclassified prior periods presented to reflect the current presentation.

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 conduct business, own and operate properties located in 13 states.
These operations consist of interstate transportation, storage and terminaling
of petroleum products; short-haul shuttle transportation of LPGs at the Mont
Belvieu, Texas complex; 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 such 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
receive

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revenues from the shuttling of LPGs between refinery and petrochemical
facilities on the upper Texas Gulf Coast and ancillary transportation, storage
and marketing services at key points along the pipeline system. Substantially
all of the petroleum products transported and stored in the pipeline system 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 such
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, 2002:

|                                                            |  |             |      |  
|----------------------------------------------------------- |  | ----------- | ---- | -
|                                                            |  | Partnership
|                                                            |  | Ownership  
|                                                            |  |            
|Refined products and LPGs pipelines                         |  |             | 100  | %
|Mont Belvieu LPGs storage and pipeline shuttle (1)          |  |             | 100  | %
|Mont Belvieu to Port Arthur, Texas, petrochemical pipelines |  |             | 100  | %
|Centennial Pipeline (2)                                     |  |             | 33.3 | %



---

|(1) |  | Effective January 1, 2003, we will be contributing our Mont Belvieu
assets to a newly formed partnership with Louis Dreyfus Energy
Services, L.P. We will have a 50% ownership interest in this
partnership, which will be accounted for as an equity investment.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Accounted for as an equity investment. Effective February 10,
2003, we acquired an additional 16.7% interest in Centennial Pipeline,
bringing our ownership percentage to 50%.                                                                                   

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 Pipeline LLC (Centennial).
Centennial owns an interstate refined petroleum products pipeline extending
from the upper Texas Gulf Coast to Illinois. Centennial commenced operations
in April 2002. Each participant originally owned a one-third interest in
Centennial. Centennial constructed a 74-mile, 24-inch diameter pipeline
connecting our facility in Beaumont 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. During the third quarter of 2002, PEPL, one of the
participants in Centennial, was downgraded by Moodys and Standard & Poors to
below investment grade, which resulted in PEPL being in default under its
portion of the Centennial guaranty. Effective September 27, 2002, we and
Marathon increased our guaranteed amounts to one-half of the debt of
Centennial, up to a maximum amount of $75.0 million each, to avoid a default on
the Centennial debt. As compensation to us and Marathon for providing our
additional guarantees, PEPL was required to pay interest at a rate of 4% per
annum to each of us and Marathon on the portion of the additional guaranty that
we had provided for PEPL. On February 10, 2003, we and Marathon each acquired
an

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additional interest in Centennial from PEPL for $20.0 million each, increasing
our percentage ownerships in Centennial to 50% each. In connection with the
acquisition of the additional interest in Centennial, the guaranty agreement
between us, Marathon and PEPL was terminated. Our guaranty of up to a maximum
of $75.0 million of Centennials debt remains in effect.

Through December 31, 2002, we have contributed approximately $80.9 million
for our one-third interest in Centennial. Excluding our purchase of our
additional ownership interest of 16.7% on February 10, 2003, we expect to
contribute an additional $10.0 million to Centennial in 2003.

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 approximate
4,500-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, as
well as substantial storage capacity at Mont Belvieu, the largest LPGs storage
complex in the United States, and at other 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 and none
are mortgaged or encumbered to secure funded debt. We have guaranteed up to
$75.0 million of Centennials unsecured debt (see above) and have also
guaranteed the Parent Partnerships unsecured debt (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.

Our Pipeline System includes 29 storage facilities with an aggregate
storage capacity of 17 million barrels of refined petroleum products and 37
million barrels of LPGs, including storage capacity leased to outside parties.
Our Pipeline System makes deliveries to customers at 53 locations including 18
company owned truck racks, rail car facilities and marine facilities.
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 the 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. The 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. The 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, there are numerous
smaller diameter lines associated with the gathering and distribution system.

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

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Hook, Pennsylvania (near Philadelphia). The 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 November 2002, we announced a project to expand our delivery capacity
of LPGs. The expansion will increase delivery capability to the Northeast
during the peak winter months by approximately one million barrels. The
expansion, which is scheduled for completion during the third quarter of 2003,
consists of the construction of three new pump stations located between
Middletown, Ohio and Greenburg, Pennsylvania. In addition to the Northeast
expansion, we completed our Princeton, Indiana, LPGs truck rack upgrade in
December 2002, and we will add an additional 3.2 million barrels of brine
storage capability at Mont Belvieu by the summer of 2003.

We also own three 12-inch diameter common carrier petrochemical pipelines
between Mont Belvieu and Port Arthur, which were completed in the fourth
quarter of 2000. 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 with a major petrochemical producer for guaranteed
throughput commitments. During the years ended December 31, 2002 and 2001, and
the two month period ended December 31, 2000, we recognized $11.9 million,
$10.7 million and $1.8 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 the
Pipeline System and have an ongoing process of inspecting the Pipeline System
and making repairs and replacements when necessary or appropriate. In addition,
we conduct periodic air patrols of the 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, and the storage
and short-haul transportation of LPGs associated with our Mont Belvieu LPG
operations. Product deliveries, in millions of barrels (MMBbls) on a regional
basis, for the years ended December 31, 2002, 2001 and 2000 were as follows:

|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ------------------------------------ | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                                      |                               |  | Product Deliveries (MMBbls)
|                                          |                                      |                               |  | Years Ended December 31,   
|                                          |                                      |                               |  |                            
|                                          |                                      |                               |  | 2002                        |       | 2001 |  | 2000
|                                          |                                      |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central (1)                          |                               |  | 62.9                        |       |      |  | 62.0 |       |  |  | 63.4 |      
|                                          | Midwest (2)                          |                               |  | 49.6                        |       |      |  | 37.4 |       |  |  | 36.7 |      
|                                          | Ohio and Kentucky                    |                               |  | 25.7                        |       |      |  | 23.5 |       |  |  | 28.0 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                      |  |                             | 138.2 |      |  |      | 122.9 |  |  |      | 128.1 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central, Midwest and Kentucky (1)(2) |                               |  | 25.4                        |       |      |  | 23.8 |       |  |  | 23.4 |      
|                                          | Ohio and Northeast (3)               |                               |  | 15.1                        |       |      |  | 16.2 |       |  |  | 16.2 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                      |  |                             | 40.5  |      |  |      | 40.0  |  |  |      | 39.6  | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Total Mainline Transportation |  |                             | 178.7 |      |  |      | 162.9 |  |  |      | 167.7 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                                 |                               |  | 28.9                        |       |      |  | 23.1 |       |  |  | 27.2 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Total Product Deliveries      |  |                             | 207.6 |      |  |      | 186.0 |  |  |      | 194.9 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      



---

|(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,
2002, 2001 and 2000 were as follows:

|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ---------------------- | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                        |                               |  | Product Deliveries (MMBbls)
|                                          |                        |                               |  | Years Ended December 31,   
|                                          |                        |                               |  |                            
|                                          |                        |                               |  | 2002                        |       | 2001 |  | 2000
|                                          |                        |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Gasoline               |                               |  | 81.9                        |       |      |  | 68.2 |       |  |  | 67.8 |      
|                                          | Jet Fuels              |                               |  | 25.3                        |       |      |  | 25.4 |       |  |  | 28.1 |      
|                                          | Middle Distillates (1) |                               |  | 31.0                        |       |      |  | 28.1 |       |  |  | 26.6 |      
|                                          | MTBE(2)                |                               |  |                            |       |      |  | 1.2  |       |  |  | 5.6  |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Subtotal                      |  |                             | 138.2 |      |  |      | 122.9 |  |  |      | 128.1 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Propane                |                               |  | 32.9                        |       |      |  | 32.8 |       |  |  | 33.1 |      
|                                          | Butanes                |                               |  | 7.6                         |       |      |  | 7.2  |       |  |  | 6.5  |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Subtotal                      |  |                             | 40.5  |      |  |      | 40.0  |  |  |      | 39.6  | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Total Mainline Transportation |  |                             | 178.7 |      |  |      | 162.9 |  |  |      | 167.7 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                   |                               |  | 28.9                        |       |      |  | 23.1 |       |  |  | 27.2 |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Total Product Deliveries      |  |                             | 207.6 |      |  |      | 186.0 |  |  |      | 194.9 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Primarily diesel fuel, heating oil and other middle distillates.                                                             
|--- |  | -----------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Methyl tertiary butyl ether (MTBE). Effective April 22, 2001, we
ceased transportation of MTBE through our Pipeline System.

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 such 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 59% of the volume of
refined products transported through the Pipeline System, depends upon price,
prevailing economic conditions and demographic changes in the markets that we
serve. Demand for refined products used in agricultural operations 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.

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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 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 DEFS to
commit sole utilization of the Providence terminal to DEFS. We operate the
terminal and provide propane loading services to DEFS. During the years ended
December 31, 2002 and 2001, revenues of $2.3 million and $1.5 million from
DEFS, respectively, were recognized pursuant to this agreement.

Mont Belvieu LPGs Storage and Pipeline Shuttle

A key aspect of our Pipeline Systems LPGs business is our storage and
pipeline asset base in the Mont Belvieu complex serving the fractionation,
refining and petrochemical industries. The complex is the largest of its kind
in the United States and provides substantial capacity and flexibility in the
transportation, terminaling and storage of NGLs, LPGs, petrochemicals and
olefins.

We have approximately 37 million barrels of LPGs storage capacity,
including storage capacity leased to outside parties, at the Mont Belvieu
complex. This includes a Mont Belvieu 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.

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus Plastics Corporation, now known as Louis Dreyfus
Energy Services, L.P. (Louis Dreyfus), in which our Mont Belvieu LPGs storage
and transportation shuttle system services were 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. Under the alliance, Louis Dreyfus invested $6.1
million for expansion projects at Mont Belvieu. The alliance also stipulated
that if certain earnings thresholds were achieved, a partnership between us and
Louis Dreyfus was to be created effective January 1, 2003. All terms and
earnings thresholds have been met; therefore, we will be contributing our Mont
Belvieu assets to the newly formed partnership. The economic terms of the
partnership are the same as those under the joint development and marketing
alliance. We will continue to operate the facilities for the partnership. The
net book value of the Mont Belvieu assets and liabilities that we are
contributing to the partnership is approximately $68.2 million. Our interest
in the partnership will be accounted for as an equity investment.

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.

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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, 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, 2002, we had approximately 150 customers. Transportation
revenues (and percentage of total revenues) attributable to the top 10
customers were $101.6 million (51%), $115.0 million (44%) and $102.0 million
(45%), for the years ended December 31, 2002, 2001 and 2000, respectively.
During the year ended December 31, 2002, no single customer accounted for 10%
or more of our revenues.

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 year ended December 31, 2002, several of our customers filed for bankruptcy
protection. During the year ended December 31, 2002, we expensed approximately
$0.7 million of uncollectible receivables.

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
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 the 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.

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Capital Expenditures

Capital expenditures, excluding acquisitions, totaled $60.9 million for
the year ended December 31, 2002. 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, 2002 (in millions):

|                               |       |   |      |      | 
|------------------------------ | ----- | - | ---- | ---- | 
|Revenue generating             |       | $ | 37.7 |     
|Sustaining existing operations |       |   | 13.6 |     
|System upgrades                |       |   | 6.9  |     
|Capitalized interest           |       |   | 2.7  |     
|                               |       |   |      |     
|                               | Total |   | $    | 60.9 | 
|                               |       |   |      |     

Revenue generating capital spending included $24.9 million used to expand
our capacity to support Centennials throughput with additional tankage and
system capacity improvements at our Beaumont terminal, and additional receipt
connections and pumping capacity in the Houston Ship Channel area. An
additional $3.2 million was used to construct connections and related
facilities for our petrochemical pipeline system extending from Mont Belvieu to
Port Arthur. We also spent approximately $3.7 million to expand capacity at
truck loading facilities at Princeton, Indiana, and Lebanon, Ohio.

We estimate that capital expenditures, excluding acquisitions, for 2003
will be approximately $34.6 million (which includes $1.9 million of capitalized
interest). We expect to use approximately $9.4 million for revenue generating
projects which will include approximately $7.5 million for the expansion of our
pumping capacity for LPGs into the Northeast markets and approximately $1.9
million for expansion of deliverability capacity at various locations
throughout the system. We expect to spend approximately $17.5 million to
sustain existing operations, including the replacement of storage tanks and
pipeline rehabilitation projects to comply with regulations enacted by the
United States Department of Transportation Office of Pipeline Safety (OPS)
and the installation of replacement electrical distribution facilities at our
Mont Belvieu facilities. An additional $5.8 million will be expended on other
replacements and system upgrade projects. 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.

Regulation

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

Rates of interstate refined 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. In the alternative, interstate refined 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 the refined petroleum products pipeline company that the
rate is acceptable (Settlement 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

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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 entered into a settlement
agreement with the protesting shippers resolving our 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 our 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.

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, both individuals and other entities. 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 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

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being either the United States Coast Guard, the 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. Such 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 Regulation 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 analyses, 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. 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. 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 well as the industry in
general. We utilize waste minimization and recycling processes to reduce the
volume of our waste. We currently have one permitted on-site waste water
treatment facility. Operating expenses of this facility have not had a
material adverse effect on our financial position, results of operations or
cash flows.

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

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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 from the responsible classes of persons the costs they incur. 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 its ordinary
operations, our pipeline system generates 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.

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
potential liabilities are not expected to exceed $30,000.

Other Environmental Proceedings

In 1994, we entered into an Agreed Order with the Indiana Department of
Environmental Management (IDEM) that resulted in the implementation of a
remediation program for groundwater contamination attributable to our
operations at the Seymour terminal. In 1999, the IDEM approved a Feasibility
Study, which includes our proposed remediation program. In March 2003, the
IDEM issued a Record of Decision formally approving the remediation program.
As the Record of Decision has been issued, we will enter into an Agreed Order
for the continued operation and maintenance of the remediation program. We have
an accrued liability of $0.4 million at December 31, 2002, for future
remediation costs at the Seymour terminal. 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.

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
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 containment phase. At
December 31, 2002, we have an accrued liability of $0.2 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program that we have proposed will have a future material adverse
effect on our financial position, results of operations or cash flows.

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.

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We are subject to the OPS 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 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 an Integrity
Management Program (IMP) be developed 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 are conducted within seven years, with all subsequent
assessments conducted on a five-year cycle. We will evaluate each pipeline
segments integrity by analyzing available information and develop a range of
potential impacts resulting from a potential release to a HCA. We are
currently developing cost estimates related to our baseline integrity
assessments.

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 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, 2002, the Company had
970 employees. Certain employees of the Company may devote all or a portion of
their time to us.

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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

Toxic Tort Litigation  Seymour, Indiana

In the fall of 1999 and on December 1, 2000, the Company and the
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 Partnership) and Gilbert Richards and Jean Richards v. Texas Eastern
Corporation, et. al.(including the Company and 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 they are seeking in the suit. We cannot estimate the
loss, if any, associated with these pending lawsuits.

Other Litigation

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 plaintiffs
property, leaked toxic products onto the plaintiffs property. The plaintiffs
further contend that this leak caused damages to the plaintiffs. We have filed
an answer to the plaintiffs petition denying the allegations. The plaintiffs
have not stipulated the amount of damages they are seeking in the suit. We are
defending ourself vigorously against the lawsuit. We cannot estimate the
damages, if any, associated with this pending lawsuit; however, this case is
covered by insurance.

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.

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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.

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,
|                           |                                               |                                   |                                                              |         |                         
|                           |                                               |                                   |                                                              |         | 2002                     |        | 2001 |         | 2000    |        | 1999 |         | 1998   
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |        
|                           |                                               |                                   |                                                              |         | (in thousands)          
|Income Statement Data: (1) |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |        
|                           | Operating revenues:                           |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |        
|                           |                                               | Transportation  refined products |                                                              | $       | 123,476                  |        |      | $       | 139,315 |        |      | $       | 119,331 |        |  | $       | 123,004 |        |  | $       | 119,854 |       
|                           |                                               | Transportation  LPGs             |                                                              |         | 74,577                   |        |      |         | 77,823  |        |      |         | 73,896  |        |  |         | 67,701  |        |  |         | 60,902  |       
|                           |                                               | Mont Belvieu operations           |                                                              |         | 15,238                   |        |      |         | 14,116  |        |      |         | 13,334  |        |  |         | 12,849  |        |  |         | 10,880  |       
|                           |                                               | Other                             |                                                              |         | 30,247                   |        |      |         | 32,979  |        |      |         | 22,673  |        |  |         | 19,361  |        |  |         | 14,623  |       
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                               | Total operating revenues          |                                                              |         | 243,538                  |        |      |         | 264,233 |        |      |         | 229,234 |        |  |         | 222,915 |        |  |         | 206,259 |       
|                           | Operating expenses                            |                                   |                                                              | 130,324 |                          |        |      | 119,856 |         |        |      | 118,065 |         |        |  | 112,941 |         |        |  | 106,405 |        
|                           | Depreciation and amortization                 |                                   |                                                              | 30,116  |                          |        |      | 26,699  |         |        |      | 25,728  |         |        |  | 25,094  |         |        |  | 24,529  |        
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                               | Operating income                  |                                                              |         | 83,098                   |        |      |         | 117,678 |        |      |         | 85,441  |        |  |         | 84,880  |        |  |         | 75,325  |       
|                           | Interest expense  net                        |                                   |                                                              | (22,742 | )                        |        |      | (27,044 | )       |        |      | (27,529 | )       |        |  | (26,682 | )       |        |  | (27,095 | )      
|                           | Equity earnings                               |                                   |                                                              | (6,815  | )                        |        |      | (1,149  | )       |        |      |        |         |        |  |        |         |        |  |        |        
|                           | Other income  net                            |                                   |                                                              | 832     |                          |        |      | 1,537   |         |        |      | 1,651   |         |        |  | 1,471   |         |        |  | 2,799   |        
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                               |                                   | Income before extraordinary item and
discontinued operations |         |                          | 54,373 |      |         |         | 91,022 |      |         |         | 59,563 |  |         |         | 59,669 |  |         |         | 51,029 | 
|                           | Extraordinary loss on debt extinguishment (2) |                                   |                                                              |        |                          |        |      |        |         |        |      |        |         |        |  |        |         |        |  | (73,509 | )      
|                           | Income from discontinued operations (3)       |                                   |                                                              | 912     |                          |        |      | 1,674   |         |        |      | 1,751   |         |        |  | 2,183   |         |        |  | 1,503   |        
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       
|                           |                                               | Net income (loss)                 |                                                              | $       | 55,285                   |        |      | $       | 92,696  |        |      | $       | 61,314  |        |  | $       | 61,852  |        |  | $       | (20,977 | )     
|                           |                                               |                                   |                                                              |         |                          |        |      |         |         |        |      |         |         |        |  |         |         |        |  |         |         |       

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|                        |                                            |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|----------------------- | ------------------------------------------ |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                        |                                            |  | December 31,  
|                        |                                            |  |               
|                        |                                            |  | 2002           |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                        |                                            |  |                |         |      |  |      |         |      |  |     
|                        |                                            |  | (in thousands)
|Balance Sheet Data: (1) |                                            |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |        
|                        | Property, plant and equipment  net        |  | $              | 722,848 |      |  | $    | 697,178 |      |  | $    | 640,656 |  |  | $ | 609,870 |  |  | $ | 565,641 | 
|                        | Total assets                               |  |                | 883,450 |      |  |      | 879,834 |      |  |      | 755,507 |  |  |   | 724,216 |  |  |   | 696,486 | 
|                        | Long-term debt (net of current maturities) |  |                | 528,835 |      |  |      | 420,594 |      |  |      | 437,820 |  |  |   | 414,753 |  |  |   | 389,722 | 
|                        | Total debt                                 |  |                | 528,835 |      |  |      | 493,084 |      |  |      | 437,820 |  |  |   | 414,753 |  |  |   | 389,722 | 
|                        | Partners capital                          |  |                | 242,739 |      |  |      | 270,112 |      |  |      | 234,915 |  |  |   | 228,229 |  |  |   | 228,140 | 

|                    |                                                     |  |                          |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|------------------- | --------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                    |                                                     |  | Years Ended December 31,
|                    |                                                     |  |                         
|                    |                                                     |  | 2002                     |         | 2001 |  | 2000 |         | 1999 |  | 1998
|                    |                                                     |  |                          |         |      |  |      |         |      |  |     
|                    |                                                     |  | (in thousands)          
|Cash Flow Data: (1) |                                                     |  |                          |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                    | Net cash provided by operating activities           |  | $                        | 136,286 |      |  | $    | 119,607 |      |  | $    | 93,450  |   |  | $ | 89,803  |   |  | $ | 83,915  |  
|                    | Capital expenditures to sustain existing
operations |  |                          | (13,592 | )    |  |      | (12,724 | )    |  |      | (15,402 | ) |  |   | (22,139 | ) |  |   | (19,598 | )
|                    | Distributions paid                                  |  |                          | (94,921 | )    |  |      | (80,914 | )    |  |      | (70,767 | ) |  |   | (61,608 | ) |  |   | (56,774 | )



---

|(1) |  | Amounts have been reclassified to reflect TEPPCO
Colorado as discontinued operations.                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Extraordinary item reflects the loss related to the early
extinguishment of the First Mortgage Notes on January 27, 1998.
|   
|(3) |  | Discontinued operations relates to the sale of TEPPCO Colorado in
May 2002.                                              




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

General

The following information is provided to facilitate increased
understanding of our 2002, 2001 and 2000 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.

We operate and report in one business segment: transportation and storage
of refined products, LPGs, and petrochemicals. Revenues are earned from the
transportation of refined products and LPGs, storage and short-haul shuttle
transportation of LPGs at the Mont Belvieu complex, intrastate transportation
of petrochemicals, sale of product inventory and other ancillary services. The
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 investment in Centennial.

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Critical Accounting Policies

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and disclosure of contingent assets and
liabilities in the accompanying financial statements. Changes in these
estimates could materially affect our financial position, results of operations
or cash flows. Key estimates used by management include 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.

Critical accounting policies are those that are most important to the
portrayal to 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 before we
receive certain third party information and reconcile our records with those of
third parties. The delayed information from third parties includes, among
other things, actual volumes of products transported, adjustments to inventory
and invoices for operating expenses. We make accruals to reflect estimates for
these items based on our internal records and information from third parties.
The estimated accruals are reversed in the following month when actual
information is received from third parties and our internal records have been
reconciled.

Environmental Costs

At December 31, 2002, we have an accrued liability for our estimate of the
future payments we expect to pay for environmental costs to remediate existing
conditions attributable to past operations. 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 fines, 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,
including direct internal and legal 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 Item 1 and 2. Business and Properties  Environmental Matters in this
Report.

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. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of, and effective

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January 1, 2002, 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 our Pipeline System. The termination payment was
recorded as refined products transportation revenue in 2001.

We have evaluated the impact of the contract termination 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, 2002.
We are pursuing various alternatives including making system changes to allow
for bi-directional product flow to make 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. If alternative revenue sources are 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 volume and average tariff information for the
years ended December 31, 2002, 2001 and 2000:

|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |     |    |   
|-------------------------- | ----------------------- | -------------------------------- | - | ----------------------------------------- | ------- | ---------- | - | ------- | ------- | ---- | - | ------- | ------- |  |  | ---------- | --- | -- |  | --- | -- | --
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  | Percentage
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  | Increase  
|                           |                         |                                  |   | Years Ended December 31,                  |         | (Decrease)
|                           |                         |                                  |   |                                           |         |           
|                           |                         |                                  |   | 2002                                      |         | 2001       |   | 2000    |         | 2002 |   | 2001   
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |        
|                           |                         |                                  |   | (in thousands, except tariff information) |         |            |   |         |         |      |   |        
|Volumes Delivered:         |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |    
|                           | Refined products        |                                  |   | 138,164                                   |         |            |   | 122,947 |         |      |   | 128,151 |         |  |  | 12         | %   |    |  | (4  | %)
|                           | LPGs                    |                                  |   | 40,490                                    |         |            |   | 39,957  |         |      |   | 39,633  |         |  |  | 1          | %   |    |  | 1   | % 
|                           | Mont Belvieu operations |                                  |   | 28,948                                    |         |            |   | 23,122  |         |      |   | 27,159  |         |  |  | 25         | %   |    |  | (15 | %)
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |     |   
|                           |                         | Total                            |   |                                           | 207,602 |            |   |         | 186,026 |      |   |         | 194,943 |  |  |            | 12  | %  |  |     | (5 | %)
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |     |   
|Average Tariff per Barrel: |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |    
|                           | Refined products        |                                  | $ | 0.89                                      |         |            | $ | 0.98    | (1)     |      | $ | 0.93    |         |  |  | (9         | %)  |    |  | 5   | % 
|                           | LPGs                    |                                  |   | 1.84                                      |         |            |   | 1.95    |         |      |   | 1.86    |         |  |  | (6         | %)  |    |  | 5   | % 
|                           | Mont Belvieu operations |                                  |   | 0.15                                      |         |            |   | 0.18    |         |      |   | 0.16    |         |  |  | (17        | %)  |    |  | 13  | % 
|                           |                         | Average system tariff per
barrel |   | $                                         | 0.97    |            |   | $       | 1.09    |      |   | $       | 1.01    |  |  |            | (11 | %) |  |     | 8  | % 
|                           |                         |                                  |   |                                           |         |            |   |         |         |      |   |         |         |  |  |            |     |    |  |     |   



---

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

Year Ended December 31, 2002 Compared to 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

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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 the factors influencing these variances 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 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.

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
during 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 during 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 increase of $11.8 million in operating, general and
administrative expenses, an increase of $3.4 million in depreciation and
amortization expense and an increase of $3.1 million in taxes  other than
income taxes. These increases were partially offset by a decrease of $4.4
million in operating fuel and power expense. Operating, general and
administrative expenses increased primarily due to higher pipeline maintenance
expenses, 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 during the year ended December 31,
2002, compared with the year ended December 31, 2001, due to lower interest
rates on the Note Payable, Parent Partnership. Interest capitalized decreased
$0.3 million during the year ended December 31, 2002, compared with the year
ended December 31,

18



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2001, due to decreased balances during 2002 on construction work-in-progress
partially offset by interest capitalized on our investment in Centennial during
its construction.

Net losses from equity investments totaled $6.8 million during the year
ended December 31, 2002, 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.

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. Weather conditions and
governmental policy affect the demand for refined products used in agricultural
operations. Demand for jet fuel, which has in recent years accounted for
almost 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
and will likely continue to occur.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

For the year ended December 31, 2001, we reported net income of $92.7
million, compared with net income of $61.3 million for the year ended December
31, 2000. Net income increased $31.4 million primarily due to an increase of
$35.0 million in operating revenues and a decrease of $1.5 million in interest
expense, partially offset by an increase of $2.8 million in costs and expenses,
additional losses of $1.1 million from equity investments, a decrease of $1.0
million in capitalized interest, a decrease of $0.1 million in other income 
net and a decrease of $0.1 million in income from discontinued operations. We
discuss the factors influencing these variances below.

Revenues from refined products transportation increased $20.0 million for
the year ended December 31, 2001, compared with the year ended December 31,
2000, primarily due to $18.9 million of revenue recognized on the canceled
transportation agreement with Pennzoil in 2001 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. These increases were partially offset
by a 4% decrease in refined products volumes delivered. Deliveries of MTBE
decreased 4.3 million barrels as a result of the expiration of contract
deliveries to our marine terminal near Beaumont in April 2001. Jet fuel
volumes decreased 2.7 million barrels, or 10%, due to reduced air travel demand
in the Midwest market areas. The total refined products volume decrease was
partially offset by increased distillate demand in the South-Central market
areas and increased distillate deliveries at a third-party terminal in Houston,
Texas. The refined products average rate per barrel increased 5% from the
prior-year period primarily due to an increased percentage of long-haul volumes
delivered in 2001.

Revenues from LPGs transportation increased $3.9 million for the year
ended December 31, 2001, compared with the year ended December 31, 2000,
primarily due to increased propane deliveries in the Midwest that resulted from
favorable price differentials of Gulf Coast propane compared with competing
Midwest supply sources. Additionally, increased feedstock demand resulted in
higher deliveries of isobutane in the Chicago market area. Short-haul
deliveries of propane along the upper Texas Gulf Coast decreased 29% from the
prior year due to lower petrochemical feedstock demand and operational problems
at a petrochemical facility that we serve. The LPGs average rate per barrel
increased 5% from the prior year as a result of an increased percentage of
long-haul deliveries to the upper Midwest market areas.

Revenues generated from Mont Belvieu operations increased $0.8 million
during the year ended December 31, 2001, compared with the year ended December
31, 2000, as a result of increased loading fees, brine service revenue and
butane segregation charges, partially offset by lower contract storage revenue.
Mont Belvieu shuttle deliveries decreased 15% during the year ended December
31, 2001, compared with the year ended December 31, 2000, due to reduced
propane and butane demand for petrochemical feedstock along the upper Texas
Gulf Coast.

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The Mont Belvieu average rate per barrel increased in 2001 as a result of
increased non-contract deliveries, which generally carry higher rates.

Other operating revenues increased $10.3 million during the year ended
December 31, 2001, compared with the year ended December 31, 2000, primarily
due to an increase of $8.9 million in contract petrochemical delivery revenue,
which began during the fourth quarter of 2000, increased refined products
loading fees, increased propane deliveries from the Providence import facility
and increased gains on product sales. These increases were partially offset by
lower revenues from product location exchanges which are used to position
product in the Midwest market area.

Costs and expenses increased $2.8 million for the year ended December 31,
2001, compared with the year ended December 31, 2000, and were comprised of an
increase of $2.1 million in operating, general and administrative expenses, an
increase of $1.2 million in operating fuel and power expense and an increase of
$1.0 million in depreciation and amortization expense, partially offset by a
decrease of $1.5 million in taxes  other than income taxes. The increase in
operating, general and administrative expenses was primarily due to increased
employee benefit costs, increased supplies and services and environmental
remediation expenses, partially offset by the March 2000 write-off of project
evaluation costs related to the proposed pipeline construction from Beaumont to
Little Rock, Arkansas, and decreased product measurement losses. Operating fuel
and power expense increased as a result of higher rates charged by electric
utilities and increased long-haul volumes delivered. The increase in
depreciation expense from the prior year period resulted from assets placed in
service during the fourth quarter of 2000. The decrease in taxes  other than
income taxes resulted from actual property taxes being lower than previously
estimated.

Interest expense decreased $1.5 million during the year ended December 31,
2001, compared with the year ended December 31, 2000, as a result of lower
interest rates on borrowings under the variable-rate credit facilities and the
favorable impact of the fixed-to-floating interest rate swap on the Senior
Notes, effective October 4, 2001. Interest capitalized decreased $1.0 million
during the year ended December 31, 2001, compared with the year ended December
31, 2000, as a result of the completion of the petrochemical pipelines from
Mont Belvieu to Port Arthur during the fourth quarter of 2000.

Net losses from equity investments totaled $1.1 million during the year
ended December 31, 2001, due primarily to pre-operating expenses of Centennial.

Other income  net decreased $0.1 million during the year ended December
31, 2001, compared with the year ended December 31, 2000, due primarily 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 18. Discontinued Operations). SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,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 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, 2001 and 2000 (in thousands):

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|                                      |                  |   |              |       |      |   |        |       |  |   |        |       | 
|------------------------------------- | ---------------- | - | ------------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                      |                  |   | Years Ended 
|                                      |                  |   | December 31,
|                                      |                  |   |             
|                                      |                  |   | 2002         |       | 2001 |   | 2000  
|                                      |                  |   |              |       |      |   |       
|Revenues                              |                  | $ | 3,115        |       |      | $ | 7,394  |       |  | $ | 7,453  |      
|Operating, general and administrative |                  |   | 369          |       |      |   | 880    |       |  |   | 880    |      
|Depreciation and amortization         |                  |   | 840          |       |      |   | 2,015  |       |  |   | 2,015  |      
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      
|                                      | Operating income |   |              | 1,906 |      |   |        | 4,499 |  |   |        | 4,558 | 
|Interest expense                      |                  |   | (1,015       | )     |      |   | (2,899 | )     |  |   | (3,044 | )    
|Other income  net                    |                  |   | 21           |       |      |   | 74     |       |  |   | 237    |      
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      
|                                      | Net income       |   | $            | 912   |      |   | $      | 1,674 |  |   | $      | 1,751 | 
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      

The following table presents volume and average rate information for
TEPPCO Colorado for the years ended December 31, 2002, 2001 and 2000:

|                      |                         |  |              |       |                       |  |      |       |      |  |      |       |  |  |  |       |    |  |  |      |   
|--------------------- | ----------------------- |  | ------------ | ----- | --------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | -- |  |  | ---- | --
|                      |                         |  | Years Ended  |       | Percentage           
|                      |                         |  | December 31, |       | Increase / (Decrease)
|                      |                         |  |              |       |                      
|                      |                         |  | 2002         |       | 2001                  |  | 2000 |       | 2002 |  | 2001
|                      |                         |  |              |       |                       |  |      |       |      |  |     
|Fractionation  NGLs: |                         |  |              |       |                       |  |      |       |      |  |      |       |  |  |  |       |    |  |  |     
|                      | Thousand barrels        |  |              | 2,043 |                       |  |      | 4,078 |      |  |      | 4,078 |  |  |  | (49.9 | %) |  |  |     |   
|                      | Average rate per barrel |  | $            | 1.827 |                       |  | $    | 1.813 |      |  | $    | 1.828 |  |  |  | 0.8   | %  |  |  | (0.8 | %)

Financial Condition and Liquidity

Net cash from operations totaled $107.6 million for the year ended
December 31, 2002. This cash was made up of $84.5 million of income before
charges for depreciation and amortization, $21.9 million of cash provided by
working capital changes, and $1.2 million of cash from discontinued operations.
Net cash from operations totaled $123.1 million for the year ended December
31, 2001, comprised of $117.7 million of income before charges for depreciation
and amortization, $6.5 million of cash from discontinued operations partially
offset by $1.1 million of cash used for working capital changes. Net cash from
operations totaled $87.5 million for the year ended December 31, 2000,
comprised of $85.3 million of income before charges for depreciation and
amortization, $0.5 million of cash provided by working capital changes and $1.7
million of cash from discontinued operations. Net cash from operations for the
years ended December 31, 2002, 2001 and 2000 included interest payments of
$25.0 million, $31.0 million, and $29.0 million, respectively.

Cash flows used in investing activities totaled $64.3 million during the
year ended December 31, 2002, and were comprised of $60.9 million of capital
expenditures and $10.9 million of cash contributions for our ownership interest
in 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 during the year
ended December 31, 2001, and were comprised of $81.4 million of capital
expenditures and $64.9 million of cash contributions for our ownership interest
in Centennial, partially offset by $4.2 million of net proceeds received from
cash investments. Cash flows used in investing activities totaled $60.1
million during the year ended December 31, 2000, and were comprised of $56.5
million of capital expenditures and $5.0 million of cash contributions for our
ownership interest in Centennial, partially offset by $1.4 million of net
proceeds received from cash investments.

Cash flows used in financing activities totaled $46.5 million during 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

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contributions received from our Parent Partnership. Cash flows provided
by financing activities totaled $13.5 million during 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. Cash flows used in financing activities totaled
$34.5 million during the year ended December 31, 2000, and were comprised of
$92.6 million of repayments on our term loan, $2.8 million of advances to our
Parent Partnership and $70.8 million of distributions paid to our Parent
Partnership, partially offset by $115.4 million of proceeds from our term loan
and $16.3 million of equity contributions from our previous general partner and
Parent Partnership.

In August 2000, we entered into agreements with PEPL and Marathon to form
Centennial. Centennial owns an interstate refined petroleum products pipeline
extending from the upper Texas Gulf Coast to Illinois. During the years ended
December 31, 2002 and 2001, we contributed approximately $10.9 million and
$70.0 million, respectively, for our investment in Centennial. These amounts
are included in the equity investment balance at December 31, 2002 and 2001.
Through February 9, 2003, each original participant owned a one-third interest
in Centennial. On February 10, 2002, we and Marathon each acquired an
additional 16.7% interest in Centennial, bringing our ownership interest to 50%
each. Excluding our purchase of the additional ownership interest of 16.7% on
February 10, 2003, we expect to contribute an additional $10.0 million to
Centennial in 2003.

Centennial entered into credit facilities totaling $150.0 million, and as
of December 31, 2002, $150.0 million was outstanding under those credit
facilities. The proceeds were used to fund construction and conversion costs
of its pipeline system. Each of the participants in Centennial, including us,
originally guaranteed one-third of Centennials debt, up to a maximum amount of
$50.0 million. During the third quarter of 2002, PEPL, one of the participants
in Centennial, was downgraded by Moodys and Standard & Poors to below
investment grade, which resulted in PEPL being in default under its portion of
the Centennial guaranty. Effective September 27, 2002, we and Marathon
increased our guaranteed amounts to one-half of the debt of Centennial, up to a
maximum amount of $75.0 million each, to avoid a default on the Centennial
debt. As compensation to us and Marathon for providing our additional
guarantees, PEPL was required to pay interest at a rate of 4% per annum to each
of us and Marathon on the portion of the additional guaranty that we had
provided for PEPL. In connection with the acquisition of the additional
interest in Centennial on February 10, 2003, the guaranty agreement between
Marathon, PEPL and us was terminated. Our guaranty of up to a maximum of $75.0
million of Centennials debt remains in effect.

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus in which our Mont Belvieu LPGs storage and
transportation shuttle system services were 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. Under the alliance, Louis Dreyfus invested $6.1 million for
expansion projects at Mont Belvieu. The alliance also stipulated that if
certain earnings thresholds were achieved, a partnership between us and Louis
Dreyfus was to be created effective January 1, 2003. All terms and earnings
thresholds have been met; therefore, we will be contributing our Mont Belvieu
assets to the newly formed partnership. The economic terms of the partnership
are the same as those under the joint development and marketing alliance. We
will continue to operate the facilities for the partnership. The net book
value of the Mont Belvieu assets and liabilities that we are contributing to
the partnership is approximately $68.2 million. Our interest in the
partnership will be accounted for as an equity investment.

On February 20, 2002, the Parent Partnership issued $500.0 million
principal amount of 7.625% Senior Notes due 2012. We and the Parent
Partnerships other significant operating subsidiaries, which include TCTM,
L.P., TEPPCO Midstream and Jonah Gas Gathering Company, issued guarantees of
this debt. On June 30, 2002, the Parent Partnership acquired the Val Verde
Gathering System (Val Verde) through its subsidiary, Val Verde Gas Gathering
Company, L.P., which also issued an unconditional guarantee of the Parent
Partnerships debt securities. The guarantees are full, unconditional and
joint and several. The proceeds from the offering of the $500.0 million
principal amount of 7.625% Senior Notes were used to reduce the outstanding
balances of the Parent Partnerships credit facilities.

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On January 30, 2003, the Parent Partnership issued $200.0 million
principal amount of 6.125% Senior Notes due 2013. We and the Parent
Partnerships other significant operating subsidiaries issued guarantees of
this debt. The guarantees are full, unconditional and joint and several. The
proceeds from the offering of the $200.0 million principal amount of 6.125%
Senior Notes were used to reduce the outstanding principal of the Parent
Partnerships revolving credit facilities.

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 July 14, 2000, our Parent Partnership entered into a $75.0 million term
loan and a $475.0 million revolving credit facility (Three Year Facility) and
borrowed $75.0 million and $340.0 million, respectively, to finance the
acquisition of assets from ARCO Pipe Line Company, a wholly owned subsidiary of
Atlantic Richfield Company for $322.6 million. The acquired assets are held
through TCTM, L.P., a 99.999% owned entity of the Parent Partnership. On April
6, 2001, the Three Year Facility was amended to provide for revolving
borrowings of up to $500.0 million for a period of three years including the
issuance of letters of credit of up to $20.0 million. The interest rate is
based, at the 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 contains restrictive financial
covenants that require the Parent Partnership to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA (earnings before interest
expense, income tax expense and depreciation and amortization expense) and
minimum fixed charge coverage ratios. On June 27, 2002, the Three Year Facility
was amended to increase the maximum debt-to-EBITDA ratio covenant to allow the
Parent Partnership to incur additional indebtedness to finance a portion of the
purchase price of the acquisition of Val Verde from Burlington Resources
Gathering Inc., a subsidiary of Burlington Resources Inc. On June 27, 2002,
the Parent Partnership drew down the existing capacity of the Three Year
Facility. During the fourth quarter of 2002, the Parent Partnership repaid
$68.0 million of the outstanding balance of the Three Year Facility with
proceeds from its November and December 2002 equity offerings. At December 31,
2002, $432.0 million was outstanding under the Three Year Facility.

On April 6, 2001, the Parent Partnership entered into a 364-day, $200.0
million revolving credit agreement (Short-term Revolver). The interest rate
is based, at the 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 contains restrictive financial covenants that require the
Parent Partnership to maintain a minimum level of partners capital as well as
maximum debt-to-EBITDA and minimum fixed charge coverage ratios. On March 28,
2002, the Short-term Revolver was extended for an additional period of 364
days, ending in March 2003. On June 27, 2002, the Short-term Revolver was
amended to increase the maximum debt-to-EBITDA ratio covenant to allow the
Parent Partnership to incur additional indebtedness to finance a portion of the
Val Verde acquisition. On June 27, 2002, the Parent Partnership drew down
$72.0 million under the Short-term Revolver to finance a portion of the Val
Verde acquisition. In the fourth quarter of 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 November and
December 2002. At December 31, 2002, no amounts were outstanding under this
facility. In February 2003, our Parent Partnership gave notice that it will
not renew the Short-term Revolver. As a result, the facility will expire on
March 27, 2003.

As of December 31, 2002 and 2001, we had intercompany notes payable to our
Parent Partnership of $154.1 million and $117.9 million, respectively. At
December 31, 2001, $72.5 million, included in current liabilities, related to
our borrowings under the Parent Partnerships Short-term Revolver described
above. Our long-term portion at December 31, 2001, totaled $45.4 million and
represented borrowings under the Parent Partnerships Three Year Facility.
During the year ended December 31, 2002, the Parent Partnership issued $500.0
million principal amount of 7.625% Senior Notes due 2012. The Parent
Partnership used a portion of the proceeds to repay

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the Short-term Revolver. Thus, at December 31, 2002, no amounts were
included in current liabilities as our portion of the Short-term Revolver had
been repaid. Our long-term portion at December 31, 2002, totaled $154.1
million and represents borrowings by us under the Parent Partnerships Three
Year Facility and Senior Notes described above. The interest rate on the note
payable, Parent Partnership at December 31, 2002, was 5.3%. At December 31,
2002, accrued interest includes $4.1 million due to the Parent Partnership.
For the year ended December 31, 2002, interest costs incurred on the note
payable, Parent Partnership totaled $7.2 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, 2002, 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.

Cash Distributions

For the years ended December 31, 2002, 2001 and 2000, cash distributions
totaled $94.9 million, $80.9 million and $70.8 million, respectively. The
distribution increases reflect our success in improving cash flow levels. On
February 7, 2003, we paid a cash distribution of $24.5 million for the quarter
ended December 31, 2002.

Future Capital Needs and Commitments

We estimate that capital expenditures, excluding acquisitions, for 2003
will be approximately $34.6 million (which includes $1.9 million of capitalized
interest). We expect to use approximately $9.4 million for revenue generating
projects which will include approximately $7.5 million for the expansion of our
pumping capacity for LPGs into the Northeast markets and approximately $1.9
million for expansion of deliverability capacity at various locations
throughout the system. We expect to spend approximately $17.5 million to
sustain existing operations, including the replacement of storage tanks and
pipeline rehabilitation projects to comply with regulations enacted by the OPS
and the installation of replacement electrical distribution facilities at our
Mont Belvieu facilities. An additional $5.8 million will be expended on other
replacements and system upgrade projects. 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) Senior Notes, $180.0 million principal amount due January 15,
2008, and $210.0 million principal amount due January 15, 2028, and (ii) $154.1
million principal amount due to the Parent Partnership related to our share of
the Parent Partnerships Three Year Facility and Senior Notes, due in April
2004 and February 2012, respectively. We expect to repay the long-

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term, senior unsecured obligations through the issuance of additional
long-term senior unsecured debt at the time the 2008 and 2028 debt matures,
proceeds from dispositions of assets, or any combination of the above items.

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.
We expect to contribute an additional $10.0 million to Centennial in 2003 to
provide for its working capital needs. In January 2003, we entered into a
pipeline capacity lease agreement with Centennial for a period of five years.
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. 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.

The following table summarizes our debt repayment obligations and material
contractual commitments as of December 31, 2002 (in millions):

|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |       | 
|-------------------------------- | -------------------------------- | - | ------------------------------------------ | ----- | ---------------- | - | --------- | ---- | --------- | - | ------------- | ----- |  | - | --- | --- |  | - | ----- | ----- | 
|                                 |                                  |   | Amount of Commitment Expiration Per Period
|                                 |                                  |   |                                           
|                                 |                                  |   | Total                                      |       | Less than 1 Year |   | 2-3 Years |      | 4-5 Years |   | After 5 Years
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |              
|Note payable, Parent Partnership |                                  | $ | 154.1                                      |       |                  | $ |          |      |           | $ | 154.1         |       |  | $ |    |     |  | $ |      |      
|6.45% Senior Notes due 2008      |                                  |   | 180.0                                      |       |                  |   |          |      |           |   |              |       |  |   |    |     |  |   | 180.0 |      
|7.51% Senior Notes due 2028 (1)  |                                  |   | 210.0                                      |       |                  |   |          |      |           |   |              |       |  |   |    |     |  |   | 210.0 |      
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |      
|                                 | Debt subtotal                    |   |                                            | 544.1 |                  |   |           |     |           |   |               | 154.1 |  |   |     |    |  |   |       | 390.0 | 
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |      
|Centennial cash contributions    |                                  |   | 10.0                                       |       |                  |   | 10.0      |      |           |   |              |       |  |   |    |     |  |   |      |      
|Operating leases                 |                                  |   | 21.3                                       |       |                  |   | 5.9       |      |           |   | 10.4          |       |  |   | 4.8 |     |  |   | 0.2   |      
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |      
|                                 | Contractual commitments
subtotal |   |                                            | 31.3  |                  |   |           | 15.9 |           |   |               | 10.4  |  |   |     | 4.8 |  |   |       | 0.2   | 
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |      
|                                 | Total                            |   | $                                          | 575.4 |                  |   | $         | 15.9 |           |   | $             | 164.5 |  |   | $   | 4.8 |  |   | $     | 390.2 | 
|                                 |                                  |   |                                            |       |                  |   |           |      |           |   |               |       |  |   |     |     |  |   |       |      



---

|(1) |  | We entered into an interest rate swap agreement to hedge our
exposure to changes in the fair value of the 7.51% Senior Notes due
2028. At December 31, 2002, the 7.51% Senior Notes include an
adjustment to increase the fair value of the debt by $13.6 million
related to this interest rate swap agreement. At December 31, 2002,
our 6.45% Senior Notes include $0.2 million of unamortized debt
discount. The fair value adjustment and unamortized debt discount are
excluded from this table.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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.

On May 29, 2002, Moodys Investors Service downgraded our Parent
Partnerships senior unsecured debt rating to Baa3 from Baa2. We were also
included in this downgrade. These ratings were given with stable outlooks and
followed our Parent Partnerships announcement of the acquisition of Val Verde.
The downgrades reflect Moodys concern that the Parent Partnership has a high
level of debt relative to many of its peers and that its debt may be
continually higher than its long-term targets if the Parent Partnership
continues to make a series of acquisitions of increasingly larger size.
Because of its high distribution rate, the Parent Partnership is particularly
reliant on external financing to finance its acquisitions. Moodys indicated
that the Parent Partnerships cash flows

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are becoming less predictable as a result of its acquisitions and
expansion into the crude oil and natural gas gathering businesses. Further
reductions in the Parent Partnerships and our credit ratings could increase
the debt financing costs or possibly reduce the availability of financing.
Generally, a subsidiarys credit rating will not be higher than its parent. 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 decides that the
circumstances warrant such a change. On January 27, 2003, Moodys reaffirmed
the Baa3 ratings on us and our Parent Partnership.

Other Considerations

Credit Risks

Risks of nonpayment and nonperformance by customers are a major
consideration in our businesses. Our credit procedures and policies do not
fully eliminate customer credit risk. During 2002, several of our customers
filed for bankruptcy protection. During the year ended December 31, 2002, we
expensed approximately $0.7 million of uncollectible receivables.

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, we entered into an Agreed Order with the IDEM that resulted in
the implementation of a remediation program for groundwater contamination
attributable to our operations at the Seymour terminal. In 1999, the IDEM
approved a Feasibility Study, which includes our proposed remediation program.
In March 2003, the IDEM issued a Record of Decision formally approving the
remediation program. As the Record of Decision has been issued, we will enter
into an Agreed Order for the continued operation and maintenance of the
remediation program. We have an accrued liability of $0.4 million at December
31, 2002, for future remediation costs at the Seymour terminal. 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.

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 adjacent petroleum terminals
operated by other companies. In 1999, our Arcadia facility and adjacent
terminals were directed by the Remediation Services

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Division of the LDEQ to pursue remediation of this containment phase. At
December 31, 2002, we have an accrued liability of $0.2 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program that we have proposed 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 entered into a settlement agreement with the
protesting shippers resolving our 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.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (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. We will adopt SFAS 143 effective January 1, 2003. Determination
of any amounts to be 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 of a 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. The fair value of
the asset retirement obligations for our trunk and interstate pipelines and our
surface facilities cannot be reasonably estimated, as future dismantlement and
removal dates are indeterminate. We will record such asset retirement
obligations in the period in which we determine the settlement dates of the
retirement obligations. We are continuing to evaluate the effect of SFAS 143,
but we do not currently anticipate that the adoption of SFAS 143 will have a
material impact on our financial position, results of operations or cash flows.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. We adopted SFAS 144 effective January 1, 2002. The
adoption of SFAS 144 resulted in the classification of the transfer of TEPPCO
Colorado as discontinued operations. Under previously existing literature, the
classification of the transfer of TEPPCO Colorado as discontinued operations
would not have been required.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.SFAS 145 eliminates the requirement to classify gains and losses
from the extinguishment of indebtedness as extraordinary, requires certain
lease modifications to be treated the same as a sale-leaseback transaction, and
makes other non-substantive technical corrections to existing pronouncements.
SFAS 145 is effective for fiscal years beginning after May 15, 2002, with
earlier adoption encouraged. We are required to adopt SFAS 145 effective
January 1, 2003. We do not believe that the adoption of SFAS 145 will have a
material effect on our financial position, results of operations or cash flows.

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In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
We do not believe that the adoption of SFAS 146 will have a material effect on
our financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.SFAS 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation,to provide 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 the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of
SFAS 148 did not affect our financial position, results of operations or cash
flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN 45), which addresses the disclosure
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. FIN 45 also requires the recognition of a
liability by a guarantor at the inception of certain guarantees. FIN 45
requires the guarantor to recognize a liability for the non-contingent
component of the guarantee, which is the obligation to stand ready to perform
in the event that specified triggering events or conditions occur. The initial
measurement of this liability is the fair value of the guarantee at inception.
The recognition of the liability is required even it is not probable that
payments will be required under the guarantee or if the guarantee was issued
with a premium payment or as part of a transaction with multiple elements. We
have adopted the disclosure requirements of FIN 45 (see Note 17. Commitments
and Contingencies) and will apply the recognition and measurement provisions
for all guarantees entered into or modified after December 31, 2002. To date,
we have not entered into or modified guarantees pursuant to the provisions of
FIN 45.

In January 2003, the 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 are required to apply FIN 46 on July 1, 2003. We do not
believe FIN 46 will have a significant impact on our financial position,
results of operations or cash flows.

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
approximate 70% interest 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.

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

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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 based on 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.




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 swaps related to our fair
value risks are intended to reduce our exposure to changes in the fair value of
our fixed rate Senior Notes. The interest rate swap agreements involve 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.

As of December 31, 2002 and 2001, we had intercompany notes payable to our
Parent Partnership of $154.1 million and $117.9 million, respectively. At
December 31, 2001, $72.5 million, included in current liabilities, related to
our borrowings under the Parent Partnerships Short-term Revolver. Our
long-term portion at December 31, 2001, totaled $45.4 million and represented
borrowings under the Parent Partnerships Three Year Facility. During the year
ended December 31, 2002, the Parent Partnership issued $500.0 million principal
amount of 7.625% Senior Notes due 2012. The Parent Partnership used a portion
of the proceeds to repay the Short-term Revolver. Thus, at December 31, 2002,
no amounts were included in current liabilities as our portion of the
Short-term Revolver had been repaid. Our long-term portion at December 31,
2002, totaled $154.1 million and represents borrowings by us under the Parent
Partnerships Three Year Facility and Senior Notes. The interest rate on the
note payable, Parent Partnership at December 31, 2002, was 5.3%. At December
31, 2002, accrued interest includes $4.1 million due to the Parent Partnership.
For the year ended December 31, 2002, interest costs incurred on the note
payable, Parent Partnership totaled $7.2 million.

As of December 31, 2002, 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 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, 2002 and 2001, we recognized reductions in
interest expense of $8.6 million and $1.8 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, 2002, 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 $13.6 million at
December 31, 2002, and a loss of approximately $14.6 million at December 31,
2001. Utilizing the balance of the 7.51% Senior Notes outstanding at December
31, 2002, 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.

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At December 31, 2002, 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, 2002, the estimated fair value of the
Senior Notes was approximately $385.8 million.




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.




PART III




Item 10. Directors and Executive Officers of the Registrant

We do not have employees, officers or directors and we are managed by the
General Partner, a wholly owned subsidiary of our Parent Partnership. The
directors and officers 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, Inc., 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,
2002 (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. 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. We reimburse the Company for the
services of such 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.




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 the Parent Partnership. The Parent Partnership is managed by the
Company, which is a wholly owned subsidiary of DEFS. Duke Energy holds an
approximate 70% interest in DEFS and ConocoPhillips holds the remaining 30%.
According

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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, 2002, 2001 and 2000, direct expenses
incurred by the Company in the amount of $46.6 million, $41.3 million and $39.6
million, respectively, were charged to us by DEFS. Substantially all such
costs were related to payroll and payroll related expenses. For the years
ended December 31, 2002, 2001 and 2000, expenses for administrative service and
overhead allocated to us by the Company (including Duke Energy and its
affiliates) were $0.8 million, $0.5 million and $0.8 million, respectively.

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, $7.4 million and $7.5 million for the years
ended December 31, 2002, 2001 and 2000, 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, $0.9 million and $0.9 million for the years ended December 31,
2002, 2001 and 2000, respectively. On May 31, 2002, TEPPCO Colorado was
transferred to TEPPCO Midstream.

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

Interests of Duke Energy in the Parent Partnership

In connection with our formation, 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 for purposes of this Report. 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, we have registered the resale by Duke
Energy of such Limited Partner Units with the Securities and Exchange
Commission. As of December 31, 2002, no such Limited Partner Units had been
sold by Duke Energy.

At December 31, 2002, Duke Energy also held 3,916,547 Class B Units. The
Class B Units share in income and distributions on the same basis as the Parent
Partnerships Limited Partner Units, but they are not listed on the New York
Stock Exchange. The Class B Units may be converted into Limited Partner Units
upon approval by the unitholders. We have the option to seek approval for the
conversion of the Class B Units into Limited Partner Units; however, if the
conversion is denied, Duke Energy, as holder of the Class B Units, will have
the right to sell them to the Parent Partnership at 95.5% of the 20-day average
market closing price of the Limited Partner Units, as determined under our
Parent Partnerships Partnership Agreement.




Item 14. Controls and Procedures

Included in its recent Release No. 34-46427, effective August 29, 2002,
the Securities and Exchange Commission adopted rules requiring reporting
companies to maintain disclosure controls and procedures to provide reasonable
assurance that a registrant is able to record, process, summarize and report
the information required in the registrants quarterly and annual reports under
the Securities Exchange Act of 1934 (the Exchange Act). While we believe
that our existing disclosure controls and procedures have been effective to
accomplish these objectives,

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we intend to continue to examine, refine and formalize our disclosure controls
and procedures and to monitor ongoing developments in this area.

The principal executive officer and principal financial officer of our
General Partner, after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and Rule 15d-14(c))
as of a date within 90 days before the filing date of this Report, 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.

There have been no changes in our internal controls or in other factors
known to us that could significantly affect those internal controls subsequent
to the date of the evaluation, nor were there any significant deficiencies or
material weaknesses in our internal controls. As a result, no corrective
actions were required or undertaken.




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
Statements and Supplemental Schedule on page F-1 of this
Report for financial statements filed as part of this Report.                   
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Financial Statement Schedules: See Index to
Financial Statements and Supplemental Schedule on page F-1 of
this Report for financial statements schedules filed as part
of this Report.
|
| | (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.,                                                                                                                                                                                                                                                                                                            

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | 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).                                                                                                                                                                                                                                                                                                        
|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   |  | Asset Purchase Agreement between Duke Energy Field Services, Inc.
and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as Exhibit
10.14 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).                                                                                                                                                                                                                                     
|10.10+ |  | 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).                                                                                                                                         
|10.11+ |  | 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).                                                                                                                                                                                                                                                                                                             
|10.12  |  | Services and Transportation Agreement between TE Products Pipeline
Company, Limited Partnership and Fina Oil and Chemical Company, BASF
Corporation and BASF                                                                                                                                                                                                                                                                                                                                                                 

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|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |  | 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).                                                                                                                                                                                                                                    
|10.13  |  | 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).                                                                                                                                                                                                                                                     
|10.14+ |  | 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).                                                                                                                                                                  
|10.15+ |  | 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).                                                                                                                                                                                                                                         
|10.16  |  | 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).                                                                  
|10.17  |  | 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).                                                                                                                                                                                                                                                    
|10.18  |  | 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).                                                                        
|10.19  |  | 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).                                                                                                                 
|10.20  |  | 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).                
|10.21  |  | 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).                                                         
|10.22  |  | 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).                                                 
|10.23  |  | 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).

34



---



##### Table of Contents



|       |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.24  |  | 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).                                      
|10.25  |  | 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).   
|10.26  |  | 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).
|10.27  |  | 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).                    
|10.28+ |  | 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).                                                                                                                                         
|10.29+ |  | 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).                                                                                                                                                            
|10.30+ |  | 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).                                                                                                      
|10.31+ |  | 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).                                                                                                          
|10.32+ |  | 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).                                                                                                                                                          
|10.33  |  | 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).                                                        
|10.34  |  | 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).                                                                                                                              
|10.35  |  | 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).                                              
|10.36  |  | 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                                                                                                                                                                               

35



---



##### Table of Contents



|      |  |                                                                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  | (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).
|23*   |  | Consent of KPMG LLC.                                                                                                                                                    
|99.1* |  | Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                     
|99.2* |  | Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.                                                                     



---

|* |  | Filed herewith.                                           
|- |  | ----------------------------------------------------------
| 
|+ |  | A management contract or compensation plan or arrangement.



|(b) |  | Reports on Form 8-K filed during the quarter ended December 31, 2002:
|--- |  | ---------------------------------------------------------------------

A Report on Form 8-K was filed on October 9, 2002.




SIGNATURES

TE Products Pipeline Company, Limited Partnership, pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, 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: March 27, 2003

36



---



##### Table of Contents






CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, BARRY R. PEARL, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of TE Products Pipeline
Company, Limited Partnership;                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      |  | 
|------------------------------------- |  | 
|March 27, 2003                        |  | 
|                                      |  | 
|Date                                  |  | 
|                                      |  | 
|/s/ BARRY R. PEARL                    |  | 
|                                      |  | 
|Barry R. Pearl                        |  | 
|President and Chief Executive Officer |  | 

37



---



##### Table of Contents



CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, CHARLES H. LEONARD, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of TE Products Pipeline
Company, Limited Partnership;                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                  



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
b) evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                                                                                                                                                                                                                      



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                     |  | 
|-------------------------------------------------------------------- |  | 
|March 27, 2003                                                       |  | 
|                                                                     |  | 
|Date                                                                 |  | 
|                                                                     |  | 
|/s/ CHARLES H. LEONARD                                               |  | 
|                                                                     |  | 
|Charles H. Leonard
Senior Vice President and
Chief Financial Officer |  | 

38



---



##### Table of Contents



CONSOLIDATED FINANCIAL STATEMENTS
OF TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE

|                       |                                                                                                   |  |      |     | 
|---------------------- | ------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                       |                                                                                                   |  | Page
|                       |                                                                                                   |  |     
|Financial Statements:  |                                                                                                   |  |      |    
|                       | Independent Auditors Report                                                                      |  |      | F-2 | 
|                       | Consolidated Balance Sheets as of December 31, 2002 and 2001                                      |  |      | F-3 | 
|                       | Consolidated Statements of Income for the years ended December 31, 2002, 2001 and 2000            |  |      | F-4 | 
|                       | Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000        |  |      | F-5 | 
|                       | Consolidated Statements of Partners Capital for the years ended December 31, 2002, 2001 and 2000 |  |      | F-6 | 
|                       | Notes to Consolidated Financial Statements                                                        |  |      | F-7 | 
|Supplemental Schedule: |                                                                                                   |  |      |    
|                       | Independent Auditors Report on Consolidated Financial Statement Schedule                         |  |      | S-1 | 
|                       | Schedule II  Valuation and Qualifying Accounts and Reserves                                      |  |      | S-2 | 

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, 2002 and
2001, 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, 2002. 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, 2002 and 2001, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.



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

Houston, Texas
January 22, 2003, except as
      to Note 20, which is as of
      February 10, 2003

F-2



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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(in thousands)



|                                                                                                                   |                                                                |                                         |         |              |         |      |         |         |         | 
|------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | --------------------------------------- | ------- | ------------ | ------- | ---- | ------- | ------- | ------- | 
|                                                                                                                   |                                                                |                                         |         | December 31,
|                                                                                                                   |                                                                |                                         |         |             
|                                                                                                                   |                                                                |                                         |         | 2002         |         | 2001
|                                                                                                                   |                                                                |                                         |         |              |         |     
|ASSETS                                                                                                            
|Current assets:                                                                                                    |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   | Cash and cash equivalents                                      |                                         | $       | 485          |         |      | $       | 3,654   |        
|                                                                                                                   | Accounts receivable, trade                                     |                                         |         | 26,217       |         |      |         | 22,815  |        
|                                                                                                                   | Accounts receivable, related party                             |                                         |         | 5,125        |         |      |         | 7,386   |        
|                                                                                                                   | Inventories                                                    |                                         |         | 13,800       |         |      |         | 10,617  |        
|                                                                                                                   | Other                                                          |                                         |         | 11,939       |         |      |         | 11,069  |        
|                                                                                                                   | Total assets of discontinued operations                        |                                         |         |             |         |      |         | 35,798  |        
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   |                                                                | Total current assets                    |         |              | 57,566  |      |         |         | 91,339  | 
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|Property, plant and equipment, at cost (net of
accumulated depreciation and amortization of
$284,458 and $263,662) |                                                                |                                         | 722,848 |              |         |      | 697,178 |        
|Equity investments                                                                                                 |                                                                |                                         | 73,476  |              |         |      | 69,409  |        
|Advances to Parent Partnership                                                                                     |                                                                |                                         |        |              |         |      | 3,993   |        
|Other assets                                                                                                       |                                                                |                                         | 29,560  |              |         |      | 17,915  |        
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   |                                                                | Total assets                            |         | $            | 883,450 |      |         | $       | 879,834 | 
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|LIABILITIES AND PARTNERS CAPITAL                                                                                 
|Current liabilities:                                                                                               |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   | Note payable, Parent Partnership                               |                                         | $       |             |         |      | $       | 72,490  |        
|                                                                                                                   | Accounts payable and accrued liabilities                       |                                         |         | 18,999       |         |      |         | 18,994  |        
|                                                                                                                   | Accounts payable, Texas Eastern Products Pipeline Company, LLC |                                         |         | 5,685        |         |      |         | 12,455  |        
|                                                                                                                   | Accrued interest                                               |                                         |         | 11,536       |         |      |         | 12,977  |        
|                                                                                                                   | Other accrued taxes                                            |                                         |         | 6,732        |         |      |         | 5,647   |        
|                                                                                                                   | Other                                                          |                                         |         | 16,008       |         |      |         | 10,204  |        
|                                                                                                                   | Total liabilities of discontinued operations                   |                                         |         |             |         |      |         | 33,366  |        
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   |                                                                | Total current liabilities               |         |              | 58,960  |      |         |         | 166,133 | 
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|Senior Notes                                                                                                       |                                                                |                                         | 403,428 |              |         |      | 375,184 |        
|Note payable, Parent Partnership                                                                                   |                                                                |                                         | 154,093 |              |         |      | 45,410  |        
|Other liabilities and deferred credits                                                                             |                                                                |                                         | 24,230  |              |         |      | 22,995  |        
|Commitments and contingencies                                                                                      |                                                                |                                         |         |              |         |      |         |        
|Partners capital:                                                                                                 |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   | General partners interest                                     |                                         |         | 2            |         |      |         | 3       |        
|                                                                                                                   | Limited partners interest                                     |                                         |         | 242,737      |         |      |         | 270,109 |        
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   |                                                                | Total partners capital                 |         |              | 242,739 |      |         |         | 270,112 | 
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        
|                                                                                                                   |                                                                | Total liabilities and partners capital |         | $            | 883,450 |      |         | $       | 879,834 | 
|                                                                                                                   |                                                                |                                         |         |              |         |      |         |        

See accompanying Notes to Consolidated Financial Statements.

F-3



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##### Table of Contents



TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF INCOME
(in thousands)

|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |         | 
|----------------------------------- | ------------------------------------- | ------------------------------------- | ------- | ------------ | ------- | ---- | ------- | ------- | ------- |  | ------- | ------- | ------- | 
|                                    |                                       |                                       |         | Year Ended  
|                                    |                                       |                                       |         | December 31,
|                                    |                                       |                                       |         |             
|                                    |                                       |                                       |         | 2002         |         | 2001 |         | 2000   
|                                    |                                       |                                       |         |              |         |      |         |        
|Operating revenues:                 |                                       |                                       |         |              |         |      |         |         |         |  |         |        
|                                    | Transportation  Refined products     |                                       | $       | 123,476      |         |      | $       | 139,315 |         |  | $       | 119,331 |        
|                                    | Transportation  LPGs                 |                                       |         | 74,577       |         |      |         | 77,823  |         |  |         | 73,896  |        
|                                    | Mont Belvieu operations               |                                       |         | 15,238       |         |      |         | 14,116  |         |  |         | 13,334  |        
|                                    | Other                                 |                                       |         | 30,247       |         |      |         | 32,979  |         |  |         | 22,673  |        
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|                                    |                                       | Total operating revenues              |         |              | 243,538 |      |         |         | 264,233 |  |         |         | 229,234 | 
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|Costs and expenses:                 |                                       |                                       |         |              |         |      |         |         |         |  |         |        
|                                    | Operating, general and administrative |                                       |         | 90,034       |         |      |         | 78,270  |         |  |         | 76,161  |        
|                                    | Operating fuel and power              |                                       |         | 28,998       |         |      |         | 33,401  |         |  |         | 32,200  |        
|                                    | Depreciation and amortization         |                                       |         | 30,116       |         |      |         | 26,699  |         |  |         | 25,728  |        
|                                    | Taxes  other than income taxes       |                                       |         | 11,292       |         |      |         | 8,185   |         |  |         | 9,704   |        
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|                                    |                                       | Total costs and expenses              |         |              | 160,440 |      |         |         | 146,555 |  |         |         | 143,793 | 
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|                                    |                                       | Operating income                      |         |              | 83,098  |      |         |         | 117,678 |  |         |         | 85,441  | 
|Interest expense                    |                                       |                                       | (25,996 | )            |         |      | (30,581 | )       |         |  | (32,088 | )      
|Interest capitalized                |                                       |                                       | 3,254   |              |         |      | 3,537   |         |         |  | 4,559   |        
|Equity
losses                       |                                       |                                       | (6,815  | )            |         |      | (1,149  | )       |         |  |        |        
|Other income  net                  |                                       |                                       | 832     |              |         |      | 1,537   |         |         |  | 1,651   |        
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|                                    |                                       | Income before discontinued operations |         |              | 54,373  |      |         |         | 91,022  |  |         |         | 59,563  | 
|Income from discontinued operations |                                       |                                       | 912     |              |         |      | 1,674   |         |         |  | 1,751   |        
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        
|                                    |                                       | Net income                            |         | $            | 55,285  |      |         | $       | 92,696  |  |         | $       | 61,314  | 
|                                    |                                       |                                       |         |              |         |      |         |         |         |  |         |         |        

See accompanying Notes to Consolidated Financial Statements.

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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |        |         |  
|------------------------------------------------ | -------------------------------------------------------------------------------------------------------- | ------------------------------------------------- | --------------------------------------------------- | -------- | ------------------------ | ------- | ------ | ------- | ------- | -------- | ------ | ------- | ------ | ------- | -
|                                                 |                                                                                                          |                                                   |                                                     |          | Years Ended December 31,
|                                                 |                                                                                                          |                                                   |                                                     |          |                         
|                                                 |                                                                                                          |                                                   |                                                     |          | 2002                     |         | 2001   |         | 2000   
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |        
|Cash flows from operating activities:            |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |        
|                                                 | Net income from continuing operations                                                                    |                                                   | $                                                   | 54,373   |                          |         | $      | 91,022  |         |          | $      | 59,563  |       
|                                                 | Adjustments to reconcile net income from continuing
operations to cash provided by operating activities: |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|                                                 |                                                                                                          | Depreciation and amortization                     |                                                     |          | 30,116                   |         |        |         | 26,699  |          |        |         | 25,728 |        
|                                                 |                                                                                                          | Equity in loss of affiliate                       |                                                     |          | 6,815                    |         |        |         | 960     |          |        |         | 176    |        
|                                                 |                                                                                                          | Non-cash portion of interest expense              |                                                     |          | 31                       |         |        |         | 626     |          |        |         | 866    |        
|                                                 |                                                                                                          | Decrease (increase) in accounts receivable        |                                                     |          | (3,402                   | )       |        |         | 3,367   |          |        |         | (3,758 | )      
|                                                 |                                                                                                          | Decrease (increase) in inventories                |                                                     |          | (3,182                   | )       |        |         | (2,606  | )        |        |         | 440    |        
|                                                 |                                                                                                          | Decrease (increase) in other current assets       |                                                     |          | (369                     | )       |        |         | (15,987 | )        |        |         | 415    |        
|                                                 |                                                                                                          | Increase in accounts payable and accrued expenses |                                                     |          | 7,265                    |         |        |         | 12,898  |          |        |         | 6,898  |        
|                                                 |                                                                                                          | Other                                             |                                                     |          | 14,775                   |         |        |         | (446    | )        |        |         | (4,578 | )      
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|                                                 |                                                                                                          |                                                   | Net cash provided by continuing operations          |          |                          | 106,422 |        |         |         | 116,533  |        |         |        | 85,750  |  
|                                                 |                                                                                                          |                                                   | Net cash provided by discontinued operations        |          |                          | 1,178   |        |         |         | 6,537    |        |         |        | 1,706   |  
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|                                                 |                                                                                                          |                                                   | Net cash provided by operating activities           |          |                          | 107,600 |        |         |         | 123,070  |        |         |        | 87,456  |  
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|Cash flows from investing activities:            |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |        
|                                                 | Proceeds from cash investments                                                                           |                                                   |                                                     |         |                          |         |        | 4,236   |         |          |        | 3,475   |       
|                                                 | Purchases of cash investments                                                                            |                                                   |                                                     |         |                          |         |        |        |         |          |        | (2,000  | )     
|                                                 | Proceeds from sale of assets                                                                             |                                                   |                                                     | 3,380    |                          |         |        |        |         |          |        |        |       
|                                                 | Proceeds from sale of TEPPCO Colorado, LLC                                                               |                                                   |                                                     | 4,096    |                          |         |        |        |         |          |        |        |       
|                                                 | Investment in Centennial Pipeline LLC                                                                    |                                                   |                                                     | (10,882  | )                        |         |        | (64,953 | )       |          |        | (5,040  | )     
|                                                 | Capital expenditures                                                                                     |                                                   |                                                     | (60,898  | )                        |         |        | (81,410 | )       |          |        | (56,516 | )     
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|                                                 |                                                                                                          |                                                   | Net cash used in investing activities               |          |                          | (64,304 | )      |         |         | (142,127 | )      |         |        | (60,081 | )
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|Cash flows from financing activities:            |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |        
|                                                 | Proceeds from term loan                                                                                  |                                                   |                                                     | 186,099  |                          |         |        | 166,148 |         |          |        | 115,377 |       
|                                                 | Repayment of term loan                                                                                   |                                                   |                                                     | (149,906 | )                        |         |        | (96,917 | )       |          |        | (92,585 | )     
|                                                 | Advances from (to) Parent Partnership                                                                    |                                                   |                                                     |         |                          |         |        | 1,202   |         |          |        | (2,841  | )     
|                                                 | Equity contribution  General Partner                                                                    |                                                   |                                                     |         |                          |         |        | 1       |         |          |        | 169     |       
|                                                 | Equity contribution  Parent Partnership                                                                 |                                                   |                                                     | 12,263   |                          |         |        | 24,025  |         |          |        | 16,155  |       
|                                                 | Distributions                                                                                            |                                                   |                                                     | (94,921  | )                        |         |        | (80,914 | )       |          |        | (70,767 | )     
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|                                                 |                                                                                                          |                                                   | Net cash provided by (used in) financing activities |          |                          | (46,465 | )      |         |         | 13,545   |        |         |        | (34,492 | )
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|Net decrease in cash and cash equivalents        |                                                                                                          |                                                   | (3,169                                              | )        |                          |         | (5,512 | )       |         |          | (7,117 | )      
|Cash and cash equivalents at beginning of period |                                                                                                          |                                                   | 3,654                                               |          |                          |         | 9,166  |         |         |          | 16,283 |        
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|Cash and cash equivalents at end of period       |                                                                                                          | $                                                 | 485                                                 |          |                          | $       | 3,654  |         |         | $        | 9,166  |        
|                                                 |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |         |       
|Supplemental disclosure of cash flows:           |                                                                                                          |                                                   |                                                     |          |                          |         |        |         |         |          |        |        
|                                                 | Interest paid during the year (net of capitalized interest)                                              |                                                   | $                                                   | 24,975   |                          |         | $      | 31,023  |         |          | $      | 28,952  |       

See accompanying Notes to Consolidated Financial Statements.

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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, 1999 |                                           | $ | 2,309     |        |           | $ | 225,920 |         |   | $ | 228,229 |        
|                                       | 2000 net income allocation                |   |           | 619    |           |   |         | 60,695  |   |   |         | 61,314  |  
|                                       | 2000 cash distributions                   |   |           | (714   | )         |   |         | (70,053 | ) |   |         | (70,767 | )
|                                       | Capital contributions                     |   |           | 169    |           |   |         | 16,155  |   |   |         | 16,324  |  
|                                       | Option exercises, net of Unit repurchases |   |           |       |           |   |         | (185    | ) |   |         | (185    | )
|                                       |                                           |   |           |        |           |   |         |         |   |   |         |        
|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 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 |        
|                                       |                                           |   |           |        |           |   |         |         |   |   |         |        

See accompanying Notes to Consolidated Financial Statements.

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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 approximate 70% interest 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 (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.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We follow 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 18. 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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TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

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 fines, 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, including direct internal and legal
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.

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 18. 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, storage and short-haul transportation of LPGs at the Mont
Belvieu complex, 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.

Operating, General and Administrative Expenses

The Parent Partnership allocates operating, general and administrative expenses
to us for legal, 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.

Use of Derivatives

We account for derivative financial instruments in accordance with
Statement of Financial Accounting Standards (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. Special accounting for derivatives qualifying as fair value
hedges allows a derivatives gains and losses to offset

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

related results on the hedged item in the statement of income. 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. Any change in fair value resulting from ineffectiveness, as defined by
SFAS 133, is recognized immediately in earnings.

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 swaps related to our fair
value risks are intended to reduce our exposure to changes in the fair value of
our fixed rate Senior Notes. The interest rate swap agreements involve 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.

By using interest rate swap agreements to hedge exposures to changes in
the fair value of our fixed rate Senior Notes, we are exposed to credit risk
and market risk. Credit risk is the failure of the counterparty to perform
under the terms of the derivative contract. When the fair value of a
derivative contract is positive, the counterparty owes us, which creates credit
risk for us. When the fair value of a derivative contract is negative, we owe
the counterparty and, therefore, we do not possess credit risk. We minimize
the credit risk in derivative instruments by entering into transactions with
major financial institutions. Market risk is the adverse effect on the value
of a financial instrument that results from a change in interest rates. We
manage market risk associated with interest-rate contracts by establishing and
monitoring parameters that limit the type and degree of market risk that may be
undertaken.

Gains and losses on terminations of interest rate agreements are deferred
as an adjustment to the carrying amount of the outstanding obligation and
amortized as an adjustment to interest expense related to the obligation over
the remaining term of the related credit agreement. In the event of early
extinguishment of the obligation, any realized or unrealized gain or loss from
the swap would be recognized in the consolidated statement of income at the
time of extinguishment.

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

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 exchange receivables and payables are valued at
weighted average cost and included in inventories.

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 SFAS No.
121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, and
effective January 1, 2002, 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

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

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 5.47%, 6.36% and 7.45% for the years ended December 31, 2002, 2001
and 2000, respectively. During the years ended December 31, 2002, 2001 and
2000, the amount of interest capitalized was $3.3 million, $3.5 million and
$4.6 million, respectively.

Intangible Assets

At December 31, 2002, our intangible assets of
$1.2 million consist of transportation agreements with customers. Intangible assets at December 31, 2001, consist primarily of the
fractionation agreement with DEFS. 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. At December 31, 2001, the unamortized
balance of this agreement was $30.9 million. (See Note 6. Related Party
Transactions.) On May 31, 2002, we transferred our investment in TEPPCO
Colorado to TEPPCO Midstream.

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.

Cash Flows

For purposes of reporting cash flows, all liquid investments with
maturities at date of purchase of 90-days or less are considered cash
equivalents.

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, 2002,
2001, and 2000, our comprehensive income equaled our reported net income.

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 14.
Unit-Based Compensation), the Parent Partnership followed the intrinsic value

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

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 granted is equal to, or greater than,
the market price of our Parent Partnerships Limited Partner Units on the date
of the grant

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 14. Unit-Based Compensation.

The following table summarizes pro forma net income for the years ended
December 31, 2002, 2001 and 2000, assuming we had used the fair value method of
accounting for our unit option plan (in thousands):

|            |                                                                                                                |                      |   |                          |        |      |   |        |        |  |   |        |        | 
|----------- | -------------------------------------------------------------------------------------------------------------- | -------------------- | - | ------------------------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|            |                                                                                                                |                      |   | Years Ended December 31,
|            |                                                                                                                |                      |   |                         
|            |                                                                                                                |                      |   | 2002                     |        | 2001 |   | 2000  
|            |                                                                                                                |                      |   |                          |        |      |   |       
|Net income: |                                                                                                                |                      |   |                          |        |      |   |        |        |  |   |       
|            | Reported net income                                                                                            |                      | $ | 55,285                   |        |      | $ | 92,696 |        |  | $ | 61,314 |       
|            | Deduct: Total unit-based employee compensation expense
determined under fair value based method for all awards |                      |   | (6                       | )      |      |   | (119   | )      |  |   | (203   | )     
|            |                                                                                                                |                      |   |                          |        |      |   |        |        |  |   |        |       
|            |                                                                                                                | Pro forma net income |   | $                        | 55,279 |      |   | $      | 92,577 |  |   | $      | 61,111 | 
|            |                                                                                                                |                      |   |                          |        |      |   |        |        |  |   |        |       

For purposes of determining compensation costs using the provisions of
SFAS 123, the fair value of option grants was determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options were as follows: average risk-free interest rate based on five-
and 10-year Treasury bonds  4.7%; Unit price volatility  23%; dividend
yield  7.6%; and estimated option lives  six years.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (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. We will adopt SFAS 143 effective January 1, 2003. Determination
of any amounts to be 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 of a 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. The fair value of
the asset retirement obligations for our trunk and interstate pipelines and our
surface facilities cannot be reasonably estimated, as future dismantlement and
removal dates are indeterminate. We will record such asset retirement
obligations in the period in which we determine the settlement dates of the
retirement obligations. We are continuing to evaluate the effect of SFAS 143,
but we do not currently anticipate that the adoption of SFAS 143 will have a
material impact 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 August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. We adopted SFAS 144 effective January 1, 2002. The
adoption of SFAS 144 resulted in the classification of the transfer of TEPPCO
Colorado as discontinued operations. Under previously existing literature, the
classification of the transfer of TEPPCO Colorado as discontinued operations
would not have been required.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections.SFAS 145 eliminates the requirement to classify gains and losses
from the extinguishment of indebtedness as extraordinary, requires certain
lease modifications to be treated the same as a sale-leaseback transaction, and
makes other non-substantive technical corrections to existing pronouncements.
SFAS 145 is effective for fiscal years beginning after May 15, 2002, with
earlier adoption encouraged. We are required to adopt SFAS 145 effective
January 1, 2003. We do not believe that the adoption of SFAS 145 will have a
material effect on our financial position, results of operations or cash flows.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires recognition of a liability for a cost associated with an exit or
disposal activity when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
We do not believe that the adoption of SFAS 146 will have a material effect on
our financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide 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 the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of
SFAS 148 did not affect our financial position, results of operations or cash
flows.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others(FIN 45), which addresses the disclosure
to be made by a guarantor in its interim and annual financial statements about
its obligations under guarantees. FIN 45 also requires the recognition of a
liability by a guarantor at the inception of certain guarantees. FIN 45
requires the guarantor to recognize a liability for the non-contingent
component of the guarantee, which is the obligation to stand ready to perform
in the event that specified triggering events or conditions occur. The initial
measurement of this liability is the fair value of the guarantee at inception.
The recognition of the liability is required even it is not probable that
payments will be required under the guarantee or if the guarantee was issued
with a premium payment or as part of a transaction with multiple elements. We
have adopted the disclosure requirements of FIN 45 (see Note 17. Commitments
and Contingencies) and will apply the recognition and measurement provisions
for all guarantees entered into or modified after December 31, 2002. To date,
we have not entered into or modified guarantees pursuant to the provisions of
FIN 45.

In January 2003, the 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

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

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
are required to apply FIN 46 on July 1, 2003. We do not believe FIN 46 will
have a significant impact on our financial position, results of operations or
cash flows.

NOTE 3. INTANGIBLE ASSETS

In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. SFAS 142 requires that goodwill and intangible assets with indefinite
useful lives no longer be amortized, but instead tested for impairment at least
annually. SFAS 142 requires that intangible assets with definite useful lives
be amortized over their respective estimated useful lives.

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.

The following table reflects the components of amortized intangible
assets, included in other assets on the consolidated balance sheets, excluding goodwill (in thousands):

|                             |                           |  |                   |  |                   |  |                |              |  |  |   |      |   |  |  |  |  |  |   |       |  |  |   |     |  
|---------------------------- | ------------------------- |  | ----------------- |  | ----------------- |  | -------------- | ------------ |  |  | - | ---- | - |  |  |  |  |  | - | ----- |  |  | - | --- | -
|                             |                           |  | December 31, 2002 |  | December 31, 2001
|                             |                           |  |                   |  |                  
|                             |                           |  | Gross Carrying    |  | Accumulated       |  | Gross Carrying | Accumulated 
|                             |                           |  | Amount            |  | Amortization      |  | Amount         | Amortization
|                             |                           |  |                   |  |                   |  |                |             
|Amortized intangible assets: |                           |  |                   |  |                   |  |                |              |  |  |   |      |   |  |  |  |  |  |   |       |  |  |   |    
|                             | Transportation agreements |  |                   |  |                   |  | $              | 1,328        |  |  | $ | (127 | ) |  |  |  |  |  | $ | 1,000 |  |  | $ | (58 | )

Excluding goodwill, amortization expense on intangible assets was $69,146,
$50,000 and $8,333 for the years ended December 31, 2002, 2001 and 2000,
respectively.

The following table sets forth the estimated amortization expense on
intangible assets for the years ending December 31 (in thousands):

|     |  |   |    | 
|---- |  | - | -- | 
|2003 |  | $ | 66 | 
|2004 |  |   | 66 | 
|2005 |  |   | 66 | 
|2006 |  |   | 66 | 
|2007 |  |   | 66 | 

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS

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 Senior Notes. Under the swap
agreement, we pay a floating rate 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, 2002 and 2001, we recognized reductions in interest
expense of $8.6 million and $1.8 million,

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

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, 2002, 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 $13.6 million at December 31, 2002, and a loss of approximately
$14.6 million at December 31, 2001.

NOTE 5. EQUITY INVESTMENTS

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 Pipeline LLC (Centennial).
Centennial owns an interstate refined petroleum products pipeline extending
from the upper Texas Gulf Coast to Illinois. Through December 31, 2002, each
participant owned a one-third interest in Centennial. During the years ended
December 31, 2002 and 2001, we contributed approximately $10.9 million and
$70.0 million, respectively, for our investment in Centennial. These amounts
are included in the equity investment balance at December 31, 2002 and 2001.

We use the equity method of accounting to report our investment in
Centennial. Summarized income statement data for Centennial for the years
ended December 31, 2002, and 2001, is presented below (in thousands):

|         |  |              |         |      |  |   |        |  
|-------- |  | ------------ | ------- | ---- |  | - | ------ | -
|         |  | Years Ended 
|         |  | December 31,
|         |  |             
|         |  | 2002         |         | 2001
|         |  |              |         |     
|Revenues |  | $            | 16,460  |      |  | $ |       |  
|Net loss |  |              | (21,503 | )    |  |   | (3,077 | )

Summarized balance sheet data for Centennial as of December 31, 2002 and
2001, is presented below (in thousands):

|                       |  |              |         |      |  |   |         | 
|---------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                       |  | December 31,
|                       |  |             
|                       |  | 2002         |         | 2001
|                       |  |              |         |     
|Current assets         |  | $            | 8,184   |      |  | $ | 26,849  | 
|Noncurrent assets      |  |              | 285,885 |      |  |   | 253,792 | 
|Current liabilities    |  |              | 19,949  |      |  |   | 23,405  | 
|Long-term debt         |  |              | 140,000 |      |  |   | 128,000 | 
|Noncurrent liabilities |  |              | 14,875  |      |  |   |        | 
|Partners capital      |  |              | 119,245 |      |  |   | 129,236 | 

NOTE 6. RELATED PARTY TRANSACTIONS

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
approximate 70% interest 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 (see Note 1. Partnership Organization).

For the years ended December 31, 2002, 2001, and 2000, direct expenses
incurred by the Company of $46.6 million, $41.3 million and $39.6 million,
respectively, were charged to us by DEFS. Substantially all such costs were
related to payroll and payroll related expenses. For the years ended December
31, 2002, 2001, and 2000,

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

expenses for administrative service and overhead allocated to us by the
Company (including Duke Energy and its affiliates) were $0.8 million, $0.5
million and $0.8 million, respectively.

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, $7.4 million and $7.5 million for the years
ended December 31, 2002, 2001 and 2000, 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, $0.9 million and $0.9 million for the years ended December 31,
2002, 2001 and 2000, respectively. On May 31, 2002, TEPPCO Colorado was
transferred to TEPPCO Midstream.

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

In August 2000, we entered into agreements with PEPL and Marathon to form
Centennial (see Note 5. Equity Investments). At December 31, 2002, we had a
one-third 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 the year ended December 31, 2002,
we recognized management fees of $0.2 million from Centennial, and actual
operating expenses billed to Centennial were $0.3 million. We also have a
joint tariff with Centennial to deliver products at our locations using
Centennials pipelines 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, 2002, we have a payable balance of $1.0 million to
Centennial for its share of the joint tariff deliveries. In addition, we
perform ongoing construction services for Centennial and bill Centennial for
labor and other costs to perform the construction. At December 31, 2002, we
have a receivable of $1.9 million due from Centennial for reimbursement of
construction services provided to Centennial.

NOTE 7. OTHER CURRENT ASSETS

The major components of other current assets were as follows:

|                                            |       |   |                |        |      |   |       |        | 
|------------------------------------------- | ----- | - | -------------- | ------ | ---- | - | ----- | ------ | 
|                                            |       |   | December 31,  
|                                            |       |   |               
|                                            |       |   | 2002           |        | 2001
|                                            |       |   |                |        |     
|                                            |       |   | (in thousands)
|Interest receivable from interest rate swap |       | $ | 3,986          |        |      | $ | 1,768 |       
|Reimbursable receivables                    |       |   | 3,508          |        |      |   | 7,539 |       
|Prepaid insurance and other                 |       |   | 2,308          |        |      |   | 1,438 |       
|Insurance receivable                        |       |   | 1,133          |        |      |   |      |       
|Short-term investments                      |       |   | 750            |        |      |   | 250   |       
|Other                                       |       |   | 254            |        |      |   | 74    |       
|                                            |       |   |                |        |      |   |       |       
|                                            | Total |   | $              | 11,939 |      |   | $     | 11,069 | 
|                                            |       |   |                |        |      |   |       |       

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

NOTE 8. INVENTORIES

Inventories are valued at the lower of cost (based on weighted average
cost method) or market. The major components of inventories were as follows:

|                       |       |   |                |        |      |   |       |        | 
|---------------------- | ----- | - | -------------- | ------ | ---- | - | ----- | ------ | 
|                       |       |   | December 31,  
|                       |       |   |               
|                       |       |   | 2002           |        | 2001
|                       |       |   |                |        |     
|                       |       |   | (in thousands)
|Gasolines              |       | $ | 4,700          |        |      | $ | 3,670 |       
|Propane                |       |   |               |        |      |   | 1,096 |       
|Butanes                |       |   | 1,991          |        |      |   | 1,431 |       
|Transmix               |       |   | 2,526          |        |      |   | 878   |       
|Other products         |       |   | 845            |        |      |   | 23    |       
|Materials and supplies |       |   | 3,738          |        |      |   | 3,519 |       
|                       |       |   |                |        |      |   |       |       
|                       | Total |   | $              | 13,800 |      |   | $     | 10,617 | 
|                       |       |   |                |        |      |   |       |       

The costs of inventories did not exceed market values at December 31, 2002
and 2001.

NOTE 9. PROPERTY, PLANT AND EQUIPMENT

Major categories of property, plant and equipment were as follows:

|                              |                                                |                                   |         |                |         |      |         |         |         | 
|----------------------------- | ---------------------------------------------- | --------------------------------- | ------- | -------------- | ------- | ---- | ------- | ------- | ------- | 
|                              |                                                |                                   |         | December 31,  
|                              |                                                |                                   |         |               
|                              |                                                |                                   |         | 2002           |         | 2001
|                              |                                                |                                   |         |                |         |     
|                              |                                                |                                   |         | (in thousands)
|Land and right of way         |                                                | $                                 | 33,724  |                |         | $    | 33,838  |        
|Line pipe and fittings        |                                                |                                   | 570,229 |                |         |      | 537,176 |        
|Storage tanks                 |                                                |                                   | 116,215 |                |         |      | 106,001 |        
|Buildings and improvements    |                                                |                                   | 9,046   |                |         |      | 8,547   |        
|Machinery and equipment       |                                                |                                   | 215,973 |                |         |      | 181,053 |        
|Construction work in progress |                                                |                                   | 62,119  |                |         |      | 94,225  |        
|                              |                                                |                                   |         |                |         |      |         |        
|                              | Total property, plant and equipment            |                                   | $       | 1,007,306      |         |      | $       | 960,840 |        
|                              | Less accumulated depreciation and amortization |                                   |         | 284,458        |         |      |         | 263,662 |        
|                              |                                                |                                   |         |                |         |      |         |        
|                              |                                                | Net property, plant and equipment |         | $              | 722,848 |      |         | $       | 697,178 | 
|                              |                                                |                                   |         |                |         |      |         |        

Depreciation expense on property, plant and equipment was $30.1 million,
$26.7 million and $25.7 million for the years ended December 31, 2002, 2001 and
2000, respectively.

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

NOTE 10. OTHER CURRENT LIABILITIES

The major components of other current liabilities were as follows:

|                                    |       |   |                |        |      |   |       |        | 
|----------------------------------- | ----- | - | -------------- | ------ | ---- | - | ----- | ------ | 
|                                    |       |   | December 31,  
|                                    |       |   |               
|                                    |       |   | 2002           |        | 2001
|                                    |       |   |                |        |     
|                                    |       |   | (in thousands)
|Compensation accruals               |       | $ | 5,355          |        |      | $ | 4,506 |       
|Vacation and payroll accruals       |       |   | 3,162          |        |      |   | 2,729 |       
|Inventory payables                  |       |   | 2,384          |        |      |   | 155   |       
|Current portion of deferred revenue |       |   | 1,153          |        |      |   | 460   |       
|Retainage                           |       |   | 408            |        |      |   | 1,153 |       
|Other                               |       |   | 3,546          |        |      |   | 1,201 |       
|                                    |       |   |                |        |      |   |       |       
|                                    | Total |   | $              | 16,008 |      |   | $     | 10,204 | 
|                                    |       |   |                |        |      |   |       |       

NOTE 11. LONG TERM 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.

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, 2002, 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.
See Note 4. Derivative Financial Instruments.

At December 31, 2002 and 2001, the estimated fair value of the Senior
Notes was approximately $385.8 million and $362.0 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.

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

On July 14, 2000, our Parent Partnership entered into a $75.0 million term
loan and a $475.0 million revolving credit facility (Three Year Facility) and
borrowed $75.0 million and $340.0 million, respectively, to finance the
acquisition of assets from ARCO Pipe Line Company, a wholly owned subsidiary of
Atlantic Richfield Company for $322.6 million. The acquired assets are held
through TCTM, L.P., a 99.999% owned entity of the Parent Partnership. On April
6, 2001, the Three Year Facility was amended to provide for revolving
borrowings of up to $500.0 million for a period of three years including the
issuance of letters of credit of up to $20.0 million. The interest rate is
based, at the 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 contains restrictive financial
covenants that require the Parent Partnership to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA (earnings before interest
expense, income tax expense and depreciation and amortization expense) and
minimum fixed charge coverage ratios. On June 27, 2002, the Three Year Facility
was amended to increase the maximum debt-to-EBITDA ratio covenant to allow the
Parent Partnership to incur additional indebtedness to finance a portion of the
purchase price of the acquisition of Val Verde from Burlington Resources
Gathering Inc., a subsidiary of Burlington Resources Inc. On June 27, 2002,
the Parent Partnership drew down the existing capacity of the Three Year
Facility. During the fourth quarter of 2002, the Parent Partnership repaid
$68.0 million of the outstanding balance of the Three Year Facility with
proceeds from its November and December 2002 equity offerings. At December 31,
2002, $432.0 million was outstanding under the Three Year Facility.

On April 6, 2001, the Parent Partnership entered into a 364-day, $200.0
million revolving credit agreement (Short-term Revolver). The interest rate
is based, at the 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 contains restrictive financial covenants that require the
Parent Partnership to maintain a minimum level of partners capital as well as
maximum debt-to-EBITDA and minimum fixed charge coverage ratios. On March 28,
2002, the Short-term Revolver was extended for an additional period of 364
days, ending in March 2003. On June 27, 2002, the Short-term Revolver was
amended to increase the maximum debt-to-EBITDA ratio covenant to allow the
Parent Partnership to incur additional indebtedness to finance a portion of the
Val Verde acquisition. On June 27, 2002, the Parent Partnership drew down
$72.0 million under the Short-term Revolver to finance a portion of the Val
Verde acquisition. In the fourth quarter of 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 November and
December 2002. At December 31, 2002, no amounts were outstanding under this
facility. In February 2003, our Parent Partnership gave notice that it will
not renew the Short-term Revolver. As a result, the facility will expire on
March 27, 2003.

As of December 31, 2002 and 2001, we had intercompany notes payable to our
Parent Partnership of $154.1 million and $117.9 million, respectively. At
December 31, 2001, $72.5 million, included in current liabilities, related to
our borrowings under the Parent Partnerships Short-term Revolver described
above. Our long-term portion at December 31, 2001, totaled $45.4 million and
represented borrowings under the Parent Partnerships Three Year Facility.
During the year ended December 31, 2002, the Parent Partnership issued $500.0
million principal amount of 7.625% Senior Notes due 2012. The Parent
Partnership used a portion of the proceeds to repay the Short-term Revolver.
Thus, at December 31, 2002, no amounts were included in current liabilities as
our portion of the Short-term Revolver had been repaid. Our long-term portion
at December 31, 2002, totaled $154.1 million and represents borrowings by us
under the Parent Partnerships Three Year Facility and Senior Notes described
above. The interest rate on the note payable, Parent Partnership at December
31, 2002, was 5.3%. At December 31, 2002, accrued interest includes $4.1
million due to the Parent Partnership. For the year ended December 31, 2002,
interest costs incurred on the note payable, Parent Partnership totaled $7.2
million.

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

NOTE 12. 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.

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 13. 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. Prior to the restructuring of the General Partner interest on July
26, 2001, distributions were paid 98.9899% to the Parent Partnership and
1.0101% to the Company. Subsequent to July 26, 2001, distributions are made
99.999% to the Parent Partnership and 0.001% to the General Partner.

For the years ended December 31, 2002, 2001 and 2000, cash distributions
totaled $94.9 million, $80.9 million and $70.8 million, respectively. The
distribution increases reflect our success in improving cash flow levels. On
February 7, 2003, we paid a cash distribution of $24.5 million for the quarter
ended December 31, 2002.

NOTE 14. 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. 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 as discussed in 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. Options may also be exercised by normal means once
vesting requirements are met. A summary of Performance Units and Parent LPU
options granted under the terms of the 1994 LTIP is presented below:

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

|                         |      |  |             |        |           |  |            |       |  |  |  |      | 
|------------------------ | ---- |  | ----------- | ------ | --------- |  | ---------- | ----- |  |  |  | ---- | 
|                         |      |  | Performance |        | Earnings  |  | Expiration
|                         |      |  | Units       |        | Threshold |  | Year      
|                         |      |  |             |        |           |  |           
|Performance Unit Grants: |      |  |             |        |           |  |            |       |  |  |  |     
|                         | 1994 |  |             | 80,000 |           |  | $          | 1.00  |  |  |  | 2006 | 
|                         | 1995 |  |             | 70,000 |           |  | $          | 1.25  |  |  |  | 2007 | 
|                         | 1997 |  |             | 11,100 |           |  | $          | 1.875 |  |  |  | 2009 | 

|                    |                                  |                    |  |             |         |             |  |          |         |   |   |              |              | 
|------------------- | -------------------------------- | ------------------ |  | ----------- | ------- | ----------- |  | -------- | ------- | - | - | ------------ | ------------ | 
|                    |                                  |                    |  | Options     |         | Options     |  | Exercise
|                    |                                  |                    |  | Outstanding |         | Exercisable |  | Range   
|                    |                                  |                    |  |             |         |             |  |         
|Parent LPU Options: |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                    | Outstanding at December 31, 1999 |                    |  | 338,796     |         |             |  | 99,096   |         |   | $ | 13.81-$25.69 |             
|                    |                                  | Forfeited          |  |             | (28,000 | )           |  |          | (4,000  | ) |   | $            | 25.25-$25.69 | 
|                    |                                  | Became exercisable |  |             |        |             |  |          | 85,365  |   |   | $            | 21.66-$25.69 | 
|                    |                                  | Exercised          |  |             | (19,932 | )           |  |          | (19,932 | ) |   | $            | 13.81-$14.34 | 
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                    | 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 |             
|                    |                                  | Forfeited          |  |             |        |             |  |          |        |   |   | $            | 25.25        | 
|                    |                                  | 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 |             
|                    |                                  |                    |  |             |         |             |  |          |         |   |   |             

Our Parent Partnership has not granted options for any periods presented.
For options 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 totaled $5,570, $118,820 and $202,634 during the years ended
December 31, 2002, 2001 and 2000, respectively. The disclosures as required by
SFAS 123 are not representative of the effects on pro forma net income for
future years as options vest over several years and additional awards may be
granted in subsequent years.

For purposes of determining compensation costs using the provisions of
SFAS 123, the fair value of option grants was determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options were:

|                        |  |         |     |  
|----------------------- |  | ------- | --- | -
|Risk-free interest rate |  |         | 4.7 | %
|Dividend yield          |  |         | 7.6 | %
|Unit price volatility   |  |         | 23  | %
|Expected option lives   |  | 6 years

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

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

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 58,800 phantom units have been granted
under the 1999 PURP, of which 30,330 remain outstanding at December 31, 2002.
A total of 71,400 phantom units have been granted under the 2002 PURP, of which
all 71,400 remain outstanding at December 31, 2002. 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 as discussed in Note 2. Summary of Significant Accounting Policies.

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. The performance percentage may not exceed
150%. 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, 2002, phantom Parent LPUs outstanding were 22,300, 24,103 and
18,425 for awards granted in 2002, 2001 and 2000, 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. Average asset base means the
quarterly average, during the performance period, of its gross value of
property, plant and equipment, plusproducts and crude oil linefill and the
gross value of intangibles and equity investments. The Parent Partnerships
cost of capital is approved by the 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 maximum potential
payout under the 2000 LTIP is 150% of phantom units awarded. 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 as
discussed in Note 2. Summary of Significant Accounting Policies.

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

NOTE 15. LEASES

We utilize leased assets in several areas of our operations. Total rental
expense during the years ended December 31, 2002, 2001, and 2000 was $8.5
million, $7.1 million and $6.3 million, respectively. The following table sets
forth our minimum rental payments under our various operating leases for the
years ending December 31 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 5,884  | 
|2004       |  |   | 5,439  | 
|2005       |  |   | 4,949  | 
|2006       |  |   | 3,950  | 
|2007       |  |   | 847    | 
|Thereafter |  |   | 240    | 
|           |  |   |        | 
|           |  | $ | 21,309 | 
|           |  |   |        | 

NOTE 16. EMPLOYEE BENEFITS

Retirement Plans

Prior to the transfer of the General Partner interest from Duke Energy to
DEFS on April 1, 2000, the Companys employees participated in the Duke Energy
Retirement Cash Balance Plan (Duke Energy RCBP), which is a noncontributory,
trustee-administered pension plan. In addition, certain executive officers
participated in the Duke Energy Executive Cash Balance Plan (Duke Energy
ECBP), which is a noncontributory, nonqualified, defined benefit retirement
plan. The Duke Energy ECBP was established to restore benefit reductions caused
by the maximum benefit limitations that apply to qualified plans. Effective
January 1, 1999, the benefit formula for all eligible employees was 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. As part of the
change in ownership, the Company is no longer responsible for the funding of
the liabilities associated with these plans.

Effective April 1, 2000, the Company adopted the TEPPCO Retirement Cash
Balance Plan (TEPPCO RCBP) and the TEPPCO Supplemental Benefit Plan (TEPPCO
SBP). The benefits and provisions of these plans are substantially identical
to the Duke Energy RCBP and the Duke Energy ECBP previously in effect prior to
April 1, 2000.

The components of net pension benefits costs allocated to us for the
TEPPCO RCBP and the TEPPCO SBP for the years ended December 31, 2002, 2001 and
2000, and for the Duke Energy RCBP and the Duke Energy ECBP for the year ended
December 31, 2000 were as follows (in thousands):

|                                              |                            |   |       |       |      |   |       |       |  |   |       |       | 
|--------------------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                              |                            |   | 2002  |       | 2001 |   | 2000 
|                                              |                            |   |       |       |      |   |      
|Service cost benefit earned during the year   |                            | $ | 1,957 |       |      | $ | 1,833 |       |  | $ | 1,630 |      
|Interest cost on projected benefit obligation |                            |   | 221   |       |      |   | 100   |       |  |   | 764   |      
|Expected return on plan assets                |                            |   | (291  | )     |      |   | (128  | )     |  |   | (640  | )    
|Amortization of prior service cost            |                            |   | 7     |       |      |   | 8     |       |  |   |      |      
|Amortization of net transition liability      |                            |   |      |       |      |   |      |       |  |   | 4     |      
|Recognized net actuarial loss                 |                            |   | 7     |       |      |   |      |       |  |   |      |      
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      
|                                              | Net pension benefits costs |   | $     | 1,901 |      |   | $     | 1,813 |  |   | $     | 1,758 | 
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      

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

Other Postretirement Benefits

Prior to April 1, 2000, the Companys employees were provided with certain
health care and life insurance benefits for retired employees on a contributory
and non-contributory basis through Duke Energy (Duke Energy OPB). Employees
became eligible for these benefits if they had met certain age and service
requirements at retirement, as defined in the plans. As part of the change in
ownership, the Company is no longer responsible for the funding of the
liabilities associated with these plans. Effective January 1, 2001, the
Company provided its own plan for health care benefits for retired employees
(TEPPCO OPB).

The Company provides a fixed dollar contribution towards retired employee
medical costs. The fixed dollar contribution does not increase from year to
year. The retiree pays all health care cost increases due to medical
inflation.

The components of net postretirement benefits cost allocated to us for the
Duke Energy OPB for the year ended December 31, 2000, and for the TEPPCO OPB
for the years ended December 31, 2002 and 2001, were as follows (in thousands):

|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |    | 
|-------------------------------------------------------------- | --------------------------------- | - | ---- | --- | ---- | - | ---- | --- |  | - | --- | -- | 
|                                                               |                                   |   | 2002 |     | 2001 |   | 2000
|                                                               |                                   |   |      |     |      |   |     
|Service cost benefit earned during the year                    |                                   | $ | 75   |     |      | $ | 72   |     |  | $ | 39  |   
|Interest cost on accumulated postretirement benefit obligation |                                   |   | 101  |     |      |   | 100  |     |  |   | 134 |   
|Expected return on plan assets                                 |                                   |   |     |     |      |   |     |     |  |   | (85 | ) 
|Amortization of prior service cost                             |                                   |   | 112  |     |      |   | 112  |     |  |   | (96 | ) 
|Amortization of net transition liability                       |                                   |   |     |     |      |   |     |     |  |   | 54  |   
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |   
|                                                               | Net postretirement benefits costs |   | $    | 288 |      |   | $    | 284 |  |   | $   | 46 | 
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |   

The weighted average assumptions used in the actuarial computations for
the retirement plans and other postretirement benefit plans for the years ended
December 31, 2002 and 2001 are as follows:

|                                                 |  |                  |  |          |  |  |      |   |  |      |      |      |  |                      |  |  |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- |  | -------- |  |  | ---- | - |  | ---- | ---- | ---- |  | -------------------- |  |  |  |  | ---- | - |  |  | ---- | -
|                                                 |  |                  |  |          |  |  |      |   |  |      |      |      |  | Other Postretirement
|                                                 |  | Pension Benefits |  | Benefits
|                                                 |  |                  |  |         
|                                                 |  | 2002             |  | 2001     |  |  |      |   |  | 2002 |      | 2001
|                                                 |  |                  |  |          |  |  |      |   |  |      |      |     
|Discount rate                                    |  |                  |  |          |  |  | 6.75 | % |  |      | 7.25 | %    |  |                      |  |  |  |  | 6.75 | % |  |  | 7.25 | %
|Increase in compensation levels                  |  |                  |  |          |  |  | 5.00 | % |  |      | 5.06 | %    |  |                      |  |  |  |  |     |   |  |  |     |  
|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 Companys pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets and funded status as of December 31, 2002 and 2001 (in thousands):

|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|------------------------------- | ---------------------------------------------- |  | ---------------- | ----- | -------- |  | ---- | ----- | ---- |  | -------------------- | ------ | - |  | - | ------ | -
|                                |                                                |  |                  |       |          |  |      |       |      |  | Other Postretirement
|                                |                                                |  | Pension Benefits |       | Benefits
|                                |                                                |  |                  |       |         
|                                |                                                |  | 2002             |       | 2001     |  | 2002 |       | 2001
|                                |                                                |  |                  |       |          |  |      |       |     
|Change in benefit obligation    |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Benefit obligation at beginning of year        |  | $                | 2,900 |          |  | $    | 1,144 |      |  | $                    | 1,563  |   |  | $ |       |  
|                                | Transfers to Parent Partnership subsidiary (1) |  |                  | (84   | )        |  |      |      |      |  |                      | (12    | ) |  |   |       |  
|                                | Service cost                                   |  |                  | 1,957 |          |  |      | 1,833 |      |  |                      | 75     |   |  |   | 72     |  
|                                | Interest cost                                  |  |                  | 221   |          |  |      | 100   |      |  |                      | 101    |   |  |   | 100    |  
|                                | Plan amendments                                |  |                  |      |          |  |      | 62    |      |  |                      |       |   |  |   | 1,336  |  
|                                | Actuarial (gain)/loss                          |  |                  | 359   |          |  |      | (88   | )    |  |                      | (24    | ) |  |   | 52     |  
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 24     |   |  |   | 7      |  
|                                | Benefits paid                                  |  |                  | (122  | )        |  |      | (151  | )    |  |                      | (36    | ) |  |   | (4     | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|                                | Benefit obligation at end of year              |  | $                | 5,231 |          |  | $    | 2,900 |      |  | $                    | 1,691  |   |  | $ | 1,563  |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|Change in plan assets           |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Fair value of plan assets at beginning of year |  | $                | 3,041 |          |  | $    |      |      |  | $                    |       |   |  | $ |       |  
|                                | Transfer to Parent Partnership subsidiary (1)  |  |                  | (61   | )        |  |      |      |      |  |                      |       |   |  |   |       |  
|                                | Actual return on plan assets                   |  |                  | (71   | )        |  |      | (29   | )    |  |                      |       |   |  |   |       |  
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 24     |   |  |   | 7      |  
|                                | Employer contributions                         |  |                  | 2,080 |          |  |      | 3,221 |      |  |                      | 12     |   |  |   | (3     | )
|                                | Benefits paid                                  |  |                  | (122  | )        |  |      | (151  | )    |  |                      | (36    | ) |  |   | (4     | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|                                | Fair value of plan assets at end of year       |  | $                | 4,867 |          |  | $    | 3,041 |      |  | $                    |       |   |  | $ |       |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|Reconciliation of funded status |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Funded status                                  |  | $                | (364  | )        |  | $    | 141   |      |  | $                    | (1,691 | ) |  | $ | (1,563 | )
|                                | Unrecognized prior service cost                |  |                  | 47    |          |  |      | 54    |      |  |                      | 1,113  |   |  |   | 1,224  |  
|                                | Unrecognized actuarial loss                    |  |                  | 783   |          |  |      | 69    |      |  |                      | 28     |   |  |   | 52     |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|                                | Net amount recognized                          |  | $                | 466   |          |  | $    | 264   |      |  | $                    | (550   | ) |  | $ | (287   | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  



---

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

Other Plans

DEFS also sponsors an employee savings plan, which covers substantially
all employees. Plan contributions on behalf of the Company of $2.6 million,
$2.1 million and $1.6 million were expensed during the years ended December 31,
2002, 2001 and 2000, respectively.

NOTE 17. COMMITMENTS AND CONTINGENCIES

In the fall of 1999 and on December 1, 2000, the Company and the
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 Partnership) and Gilbert Richards and Jean Richards v. Texas Eastern
Corporation, et. al.(including the Company and Partnership).In both cases,
the plaintiffs contend, among other things, that we and other defendants stored
and disposed of toxic

F-24



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##### Table of Contents



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

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 they are seeking in the suit. 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 plaintiffs
property, leaked toxic products onto the plaintiffs property. The plaintiffs
further contend that this leak caused damages to the plaintiffs. We have filed
an answer to the plaintiffs petition denying the allegations. The plaintiffs
have not stipulated the amount of damages they are seeking in the suit. We are
defending ourself vigorously against the lawsuit. We cannot estimate the
damages, if any, associated with this pending lawsuit however, this case is
covered by insurance.

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 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, we entered into an Agreed Order with the Indiana Department of
Environmental Management (IDEM) that resulted in the implementation of a
remediation program for groundwater contamination attributable to our
operations at the Seymour, Indiana, terminal. In 1999, the IDEM approved a
Feasibility Study, which includes our proposed remediation program. We expect
the IDEM to issue a Record of Decision formally approving the remediation
program. After the Record of Decision is issued, we will enter into a
subsequent Agreed Order for the continued operation and maintenance of the
remediation program. We have an accrued liability of $0.4 million at December
31, 2002, for future remediation costs at the Seymour terminal. 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.

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
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 containment phase. At
December 31, 2002, we have an accrued liability of $0.2 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program that we have proposed will have a future material adverse
effect on our financial position, results of operations or cash flows.

F-25



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##### Table of Contents



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

Centennial entered into credit facilities totaling $150.0 million, and as
of December 31, 2002, $150.0 million was outstanding under those credit
facilities. The proceeds were used to fund construction and conversion costs
of its pipeline system. Each of the participants in Centennial, including us,
originally guaranteed one-third of Centennials debt up to a maximum amount of
$50.0 million. During the third quarter of 2002, PEPL, one of the participants
in Centennial, was downgraded by Moodys and Standard & Poors to below
investment grade, which resulted in PEPL being in default under its portion of
the Centennial guaranty. Effective September 27, 2002, we and Marathon
increased our guaranteed amounts to one-half of the debt of Centennial, up to a
maximum amount of $75.0 million each, to avoid a default on the Centennial
debt. As compensation to us and Marathon for providing our additional
guarantees, PEPL was required to pay interest at a rate of 4% per annum to each
of us and Marathon on the portion of the additional guaranty that we had
provided for PEPL.

On February 20, 2002, our Parent Partnership issued $500.0 million
principal amount of 7.625% Senior Notes due 2012. We and the Parent
Partnerships other significant operating subsidiaries, which include TCTM,
L.P., TEPPCO Midstream and Jonah Gas Gathering Company, issued guarantees of
this debt. On June 30, 2002, the Parent Partnership acquired Val Verde through
its subsidiary, Val Verde Gas Gathering Company, L.P., which also issued an
unconditional guarantee of the Parent Partnerships debt securities. The
guarantees are full, unconditional and joint and several. The proceeds from
the offering of the $500.0 million principal amount of 7.625% Senior Notes were
used to reduce the outstanding balances of the Parent Partnerships credit
facilities.

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus Plastics Corporation, now known as Louis Dreyfus
Energy Services, L.P. (Louis Dreyfus), in which our Mont Belvieu LPGs storage
and transportation shuttle system services were 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. Under the alliance, Louis Dreyfus invested $6.1
million for expansion projects at Mont Belvieu. The alliance also stipulated
that if certain earnings thresholds were achieved, a partnership between us and
Louis Dreyfus was to be created effective January 1, 2003. All terms and
earnings thresholds have been met; therefore, we will be contributing our Mont
Belvieu assets to the newly formed partnership. The economic terms of the
partnership are the same as those under the joint development and marketing
alliance. We will continue to operate the facilities for the partnership. The
net book value of the Mont Belvieu assets and liabilities that we are
contributing to the partnership is approximately $68.2 million. Our interest
in the partnership will be accounted for as an equity investment.

Rates of interstate refined petroleum products pipeline companies, like
us, are currently regulated by the FERC primarily through an index methodology,
whereby a pipeline is allowed 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. In the alternative, interstate refined 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 the refined petroleum products pipeline
company that the rate is acceptable (Settlement 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 entered into a settlement agreement with the
protesting shippers resolving our 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,

F-26



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##### Table of Contents



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

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.

Substantially all of the petroleum products that we transport and store
are owned by our customers. At December 31, 2002, we had approximately 17.4
million barrels of products in our custody owned by customers. We are
obligated for the transportation, storage and delivery of such products on
behalf of our customers. We maintain insurance adequate to cover product
losses through circumstances beyond our control.

NOTE 18. 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, 2001 and 2000
(in thousands):

|                                      |                  |   |              |       |      |   |        |       |  |   |        |       | 
|------------------------------------- | ---------------- | - | ------------ | ----- | ---- | - | ------ | ----- |  | - | ------ | ----- | 
|                                      |                  |   | Years Ended 
|                                      |                  |   | December 31,
|                                      |                  |   |             
|                                      |                  |   | 2002         |       | 2001 |   | 2000  
|                                      |                  |   |              |       |      |   |       
|Revenues                              |                  | $ | 3,115        |       |      | $ | 7,394  |       |  | $ | 7,453  |      
|Operating, general and administrative |                  |   | 369          |       |      |   | 880    |       |  |   | 880    |      
|Depreciation and amortization         |                  |   | 840          |       |      |   | 2,015  |       |  |   | 2,015  |      
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      
|                                      | Operating income |   |              | 1,906 |      |   |        | 4,499 |  |   |        | 4,558 | 
|Interest expense                      |                  |   | (1,015       | )     |      |   | (2,899 | )     |  |   | (3,044 | )    
|Other income  net                    |                  |   | 21           |       |      |   | 74     |       |  |   | 237    |      
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      
|                                      | Net income       |   | $            | 912   |      |   | $      | 1,674 |  |   | $      | 1,751 | 
|                                      |                  |   |              |       |      |   |        |       |  |   |        |      

F-27



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##### Table of Contents



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

Assets and liabilities from discontinued operations at December 31, 2001,
are presented in the table below (in thousands):

|                                                               |                   |   |              |        | 
|-------------------------------------------------------------- | ----------------- | - | ------------ | ------ | 
|                                                               |                   |   | December 31,
|                                                               |                   |   | 2001        
|                                                               |                   |   |             
|Cash                                                           |                   | $ | 3,073        |       
|Accounts receivable, trade                                     |                   |   | 1            |       
|Property, plant and equipment, net                             |                   |   | 1,625        |       
|Intangible assets                                              |                   |   | 31,099       |       
|                                                               |                   |   |              |       
|                                                               | Total assets      |   | $            | 35,798 | 
|                                                               |                   |   |              |       
|Accounts payable, Texas Eastern Products Pipeline Company, LLC |                   | $ | 11           |       
|Other current liabilities                                      |                   |   | 1,473        |       
|Note payable, Parent Partnership                               |                   |   | 31,882       |       
|                                                               |                   |   |              |       
|                                                               | Total liabilities |   | $            | 33,366 | 
|                                                               |                   |   |              |       
|                                                               | Net assets        |   | $            | 2,432  | 
|                                                               |                   |   |              |       

NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (1)

|                                      |  |                |        |         |  |         |        |         |  |   |        |  |  |   |        | 
|------------------------------------- |  | -------------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | 
|                                      |  | First          |        | Second  |  | Third   |        | Fourth 
|                                      |  | Quarter        |        | Quarter |  | Quarter |        | Quarter
|                                      |  |                |        |         |  |         |        |        
|                                      |  | (in thousands)
|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 | 
|2001                                  |  |                |        |         |  |         |        |         |  |   |        |  |  |   |        | 
|Operating revenues                    |  | $              | 62,301 |         |  | $       | 78,546 |         |  | $ | 58,527 |  |  | $ | 64,859 | 
|Operating income                      |  |                | 28,281 |         |  |         | 41,314 |         |  |   | 22,069 |  |  |   | 26,014 | 
|Income before discontinued operations |  |                | 20,949 |         |  |         | 34,009 |         |  |   | 15,025 |  |  |   | 21,039 | 
|Income from discontinued operations   |  |                | 406    |         |  |         | 528    |         |  |   | 405    |  |  |   | 335    | 
|Net income                            |  |                | 21,355 |         |  |         | 34,537 |         |  |   | 15,430 |  |  |   | 21,374 | 



---

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

NOTE 20. SUBSEQUENT EVENTS

On January 30, 2003, the Parent Partnership issued $200.0 million
principal amount of 6.125% Senior Notes due 2013. We and the Parent
Partnerships other significant operating subsidiaries issued guarantees of
this debt. The guarantees are full, unconditional and joint and several. The
proceeds from the offering were used to reduce the outstanding principal on the
Parent Partnerships revolving credit facilities.

F-28



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##### Table of Contents



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

In January 2003, we entered into a pipeline capacity lease agreement with
Centennial for a period of five years. On February 10, 2003, we acquired an
additional interest in Centennial from PEPL for $20.0 million, increasing our
percentage ownership in Centennial to 50%. Upon closing of the acquisition, we
and Marathon each own a 50% ownership interest in Centennial. In connection
with the acquisition of the additional interest in Centennial, the guaranty
agreement between us, Marathon and PEPL was terminated. Our guaranty of up to
a maximum of $75.0 million of Centennials debt remains in effect.

F-29



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##### Table of Contents



INDEPENDENT AUDITORS REPORT ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

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

Under date of January 22, 2003, except as to note 20 which is as of
February 10, 2003, we reported on the consolidated balance sheets of TE
Products Pipeline Company, Limited Partnership as of December 31, 2002 and
2001, and the related consolidated statements of income, partners capital, and
cash flows for each of the years in the three-year period ended December 31,
2002. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule. This consolidated financial statement schedule is the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on the consolidated financial statement schedule based on
our audits.

In our opinion, the consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.



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

Houston, Texas
January 22, 2003

S-1



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##### Table of Contents



SCHEDULE II
TE PRODUCTS PIPELINE COMPANY, LIMITED PARTNERSHIP
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(in thousands)

|                                 |  |              |        |            |  |                |        |        |  |            |       |  |  |   |        |  
|-------------------------------- |  | ------------ | ------ | ---------- |  | -------------- | ------ | ------ |  | ---------- | ----- |  |  | - | ------ | -
|                                 |  | Balance at   |        | Charged to |  |                |        |        |  | Balance at
|                                 |  | Beginning of |        | Costs and  |  | Deductions and |        | End of
|                                 |  | Period       |        | Expenses   |  | Other          |        | Period
|                                 |  |              |        |            |  |                |        |       
|Environmental Reserve:           |  |              |        |            |  |                |        |        |  |            |       |  |  |   |        |  
|Year Ended December 31, 2000     |  | $            | (1,055 | )          |  | $              | (497   | )      |  | $          | 887   |  |  | $ | (665   | )
|Year Ended December 31, 2001     |  |              | (665   | )          |  |                | (1,582 | )      |  |            | 1,025 |  |  |   | (1,222 | )
|Year Ended December 31, 2002     |  |              | (1,222 | )          |  |                | (2,901 | )      |  |            | 2,072 |  |  |   | (2,051 | )
|Allowance For Doubtful Accounts: |  |              |        |            |  |                |        |        |  |            |       |  |  |   |        |  
|Year Ended December 31, 2000     |  | $            |       |            |  | $              |       |        |  | $          |      |  |  | $ |       |  
|Year Ended December 31, 2001     |  |              |       |            |  |                |       |        |  |            |      |  |  |   |       |  
|Year Ended December 31, 2002     |  |              |       |            |  |                | (287   | )      |  |            |      |  |  |   | (287   | )

S-2



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##### Table of Contents






INDEX TO EXHIBITS

|        |  |                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                    
|Number  |  | Description                                                                                        
|        |  |                                                                                                    
|23*     |  | Consent of KPMG LLC.                                                                               
|99.1*   |  | Certification of Chief Executive Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|99.2*   |  | Certification of Chief Financial Officer Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.



---

|* |  | Filed herewith.
|- |  | ---------------
|