UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,D.C.20549
 
 FORM
10-Q
 
 þ  QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
quarterly period ended June 30, 2009
 
 OR
 
 o  TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE
SECURITIES EXCHANGE ACT OF 1934
 
 For the
transition period from ___  to  ___.
 
 Commission
file number:  1-10403
 
 TEPPCO
Partners, L.P.
 (Exact
name of Registrant as Specified in Its Charter)
 
 Delaware
              76-0291058(State
      or Other Jurisdiction of
              (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)1100
      Louisiana Street, Suite 1600Houston,
      Texas 77002(Address
      of Principal Executive Offices, Including Zip Code)(713)
      381-3636(Registrant’s
      Telephone Number, Including Area Code)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
  Yes þ   No
o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
  Yes  ̈   No
 ̈
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
 
  Large
      accelerated filer þ
              Accelerated filer oNon-accelerated
      filer   o
      (Do not check if a smaller reporting company)
              Smaller
      reporting company o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
  Yes o   No
þ
 
 There
were 104,943,004 limited partner units, including 260,400 restricted units, of
TEPPCO Partners, L.P. outstanding at August 1, 2009.  These limited
partner units trade on the New York Stock Exchange under the ticker symbol
“TPP.”
  
  TEPPCO
PARTNERS, L.P.
 TABLE
OF CONTENTS
 
 Page
      No.PART
      I. FINANCIAL INFORMATION.Item
      1.
                        Financial
      Statements.Unaudited
      Condensed Consolidated Balance Sheets
                        
                        
                        2Unaudited
      Condensed Statements of Consolidated Income
                        
                        
                        3Unaudited
      Condensed Statements of Consolidated Comprehensive Income
                        
                        
                        4Unaudited
      Condensed Statements of Consolidated Cash Flows
                        
                        
                        5Unaudited
      Condensed Statements of Consolidated Partners’ Capital
                        
                        
                        6Notes
      to Unaudited Condensed Consolidated Financial Statements:1.  Partnership
      Organization and Basis of Presentation
                        
                        
                        72.  General
      Accounting Matters
                        
                        
                        83.  Accounting
      for Equity Awards
                        
                        
                        104.  Derivative
      Instruments and Hedging Activities
                        
                        
                        125.  Inventories
                        
                        
                        186.  Property,
      Plant and Equipment
                        
                        
                        187.  Investments
      in Unconsolidated Affiliates
                        
                        
                        198.  Business
      Combination
                        
                        
                        219.  Intangible
      Assets and Goodwill
                        
                        
                        2110.
      Debt Obligations
                        
                        
                        2211.
      Partners’ Capital and Distributions
                        
                        
                        2312.
      Business Segments
                        
                        
                        2613.
      Related Party Transactions
                        
                        
                        2814.
      Earnings Per Unit
                        
                        
                        3215.
      Commitments and Contingencies
                        
                        
                        3316.
      Supplemental Cash Flow Information
                        
                        
                        4017.
      Supplemental Condensed Consolidating Financial Information
                        
                        
                        4018.
      Subsequent Events
                        
                        
                        44Item
      2.
                        Management’s
      Discussion and Analysis of Financial Conditionand Results
      of Operations.
                        
                        
                        46Cautionary
      Note Regarding Forward-Looking Statements.
                        
                        
                        46Item
      3.
                        Quantitative
      and Qualitative Disclosures about Market Risk.
                        
                        
                        71Item
      4.
                        Controls
      and Procedures.
                        
                        
                        72PART
      II. OTHER INFORMATION.Item
      1.
                        Legal
      Proceedings.
                        
                        
                        73Item
      1A.
                        Risk
      Factors.
                        
                        
                        73Item
      5.
                        Other
      Information.
                        
                        
                        75Item
      6.
                        Exhibits.
                        
                        
                        77Signatures
                        
                        
                        79
   1
  PART
I.  FINANCIAL INFORMATION.
 
 Item
1.  Financial
Statements.
 
 TEPPCO
PARTNERS, L.P.
 UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
 (Dollars
in millions)
 
 June
      30,
                                          
                                          
                                          December
      31,ASSETS
                                          
                                          2009
                                          
                                          
                                          2008Current
      assets:Cash and cash equivalents
                                          
                                          $
                                          --
                                          
                                          
                                          $
                                          --Accounts receivable, trade (net of allowance for doubtful accounts
      of$2.6 at June 30, 2009 and $2.6 at December 31, 2008)
                                          
                                          
                                          984.8
                                          
                                          
                                          
                                          790.4Accounts receivable, related parties
                                          
                                          
                                          10.7
                                          
                                          
                                          
                                          15.8Inventories
                                          
                                          
                                          95.6
                                          
                                          
                                          
                                          52.9Other
                                          
                                          
                                          38.7
                                          
                                          
                                          
                                          48.5Total
      current assets
                                          
                                          
                                          1,129.8
                                          
                                          
                                          
                                          907.6Property, plant and equipment,
      at cost(net of accumulated depreciation of$729.9 at June 30, 2009 and $678.8 at December 31,
      2008)
                                          
                                          
                                          2,591.6
                                          
                                          
                                          
                                          2,439.9Investments
      in unconsolidated affiliates
                                          
                                          
                                          1,198.9
                                          
                                          
                                          
                                          1,255.9Intangible assets(net
      of accumulated amortization of $172.3 at
                                            June
      30, 2009 and $158.3 at December 31, 2008)
                                          
                                          
                                          195.1
                                          
                                          
                                          
                                          207.7Goodwill
                                          
                                          
                                          106.6
                                          
                                          
                                          
                                          106.6Other
      assets
                                          
                                          
                                          132.9
                                          
                                          
                                          
                                          132.1Total
      assets
                                          
                                          $
                                          5,354.9
                                          
                                          
                                          $
                                          5,049.8LIABILITIES
      AND PARTNERS’ CAPITALCurrent
      liabilities:Accounts payable and accrued liabilities
                                          
                                          $
                                          967.9
                                          
                                          
                                          $
                                          792.5Accounts payable, related parties
                                          
                                          
                                          40.9
                                          
                                          
                                          
                                          17.2Accrued interest
                                          
                                          
                                          36.0
                                          
                                          
                                          
                                          36.4Other accrued taxes
                                          
                                          
                                          21.0
                                          
                                          
                                          
                                          23.0Other
                                          
                                          
                                          21.1
                                          
                                          
                                          
                                          30.9Total
      current liabilities
                                          
                                          
                                          1,086.9
                                          
                                          
                                          
                                          900.0Long-term
      debt:Senior
      notes
                                          
                                          
                                          1,710.9
                                          
                                          
                                          
                                          1,713.3Junior
      subordinated notes
                                          
                                          
                                          299.6
                                          
                                          
                                          
                                          299.6Other
      long-term debt
                                          
                                          
                                          723.3
                                          
                                          
                                          
                                          516.7Total
      long-term debt
                                          
                                          
                                          2,733.8
                                          
                                          
                                          
                                          2,529.6Other
      liabilities and deferred credits
                                          
                                          
                                          27.8
                                          
                                          
                                          
                                          28.7Commitments
      and contingenciesPartners’
      capital:Limited
      partners’ interests:Limited partner units (104,682,604 units outstanding at June 30,
      2009
                                            and 104,547,561 units outstanding at December 31,
    2008)
                                          
                                          
                                          1,673.8
                                          
                                          
                                          
                                          1,746.2Restricted limited partner units (260,400 units outstanding
      at June 30,
                                            2009 and 157,300 units outstanding at December 31,
      2008)
                                          
                                          
                                          1.9
                                          
                                          
                                          
                                          1.4General partner’s interest
                                          
                                          
                                          (126.3
                                          )
                                          
                                          
                                          (110.3
                                          )Accumulated
      other comprehensive loss
                                          
                                          
                                          (43.0
                                          )
                                          
                                          
                                          (45.8
                                          )Total
      partners’ capital
                                          
                                          
                                          1,506.4
                                          
                                          
                                          
                                          1,591.5Total
      liabilities and partners’ capital
                                          
                                          $
                                          5,354.9
                                          
                                          
                                          $
                                          5,049.8
 
 
 
 
 
 
 
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  2
  TEPPCO
PARTNERS, L.P.
 UNAUDITED
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
 (Dollars
in millions, except per unit amounts)
 
 For
      the Three Months
                        
                        
                        For
      the Six MonthsEnded
      June 30,
                        
                        
                        Ended
      June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Operating
      revenues:Sales
      of petroleum products
                        
                        $
                        1,745.4
                        
                        
                        $
                        4,006.5
                        
                        
                        $
                        3,023.3
                        
                        
                        $
                        6,651.1Transportation
      – Refined products
                        
                        
                        41.1
                        
                        
                        
                        44.1
                        
                        
                        
                        77.0
                        
                        
                        
                        81.4Transportation
      – LPGs
                        
                        
                        17.5
                        
                        
                        
                        16.1
                        
                        
                        
                        55.8
                        
                        
                        
                        52.3Transportation
      – Crude oil
                        
                        
                        15.2
                        
                        
                        
                        17.4
                        
                        
                        
                        37.1
                        
                        
                        
                        32.7Transportation
      – NGLs
                        
                        
                        13.6
                        
                        
                        
                        12.7
                        
                        
                        
                        26.1
                        
                        
                        
                        25.7Transportation
      – Marine
                        
                        
                        43.7
                        
                        
                        
                        48.1
                        
                        
                        
                        80.6
                        
                        
                        
                        73.6Gathering
      – Natural gas
                        
                        
                        14.4
                        
                        
                        
                        14.8
                        
                        
                        
                        28.0
                        
                        
                        
                        28.2Other
                        
                        
                        22.3
                        
                        
                        
                        20.8
                        
                        
                        
                        42.9
                        
                        
                        
                        44.0Total
      operating revenues
                        
                        
                        1,913.2
                        
                        
                        
                        4,180.5
                        
                        
                        
                        3,370.8
                        
                        
                        
                        6,989.0Costs
      and expenses:Purchases
      of petroleum products
                        
                        
                        1,703.3
                        
                        
                        
                        3,975.7
                        
                        
                        
                        2,938.8
                        
                        
                        
                        6,582.3Operating
      expense
                        
                        
                        76.4
                        
                        
                        
                        66.5
                        
                        
                        
                        143.2
                        
                        
                        
                        120.3Operating
      fuel and power
                        
                        
                        17.9
                        
                        
                        
                        29.1
                        
                        
                        
                        37.6
                        
                        
                        
                        50.5General
      and administrative
                        
                        
                        15.8
                        
                        
                        
                        11.0
                        
                        
                        
                        25.8
                        
                        
                        
                        19.8Depreciation
      and amortization
                        
                        
                        36.8
                        
                        
                        
                        31.9
                        
                        
                        
                        69.8
                        
                        
                        
                        60.2Taxes
      – other than income taxes
                        
                        
                        7.1
                        
                        
                        
                        7.0
                        
                        
                        
                        14.0
                        
                        
                        
                        13.1Total
      costs and expenses
                        
                        
                        1,857.3
                        
                        
                        
                        4,121.2
                        
                        
                        
                        3,229.2
                        
                        
                        
                        6,846.2Operating
      income
                        
                        
                        55.9
                        
                        
                        
                        59.3
                        
                        
                        
                        141.6
                        
                        
                        
                        142.8Other
      income (expense):Interest
      expense
                        
                        
                        (32.3
                        )
                        
                        
                        (33.0
                        )
                        
                        
                        (64.4
                        )
                        
                        
                        (71.6
                        )Equity in
      income (loss) of unconsolidated affiliates
                        
                        
                        (12.2
                        )
                        
                        
                        21.3
                        
                        
                        
                        12.9
                        
                        
                        
                        41.0Other,
      net
                        
                        
                        0.7
                        
                        
                        
                        1.1
                        
                        
                        
                        1.0
                        
                        
                        
                        1.4Income
      before provision for income taxes
                        
                        
                        12.1
                        
                        
                        
                        48.7
                        
                        
                        
                        91.1
                        
                        
                        
                        113.6Provision
      for income taxes
                        
                        
                        (0.9
                        )
                        
                        
                        (1.0
                        )
                        
                        
                        (1.7
                        )
                        
                        
                        (1.8
                        )Net
      income
                        
                        $
                        11.2
                        
                        
                        $
                        47.7
                        
                        
                        $
                        89.4
                        
                        
                        $
                        111.8Net
      income allocated to:Limited
      partners
                        
                        $
                        9.3
                        
                        
                        $
                        39.7
                        
                        
                        $
                        74.3
                        
                        
                        $
                        93.1General
      partner
                        
                        $
                        1.9
                        
                        
                        $
                        8.0
                        
                        
                        $
                        15.1
                        
                        
                        $
                        18.7Basic
      and diluted earnings per unit
                        
                        $
                        0.09
                        
                        
                        $
                        0.42
                        
                        
                        $
                        0.71
                        
                        
                        $
                        0.99
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  3
  TEPPCO PARTNERS, L.P.
 UNAUDITED
CONDENSED STATEMENTS OF CONSOLIDATED
 COMPREHENSIVE
INCOME
 (Dollars
in millions)
 
 For
      the Three Months
                              
                              
                              For
      the Six MonthsEnded
      June 30,
                              
                              
                              Ended
      June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Net
      income
                              
                              $
                              11.2
                              
                              
                              $
                              47.7
                              
                              
                              $
                              89.4
                              
                              
                              $
                              111.8Other
      comprehensive income (loss):Cash
      flow hedges: (see Note 4)Change
      in fair values of interest rate derivative instruments
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              (23.2
                              )Reclassification
      adjustment for loss included in net incomerelated
      to interest rate derivative instruments
                              
                              
                              1.4
                              
                              
                              
                              --
                              
                              
                              
                              2.8
                              
                              
                              
                              (0.1
                              )Changes
      in fair values of commodity derivative instruments
                              
                              
                              --
                              
                              
                              
                              (20.6
                              )
                              
                              
                              --
                              
                              
                              
                              (27.1
                              )Reclassification
      adjustment for loss included in net incomerelated
      to commodity derivative instruments
                              
                              
                              --
                              
                              
                              
                              9.6
                              
                              
                              
                              --
                              
                              
                              
                              19.2Total
      cash flow hedges
                              
                              
                              1.4
                              
                              
                              
                              (11.0
                              )
                              
                              
                              2.8
                              
                              
                              
                              (31.2
                              )Total
      other comprehensive income (loss)
                              
                              
                              1.4
                              
                              
                              
                              (11.0
                              )
                              
                              
                              2.8
                              
                              
                              
                              (31.2
                              )Comprehensive
      income
                              
                              $
                              12.6
                              
                              
                              $
                              36.7
                              
                              
                              $
                              92.2
                              
                              
                              $
                              80.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  4
  TEPPCO
PARTNERS, L.P.
 UNAUDITED
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
 (Dollars
in millions)
 
 For
      the Six MonthsEnded
      June 30,2009
                                
                                
                                2008Operating
      activities:Net
      income
                                
                                $
                                89.4
                                
                                
                                $
                                111.8Adjustments
      to reconcile net income to cash provided by operating
      activities:Depreciation
      and amortization
                                
                                
                                69.8
                                
                                
                                
                                60.2Non-cash impairment charge
                                
                                
                                2.3
                                
                                
                                
                                --Amortization
      of deferred compensation
                                
                                
                                0.1
                                
                                
                                
                                0.7Amortization
      in interest expense
                                
                                
                                1.4
                                
                                
                                
                                2.2Changes
      in fair market value of derivative instruments
                                
                                
                                (0.4
                                )
                                
                                
                                (0.3
                                )Equity
      in income of unconsolidated affiliates
                                
                                
                                (12.9
                                )
                                
                                
                                (41.0
                                )Distributions
      received from unconsolidated affiliates
                                
                                
                                89.2
                                
                                
                                
                                79.3Loss
      on early extinguishment of debt
                                
                                
                                --
                                
                                
                                
                                8.7Net
      effect of changes in operating accounts (see Note 16)
                                
                                
                                (31.4
                                )
                                
                                
                                (57.5
                                )Net
      cash provided by operating activities
                                
                                
                                207.5
                                
                                
                                
                                164.1Investing
      activities:Cash
      used for business combinations
                                
                                
                                (50.0
                                )
                                
                                
                                (345.6
                                )Investment
      in Jonah Gas Gathering Company
                                
                                
                                (19.1
                                )
                                
                                
                                (64.5
                                )Investment
      in Texas Offshore Port System (see Note 7)
                                
                                
                                1.7
                                
                                
                                
                                --Acquisition
      of intangible assets
                                
                                
                                (1.4
                                )
                                
                                
                                (0.3
                                )Cash
      paid for linefill classified as other assets
                                
                                
                                (1.5
                                )
                                
                                
                                (14.5
                                )Capital
      expenditures
                                
                                
                                (164.3
                                )
                                
                                
                                (139.2
                                )Net
      cash used in investing activities
                                
                                
                                (234.6
                                )
                                
                                
                                (564.1
                                )Financing
      activities:Borrowings
      under debt agreements
                                
                                
                                759.3
                                
                                
                                
                                3,344.4Repayments
      of debt
                                
                                
                                (552.6
                                )
                                
                                
                                (2,732.9
                                )Net
      proceeds from issuance of limited partner units
                                
                                
                                3.3
                                
                                
                                
                                5.6Debt
      issuance costs
                                
                                
                                --
                                
                                
                                
                                (9.3
                                )Settlement
      of interest rate derivative instruments - treasury locks
                                
                                
                                --
                                
                                
                                
                                (52.1
                                )Acquisition
      of treasury units
                                
                                
                                (0.1
                                )
                                
                                
                                --Distributions
      paid to partners
                                
                                
                                (182.8
                                )
                                
                                
                                (155.7
                                )Net
      cash provided by financing activities
                                
                                
                                27.1
                                
                                
                                
                                400.0Net
      change in cash and cash equivalents
                                
                                
                                --
                                
                                
                                
                                --Cash
      and cash equivalents, January 1
                                
                                
                                --
                                
                                
                                
                                --Cash
      and cash equivalents, June 30
                                
                                $
                                --
                                
                                
                                $
                                --
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.
  5
  TEPPCO
PARTNERS, L.P.
 UNAUDITED
CONDENSED STATEMENTS OF
 CONSOLIDATED
PARTNERS’ CAPITAL
 (Dollars
in millions)
 
 AccumulatedOtherLimited
                                    
                                    
                                    General
                                    
                                    
                                    ComprehensivePartners
                                    
                                    
                                    Partner
                                    
                                    
                                    Income
      (Loss)
                                    
                                    
                                    TotalBalance,
      December 31, 2008
                                    
                                    $
                                    1,747.6
                                    
                                    
                                    $
                                    (110.3
                                    )
                                    
                                    $
                                    (45.8
                                    )
                                    
                                    $
                                    1,591.5Net
      proceeds from issuance of limited partner units
                                    
                                    
                                    3.3
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    3.3Acquisition
      of treasury units
                                    
                                    
                                    (0.1
                                    )
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (0.1
                                    )Net
      income
                                    
                                    
                                    74.3
                                    
                                    
                                    
                                    15.1
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    89.4Cash
      distributions paid to partners
                                    
                                    
                                    (151.8
                                    )
                                    
                                    
                                    (31.0
                                    )
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (182.8
                                    )Non-cash
      contributions
                                    
                                    
                                    0.3
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    0.3Amortization
      of equity awards
                                    
                                    
                                    2.1
                                    
                                    
                                    
                                    (0.1
                                    )
                                    
                                    
                                    --
                                    
                                    
                                    
                                    2.0Reclassification
      adjustment for loss included in netincome
      related to interest rate derivative instruments
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    2.8
                                    
                                    
                                    
                                    2.8Balance,
      June 30, 2009
                                    
                                    $
                                    1,675.7
                                    
                                    
                                    $
                                    (126.3
                                    )
                                    
                                    $
                                    (43.0
                                    )
                                    
                                    $
                                    1,506.4
 
 
 AccumulatedOtherLimited
                            
                            
                            General
                            
                            
                            ComprehensivePartners
                            
                            
                            Partner
                            
                            
                            Income
      (Loss)
                            
                            
                            TotalBalance,
      December 31, 2007
                            
                            $
                            1,395.2
                            
                            
                            $
                            (88.0
                            )
                            
                            $
                            (42.6
                            )
                            
                            $
                            1,264.6Net
      proceeds from issuance of limited partner units
                            
                            
                            5.6
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            5.6Issuance
      of limited partner units in connection with
                              Cenac
      acquisition on February 1, 2008
                            
                            
                            186.6
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            186.6Net
      income
                            
                            
                            93.1
                            
                            
                            
                            18.7
                            
                            
                            
                            --
                            
                            
                            
                            111.8Cash
      distributions paid to partners
                            
                            
                            (129.8
                            )
                            
                            
                            (25.9
                            )
                            
                            
                            --
                            
                            
                            
                            (155.7
                            )Non-cash
      contributions
                            
                            
                            0.3
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            0.3Amortization
      of equity awards
                            
                            
                            0.5
                            
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            0.5Changes
      in fair values of commodity derivativeinstruments
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (27.1
                            )
                            
                            
                            (27.1
                            )Reclassification
      adjustment for loss included in net
                              income
      related to commodity derivative instruments
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            19.2
                            
                            
                            
                            19.2Changes
      in fair values of interest rate derivativeinstruments
                            
                            
                            --
                            
                            
                            
                            --
                            
                            
                            
                            (23.2
                            )
                            
                            
                            (23.2
                            )Balance,
      June 30, 2008
                            
                            $
                            1,551.5
                            
                            
                            $
                            (95.2
                            )
                            
                            $
                            (73.7
                            )
                            
                            $
                            1,382.6
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 See Notes
to Unaudited Condensed Consolidated Financial Statements.





6
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








Except
per unit amounts, or as noted within the context of each footnote disclosure,
the dollar amounts presented in the tabular data within these footnote
disclosures are stated in millions.





Note
1.  Partnership Organization and Basis of Presentation





Partnership
Organization





TEPPCO Partners, L.P. is a publicly
traded, diversified energy logistics partnership with operations that span much
of the continental United States.  Our limited partner units (“Units”)
are listed on the New York Stock Exchange (“NYSE”) under the ticker symbol
“TPP”.  We were formed in March 1990 as a Delaware limited
partnership.  As used in this Report, “we,” “us,” “our,” the
“Partnership” and “TEPPCO” mean TEPPCO Partners, L.P. and, where the context
requires, include our subsidiaries.





We operate through TE Products Pipeline
Company, LLC (“TE Products”), TCTM, L.P. (“TCTM”), TEPPCO Midstream Companies,
LLC (“TEPPCO Midstream”), and beginning February 1, 2008, through TEPPCO Marine
Services, LLC (“TEPPCO Marine Services”). Texas Eastern Products Pipeline
Company, LLC (the “General Partner”), a Delaware limited liability company,
serves as our general partner and owns a 2% general partner interest in
us.  We hold a 99.999% limited partner interest in TCTM, 99.999%
membership interests in each of TE Products and TEPPCO Midstream and a 100%
membership interest in TEPPCO Marine Services.  TEPPCO GP, Inc., our
subsidiary, holds a 0.001% general partner interest in TCTM and a 0.001%
managing member interest in each of TE Products and TEPPCO
Midstream.





Dan L. Duncan and certain of his
affiliates, including Enterprise GP Holdings L.P. (“Enterprise GP Holdings”) and
Dan Duncan LLC, a privately held company controlled by him, control us, our
General Partner and Enterprise Products Partners L.P. (“Enterprise Products
Partners”) and its affiliates, including Duncan Energy Partners L.P. (“Duncan
Energy Partners”).  Enterprise GP Holdings owns and controls the 2%
general partner interest in us and has the right (through its 100% ownership of
our General Partner) to receive the incentive distribution rights associated
with the general partner interest.  Enterprise GP Holdings, DFI GP
Holdings L.P. (“DFIGP”) and other entities controlled by Mr. Duncan own
17,073,315 of our Units, which include 2,500,000 of our Units owned by
DFIGP.  Under an amended and restated administrative services
agreement (“ASA”), EPCO, Inc. (“EPCO”), a privately held company also controlled
by Mr. Duncan, performs management, administrative and operating functions
required for us, and we reimburse EPCO for all direct and indirect expenses that
have been incurred in managing us.





On June 28, 2009, we and our General
Partner entered into definitive merger agreements with Enterprise Products
Partners, its general partner, Enterprise Products GP, LLC (“EPGP”), and two of
its subsidiaries.  See Note 13 for information regarding the proposed
merger with Enterprise Products Partners.





We refer to refined products, liquefied
petroleum gases (“LPGs”), petrochemicals, crude oil, lubrication oils and
specialty chemicals, natural gas liquids (“NGLs”), natural gas, asphalt, heavy
fuel oil, other heated oil products and marine bunker fuel, collectively as
“petroleum products” or “products.”





Basis
of Presentation





The accompanying unaudited condensed
consolidated financial statements reflect all adjustments that are, in the
opinion of our management, of a normal and recurring nature and necessary for a
fair statement of our financial position as of June 30, 2009, and the results of
our operations and cash flows for the periods presented.  The results
of operations for the three months and six months ended June 30, 2009 are not
necessarily indicative of results of our operations for the full year
2009.  The unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the U.S. Securities and
Exchange Commission (“SEC”).  Certain information and note disclosures
normally





7
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





included
in annual financial statements prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) have been condensed or omitted pursuant
to those rules and regulations.  You should read these interim
financial statements in conjunction with our consolidated financial statements
and notes thereto presented in the TEPPCO Partners, L.P. Annual Report on Form
10-K for the year ended December 31, 2008.








Note
2.  General Accounting Matters





Estimates





Preparing our financial statements in
conformity with GAAP requires management to make estimates and assumptions that
affect amounts presented in the financial statements (e.g. assets, liabilities,
revenues and expenses) and disclosures about contingent assets and
liabilities.  Our actual results could differ from these
estimates.  On an ongoing basis, management reviews its estimates
based on currently available information.  Changes in facts and
circumstances may result in revised estimates.





Fair
Value Information





Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses and other current liabilities
are carried at amounts which reasonably approximate their fair values due to
their short-term nature.  The estimated fair values of our fixed rate
debt are based on quoted market prices for such debt or debt of similar terms
and maturities.  The carrying amount of our variable rate debt
obligation reasonably approximates its fair value due to its variable
interest rate.  See Note 4 for fair value information associated with
our derivative instruments.





The following table presents the
estimated fair values of our financial instruments at the dates
indicated:




June
      30, 2009
                    
                    
                    December
      31, 2008Carrying
                    
                    
                    Fair
                    
                    
                    Carrying
                    
                    
                    FairFinancial
      Instruments
                    
                    Value
                    
                    
                    Value
                    
                    
                    Value
                    
                    
                    ValueFinancial
      assets:Cash
      and cash equivalents
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    --
                    
                    
                    $
                    --Accounts
      receivable, trade
                    
                    
                    984.8
                    
                    
                    
                    984.8
                    
                    
                    
                    790.4
                    
                    
                    
                    790.4Financial
      liabilities:Accounts
      payable and accrued liabilities
                    
                    
                    967.9
                    
                    
                    
                    967.9
                    
                    
                    
                    792.5
                    
                    
                    
                    792.5Other
      current liabilities
                    
                    
                    21.1
                    
                    
                    
                    21.1
                    
                    
                    
                    30.9
                    
                    
                    
                    30.9Fixed-rate
      debt (principal amount)
                    
                    
                    2,000.0
                    
                    
                    
                    1,967.0
                    
                    
                    
                    2,000.0
                    
                    
                    
                    1,553.2Variable-rate
      debt
                    
                    
                    723.3
                    
                    
                    
                    723.3
                    
                    
                    
                    516.7
                    
                    
                    
                    516.7





Recent
Accounting Developments





The following information summarizes
recently issued accounting guidance since those reported in our Annual Report on
Form 10-K for the year ended December 31, 2008 that will or may affect our
future financial statements.





In April 2009, the Financial Accounting
Standards Board (“FASB”) issued new guidance in the form of FASB Staff Positions
(“FSPs”) in an effort to clarify certain fair value accounting rules.  FSP
Financial Accounting Standard (“FAS”) 157-4 (Accounting Standards Codification
(“ASC”) 820), DeterminingFair Value When the
Volumes and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, establishes
a process to determine whether a market is not active and a transaction is not
distressed.  FSP FAS 157-4 states that companies should look at
several factors and use judgment to ascertain if a formerly active market has
become inactive.  When estimating fair value, FSP FAS 157-4 requires
companies to place more weight on observable transactions determined to be
orderly and less weight on transactions for which there is





8
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





insufficient
information to determine whether the transaction is orderly (entities do not
have to incur undue cost and effort in making this determination).  The
FASB also issued FSP FAS 107-1 and APB 28-1 (ASC 825), Interim Disclosures About Fair Value
of Financial Instruments. This FSP requires that companies provide
qualitative and quantitative information about fair value estimates for all
financial instruments not measured on the balance sheet at fair value in each
interim report.  Previously, this was only an annual requirement.  We
adopted these FSPs effective June 30, 2009.  Our adoption of this new
guidance did not have a material impact on our financial statements or related
disclosures.





In May 2009, the FASB issued Statement
of Financial Accounting Standards (“SFAS”) No. 165 (ASC 855), Subsequent Events, which
establishes general standards of accounting for, and disclosure of, events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued.  SFAS 165 requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date.  We adopted SFAS 165 on June 30, 2009.  Our adoption
of this guidance did not have any impact on our financial position, results of
operations or cash flows.





In June 2009, the FASB issued SFAS No.
167 (ASC 810), Amendments to
FASB Interpretation No. 46(R), which amended consolidation guidance for
variable interest entities (“VIEs”) under FASB Interpretation (“FIN”) No. 46(R)
(“FIN 46(R)”) (ASC 810-10) Consolidation of Variable Interest
Entities.  VIEs are entities whose equity investors do not have
sufficient equity capital at risk such that the entity cannot finance its own
activities.  When a business has a controlling financial interest in a
VIE, the assets, liabilities and profit or loss of that entity must be included
in consolidation.  A business enterprise must consolidate a VIE when
that enterprise has a variable interest that will cover most of the entity’s
expected losses and/or receive most of the entity’s anticipated residual
return.  SFAS 167, among other things, eliminates the scope exception
for qualifying special-purpose entities, amends certain guidance for determining
whether an entity is a VIE, expands the list of events that trigger
reconsideration of whether an entity is a VIE, requires a qualitative rather
than a quantitative analysis to determine the primary beneficiary of a VIE,
requires continuous assessments of whether a company is the primary beneficiary
of a VIE and requires enhanced disclosures about a company’s involvement with a
VIE.  SFAS 167 is effective for us on January 1, 2010.  At June
30, 2009, we did not have any VIEs; therefore, our adoption of this new guidance
is not expected to have a material impact on our consolidated financial
statements.





In June 2009, the FASB issued SFAS No.
168 (ASC 105), The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement No. 162, which
establishes the ASCas the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. The ASC is a
reorganization of current GAAP into a topical format that eliminates the current
GAAP hierarchy and establishes instead two levels of guidance —
authoritativeand
nonauthoritative.  All guidance contained in the ASC carries an equal
level of authority.  Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative GAAP for SEC
registrants.  SFAS 168 identifies the sources of accounting principles
and the framework for selecting the principles used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with GAAP.  SFAS 168 is effective for financial statements
issued for interim and annual periods ending after September 15, 2009.  We
will adopt SFAS 168 on September 30, 2009.  Our adoption of this new
guidance is not expected to have any impact on our financial position, results
of operations or cash flows.  References to specific GAAP in our
consolidated financial statements after our adoption of SFAS 168 will refer
exclusively to the ASC.  We have elected to provide references to the
ASC parenthetically in this Quarterly Report.





Subsequent
Events





We have evaluated subsequent events
through August 6, 2009, which is the date our Unaudited Condensed Consolidated
Financial Statements and Notes are being issued.





9
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
3.  Accounting for Equity Awards





We account for equity awards in
accordance with SFAS No. 123(R) (ASC 718 and 505), Share-Based Payment (“SFAS
123(R)”).  Such awards were not material to our consolidated financial
position, results of operations or cash flows for all periods
presented.  The amount of equity-based compensation allocable to us
was $1.2 million and $0.8 million for the three months ended June 30, 2009 and
2008, respectively.  For the six months ended June 30, 2009 and 2008,
the amount of equity-based compensation allocable to us was $2.2 million and
$1.2 million, respectively.





Certain key employees of EPCO
participate in long-term incentive compensation plans managed by
EPCO.  The compensation expense we record related to equity awards is
based on an allocation of the total cost of such incentive plans to
EPCO.  We record our pro rata share of such costs based on the
percentage of time each employee spends on our business activities.





1999
Phantom Unit Retention Plan





The Texas Eastern Products Pipeline
Company, LLC 1999 Phantom Unit Retention Plan (“1999 Plan”) provides for the
issuance of phantom unit awards as incentives to key employees.  A
total of 2,800 phantom units were outstanding under the 1999 Plan at June 30,
2009, which cliff vest in January 2010.  During the first quarter of
2009, 2,800 additional phantom units which were outstanding at December 31, 2008
under the 1999 Plan were forfeited.  Additionally, in April 2009,
13,000 phantom units vested and $0.3 million was paid out to a participant in
April 2009.  At June 30, 2009 and December 31, 2008, we had accrued
liability balances of $0.1 million and $0.4 million, respectively, for
compensation related to the 1999 Plan.





2000
Long Term Incentive Plan





The Texas Eastern Products Pipeline
Company, LLC 2000 Long Term Incentive Plan (“2000 LTIP”) provides key employees
incentives to achieve improvements in our financial performance.  At
December 31, 2008, we had an accrued liability balance of $0.2 million for
compensation related to the 2000 LTIP.  On December 31, 2008, 11,300
phantom units vested and $0.2 million was paid out to participants in the first
quarter of 2009.  There were no remaining phantom units outstanding
under the 2000 LTIP at June 30, 2009.





2005
Phantom Unit Plan





The Texas Eastern Products Pipeline
Company, LLC 2005 Phantom Unit Plan (“2005 Phantom Unit Plan”) provides key
employees incentives to achieve improvements in our financial
performance. At December 31, 2008, we had an accrued liability balance of
$0.6 million for compensation related to the 2005 Phantom Unit
Plan.  On December 31, 2008, a total of 36,600 phantom units vested
and $0.6 million was paid out to participants in the first quarter of
2009. There were no remaining phantom units outstanding under the 2005
Phantom Unit Plan at June 30, 2009.





EPCO
2006 Long-Term Incentive Plan





The EPCO, Inc. 2006 TPP Long-Term
Incentive Plan (“2006 LTIP”) provides for awards of our Units and other rights
to our non-employee directors and to certain employees of EPCO and its
affiliates providing services to us.  Awards granted under the 2006
LTIP may be in the form of restricted units, phantom units, unit options, unit
appreciation rights (“UARs”) and distribution equivalent
rights.  Subject to adjustment as provided in the 2006 LTIP, awards
with respect to up to an aggregate of 5,000,000 Units may be granted under the
2006 LTIP. After giving effect to the issuance or forfeiture of restricted
unit awards and option awards through June 30, 2009, a total of 4,161,046
additional Units could be issued under the 2006 LTIP in the future. The
merger agreement governing our proposed merger with a





10
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





subsidiary
of Enterprise Products Partners contains restrictions on the issuance of
additional Units under the 2006 LTIP.  See Note 13 for information
regarding the proposed merger with Enterprise Products
Partners.





Unit
optionawards.The following
table presents unit option activity under the 2006 LTIP for the periods
indicated:


Weighted-Weighted-
                                  
                                  
                                  AverageAverage
                                  
                                  
                                  RemainingNumber
                                  
                                  
                                  Strike
      Price
                                  
                                  
                                  Contractualof
      Units
                                  
                                  
                                  (dollars/Unit)
                                  
                                  
                                  Term
      (in years)Outstanding
      at December 31, 2008
                                  
                                  
                                  355,000
                                  
                                  
                                  $
                                  40.00Granted
      (1)
                                  
                                  
                                  329,000
                                  
                                  
                                  $
                                  24.84Forfeited
                                  
                                  
                                  (109,500
                                  )
                                  
                                  $
                                  34.38Outstanding at June 30,
      2009 (2)
                                  
                                  
                                  574,500
                                  
                                  
                                  $
                                  32.39
                                  
                                  
                                  
                                  4.78(1)The
      total grant date fair value of these unit option awards granted in 2009
      was $1.3 million based upon the following assumptions: (i)
      weighted-average expected life of options of 4.8 years; (ii)
      weighted-average risk-free interest rate of 2.14%; (iii) weighted-average
      expected distribution yield on our Units of 11.31%; (iv) estimated
      forfeiture rate of 17.0%; and (v) weighted-average expected unit price
      volatility on our Units of 59.32%.
                                    (2)No
      unit options were exercisable as of June 30, 2009.





At June 30, 2009, the estimated total
unrecognized compensation cost related to nonvested unit option awards
granted under the 2006 LTIP was $1.5 million.  We expect to recognize
our share of this cost over a weighted-average period of 3.46 years in
accordance with the ASA (see Note 13).





Restrictedunitawards.The following
table presents restricted unit activity under the 2006 LTIP for the periods
indicated:


Weighted-Average
      GrantNumber
                                    
                                    
                                    Date
      Fair Valueof
      Units
                                    
                                    
                                    per
      Unit (1)Restricted
      units at December 31, 2008
                                    
                                    
                                    157,300Granted
      (2)
                                    
                                    
                                    140,450
                                    
                                    
                                    $
                                    23.93Vested
                                    
                                    
                                    (5,000
                                    )
                                    
                                    $
                                    34.63Forfeited
                                    
                                    
                                    (32,350
                                    )
                                    
                                    $
                                    32.29Restricted
      units at June 30, 2009
                                    
                                    
                                    260,400(1)Determined
      by dividing the aggregate grant date fair value of awards by the number of
      awards issued. The weighted-average grant date fair value per Unit
      for forfeited and vested awards is determined before an allowance for
      forfeitures.
                                      (2)       Aggregate grant date fair
      value of restricted unit awards issued during 2009 was $3.4 million based
      on grant date market prices ranging from $28.81 to $29.83 per Unit and an
      estimated forfeiture
      rate of  17.0%.





The total fair value of our restricted
unit awards that vested during the three months and six months ended June 30,
2009 was $0.1 million.  At June 30, 2009, the estimated total
unrecognized compensation cost related to restricted unit awards under
the 2006 LTIP was $6.2 million. We expect to recognize our share of this
cost over a weighted-average period of 3.17 years in accordance with the
ASA.





Phantom
unitawards.  At June 30, 2009, a total of 1,647 phantom units were
outstanding, which were awarded in 2007 under the 2006 LTIP to three of the then
non-executive members of the board of directors. Each participant is entitled to
cash distributions equal to the product of the number of phantom units granted
to the participant and the per Unit cash distribution that we paid to our
unitholders. Phantom unit awards to non-executive directors are accounted for in
a manner similar to SFAS 123(R) liability awards.





11
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





UARawards.  At
June 30, 2009, a total of 392,788 UARs were outstanding, which were awarded in
2007 under the 2006 LTIP to non-executive members of the board of directors and
to certain employees providing services directly to us.





§
            Non-Executive
      Members of the Board of Directors.  At June 30, 2009, a
      total of 95,654 UARs, awarded to non-executive members of the board of
      directors under the 2006 LTIP, were outstanding at a weighted-average
      exercise price of $41.82 per Unit (66,225 UARs issued in 2007 at an
      exercise price of $45.30 per Unit to the then three non-executive members
      of the board of directors and 29,429 UARs issued in 2008 at an exercise
      price of $33.98 per Unit to a non-executive member of the board of
      directors in connection with his election to the board).  UARs
      awarded to non-executive directors are accounted for in a manner similar
      to SFAS 123(R) liability awards.  Mr. Hutchison, who was a
      non-executive member of the board of directors at the time of issuance of
      these UARs (and the phantom unit awards discussed above), became interim
      executive chairman in March 2009.





§
            Employees.  At
      June 30, 2009, a total of 297,134 UARs, awarded under the 2006 LTIP to
      certain employees providing services directly to us, were outstanding at
      an exercise price of $45.35 per Unit. UARs awarded to employees are
      accounted for as liability awards under SFAS 123(R) since the current
      intent is to settle the awards in
cash.





Employee
Partnerships





In 2008, EPCO formed TEPPCO Unit, L.P.
(“TEPPCO Unit”) and TEPPCO Unit II, L.P. (“TEPPCO Unit II”) (collectively,
“Employee Partnerships”) to serve as long-term incentive arrangements for key
employees of EPCO by providing them with a “profits interest” in the Employee
Partnerships.  At June 30, 2009, the estimated unrecognized
compensation cost related to TEPPCO Unit and TEPPCO Unit II was $1.4 million and
$1.2 million, respectively.  We expect to recognize our share of these
costs over a weighted-average period of 4.27 years in accordance with the
ASA.








Note
4.  Derivative Instruments and Hedging Activities





In the course of our normal business
operations, we are exposed to certain risks, including changes in interest rates
and commodity prices.  In order to manage risks associated with certain
identifiable and anticipated transactions, we use derivative instruments.
 Derivatives are financial instruments whose fair value is determined by
changes in a specified benchmark such as interest rates or commodity prices.
Typical derivative instruments include futures, forward contracts, swaps and
other instruments with similar characteristics.  Substantially all of
our derivatives are used for non-trading activities.





SFAS No. 133 (ASC 815), Accounting for Derivative
Instruments and Hedging Activities, requires companies to recognize
derivative instruments at fair value as either assets or liabilities on the
balance sheet.  While the standard requires that all derivatives be
reported at fair value on the balance sheet, changes in fair value of the
derivative instruments will be reported in different ways depending on the
nature and effectiveness of the hedging activities to which they are
related.  After meeting specified conditions, a qualified derivative
may be specifically designated as a total or partial hedge of:





§
            Changes
      in the fair value of a recognized asset or liability, or an unrecognized
      firm commitment – In a fair value hedge, all gains and losses (of
      both the derivative instrument and the hedged item) are recognized in
      income during the period of change.





§
            Variable
      cash flows of a forecasted transaction – In a cash flow hedge, the
      effective portion of the hedge is reported in other comprehensive income
      and is reclassified into earnings when the forecasted transaction affects
      earnings.





12
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




A n
effective hedge is one in which the change in fair value of a derivative
instrument can be expected to offset 80% to 125% of changes in the fair value of
a hedged item at inception and throughout the life of the hedging
relationship.  The effective portion of a hedge is the amount by which
the derivative instrument exactly offsets the change in fair value of the hedged
item during the reporting period.  Conversely, ineffectiveness
represents the change in the fair value of the derivative instrument that does
not exactly offset the change in the fair value of the hedged
item.  Any ineffectiveness associated with a hedge is recognized in
earnings immediately.  Ineffectiveness can be caused by, among other
things, changes in the timing of forecasted transactions or a mismatch of terms
between the derivative instrument and the hedged item.




On January 1, 2009, we adopted the
disclosure requirements of SFAS No. 161 (ASC 815), Disclosures About Derivative
Financial Instruments and Hedging Activities.  SFAS 161
requires enhanced qualitative and quantitative disclosure requirements regarding
derivative instruments.  This footnote reflects the new disclosure
standard.





Interest
Rate Derivative Instruments





We utilize interest rate swaps,
treasury locks and similar derivative instruments to manage our exposure to
changes in the interest rates of certain debt agreements. This strategy is a
component in controlling our cost of capital associated with such
borrowings.  At June 30, 2009, we had no interest rate derivative
instruments outstanding.





At times, we may use treasury lock
derivative instruments to hedge the underlying U.S. treasury rates related to
forecasted issuances of debt.  As cash flow hedges, gains or losses on
these instruments are recorded in other comprehensive income and amortized to
earnings using the effective interest method over the estimated term of the
underlying fixed-rate debt.  During March 2008, we terminated treasury
locks having a combined notional value of $600.0 million and recognized an
aggregate loss of $23.2 million in other comprehensive income during the first
quarter of 2008.  We recognized approximately $3.6 million of this
loss in interest expense during the six months ended June 30, 2008 as a result
of interest payments hedged under the treasury locks not occurring as
forecasted.





For information regarding fair value
amounts and gains and losses on interest rate derivative instruments and related
hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and
Losses on Derivative Instruments and Related Hedged Items” within this Note
4.





Commodity
Derivative Instruments





We seek to maintain a position that is
substantially balanced between crude oil purchases and related sales and future
delivery obligations.  The price of crude oil is subject to
fluctuations in response to changes in supply, demand, general market
uncertainty and a variety of additional factors that are beyond our
control. In order to manage the price risk associated with crude oil, we
enter into commodity derivative instruments such as forwards, basis swaps and
futures contracts.  The purpose of such hedging strategy is to either
balance our inventory position or to lock in a profit margin.





At June 30, 2009, we had no outstanding
commodity derivatives designated as hedging instruments under SFAS
133.  Currently, our commodity derivative instruments do not meet the
hedge accounting requirements of SFAS 133 and are accounted for as economic
hedges using mark-to-market accounting.  These financial instruments
had a minimal impact on our earnings.  The following table summarizes
our outstanding commodity derivative instruments not designated as hedging
instruments under SFAS 133 at June 30, 2009:








13
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS











AccountingDerivative
      Purpose
                            Volume(1)
                            TreatmentDerivatives
      not designated as hedging instruments under SFAS 133:Crude
      oil risk management activities (2)
                            4.5
      MMBbls
                            Mark-to-market(1)Reflects
      the absolute value of the derivative notional volumes.
                              (2)Reflects
      the use of derivative instruments to manage risks associated with our
      portfolio of crude oil storage assets.  These commodity
      derivative instruments have forward positions through March
      2010.





For information regarding fair value
amounts and gains and losses on commodity derivative instruments and related
hedged items, see “Tabular Presentation of Fair Value Amounts, and Gains and
Losses on Derivative Instruments and Related Hedged Items” within this Note
4.





Credit-Risk Related Contingent Features
in Derivative Instruments





We have no credit-risk related
contingent features in any of our derivative
instruments.





Tabular Presentation of Fair Value
Amounts, and Gains and Losses on


Derivative
Instruments and Related Hedged Items





The
following table provides a balance sheet overview of our derivative assets and
liabilities at the dates indicated:




Asset
      Derivatives
                        
                        Liability
      DerivativesJune
      30, 2009
                        
                        December
      31, 2008
                        
                        June
      30, 2009
                        
                        December
      31, 2008Balance
      Sheet
                        
                        Fair
                        
                        Balance
      Sheet
                        
                        Fair
                        
                        Balance
      Sheet
                        
                        Fair
                        
                        Balance
      Sheet
                        
                        FairLocation
                        
                        Value
                        
                        Location
                        
                        Value
                        
                        Location
                        
                        Value
                        
                        Location
                        
                        ValueDerivatives not designated as hedging instruments
      under SFAS 133Commodity
      derivatives
                        Other
      current
                          assets
                        
                        $
                        2.7
                        
                        Other
      current
                          assets
                        
                        $
                        15.7
                        
                        Other
      current
                          liabilities
                        
                        $
                        2.3
                        
                        Other
      current
                          liabilities
                        
                        $
                        15.7Total
      derivatives notdesignated
      as hedginginstruments
                        
                        
                        $
                        2.7
                        
                        
                        
                        $
                        15.7
                        
                        
                        
                        $
                        2.3
                        
                        
                        
                        $
                        15.7





The
following table presents the effect of our derivative instruments designated as
fair value hedges under SFAS 133 on our condensed consolidated statements of
income for the periods indicated:





Derivatives
      in SFAS 133Fair
      Value
                        
                        
                        Gain/(Loss)
      Recognized inHedging
      Relationships
                        Location
                        
                        Income
      on DerivativeFor
      the Three Months
                        
                        
                        For
      the Six MonthsEnded
      June 30,
                        
                        
                        Ended
      June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Interest
      rate derivatives
                        Interest
      expense
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --Total
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --





Derivatives
      in SFAS 133Fair
      Value
                        
                        
                        Gain/(Loss)
      Recognized inHedging
      Relationships
                        Location
                        
                        Income
      on Hedged ItemFor
      the Three Months
                        
                        
                        For
      the Six MonthsEnded
      June 30,
                        
                        
                        Ended
      June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008Interest
      rate derivatives
                        Interest
      expense
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --Total
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --
                        
                        
                        $
                        --








14
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


The following
tables present the effect of our derivative instruments designated as cash flow
hedges under SFAS 133 on our condensed consolidated statements of income for the
periods indicated:





Derivativesin
      SFAS 133 Cash Flow
                                    
                                    Change
      in Value Recognized in OCI onHedging
      Relationships
                                    
                                    Derivative
      (Effective Portion)For
      the Three Months
                                    
                                    
                                    For
      the Six MonthsEnded
      June 30,
                                    
                                    
                                    Ended
      June 30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Interest
      rate derivatives
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    (23.2
                                    )Commodity
      derivatives
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (20.6
                                    )
                                    
                                    
                                    --
                                    
                                    
                                    
                                    (27.1
                                    )Total
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    (20.6
                                    )
                                    
                                    $
                                    --
                                    
                                    
                                    $
                                    (50.3
                                    )





Derivatives
                              Location
      of Gain/(Loss)in
      SFAS 133 Cash Flow
                              Reclassified
      from AOCI
                              
                              Amount
      of Gain/(Loss) Reclassified from AOCIHedging
      Relationships
                              into
      Income (Effective Portion)
                              
                              to
      Income (Effective Portion)For
      the Three Months
                              
                              
                              For
      the Six MonthsEnded
      June 30,
                              
                              
                              Ended
      June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Interest
      rate derivatives
                              Interest
      expense
                              
                              $
                              (1.4
                              )
                              
                              $
                              --
                              
                              
                              $
                              (2.8
                              )
                              
                              $
                              0.1Commodity
      derivatives
                              Revenue
                              
                              
                              --
                              
                              
                              
                              (9.6
                              )
                              
                              
                              --
                              
                              
                              
                              (19.2
                              )Total
                              
                              
                              $
                              (1.4
                              )
                              
                              $
                              (9.6
                              )
                              
                              $
                              (2.8
                              )
                              
                              $
                              (19.1
                              )





Location
      of Gain/(Loss)Derivatives
                              Recognized
      in Incomein
      SFAS 133 Cash Flow
                              on
      Ineffective Portion
                              
                              Amount
      of Gain/(Loss) Reclassified in IncomeHedging
      Relationships
                              of
      Derivative
                              
                              on
      Ineffective Portion of DerivativeFor
      the Three Months
                              
                              
                              For
      the Six MonthsEnded
      June 30,
                              
                              
                              Ended
      June 30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008Interest
      rate derivatives
                              Interest
      expense
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              (3.6
                              )Commodity
      derivatives
                              Revenue
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --
                              
                              
                              
                              --Total
                              
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              --
                              
                              
                              $
                              (3.6
                              )





Over the
next twelve months, we expect to reclassify $6.0 million of accumulated other
comprehensive loss attributable to settled treasury locks to earnings as an
increase to interest expense.





The
following table presents the effect of our derivative instruments not designated
as hedging instruments under SFAS 133 on our condensed consolidated statements
of income for the periods indicated:





Derivatives
      NotDesignated
      as SFAS 133
                                        
                                        
                                        Gain/(Loss)
      Recognized inHedging
      Instruments
                                        Location
                                        
                                        Income
      on DerivativeFor
      the Three Months
                                        
                                        
                                        For
      the Six MonthsEnded
      June 30,
                                        
                                        
                                        Ended
      June 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Commodity
      derivatives
                                        Revenue
                                        
                                        $
                                        (0.2
                                        )
                                        
                                        $
                                        (0.1
                                        )
                                        
                                        $
                                        0.6
                                        
                                        
                                        $
                                        0.3Total
                                        
                                        
                                        $
                                        (0.2
                                        )
                                        
                                        $
                                        (0.1
                                        )
                                        
                                        $
                                        0.6
                                        
                                        
                                        $
                                        0.3





SFAS
157 – Fair Value Measurements





SFAS 157 (ASC 820) defines fair value
as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at a specified
measurement date.  Our fair value estimates are based on either (i)
actual market data or (ii) assumptions that other market participants
would use in pricing an asset or liability, including estimates of
risk.  Recognized valuation




15
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


techniques
employ inputs such as product prices, operating costs, discount factors and
business growth rates.  These inputs may be either readily observable,
corroborated by market data or generally unobservable.  In developing
our estimates of fair value, we endeavor to utilize the best information
available and apply market-based data to the extent
possible.  Accordingly, we utilize valuation techniques (such as the
market approach) that maximize the use of observable inputs and minimize the use
of unobservable inputs.





SFAS 157
established a three-tier hierarchy that classifies fair value amounts recognized
or disclosed in the financial statements based on the observability of inputs
used to estimate such fair values.  The hierarchy considers fair value
amounts based on observable inputs (Levels 1 and 2) to be more reliable and
predictable than those based primarily on unobservable inputs (Level
3).  At each balance sheet reporting date, we categorize our financial
assets and liabilities using this hierarchy.  The characteristics of
fair value amounts classified within each level of the SFAS 157 hierarchy are
described as follows:





§
            Level
      1 fair values are based on quoted prices, which are available in active
      markets for identical assets or liabilities as of the measurement
      date.  Active markets are defined as those in which transactions
      for identical assets or liabilities occur with sufficient frequency so as
      to provide pricing information on an ongoing basis (e.g., the NYSE or New
      York Mercantile Exchange).  Level 1 primarily consists of
      financial assets and liabilities such as exchange-traded financial
      instruments, publicly-traded equity securities and U.S. government
      treasury securities.  At June 30, 2009, we had no Level 1
      financial assets and liabilities.





§
            Level
      2 fair values are based on pricing inputs other than quoted prices in
      active markets (as reflected in Level 1 fair values) and are either
      directly or indirectly observable as of the measurement
      date.  Level 2 fair values include instruments that are valued
      using financial models or other appropriate valuation
      methodologies.  Such financial models are primarily
      industry-standard models that consider various assumptions, including
      quoted forward prices for commodities, the time value of money, volatility
      factors for stocks, current market and contractual prices for the
      underlying instruments and other relevant economic
      measures.  Substantially all of these assumptions are (i)
      observable in the marketplace throughout the full term of the instrument,
      (ii) can be derived from observable data or (iii) are validated by inputs
      other than quoted prices (e.g., interest rates and yield curves at
      commonly quoted intervals).  Our Level 2 fair values primarily
      consist of commodity forward agreements transacted
      over-the-counter.  The fair values of these derivatives are
      based on observable price quotes for similar products and
      locations.





§
            Level
      3 fair values are based on unobservable inputs.  Unobservable
      inputs are used to measure fair value to the extent that observable inputs
      are not available, thereby allowing for situations in which there is
      little, if any, market activity for the asset or liability at the
      measurement date.  Unobservable inputs reflect the reporting
      entity’s own ideas about the assumptions that market participants would
      use in pricing an asset or liability (including assumptions about
      risk).  Unobservable inputs are based on the best information
      available in the circumstances, which might include the reporting entity’s
      internally developed data.  The reporting entity must not ignore
      information about market participant assumptions that is reasonably
      available without undue cost and effort.  Level 3 inputs are
      typically used in connection with internally developed valuation
      methodologies where management makes its best estimate of an instrument’s
      fair value.  Our Level 3 fair values largely consist of
      commodity contracts generally less than one year in term.  We
      rely on broker quotes for these prices due to the limited observability of
      locational and quality-based pricing differentials.  At June 30,
      2009, our Level 3 financial assets were less than $0.1
      million.


The
following table sets forth, by level within the fair value hierarchy, our
financial assets and liabilities measured on a recurring basis at June 30,
2009.  These financial assets and liabilities
are


16
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


classified
in their entirety based on the lowest level of input that is significant to the
fair value measurement.  Our assessment of the significance of a
particular input to the fair value measurement requires judgment and may affect
the valuation of the fair value assets and liabilities, in addition to their
placement within the fair value hierarchy levels.





Level
      2
                        
                        
                        Level
      3
                        
                        
                        TotalFinancial
      assets:Commodity
      derivative instruments
                        
                        $
                        2.7
                        
                        
                        $
                        --
                        
                        
                        $
                        2.7Total
                        
                        $
                        2.7
                        
                        
                        $
                        --
                        
                        
                        $
                        2.7Financial
      liabilities:Commodity
      derivative instruments
                        
                        $
                        2.3
                        
                        
                        $
                        --
                        
                        
                        $
                        2.3Total
                        
                        $
                        2.3
                        
                        
                        $
                        --
                        
                        
                        $
                        2.3





The
following table sets forth a reconciliation of changes in the fair value of our
Level 3 financial assets and liabilities for the periods indicated:




For
      the Six Months
                      Ended
      June 30,2009
                    
                    
                    2008Balance,
      January 1
                    
                    $
                    (0.1
                    )
                    
                    $
                    (0.4
                    )Total
      gains included in net income
                    
                    
                    0.4
                    
                    
                    
                    0.4Purchases,
      issuances, settlements
                    
                    
                    0.1
                    
                    
                    
                    --Balance,
      March 31
                    
                    
                    0.4
                    
                    
                    
                    --Total
      losses included in net income
                    
                    
                    --
                    
                    
                    
                    (0.1
                    )Purchases,
      issuances, settlements
                    
                    
                    (0.4
                    )
                    
                    
                    --Balance,
      June 30
                    
                    $
                    --
                    
                    
                    $
                    (0.1
                    )





We adopted the provisions of SFAS 157
that apply to nonfinancial assets and liabilities on January 1,
2009.  Our adoption of this guidance had no impact on our financial
position, results of operations or cash flows.





Certain nonfinancial assets and
liabilities are measured at fair value on a nonrecurring basis and are subject
to fair value adjustments in certain circumstances (for example, when there is
evidence of impairment).  The following table presents the fair value
of an asset carried on the balance sheet by caption and by level within the SFAS
157 valuation hierarchy (as described above) at the date indicated for which a
nonrecurring change in fair value has been recorded during the
period:





June
      30, 2009
                
                
                Level
      1
                
                
                Level
      2
                
                
                Level
      3
                
                
                Total
                  LossesProperty,
      plant and equipment
                
                $
                3.0
                
                
                $
                --
                
                
                $
                --
                
                
                $
                3.0
                
                
                $
                2.3





As a result of idling a river terminal
at Helena, Arkansas, in our Downstream Segment, during the six months ended June
30, 2009, we recorded a non-cash impairment charge of $2.3 million, which is
included in operating expense for the three months and six months ended June 30,
2009 (see Note 6).  We estimated the fair value of the asset
using appropriate valuation techniques.




17
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Note
5.  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 at the dates indicated:





June
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008Crude
      oil (1)
                          
                          $
                          58.1
                          
                          
                          $
                          32.8Refined
      products and LPGs (2)
                          
                          
                          17.2
                          
                          
                          
                          0.4Lubrication
      oils and specialty chemicals
                          
                          
                          10.2
                          
                          
                          
                          11.1Materials
      and supplies
                          
                          
                          10.0
                          
                          
                          
                          8.6NGLs
                          
                          
                          0.1
                          
                          
                          
                          --Total
                          
                          $
                          95.6
                          
                          
                          $
                          52.9(1)At
      June 30, 2009 and December 31, 2008, $57.8 million and $30.7 million,
      respectively, of our crude oil inventory was subject to forward sales
      contracts.
                            (2)Refined
      products and LPGs inventory is managed on a combined
basis.





Due to fluctuating commodity prices, we
recognize lower of average cost or market (“LCM”) adjustments when the carrying
value of our inventories exceeds their net realizable value.  These
non-cash charges are a component of costs and expenses in the period they are
recognized.  For the three months ended June 30, 2009 and 2008, we
recognized LCM adjustments of approximately $1.1 million and $0.1 million,
respectively.  We recognized LCM adjustments of $2.1 million and $0.1
million for the six months ended June 30, 2009 and 2008,
respectively.








Note
6.  Property, Plant and Equipment





Our property, plant and equipment
values and accumulated depreciation balances were as follows at the dates
indicated:




EstimatedUseful
      Life
                                        
                                        
                                        June
      30,
                                        
                                        
                                        December
      31,in
      Years
                                        
                                        
                                        2009
                                        
                                        
                                        2008Plants
      and pipelines (1)
                                        
                                        
                                        5-40(5)
                                        
                                        
                                        $
                                        1,943.9
                                        
                                        
                                        $
                                        1,919.7Underground
      and other storage facilities (2)
                                        
                                        
                                        5-40(6)
                                        
                                        
                                        
                                        315.8
                                        
                                        
                                        
                                        296.8Transportation
      equipment (3)
                                        
                                        
                                        5-10
                                        
                                        
                                        
                                        13.0
                                        
                                        
                                        
                                        11.3Marine
      vessels (4)
                                        
                                        
                                        20-30
                                        
                                        
                                        
                                        508.6
                                        
                                        
                                        
                                        453.0Land
      and right of way
                                        
                                        
                                        
                                        
                                        
                                        
                                        144.1
                                        
                                        
                                        
                                        143.8Construction
      work in progress
                                        
                                        
                                        
                                        
                                        
                                        
                                        396.1
                                        
                                        
                                        
                                        294.1Total
      property, plant and equipment
                                        
                                        
                                        
                                        
                                        
                                        $
                                        3,321.5
                                        
                                        
                                        $
                                        3,118.7Less:
      accumulated depreciation
                                        
                                        
                                        
                                        
                                        
                                        
                                        729.9
                                        
                                        
                                        
                                        678.8Property,
      plant and equipment, net
                                        
                                        
                                        
                                        
                                        
                                        $
                                        2,591.6
                                        
                                        
                                        $
                                        2,439.9(1)Plants
      and pipelines include refined products, LPGs, NGLs, petrochemical, crude
      oil and natural gas pipelines; terminal loading and unloading facilities;
      office furniture and equipment; buildings, laboratory and shop equipment;
      and related assets.
                                          (2)Underground
      and other storage facilities include underground product storage caverns,
      storage tanks and other related assets.
                                          (3)Transportation
      equipment includes vehicles and similar assets used in our
      operations.
                                          (4)$50.0
      million of the increase relates to the vessels acquired from
      TransMontaigne Products Services Inc. (see Note 8).
                                          (5)The
      estimated useful lives of major components of this category are as
      follows: pipelines, 20-40 years (with some equipment at 5 years);
      terminal facilities, 10-40 years; office furniture and equipment, 5-10
      years; buildings, 20-40 years; and laboratory and shop equipment, 5-40
      years.
                                          (6)The
      estimated useful lives of major components of this category are as
      follows: underground storage facilities, 20-40 years (with some
      components at 5 years); and storage tanks, 20-30 years.




18
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




The
following table summarizes our depreciation expense and capitalized interest
amounts for the periods indicated:




For
      the Three Months
                                        
                                        
                                        For
      the Six MonthsEnded
      June 30,
                                        
                                        
                                        Ended
      June 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Depreciation
      expense (1)
                                        
                                        $
                                        28.4
                                        
                                        
                                        $
                                        23.9
                                        
                                        
                                        $
                                        53.8
                                        
                                        
                                        $
                                        45.8Capitalized
      interest (2)
                                        
                                        
                                        5.2
                                        
                                        
                                        
                                        5.5
                                        
                                        
                                        
                                        10.5
                                        
                                        
                                        
                                        9.9(1)Depreciation
      expense is a component of depreciation and amortization expense as
      presented in our unaudited condensed statements of consolidated
      income.
                                          (2)Capitalized
      interest (included in interest expense on our unaudited condensed
      statements of consolidated income) increases the carrying value of the
      associated asset and reduces interest expense during the period it is
      recorded.





During the three months and six months
ended June 30, 2009, we recorded a $2.3 million non-cash impairment charge,
which is included in operating expense, related to the idling of a river
terminal at Helena, Arkansas, in our Downstream Segment.





Asset
Retirement Obligations





Asset retirement obligations (“AROs”)
are legal obligations associated with the retirement of certain tangible
long-lived assets that result from acquisitions, construction, development
and/or normal operations or a combination of these factors.  Our ARO
liability balance at June 30, 2009 and December 31, 2008 was $1.5
million.  Accretion expense was less than $0.1 million for each of the
three months ended June 30, 2009 and 2008.  For each of the six months
ended June 30, 2009 and 2008, accretion expense was $0.1
million.  Property, plant and equipment at June 30, 2009 include $0.7
million of asset retirement costs capitalized as an increase in the associated
long-lived asset.








Note
7.  Investments In Unconsolidated Affiliates





We own interests in related businesses
that are accounted for using the equity method of accounting.  These
investments are identified in the following table by reporting business segment
(see Note 12 for a general discussion of our business segments).  The
following table presents our investments in unconsolidated affiliates at the
dates indicated:




OwnershipPercentage
      atJune
      30,
                                    
                                    
                                    June
      30,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2009
                                    
                                    
                                    2008Downstream
      Segment:Centennial
      Pipeline LLC (“Centennial”)
                                    
                                    
                                    50.0%
                                    
                                    
                                    $
                                    66.4
                                    
                                    
                                    $
                                    71.8Other
                                    
                                    
                                    25.0%
                                    
                                    
                                    
                                    0.4
                                    
                                    
                                    
                                    0.4Upstream
      Segment:Seaway
      Crude Pipeline Company (“Seaway”)
                                    
                                    
                                    50.0%
                                    
                                    
                                    
                                    182.9
                                    
                                    
                                    
                                    190.1Texas
      Offshore Port System (“TOPS”) (1)
                                    
                                    
                                    --
                                    
                                    
                                    
                                    --
                                    
                                    
                                    
                                    35.9Midstream
      Segment:Jonah
      Gas Gathering Company (“Jonah”)
                                    
                                    
                                    80.64%
                                    
                                    
                                    
                                    949.2
                                    
                                    
                                    
                                    957.7Total
                                    
                                    
                                    
                                    
                                    
                                    $
                                    1,198.9
                                    
                                    
                                    $
                                    1,255.9(1)In
      January 2009, we received a $3.1 million refund of our 2008 contributions
      to TOPS due to a delay in the timing of the expected project
      spending. In February and March 2009, we then invested an additional
      $1.4 million in TOPS. In April 2009, we elected to dissociate from
      TOPS and forfeited our investment. See below for further
      information.





Our investments in Centennial, Seaway
and Jonah included excess cost amounts totaling $73.3 million and $72.9 million
at June 30, 2009 and December 31, 2008, respectively.  The value
assigned to our excess investment in Centennial was created upon its formation,
the value assigned to our excess investment in Seaway was created upon
acquisition of our ownership interest in Seaway and the value assigned
to our excess investment in Jonah was created as a result of interest
capitalized on the construction of Jonah’s expansion.  We amortize
such excess cost as a reduction in equity earnings in a manner
similar





19
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




to
depreciation over the life of applicable contracts or assets acquired or
constructed.  Amortization of excess cost amounts was $1.1 million and
$1.3 million for the three months ended June 30, 2009 and 2008,
respectively.  For the six months ended June 30, 2009 and 2008,
amortization of such excess cost amounts was $2.6 million and $2.4 million,
respectively.  For the remainder of 2009, amortization expense
associated with our excess investments is currently estimated at $3.0
million.





In August 2008, a wholly owned
subsidiary of ours, together with a subsidiary of Enterprise Products Partners
and Oiltanking Holding Americas, Inc. (“Oiltanking”), formed the TOPS
partnership.  Effective April 16, 2009, our wholly owned subsidiary
dissociated from TOPS.  As a result, equity earnings and net income
for the second quarter of 2009 include a non-cash charge of $34.2
million.  This loss represents our cumulative investment in TOPS
through the date of dissociation and reflects our capital contributions to TOPS
for construction in progress amounts.  We believe that the
dissociation discharged our affiliate with respect to further obligations under
the TOPS partnership agreement, and accordingly, us from the associated
liability under the related parent guarantee; therefore, we have not recorded
any amounts related to such guarantee.  The wholly owned subsidiary of
Enterprise Products Partners that was a partner in TOPS also dissociated from
the partnership effective April 16, 2009.  See Note 15 for litigation
matters associated with our dissociation from TOPS.





The following table summarizes equity
in income (loss) of unconsolidated affiliates by business segment for the
periods indicated:




For
      the Three Months
                                        
                                        
                                        For
      the Six MonthsEnded
      June 30,
                                        
                                        
                                        Ended
      June 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Downstream
      Segment
                                        
                                        $
                                        (4.3
                                        )
                                        
                                        $
                                        (3.7
                                        )
                                        
                                        $
                                        (7.4
                                        )
                                        
                                        $
                                        (7.8
                                        )Upstream
      Segment (1)
                                        
                                        
                                        (31.3
                                        )
                                        
                                        
                                        4.2
                                        
                                        
                                        
                                        (28.0
                                        )
                                        
                                        
                                        7.2Midstream
      Segment
                                        
                                        
                                        23.8
                                        
                                        
                                        
                                        21.9
                                        
                                        
                                        
                                        49.4
                                        
                                        
                                        
                                        45.6Intersegment
      eliminations
                                        
                                        
                                        (0.4
                                        )
                                        
                                        
                                        (1.1
                                        )
                                        
                                        
                                        (1.1
                                        )
                                        
                                        
                                        (4.0
                                        )Total
                                        
                                        $
                                        (12.2
                                        )
                                        
                                        $
                                        21.3
                                        
                                        
                                        $
                                        12.9
                                        
                                        
                                        $
                                        41.0(1)    
      2009 periods include the non-cash charge of $34.2 million related to the
      dissociation from TOPS.





On a quarterly basis, we monitor the
underlying business fundamentals of our investments in unconsolidated affiliates
and test such investments for impairment when impairment indicators are
present.  As a result of our reviews for the second quarter of 2009,
no impairment charges were required.  We have the intent and ability
to hold these investments, which are integral to our operations.





Summarized
Financial Information of Unconsolidated Affiliates





Summarized combined income statement
data by reporting segment for the periods indicated is presented in the
following table (on a 100% basis):




Summarized
      Income Statement Information for the Three Months EndedJune
      30, 2009
                      
                      
                      June
      30, 2008Operating
                      
                      
                      Net
                      
                      
                      
                      
                      
                      Operating
                      
                      
                      NetRevenues
                      
                      
                      Income
      (Loss)
                      
                      
                      Income
      (Loss)
                      
                      
                      Revenues
                      
                      
                      Income
                      
                      
                      Income
      (Loss)Downstream
      Segment
                      
                      $
                      7.7
                      
                      
                      $
                      (2.8
                      )
                      
                      $
                      (5.4
                      )
                      
                      $
                      10.4
                      
                      
                      $
                      1.3
                      
                      
                      $
                      (1.5
                      )Upstream
      Segment
                      
                      
                      21.8
                      
                      
                      
                      10.1
                      
                      
                      
                      10.0
                      
                      
                      
                      27.4
                      
                      
                      
                      15.3
                      
                      
                      
                      15.3Midstream
      Segment
                      
                      
                      61.2
                      
                      
                      
                      29.6
                      
                      
                      
                      29.6
                      
                      
                      
                      60.2
                      
                      
                      
                      26.9
                      
                      
                      
                      27.2





Summarized
      Income Statement Information for the Six Months EndedJune
      30, 2009
                        
                        
                        June
      30, 2008Operating
                        
                        
                        Net
                        
                        
                        
                        
                        
                        Operating
                        
                        
                        NetRevenues
                        
                        
                        Income
      (Loss)
                        
                        
                        Income
      (Loss)
                        
                        
                        Revenues
                        
                        
                        Income
                        
                        
                        Income
      (Loss)Downstream
      Segment
                        
                        $
                        17.4
                        
                        
                        $
                        (0.6
                        )
                        
                        $
                        (5.8
                        )
                        
                        $
                        20.0
                        
                        
                        $
                        2.2
                        
                        
                        $
                        (3.3
                        )Upstream
      Segment
                        
                        
                        41.5
                        
                        
                        
                        18.8
                        
                        
                        
                        18.8
                        
                        
                        
                        48.0
                        
                        
                        
                        25.7
                        
                        
                        
                        25.7Midstream
      Segment
                        
                        
                        120.6
                        
                        
                        
                        61.4
                        
                        
                        
                        61.6
                        
                        
                        
                        118.4
                        
                        
                        
                        56.2
                        
                        
                        
                        56.6




20
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Note
8.  Business Combination





On June 5, 2009, we expanded our Marine
Services Segment with the acquisition of 19 tow boats and 28 tank barges from
TransMontaigne Product Services Inc. (“TransMontaigne”), for $50.0 million
in cash.  The acquired vessels provide marine vessel fueling services
for cruise liners and cargo ships, referred to as bunkering, and other
ship-assist services and transport fuel oil for electric generation
plants.  The acquisition complements our existing fleet of vessels
that currently transport petroleum products along the nation’s inland waterway
system and in the Gulf of Mexico.  The newly acquired marine assets
are generally supported by contracts that have a three to five year term and are
based primarily in Miami, Florida, with additional assets located in Mobile,
Alabama, and Houston, Texas.  We financed the acquisition with
borrowings under our revolving credit facility.




The results of operations for the
TransMontaigne acquisition are included in our consolidated financial statements
beginning at the date of acquisition.  This acquisition was accounted
for as a business combination using the acquisition method of accounting in
accordance with SFAS 141(R) (ASC 805).  Under SFAS 141(R), all of the
assets acquired in the transaction are recognized at their acquisition-date fair
values, while transaction costs associated with the transaction are expensed as
incurred.  Accordingly, the cost of the acquisition has been recorded
as property, plant and equipment based on estimated fair
values.  Such fair values have been developed using recognized
business valuation techniques.





On a pro forma basis, our revenues,
costs and expenses, operating income, net income and earnings per Unit amounts
would not have differed materially from those we actually reported for the three
months and six months ended June 30, 2009 and 2008 due to the immaterial nature
of our 2009 business combination transaction.







Note
9.  Intangible Assets and Goodwill





Intangible
Assets





The following table summarizes
intangible assets by business segment being amortized at the dates
indicated:




June
      30, 2009
                  
                  
                  December
      31, 2008Gross
                  
                  
                  Accum.
                  
                  
                  Carrying
                  
                  
                  Gross
                  
                  
                  Accum.
                  
                  
                  CarryingValue
                  
                  
                  Amort.
                  
                  
                  Value
                  
                  
                  Value
                  
                  
                  Amort.
                  
                  
                  ValueIntangible
      assets:Downstream
      Segment:Transportation
      agreements
                  
                  $
                  1.0
                  
                  
                  $
                  (0.4
                  )
                  
                  $
                  0.6
                  
                  
                  $
                  1.0
                  
                  
                  $
                  (0.4
                  )
                  
                  $
                  0.6Other
                  
                  
                  7.0
                  
                  
                  
                  (1.0
                  )
                  
                  
                  6.0
                  
                  
                  
                  5.6
                  
                  
                  
                  (0.8
                  )
                  
                  
                  4.8Subtotal
                  
                  
                  8.0
                  
                  
                  
                  (1.4
                  )
                  
                  
                  6.6
                  
                  
                  
                  6.6
                  
                  
                  
                  (1.2
                  )
                  
                  
                  5.4Upstream
      Segment:Transportation
      agreements
                  
                  
                  0.9
                  
                  
                  
                  (0.4
                  )
                  
                  
                  0.5
                  
                  
                  
                  0.9
                  
                  
                  
                  (0.4
                  )
                  
                  
                  0.5Other
                  
                  
                  10.5
                  
                  
                  
                  (3.3
                  )
                  
                  
                  7.2
                  
                  
                  
                  10.6
                  
                  
                  
                  (3.0
                  )
                  
                  
                  7.6Subtotal
                  
                  
                  11.4
                  
                  
                  
                  (3.7
                  )
                  
                  
                  7.7
                  
                  
                  
                  11.5
                  
                  
                  
                  (3.4
                  )
                  
                  
                  8.1Midstream
      Segment:Gathering
      agreements
                  
                  
                  239.7
                  
                  
                  
                  (134.1
                  )
                  
                  
                  105.6
                  
                  
                  
                  239.6
                  
                  
                  
                  (125.8
                  )
                  
                  
                  113.8Fractionation
      agreements
                  
                  
                  38.0
                  
                  
                  
                  (21.4
                  )
                  
                  
                  16.6
                  
                  
                  
                  38.0
                  
                  
                  
                  (20.4
                  )
                  
                  
                  17.6Other
                  
                  
                  0.3
                  
                  
                  
                  (0.2
                  )
                  
                  
                  0.1
                  
                  
                  
                  0.3
                  
                  
                  
                  (0.1
                  )
                  
                  
                  0.2Subtotal
                  
                  
                  278.0
                  
                  
                  
                  (155.7
                  )
                  
                  
                  122.3
                  
                  
                  
                  277.9
                  
                  
                  
                  (146.3
                  )
                  
                  
                  131.6Marine
      Services Segment:Customer
      relationship intangibles
                  
                  
                  51.3
                  
                  
                  
                  (4.8
                  )
                  
                  
                  46.5
                  
                  
                  
                  51.3
                  
                  
                  
                  (3.1
                  )
                  
                  
                  48.2Other
                  
                  
                  18.7
                  
                  
                  
                  (6.7
                  )
                  
                  
                  12.0
                  
                  
                  
                  18.7
                  
                  
                  
                  (4.3
                  )
                  
                  
                  14.4Subtotal
                  
                  
                  70.0
                  
                  
                  
                  (11.5
                  )
                  
                  
                  58.5
                  
                  
                  
                  70.0
                  
                  
                  
                  (7.4
                  )
                  
                  
                  62.6Total intangible assets
                  
                  $
                  367.4
                  
                  
                  $
                  (172.3
                  )
                  
                  $
                  195.1
                  
                  
                  $
                  366.0
                  
                  
                  $
                  (158.3
                  )
                  
                  $
                  207.7





21
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




The
following table presents amortization expense of intangible assets by business
segment for the periods indicated:




For
      the Three Months
                    
                    
                    For
      the Six MonthsEnded
      June 30,
                    
                    
                    Ended
      June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Downstream
      Segment
                    
                    $
                    0.1
                    
                    
                    $
                    0.1
                    
                    
                    $
                    0.2
                    
                    
                    $
                    0.2Upstream
      Segment
                    
                    
                    0.2
                    
                    
                    
                    0.2
                    
                    
                    
                    0.3
                    
                    
                    
                    0.3Midstream
      Segment
                    
                    
                    4.8
                    
                    
                    
                    5.4
                    
                    
                    
                    9.4
                    
                    
                    
                    10.4Marine
      Services Segment
                    
                    
                    2.0
                    
                    
                    
                    2.2
                    
                    
                    
                    4.1
                    
                    
                    
                    3.4Total
                    
                    $
                    7.1
                    
                    
                    $
                    7.9
                    
                    
                    $
                    14.0
                    
                    
                    $
                    14.3





Based on
information currently available, we estimate that amortization expense will
approximate $13.1 million for the last six months of 2009, $24.6 million for
2010, $22.7 million for 2011, $17.2 million for 2012 and $15.6 million for
2013.





Goodwill





The following table presents the
carrying amount of goodwill by business segment at the dates
indicated:




June
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008Downstream
      Segment
                          
                          $
                          1.3
                          
                          
                          $
                          1.3Upstream
      Segment
                          
                          
                          14.9
                          
                          
                          
                          14.9Marine
      Services Segment
                          
                          
                          90.4
                          
                          
                          
                          90.4Total
                          
                          $
                          106.6
                          
                          
                          $
                          106.6








Note
10.  Debt Obligations





The following table summarizes the
principal amounts outstanding under all of our debt instruments at the
dates indicated:




June
      30,
                                
                                
                                December
      31,2009
                                
                                
                                2008Senior
      debt obligations: (1)Revolving Credit Facility, due December 2012 (2)
                                
                                $
                                723.3
                                
                                
                                $
                                516.77.625% Senior Notes, due February 2012
                                
                                
                                500.0
                                
                                
                                
                                500.06.125% Senior Notes, due February 2013
                                
                                
                                200.0
                                
                                
                                
                                200.05.90% Senior Notes, due April 2013
                                
                                
                                250.0
                                
                                
                                
                                250.06.65% Senior Notes, due April 2018
                                
                                
                                350.0
                                
                                
                                
                                350.07.55% Senior Notes, due April 2038
                                
                                
                                400.0
                                
                                
                                
                                400.0Total principal amount of long-term senior debt
obligations
                                
                                
                                2,423.3
                                
                                
                                
                                2,216.77.000% Junior Subordinated Notes, due June 2067 (1)
                                
                                
                                300.0
                                
                                
                                
                                300.0Total principal amount of long-term debt obligations
                                
                                
                                2,723.3
                                
                                
                                
                                2,516.7Adjustment to carrying value associated with hedges of fair value
      andunamortized discounts (3)
                                
                                
                                10.5
                                
                                
                                
                                12.9Total
      long-term debt obligations
                                
                                
                                2,733.8
                                
                                
                                
                                2,529.6Total
      Debt Instruments (3)
                                
                                $
                                2,733.8
                                
                                
                                $
                                2,529.6(1)TE
      Products, TCTM, TEPPCO Midstream and Val Verde Gas Gathering Company, L.P.
      (“Val Verde”) (collectively, the “Guarantor Subsidiaries”) have issued
      full, unconditional, joint and several guarantees of our senior notes,
      junior subordinated notes and revolving credit facility (“Revolving Credit
      Facility”).
                                  (2)The
      weighted-average interest rate paid on our variable rate Revolving Credit
      Facility at June 30, 2009 was 0.92%.
                                  (3)From
      time to time we enter into interest rate swap agreements to hedge our
      exposure to changes in the fair value on a portion of the debt obligations
      presented above (see Note 4). At June 30, 2009 and December 31, 2008,
      amount includes $5.0 million and $5.2 million of unamortized discounts,
      respectively, and $15.5 million and $18.1 million, respectively, related
      to fair value hedges.








22
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Except for routine fluctuations in our
unsecured Revolving Credit Facility, there have been no material changes in the
terms of our debt obligations since those reported in our Annual Report on
Form 10-K for the year ended December 31, 2008.





During September 2008, Lehman Brothers
Bank, FSB (“Lehman”), which had a 4.05% participation in our Revolving Credit
Facility, stopped funding its commitment following the bankruptcy filing of its
parent entity.  Assuming that future fundings are not received for the
Lehman percentage commitment, aggregate available capacity would be reduced by
approximately $28.9 million.  At June 30, 2009, our available borrowing
capacity under the Revolving Credit Facility was approximately $197.8
million.





See Note 18 for a subsequent event
regarding a loan agreement we entered into with Enterprise Products
Partners.





Covenants





We were in compliance with the
covenants of our long-term debt obligations at June 30, 2009.





Debt
Obligations of Unconsolidated Affiliates





We have one unconsolidated affiliate,
Centennial, with long-term debt obligations.  The following table
shows the total debt of Centennial at June 30, 2009 (on a 100% basis) and the
corresponding scheduled maturities of such debt.





Our
                  
                  
                  
                  
                  
                  Scheduled
      Maturities of DebtOwnership
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  AfterInterest
                  
                  
                  Total
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2011
                  
                  
                  2012
                  
                  
                  2013
                  
                  
                  2013Centennial
                  
                  
                  50%
                  
                  
                  $
                  124.8
                  
                  
                  $
                  4.8
                  
                  
                  $
                  9.1
                  
                  
                  $
                  9.0
                  
                  
                  $
                  8.9
                  
                  
                  $
                  8.6
                  
                  
                  $
                  84.4





At June 30, 2009 and December 31, 2008,
Centennial’s debt obligations consisted of $124.8 million and $129.9 million,
respectively, borrowed under a master shelf loan
agreement.  Borrowings under the master shelf agreement mature in May
2024 and are collateralized by substantially all of Centennial’s assets and
severally guaranteed by Centennial’s owners (see Note 15).





There have been no material changes in
the terms of the debt obligations of Centennial since those reported in our
Annual Report on Form 10-K for the year ended December 31, 2008.








Note
11.  Partners’ Capital and Distributions





Our Units represent limited partner
interests, which give the holders thereof the right to participate in
distributions and to exercise the other rights or privileges available to them
under our partnership agreement (“Partnership Agreement”).  We are
managed by our General Partner.





In accordance with the Partnership
Agreement, capital accounts are maintained for our General Partner and limited
partners.  The capital account provisions of our Partnership Agreement
incorporate principles established for U.S. federal income tax purposes and
are not comparable to the equity accounts reflected under GAAP in our
consolidated financial statements. In connection with the amendment of our
Partnership Agreement in December 2006, the General Partner’s obligation to make
capital contributions to maintain its 2% capital account was
eliminated.





Our Partnership Agreement sets forth
the calculation to be used in determining the amount and priority of cash
distributions that our limited partners and General Partner will
receive. Net income reflected under GAAP in our financial statements is
allocated between the General Partner and the limited





23
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





partners
in the same proportion as aggregate cash distributions made to the General
Partner and the limited partners during the period.  Net income
determined under our Partnership Agreement, however, incorporates principles
established for U.S. federal income tax purposes and is not comparable to net
income reflected under GAAP in our financial statements.





Registration
Statements





In general, the Partnership Agreement
authorizes us to issue an unlimited number of additional limited partner
interests and other equity securities for such consideration and on such terms
and conditions as may be established by our General Partner in its sole
discretion (subject, under certain circumstances, to the approval of our
unitholders).





We have a universal shelf registration
statement on file with the SEC that allows us to issue an unlimited amount of
debt and equity securities.





We also have a registration statement
on file with the SEC authorizing the issuance of up to 10,000,000 Units in
connection with our distribution reinvestment plan (“DRIP”).  A total
of 533,936 Units have been issued under this registration statement from
inception of the DRIP through June 30, 2009.  See Note 18 for
information regarding the suspension of the DRIP.





In addition, we have a registration
statement on file related to our employee unit purchase plan (“EUPP”), under
which we can issue up to 1,000,000 Units.  A total of
43,506 Units have been issued to employees under this plan from inception
of the EUPP through June 30, 2009.  See Note 18 for information
regarding the suspension of the EUPP.





During the six months ended June 30,
2009, a total of 131,605 Units were issued in connection with the DRIP and the
EUPP.  Total net proceeds received during the six months ended June
30, 2009 from these Unit offerings was $3.3 million.





Summary
of Changes in Outstanding Units





The
following table summarizes changes in our outstanding units since December
31, 2008:





LimitedPartner
                Restricted
                TreasuryUnits
                Units
                Units
                TotalBalance,
      December 31, 2008
                104,547,561
                157,300
                --
                104,704,861Units
      issued in connection with DRIP
                115,703
                --
                --
                115,703Units
      issued in connection with EUPP
                15,902
                --
                --
                15,902Issuance
      of restricted units under 2006 LTIP
                --
                140,450
                --
                140,450Conversion
      of restricted units to Units
                5,000
                (5,000)
                --
                --Acquisition
      of treasury units
                (1,562)
                --
                1,562
                --Cancellation
      of treasury units
                --
                --
                (1,562)
                (1,562)Forfeiture
      of restricted units
                --
                (32,350)
                --
                (32,350)Balance,
      June 30, 2009
                104,682,604
                260,400
                --
                104,943,004





During the six months ended June 30,
2009, 5,000 restricted unit awards vested and were converted into
Units.  Of this amount, 1,562 were sold back to us by an employee to
cover related withholding tax requirements.  The total cost of these
treasury units were approximately $0.1 million, which was allocated to our
limited partners.  Immediately upon acquisition, we cancelled such
treasury units.




24
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Quarterly
Distributions of Available Cash





We make quarterly cash distributions of
all of our available cash, generally defined in our Partnership Agreement as
consolidated cash receipts less consolidated cash disbursements and cash
reserves established by the General Partner in its reasonable discretion
(“Available Cash”).  Pursuant to the Partnership Agreement, the
General Partner receives incremental incentive cash distributions when
unitholders’ cash distributions exceed certain target thresholds.





The following table reflects the
allocation of total distributions paid during the periods
indicated:





For
      the Six Months
                    Ended
      June 30,2009
                  
                  
                  2008Limited
      Partner Units
                  
                  $
                  151.8
                  
                  
                  $
                  129.8General
      Partner Ownership Interest
                  
                  
                  3.1
                  
                  
                  
                  2.6General
      Partner Incentive
                  
                  
                  27.9
                  
                  
                  
                  23.3Total
      Cash Distributions Paid
                  
                  $
                  182.8
                  
                  
                  $
                  155.7Total
      Cash Distributions Paid Per Unit
                  
                  $
                  1.450
                  
                  
                  $
                  1.405





Our
quarterly cash distributions for 2009 are presented in the following
table:





Distribution
                                  
                                  Record
                                  Paymentper
      Unit
                                  
                                  Date
                                  Date1st
      Quarter 2009
                                  
                                  $
                                  0.725
                                  
                                  Apr.
      30, 2009
                                  May
      7, 20092nd
      Quarter 2009 (1)
                                  
                                  $
                                  0.725
                                  
                                  Jul.
      31, 2009
                                  Aug.
      7, 2009(1)The
      second quarter 2009 cash distribution will total approximately $91.6
      million.





General
Partner’s Interest





At June 30, 2009 and December 31, 2008,
we had deficit balances of $126.3 million and $110.3 million, respectively, in
our General Partner’s equity account.  These negative balances do not
represent assets to us and do not represent obligations of the General Partner
to contribute cash or other property to us. According to the Partnership
Agreement, in the event of our dissolution, after satisfying our liabilities,
our remaining assets would be divided among our limited partners and the General
Partner generally in the same proportion as Available Cash but calculated on a
cumulative basis over the life of the Partnership.  If a deficit
balance still remains in the General Partner’s equity account after all
allocations are made between the partners, the General Partner would not be
required to make whole any such deficit.





Accumulated
Other Comprehensive Loss





Our accumulated other comprehensive
loss balance consisted of losses of $43.0 million and $45.8 million related to
interest rate and treasury lock derivative instruments at June 30, 2009 and
December 31, 2008, respectively.




25
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
12.  Business Segments





We have four reporting
segments:





§
            Our
      Downstream Segment, which is engaged in the pipeline transportation,
      marketing and storage of refined products, LPGs and
      petrochemicals;





§
            Our
      Upstream Segment, which is engaged in the gathering, pipeline
      transportation, marketing and storage of crude oil, distribution of
      lubrication oils and specialty chemicals and fuel transportation
      services;





§
            Our
      Midstream Segment, which is engaged in the gathering of natural gas,
      fractionation of NGLs and pipeline transportation of NGLs;
      and


§
              Our
      Marine Services Segment, which is engaged in the marine transportation of
      petroleum products and provision of marine vessel fueling and other
      ship-assist services.


The following table presents our
measurement of earnings before interest expense for the periods
indicated:




For
      the Three Months
                  
                  
                  For
      the Six MonthsEnded
      June 30,
                  
                  
                  Ended
      June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Total
      operating revenues
                  
                  $
                  1,913.2
                  
                  
                  $
                  4,180.5
                  
                  
                  $
                  3,370.8
                  
                  
                  $
                  6,989.0Less:  Total
      costs and expenses
                  
                  
                  1,857.3
                  
                  
                  
                  4,121.2
                  
                  
                  
                  3,229.2
                  
                  
                  
                  6,846.2Operating
      income
                  
                  
                  55.9
                  
                  
                  
                  59.3
                  
                  
                  
                  141.6
                  
                  
                  
                  142.8Add:  Equity
      in income (loss) of unconsolidated affiliates
                  
                  
                  (12.2
                  )
                  
                  
                  21.3
                  
                  
                  
                  12.9
                  
                  
                  
                  41.0Other,
      net
                  
                  
                  0.7
                  
                  
                  
                  1.1
                  
                  
                  
                  1.0
                  
                  
                  
                  1.4Earnings
      before interest expense and provision for income taxes
                  
                  $
                  44.4
                  
                  
                  $
                  81.7
                  
                  
                  $
                  155.5
                  
                  
                  $
                  185.2





A reconciliation of our earnings before
interest expense and provision for income taxes to net income for the periods
indicated is as follows:




For
      the Three Months
                  
                  
                  For
      the Six MonthsEnded
      June 30,
                  
                  
                  Ended
      June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Earnings
      before interest expense and provision for income taxes
                  
                  $
                  44.4
                  
                  
                  $
                  81.7
                  
                  
                  $
                  155.5
                  
                  
                  $
                  185.2Interest
      expense
                  
                  
                  (32.3
                  )
                  
                  
                  (33.0
                  )
                  
                  
                  (64.4
                  )
                  
                  
                  (71.6
                  )Income
      before provision for income taxes
                  
                  
                  12.1
                  
                  
                  
                  48.7
                  
                  
                  
                  91.1
                  
                  
                  
                  113.6Provision
      for income taxes
                  
                  
                  (0.9
                  )
                  
                  
                  (1.0
                  )
                  
                  
                  (1.7
                  )
                  
                  
                  (1.8
                  )Net
      income
                  
                  $
                  11.2
                  
                  
                  $
                  47.7
                  
                  
                  $
                  89.4
                  
                  
                  $
                  111.8





Amounts indicated in the following
table as “Partnership and Other” for income and expense items (including
operating income) relate primarily to intersegment eliminations from activities
among our reporting segments.  Amounts indicated in the following
table as “Partnership and Other” for assets and capital expenditures include the
elimination of intersegment related party receivables and investment balances
among our reporting segments and assets that we hold that have not been
allocated to any of our reporting segments (including such items as corporate
furniture and fixtures, vehicles, computer hardware and software, prepaid
insurance and unamortized debt issuance costs on debt issued at the Partnership
level).




26
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The following table includes
information by segment, together with reconciliations to our consolidated
totals, for the periods indicated:




Reportable
      SegmentsMarineDownstream
                
                
                Upstream
                
                
                Midstream
                
                
                Services
                
                
                PartnershipSegment
                
                
                Segment
                
                
                Segment
                
                
                Segment
                
                
                and
      Other
                
                
                ConsolidatedRevenues
      from third parties:Three
      months ended June 30, 2009
                
                $
                79.0
                
                
                $
                1,751.4
                
                
                $
                27.6
                
                
                $
                43.7
                
                
                $
                --
                
                
                $
                1,901.7Three
      months ended June 30, 2008
                
                
                75.1
                
                
                
                4,025.2
                
                
                
                27.2
                
                
                
                48.1
                
                
                
                --
                
                
                
                4,175.6Six
      months ended June 30, 2009
                
                
                155.6
                
                
                
                3,047.5
                
                
                
                52.8
                
                
                
                80.6
                
                
                
                --
                
                
                
                3,336.5Six
      months ended June 30, 2008
                
                
                169.7
                
                
                
                6,680.3
                
                
                
                53.8
                
                
                
                73.6
                
                
                
                --
                
                
                
                6,977.4Revenues
      from related parties:Three
      months ended June 30, 2009
                
                
                7.9
                
                
                
                0.2
                
                
                
                3.5
                
                
                
                --
                
                
                
                (0.1
                )
                
                
                11.5Three
      months ended June 30, 2008
                
                
                1.3
                
                
                
                0.2
                
                
                
                3.4
                
                
                
                --
                
                
                
                --
                
                
                
                4.9Six
      months ended June 30, 2009
                
                
                26.8
                
                
                
                0.3
                
                
                
                7.3
                
                
                
                --
                
                
                
                (0.1
                )
                
                
                34.3Six
      months ended June 30, 2008
                
                
                4.4
                
                
                
                0.4
                
                
                
                6.9
                
                
                
                --
                
                
                
                (0.1
                )
                
                
                11.6Total
      revenues:Three
      months ended June 30, 2009
                
                
                86.9
                
                
                
                1,751.6
                
                
                
                31.1
                
                
                
                43.7
                
                
                
                (0.1
                )
                
                
                1,913.2Three
      months ended June 30, 2008
                
                
                76.4
                
                
                
                4,025.4
                
                
                
                30.6
                
                
                
                48.1
                
                
                
                --
                
                
                
                4,180.5Six
      months ended June 30, 2009
                
                
                182.4
                
                
                
                3,047.8
                
                
                
                60.1
                
                
                
                80.6
                
                
                
                (0.1
                )
                
                
                3,370.8Six
      months ended June 30, 2008
                
                
                174.1
                
                
                
                6,680.7
                
                
                
                60.7
                
                
                
                73.6
                
                
                
                (0.1
                )
                
                
                6,989.0Depreciation
      and amortization:Three
      months ended June 30, 2009
                
                
                13.3
                
                
                
                6.7
                
                
                
                10.3
                
                
                
                6.5
                
                
                
                --
                
                
                
                36.8Three
      months ended June 30, 2008
                
                
                10.5
                
                
                
                5.0
                
                
                
                10.0
                
                
                
                6.4
                
                
                
                --
                
                
                
                31.9Six
      months ended June 30, 2009
                
                
                24.8
                
                
                
                12.3
                
                
                
                19.8
                
                
                
                12.9
                
                
                
                --
                
                
                
                69.8Six
      months ended June 30, 2008
                
                
                20.7
                
                
                
                9.8
                
                
                
                19.6
                
                
                
                10.1
                
                
                
                --
                
                
                
                60.2Operating
      income:Three
      months ended June 30, 2009
                
                
                13.5
                
                
                
                29.9
                
                
                
                3.8
                
                
                
                8.3
                
                
                
                0.4
                
                
                
                55.9Three
      months ended June 30, 2008
                
                
                15.7
                
                
                
                25.6
                
                
                
                8.3
                
                
                
                8.6
                
                
                
                1.1
                
                
                
                59.3Six
      months ended June 30, 2009
                
                
                47.9
                
                
                
                70.8
                
                
                
                8.3
                
                
                
                13.5
                
                
                
                1.1
                
                
                
                141.6Six
      months ended June 30, 2008
                
                
                52.0
                
                
                
                54.9
                
                
                
                16.7
                
                
                
                15.2
                
                
                
                4.0
                
                
                
                142.8Equity
      in income (loss) of unconsolidated affiliates:Three
      months ended June 30, 2009
                
                
                (4.3
                )
                
                
                (31.3
                )
                
                
                23.8
                
                
                
                --
                
                
                
                (0.4
                )
                
                
                (12.2
                )Three
      months ended June 30, 2008
                
                
                (3.7
                )
                
                
                4.2
                
                
                
                21.9
                
                
                
                --
                
                
                
                (1.1
                )
                
                
                21.3Six
      months ended June 30, 2009
                
                
                (7.4
                )
                
                
                (28.0
                )
                
                
                49.4
                
                
                
                --
                
                
                
                (1.1
                )
                
                
                12.9Six
      months ended June 30, 2008
                
                
                (7.8
                )
                
                
                7.2
                
                
                
                45.6
                
                
                
                --
                
                
                
                (4.0
                )
                
                
                41.0Earnings
      before interest expense and provision for income taxes:Three
      months ended June 30, 2009
                
                
                9.4
                
                
                
                (0.9
                )
                
                
                27.6
                
                
                
                8.3
                
                
                
                --
                
                
                
                44.4Three
      months ended June 30, 2008
                
                
                12.4
                
                
                
                30.4
                
                
                
                30.3
                
                
                
                8.6
                
                
                
                --
                
                
                
                81.7Six
      months ended June 30, 2009
                
                
                41.0
                
                
                
                43.3
                
                
                
                57.7
                
                
                
                13.5
                
                
                
                --
                
                
                
                155.5Six
      months ended June 30, 2008
                
                
                44.8
                
                
                
                62.7
                
                
                
                62.5
                
                
                
                15.2
                
                
                
                --
                
                
                
                185.2Capital
      expenditures:Six
      months ended June 30, 2009
                
                
                120.7
                
                
                
                16.5
                
                
                
                7.3
                
                
                
                18.3
                
                
                
                1.5
                
                
                
                164.3Year
      ended December 31, 2008
                
                
                209.8
                
                
                
                33.4
                
                
                
                5.2
                
                
                
                43.6
                
                
                
                8.5
                
                
                
                300.5Segment
      assets:At
      June 30, 2009
                
                
                1,417.9
                
                
                
                1,697.8
                
                
                
                1,517.8
                
                
                
                703.1
                
                
                
                18.3
                
                
                
                5,354.9At
      December 31, 2008
                
                
                1,320.9
                
                
                
                1,586.3
                
                
                
                1,529.1
                
                
                
                653.3
                
                
                
                (39.8
                )
                
                
                5,049.8Investments
      in unconsolidated affiliates:At
      June 30, 2009
                
                
                58.1
                
                
                
                182.9
                
                
                
                949.2
                
                
                
                --
                
                
                
                8.7
                
                
                
                1,198.9At
      December 31, 2008
                
                
                63.2
                
                
                
                226.0
                
                
                
                957.7
                
                
                
                --
                
                
                
                9.0
                
                
                
                1,255.9Intangible
      assets, net:At
      June 30, 2009
                
                
                6.6
                
                
                
                7.7
                
                
                
                122.3
                
                
                
                58.5
                
                
                
                --
                
                
                
                195.1At
      December 31, 2008
                
                
                5.4
                
                
                
                8.1
                
                
                
                131.6
                
                
                
                62.6
                
                
                
                --
                
                
                
                207.7Goodwill:At
      June 30, 2009
                
                
                1.3
                
                
                
                14.9
                
                
                
                --
                
                
                
                90.4
                
                
                
                --
                
                
                
                106.6At
      December 31, 2008
                
                
                1.3
                
                
                
                14.9
                
                
                
                --
                
                
                
                90.4
                
                
                
                --
                
                
                
                106.6








27
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
13.  Related Party Transactions





The following table summarizes related
party transactions for the periods indicated:





For
      the Three Months
                                                                  
                                                                  
                                                                  For
      the Six MonthsEnded
      June 30,
                                                                  
                                                                  
                                                                  Ended
      June 30,2009
                                                                  
                                                                  
                                                                  2008
                                                                  
                                                                  
                                                                  2009
                                                                  
                                                                  
                                                                  2008Revenues
      from EPCO and affiliates:Sales
      of petroleum products (1)
                                                                  
                                                                  $
                                                                  0.2
                                                                  
                                                                  
                                                                  $
                                                                  0.3
                                                                  
                                                                  
                                                                  $
                                                                  0.3
                                                                  
                                                                  
                                                                  $
                                                                  0.9Transportation
      – NGLs (2)
                                                                  
                                                                  
                                                                  3.5
                                                                  
                                                                  
                                                                  
                                                                  3.4
                                                                  
                                                                  
                                                                  
                                                                  7.3
                                                                  
                                                                  
                                                                  
                                                                  6.8Transportation
      – LPGs (3)
                                                                  
                                                                  
                                                                  1.5
                                                                  
                                                                  
                                                                  
                                                                  1.0
                                                                  
                                                                  
                                                                  
                                                                  6.4
                                                                  
                                                                  
                                                                  
                                                                  3.3Other
      operating revenues (4)
                                                                  
                                                                  
                                                                  6.3
                                                                  
                                                                  
                                                                  
                                                                  0.2
                                                                  
                                                                  
                                                                  
                                                                  20.3
                                                                  
                                                                  
                                                                  
                                                                  0.6Related
      party revenues
                                                                  
                                                                  $
                                                                  11.5
                                                                  
                                                                  
                                                                  $
                                                                  4.9
                                                                  
                                                                  
                                                                  $
                                                                  34.3
                                                                  
                                                                  
                                                                  $
                                                                  11.6Costs
      and Expenses from EPCO and affiliates:Purchases
      of petroleum products (5)
                                                                  
                                                                  $
                                                                  45.2
                                                                  
                                                                  
                                                                  $
                                                                  30.5
                                                                  
                                                                  
                                                                  $
                                                                  71.9
                                                                  
                                                                  
                                                                  $
                                                                  50.2Operating
      expense (6)
                                                                  
                                                                  
                                                                  29.5
                                                                  
                                                                  
                                                                  
                                                                  26.7
                                                                  
                                                                  
                                                                  
                                                                  58.1
                                                                  
                                                                  
                                                                  
                                                                  48.2General
      and administrative (7)
                                                                  
                                                                  
                                                                  7.4
                                                                  
                                                                  
                                                                  
                                                                  8.0
                                                                  
                                                                  
                                                                  
                                                                  15.5
                                                                  
                                                                  
                                                                  
                                                                  16.8Costs
      and Expenses from unconsolidated affiliates:Purchases
      of petroleum products (8)
                                                                  
                                                                  
                                                                  0.7
                                                                  
                                                                  
                                                                  
                                                                  2.0
                                                                  
                                                                  
                                                                  
                                                                  --
                                                                  
                                                                  
                                                                  
                                                                  3.5Operating
      expense (9)
                                                                  
                                                                  
                                                                  0.6
                                                                  
                                                                  
                                                                  
                                                                  1.6
                                                                  
                                                                  
                                                                  
                                                                  2.2
                                                                  
                                                                  
                                                                  
                                                                  3.9Costs
      and Expenses from Cenac and affiliates:Operating
      expense (10)
                                                                  
                                                                  
                                                                  13.6
                                                                  
                                                                  
                                                                  
                                                                  9.8
                                                                  
                                                                  
                                                                  
                                                                  27.0
                                                                  
                                                                  
                                                                  
                                                                  17.2General
      and administrative (11)
                                                                  
                                                                  
                                                                  0.5
                                                                  
                                                                  
                                                                  
                                                                  0.8
                                                                  
                                                                  
                                                                  
                                                                  1.6
                                                                  
                                                                  
                                                                  
                                                                  1.3Related
      party costs and expenses
                                                                  
                                                                  $
                                                                  97.5
                                                                  
                                                                  
                                                                  $
                                                                  79.4
                                                                  
                                                                  
                                                                  $
                                                                  176.3
                                                                  
                                                                  
                                                                  $
                                                                  141.1(1)Includes
      sales from Lubrication Services, LLC (“LSI”) to Enterprise Products
      Partners and certain of its subsidiaries.
                                                                    (2)Includes
      revenues from NGL transportation on the Chaparral Pipeline Company, LLC
      and Quanah Pipeline Company, LLC (collectively referred to as “Chaparral”
      or “Chaparral NGL system”) and Panola Pipeline Company, LLC (“Panola
      Pipeline”) NGL pipelines from Enterprise Products Partners and certain of
      its subsidiaries.
                                                                    (3)Includes
      revenues from LPG transportation on the TE Products pipeline from
      Enterprise Products Partners and certain of its subsidiaries.
                                                                    (4)Includes
      sales of product inventory from TE Products to Enterprise Products
      Partners and other operating revenues on the TE Products pipeline from
      Enterprise Products Partners and certain of its subsidiaries.
                                                                    (5)Includes
      TEPPCO Crude Oil, LLC (“TCO”) purchases of petroleum products of $35.2
      million and $25.9 million for the three months ended June 30, 2009 and
      2008, respectively, from Enterprise Products Partners and certain of its
      subsidiaries and Energy Transfer Equity, L.P. and certain of its
      subsidiaries. For the six months ended June 30, 2009 and 2008, such
      amounts were $55.8 million and $41.5 million, respectively.
                                                                    (6)Includes
      operating payroll, payroll related expenses and other operating expenses,
      including reimbursements related to employee benefits and employee benefit
      plans, incurred by EPCO in managing us and our subsidiaries in accordance
      with the ASA and expenses related to Chaparral’s use of transportation
      services of a subsidiary of Enterprise Products Partners. Also
      includes insurance expense for the three months ended June 30, 2009 and
      2008, of $1.9 million and $2.2 million, respectively, related to premiums
      paid by EPCO on our behalf. For the six months ended June 30, 2009
      and 2008, such amounts were $5.1 million and $5.2 million, respectively.
       The majority of our insurance coverage, including property,
      liability, business interruption, auto and directors’ and officers’
      liability insurance, is obtained through EPCO.
                                                                    (7)Includes
      administrative payroll, payroll related expenses and other administrative
      expenses, including reimbursements related to employee benefits and
      employee benefit plans, incurred by EPCO in managing and operating us and
      our subsidiaries in accordance with the ASA.
                                                                    (8)Includes
      TCO purchases of petroleum products from Jonah and Seaway and pipeline
      transportation expense from Seaway.
                                                                    (9)Includes
      rental expense and other operating expense.
                                                                    (10)Includes
      reimbursement for operating payroll, payroll related expenses, certain
      repairs and maintenance expenses and insurance premiums on our equipment
      under the transitional operating agreement with Cenac Towing Co., Inc.,
      Cenac Offshore, L.L.C. and Mr. Arlen B. Cenac, Jr. (collectively,
      "Cenac") pursuant to which, our fleet of acquired tow boats and tank
      barges (including those acquired from Horizon Maritime, L.L.C. (“Horizon”)
      and TransMontaigne) are operated by employees of Cenac for a period of up
      to two years following the Cenac acquisition.  See Note 18 for
      information regarding the termination of the transitional operating
      agreement.
                                                                    (11)Includes
      reimbursement for administrative payroll and payroll related expenses, as
      well as payment of a $42 thousand monthly service fee and a 5% overhead
      fee charged on direct costs incurred by Cenac to operate the marine assets
      in accordance with the transitional operating agreement.




28
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The
following table summarizes our related party receivable and payable amounts at
the dates indicated:




June
      30,
                                                
                                                
                                                December
      31,2009
                                                
                                                
                                                2008Accounts
      receivable, related parties (1)
                                                
                                                $
                                                10.7
                                                
                                                
                                                $
                                                15.8Accounts
      payable, related parties (2)
                                                
                                                
                                                40.9
                                                
                                                
                                                
                                                17.2(1)Relates
      to sales and transportation services provided to Enterprise Products
      Partners and certain of its subsidiaries and EPCO and certain of its
      affiliates and direct payroll, payroll related costs and other operational
      expenses charged to unconsolidated affiliates.
                                                  (2)Relates
      to direct payroll, payroll related costs and other operational related
      charges from Enterprise Products Partners and certain of its subsidiaries
      and EPCO and certain of its affiliates, transportation and other services
      provided by unconsolidated affiliates, advances from Seaway for operating
      expenses and $3.0 million related to operational related charges from
      Cenac.





As an affiliate of EPCO and other
companies controlled by Mr. Duncan, our transactions and agreements with them
are not necessarily on an arm’s length basis.  As a result, we cannot
provide assurance that the terms and provisions of such transactions or
agreements are at least as favorable to us as we could have obtained from
unaffiliated third parties.





Relationship with EPCO and
affiliates





We have an extensive and ongoing
relationship with EPCO and its affiliates, which include the following
significant entities that are not a part of our consolidated group of
companies:





§
            EPCO
      and its
privately-held affiliates;


§
            Texas
      Eastern Products Pipeline Company, LLC, our General
    Partner;


§
            Enterprise
      GP Holdings, which owns and controls our General
  Partner;


§
            Enterprise
      Products Partners, which is controlled by affiliates of EPCO, including
      Enterprise GP Holdings;


§
            Duncan
      Energy Partners, which is controlled by affiliates of
  EPCO;


§
            Enterprise
      Gas Processing LLC, which is controlled by affiliates of EPCO and is our
      joint venture partner in Jonah; and


§
            the
      Employee Partnerships, which are controlled by EPCO (see Note
      3).





See Note 18 for a subsequent event regarding a
loan agreement we entered into with Enterprise Products
Partners.


D an L.
Duncan directly owns and controls EPCO and, through Dan Duncan LLC, owns and
controls EPE Holdings, LLC, the general partner of Enterprise GP
Holdings.  Enterprise GP Holdings owns all of the membership interests
of our General Partner.  The principal business activity of our
General Partner is to act as our managing partner.  The executive
officers of our General Partner are employees of EPCO (see Note
1).





We and our General Partner are both
separate legal entities apart from each other and apart from EPCO and its other
affiliates, with assets and liabilities that are separate from those of EPCO and
its other affiliates.  EPCO and its consolidated privately-held
affiliates depend on the cash distributions they receive from our General
Partner and other investments to fund their operations and to meet their debt
obligations.  We paid cash distributions to our General Partner of
$31.0 million and $25.9 million during the six months ended June 30, 2009 and
2008, respectively.





The limited partner interests in us
that are owned or controlled by EPCO and certain of its affiliates, other than
those interests owned by Dan Duncan LLC and certain trusts affiliated with Dan
L. Duncan, are pledged as security under the credit facility of a privately-held
affiliate of EPCO.  All of the membership interests in our General
Partner and the limited partner interests in us that are owned or


29
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




controlled by
Enterprise GP Holdings are pledged as security under its credit
facility.  If Enterprise GP Holdings were to default under its credit
facility, its lender banks could own our General Partner.





In August 2008, we, together with
Enterprise Products Partners and Oiltanking, announced the formation of
TOPS.  On April 16, 2009, we, along with a subsidiary of Enterprise
Products Partners, dissociated ourselves from TOPS (see Note 7).





EPCO
ASA.We have no
employees.  We are managed by our General Partner, and all of our
management, administrative and operating functions are performed by employees of
EPCO, pursuant to the ASA or by other service providers.  We,
Enterprise Products Partners, Duncan Energy Partners, Enterprise GP Holdings and
our respective general partners are among the parties to the ASA.  The
Audit, Conflicts and Governance Committee (“ACG Committee”) of each general
partner has approved the ASA.





Under the ASA, we reimburse EPCO for
all costs and expenses it incurs in providing management, administrative and
operating services for us, including compensation of employees (i.e., salaries,
medical benefits and retirement benefits) (see Note 1).  Since the
vast majority of such expenses are charged to us on an actual basis (i.e., no
mark-up or subsidy is charged or received by EPCO), we believe that such
expenses are representative of what the amounts would have been on a standalone
basis.  With respect to allocated costs, we believe that the
proportional direct allocation method employed by EPCO is reasonable and
reflective of the estimated level of costs we would have incurred on a
standalone basis.





On January 30, 2009, we entered into
the Fifth Amended and Restated ASA, which amended the previous ASA to provide
for the cash reimbursement to EPCO by us of distributions of cash or securities,
if any, made by TEPPCO Unit II to its Class B limited partner, Mr. Jerry
Thompson, our chief executive officer and an employee of EPCO.  The
Fifth Amended and Restated ASA also extends the term of EPCO’s service
obligations from December 2010 to December 2013.





Proposed
Merger withEnterpriseProducts Partners.  On June 28, 2009, we and our General
Partner entered into definitive merger agreements with Enterprise Products
Partners, EPGP, and two of its subsidiaries. Under the terms of the
definitive agreements, we and our General Partner would become wholly owned
subsidiaries of Enterprise Products Partners, and each of our outstanding Units,
other than 3,645,509 of our Units owned by a privately-held affiliate of EPCO,
would be cancelled and converted into the right to receive 1.24 Enterprise
Products Partners common units.  The 3,645,509 Units owned by a
privately-held affiliate of EPCO would be converted, based on the 1.24
exchange ratio, into the right to receive 4,520,431 of Enterprise Products
Partners Class B units (“Class B Units”).  The Class B Units would not
be entitled to regular quarterly cash distributions of Enterprise Products
Partners for sixteen quarters following the closing of the merger and, except
for the payment of distributions, would have the same rights and privileges as
Enterprise Products Partners common units.  The Class B Units would
convert automatically into the same number of Enterprise Products Partners
common units on the date immediately following the payment date for the
sixteenth quarterly distribution following the closing of the
merger.  No fractional Enterprise Products Partners common units would
be issued in the proposed merger, and our unitholders would, instead, receive
cash in lieu of fractional Enterprise Products Partners common units, if
any.





Under the terms of the definitive
agreements, Enterprise GP Holdings would receive 1,331,681 common units of
Enterprise Products Partners and an increase in the capital account of EPGP to
maintain its 2% general partner interest in Enterprise Products Partners as
consideration for 100% of the membership interests of our General
Partner.





A Special Committee of the ACG
Committee of our General Partner unanimously determined that the merger is fair
and reasonable to us and our unaffiliated unitholders and recommended that the
merger be approved by our unaffiliated unitholders, the ACG Committee of our
General Partner and our General


30
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




Partner’s board
of directors.  Based upon such determination and recommendation, the
ACG Committee of our General Partner unanimously determined that the merger is
fair and reasonable to us and our unaffiliated unitholders and approved the
merger, such approval constituting “Special Approval” under our Partnership
Agreement.  The ACG Committee of our General Partner also recommended
that our General Partner’s board of directors approve the
merger.  Based on the Special Committee’s determination and
recommendation, as well as the ACG Committee’s determination, Special Approval
and recommendation, our General Partner’s board of directors unanimously
approved the merger and recommended that our unaffiliated unitholders vote in
favor of the merger proposal.  In addition, the ACG Committee of the
general partner of each of Enterprise Products Partners and Enterprise GP
Holdings also approved the transaction.





Completion of the proposed merger is
subject to the approval of holders of at least a majority of our outstanding
Units.  In addition, pursuant to the merger agreement providing for
the merger of our Partnership, the number of votes cast in favor of the merger
agreement by our unitholders (excluding certain unitholders affiliated with EPCO
and other specified officers and directors of our General Partner, Enterprise GP
Holdings and Enterprise Products Partners) must exceed the votes cast against
the merger agreement by such unitholders.  Affiliates of EPCO,
including Enterprise GP Holdings, have executed a support agreement with
Enterprise Products Partners in which they have agreed to vote their Units in
favor of the merger agreement.  The closing is also subject to customary
regulatory approvals, including that under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.  Subject to the receipt of
regulatory and unitholder approvals, completion of the proposed merger is
expected to occur during the fourth quarter of 2009.  See Note 15 for
information regarding litigation matters associated with the proposed
merger.





The merger agreement providing for the
merger of our Partnership contains provisions granting both us and Enterprise
Products Partners the right to terminate the agreement for certain reasons,
including, among others, (i) if our merger into its subsidiary has not
occurred on or before December 31, 2009, and (ii) our failure to
obtain unitholder approval as described above.





We incurred $6.8 million of
merger-related expenses during the second quarter of 2009 that are reflected as
a component of general and administrative costs.





Jonah
Joint Venture.Enterprise
Products Partners (through an affiliate) is our joint venture partner in Jonah,
the partnership through which we have owned our interest in the system serving
the Jonah and Pinedale fields.  Through June 30, 2009, we have reimbursed
Enterprise Products Partners $308.3 million ($1.8 million in 2009, $44.9 million
in 2008, $152.2 million in 2007 and $109.4 million in 2006) for our share of the
Phase V cost incurred by it (including its cost of capital incurred prior to the
formation of the joint venture of $1.3 million).  At June 30, 2009 and
December 31, 2008, we had payables to Enterprise Products Partners for costs
incurred of less than $0.1 million and $1.0 million, respectively.  At
June 30, 2009 and December 31, 2008, we had receivables from Jonah of $9.2
million and $4.7 million, respectively, for operating
expenses.  During the six months ended June 30, 2009 and 2008, we
received distributions from Jonah of $76.0 million and $75.9 million,
respectively.  During each of the six months ended June 30, 2009 and
2008, Jonah paid distributions of $18.2 million to the affiliate of
Enterprise Products Partners that is our joint venture partner.





Ownership
ofourGeneral
PartnerbyEnterpriseGP
Holdings; Relationship with Energy Transfer Equity.Enterprise GP
Holdings owns and controls the 2% general partner interest in us and has the
right (through its 100% ownership of our General Partner) to receive the
incentive distribution rights associated with the general partner
interest.  Enterprise GP Holdings, DFIGP and other entities controlled
by Mr. Duncan own 17,073,315 of our Units.




31
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


E nterprise GP Holdings
acquired equity method investments in Energy Transfer Equity, L.P. (“Energy
Transfer Equity”) and its general partner in May 2007.  As a result,
Energy Transfer Equity and its consolidated subsidiaries became related parties
to us.


Re lationship
with Unconsolidated Affiliates





Our significant related party revenues
and expense transactions with unconsolidated affiliates consist of management,
rental and other revenues, transportation expense related to movements on
Centennial and Seaway and rental expense related to the lease of pipeline
capacity on Centennial.  For additional information regarding our
unconsolidated affiliates, see Note 7.





See “Jonah Joint Venture” within this
Note 13 for a description of ongoing transactions involving our Jonah joint
venture with Enterprise Products Partners.








Note
14.  Earnings Per Unit





The following table presents the net
income available to our General Partner for the periods indicated for purposes
of calculating earnings per Unit:





For
      the Three Months
                                    
                                    
                                    For
      the Six MonthsEnded
      June 30,
                                    
                                    
                                    Ended
      June 30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Net
      income attributable to TEPPCO Partners, L.P.
                                    
                                    $
                                    11.2
                                    
                                    
                                    $
                                    47.7
                                    
                                    
                                    $
                                    89.4
                                    
                                    
                                    $
                                    111.8Distributions Declared During
      Quarter:Distributions
      to General Partner (including incentive
                                      distributions)
                                    
                                    $
                                    15.6
                                    
                                    
                                    $
                                    13.5
                                    
                                    
                                    $
                                    31.0
                                    
                                    
                                    $
                                    27.1Distributions
      to limited partners
                                    
                                    
                                    76.0
                                    
                                    
                                    
                                    67.5
                                    
                                    
                                    
                                    152.0
                                    
                                    
                                    
                                    134.8Total
      distributions declared during quarter
                                    
                                    $
                                    91.6
                                    
                                    
                                    $
                                    81.0
                                    
                                    
                                    $
                                    183.0
                                    
                                    
                                    $
                                    161.9Excess
      of distributions over net income
                                    
                                    $
                                    (80.4
                                    )
                                    
                                    $
                                    (33.3
                                    )
                                    
                                    $
                                    (93.6
                                    )
                                    
                                    $
                                    (50.1
                                    )General
      Partner’s interest in net income
                                    
                                    
                                    16.93
                                    %
                                    
                                    
                                    16.74
                                    %
                                    
                                    
                                    16.93
                                    %
                                    
                                    
                                    16.74
                                    %Earnings
      allocation adjustment to General Partner
                                      under
      EITF 07-4 (1)
                                    
                                    $
                                    (13.7
                                    )
                                    
                                    $
                                    (5.5
                                    )
                                    
                                    $
                                    (15.9
                                    )
                                    
                                    $
                                    (8.4
                                    )Distributions
      to General Partner (including incentive
                                      distributions)
                                    
                                    $
                                    15.6
                                    
                                    
                                    $
                                    13.5
                                    
                                    
                                    $
                                    31.0
                                    
                                    
                                    $
                                    27.1Earnings
      allocation adjustment to General Partner
                                      under
      EITF 07-4
                                    
                                    
                                    (13.7
                                    )
                                    
                                    
                                    (5.5
                                    )
                                    
                                    
                                    (15.9
                                    )
                                    
                                    
                                    (8.4
                                    )Net
      income available to our General Partner
                                    
                                    $
                                    1.9
                                    
                                    
                                    $
                                    8.0
                                    
                                    
                                    $
                                    15.1
                                    
                                    
                                    $
                                    18.7(1)For
      purposes of computing basic and diluted earnings per Unit, we apply the
      provisions of EITF 07-4 (ASC 260), Application of the Two-Class
      Method under FASB Statement No. 128 to Master Limited
      Partnerships. Our earnings are allocated on a basis consistent
      with distributions declared during the quarter (see Note
    11).




32
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The following table presents our
calculation of basic and diluted earnings per Unit for the periods
indicated:




For
      the Three Months
                                                    
                                                    
                                                    For
      the Six MonthsEnded
      June 30,
                                                    
                                                    
                                                    Ended
      June 30,2009
                                                    
                                                    
                                                    2008
                                                    
                                                    
                                                    2009
                                                    
                                                    
                                                    2008BASIC
      EARNINGS PER UNIT:Numerator:Limited
      partners’ interest in net income
                                                    
                                                    $
                                                    9.3
                                                    
                                                    
                                                    $
                                                    39.7
                                                    
                                                    
                                                    $
                                                    74.3
                                                    
                                                    
                                                    $
                                                    93.1Denominator:Weighted-average
      Units
                                                    
                                                    
                                                    104.7
                                                    
                                                    
                                                    
                                                    94.8
                                                    
                                                    
                                                    
                                                    104.6
                                                    
                                                    
                                                    
                                                    94.0Weighted-average
      time-vested restricted units
                                                    
                                                    
                                                    0.2
                                                    
                                                    
                                                    
                                                    0.1
                                                    
                                                    
                                                    
                                                    0.2
                                                    
                                                    
                                                    
                                                    --Total
                                                    
                                                    
                                                    104.9
                                                    
                                                    
                                                    
                                                    94.9
                                                    
                                                    
                                                    
                                                    104.8
                                                    
                                                    
                                                    
                                                    94.0Basic earnings per
      Unit:Net
      income attributable to TEPPCO Partners, L.P.
                                                    
                                                    $
                                                    0.11
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    
                                                    $
                                                    0.85
                                                    
                                                    
                                                    $
                                                    1.19General
      Partner’s interest in net income
                                                    
                                                    
                                                    (0.02
                                                    )
                                                    
                                                    
                                                    (0.08
                                                    )
                                                    
                                                    
                                                    (0.14
                                                    )
                                                    
                                                    
                                                    (0.20
                                                    )Limited
      partners’ interest in net income
                                                    
                                                    $
                                                    0.09
                                                    
                                                    
                                                    $
                                                    0.42
                                                    
                                                    
                                                    $
                                                    0.71
                                                    
                                                    
                                                    $
                                                    0.99DILUTED
      EARNINGS PER UNIT:Numerator:Limited
      partners’ interest in net income
                                                    
                                                    $
                                                    9.3
                                                    
                                                    
                                                    $
                                                    39.7
                                                    
                                                    
                                                    $
                                                    74.3
                                                    
                                                    
                                                    $
                                                    93.1Denominator:Weighted-average
      Units
                                                    
                                                    
                                                    104.7
                                                    
                                                    
                                                    
                                                    94.8
                                                    
                                                    
                                                    
                                                    104.6
                                                    
                                                    
                                                    
                                                    94.0Weighted-average
      time-vested restricted units
                                                    
                                                    
                                                    0.2
                                                    
                                                    
                                                    
                                                    0.1
                                                    
                                                    
                                                    
                                                    0.2
                                                    
                                                    
                                                    
                                                    --Weighted-average
      incremental option units
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    --
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    *Total
                                                    
                                                    
                                                    104.9
                                                    
                                                    
                                                    
                                                    94.9
                                                    
                                                    
                                                    
                                                    104.8
                                                    
                                                    
                                                    
                                                    94.0Diluted earnings per
      Unit:Net
      income attributable to TEPPCO Partners, L.P.
                                                    
                                                    $
                                                    0.11
                                                    
                                                    
                                                    $
                                                    0.50
                                                    
                                                    
                                                    $
                                                    0.85
                                                    
                                                    
                                                    $
                                                    1.19General
      Partner’s interest in net income
                                                    
                                                    
                                                    (0.02
                                                    )
                                                    
                                                    
                                                    (0.08
                                                    )
                                                    
                                                    
                                                    (0.14
                                                    )
                                                    
                                                    
                                                    (0.20
                                                    )Limited
      partners’ interest in net income
                                                    
                                                    $
                                                    0.09
                                                    
                                                    
                                                    $
                                                    0.42
                                                    
                                                    
                                                    $
                                                    0.71
                                                    
                                                    
                                                    $
                                                    0.99*Amount
      is negligible.





Our General Partner’s percentage
interest in our net income increases as cash distributions paid per Unit
increase, in accordance with our Partnership Agreement.  At June 30,
2009 and 2008, we had outstanding 104,943,004 and 95,022,897 Units,
respectively.








Note
15.  Commitments and Contingencies





Litigation





In 1991, we were named as a defendant
in a matter styled Jimmy R.
Green, et al. v. Cities Service Refinery, et al. as filed in the 26th
Judicial District Court of Bossier Parish, Louisiana.  The plaintiffs
in this matter reside or formerly resided on land that was once the site of a
refinery owned by one of our co-defendants.  The former refinery is
located near our Bossier City facility.  Plaintiffs have claimed
personal injuries and property damage arising from alleged contamination of the
refinery property.  The plaintiffs have pursued certification as a
class and their last demand had been approximately $175.0 million. Following a
hearing, the trial court ruled that the prerequisites for certifying a class do
not exist.  We expect that a final order dismissing the matter is
forthcoming.  Accordingly, we do not believe that the outcome of this
lawsuit will have a material adverse effect on our financial position, results
of operations or cash flows.





In October 2005, Williams Gas
Processing, n/k/a Williams Field Services Company, LLC (“Williams”) notified
Jonah that the gas delivered to Williams’ Opal Gas Processing Plant (“Opal
Plant”) allegedly failed to conform to quality specifications of the
Interconnect and Operator Balancing Agreement (“Interconnect Agreement”) which
has allegedly caused damages to the Opal Plant in excess of $28.0
million.  On July 24, 2007, Jonah filed suit against Williams in
Harris County, Texas seeking a declaratory order that Jonah was not liable to
Williams.  In addition, on August 24, 2007, Williams filed a complaint
in





33
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





the 3rd
Judicial District Court of Lincoln County, Wyoming alleging that Jonah was
delivering non-conforming gas from its gathering customers in the Jonah system
to the Opal Plant, in violation of the Interconnect Agreement.  Jonah
denies any liability to Williams.  Discovery is ongoing.





On September 18, 2006, Peter
Brinckerhoff, a purported unitholder of TEPPCO, filed a complaint in the Court
of Chancery of the State of Delaware (the “Delaware Court”), in his individual
capacity, as a putative class action on behalf of our other unitholders, and
derivatively on our behalf, concerning proposals made to our unitholders in our
definitive proxy statement filed with the SEC on September 11, 2006 (“Proxy
Statement”) and other transactions involving us and Enterprise Products Partners
or its affiliates.  Mr. Brinckerhoff filed an amended complaint on
July 12, 2007.  The amended complaint names as defendants the General
Partner; the board of directors of our General Partner; EPCO; Enterprise
Products Partners and certain of its affiliates and Dan L. Duncan.  We
are named as a nominal defendant.





The amended complaint alleges, among
other things, that certain of the transactions adopted at a special meeting of
our unitholders on December 8, 2006, including a reduction of the General
Partner’s maximum percentage interest in our distributions in exchange for Units
(the “Issuance Proposal”), were unfair to our unitholders and constituted a
breach by the defendants of fiduciary duties owed to our unitholders and that
the Proxy Statement failed to provide our unitholders with all material facts
necessary for them to make an informed decision whether to vote in favor of or
against the proposals.  The amended complaint further alleges that,
since Mr. Duncan acquired control of the General Partner in 2005, the
defendants, in breach of their fiduciary duties to us and our unitholders, have
caused us to enter into certain transactions with Enterprise Products Partners
or its affiliates that were unfair to us or otherwise unfairly favored
Enterprise Products Partners or its affiliates over us.  The amended
complaint alleges that such transactions include the Jonah joint venture entered
into by us and an Enterprise Products Partners' affiliate in August 2006 (citing
the fact that our ACG Committee did not obtain a fairness opinion from an
independent investment banking firm in approving the transaction and alleging we
did not receive fair value for Enterprise Products Partners' participation in
the joint venture), and the sale by us to an Enterprise Products Partners’
affiliate of the Pioneer plant in March 2006 (alleging that the purchase
price did not provide fair value for the purchased assets to
us).  As more fully described in the Proxy Statement, the ACG
Committee recommended the Issuance Proposal for approval by the board of
directors of the General Partner.  The amended complaint also alleges
that Richard S. Snell, Michael B. Bracy and Murray H. Hutchison, constituting
the three members of the ACG Committee at the time, cannot be considered
independent because of their alleged ownership of securities in Enterprise
Products Partners and its affiliates and/or their relationships with Mr.
Duncan.





The amended complaint seeks relief (i)
awarding damages for profits and special benefits allegedly obtained by
defendants as a result of the alleged wrongdoings in the complaint; (ii)
rescinding all actions taken pursuant to the Proxy vote; and (iii) awarding
plaintiff costs of the action, including fees and expenses of his attorneys and
experts.  By its Opinion and Order dated November 25, 2008, the
Delaware Court dismissed Mr. Brinckerhoff’s individual and putative class action
claims with respect to the amendments to our Partnership
Agreement.  We refer to this action and the remaining claims in this
action as the “Derivative
Action.”





On April 29, 2009, Peter Brinckerhoff
and Renee Horowitz, as Attorney in Fact for Rae Kenrow, purported unitholders of
TEPPCO, filed separate complaints in the Delaware Court as putative class
actions on behalf of our other unitholders, concerning the proposed merger of us
and our General Partner with Enterprise Products Partners (see Note
13).  On May 11, 2009, these actions were consolidated under the
caption Texas Eastern Products
Pipeline Company, LLC Merger Litigation, C.A. No. 4548-VCL (“Merger
Action”).  The complaints name as defendants our General Partner;
Enterprise Products Partners and its general partner; EPCO; Dan L. Duncan; and
each of the directors of our General Partner.





The Merger Action complaints allege,
among other things, that the terms of the merger (as proposed as of the time the
Merger Action complaints were filed) are grossly unfair to our unitholders, that
Mr. Duncan and other defendants who control us have acted to drive down the
price of our Units and that the proposed merger is an attempt to extinguish the
Derivative Action without consideration and without





34
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





adequate
information having been provided to our unitholders to cast a vote with respect
to the proposed merger. The complaints further allege that the process
through which the Special Committee of our ACG Committee was appointed to
consider the proposed merger is contrary to the spirit and intent of our
Partnership Agreement and constitutes a breach of the implied covenant of fair
dealing.





The complaints seek relief (i)
enjoining the defendants and all persons acting in concert with them from
pursuing the proposed merger; (ii) rescinding the proposed merger to the extent
it is consummated, or awarding rescissory damages in respect thereof; (iii)
directing the defendants to account for all damages suffered or to be suffered
by the plaintiffs and the purposed class as a result of the defendants’ alleged
wrongful conduct; and (iv) awarding plaintiffs’ costs of the actions, including
fees and expenses of their attorneys and experts.





On June 28, 2009, the parties entered
into a Memorandum of Understanding pursuant to which we, our General Partner,
Enterprise Products Partners, EPCO, all other individual defendants and the
plaintiffs have proposed to settle the Merger Action and the Derivative
Action.  On August 5, 2009, the parties entered into a Stipulation and
Agreement of Compromise, Settlement and Release (the “Settlement Agreement”)
contemplated by the Memorandum of Understanding.  Pursuant to the
Settlement Agreement, the board of directors of our General Partner will
recommend to our unitholders that they approve the adoption of the merger
agreement and take all necessary steps to seek unitholder approval for the
merger as soon as practicable.  Pursuant to the Settlement Agreement,
approval of the merger will require, in addition to votes required under
our Partnership Agreement, that the actual votes cast in favor of the
proposal by holders of our outstanding Units, excluding those held by defendants
to the Derivative Action, exceed the actual votes cast against the proposal by
those holders.  The Settlement Agreement further provides that the
Derivative Action was considered by the Special Committee to be a
significant benefit of ours for which fair value was obtained in the merger
consideration.





The Settlement Agreement is subject to
customary conditions, including Delaware Court approval.  There can be no
assurance that the Delaware Court will approve the settlement in the Settlement
Agreement.  In such event, the proposed settlement as contemplated by the
Settlement Agreement may be terminated.  Among other things, the
plaintiffs’ agreement to settle the Derivative Action and Merger Action
litigation, including their agreement to the fairness of the proposed terms and
process of the merger negotiations is subject to (i) the drafting and
execution of other such documentation as may be required to obtain final
Delaware Court approval and dismissal of the actions, (ii) Delaware Court
approval and the mailing of the notice of settlement which sets forth the
terms of settlement to our unitholders, (iii) consummation of the
proposed mergerand (iv) final
Delaware Court certification and approval of the settlement and dismissal of the
actions.  See Note 13 for additional information regarding our
relationship with Enterprise Products Partners, including information related to
the proposed merger.





Additionally, on June 29 and 30, 2009,
respectively, M. Lee Arnold and Sharon Olesky, purported unitholders of TEPPCO,
filed separate complaints in the District Courts of Harris County, Texas, as
putative class actions on behalf of our other unitholders, concerning the
proposed merger of us with Enterprise Products Partners. The complaints name as
defendants us; our General Partner; Enterprise Products Partners and its
general partner; EPCO; Dan L. Duncan; Jerry Thompson; and the board of directors
of our General Partner.  These allegations in the complaints are
similar to the complaints filed in Delaware on April 29, 2009 and seek similar
relief.


I n connection with the
dissociation of Enterprise Products Partners and us from TOPS (see Note 7),
Oiltanking has filed an original petition against Enterprise Offshore Port
System, LLC, Enterprise Products Operating, LLC, TEPPCO O/S Port System, LLC, us
and our General Partner in the District Court of Harris County, Texas, 61st
Judicial District (Cause No. 2009-31367), asserting, among other things,
that the dissociation was wrongful and in breach of the TOPS partnership
agreement, citing provisions of the agreement that, if applicable, would
continue to obligate us and Enterprise Products Partners to make capital contributions to
fund the project and impose liabilities on us and Enterprise Products
Partners.




35
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Since we
believe that our actions in dissociating from TOPS are expressly permitted by,
and in accordance with, the terms of the TOPS partnership agreement, we intend
to vigorously defend such actions.  We have not recorded any reserves
for potential liabilities relating to this litigation, although we may determine
in future periods that an accrual of reserves for potential liabilities
(including costs of litigation) should be made.  If these payments are
substantial, we could experience a material adverse impact on our results of
operations and our liquidity.





In addition to the proceedings
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 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.





We evaluate our ongoing litigation
based upon a combination of litigation and settlement
alternatives.  These reviews are updated as the facts and combinations
of the cases develop or change.  Assessing and predicting the outcome
of these matters involves substantial uncertainties.  In the event
that the assumptions we used to evaluate these matters change in future periods
or new information becomes available, we may be required to record a liability
for an adverse outcome.  In an effort to mitigate potential adverse
consequences of litigation, we could also seek to settle legal proceedings
brought against us.  We have not recorded any significant reserves for
any litigation in our financial statements.





Regulatory
Matters





Our pipelines and other facilities are
subject to multiple environmental obligations and potential liabilities under a
variety of federal, state and local laws and regulations.  These include,
without limitation: the Comprehensive Environmental Response, Compensation, and
Liability Act; the Resource Conservation and Recovery Act; the Clean Air Act;
the Federal Water Pollution Control Act or the Clean Water Act; the Oil
Pollution Act; and analogous state and local laws and regulations.  Such
laws and regulations affect many aspects of our present and future operations,
and generally require us to obtain and comply with a wide variety of
environmental registrations, licenses, permits, inspections and other approvals,
with respect to air emissions, water quality, wastewater discharges, and solid
and hazardous waste management.  Failure to comply with these requirements
may expose us to fines, penalties and/or interruptions in our operations that
could influence our results of operations.  If an accidental leak, spill or
release of hazardous substances occurs at any facilities that we own, operate or
otherwise use, or where we send materials for treatment or disposal, we could be
held jointly and severally liable for all resulting liabilities, including
investigation, remedial and clean-up costs.  Likewise, we could be required
to remove or remediate previously disposed wastes or property contamination,
including groundwater contamination.  Any or all of this could
materially affect our results of operations and cash flows.





We believe that our operations and
facilities are in substantial compliance with applicable environmental laws and
regulations, and that the cost of compliance with such laws and regulations will
not have a material adverse effect on our results of operations or financial
position.  We cannot ensure, however, that existing environmental
regulations will not be revised or that new regulations will not be adopted or
become applicable to us.  The clear trend in environmental regulation is to
place more restrictions and limitations on activities that may be perceived to
affect the environment; and thus there can be no assurance as to the amount or
timing of future expenditures for environmental regulation compliance or
remediation, and actual future expenditures may be different from the amounts we
currently anticipate.  Revised or additional regulations that result in
increased compliance costs or additional operating restrictions, particularly if
those costs are not fully recoverable from our customers, could have a material
adverse effect on our business, financial position, results of operations and
cash flows.  At June 30, 2009 and December 31, 2008, our accrued
liabilities for environmental remediation projects totaled $6.2 million and
$6.9 million, respectively.





36
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





In 1999, our Arcadia, Louisiana
facility and adjacent terminals were directed by the Remediation Services
Division of the Louisiana Department of Environmental Quality (“LDEQ”) to pursue
remediation of environmental contamination.  Effective March 2004, we
executed an access agreement with an adjacent industrial landowner who is
located upgradient of the Arcadia facility.  This agreement enables
the landowner to proceed with remediation activities at our Arcadia facility for
which it has accepted shared responsibility.  At June 30, 2009, we
have an accrued liability of $0.5 million for remediation costs at our Arcadia
facility.  We do not expect that the completion of the remediation
program proposed to the LDEQ will have a future material adverse effect on our
financial position, results of operations or cash flows.


W e
received a notice of probable violation from the U.S. Department of
Transportation on April 25, 2005 for alleged violations of pipeline safety
regulations at our Todhunter facility, with a proposed $0.4 million civil
penalty.  We responded on June 30, 2005 by admitting certain of the
alleged violations, contesting others and requesting a reduction in the proposed
civil penalty.  In June 2009, we paid $0.4 million to the U.S.
Department of Transportation in settlement of the matter.  This
settlement did not have a material adverse effect on our financial position,
results of operations or cash flows.


T he
Federal Energy Regulatory Commission (“FERC”), pursuant to the Interstate
Commerce Act of 1887, as amended, the Energy Policy Act of 1992 and rules and
orders promulgated thereunder, regulates the tariff rates for our interstate
common carrier pipeline operations.  To be lawful under that Act,
interstate tariff rates, terms and conditions of service must be just and
reasonable and not unduly discriminatory, and must be on file with
FERC.  In addition, pipelines may not confer any undue preference upon
any shipper.  Shippers may protest, and the FERC may investigate, the
lawfulness of new or changed tariff rates.  The FERC can suspend those
tariff rates for up to seven months.  It can also require refunds of
amounts collected with interest pursuant to rates that are ultimately found to
be unlawful.  The FERC and interested parties can also challenge
tariff rates that have become final and effective.  Because of the
complexity of rate making, the lawfulness of any rate is never
assured.  A successful challenge of our rates could adversely affect
our revenues.





The FERC uses prescribed rate
methodologies for approving regulated tariff rates for transporting crude oil
and refined products.  Our interstate tariff rates are either
market-based or derived in accordance with the FERC’s indexing methodology,
which currently allows a pipeline to increase its rates by a percentage linked
to the producer price index for finished goods.  These methodologies
may limit our ability to set rates based on our actual costs or may delay the
use of rates reflecting increased costs.  Changes in the FERC’s
approved methodology for approving rates could adversely affect
us.  Adverse decisions by the FERC in approving our regulated rates
could adversely affect our cash flow.





The intrastate liquids pipeline
transportation and gas gathering services we provide are subject to various
state laws and regulations that apply to the rates we charge and the terms and
conditions of the services we offer.  Although state regulation
typically is less onerous than FERC regulation, the rates we charge and the
provision of our services may be subject to challenge.





Although our natural gas gathering
systems are generally exempt from FERC regulation under the Natural Gas Act of
1938, FERC regulation still significantly affects our natural gas gathering
business.  Our natural gas gathering operations could be adversely
affected in the future should they become subject to the application of federal
regulation of rates and services or if the states in which we operate adopt
policies imposing more onerous regulation on gathering.  Additional
rules and legislation pertaining to these matters are considered and adopted
from time to time at both state and federal levels.  We cannot predict
what effect, if any, such regulatory changes and legislation might have on our
operations or revenues.





Recent scientific studies have
suggested that emissions of certain gases, commonly referred to as “greenhouse
gases” or “GHGs” and including carbon dioxide and methane, may be contributing
to climate change.  On April 17, 2009, the U.S. Environmental
Protection Agency (“EPA”) issued a notice of its





37
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





proposed
finding and determination that emission of carbon dioxide, methane, and other
GHGs present an endangerment to human health and the environment because
emissions of such gases are, according to the EPA, contributing to warming of
the earth’s atmosphere.  The EPA’s finding and determination would
allow it to begin regulating emissions of GHGs under existing provisions of the
federal Clean Air Act.  Although it may take the EPA several years to
adopt and impose regulations limiting emissions of GHGs, any such regulation
could require us to incur costs to reduce emissions of GHGs associated with our
operations.  In addition, on June 26, 2009, the U.S. House of
Representatives approved adoption of the “American Clean Energy and Security Act
of 2009,” also known as the “Waxman-Markey cap-and-trade legislation” or
“ACESA.”  ACESA would establish an economy-wide cap on emissions of
GHGs in the United States and would require most sources of GHG emissions to
obtain GHG emission “allowances” corresponding to their annual emissions of
GHGs.  The U.S. Senate has also begun work on its own legislation for
controlling and reducing emissions of GHGs in the United States.  Any
laws or regulations that may be adopted to restrict or reduce emissions of GHGs
would likely require us to incur increased operating costs, and may have an
adverse effect on our business, financial position, demand for our products,
results of operations and cash flows.





Contractual
Obligations





Scheduled
maturities of long-term debt.With the
exception of routine fluctuations in the balance of our Revolving Credit
Facility, there have been no material changes in our scheduled maturities of
long-term debt since those reported in our Annual Report on Form 10-K for the
year ended December 31, 2008.





Operating
lease obligations.Lease and rental
expense was $4.6 million and $5.1 million during the three months ended June 30,
2009 and 2008, respectively.  For the six months ended June 30, 2009
and 2008, lease and rental expense was $9.1 million and $10.3 million,
respectively.  There have been no material changes in our operating
lease commitments since December 31, 2008.





Purchase
obligations.Apart from that
discussed below, there have been no material changes in our purchase obligations
since December 31, 2008.





Due to our dissociation from TOPS, our
capital expenditure commitments decreased by an estimated $68.0
million.  See Note 7 for additional information regarding our
dissociation from TOPS.





Other





Guarantees.At June 30, 2009
and December 31, 2008, Centennial’s debt obligations consisted of $124.8 million
and $129.9 million, respectively, borrowed under a master shelf loan
agreement.  We, TE Products, TEPPCO Midstream and TCTM (collectively,
the “TEPPCO Guarantors”) are required, on a joint and several basis, to pay 50%
of any past-due amount under Centennial’s master shelf loan agreement not paid
by Centennial.  We may be required to provide additional credit
support in the form of a letter of credit or pay certain fees if either of our
credit ratings from Standard & Poor’s Ratings Group and Moody’s Investors
Service, Inc. falls below investment grade levels.  If Centennial
defaults on its debt obligations, the estimated maximum potential amount of
future payments for the TEPPCO Guarantors and Marathon Petroleum Company LLC
(“Marathon”) is $62.4 million each at June 30, 2009.  At June 30,
2009, we have a liability of $8.7 million, which is based upon the expected
present value of amounts we would have to pay under the guarantee.





TE Products, Marathon and Centennial
have also entered into a limited cash call agreement, which allows each member
to contribute cash in lieu of Centennial procuring separate insurance in the
event of a third-party liability arising from a catastrophic
event.  There is an indefinite term for the agreement and each member
is to contribute cash in proportion to its ownership interest, up to a maximum
of $50.0 million each.  As a result of the catastrophic event
guarantee, at June 30, 2009, TE Products has a liability of $3.7 million, which
is based upon the expected present value of amounts we would have to pay under
the





38
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





guarantee.  If
a catastrophic event were to occur and we were required to contribute cash to
Centennial, such contributions might be covered by our insurance (net of
deductible), depending upon the nature of the catastrophic event.





Motiva
Project.In December
2006, we signed an agreement with Motiva Enterprises, LLC (“Motiva”) for us to
construct and operate a new refined products storage facility to support the
expansion of Motiva’s refinery in Port Arthur, Texas.  Under the terms
of the agreement, we are constructing a 5.4 million barrel refined products
storage facility for gasoline and distillates.  The agreement also
provides for a 15-year throughput and dedication of volume, which will commence
upon completion of the refinery expansion or July 1, 2010, whichever comes
first.  Through June 30, 2009, we have spent approximately $245.6
million on this construction project.  Under the terms of the
agreement, if Motiva cancels the agreement prior to the commencement date of the
project, Motiva will reimburse us the actual reasonable expenses we have
incurred after the effective date of the agreement, including both internal and
external costs that would be capitalized as a part of the project, plus a ten
percent cancellation fee.





TOPS.We, through a
subsidiary, owned a one-third interest in TOPS until April 16,
2009.  We had guaranteed up to approximately $700.0 million of the
project costs to be incurred by this partnership.  Upon our
dissociation (see Note 7), our obligations under this commitment
terminated.





Insurance
Matters





EPCO completed its annual insurance
renewal process during the second quarter of 2009.  In light of recent
hurricane and other weather-related events, the renewal of policies for
weather-related risks resulted in significant increases in premiums and certain
deductibles, as well as changes in the scope of coverage.





EPCO’s deductible for onshore physical
damage from windstorms increased from $10.0 million per storm to $25.0 million
per storm.  EPCO’s onshore program currently provides $150.0 million
per occurrence for named windstorm events compared to $175.0 million per
occurrence in the prior year.  For non-windstorm events, EPCO’s
deductible for onshore physical damage remained at $5.0 million per
occurrence.  Business interruption coverage in connection with a
windstorm event remained unchanged for onshore assets.  Onshore assets
covered by business interruption insurance must be out-of-service in excess of
60 days before any losses from business interruption will be
covered.  Furthermore, pursuant to the current policy, we will now
absorb 50% of the first $50.0 million of any loss in excess of deductible
amounts for our onshore assets.  There were no changes to insurance
coverage for our marine transportation assets.




39
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Note
16.  Supplemental Cash Flow Information





The following table provides
information regarding (i) the net effect of changes in our operating assets and
liabilities, (ii) non-cash investing and financing activities and (iii) cash
payments for interest for the periods indicated:


For
      the Six MonthsEnded
      June 30,2009
                      
                      
                      2008Decrease
      (increase) in:Accounts
      receivable, trade
                      
                      $
                      (194.4
                      )
                      
                      $
                      (586.7
                      )Accounts
      receivable, related parties
                      
                      
                      6.1
                      
                      
                      
                      (6.1
                      )Inventories
                      
                      
                      (42.8
                      )
                      
                      
                      (43.7
                      )Other
      current assets
                      
                      
                      (3.2
                      )
                      
                      
                      (9.9
                      )Other
                      
                      
                      (3.3
                      )
                      
                      
                      (7.7
                      )Increase
      (decrease) in:Accounts
      payable and accrued liabilities
                      
                      
                      181.6
                      
                      
                      
                      610.8Accounts
      payable, related parties
                      
                      
                      23.8
                      
                      
                      
                      (12.1
                      )Other
                      
                      
                      0.8
                      
                      
                      
                      (2.1
                      )Net
      effect of changes in operating accounts
                      
                      $
                      (31.4
                      )
                      
                      $
                      (57.5
                      )Non-cash
      investing activities:Payable
      to Enterprise Gas Processing, LLC for spending for
                        Phase
      V expansion of Jonah Gas Gathering Company
                      
                      $
                      --
                      
                      
                      $
                      2.8Liabilities
      for construction work in progress
                      
                      $
                      10.7
                      
                      
                      $
                      22.5Non-cash
      financing activities:Issuance
      of Units in Cenac acquisition
                      
                      $
                      --
                      
                      
                      $
                      186.6Supplemental
      disclosure of cash flows:Cash
      paid for interest (net of amounts capitalized)
                      
                      $
                      63.4
                      
                      
                      $
                      56.9








Note
17.  Supplemental Condensed Consolidating Financial
Information


The Guarantor
Subsidiaries have issued full, unconditional, and joint and several guarantees
of our senior notes, our Junior Subordinated Notes (collectively “the
Guaranteed Debt”) and our Revolving Credit Facility.





The following supplemental condensed
consolidating financial information reflects our separate accounts, the combined
accounts of the Guarantor Subsidiaries, the combined accounts of our other
non-guarantor subsidiaries, the combined consolidating adjustments and
eliminations and our consolidated accounts for the dates and periods
indicated.  For purposes of the following consolidating information,
our investments in our subsidiaries and the Guarantor Subsidiaries’ investments
in their subsidiaries are accounted for under the equity method of
accounting.  Earnings of subsidiaries are therefore reflected in the
Partnership’s and Guarantor Subsidiaries’ investment accounts and
earnings.  The elimination entries presented herein eliminate
investments in subsidiaries and intercompany balances and
transactions.


40
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





June
      30, 2009TEPPCO
      Partners, L.P.
                      
                      
                      Guarantor
      Subsidiaries
                      
                      
                      Non-Guarantor
      Subsidiaries
                      
                      
                      Consolidating
      Adjustments
                      
                      
                      TEPPCO
      Partners, L.P. ConsolidatedAssetsCurrent
      assets
                      
                      $
                      15.8
                      
                      
                      $
                      79.6
                      
                      
                      $
                      1,357.9
                      
                      
                      $
                      (323.5
                      )
                      
                      $
                      1,129.8Property,
      plant and equipment – net
                      
                      
                      14.0
                      
                      
                      
                      1,378.2
                      
                      
                      
                      1,199.4
                      
                      
                      
                      --
                      
                      
                      
                      2,591.6Investments
      in unconsolidated affiliates
                      
                      
                      8.7
                      
                      
                      
                      1,007.3
                      
                      
                      
                      182.9
                      
                      
                      
                      --
                      
                      
                      
                      1,198.9Investments
      in consolidated affiliates
                      
                      
                      1,592.5
                      
                      
                      
                      430.6
                      
                      
                      
                      --
                      
                      
                      
                      (2,023.1
                      )
                      
                      
                      --Goodwill
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      106.6
                      
                      
                      
                      --
                      
                      
                      
                      106.6Intercompany
      notes receivable
                      
                      
                      2,843.9
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (2,843.9
                      )
                      
                      
                      --Intangible
      assets
                      
                      
                      --
                      
                      
                      
                      110.8
                      
                      
                      
                      84.3
                      
                      
                      
                      --
                      
                      
                      
                      195.1Other
      assets
                      
                      
                      13.5
                      
                      
                      
                      33.7
                      
                      
                      
                      85.7
                      
                      
                      
                      --
                      
                      
                      
                      132.9Total
      assets
                      
                      $
                      4,488.4
                      
                      
                      $
                      3,040.2
                      
                      
                      $
                      3,016.8
                      
                      
                      $
                      (5,190.5
                      )
                      
                      $
                      5,354.9Liabilities
      and partners’ capitalCurrent
      liabilities
                      
                      $
                      239.7
                      
                      
                      $
                      152.7
                      
                      
                      $
                      1,018.0
                      
                      
                      $
                      (323.5
                      )
                      
                      $
                      1,086.9Long-term
      debt
                      
                      
                      2,733.8
                      
                      
                      
                      1,552.7
                      
                      
                      
                      1,291.2
                      
                      
                      
                      (2,843.9
                      )
                      
                      
                      2,733.8Intercompany
      notes payable
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --Other
      long-term liabilities
                      
                      
                      8.5
                      
                      
                      
                      16.7
                      
                      
                      
                      2.6
                      
                      
                      
                      --
                      
                      
                      
                      27.8Total
      partners’ capital
                      
                      
                      1,506.4
                      
                      
                      
                      1,318.1
                      
                      
                      
                      705.0
                      
                      
                      
                      (2,023.1
                      )
                      
                      
                      1,506.4Total
      liabilities and partners’ capital
                      
                      $
                      4,488.4
                      
                      
                      $
                      3,040.2
                      
                      
                      $
                      3,016.8
                      
                      
                      $
                      (5,190.5
                      )
                      
                      $
                      5,354.9





December
      31, 2008TEPPCO
      Partners, L.P.
                  
                  
                  Guarantor
      Subsidiaries
                  
                  
                  Non-Guarantor
      Subsidiaries
                  
                  
                  Consolidating
      Adjustments
                  
                  
                  TEPPCO
      Partners, L.P. ConsolidatedAssetsCurrent
      assets
                  
                  $
                  23.1
                  
                  
                  $
                  145.2
                  
                  
                  $
                  1,148.0
                  
                  
                  $
                  (408.7
                  )
                  
                  $
                  907.6Property,
      plant and equipment – net
                  
                  
                  13.5
                  
                  
                  
                  1,294.8
                  
                  
                  
                  1,131.6
                  
                  
                  
                  --
                  
                  
                  
                  2,439.9Investments
      in unconsolidated affiliates
                  
                  
                  9.0
                  
                  
                  
                  1,020.9
                  
                  
                  
                  226.0
                  
                  
                  
                  --
                  
                  
                  
                  1,255.9Investments
      in consolidated affiliates
                  
                  
                  1,686.0
                  
                  
                  
                  399.0
                  
                  
                  
                  --
                  
                  
                  
                  (2,085.0
                  )
                  
                  
                  --Goodwill
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  106.6
                  
                  
                  
                  --
                  
                  
                  
                  106.6Intercompany
      notes receivable
                  
                  
                  2,628.3
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  (2,628.3
                  )
                  
                  
                  --Intangible
      assets
                  
                  
                  --
                  
                  
                  
                  118.0
                  
                  
                  
                  89.7
                  
                  
                  
                  --
                  
                  
                  
                  207.7Other
      assets
                  
                  
                  14.4
                  
                  
                  
                  33.3
                  
                  
                  
                  84.4
                  
                  
                  
                  --
                  
                  
                  
                  132.1Total
      assets
                  
                  $
                  4,374.3
                  
                  
                  $
                  3,011.2
                  
                  
                  $
                  2,786.3
                  
                  
                  $
                  (5,122.0
                  )
                  
                  $
                  5,049.8Liabilities
      and partners’ capitalCurrent
      liabilities
                  
                  $
                  244.5
                  
                  
                  $
                  215.4
                  
                  
                  $
                  848.8
                  
                  
                  $
                  (408.7
                  )
                  
                  $
                  900.0Long-term
      debt
                  
                  
                  2,529.6
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  2,529.6Intercompany
      notes payable
                  
                  
                  --
                  
                  
                  
                  1,424.3
                  
                  
                  
                  1,204.0
                  
                  
                  
                  (2,628.3
                  )
                  
                  
                  --Other
      long-term liabilities
                  
                  
                  8.7
                  
                  
                  
                  17.0
                  
                  
                  
                  3.0
                  
                  
                  
                  --
                  
                  
                  
                  28.7Total
      partners’ capital
                  
                  
                  1,591.5
                  
                  
                  
                  1,354.5
                  
                  
                  
                  730.5
                  
                  
                  
                  (2,085.0
                  )
                  
                  
                  1,591.5Total
      liabilities and partners’ capital
                  
                  $
                  4,374.3
                  
                  
                  $
                  3,011.2
                  
                  
                  $
                  2,786.3
                  
                  
                  $
                  (5,122.0
                  )
                  
                  $
                  5,049.8





41
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








For
      the Three Months Ended June 30, 2009TEPPCO
      Partners, L.P.
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
      Subsidiaries
                    
                    
                    Consolidating
      Adjustments
                    
                    
                    TEPPCO
      Partners, L.P. ConsolidatedOperating
      revenues
                    
                    $
                    --
                    
                    
                    $
                    86.7
                    
                    
                    $
                    1,826.6
                    
                    
                    $
                    (0.1
                    )
                    
                    $
                    1,913.2Costs
      and expenses
                    
                    
                    --
                    
                    
                    
                    78.1
                    
                    
                    
                    1,779.7
                    
                    
                    
                    (0.5
                    )
                    
                    
                    1,857.3Operating
      income
                    
                    
                    --
                    
                    
                    
                    8.6
                    
                    
                    
                    46.9
                    
                    
                    
                    0.4
                    
                    
                    
                    55.9Interest
      expense
                    
                    
                    --
                    
                    
                    
                    (20.1
                    )
                    
                    
                    (12.2
                    )
                    
                    
                    --
                    
                    
                    
                    (32.3
                    )Equity
      in income (loss) of unconsolidatedaffiliates
                    
                    
                    11.2
                    
                    
                    
                    19.0
                    
                    
                    
                    (31.3
                    )
                    
                    
                    (11.1
                    )
                    
                    
                    (12.2
                    )Other,
      net
                    
                    
                    --
                    
                    
                    
                    0.2
                    
                    
                    
                    0.5
                    
                    
                    
                    --
                    
                    
                    
                    0.7Income
      before provision for income taxes
                    
                    
                    11.2
                    
                    
                    
                    7.7
                    
                    
                    
                    3.9
                    
                    
                    
                    (10.7
                    )
                    
                    
                    12.1Provision
      for income taxes
                    
                    
                    --
                    
                    
                    
                    (0.1
                    )
                    
                    
                    (0.8
                    )
                    
                    
                    --
                    
                    
                    
                    (0.9
                    )Net
      income
                    
                    $
                    11.2
                    
                    
                    $
                    7.6
                    
                    
                    $
                    3.1
                    
                    
                    $
                    (10.7
                    )
                    
                    $
                    11.2





For
      the Three Months Ended June 30, 2008TEPPCO
      Partners, L.P.
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
      Subsidiaries
                    
                    
                    Consolidating
      Adjustments
                    
                    
                    TEPPCO
      Partners, L.P. ConsolidatedOperating
      revenues
                    
                    $
                    --
                    
                    
                    $
                    88.3
                    
                    
                    $
                    4,092.3
                    
                    
                    $
                    (0.1
                    )
                    
                    $
                    4,180.5Costs
      and expenses
                    
                    
                    --
                    
                    
                    
                    70.4
                    
                    
                    
                    4,052.0
                    
                    
                    
                    (1.2
                    )
                    
                    
                    4,121.2Operating
      income
                    
                    
                    --
                    
                    
                    
                    17.9
                    
                    
                    
                    40.3
                    
                    
                    
                    1.1
                    
                    
                    
                    59.3Interest
      expense
                    
                    
                    --
                    
                    
                    
                    (17.3
                    )
                    
                    
                    (15.7
                    )
                    
                    
                    --
                    
                    
                    
                    (33.0
                    )Equity
      in income of unconsolidated affiliates
                    
                    
                    47.7
                    
                    
                    
                    44.9
                    
                    
                    
                    4.2
                    
                    
                    
                    (75.5
                    )
                    
                    
                    21.3Other,
      net
                    
                    
                    --
                    
                    
                    
                    0.3
                    
                    
                    
                    0.8
                    
                    
                    
                    --
                    
                    
                    
                    1.1Income
      before provision for income taxes
                    
                    
                    47.7
                    
                    
                    
                    45.8
                    
                    
                    
                    29.6
                    
                    
                    
                    (74.4
                    )
                    
                    
                    48.7Provision
      for income taxes
                    
                    
                    --
                    
                    
                    
                    (0.3
                    )
                    
                    
                    (0.7
                    )
                    
                    
                    --
                    
                    
                    
                    (1.0
                    )Net
      income
                    
                    $
                    47.7
                    
                    
                    $
                    45.5
                    
                    
                    $
                    28.9
                    
                    
                    $
                    (74.4
                    )
                    
                    $
                    47.7





For
      the Six Months Ended June 30, 2009TEPPCO
      Partners, L.P.
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
      Subsidiaries
                    
                    
                    Consolidating
      Adjustments
                    
                    
                    TEPPCO
      Partners, L.P. ConsolidatedOperating
      revenues
                    
                    $
                    --
                    
                    
                    $
                    187.4
                    
                    
                    $
                    3,183.5
                    
                    
                    $
                    (0.1
                    )
                    
                    $
                    3,370.8Costs
      and expenses
                    
                    
                    --
                    
                    
                    
                    146.2
                    
                    
                    
                    3,084.2
                    
                    
                    
                    (1.2
                    )
                    
                    
                    3,229.2Operating
      income
                    
                    
                    --
                    
                    
                    
                    41.2
                    
                    
                    
                    99.3
                    
                    
                    
                    1.1
                    
                    
                    
                    141.6Interest
      expense
                    
                    
                    --
                    
                    
                    
                    (40.3
                    )
                    
                    
                    (24.1
                    )
                    
                    
                    --
                    
                    
                    
                    (64.4
                    )Equity
      in income (loss) of unconsolidatedaffiliates
                    
                    
                    89.4
                    
                    
                    
                    84.3
                    
                    
                    
                    (28.0
                    )
                    
                    
                    (132.8
                    )
                    
                    
                    12.9Other,
      net
                    
                    
                    --
                    
                    
                    
                    0.5
                    
                    
                    
                    0.5
                    
                    
                    
                    --
                    
                    
                    
                    1.0Income
      before provision for income taxes
                    
                    
                    89.4
                    
                    
                    
                    85.7
                    
                    
                    
                    47.7
                    
                    
                    
                    (131.7
                    )
                    
                    
                    91.1Provision
      for income taxes
                    
                    
                    --
                    
                    
                    
                    (0.4
                    )
                    
                    
                    (1.3
                    )
                    
                    
                    --
                    
                    
                    
                    (1.7
                    )Net
      income
                    
                    $
                    89.4
                    
                    
                    $
                    85.3
                    
                    
                    $
                    46.4
                    
                    
                    $
                    (131.7
                    )
                    
                    $
                    89.4





For
      the Six Months Ended June 30, 2008TEPPCO
      Partners, L.P.
                    
                    
                    Guarantor
                      Subsidiaries
                    
                    
                    Non-Guarantor
      Subsidiaries
                    
                    
                    Consolidating
      Adjustments
                    
                    
                    TEPPCO
      Partners, L.P. ConsolidatedOperating
      revenues
                    
                    $
                    --
                    
                    
                    $
                    191.2
                    
                    
                    $
                    6,797.9
                    
                    
                    $
                    (0.1
                    )
                    
                    $
                    6,989.0Costs
      and expenses
                    
                    
                    --
                    
                    
                    
                    138.3
                    
                    
                    
                    6,712.0
                    
                    
                    
                    (4.1
                    )
                    
                    
                    6,846.2Operating
      income
                    
                    
                    --
                    
                    
                    
                    52.9
                    
                    
                    
                    85.9
                    
                    
                    
                    4.0
                    
                    
                    
                    142.8Interest
      expense
                    
                    
                    --
                    
                    
                    
                    (44.1
                    )
                    
                    
                    (27.5
                    )
                    
                    
                    --
                    
                    
                    
                    (71.6
                    )Equity
      in income of unconsolidated affiliates
                    
                    
                    111.8
                    
                    
                    
                    97.9
                    
                    
                    
                    7.2
                    
                    
                    
                    (175.9
                    )
                    
                    
                    41.0Other,
      net
                    
                    
                    --
                    
                    
                    
                    0.6
                    
                    
                    
                    0.8
                    
                    
                    
                    --
                    
                    
                    
                    1.4Income
      before provision for income taxes
                    
                    
                    111.8
                    
                    
                    
                    107.3
                    
                    
                    
                    66.4
                    
                    
                    
                    (171.9
                    )
                    
                    
                    113.6Provision
      for income taxes
                    
                    
                    --
                    
                    
                    
                    (0.5
                    )
                    
                    
                    (1.3
                    )
                    
                    
                    --
                    
                    
                    
                    (1.8
                    )Net
      income
                    
                    $
                    111.8
                    
                    
                    $
                    106.8
                    
                    
                    $
                    65.1
                    
                    
                    $
                    (171.9
                    )
                    
                    $
                    111.8








42
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




For
      the Six Months Ended June 30, 2009TEPPCO
      Partners, L.P.
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
      Subsidiaries
                      
                      
                      Consolidating
      Adjustments
                      
                      
                      TEPPCO
      Partners, L.P. ConsolidatedOperating
      activities:Net
      income
                      
                      $
                      89.4
                      
                      
                      $
                      85.3
                      
                      
                      $
                      46.4
                      
                      
                      $
                      (131.7
                      )
                      
                      $
                      89.4Adjustments
      to reconcile net income to net cashfrom
      operating activities:Depreciation
      and amortization
                      
                      
                      --
                      
                      
                      
                      37.9
                      
                      
                      
                      31.9
                      
                      
                      
                      --
                      
                      
                      
                      69.8Non-cash
      impairment charge
                      
                      
                      --
                      
                      
                      
                      2.3
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      2.3Equity
      in income (loss) of unconsolidatedaffiliates
                      
                      
                      93.4
                      
                      
                      
                      (49.5
                      )
                      
                      
                      28.0
                      
                      
                      
                      (84.8
                      )
                      
                      
                      (12.9
                      )Distributions
      received from unconsolidatedaffiliates
                      
                      
                      --
                      
                      
                      
                      76.0
                      
                      
                      
                      13.2
                      
                      
                      
                      --
                      
                      
                      
                      89.2Other,
      net
                      
                      
                      (15.4
                      )
                      
                      
                      9.3
                      
                      
                      
                      (42.8
                      )
                      
                      
                      18.6
                      
                      
                      
                      (30.3
                      )Net
      cash from operating activities
                      
                      
                      167.4
                      
                      
                      
                      161.3
                      
                      
                      
                      76.7
                      
                      
                      
                      (197.9
                      )
                      
                      
                      207.5Cash
      flows from investing activities:Cash
      used for business combinations
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (50.0
                      )
                      
                      
                      --
                      
                      
                      
                      (50.0
                      )Investment
      in Jonah
                      
                      
                      --
                      
                      
                      
                      (19.1
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (19.1
                      )Investment
      in Texas Offshore Port System
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      1.7
                      
                      
                      
                      --
                      
                      
                      
                      1.7Capital
      expenditures
                      
                      
                      --
                      
                      
                      
                      (119.2
                      )
                      
                      
                      (45.1
                      )
                      
                      
                      --
                      
                      
                      
                      (164.3
                      )Other,
      net
                      
                      
                      --
                      
                      
                      
                      (1.4
                      )
                      
                      
                      (1.5
                      )
                      
                      
                      --
                      
                      
                      
                      (2.9
                      )Net
      cash flows from investing activities
                      
                      
                      --
                      
                      
                      
                      (139.7
                      )
                      
                      
                      (94.9
                      )
                      
                      
                      --
                      
                      
                      
                      (234.6
                      )Cash
      flows from financing activities:Borrowings
      under debt agreements
                      
                      
                      759.3
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      759.3Repayments
      of debt
                      
                      
                      (552.6
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (552.6
                      )Net
      proceeds from issuance of limited partnerunits
                      
                      
                      3.3
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      3.3Intercompany
      debt activities
                      
                      
                      (206.7
                      )
                      
                      
                      123.7
                      
                      
                      
                      90.5
                      
                      
                      
                      (7.5
                      )
                      
                      
                      --Repurchase
      of restricted units
                      
                      
                      (0.1
                      )
                      
                      
                      
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (0.1
                      )Distributions
      paid to partners
                      
                      
                      (182.8
                      )
                      
                      
                      (145.3
                      )
                      
                      
                      (72.3
                      )
                      
                      
                      217.6
                      
                      
                      
                      (182.8
                      )Net
      cash flows from financing activities
                      
                      
                      (179.6
                      )
                      
                      
                      (21.6
                      )
                      
                      
                      18.2
                      
                      
                      
                      210.1
                      
                      
                      
                      27.1Net
      change in cash and cash equivalents
                      
                      
                      (12.2
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      12.2
                      
                      
                      
                      --Cash
      and cash equivalents, January 1
                      
                      
                      16.1
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (16.1
                      )
                      
                      
                      --Cash
      and cash equivalents, June 30
                      
                      $
                      3.9
                      
                      
                      $
                      --
                      
                      
                      $
                      --
                      
                      
                      $
                      (3.9
                      )
                      
                      $
                      --





43
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


For
      the Six Months Ended June 30, 2008TEPPCO
      Partners, L.P.
                      
                      
                      Guarantor
                        Subsidiaries
                      
                      
                      Non-Guarantor
      Subsidiaries
                      
                      
                      Consolidating
      Adjustments
                      
                      
                      TEPPCO
      Partners, L.P. ConsolidatedOperating
      activities:Net
      income
                      
                      $
                      111.8
                      
                      
                      $
                      106.8
                      
                      
                      $
                      65.1
                      
                      
                      $
                      (171.9
                      )
                      
                      $
                      111.8Adjustments
      to reconcile net income to net cashfrom
      operating activities:Depreciation
      and amortization
                      
                      
                      --
                      
                      
                      
                      34.6
                      
                      
                      
                      25.6
                      
                      
                      
                      --
                      
                      
                      
                      60.2Equity
      in income (loss) of unconsolidatedaffiliates
                      
                      
                      --
                      
                      
                      
                      (37.8
                      )
                      
                      
                      (7.2
                      )
                      
                      
                      4.0
                      
                      
                      
                      (41.0
                      )Distributions
      received from unconsolidatedaffiliates
                      
                      
                      --
                      
                      
                      
                      75.9
                      
                      
                      
                      3.4
                      
                      
                      
                      --
                      
                      
                      
                      79.3Other,
      net
                      
                      
                      109.2
                      
                      
                      
                      20.8
                      
                      
                      
                      (124.6
                      )
                      
                      
                      (51.6
                      )
                      
                      
                      (46.2
                      )Net
      cash from operating activities
                      
                      
                      221.0
                      
                      
                      
                      200.3
                      
                      
                      
                      (37.7
                      )
                      
                      
                      (219.5
                      )
                      
                      
                      164.1Cash
      flows from investing activities:Cash
      used for business combinations
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (345.6
                      )
                      
                      
                      --
                      
                      
                      
                      (345.6
                      )Investment
      in Jonah
                      
                      
                      --
                      
                      
                      
                      (64.5
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (64.5
                      )Capital
      expenditures
                      
                      
                      --
                      
                      
                      
                      (98.5
                      )
                      
                      
                      (40.7
                      )
                      
                      
                      --
                      
                      
                      
                      (139.2
                      )Other,
      net
                      
                      
                      --
                      
                      
                      
                      (0.3
                      )
                      
                      
                      (14.5
                      )
                      
                      
                      --
                      
                      
                      
                      (14.8
                      )Net
      cash flows from investing activities
                      
                      
                      --
                      
                      
                      
                      (163.3
                      )
                      
                      
                      (400.8
                      )
                      
                      
                      --
                      
                      
                      
                      (564.1
                      )Cash
      flows from financing activities:Borrowings
      under debt agreements
                      
                      
                      3,344.4
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      3,344.4Repayments
      of debt
                      
                      
                      (2,308.1
                      )
                      
                      
                      (361.6
                      )
                      
                      
                      (63.2
                      )
                      
                      
                      --
                      
                      
                      
                      (2,732.9
                      )Net
      proceeds from issuance of limited partnerunits
                      
                      
                      5.6
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      5.6Debt
      issuance costs
                      
                      
                      (9.3
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (9.3
                      )Settlement
      of interest rate derivativeinstruments
      – treasury locks
                      
                      
                      (52.1
                      )
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (52.1
                      )Intercompany
      debt activities
                      
                      
                      (1,036.4
                      )
                      
                      
                      480.3
                      
                      
                      
                      548.7
                      
                      
                      
                      7.4
                      
                      
                      
                      --Distributions
      paid to partners
                      
                      
                      (155.7
                      )
                      
                      
                      (155.7
                      )
                      
                      
                      (47.0
                      )
                      
                      
                      202.7
                      
                      
                      
                      (155.7
                      )Net
      cash flows from financing activities
                      
                      
                      (211.6
                      )
                      
                      
                      (37.0
                      )
                      
                      
                      438.5
                      
                      
                      
                      210.1
                      
                      
                      
                      400.0Net
      change in cash and cash equivalents
                      
                      
                      9.4
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (9.4
                      )
                      
                      
                      --Cash
      and cash equivalents, January 1
                      
                      
                      8.2
                      
                      
                      
                      --
                      
                      
                      
                      --
                      
                      
                      
                      (8.2
                      )
                      
                      
                      --Cash
      and cash equivalents, June 30
                      
                      $
                      17.6
                      
                      
                      $
                      --
                      
                      
                      $
                      --
                      
                      
                      $
                      (17.6
                      )
                      
                      $
                      --








Note
18.  Subsequent Events





Suspension of DRIP and
EUPP





In July 2009, we suspended the
opportunity for investors to acquire additional Units under our DRIP, pursuant
to the terms of the definitive merger agreements with Enterprise Products
Partners (see Note 13).  We expect this suspension to remain in place
pursuant to such terms while the transaction is
pending.  Additionally, the EUPP will suspend operations in August
2009 pursuant to the terms of the definitive merger agreements.





Loan Agreement with Enterprise Products
Operating LLC




On August 5, 2009, we entered into a
Loan Agreement (the “Loan Agreement”) with Enterprise Products Operating LLC
(“EPO”), a wholly owned subsidiary of Enterprise Products Partners, under which
EPO agreed to make an unsecured revolving loan to us in an aggregate
maximum outstanding principal amount not to exceed $100.0
million.  Borrowings under the Loan Agreement mature on the
earliest to occur of (i) the consummation of our proposed merger with
Enterprise Products Partners, (ii) the termination of the related merger
agreement in accordance with the provisions thereof, (iii) December 31, 2009,
(iv) the date upon which the maturity of the loan is otherwise accelerated
upon an event of default, and (v) the date upon which EPO’s commitment to make
the loan is terminated by us pursuant to the Loan




44
 TEPPCO
PARTNERS, L.P.
 
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Agreement. 
Borrowings under the Loan Agreement will bear interest at a floating rate
equivalent to the one-month LIBOR Rate (as defined in the Loan Agreement) plus
2.00%.  Interest is payable monthly.




The Loan Agreement provides that
amounts borrowed are non-recourse to our General Partner and our limited
partners.  The Loan Agreement contains customary events of default,
including (i) nonpayment of principal when due or nonpayment of interest or
other amounts within three business days of when due; (ii) bankruptcy or
insolvency with respect to us; (iii) a change of control; or (iv) an event of
default under our Revolving Credit Facility.  Any amounts due by us
under the Loan Agreement will be unconditionally and irrevocably guaranteed by
our Guarantor Subsidiaries that guarantee our obligations under our Revolving
Credit Facility.  EPO’s obligation to fund any borrowings under the
Loan Agreement is subject to specified conditions, including the condition that,
on and as of the applicable date of funding, no additional amounts are available
to us pursuant to our Revolving Credit Facility (either as borrowings or under
any letters of credit).  The ACG
Committee reviewed and approved the Loan Agreement, such approval
constituting “Special Approval” under the conflict of interest provisions of our
Partnership Agreement.  The execution of the Loan Agreement was also
unanimously approved by the ACG Committee of EPGP.




Settlement Agreement




On August 5, 2009, the parties to the
Merger Action and the Derivative Action described in Note 15 entered into a
Settlement Agreement contemplated by the Memorandum of
Understanding.  Pursuant to the Settlement Agreement, the board of
directors of our General Partner will recommend to our unitholders that they
approve the adoption of the merger agreement governing our proposed merger with
a subsidiary of Enterprise Products Partners and take all necessary steps to
seek unitholder approval for the merger as soon as
practicable.  Pursuant to the Settlement Agreement, approval of the
merger will require, in addition to votes required under our Partnership
Agreement, that the actual votes cast in favor of the proposal by holders of our
outstanding Units, excluding those held by defendants to the Derivative Action,
exceed the actual votes cast against the proposal by those
holders.  The Settlement Agreement further provides that the
Derivative Action was considered by the Special Committee to be a
significant benefit of ours for which fair value was obtained in the merger
consideration.




The Settlement Agreement is subject to
customary conditions, including Delaware Court approval.  There can be
no assurance that the Delaware Court will approve the settlement in the
Settlement Agreement.  In such event, the proposed settlement as
contemplated by the Settlement Agreement may be terminated.  See Note
13 for additional information regarding our relationship with Enterprise
Products Partners, including information related to the proposed
merger.  See Note 15 for additional information related to the Merger
Action and the Derivative Action, including the Settlement
Agreement.




Borrowing
under Revolving Credit Facility
  On August
4, 2009, we submitted a request for borrowings under our Revolving Credit
Facility expected to be received on August 7, 2009 in an aggregate amount of
$95.9 million.  Such borrowings will be used to pay the $91.6 million
aggregate amount of our previously disclosed cash distribution on our
outstanding Units with respect to the quarter ended June 30, 2009 and for
general partnership purposes.  Immediately following the payment of
such distribution, we expect to have approximately $820 million principal amount
outstanding under our Revolving Credit Facility.





45





Item
2.  Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.





For
the three months and six months ended June 30, 2009 and 2008





The following information should be
read in conjunction with our unaudited condensed consolidated financial
statements and accompanying notes included in this Quarterly
Report.  The following information and such unaudited condensed
consolidated financial statements should also be read in conjunction with the
financial statements and related notes, together with our discussion and
analysis of financial position and results of operations included in our Annual
Report on Form 10-K for the year ended December 31, 2008.





Our financial statements have been
prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”).





Key
References Used in this Quarterly Report





Unless the context requires otherwise,
references to “we,”
“us,” “our,” the “Partnership” or “TEPPCO” are intended to mean
the business and operations of TEPPCO Partners, L.P. and its consolidated
subsidiaries.





References to “TE Products,” “TCTM,” “TEPPCO Midstream” and “TEPPCO Marine Services” mean
TE Products Pipeline Company, LLC, TCTM, L.P., TEPPCO Midstream Companies, LLC
and TEPPCO Marine Services, LLC, our subsidiaries.





References to “General Partner” mean Texas
Eastern Products Pipeline Company, LLC, which is the general partner of
TEPPCO.





References to “Enterprise GP Holdings” mean
Enterprise GP Holdings L.P., a publicly traded partnership that owns our General
Partner and Enterprise Products GP, LLC, the general partner of Enterprise
Products Partners L.P.





References to “Enterprise Products Partners”
mean Enterprise Products Partners L.P., a publicly traded Delaware limited
partnership and its consolidated subsidiaries, which is an affiliate of
ours.





References to “EPCO” mean EPCO, Inc., a
privately-held company that is affiliated with our General
Partner.  Dan L. Duncan is the Group Co-Chairman and controlling
shareholder of EPCO.





References to “petroleum products” or “products” mean refined
products, liquefied petroleum gases (“LPGs”), petrochemicals, crude oil,
lubrication oils and specialty chemicals, natural gas liquids (“NGLs”), natural
gas, asphalt, heavy fuel oil, other heated oil products and marine bunker
fuel.





As
generally used in the energy industry and in this discussion, the identified
terms have the following meanings:




/d
            =
      per dayMcf
            =
      thousand cubic feetMMcf
            =
      million cubic feetBcf
            =
      billion cubic feetMMbls
            =
      million barrelsMMBtus
            =
      million British thermal unitsBBtus
            =
      billion British thermal units





Cautionary
Note Regarding Forward-Looking Statements





This discussion contains various
forward-looking statements and information that are based on our beliefs and
those of our General Partner, as well as assumptions made by us and information
currently available to us.  When used in this document, words such as
“anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “forecast,” “intend,”
“could,” “should,” “will,” “believe,” “may,” “potential” and





46





similar
expressions and statements regarding our plans and objectives for future
operations are intended to identify forward-looking
statements.  Although we and our General Partner believe that such
expectations reflected in such forward-looking statements are reasonable,
neither we nor our General Partner can give any assurances that such
expectations will prove to be correct.  Such statements are subject to
a variety of risks, uncertainties and assumptions as described in more detail in
Item 1A “Risk Factors” included in our Annual Report on Form 10-K for the year
ended December 31, 2008 and in Part II, Item 1A of our Quarterly Report on Form
10-Q for the quarter ended March 31, 2009 and this Quarterly
Report.  If one or more of these risks or uncertainties materialize,
or if underlying assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, projected or
expected.  You should not put undue reliance on any forward-looking
statements.  The forward-looking statements in this Quarterly Report
speak only as of the date hereof.  Except as required by federal and
state securities laws, we undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or any other reason.





Overview
of Critical Accounting Policies and Estimates





A summary of the significant accounting
policies we have adopted and followed in the preparation of our consolidated
financial statements is included in our Annual Report on Form 10-K for the
year ended December 31, 2008.  Certain of these accounting policies
require the use of estimates.  As more fully described therein, the
following estimates, in our opinion, are subjective in nature, require the
exercise of judgment and involve complex analysis: revenue and expense accruals,
including accruals for power costs, property taxes and crude oil margins;
reserves for environmental matters; depreciation methods and estimated useful
lives of property, plant and equipment; measuring recoverability of long-lived
assets and equity method investments; measuring the fair value of goodwill; and
amortization methods and estimated useful lives of intangible
assets.  These estimates are based on our knowledge and understanding
of current conditions and actions we may take in the future.  Changes
in these estimates will occur as a result of the passage of time and the
occurrence of future events.  Subsequent changes in these estimates
may have a significant impact on our financial position, results of operations
and cash flows.





Overview
of Business





We are a publicly traded, diversified
energy logistics partnership with operations that span much of the continental
United States.  Our limited partner units (“Units”) are listed on the
New York Stock Exchange (“NYSE”) under the ticker symbol “TPP”.  We
were formed in March 1990 as a Delaware limited partnership.





We own and operate an extensive network
of assets that facilitate the movement, marketing, gathering and storage of
various commodities and energy-related products.Our pipeline
network gathers and transports refined products, crude oil, natural gas, LPGs
and NGLs, including one of the largest common carrier pipelines for refined
products and LPGs in the United States.  We also own a marine services
business that transports petroleum products and provides marine vessel fueling
services and other ship-assist services.  In addition, we own
interests in Seaway Crude Pipeline Company (“Seaway”), Centennial Pipeline LLC
(“Centennial”), Jonah Gas Gathering Company (“Jonah”) and an undivided ownership
interest in the Basin Pipeline (“Basin”).  We operate and report in
four business segments:





§
            pipeline
      transportation, marketing and storage of refined products, LPGs and
      petrochemicals (“Downstream
Segment”);





§
            gathering,
      pipeline transportation, marketing and storage of crude oil, distribution
      of lubrication oils and specialty chemicals and fuel transportation
      services (“Upstream Segment”);





§
            gathering
      of natural gas, fractionation of NGLs and pipeline transportation of NGLs
      (“Midstream Segment”); and





47


§
              marine
      transportation of petroleum products and provision of marine vessel
      fueling and other ship-assist services (“Marine Services
      Segment”).


Our reportable segments offer different
products and services and are managed separately because each requires different
business strategies.  We operate through TE Products, TCTM, TEPPCO
Midstream and TEPPCO Marine Services.  Texas Eastern Products Pipeline
Company, LLC, a Delaware limited liability company, serves as our general
partner and owns a 2% general partner interest in us.





Please refer to Item
7.  Management’s Discussion and Analysis of Financial Condition and
Results of Operations – Overview of Business in our Annual Report on Form 10-K
for the year ended December 31, 2008 for an overview of how revenues are earned
in each segment and other factors affecting the results and financial position
of our businesses.





Recent
Developments





The following information highlights
our significant developments since January 1, 2009 through the date of this
filing.





Proposed
      Merger with Enterprise Products
Partners





On June 28, 2009, we and our General
Partner entered into definitive merger agreements with Enterprise Products
Partners, its general partner (“EPGP”) and two of its
subsidiaries.  Under the terms of the definitive agreements, we and
our General Partner would become wholly owned subsidiaries of Enterprise
Products Partners, and each of our outstanding Units, other than 3,645,509 of
our Units owned by a privately-held affiliate of EPCO, would be cancelled and
converted into the right to receive 1.24 Enterprise Products Partners common
units.  The 3,645,509 Units owned by a privately-held affiliate of
EPCO would be converted, based on the 1.24 exchange ratio, into the right to
receive 4,520,431 of Enterprise Products Partners Class B units (“Class B
Units”).  The Class B Units would not be entitled to regular quarterly
cash distributions of Enterprise Products Partners for sixteen quarters
following the closing of the merger and, except for the payment of
distributions, would have the same rights and privileges as Enterprise Products
Partners common units.  The Class B Units would convert automatically
into the same number of Enterprise Products Partners common units on the date
immediately following the payment date for the sixteenth quarterly distribution
following the closing of the merger.  No fractional Enterprise
Products Partners common units would be issued in the proposed merger, and our
unitholders would, instead, receive cash in lieu of fractional Enterprise
Products Partners common units, if any.




Under the terms of the definitive
agreements, Enterprise GP Holdings would receive 1,331,681 common units of
Enterprise Products Partners and an increase in the capital account of EPGP to
maintain its 2% general partner interest in Enterprise Products Partners as
consideration for 100% of the membership interests of our General
Partner.




A Special Committee of the Audit,
Conflicts and Governance (“ACG”) Committee of our General Partner unanimously
determined that the merger is fair and reasonable to us and our unaffiliated
unitholders and recommended that the merger be approved by our unaffiliated
unitholders, the ACG Committee of our General Partner and our General Partner’s
board of directors.  Based upon such determination and recommendation,
the ACG Committee of our General Partner unanimously determined that the merger
is fair and reasonable to us and our unaffiliated unitholders and approved the
merger, such approval constituting “Special Approval” under our Partnership
Agreement.  The ACG Committee of our General Partner also recommended
that our General Partner’s board of directors approve the
merger.  Based on the Special Committee’s determination and
recommendation, as well as the ACG Committee’s determination, Special Approval
and recommendation, our General Partner’s board of directors unanimously
approved the merger and recommended that our unaffiliated unitholders vote in
favor of the merger proposal.  In addition, the ACG Committee of the
general partner of each of Enterprise Products Partners and Enterprise GP
Holdings also approved the transaction.




48




Completion of the proposed merger is
subject to the approval of holders of at least a majority of our outstanding
Units.  In addition, pursuant to the merger agreement providing for
the merger of our Partnership, the number of votes cast in favor of the merger
agreement by our unitholders (excluding certain unitholders affiliated with EPCO
and other specified officers and directors of our General Partner, Enterprise GP
Holdings and Enterprise Products Partners) must exceed the votes cast against
the merger agreement by such unitholders.  Affiliates of EPCO,
including Enterprise GP Holdings, have executed a support agreement with
Enterprise Products Partners in which they have agreed to vote their Units in
favor of the merger agreement.  The closing is also subject to
customary regulatory approvals, including that under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.  Subject to the
receipt of regulatory and unitholder approvals, completion of the proposed
merger is expected to occur during the fourth quarter of 2009. See Note 15 in
the Notes to Unaudited Condensed Consolidated Financial Statements for
information regarding litigation matters associated with the proposed
merger.





The merger agreement providing for the
merger of our Partnership contains provisions granting both us and Enterprise
Products Partners the right to terminate the agreement for certain reasons,
including, among others, (i) if our merger into its subsidiary has not
occurred on or before December 31, 2009, and (ii) our failure to
obtain unitholder approval as described above.





In July 2009, we suspended the
opportunity for investors to acquire additional Units under our distribution
reinvestment plan (“DRIP”), pursuant to the terms of the definitive merger
agreements with Enterprise Products Partners.  Additionally, the
employee unit purchase plan (“EUPP”) will suspend operations in August 2009
pursuant to the terms of the definitive merger agreements.  We expect
these suspensions to remain in place pursuant to such terms while the
transaction is pending.





Loan Agreement with Enterprise Products
Operating LLC




On August 5, 2009, we entered into a
Loan Agreement (the “Loan Agreement”) with Enterprise Products Operating LLC
(“EPO”), a wholly owned subsidiary of Enterprise Products Partners, under which
EPO agreed to make an unsecured revolving loan to us in an aggregate
maximum outstanding principal amount not to exceed $100.0
million.  Borrowings under the Loan Agreement mature on the
earliest to occur of (i) the consummation of our proposed merger with
Enterprise Products Partners, (ii) the termination of the related merger
agreement in accordance with the provisions thereof, (iii) December 31, 2009,
(iv) the date upon which the maturity of the loan is otherwise accelerated
upon an event of default, and (v) the date upon which EPO’s commitment to make
the loan is terminated by us pursuant to the Loan
Agreement. Borrowings
under the Loan Agreement will bear interest at a floating rate equivalent
to the one-month LIBOR Rate (as defined in the Loan Agreement) plus
2.00%.  Interest is payable monthly.




The Loan Agreement provides that
amounts borrowed are non-recourse to our General Partner and our limited
partners.  The Loan Agreement contains customary events of default,
including (i) nonpayment of principal when due or nonpayment of interest or
other amounts within three business days of when due; (ii) bankruptcy or
insolvency with respect to us; (iii) a change of control; or (iv) an event of
default under our revolving credit facility (“Revolving Credit
Facility”).  Any amounts due by us under the Loan Agreement will be
unconditionally and irrevocably guaranteed by each of our subsidiaries that
guarantee our obligations under our Revolving Credit Facility.  EPO’s
obligation to fund any borrowings under the Loan Agreement is subject to
specified conditions, including the condition that, on and as of the applicable
date of funding, no additional amounts are available to us pursuant to our
Revolving Credit Facility (either as borrowings or under any letters of
credit).  The ACG
Committee reviewed and approved the Loan Agreement, such approval constituting
“Special Approval” under the conflict of interest provisions of our Partnership
Agreement.  The execution of the Loan Agreement was also unanimously
approved by the ACG Committee of EPGP.




Settlement Agreement


O n August 5, 2009, the
parties to the Merger Action and the Derivative Action described in Note 15 in
the Notes to Unaudited Condensed Consolidated Financial Statements entered into
a Stipulation and
 49
 Agreement of Compromise,
Settlement and Release (the “Settlement Agreement”) contemplated by the
Memorandum of Understanding.  Pursuant to theSettlement
Agreement, the board of directors of our General Partner will recommend to our
unitholders that they approve the adoption of the merger agreement governing our
proposed merger with a subsidiary of Enterprise Products Partners and take all
necessary steps to seek unitholder approval for the merger as soon as
practicable.  Pursuant to the Settlement Agreement, approval of the
merger will require, in addition to votes required under our partnership
agreement, that the actual votes cast in favor of the proposal by holders of our
outstanding Units, excluding those held by defendants to the Derivative Action,
exceed the actual votes cast against the proposal by those
holders.  The Settlement Agreement further provides that the
Derivative Action was considered by the Special Committee to be a
significant benefit of ours for which fair value was obtained in the merger
consideration.




The Settlement Agreement is subject to
customary conditions, including Court of Chancery of the State of Delaware (the
“Delaware Court”) approval.  There can be no assurance that the
Delaware Court will approve the settlement in the Settlement
Agreement.  In such event, the proposed settlement as contemplated by
the Settlement Agreement may be terminated.  See Note 13 in the Notes
to Unaudited Condensed Consolidated Financial Statements for additional
information regarding our relationship with Enterprise Products Partners,
including information related to the proposed merger.  See Note 15 in
the Notes to Unaudited Condensed Consolidated Financial Statements for
additional information related to the Merger Action and the Derivative Action,
including the Settlement Agreement.


Borrowing
under Revolving Credit Facility
  O n August 4, 2009, we
submitted a request for borrowings under our Revolving Credit Facility expected
to be received on August 7, 2009 in an aggregate amount of $95.9
million.  Such borrowings will be used to pay the $91.6 million
aggregate amount of our previously disclosed cash distribution on our
outstanding Units with respect to the quarter ended June 30, 2009 and for
general partnership purposes.  Immediately following the payment of
such distribution, we expect to have approximately $820 million principal amount
outstanding under our Revolving Credit
Facility.
  A cquisition
of Marine Assets; Termination of Transitional Operating
Agreement


O n
June 5, 2009, we expanded our Marine Services Segment with the acquisition of 19
tow boats and 28 tank barges from TransMontaigne Product Services Inc.,
(“TransMontaigne”), for $50.0 million in cash.  The acquired vessels
provide marine vessel fueling services for cruise liners and cargo ships,
referred to as bunkering, and other ship-assist services and transport fuel oil
for electric generation plants.  The acquisition complements our
existing fleet of vessels that currently transport petroleum products along the
nation’s inland waterway system and in the Gulf of Mexico.  The newly
acquired marine assets  are generally supported by contracts that have
three to five year terms and are based primarily in Miami, Florida, with
additional assets located in Mobile, Alabama, and Houston, Texas.  We
financed the acquisition with borrowings under our Revolving Credit
Facility.  See Note 8 in the Notes to Unaudited Condensed Consolidated
Financial Statements for additional information regarding this business
combination.
 E ffective
August 1, 2009, personnel providing services to us under the transitional
operating agreement with Cenac Towing Co., L.L.C., Cenac Offshore, L.L.C. and
Mr. Arlen B. Cenac, Jr. (collectively, “Cenac”) became employees of EPCO, and
the transitional operating agreement was terminated.  Concurrently
with the termination, TEPPCO Marine Services entered into a two-year consulting
agreement with Mr. Cenac and Cenac Marine Services, L.L.C. under which Mr. Cenac
has agreed to supervise TEPPCO Marine Services’ day-to-day operations on a
part-time basis and, at TEPPCO Marine Services’ request, provide related
management and transitional services.  The agreement entitles Mr.
Cenac to $500,000 per year in fees, plus a one-time retainer of
$200,000.  The consulting agreement contains noncompetition and
nonsolitation provisions similar to those contained in the transitional
operating agreement, which apply until the expiration of the two-year period
following the date of last service provided under theconsulting
agreement.




50


Exit
from Texas Offshore Port System Partnership


I n August 2008, a wholly
owned subsidiary of ours, together with a subsidiary of Enterprise Products
Partners and Oiltanking Holding Americas, Inc. (“Oiltanking”), formed the Texas
Offshore Port System partnership (“TOPS”).  Effective April 16, 2009,
our wholly owned subsidiary dissociated from TOPS.  As a result,
equity earnings and net income for the second quarter of 2009 include a
non-cash charge of $34.2 million.  This loss represents our cumulative
investment in TOPS through the date of dissociation and reflects our capital
contributions to TOPS for construction in progress amounts.  We
believe that the dissociation discharged our affiliate with respect to further
obligations under the TOPS partnership agreement, and accordingly, us from the
associated liability under the related parent guarantee; therefore, we have not
recorded any amounts related to such guarantee.  The wholly owned
subsidiary of Enterprise Products Partners that was a partner in TOPS also
dissociated from the partnership effective April 16,
2009.    See Note 15 in the Notes to Unaudited Condensed
Consolidated Financial Statements for litigation matters associated with our
dissociation from TOPS.







Results
of Operations




The following table summarizes
financial information by business segment for the periods indicated (in
millions):




For
      the Three Months
                                          Ended
      June 30,
                                        
                                        
                                        For
      the Six Months
                                          Ended
      June 30,2009
                                        
                                        
                                        2008
                                        
                                        
                                        2009
                                        
                                        
                                        2008Operating
      revenues:Downstream
      Segment
                                        
                                        $
                                        86.9
                                        
                                        
                                        $
                                        76.4
                                        
                                        
                                        $
                                        182.4
                                        
                                        
                                        $
                                        174.1Upstream
      Segment
                                        
                                        
                                        1,751.6
                                        
                                        
                                        
                                        4,025.4
                                        
                                        
                                        
                                        3,047.8
                                        
                                        
                                        
                                        6,680.7Midstream
      Segment
                                        
                                        
                                        31.1
                                        
                                        
                                        
                                        30.6
                                        
                                        
                                        
                                        60.1
                                        
                                        
                                        
                                        60.7Marine
      Services Segment
                                        
                                        
                                        43.7
                                        
                                        
                                        
                                        48.1
                                        
                                        
                                        
                                        80.6
                                        
                                        
                                        
                                        73.6Intersegment
      eliminations
                                        
                                        
                                        (0.1
                                        )
                                        
                                        
                                        --
                                        
                                        
                                        
                                        (0.1
                                        )
                                        
                                        
                                        (0.1
                                        )Total
      operating revenues
                                        
                                        
                                        1,913.2
                                        
                                        
                                        
                                        4,180.5
                                        
                                        
                                        
                                        3,370.8
                                        
                                        
                                        
                                        6,989.0Operating
      income:Downstream
      Segment
                                        
                                        
                                        13.5
                                        
                                        
                                        
                                        15.7
                                        
                                        
                                        
                                        47.9
                                        
                                        
                                        
                                        52.0Upstream
      Segment
                                        
                                        
                                        29.9
                                        
                                        
                                        
                                        25.6
                                        
                                        
                                        
                                        70.8
                                        
                                        
                                        
                                        54.9Midstream
      Segment
                                        
                                        
                                        3.8
                                        
                                        
                                        
                                        8.3
                                        
                                        
                                        
                                        8.3
                                        
                                        
                                        
                                        16.7Marine
      Services Segment
                                        
                                        
                                        8.3
                                        
                                        
                                        
                                        8.6
                                        
                                        
                                        
                                        13.5
                                        
                                        
                                        
                                        15.2Intersegment
      eliminations
                                        
                                        
                                        0.4
                                        
                                        
                                        
                                        1.1
                                        
                                        
                                        
                                        1.1
                                        
                                        
                                        
                                        4.0Total
      operating income
                                        
                                        
                                        55.9
                                        
                                        
                                        
                                        59.3
                                        
                                        
                                        
                                        141.6
                                        
                                        
                                        
                                        142.8Equity
      in income (loss) of unconsolidated affiliates:Downstream
      Segment
                                        
                                        
                                        (4.3
                                        )
                                        
                                        
                                        (3.7
                                        )
                                        
                                        
                                        (7.4
                                        )
                                        
                                        
                                        (7.8
                                        )Upstream
      Segment
                                        
                                        
                                        (31.3
                                        )
                                        
                                        
                                        4.2
                                        
                                        
                                        
                                        (28.0
                                        )
                                        
                                        
                                        7.2Midstream
      Segment
                                        
                                        
                                        23.8
                                        
                                        
                                        
                                        21.9
                                        
                                        
                                        
                                        49.4
                                        
                                        
                                        
                                        45.6Intersegment
      eliminations
                                        
                                        
                                        (0.4
                                        )
                                        
                                        
                                        (1.1
                                        )
                                        
                                        
                                        (1.1
                                        )
                                        
                                        
                                        (4.0
                                        )Total
      equity in income (loss) of unconsolidatedaffiliates
                                        
                                        
                                        (12.2
                                        )
                                        
                                        
                                        21.3
                                        
                                        
                                        
                                        12.9
                                        
                                        
                                        
                                        41.0Earnings
      before interest: (1)Downstream
      Segment
                                        
                                        
                                        9.4
                                        
                                        
                                        
                                        12.4
                                        
                                        
                                        
                                        41.0
                                        
                                        
                                        
                                        44.8Upstream
      Segment
                                        
                                        
                                        (0.9
                                        )
                                        
                                        
                                        30.4
                                        
                                        
                                        
                                        43.3
                                        
                                        
                                        
                                        62.7Midstream
      Segment
                                        
                                        
                                        27.6
                                        
                                        
                                        
                                        30.3
                                        
                                        
                                        
                                        57.7
                                        
                                        
                                        
                                        62.5Marine
      Services Segment
                                        
                                        
                                        8.3
                                        
                                        
                                        
                                        8.6
                                        
                                        
                                        
                                        13.5
                                        
                                        
                                        
                                        15.2Interest
      expense
                                        
                                        
                                        (32.3
                                        )
                                        
                                        
                                        (33.0
                                        )
                                        
                                        
                                        (64.4
                                        )
                                        
                                        
                                        (71.6
                                        )Income
      before provision for income taxes
                                        
                                        
                                        12.1
                                        
                                        
                                        
                                        48.7
                                        
                                        
                                        
                                        91.1
                                        
                                        
                                        
                                        113.6Provision
      for income taxes
                                        
                                        
                                        (0.9
                                        )
                                        
                                        
                                        (1.0
                                        )
                                        
                                        
                                        (1.7
                                        )
                                        
                                        
                                        (1.8
                                        )Net
      income
                                        
                                        $
                                        11.2
                                        
                                        
                                        $
                                        47.7
                                        
                                        
                                        $
                                        89.4
                                        
                                        
                                        $
                                        111.8(1)See
      Note 12 in the Notes to Unaudited Condensed Consolidated Financial
      Statements for a reconciliation of earnings before interest to net
      income.





The following is an analysis of the
results of operations, including reasons for material changes in results, by
each of our business segments.








51





Downstream
Segment





The
following table provides financial information for the Downstream Segment for
the periods indicated (in millions):




For
      the Three Months
                      
                      
                      
                      
                      
                      For
      the Six MonthsEnded
      June 30,
                      
                      
                      Increase
                      
                      
                      Ended
      June 30,
                      
                      
                      Increase2009
                      
                      
                      2008
                      
                      
                      (Decrease)
                      
                      
                      2009
                      
                      
                      2008
                      
                      
                      (Decrease)Operating
      revenues:Sales
      of petroleum products
                      
                      $
                      12.8
                      
                      
                      $
                      1.2
                      
                      
                      $
                      11.6
                      
                      
                      $
                      19.5
                      
                      
                      $
                      8.2
                      
                      
                      $
                      11.3Transportation
      – Refined products
                      
                      
                      41.1
                      
                      
                      
                      44.1
                      
                      
                      
                      (3.0
                      )
                      
                      
                      77.0
                      
                      
                      
                      81.4
                      
                      
                      
                      (4.4
                      )Transportation
      – LPGs
                      
                      
                      17.5
                      
                      
                      
                      16.1
                      
                      
                      
                      1.4
                      
                      
                      
                      55.8
                      
                      
                      
                      52.3
                      
                      
                      
                      3.5Other
                      
                      
                      15.5
                      
                      
                      
                      15.0
                      
                      
                      
                      0.5
                      
                      
                      
                      30.1
                      
                      
                      
                      32.2
                      
                      
                      
                      (2.1
                      )Total
      operating revenues
                      
                      
                      86.9
                      
                      
                      
                      76.4
                      
                      
                      
                      10.5
                      
                      
                      
                      182.4
                      
                      
                      
                      174.1
                      
                      
                      
                      8.3Costs
      and expenses:Purchases
      of petroleum products
                      
                      
                      12.6
                      
                      
                      
                      1.3
                      
                      
                      
                      11.3
                      
                      
                      
                      19.2
                      
                      
                      
                      8.2
                      
                      
                      
                      11.0Operating
      expense
                      
                      
                      30.7
                      
                      
                      
                      30.4
                      
                      
                      
                      0.3
                      
                      
                      
                      55.6
                      
                      
                      
                      57.3
                      
                      
                      
                      (1.7
                      )Operating
      fuel and power
                      
                      
                      7.0
                      
                      
                      
                      10.5
                      
                      
                      
                      (3.5
                      )
                      
                      
                      18.0
                      
                      
                      
                      21.0
                      
                      
                      
                      (3.0
                      )General
      and administrative
                      
                      
                      6.3
                      
                      
                      
                      4.5
                      
                      
                      
                      1.8
                      
                      
                      
                      10.0
                      
                      
                      
                      8.2
                      
                      
                      
                      1.8Depreciation
      and amortization
                      
                      
                      13.3
                      
                      
                      
                      10.5
                      
                      
                      
                      2.8
                      
                      
                      
                      24.8
                      
                      
                      
                      20.7
                      
                      
                      
                      4.1Taxes
      – other than income taxes
                      
                      
                      3.5
                      
                      
                      
                      3.5
                      
                      
                      
                      --
                      
                      
                      
                      6.9
                      
                      
                      
                      6.7
                      
                      
                      
                      0.2Total
      costs and expenses
                      
                      
                      73.4
                      
                      
                      
                      60.7
                      
                      
                      
                      12.7
                      
                      
                      
                      134.5
                      
                      
                      
                      122.1
                      
                      
                      
                      12.4Operating
      income
                      
                      
                      13.5
                      
                      
                      
                      15.7
                      
                      
                      
                      (2.2
                      )
                      
                      
                      47.9
                      
                      
                      
                      52.0
                      
                      
                      
                      (4.1
                      )Equity
      in income (loss) of unconsolidatedaffiliates
                      
                      
                      (4.3
                      )
                      
                      
                      (3.7
                      )
                      
                      
                      (0.6
                      )
                      
                      
                      (7.4
                      )
                      
                      
                      (7.8
                      )
                      
                      
                      0.4Other,
      net
                      
                      
                      0.2
                      
                      
                      
                      0.4
                      
                      
                      
                      (0.2
                      )
                      
                      
                      0.5
                      
                      
                      
                      0.6
                      
                      
                      
                      (0.1
                      )Earnings
      before interest
                      
                      $
                      9.4
                      
                      
                      $
                      12.4
                      
                      
                      $
                      (3.0
                      )
                      
                      $
                      41.0
                      
                      
                      $
                      44.8
                      
                      
                      $
                      (3.8
                      )





The following table presents volumes
delivered in barrels and average tariff per barrel for the periods indicated (in
millions, except tariff information):





For
      the Three Months
                    
                    
                    Percentage
                    
                    
                    For
      the Six Months
                    
                    
                    PercentageEnded
      June 30,
                    
                    
                    Increase
                    
                    
                    Ended
      June 30,
                    
                    
                    Increase2009
                    
                    
                    2008
                    
                    
                    (Decrease)
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    (Decrease)Volumes
      Delivered:Refined
      products
                    
                    
                    40.0
                    
                    
                    
                    41.9
                    
                    
                    
                    (5%)
                    
                    
                    
                    76.6
                    
                    
                    
                    80.4
                    
                    
                    
                    (5%)LPGs
                    
                    
                    6.6
                    
                    
                    
                    6.7
                    
                    
                    
                    (1%)
                    
                    
                    
                    19.2
                    
                    
                    
                    19.6
                    
                    
                    
                    (2%)Total
                    
                    
                    46.6
                    
                    
                    
                    48.6
                    
                    
                    
                    (4%)
                    
                    
                    
                    95.8
                    
                    
                    
                    100.0
                    
                    
                    
                    (4%)Average
      Tariff per Barrel:Refined
      products
                    
                    $
                    1.03
                    
                    
                    $
                    1.05
                    
                    
                    
                    (2%)
                    
                    
                    $
                    1.01
                    
                    
                    $
                    1.01
                    
                    
                    
                    --LPGs
                    
                    
                    2.65
                    
                    
                    
                    2.41
                    
                    
                    
                    10%
                    
                    
                    
                    2.91
                    
                    
                    
                    2.67
                    
                    
                    
                    9%Average
      system tariff per barrel
                    
                    
                    1.26
                    
                    
                    
                    1.24
                    
                    
                    
                    2%
                    
                    
                    
                    1.39
                    
                    
                    
                    1.34
                    
                    
                    
                    4%





Three
Months Ended June 30, 2009 Compared with Three Months Ended June 30,
2008





Sales and purchases related to
petroleum products marketing activities at our Aberdeen and Boligee terminals
increased $11.6 million and $11.3 million, respectively, for the three months
ended June 30, 2009, compared with the three months ended June 30,
2008.  The increases in purchases and sales were primarily due to
increased volumes at the Boligee and Aberdeen terminals as a result of the
start-up of the Boligee terminal in August 2008 and unplanned maintenance on
storage tanks at the Aberdeen terminal in the 2008 period, partially offset by
lower fuel prices in the 2009 period compared to the prior year
period.





Revenues from refined products
transportation decreased $3.0 million for the three months ended June 30, 2009,
compared with the three months ended June 30, 2008, primarily due to the
recognition of $2.1 million of deferred revenue in the 2008 period related to
two customer transportation agreements, a 5% decrease in refined products
volumes delivered in the 2009 period and a 2% decrease in the average tariff per
barrel.  Under some of our transportation agreements with customers,
the contracts specify minimum periodic payments for transportation
services.  If the transportation services used during that
time





52





period
total less than the minimum payment, the unused payment is recorded as deferred
revenue.  The contracts generally specify a subsequent period of time
in which the customer can ship additional products to recover the deferred
revenue.  During the second quarter of 2008, we recognized refined
products transportation revenue related to time limit expirations under two
transportation agreements without the customers recovering the deferred
revenues.  This additional revenue increased the refined products
average tariff by $0.05 per barrel in the 2008 period, or
5%.  Additionally, volume decreases were primarily due to lower diesel
fuel, jet fuel and motor fuel movements resulting from a decline in product
demand, partially offset by higher short-haul diesel fuel and higher long-haul
blendstock movements resulting from increased diesel fuel deliveries to Gulf
Coast diesel fuel storage facilities and restrictions on blendstock supplies
that occurred in the second quarter of 2008.  The refined products
average tariff per barrel decreased primarily due to the recognition of deferred
revenue in the 2008 period, partially offset by increases in system tariffs that
went into effect in July 2008.





Revenues from LPG transportation
increased $1.4 million for the three months ended June 30, 2009, compared with
the three months ended June 30, 2008, primarily due to a 10% increase in the LPG
average tariff per barrel, partially offset by a 1% decrease in the LPG volumes
delivered.  The LPG average rate per barrel increased from the prior
year period, primarily due to increases in system tariffs that went into effect
in July 2008 and increased long-haul propane deliveries and decreased shorter
haul isobutane deliveries during the second quarter of 2009.  Propane
transportation volumes increased from the 2008 period due to lower production in
certain market areas in the 2009 period and the impact of higher prices in the
2008 period.





Other operating revenues increased $0.5
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008, primarily due to a $0.8 million increase in refined
products storage rental revenues, a $0.4 million increase in LPG rental and
location exchange revenues and a $0.3 million increase in LPG inventory sales,
partially offset by a $0.5 million decrease in refined products terminaling
revenue and a $0.3 million decrease in refined products excess inventory
revenue.





Costs and expenses increased $12.7
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  Purchases of petroleum products, discussed
above, increased $11.3 million compared with the prior year
period.  Operating expenses increased $0.3 million primarily due to a
$2.3 million non-cash impairment charge to idle a river terminal at Helena,
Arkansas (see Note 6 in the Notes to Unaudited Condensed Consolidated Financial
Statements), a $1.8 million increase in product measurement losses, a $1.0
million increase in labor and benefits expense and a $0.9 million increase
in pipeline operating and maintenance costs principally related to periodic tank
maintenance requirements and other repairs and maintenance on various pipeline
segments.  These increases were partially offset by a $2.4 million
decrease related to the write-off of project costs for a cancelled project in
the 2008 period, a $1.8 million decrease in environmental remediation and
assessment costs and a $1.4 million decrease in transportation expense related
to movements on the Centennial pipeline and a third party
pipeline. Operating fuel and power decreased $3.5 million primarily due to
lower transportation volumes and lower power rates in the current
period. General and administrative expenses increased $1.8 million
primarily due to a $2.6 million increase in legal and other expenses related to
the proposed merger with Enterprise Products Partners (see Note 13 in the Notes
to Unaudited Condensed Consolidated Financial Statements), partially offset by a
$0.5 million decrease in consulting and contract services and a $0.4 million
decrease in labor and benefits expense. Depreciation and amortization
expense increased $2.8 million primarily due to a $1.3 million increase due to
asset retirements, a $1.0 million increase due to assets placed into service and
a $0.5 million increase in amortization of equity awards.  Taxes –
other than income taxes remained unchanged between periods.





Equity losses from our equity
investment in Centennial increased $0.6 million for the three months ended June
30, 2009, compared with the three months ended June 30, 2008, primarily due to
lower transportation volumes and revenues and higher operating expenses,
primarily related to increased expenses for pipeline maintenance and product
transportation downgrades.  Volumes on Centennial averaged 79,800
barrels per day during the three months ended June 30, 2009, compared with
115,900 barrels per day during the three months ended June 30, 2008, primarily
due to lower demand in the Midwest market area in the 2009 period.





53


S ix
Months Ended June 30, 2009 Compared with Six Months Ended June 30,
2008





Sales and purchases related to
petroleum products marketing activities at our Aberdeen and Boligee terminals
increased $11.3 million and $11.0 million, respectively, for the six months
ended June 30, 2009, compared with the six months ended June 30,
2008.  The increases in purchases and sales were primarily due to
increased volumes at the Boligee and Aberdeen terminals as a result of the
start-up of the Boligee terminal in August 2008 and unplanned maintenance
on storage tanks at the Aberdeen terminal in the 2008 period, partially offset
by lower fuel prices in the 2009 period compared to the prior year
period.





Revenues from refined products
transportation decreased $4.4 million for the six months ended June 30, 2009,
compared with the six months ended June 30, 2008, primarily due to the
recognition of $2.1 million of deferred revenue in the 2008 period related to
two customer transportation agreements as discussed above and a 5% decrease in
refined products volumes delivered.  Volume decreases were primarily
due to lower long-haul jet fuel, motor fuel and diesel fuel movements
resulting from a decline in product demand, partially offset by higher
short-haul diesel fuel and higher long-haul blendstock movements due to higher
demand in the Midwest markets.  The refined products average tariff
per barrel remained unchanged due to the recognition of deferred revenue in the
2008 period offset by increases in system tariffs that went into effect in July
2008 and April 2009.





Revenues from LPG transportation
increased $3.5 million for the six months ended June 30, 2009, compared with the
six months ended June 30, 2008, primarily due to a 9% increase in the LPG
average tariff per barrel, partially offset by a 2% decrease in the LPG volumes
delivered.  The LPG average rate per barrel increased from the prior
year period primarily due to increases in system tariffs that went into effect
in July 2008, increased isobutane deliveries in the Midwest and lower propane
deliveries to a Midwest petrochemical plant that has a lower tariff, resulting
from downtime of the plant.  Propane transportation volumes were
slightly lower in the 2009 period compared to the prior year period primarily
due to the downtime of the Midwest petrochemical plant during the 2009
period.





Other operating revenues decreased $2.1
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008, primarily due to a $2.4 million decrease in refined
products excess inventory revenue, a $1.8 million decrease in product inventory
sales and a $1.1 million decrease in refined products terminaling revenue,
partially offset by a $1.7 million increase in refined products storage rental
revenues, a $1.0 million increase in LPG rental and location exchange revenues
and a $0.5 million increase in refinery grade propylene transportation revenue
due to higher volumes.





Costs and expenses increased $12.4
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008.  Purchases of petroleum products, discussed
above, increased $11.0 million, compared with the prior year
period.  Operating expenses decreased $1.7 million primarily due to a
$2.4 million decrease related to the write-off of project costs in the 2008
period, a $2.3 million increase in product measurement gains, a $2.2 million
decrease in transportation expense related to movements on the Centennial
pipeline and a third party pipeline and a $1.5 million decrease in environmental
remediation and assessment expenses.  These decreases in operating
expenses were partially offset by a $2.3 million non-cash impairment charge to
idle a river terminal at Helena, Arkansas, a $2.1 million increase in labor and
benefits expense, a $1.9 million increase in pipeline operating and
maintenance costs principally related to periodic tank maintenance requirements
and other repairs and maintenance on various pipeline segments and a $0.4
million lower of cost or market (“LCM”) adjustment on inventory (see Note 5 in
the Notes to Unaudited Condensed Consolidated Financial
Statements). Operating fuel and power decreased $3.0 million, primarily due
to lower transportation volumes and lower power rates in the current
period.  General and administrative expenses increased $1.8 million
primarily due to a $2.6 million increase in legal and other expenses related to
the proposed merger with Enterprise Products Partners and $0.5 million in
severance expenses, partially offset by a $1.0 million decrease in labor and
benefits expense.  Depreciation and amortization expense increased
$4.1 million, primarily due to a $1.8 million increase due to assets placed into
service, a $1.3 million increase due to asset retirements and a $0.9 million
increase in amortization of equity awards.  Taxes – other than income
taxes increased $0.2 million primarily due to a higher asset base in the
current period.





54


E quity
losses from our equity investment in Centennial decreased $0.4 million for the
six months ended June 30, 2009, compared with the six months ended June 30,
2008, primarily due to improved tariff rates on lower transportation volumes,
partially offset by increased expenses for pipeline maintenance and product
transportation downgrades.  Volumes on Centennial averaged 98,400
barrels per day during the six months ended June 30, 2009, compared with 118,800
barrels per day during the six months ended June 30, 2008, primarily due to
lower demand in the Midwest market area in the 2009 period.





Upstream
Segment





The following table provides financial
information for the Upstream Segment for the periods indicated (in
millions):




For
      the Three Months
                                            
                                            
                                            
                                            
                                            
                                            For
      the Six MonthsEnded
      June 30,
                                            
                                            
                                            Increase
                                            
                                            
                                            Ended
      June 30,
                                            
                                            
                                            Increase2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)Operating
      revenues: (1)Sales
      of petroleum products (2)
                                            
                                            $
                                            1,732.7
                                            
                                            
                                            $
                                            4,005.3
                                            
                                            
                                            $
                                            (2,272.6
                                            )
                                            
                                            $
                                            3,003.9
                                            
                                            
                                            $
                                            6,643.0
                                            
                                            
                                            $
                                            (3,639.1
                                            )Transportation
      – Crude oil
                                            
                                            
                                            15.2
                                            
                                            
                                            
                                            17.4
                                            
                                            
                                            
                                            (2.2
                                            )
                                            
                                            
                                            37.1
                                            
                                            
                                            
                                            32.7
                                            
                                            
                                            
                                            4.4Other
                                            
                                            
                                            3.7
                                            
                                            
                                            
                                            2.7
                                            
                                            
                                            
                                            1.0
                                            
                                            
                                            
                                            6.8
                                            
                                            
                                            
                                            5.0
                                            
                                            
                                            
                                            1.8Total
      operating revenues
                                            
                                            
                                            1,751.6
                                            
                                            
                                            
                                            4,025.4
                                            
                                            
                                            
                                            (2,273.8
                                            )
                                            
                                            
                                            3,047.8
                                            
                                            
                                            
                                            6,680.7
                                            
                                            
                                            
                                            (3,632.9
                                            )Costs
      and expenses: (1)Purchases
      of petroleum products (2)
                                            
                                            
                                            1,691.2
                                            
                                            
                                            
                                            3,975.5
                                            
                                            
                                            
                                            (2,284.3
                                            )
                                            
                                            
                                            2,920.8
                                            
                                            
                                            
                                            6,578.2
                                            
                                            
                                            
                                            (3,657.4
                                            )Operating
      expense
                                            
                                            
                                            16.6
                                            
                                            
                                            
                                            12.7
                                            
                                            
                                            
                                            3.9
                                            
                                            
                                            
                                            31.2
                                            
                                            
                                            
                                            26.0
                                            
                                            
                                            
                                            5.2Operating
      fuel and power
                                            
                                            
                                            2.1
                                            
                                            
                                            
                                            1.9
                                            
                                            
                                            
                                            0.2
                                            
                                            
                                            
                                            3.9
                                            
                                            
                                            
                                            3.6
                                            
                                            
                                            
                                            0.3General
      and administrative
                                            
                                            
                                            3.2
                                            
                                            
                                            
                                            2.7
                                            
                                            
                                            
                                            0.5
                                            
                                            
                                            
                                            5.1
                                            
                                            
                                            
                                            4.5
                                            
                                            
                                            
                                            0.6Depreciation
      and amortization
                                            
                                            
                                            6.7
                                            
                                            
                                            
                                            5.0
                                            
                                            
                                            
                                            1.7
                                            
                                            
                                            
                                            12.3
                                            
                                            
                                            
                                            9.8
                                            
                                            
                                            
                                            2.5Taxes
      – other than income taxes
                                            
                                            
                                            1.9
                                            
                                            
                                            
                                            2.0
                                            
                                            
                                            
                                            (0.1
                                            )
                                            
                                            
                                            3.7
                                            
                                            
                                            
                                            3.7
                                            
                                            
                                            
                                            --Total
      costs and expenses
                                            
                                            
                                            1,721.7
                                            
                                            
                                            
                                            3,999.8
                                            
                                            
                                            
                                            (2,278.1
                                            )
                                            
                                            
                                            2,977.0
                                            
                                            
                                            
                                            6,625.8
                                            
                                            
                                            
                                            (3,648.8
                                            )Operating
      income
                                            
                                            
                                            29.9
                                            
                                            
                                            
                                            25.6
                                            
                                            
                                            
                                            4.3
                                            
                                            
                                            
                                            70.8
                                            
                                            
                                            
                                            54.9
                                            
                                            
                                            
                                            15.9Equity
      in income (loss) of unconsolidated
                                              affiliates
                                            
                                            
                                            (31.3
                                            )
                                            
                                            
                                            4.2
                                            
                                            
                                            
                                            (35.5
                                            )
                                            
                                            
                                            (28.0
                                            )
                                            
                                            
                                            7.2
                                            
                                            
                                            
                                            (35.2
                                            )Other,
      net
                                            
                                            
                                            0.5
                                            
                                            
                                            
                                            0.6
                                            
                                            
                                            
                                            (0.1
                                            )
                                            
                                            
                                            0.5
                                            
                                            
                                            
                                            0.6
                                            
                                            
                                            
                                            (0.1
                                            )Earnings
      before interest
                                            
                                            $
                                            (0.9
                                            )
                                            
                                            $
                                            30.4
                                            
                                            
                                            $
                                            (31.3
                                            )
                                            
                                            $
                                            43.3
                                            
                                            
                                            $
                                            62.7
                                            
                                            
                                            $
                                            (19.4
                                            )(1)Amounts
      in this table are presented after elimination of intercompany
      transactions, including sales and purchases of petroleum
      products.
                                              (2)Petroleum
      products includes crude oil, lubrication oils and specialty
      chemicals.





Information presented in the following
table includes the margin of the Upstream Segment, which is a non-GAAP financial
measure under the rules of the Securities and Exchange Commission
(“SEC”).  We calculate the margin of the Upstream Segment as revenues
generated from the sale of crude and lubrication oils, and transportation of
crude oil, less the related cost of sales (or purchases) of crude and
lubrication oils, in each case prior to the elimination of intercompany
amounts.  We believe margin is a more meaningful measure of financial
performance than sales and cost of sales of crude and lubrication oils due to
significant fluctuations in the period-to-period level of our marketing
activities for these products and the underlying commodity
prices.  Additionally, our management uses the non-GAAP measure of
margin to evaluate the financial performance of the Upstream Segment because it
excludes expenses that are not directly related to the marketing activities
being evaluated.  Margin and volume information for the three months
and six months ended June 30, 2009 and 2008 is presented in the following table
(in millions, except per barrel and per gallon amounts):




55








For
      the Three Months
                                            
                                            
                                            Percentage
                                            
                                            
                                            For
      the Six Months
                                            
                                            
                                            PercentageEnded
      June 30,
                                            
                                            
                                            Increase
                                            
                                            
                                            Ended
      June 30,
                                            
                                            
                                            Increase2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)Margins:
      (1)Crude
      oil marketing
                                            
                                            $
                                            25.6
                                            
                                            
                                            $
                                            15.6
                                            
                                            
                                            
                                            64%
                                            
                                            
                                            $
                                            57.8
                                            
                                            
                                            $
                                            35.9
                                            
                                            
                                            
                                            61%Lubrication
      oil sales
                                            
                                            
                                            2.6
                                            
                                            
                                            
                                            3.0
                                            
                                            
                                            
                                            (13%)
                                            
                                            
                                            
                                            5.8
                                            
                                            
                                            
                                            5.7
                                            
                                            
                                            
                                            1%Revenues:
      (1)Crude
      oil transportation
                                            
                                            
                                            22.5
                                            
                                            
                                            
                                            24.1
                                            
                                            
                                            
                                            (6%)
                                            
                                            
                                            
                                            43.0
                                            
                                            
                                            
                                            47.5
                                            
                                            
                                            
                                            (9%)Crude
      oil terminaling (2)
                                            
                                            
                                            6.0
                                            
                                            
                                            
                                            4.5
                                            
                                            
                                            
                                            33%
                                            
                                            
                                            
                                            13.6
                                            
                                            
                                            
                                            8.4
                                            
                                            
                                            
                                            62%Total
      margin/revenues
                                            
                                            $
                                            56.7
                                            
                                            
                                            $
                                            47.2
                                            
                                            
                                            
                                            20%
                                            
                                            
                                            $
                                            120.2
                                            
                                            
                                            $
                                            97.5
                                            
                                            
                                            
                                            23%Total
      barrels/gallons:Crude
      oil marketing (barrels) (3)
                                            
                                            
                                            41.8
                                            
                                            
                                            
                                            44.3
                                            
                                            
                                            
                                            (6%)
                                            
                                            
                                            
                                            87.2
                                            
                                            
                                            
                                            87.2
                                            
                                            
                                            
                                            --Lubrication
      oil volumes (gallons)
                                            
                                            
                                            5.0
                                            
                                            
                                            
                                            3.9
                                            
                                            
                                            
                                            28%
                                            
                                            
                                            
                                            10.4
                                            
                                            
                                            
                                            7.8
                                            
                                            
                                            
                                            33%Crude
      oil transportation (barrels)
                                            
                                            
                                            28.5
                                            
                                            
                                            
                                            29.4
                                            
                                            
                                            
                                            (3%)
                                            
                                            
                                            
                                            57.7
                                            
                                            
                                            
                                            57.2
                                            
                                            
                                            
                                            1%Crude
      oil terminaling (barrels)
                                            
                                            
                                            50.8
                                            
                                            
                                            
                                            39.7
                                            
                                            
                                            
                                            28%
                                            
                                            
                                            
                                            97.6
                                            
                                            
                                            
                                            72.9
                                            
                                            
                                            
                                            34%Margin
      per barrel:Lubrication
      oil margin (per gallon)
                                            
                                            $
                                            0.505
                                            
                                            
                                            $
                                            0.781
                                            
                                            
                                            
                                            (35%)
                                            
                                            
                                            $
                                            0.556
                                            
                                            
                                            $
                                            0.738
                                            
                                            
                                            
                                            (25%)Average
      tariff per barrel:Crude
      oil transportation
                                            
                                            $
                                            0.792
                                            
                                            
                                            $
                                            0.818
                                            
                                            
                                            
                                            (3%)
                                            
                                            
                                            $
                                            0.746
                                            
                                            
                                            $
                                            0.830
                                            
                                            
                                            
                                            (10%)Crude
      oil terminaling
                                            
                                            
                                            0.117
                                            
                                            
                                            
                                            0.114
                                            
                                            
                                            
                                            2%
                                            
                                            
                                            
                                            0.139
                                            
                                            
                                            
                                            0.115
                                            
                                            
                                            
                                            21%(1)Amounts
      in this table are presented prior to the eliminations of intercompany
      sales, revenues and purchases between TEPPCO Crude Oil, LLC
      (“TCO”) and TEPPCO Crude Pipeline, LLC (“TCPL”), both of which are
      our wholly owned subsidiaries. TCO is a significant shipper on
      TCPL.
                                              (2)Revenues
      associated with crude oil terminaling are classified as crude oil
      transportation in our unaudited condensed statements of consolidated
      income.
                                              (3)Reported
      quantities exclude inter-region transfers, which are transfers among TCO’s
      various geographically managed regions. For the three months and six
      months ended June 30, 2008, we previously reported 61.6 million and 119.2
      million barrels, respectively, which included inter-region
      transfers.





The following table reconciles the
Upstream Segment margin to operating income using the information presented in
the unaudited condensed statements of consolidated income and the Upstream
Segment financial information on the preceding page for the periods indicated
(in millions):





For
      the Three Months
                    
                    
                    For
      the Six MonthsEnded
      June 30,
                    
                    
                    Ended
      June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Sales
      of petroleum products
                    
                    $
                    1,732.7
                    
                    
                    $
                    4,005.3
                    
                    
                    $
                    3,003.9
                    
                    
                    $
                    6,643.0Transportation
      – Crude oil
                    
                    
                    15.2
                    
                    
                    
                    17.4
                    
                    
                    
                    37.1
                    
                    
                    
                    32.7Less:  Purchases
      of petroleum products
                    
                    
                    (1,691.2
                    )
                    
                    
                    (3,975.5
                    )
                    
                    
                    (2,920.8
                    )
                    
                    
                    (6,578.2
                    )Total
      margin/revenues
                    
                    
                    56.7
                    
                    
                    
                    47.2
                    
                    
                    
                    120.2
                    
                    
                    
                    97.5Other
      operating revenues
                    
                    
                    3.7
                    
                    
                    
                    2.7
                    
                    
                    
                    6.8
                    
                    
                    
                    5.0Net
      operating revenues
                    
                    
                    60.4
                    
                    
                    
                    49.9
                    
                    
                    
                    127.0
                    
                    
                    
                    102.5Operating
      expense
                    
                    
                    16.6
                    
                    
                    
                    12.7
                    
                    
                    
                    31.2
                    
                    
                    
                    26.0Operating
      fuel and power
                    
                    
                    2.1
                    
                    
                    
                    1.9
                    
                    
                    
                    3.9
                    
                    
                    
                    3.6General
      and administrative
                    
                    
                    3.2
                    
                    
                    
                    2.7
                    
                    
                    
                    5.1
                    
                    
                    
                    4.5Depreciation
      and amortization
                    
                    
                    6.7
                    
                    
                    
                    5.0
                    
                    
                    
                    12.3
                    
                    
                    
                    9.8Taxes
      – other than income taxes
                    
                    
                    1.9
                    
                    
                    
                    2.0
                    
                    
                    
                    3.7
                    
                    
                    
                    3.7Operating
      income
                    
                    $
                    29.9
                    
                    
                    $
                    25.6
                    
                    
                    $
                    70.8
                    
                    
                    $
                    54.9





Three
Months Ended June 30, 2009 Compared with Three Months Ended June 30,
2008





Sales of petroleum products and
purchases of petroleum products decreased $2,272.6 million and $2,284.3 million,
respectively, for the three months ended June 30, 2009, compared with the three
months ended June 30, 2008.  Operating income increased $4.3 million
for the three months ended June 30, 2009, compared with the three months ended
June 30, 2008.  The decreases in sales and purchases were primarily a
result of a decrease in the price of crude oil.  The average New York
Mercantile Exchange (“NYMEX”) price of crude oil was $59.79 per barrel for the
three months ended June 30, 2009, compared with $123.80 per barrel for the three
months ended June 30, 2008.  An increase in the crude oil marketing
margin, partially
offset by decreased volumes transported and increased costs and expenses
discussed below, were the primary factors resulting in an increase in operating
income.




56




Crude oil marketing margin increased
$10.0 million, primarily due to the contango pricing environment during the
three months ended June 30, 2009, contract amendments in light of the current
market conditions and decreased transportation costs, including decreased fuel
costs, partially offset by decreased volumes marketed.  Lubrication
oil sales margin decreased $0.4 million, primarily due to decreased sales
primarily of lower margin lubrication oils, partially offset by higher volumes
and additional margin resulting from the Quality Petroleum, Inc. (“Quality
Petroleum”) acquisition on August 1, 2008.  Crude oil transportation
revenues (prior to intercompany eliminations) decreased $1.6 million, primarily
due to lower transportation volumes on our South Texas and West Texas crude oil
gathering systems, partially offset by higher transportation volumes on our Red
River, Basin and other crude oil gathering systems.  Decreased
transportation revenues on our South Texas, Red River, Basin and other systems
resulted from lower prices of crude oil acquired through our pipeline loss
allowance (“PLA”) in certain of our pipeline tariffs, partially offset by
increased transportation revenues on our West Texas system primarily due to the
completion of organic growth projects.  The average tariff per barrel
decreased 3% primarily due to lower prices of crude oil acquired through PLA in
certain of our pipeline tariffs.  Crude oil terminaling volumes and
revenues increased 28% and $1.5 million, respectively, as a result of spot
market demand, the completion of a storage tank in August 2008 and the
completion of two storage tanks in the 2009 period.





Other operating revenues increased $1.0
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  The increase was primarily due to revenues from
fuel transportation services generated as a result of the Quality Petroleum
acquisition.





Costs and expenses decreased $2,278.1
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  Purchases of petroleum products, discussed
above, decreased $2,284.3 million compared with the prior year
period.  Operating expenses increased $3.9 million primarily due to a
$1.5 million decrease in product measurement gains, a $1.1 million increase in
operating expenses resulting from the Quality Petroleum acquisition, a $0.4
million increase in pipeline operating and maintenance expenses, principally
related to periodic tank maintenance requirements and other repairs and
maintenance on various pipeline segments, a $0.3 million increase in labor and
benefits expense and a $0.3 million increase in LCM adjustments on inventory
(see Note 5 in the Notes to Unaudited Condensed Consolidated Financial
Statements).  Operating fuel and power increased $0.2 million
primarily as a result of adjustments in power accruals.  General and
administrative expenses increased $0.5 million primarily due to a $1.3 million
increase in legal and other expenses related to the proposed merger with
Enterprise Products Partners, partially offset by a $0.5 million decrease
related to the write-off of project costs in the 2008
period.  Depreciation and amortization expense increased $1.7 million,
primarily due to a $0.8 million increase due to asset retirements, a $0.6
million increase due to assets placed into service and a $0.3 million increase
in amortization of equity awards.  Taxes – other than income taxes
decreased $0.1 million primarily due to adjustments to property tax
accruals.





Equity in income of unconsolidated
affiliates decreased $35.5 million for the three months ended June 30, 2009,
compared with the three months ended June 30, 2008, primarily due to a $34.2
million non-cash charge related to the forfeiture of our investment in TOPS and
a $1.3 million decrease in equity in income from our investment in
Seaway.  In April 2009, we recorded a non-cash charge of $34.2 million
related to our wholly owned subsidiary’s dissociation from TOPS effective April
16, 2009.  This loss represents the cumulative investment that our
affiliate had in TOPS at April 16, 2009, which primarily reflects capital
contributions for construction in progress amounts (see Note 7 in the Notes
to Unaudited Condensed Consolidated Financial Statements for further
information).  Equity in income from our investment in Seaway
decreased $1.3 million primarily due to a decrease in long-haul volumes and
transportation revenues and an increase in pipeline operating and maintenance
expenses, partially offset by an increase in product measurement gains and lower
power costs primarily due to the lower volumes.  Long-haul volumes on
Seaway averaged 152,000 barrels per day during the three months ended June 30,
2009, compared with 218,000 barrels per day during the three months ended June
30, 2008, primarily due to decreased volumes transported on a spot basis in the
2009 period compared to the 2008 period.





57




Six Months Ended June 30, 2009 Compared
with Six Months Ended June 30, 2008





Sales of petroleum products and
purchases of petroleum products decreased $3,639.1 million and $3,657.4 million,
respectively, for the six months ended June 30, 2009, compared with the six
months ended June 30, 2008.  Operating income increased $15.9 million
for the six months ended June 30, 2009, compared with the six months ended June
30, 2008.  The decreases in sales and purchases were primarily a
result of a decrease in the price of crude oil.  The average NYMEX
price of crude oil was $51.55 per barrel for the six months ended June 30, 2009,
compared with $110.81 per barrel for the six months ended June 30,
2008.  An increase in the crude oil marketing margin partially offset
by increased costs and expenses discussed below were the primary factors
resulting in an increase in operating income.





Crude oil marketing margin increased
$21.9 million, primarily due to the contango pricing environment during the six
months ended June 30, 2009, contract amendments in light of the current market
conditions and decreased transportation costs, including decreased fuel
costs.  Lubrication oil sales margin increased $0.1 million, with
higher volumes primarily due to sales of lower margin specialty chemicals offset
by additional margin resulting from the Quality Petroleum acquisition in August
2008.  Crude oil transportation revenues (prior to intercompany
eliminations) decreased $4.5 million, primarily due to lower transportation
volumes on our South Texas crude oil gathering system, partially offset by
higher transportation volumes on our Red River, Basin, West Texas and other
crude oil gathering systems.  Decreased transportation revenues on our
South Texas, Red River, Basin and other systems resulted from lower prices of
crude oil acquired through PLA in certain of our pipeline tariffs, partially
offset by increased transportation revenues on our West Texas system resulting
from the completion of organic growth projects.  The average tariff
per barrel decreased 10% primarily due to movements on lower tariff segments and
due to lower prices of crude oil acquired through PLA in certain of our pipeline
tariffs.  Crude oil terminaling volumes and revenues increased 34% and
$5.2 million, respectively, as a result of spot market demand, the completion of
a storage tank in August 2008 and the completion of two storage tanks in the
2009 period.





Other operating revenues increased $1.8
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008.  The increase was primarily due to revenues from
fuel transportation services generated as a result of the Quality Petroleum
acquisition.





Costs and expenses decreased $3,648.8
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008.  Purchases of petroleum products, discussed
above, decreased $3,657.4 million compared with the prior year
period.  Operating expenses increased $5.2 million primarily due to a
$2.4 million increase in operating expenses resulting from the Quality Petroleum
acquisition, a $2.3 million decrease in product measurement gains, a $0.8
million increase in labor and benefits expense and a $0.3 million increase in
LCM adjustments on inventory, partially offset by a $0.3 million decrease in
pipeline inspection and repair costs associated with our integrity management
program and a $0.3 million decrease in environmental assessment and remediation
expense.  Operating fuel and power increased $0.3 million primarily as
a result of higher transportation volumes.  General and administrative
expenses increased $0.6 million primarily due to a $1.3 million increase in
legal and other expenses related to the proposed merger with Enterprise Products
Partners, partially offset by a $0.5 million decrease related to the write-off
of project costs in the 2008 period.  Depreciation and amortization
expense increased $2.5 million primarily due to a $1.2 million increase due to
assets placed into service, a $0.8 million increase due to asset retirements and
a $0.5 million increase in amortization of equity awards.  Taxes –
other than income taxes remained unchanged between periods.





Equity in income of unconsolidated
affiliates decreased $35.2 million for the six months ended June 30, 2009,
compared with the six months ended June 30, 2008, primarily due to a $34.2
million non-cash charge related to the forfeiture of our investment in TOPS and
a $1.0 million decrease in equity in income from our investment in
Seaway.  Equity in income from our investment in Seaway decreased $1.0
million primarily due to a decrease in long-haul volumes and transportation
revenues, an increase in pipeline operating and maintenance expenses and a
decrease in product measurement losses, partially offset by lower
power costs primarily due to the lower volumes.  Long-haul volumes on
Seaway averaged 163,000 barrels per day during the six months ended June 30,
2009, compared with 192,000 barrels per day




58




during
the six months ended June 30, 2008, primarily due to decreased volumes
transported on a spot basis in the 2009 period compared to the 2008
period.





Midstream
Segment





The following table provides financial
information for the Midstream Segment for the periods indicated (in
millions):




For
      the Three Months
                                            
                                            
                                            
                                            
                                            
                                            For
      the Six MonthsEnded
      June 30,
                                            
                                            
                                            Increase
                                            
                                            
                                            Ended
      June 30,
                                            
                                            
                                            Increase2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)
                                            
                                            
                                            2009
                                            
                                            
                                            2008
                                            
                                            
                                            (Decrease)Operating
      revenues:Gathering
      – Natural gas
                                            
                                            $
                                            14.4
                                            
                                            
                                            $
                                            14.8
                                            
                                            
                                            $
                                            (0.4
                                            )
                                            
                                            $
                                            28.0
                                            
                                            
                                            $
                                            28.2
                                            
                                            
                                            $
                                            (0.2
                                            )Transportation
      – NGLs (1)
                                            
                                            
                                            13.6
                                            
                                            
                                            
                                            12.7
                                            
                                            
                                            
                                            0.9
                                            
                                            
                                            
                                            26.1
                                            
                                            
                                            
                                            25.7
                                            
                                            
                                            
                                            0.4Other
                                            
                                            
                                            3.1
                                            
                                            
                                            
                                            3.1
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            6.0
                                            
                                            
                                            
                                            6.8
                                            
                                            
                                            
                                            (0.8
                                            )Total
      operating revenues
                                            
                                            
                                            31.1
                                            
                                            
                                            
                                            30.6
                                            
                                            
                                            
                                            0.5
                                            
                                            
                                            
                                            60.1
                                            
                                            
                                            
                                            60.7
                                            
                                            
                                            
                                            (0.6
                                            )Costs
      and expenses:Operating
      expense
                                            
                                            
                                            8.4
                                            
                                            
                                            
                                            4.4
                                            
                                            
                                            
                                            4.0
                                            
                                            
                                            
                                            17.0
                                            
                                            
                                            
                                            9.4
                                            
                                            
                                            
                                            7.6Operating
      fuel and power
                                            
                                            
                                            3.1
                                            
                                            
                                            
                                            4.5
                                            
                                            
                                            
                                            (1.4
                                            )
                                            
                                            
                                            5.7
                                            
                                            
                                            
                                            8.2
                                            
                                            
                                            
                                            (2.5
                                            )General
      and administrative
                                            
                                            
                                            4.8
                                            
                                            
                                            
                                            2.7
                                            
                                            
                                            
                                            2.1
                                            
                                            
                                            
                                            7.8
                                            
                                            
                                            
                                            5.3
                                            
                                            
                                            
                                            2.5Depreciation
      and amortization
                                            
                                            
                                            10.3
                                            
                                            
                                            
                                            10.0
                                            
                                            
                                            
                                            0.3
                                            
                                            
                                            
                                            19.8
                                            
                                            
                                            
                                            19.6
                                            
                                            
                                            
                                            0.2Taxes
      – other than income taxes
                                            
                                            
                                            0.7
                                            
                                            
                                            
                                            0.7
                                            
                                            
                                            
                                            --
                                            
                                            
                                            
                                            1.5
                                            
                                            
                                            
                                            1.5
                                            
                                            
                                            
                                            --Total
      costs and expenses
                                            
                                            
                                            27.3
                                            
                                            
                                            
                                            22.3
                                            
                                            
                                            
                                            5.0
                                            
                                            
                                            
                                            51.8
                                            
                                            
                                            
                                            44.0
                                            
                                            
                                            
                                            7.8Operating
      income
                                            
                                            
                                            3.8
                                            
                                            
                                            
                                            8.3
                                            
                                            
                                            
                                            (4.5
                                            )
                                            
                                            
                                            8.3
                                            
                                            
                                            
                                            16.7
                                            
                                            
                                            
                                            (8.4
                                            )Equity
      in income of unconsolidated affiliates
                                            
                                            
                                            23.8
                                            
                                            
                                            
                                            21.9
                                            
                                            
                                            
                                            1.9
                                            
                                            
                                            
                                            49.4
                                            
                                            
                                            
                                            45.6
                                            
                                            
                                            
                                            3.8Other,
      net
                                            
                                            
                                            --
                                            
                                            
                                            
                                            0.1
                                            
                                            
                                            
                                            (0.1
                                            )
                                            
                                            
                                            --
                                            
                                            
                                            
                                            0.2
                                            
                                            
                                            
                                            (0.2
                                            )Earnings
      before interest
                                            
                                            $
                                            27.6
                                            
                                            
                                            $
                                            30.3
                                            
                                            
                                            $
                                            (2.7
                                            )
                                            
                                            $
                                            57.7
                                            
                                            
                                            $
                                            62.5
                                            
                                            
                                            $
                                            (4.8
                                            )(1)Includes
      transportation revenue from Enterprise Products Partners of $3.5 million
      and $3.4 million for the three months ended June 30, 2009 and 2008,
      respectively. For the six months ended June 30, 2009 and 2008, such
      amounts were $7.3 million and $6.8 million, respectively.





The
following table presents volume and average rate information for the periods
indicated:





For
      the Three Months
                                          
                                          
                                          Percentage
                                          
                                          
                                          For
      the Six Months
                                          
                                          
                                          PercentageEnded
      June 30,
                                          
                                          
                                          Increase
                                          
                                          
                                          Ended
      June 30,
                                          
                                          
                                          Increase2009
                                          
                                          
                                          2008
                                          
                                          
                                          (Decrease)
                                          
                                          
                                          2009
                                          
                                          
                                          2008
                                          
                                          
                                          (Decrease)Gathering
      – Natural Gas – Jonah: (1)Bcf
                                          
                                          
                                          200.3
                                          
                                          
                                          
                                          173.5
                                          
                                          
                                          
                                          15%
                                          
                                          
                                          
                                          395.2
                                          
                                          
                                          
                                          340.6
                                          
                                          
                                          
                                          16%Btu
      (in trillions)
                                          
                                          
                                          221.0
                                          
                                          
                                          
                                          192.5
                                          
                                          
                                          
                                          15%
                                          
                                          
                                          
                                          436.1
                                          
                                          
                                          
                                          377.2
                                          
                                          
                                          
                                          16%Average
      fee per Mcf
                                          
                                          $
                                          0.261
                                          
                                          
                                          $
                                          0.258
                                          
                                          
                                          
                                          1%
                                          
                                          
                                          $
                                          0.261
                                          
                                          
                                          $
                                          0.258
                                          
                                          
                                          
                                          1%Average
      fee per MMBtu
                                          
                                          $
                                          0.237
                                          
                                          
                                          $
                                          0.233
                                          
                                          
                                          
                                          2%
                                          
                                          
                                          $
                                          0.236
                                          
                                          
                                          $
                                          0.233
                                          
                                          
                                          
                                          1%Gathering
      – Natural Gas – Val Verde: (1)Bcf
                                          
                                          
                                          46.1
                                          
                                          
                                          
                                          41.6
                                          
                                          
                                          
                                          11%
                                          
                                          
                                          
                                          88.9
                                          
                                          
                                          
                                          79.8
                                          
                                          
                                          
                                          11%Btu
      (in trillions)
                                          
                                          
                                          41.7
                                          
                                          
                                          
                                          36.8
                                          
                                          
                                          
                                          13%
                                          
                                          
                                          
                                          80.3
                                          
                                          
                                          
                                          71.0
                                          
                                          
                                          
                                          13%Average
      fee per Mcf
                                          
                                          $
                                          0.312
                                          
                                          
                                          $
                                          0.356
                                          
                                          
                                          
                                          (12%)
                                          
                                          
                                          $
                                          0.315
                                          
                                          
                                          $
                                          0.353
                                          
                                          
                                          
                                          (11%)Average
      fee per MMBtu
                                          
                                          $
                                          0.345
                                          
                                          
                                          $
                                          0.402
                                          
                                          
                                          
                                          (14%)
                                          
                                          
                                          $
                                          0.349
                                          
                                          
                                          $
                                          0.397
                                          
                                          
                                          
                                          (12%)Transportation
      and movements – NGLs:Transportation
      barrels (in millions)
                                          
                                          
                                          15.2
                                          
                                          
                                          
                                          16.0
                                          
                                          
                                          
                                          (5%)
                                          
                                          
                                          
                                          29.3
                                          
                                          
                                          
                                          32.5
                                          
                                          
                                          
                                          (10%)Lease
      barrels (in millions) (2)
                                          
                                          
                                          2.5
                                          
                                          
                                          
                                          2.8
                                          
                                          
                                          
                                          (11%)
                                          
                                          
                                          
                                          5.3
                                          
                                          
                                          
                                          5.9
                                          
                                          
                                          
                                          (10%)Average
      rate per barrel
                                          
                                          $
                                          0.844
                                          
                                          
                                          $
                                          0.747
                                          
                                          
                                          
                                          13%
                                          
                                          
                                          $
                                          0.834
                                          
                                          
                                          $
                                          0.742
                                          
                                          
                                          
                                          12%Natural
      Gas Sales:Btu
      (in trillions)
                                          
                                          
                                          0.8
                                          
                                          
                                          
                                          1.2
                                          
                                          
                                          
                                          (33%)
                                          
                                          
                                          
                                          1.6
                                          
                                          
                                          
                                          2.8
                                          
                                          
                                          
                                          (43%)Average
      fee per MMBtu
                                          
                                          $
                                          2.369
                                          
                                          
                                          $
                                          8.552
                                          
                                          
                                          
                                          (72%)
                                          
                                          
                                          $
                                          2.911
                                          
                                          
                                          $
                                          7.521
                                          
                                          
                                          
                                          (61%)Fractionation
      – NGLs:Barrels
      (in millions)
                                          
                                          
                                          1.0
                                          
                                          
                                          
                                          1.1
                                          
                                          
                                          
                                          (9%)
                                          
                                          
                                          
                                          1.8
                                          
                                          
                                          
                                          2.1
                                          
                                          
                                          
                                          (14%)Average
      rate per barrel
                                          
                                          $
                                          1.784
                                          
                                          
                                          $
                                          1.785
                                          
                                          
                                          
                                          --
                                          
                                          
                                          $
                                          1.785
                                          
                                          
                                          $
                                          1.722
                                          
                                          
                                          
                                          4%(1)The
      majority of volumes in Val Verde’s contracts are measured in Bcf, while
      the majority of volumes in Jonah’s contracts are measured in
      Btu. Both measures are shown for each asset for comparability
      purposes.
                                            (2)Revenues
      associated with capacity leases are classified as other operating revenues
      in our unaudited condensed statements of consolidated
    income.
  59


Three Months Ended June 30, 2009
Compared with Three Months Ended June 30, 2008





Natural gas gathering revenues from the
Val Verde system decreased $0.4 million, while volumes gathered increased 4.5
Bcf for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  Volumes increased primarily due to an increase
in volumes from a third party natural gas connection in Colorado, partially
offset by lower production as a result of the natural decline of coal bed
methane production in the fields in which the Val Verde gathering system
operates.  For the three months ended June 30, 2009, Val Verde’s
gathering volumes averaged 506 MMcf/d, compared with 457 MMcf/d for the three
months ended June 30, 2008.  Val Verde’s average natural gas gathering
fee per Mcf decreased 12%, primarily due to lower rates on the higher volumes
from the third party natural gas connection and lower gathering volumes of coal
bed methane, partially offset by annual rate escalations.





Revenues from the transportation of
NGLs increased $0.9 million for the three months ended June 30, 2009, compared
with the three months ended June 30, 2008, primarily due to an increase in the
average rate on the Chaparral Pipeline as a result of transporting a higher
percentage of long-haul volumes at a higher tariff rate on the system and an
increase in the average rate on the Panola Pipeline due to tariff
increases.  These increases in revenues were partially offset by a
decrease in revenues and volumes on the Dean Pipeline and a decrease in the
short-haul volumes on the Chaparral Pipeline.





Other operating revenues remained
unchanged for the three months ended June 30, 2009, compared with the three
months ended June 30, 2008, primarily due to a 9% decrease in the volume of NGLs
fractionated, resulting in a decrease of $0.1 million in fractionation revenues,
offset by a slight increase in Val Verde’s other operating revenue.





Costs and expenses increased $5.0
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  Operating expenses increased $4.0 million
primarily due to a $2.4 million increase as a result of lower product
measurement gains, a $0.6 million increase in pipeline inspection and repair
costs associated with our integrity management program and a $0.5 million
increase in LCM adjustments on inventory.  Operating fuel and power
decreased $1.4 million primarily due to lower power costs on the Chaparral
Pipeline as a result of a decrease in volumes.  General and
administrative expenses increased $2.1 million primarily due a $2.6 million
increase in legal and other expenses related to the proposed merger with
Enterprise Products Partners, partially offset by $0.4 million decrease in labor
and benefits expense.  Depreciation and amortization expense increased
$0.3 million primarily due to a $0.6 million increase due to asset retirements
and a $0.4 million increase in the amortization of equity awards, partially
offset by a $0.6 million decrease in amortization expense on Val Verde as a
result of a decrease in volumes on contracts which are included in intangible
assets and amortized under the units-of-production method.  Taxes –
other than income taxes remained unchanged between periods.





Equity in income from our investment in
Jonah increased $1.9 million for the three months ended June 30, 2009, compared
with the three months ended June 30, 2008.  Earnings increased
primarily due to a $7.5 million increase in natural gas gathering revenues as a
result of an increase in volumes from the system expansion partially offset by a
$0.8 million decrease in Jonah’s condensate sales, a $2.6 million increase in
depreciation and amortization expense primarily relating to the system expansion
and a $2.2 million increase in operating, general and administrative
expenses.  For the three months ended June 30, 2009 and 2008, Jonah’s
gathering volumes averaged approximately 2.2 Bcf/d and 1.9 Bcf/d, respectively,
and total volumes gathered increased 26.8 Bcf.  For the three months
ended June 30, 2009 and 2008, our sharing in the earnings of Jonah was
80.64%.





The decrease in Jonah’s natural gas
sales volumes for the three months ended June 30, 2009, compared with the prior
year period, was primarily a result of certain producers selling gas themselves,
rather than through Jonah.  The decrease in Jonah’s natural gas sales
average fee per MMBtu was primarily a result of lower market prices in the 2009
period.




60




Six Months Ended June 30, 2009 Compared
with Six Months Ended June 30, 2008





Natural gas gathering revenues from the
Val Verde system decreased $0.2 million, while volumes gathered increased 9.1
Bcf for the six months ended June 30, 2009, compared with the six months ended
June 30, 2008.  Volumes increased primarily due to an increase in
volumes from a third party natural gas connection in Colorado, partially offset
by lower production as a result of the natural decline of coal bed methane
production in the fields in which the Val Verde gathering system
operates.  For the six months ended June 30, 2009, Val Verde’s
gathering volumes averaged 491 MMcf/d, compared with 438 MMcf/d for the six
months ended June 30, 2008.  Val Verde’s average natural gas gathering
fee per Mcf decreased 11% primarily due to lower rates on the higher volumes
from the third party natural gas connection and lower gathering volumes of coal
bed methane, partially offset by annual rate escalations.





Revenues from the transportation of
NGLs increased $0.4 million for the six months ended June 30, 2009, compared
with the six months ended June 30, 2008, primarily due an increase in the
average rate on the Chaparral Pipeline as a result of transporting a higher
percentage of long-haul volumes at a higher tariff rate on the system and an
increase in the average rate on the Panola Pipeline due to tariff
increases.  These increases in revenues were partially offset by a
decrease in revenues and volumes on the Dean Pipeline, a decrease in the
short-haul volumes on the Chaparral Pipeline and a decrease in revenues and
volumes on the Panola Pipeline resulting from downtime following a fire during
the first quarter of 2009 at a system origination point in East Texas owned by a
third party.





Other operating revenues decreased $0.8
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008.  Other operating revenues decreased $0.5 million
as a result of a 14% decrease in the volume of NGLs fractionated.  The
average rate per barrel for the fractionation of NGLs increased 4% primarily due
to a change in the rate structure in the fractionation agreement, under which
volumes of NGLs are fractionated at a fixed rate beginning April
2008.  Other operating revenues decreased $0.3 million due to a
decrease in Val Verde’s other operating revenue as a result of contractual
producer minimum fuel levels equaling actual operating fuel
usage.  Val Verde retains a portion of its producers’ gas to
compensate for fuel used in operations.  The actual usage of gas can
differ from the amount contractually retained from producers.  Value
retained from producers or sales generated as a result of efficient fuel usage
are recognized as other operating revenues.





Costs and expenses increased $7.8
million for the six months ended June 30, 2009, compared with the six months
ended June 30, 2008.  Operating expenses increased $7.6 million
primarily due to a $3.4 million increase as a result of lower product
measurement gains, a $1.4 million increase in labor and benefits expense, a $1.2
million increase in LCM adjustments on inventory and a $1.2 million increase in
pipeline inspection and repair costs associated with our integrity management
program.  Operating fuel and power decreased $2.5 million primarily
due to lower power costs on the Chaparral Pipeline as a result of a reduced fuel
costs in the 2009 period.  General and administrative expenses
increased $2.5 million primarily due to a $2.6 million increase in legal and
other expenses related to the proposed merger with Enterprise Products Partners
and $0.5 million of severance expense, partially offset by a $0.7 million
decrease in labor and benefits expense.  Depreciation and amortization
expense increased $0.2 million primarily due to a $0.8 million increase due to
asset retirements and a $0.6 million increase in the amortization of equity
awards, partially offset by a $1.1 million decrease in amortization expense on
Val Verde as a result of a decrease in volumes on contracts which are included
in intangible assets and amortized under the units-of-production
method.  Taxes – other than income taxes remained unchanged between
periods.





Equity in income from our investment in
Jonah increased $3.8 million for the six months ended June 30, 2009, compared
with the six months ended June 30, 2008.  Earnings increased primarily
due to a $15.7 million increase in natural gas gathering revenues as a result of
an increase in volumes from the system expansion, partially offset by a $3.6
million decrease in Jonah’s condensate sales, a $4.0 million increase in
depreciation and amortization expense primarily relating to the system expansion
and additional volumes, a $3.5 million increase in operating, general and
administrative expenses and a $0.6 million increase
in taxes – other than income taxes primarily relating to the system
expansion  For the six months ended June 30, 2009 and 2008, Jonah’s
gathering volumes averaged approximately 2.2 Bcf/d and 1.9 Bcf/d,




61




respectively,
and total volumes gathered increased 54.6 Bcf.  For the six months
ended June 30, 2009 and 2008, our sharing in the earnings of Jonah was
80.64%.





The decrease in Jonah’s natural gas
sales volumes for the six months ended June 30, 2009, compared with the prior
year period, was primarily a result of certain producers selling gas themselves,
rather than through Jonah.  The decrease in Jonah’s natural gas sales
average fee per MMBtu was primarily a result of lower market prices in the 2009
period.





Marine
Services Segment





The following table provides financial
information for the Marine Services Segment for the periods indicated (in
millions):




For
      the Three Months
                        
                        
                        
                        
                        
                        For
      the Six MonthsEnded
      June 30,
                        
                        
                        Increase
                        
                        
                        Ended
      June 30,
                        
                        
                        Increase2009
                        
                        
                        2008
                        
                        
                        (Decrease)
                        
                        
                        2009
                        
                        
                        2008
                        
                        
                        (Decrease)Operating
      revenues:Transportation
      – inland
                        
                        $
                        36.0
                        
                        
                        $
                        39.6
                        
                        
                        $
                        (3.6
                        )
                        
                        $
                        69.6
                        
                        
                        $
                        60.3
                        
                        
                        $
                        9.3Transportation
      – offshore
                        
                        
                        7.7
                        
                        
                        
                        8.5
                        
                        
                        
                        (0.8
                        )
                        
                        
                        11.0
                        
                        
                        
                        13.3
                        
                        
                        
                        (2.3
                        )Total
      Transportation – Marine
                        
                        
                        43.7
                        
                        
                        
                        48.1
                        
                        
                        
                        (4.4
                        )
                        
                        
                        80.6
                        
                        
                        
                        73.6
                        
                        
                        
                        7.0Costs
      and expenses:Operating
      expense
                        
                        
                        20.7
                        
                        
                        
                        19.0
                        
                        
                        
                        1.7
                        
                        
                        
                        39.4
                        
                        
                        
                        27.6
                        
                        
                        
                        11.8Operating
      fuel and power
                        
                        
                        5.7
                        
                        
                        
                        12.2
                        
                        
                        
                        (6.5
                        )
                        
                        
                        10.0
                        
                        
                        
                        17.7
                        
                        
                        
                        (7.7
                        )General
      and administrative
                        
                        
                        1.5
                        
                        
                        
                        1.1
                        
                        
                        
                        0.4
                        
                        
                        
                        2.9
                        
                        
                        
                        1.8
                        
                        
                        
                        1.1Depreciation
      and amortization
                        
                        
                        6.5
                        
                        
                        
                        6.4
                        
                        
                        
                        0.1
                        
                        
                        
                        12.9
                        
                        
                        
                        10.1
                        
                        
                        
                        2.8Taxes
      – other than income taxes
                        
                        
                        1.0
                        
                        
                        
                        0.8
                        
                        
                        
                        0.2
                        
                        
                        
                        1.9
                        
                        
                        
                        1.2
                        
                        
                        
                        0.7Total
      costs and expenses
                        
                        
                        35.4
                        
                        
                        
                        39.5
                        
                        
                        
                        (4.1
                        )
                        
                        
                        67.1
                        
                        
                        
                        58.4
                        
                        
                        
                        8.7Operating
      income
                        
                        
                        8.3
                        
                        
                        
                        8.6
                        
                        
                        
                        (0.3
                        )
                        
                        
                        13.5
                        
                        
                        
                        15.2
                        
                        
                        
                        (1.7
                        )Earnings
      before interest
                        
                        $
                        8.3
                        
                        
                        $
                        8.6
                        
                        
                        $
                        (0.3
                        )
                        
                        $
                        13.5
                        
                        
                        $
                        15.2
                        
                        
                        $
                        (1.7
                        )





Information presented in the following
table includes gross margin and average daily rate for our Marine Services
Segment, which are non-GAAP financial measures under the rules of the
SEC.  We calculate gross margin as marine transportation revenues less
operating expense and operating fuel and power.  Average daily rate is
calculated as gross margin for the Marine Services Segment divided by fleet
operating days.  We believe these non-GAAP measures of gross margin and
average daily rate are meaningful measures of the financial performance of our
Marine Services Segment, in which we provide services under different types of
contracts with varying arrangements for the payment of fuel costs and other
operational fees.  These non-GAAP measures allow for comparability of
results across different contracts within a given period, as well as between
periods.  Further, our management uses these non-GAAP measures to assist
them in evaluating results of the Marine Services Segment and making decisions
regarding the use and deployment of our marine vessels.




62




The
following table provides operating statistics for the Marine Services Segment at
the dates or for the periods indicated:




Three
      Months
                                      Ended
      June 30,
                                    
                                    
                                    Six
      Months
                                      Ended
      June 30,2009
                                    
                                    
                                    2008
                                    
                                    
                                    2009
                                    
                                    
                                    2008Number
      of inland tow boats (1)
                                    
                                    
                                    59
                                    
                                    
                                    
                                    45
                                    
                                    
                                    
                                    59
                                    
                                    
                                    
                                    45Number
      of inland tank barges (1)
                                    
                                    
                                    127
                                    
                                    
                                    
                                    103
                                    
                                    
                                    
                                    127
                                    
                                    
                                    
                                    103Number
      of offshore tow boats (1)
                                    
                                    
                                    6
                                    
                                    
                                    
                                    6
                                    
                                    
                                    
                                    6
                                    
                                    
                                    
                                    6Number
      of offshore tank barges (1)
                                    
                                    
                                    8
                                    
                                    
                                    
                                    8
                                    
                                    
                                    
                                    8
                                    
                                    
                                    
                                    8Fleet
      available days (in thousands) (2)
                                    
                                    
                                    15.5
                                    
                                    
                                    
                                    14.2
                                    
                                    
                                    
                                    29.4
                                    
                                    
                                    
                                    21.6Fleet
      operating days (in thousands) (3)
                                    
                                    
                                    13.6
                                    
                                    
                                    
                                    13.1
                                    
                                    
                                    
                                    25.9
                                    
                                    
                                    
                                    20.0Fleet
      utilization (4)
                                    
                                    
                                    88
                                    %
                                    
                                    
                                    92
                                    %
                                    
                                    
                                    88
                                    %
                                    
                                    
                                    93
                                    %Gross
      margin (in millions)
                                    
                                    $
                                    17.3
                                    
                                    
                                    $
                                    16.9
                                    
                                    
                                    $
                                    31.2
                                    
                                    
                                    $
                                    28.3Average
      daily rate (in thousands)  (5)
                                    
                                    $
                                    1.27
                                    
                                    
                                    $
                                    1.29
                                    
                                    
                                    $
                                    1.20
                                    
                                    
                                    $
                                    1.42(1)Amounts
      represent equipment that has either been licensed or certified and
      available for use as of the end of the applicable period.
                                      (2)Equal
      to the number of calendar days in the period (for the six months ended
      June 30, 2008, number of calendar days from our Cenac acquisition on
      February 1, 2008 and Horizon Maritime, LLC (“Horizon”) on February 29,
      2008 through June 30, 2008) multiplied by the total number of vessels less
      the aggregate number of days that our vessels are not operating due to
      scheduled maintenance and repairs or unscheduled instances where vessels
      may have to be drydocked in the event of accidents and other unforeseen
      damage.
                                      (3)Equal
      to the number of our fleet available days in the period (for the six
      months ended June 30, 2008, number of our fleet available days from our
      acquisition of Cenac on February 1, 2008 and Horizon on February 29, 2008
      through June 30, 2008) less the aggregate number of days that our vessels
      are off-hire.
                                      (4)Equal
      to the number of fleet operating days divided by the number of fleet
      available days during the period.
                                      (5)Equal
      to gross margin divided by the number of fleet operating days during the
      period.




The following table reconciles gross
margin to operating income using the information presented in our unaudited
condensed statements of consolidated income and the Marine Services Segment
financial information on the preceding page for the periods indicated (in
millions):





For
      the Three Months
                    Ended
      June 30,
                  
                  
                  For
      the Six Months
                    Ended
      June 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Transportation
      revenue – Marine
                  
                  $
                  43.7
                  
                  
                  $
                  48.1
                  
                  
                  $
                  80.6
                  
                  
                  $
                  73.6Less:  Operating
      expense
                  
                  
                  (20.7
                  )
                  
                  
                  (19.0
                  )
                  
                  
                  (39.4
                  )
                  
                  
                  (27.6
                  )Less:  Operating
      fuel and power
                  
                  
                  (5.7
                  )
                  
                  
                  (12.2
                  )
                  
                  
                  (10.0
                  )
                  
                  
                  (17.7
                  )Gross
      margin
                  
                  
                  17.3
                  
                  
                  
                  16.9
                  
                  
                  
                  31.2
                  
                  
                  
                  28.3General
      and administrative
                  
                  
                  1.5
                  
                  
                  
                  1.1
                  
                  
                  
                  2.9
                  
                  
                  
                  1.8Depreciation
      and amortization
                  
                  
                  6.5
                  
                  
                  
                  6.4
                  
                  
                  
                  12.9
                  
                  
                  
                  10.1Taxes
      – other than income taxes
                  
                  
                  1.0
                  
                  
                  
                  0.8
                  
                  
                  
                  1.9
                  
                  
                  
                  1.2Operating
      income
                  
                  $
                  8.3
                  
                  
                  $
                  8.6
                  
                  
                  $
                  13.5
                  
                  
                  $
                  15.2





Three Months Ended June 30, 2009
Compared with Three Months Ended June 30, 2008





Revenues are primarily influenced by
rates on term contracts along with industry demand, utilization rates of tank
barges and reimbursements of costs of fuel and other specified operational fees
that are recovered under most of the transportation
contracts.  Revenues from marine transportation decreased $4.4 million
for the three months ended June 30, 2009, compared with the three months ended
June 30, 2008, primarily due to lower fleet utilization and decreased
reimbursements for the cost of fuel and other specified operational fees, which
are reimbursed by customers and included in inland and offshore transportation
service revenue, partially offset by approximately $2.3 million of revenues
generated by the TransMontaigne assets acquired in June
2009.  Reimbursable revenues decreased primarily due to a decrease in
the price of diesel fuel, as discussed below in operating fuel and power
costs.  Fleet utilization decreased from 92% to 88% for the three
months ended June 30, 2009, compared with the three months ended June 30, 2008,
primarily due to reduced demand for barge services as a result of general
economic conditions in the industry, which has resulted in some inland customer
contracts not being renewed during the fourth quarter of 2008 and in the 2009
period.  Renewal rates of contracts have continued
to decline; however, most of the marine vessels impacted by these non-renewals
are employed in the spot market until we can secure term contracts.




63




Gross margin and the average daily rate
are influenced by rates on term and spot contracts and renewal of term contracts
along with industry demand.  Operating expenses, such as vessel
personnel salaries and related employee benefits and tow boat and tank barge
maintenance expenses, also impact gross margin and average daily
rate.  Gross margin increased $0.4 million, while the average daily
rate decreased 2% for the three months ended June 30, 2009, compared with the
three months ended June 30, 2008, primarily due to higher operating costs
related to increased vessel maintenance expense, as discussed
below.  These increases in operating expenses and an increase in the
fleet operating days resulted in a decrease in the average daily rate in the
2009 period.





Costs and expenses decreased $4.1
million for the three months ended June 30, 2009, compared with the three months
ended June 30, 2008.  Operating expenses (including those reimbursed
under the transitional operating agreement) increased $1.7 million primarily due
to a $0.8 million increase primarily in labor and benefits expense related to
the TransMontaigne acquisition and a $1.4 million increase in vessel personnel
labor and benefits expense, partially offset by a $0.4 million decrease in
vessel repairs and maintenance expense.  Operating fuel and power
decreased $6.5
million primarily due to the decline in the price of diesel
fuel.  Under contract terms, substantially all operating fuel and
power consumed is directly reimbursed by the customer.  General and
administrative expense increased $0.4 million primarily due to increased legal
and other expenses related to the proposed merger with Enterprise Products
Partners.  Depreciation and amortization expense increased $0.1
million primarily due to the acquisition of additional tow boats and tank barges
from TransMontaigne.  Taxes – other than income taxes increased $0.2
million primarily due to higher payroll taxes relating to increased labor
costs.  Effective
August 1, 2009, the transitional operating agreement was
terminated.  Personnel providing services thereunder became employees
of EPCO and will continue to provide services to TEPPCO Marine Services under
the administrative services agreement with EPCO.


S ix
Months Ended June 30, 2009 Compared with Six Months Ended June 30,
2008


W e acquired Cenac and
Horizon on February 1, 2008 and February 29, 2008, respectively.  Our
ownership and operation of these assets for a portion of the six months ended
June 30, 2008, as compared to the full six months ended June 30, 2009, accounted
for a portion of the changes in the results of operations in this
segment.


R evenues from marine
transportation increased $7.0 million for the six months ended June 30, 2009,
compared with the six months ended June 30, 2008, primarily due to the timing of
the acquisitions in the 2008 period as discussed above, partially offset by
lower fleet utilization, decreased reimbursements for the cost of fuel and other
specified operational fees and approximately $2.3 million of revenues generated
by the TransMontaigne assets acquired in June 2009.  Reimbursable
revenues decreased primarily due to a decrease in the price of diesel fuel, as
discussed below in operating fuel and power costs.  Fleet utilization
decreased from 93% to 88% for the six months ended June 30, 2009, compared with
the six months ended June 30, 2008, primarily due to reduced demand for barge
services as a result of general economic conditions in the industry, which has
resulted in some inland customer contracts not being renewed during the fourth
quarter of 2008 and in the 2009 period.  Renewal rates of contracts
have continued to decline; however, most of the marine vessels impacted by these
non-renewals are employed in the spot market until we can secure term
contracts.


G ross margin increased $2.9
million, while the average daily rate decreased 15% for the six months ended
June 30, 2009, compared with the six months ended June 30, 2008, primarily due
to the ownership and operation of the Cenac and Horizon assets for only a
portion of the six months ended June 30, 2008, as compared to the full six
months ended June 30, 2009.  This increase in gross margin was
partially offset by higher operating costs related to increased vessel
maintenance expense, as discussed below.  These increases in operating
expenses, an increase in the fleet operating days and contract renewals at lower
daily rates resulted in a decrease in the average daily rate in the 2009
period.




Costs and expenses
increased $8.7 million for the six months ended June 30, 2009, compared with the
six months ended June 30, 2008.  A large portion of the changes in
costs and expenses was the timing of the acquisitions in the 2008 period as
discussed above.  Operating expenses (including those
reimbursed




64


under the
transitional operating agreement) also increased due to a $2.6 million increase
in vessel personnellabor and
benefits expense, a $1.4 million increase in vessel repairs and maintenance
expenses and a $0.8 million increase in expenses due to the TransMontaigne
acquisition.  Operating fuel and power decreaseddue to
the decline in the price of diesel fuel.  General and administrative
expense increased primarily due to a $0.3 million increase in legal and other
expenses related to the proposed merger with Enterprise Products
Partners.  Depreciation and amortization expense increased primarily
due to the acquisition of additional tow boats and tank barges in the 2008
period and the assets purchased with the TransMontaigne
acquisition.  Taxes – other than income taxes increased primarily due
to higher payroll taxes relating to increased labor costs.





Interest Expense





Three Months Ended June 30, 2009
Compared with Three Months Ended June 30, 2008





Interest expense decreased $0.7 million
for the three months ended June 30, 2009, compared with the three months ended
June 30, 2008, primarily due to lower average interest rates during the 2009
period, partially offset by higher outstanding borrowings in the 2009 period and
a $0.3 million increase in capitalized interest primarily due to higher
construction work-in-progress balances in the 2009 period as compared to the
2008 period.





Six Months Ended June 30, 2009 Compared
with Six Months Ended June 30, 2008





Interest expense decreased $7.2 million
for the six months ended June 30, 2009, compared with the six months ended June
30, 2008, primarily due to $8.7 million in interest expense recognized in the
2008 period upon the redemption of the 7.51% TE Products Senior Notes on January
28, 2008.  Of the $8.7 million of expense, $6.6 million related to a
make-whole premium paid with the redemption of the senior notes, $1.0 million
related to the remaining unamortized interest rate swap loss that had been
deferred as an adjustment to the carrying value of the senior notes and $1.1
million related to unamortized debt issuance costs on the senior
notes.  Additionally, the decrease in interest expense was due to $3.6
million of interest expense in the 2008 period resulting from interest payments
hedged under treasury locks not occurring as forecasted, lower average interest
rates during the 2009 period and a $0.6 million increase in capitalized interest
primarily due to higher construction work-in-progress balances in the 2009
period as compared to the 2008 period.  These decreases in interest
expense were partially offset by higher outstanding borrowings in the 2009
period.





Provision
for Income Taxes





Provision for income taxes is
attributable to our state tax obligations under the Revised Texas Franchise Tax
enacted in May 2006.  At June 30, 2009 and December 31, 2008, we had
current tax liabilities of $1.8 million and $3.9 million,
respectively.  At June 30, 2009, we had a deferred tax asset of less
than $0.1 million.  During the three months ended June 30, 2009 and
2008, we recorded an increase in current income tax liabilities of $0.9 million
and $1.0 million, respectively.  During the six months ended June 20,
2009 and 2008, we recorded an increase in current income tax liabilities of
$1.7 million and $1.8 million, respectively.  During the six months
ended June 30, 2009, adjustments to deferred tax assets and liabilities were not
material to our consolidated financial statements.  The offsetting net
charges to deferred tax expense and income tax expense are shown on our
unaudited condensed statements of consolidated income as provision for income
taxes.





Financial
Condition and Liquidity





Liquidity
Outlook





Our primary cash
requirements consist of (i) ordinary course operating uses, such as operating
expenses, capital expenditures to sustain existing operations, interest payments
on our outstanding debt and distributions to our unitholders and General
Partner, (ii) growth expenditures, such as capital expenditures for revenue
generating activities (including the Motiva Enterprises, LLC (“Motiva”) project
and Jonah) and




65


acquisitions
of new assets or businesses and (iii) repayment of principal on our long-term
debt.  Ourordinary
course operating cash requirements and a portion of our growth expenditures for
2009 are expected to be funded through our cash flows from operating
activities.Our
ability to continue to generatecash from
operations to maintain adequate liquidity is subject to a number of factors,
including prevailing market conditions, the possibility of a prolonged economic
slowdown and general competitive, legislative, regulatory and other market
factors that are beyond our control.


In August 2009, we entered
into a Loan Agreement with EPO under which EPO agreed to make a revolving loan
to us in an aggregate maximum outstanding principal amount not to exceed $100.0
million.  Borrowings under the Loan Agreement mature on the
earliest to occur of (i) the consummation of our proposed merger with
Enterprise Products Partners, (ii) the termination of the related merger
agreement in accordance with the provisions thereof, (iii) December 31, 2009,
(iv) the date upon which the maturity of the loan is otherwise accelerated
upon an event of default, and (v) the date upon which EPO’s commitment to make
the loan is terminated by us pursuant to the Loan
Agreement.  Borrowings under the Loan Agreement will bear
interest at a floating rate, equivalent to the one-month LIBOR Rate (as defined
in the Loan Agreement) plus 2.00%.  Interest is payable
monthly.  EPO’s obligation to fund any borrowings under the Loan
Agreement is subject to specified conditions, including the condition that, on
and as of the applicable date of funding, no additional amounts are available to
us pursuant to our Revolving Credit Facility (either as borrowings or under any
letters of credit).  See “Recent Developments” within this Item 2 for
further information. Because
our access to debt and equity capital markets is constrained while the merger
with Enterprise Products Partners is pending, and because we have relied more
heavily on borrowings under our Revolving Credit Facility to fund 2009 capital
expenditures than previous years, we entered into the Loan Agreement to
supplement our near-term liquidity position.  However, we currently do
not expect to borrow funds under the Loan Agreement.




For the remainder of 2009, we expect
cash requirements for our anticipated level of growth expenditures to be funded
by a combination of cash flows from operating activities and borrowings under
our Revolving Credit Facility.  We currently have no material
long-term debt obligations that mature in 2009, and our Revolving Credit
Facility does not mature until 2012.  However, if we were to incur any
indebtedness under the Loan Agreement, we would be obligated to repay it no
later than December 31, 2009, and we likely would not have availability under
our Revolving Credit Facility as a source to repay such amounts.  See
Item 1A, Part II.  Risk Factors.





It is our belief that we will continue
to have adequate liquidity to fund future recurring operating and investing
activities.  For a discussion of our liquidity outlook (which is
updated in this report), see “General Outlook for 2009” within Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations in our Annual Report on Form 10-K for the year ended December 31,
2008.


C ash
Flows from Operating, Investing and Financing Activities





Cash generated from operations,
distributions from our joint ventures and borrowings under our credit facilities
are our primary sources of liquidity.  From time to time we may
dispose of assets, which would provide an additional source of
liquidity.  At June 30, 2009 and December 31, 2008, we had working
capital surpluses of $42.9 million and $7.6 million, respectively.  At
June 30, 2009, we had approximately $197.8 million in available borrowing
capacity under our Revolving Credit Facility.  Cash flows for the
periods indicated were as follows (in millions):





For
      the Six MonthsEnded
      June 30,2009
                  
                  
                  2008Cash
      provided by (used in):Operating
      activities
                  
                  $
                  207.5
                  
                  
                  $
                  164.1Investing
      activities
                  
                  
                  (234.6
                  )
                  
                  
                  (564.1
                  )Financing
      activities
                  
                  
                  27.1
                  
                  
                  
                  400.0




66


OperatingActivities


N et
cash flow provided by operating activities was $207.5 million for the six months
ended June 30, 2009 compared to $164.1 million for the six months ended June 30,
2008.  The following were the principal factors resulting in the $43.4
million increase in net cash flows provided by operating
activities:




§
            Cash
      flow from operating activities increased due to the timing of cash
      receipts and cash disbursements related to working capital
      components.


§
              Cash
      distributions received from unconsolidated affiliates increased $9.9
      million. Distributions received from our equity investment in Seaway
      increased $9.8 million primarily due to the timing of distributions
      received in the 2009 period as compared to the 2008
      period.  Distributions from our equity investment in Jonah
      increased $0.1 million primarily due to increased revenues and volumes
      generated from completion of the system
  expansion.


§
              Cash
      paid for interest, net of amounts capitalized, increased $6.5 million for
      the six months ended June 30, 2009 compared with the six months ended June
      30, 2008, primarily due to an increase in debt outstanding, including
      higher outstanding balances on our variable rate Revolving Credit
      Facility, partially offset by the redemption of our senior notes in the
      2008 period.  Excluding the effects of hedging activities and
      interest capitalized during the year ending December 31, 2009, we expect
      interest payments on our fixed-rate senior notes and junior subordinated
      notes for 2009 to be approximately $139.6 million.  We expect to
      make our interest payments with cash flows from operating
      activities.
 Investing
Activities
 N et cash flow used in
investing activities was $234.6 million for the six months ended June 30, 2009,
compared to $564.1 million for the six months ended June 30,
2008.  The following were the principal factors resulting in the
$329.5 million decrease in net cash flows used in investing
activities:





§
            Cash
      used for business combinations was $50.0 million during the six months
      ended June 30, 2009 for the TransMontaigne acquisition (see Note 8 in the
      Notes to Unaudited Condensed Consolidated Financial Statements), compared
      with $345.6 million during the six months ended June 30, 2008, of which
      $258.1 million was for the Cenac acquisition and $87.5 million was for the
      Horizon acquisition.





§
            Capital
      expenditures increased $25.1 million primarily due to higher spending on
      revenue generating projects for the six months ended June 30, 2009
      compared with the six months ended June 30, 2008.  Cash paid for
      linefill on assets owned decreased $13.0 million for the six months ended
      June 30, 2009 compared with the six months ended June 30, 2008, primarily
      due to the timing of completion of organic growth projects in our Upstream
      Segment.





§
            Investments
      in unconsolidated affiliates decreased $47.1 million, which includes
      a $45.4 million decrease in contributions to Jonah primarily related to
      lower system expansion spending in 2009 and a $1.7 million decrease in net
      contributions to TOPS for the six months ended June 30,
      2009.  In January 2009, we received a $3.1 million refund of our
      2008 contributions to TOPS due to a delay in the timing of the expected
      project spending.  In February and March 2009, we then invested
      an additional $1.4 million in TOPS.  See Note 7 in the Notes to
      Unaudited Condensed Consolidated Financial Statements for information
      regarding our dissociation from
TOPS.





§
            Cash
      used for the acquisition of intangible assets increased $1.1 million
      during the six months ended June 30, 2009, compared with the six months
      ended June 30, 2008.


67
 Financing
Activities
 C ash flows provided by
financing activities totaled $27.1 million for the six months ended June
30, 2009, compared to $400.0 million for the six months ended June 30,
2008.  The following were the principal factors resulting in the
$372.9 million decrease in cash flows provided by financing
activities:


§
            During
      the six months ended June 30, 2008, we used $1.0 billion of proceeds from
      our term credit agreement (i) to fund the cash portion of our Cenac and
      Horizon acquisitions, (ii) to fund the redemption of our 7.51% TE Products
      Senior Notes in January 2008 and to repay our 6.45% TE Products Senior
      Notes, which matured in January 2008, (iii) to repay $63.2 million of debt
      assumed in the Cenac acquisition, and (iv) for other general partnership
      purposes.  We used the proceeds from the issuance of senior
      notes in March 2008 to repay the outstanding balance of $1.0 billion under
      the term credit agreement.  Debt issuance costs paid during the
      six months ended June 30, 2008 were $9.3
  million.





§
            Net
      borrowings under our Revolving Credit Facility increased $166.7 million
      primarily due to the Revolving Credit Facility being used to fund a
      greater portion of capital expenditures for the six months ended June 30,
      2009, compared with the six months ended June 30,
  2008.





§
            We
      paid $52.1 million to settle treasury locks in March 2008 (see Note 4 in
      the Notes to Unaudited Condensed Consolidated Financial Statements) upon
      the issuance of senior notes.





§
            Cash
      distributions to our partners increased $27.1 million for the six months
      ended June 30, 2009, compared with the six months ended June 30, 2008, due
      to an increase in the number of Units outstanding and an increase in our
      quarterly cash distribution rate per Unit.  We paid cash
      distributions of $182.8 million ($1.450 per Unit) and $155.7 million
      ($1.405 per Unit) during the six months ended June 30, 2009 and 2008,
      respectively.  Additionally, we declared a cash distribution of
      $0.725 per Unit for the quarter ended June 30, 2009.  We will
      pay the distribution of $91.6 million on August 7, 2009 to unitholders of
      record on July 31, 2009.


§
              Net
      proceeds from the issuance of Units to employees under our EUPP and the
      issuance of Units in connection with our DRIP were $3.3 million for the
      six months ended June 30, 2009, compared to $5.6 million for the six
      months ended June 30, 2008.  See below for further information
      regarding our DRIP and EUPP.


Other
Considerations





Registration
Statements


W e have a universal shelf
registration statement on file with the SEC that allows us to issue an unlimited
amount of debt and equity securities.


W e also have a registration
statement on file with the SEC authorizing the issuance of up to 10,000,000
Units in connection with our DRIP.  During the six months ended June
30, 2009, 115,703 Units have been issued under this registration statement,
generating $2.9 million in net proceeds that we used for general partnership
purposes.  On July 1, 2009, we suspended the opportunity for investors
to acquire additional Units under our DRIP, pursuant to the terms of the
definitive merger agreement with Enterprise Products Partners (see Note 15 in
the Notes to Unaudited Condensed Consolidated Financial
Statements).  We expect this suspension to remain in place pursuant to
such terms while the transaction is pending.




In addition, we have a
registration statement on file related to our EUPP, under which we can issue up
to 1,000,000 Units.  During the six months ended June 30, 2009, 15,902
Units have been issued to employees under this plan, generating $0.4 million in
net proceeds that we used for general partnership purposes.  In August
2009, the EUPP will suspend operations pursuant to the terms of the merger
agreement.  We expect this suspension to remain in place pursuant to
such terms while the transaction is pending.




68


F or
information regarding our Partnership’s capital, see Note 11 in the Notes to
Unaudited Condensed Consolidated Financial Statements included under Item 1 of
this Quarterly Report.




Debt
Obligations





Except
for routine fluctuations in our unsecured Revolving Credit Facility, there have
been no material changes in the terms of our debt obligations since those
reported in our Annual Report on Form 10-K for the year ended December 31,
2008.





Our available borrowing capacity under
our Revolving Credit Facility was approximately $197.8 million at June 30,
2009.





We were in compliance with the
covenants of our long-term debt obligations at June 30, 2009.





For information regarding our debt
obligations, see Note 10 in the Notes to Unaudited Condensed Consolidated
Financial Statements included under Item 1 of this Quarterly
Report.





See
“Recent Developments” within this Item 2 for information regarding a loan
agreement we entered into with Enterprise Products Partners.





Future
Capital Needs and Commitments





We estimate that capital expenditures,
excluding acquisitions and joint venture contributions, for 2009 will be in the
range of $315.0 million to $345.0 million (including approximately $19.0 million
of capitalized interest).  Excluding capitalized interest, we expect
to spend in the range of $245.0 million to $275.0 million for revenue generating
projects, which includes $160.0 million for our expected spending on the Motiva
project.  We expect to spend approximately $46.0 million to sustain
existing operations (including $16.0 million for pipeline integrity) including
life-cycle replacements for equipment at various facilities and pipeline and
tank replacements among all of our business segments.  We expect to
spend approximately $5.0 million to improve operational efficiencies and reduce
costs among all of our business segments.  Based
upon our capital spending for the first half of 2009 (excluding acquisitions and
joint venture contributions), we expect that our capital expenditures for the
remainder of 2009 will be approximately $29 million to sustain existing
operations and our growth capital expenditures will be in the range of $120
million to $150 million.





Additionally, we expect to invest
approximately $22.0 million in our Jonah joint venture during 2009 for the
completion of additional facilities to expand the Pinedale filed
production.  During 2009, TE Products may be required to contribute
cash to Centennial to cover capital expenditures, debt service requirements or
other operating needs.  We continually review and evaluate potential
capital improvements and expansions that would be complementary to our present
business operations.  These expenditures can vary greatly depending on
the magnitude of our transactions.




Off-Balance
Sheet Arrangements





There
have been no material changes with regards to our off-balance sheet arrangements
since those reported in our Annual Report on Form 10-K for the year ended
December 31, 2008.





Contractual
Obligations





Scheduled
maturities of long-term debt.  With the exception of routine
fluctuations in the balance of our Revolving Credit Facility, there have been no
material changes in our scheduled maturities of long-term debt since those
reported in our Annual Report on Form 10-K for the year ended December 31,
2008.





Operating
lease obligations.Lease and rental expense
was $4.6 million and $5.1 million for the three months ended June 30, 2009 and 2008,
respectively.  For the six months ended June 30, 2009 and




69




2008, lease and
rental expense was $9.1 million and $10.3 million,
respectively.  There have been no material changes in our operating
lease commitments since December 31, 2008.





Purchase
obligations.Apart from that
discussed below, there have been no material changes in our purchase obligations
since December 31, 2008.




Due to our exit from TOPS, our capital
expenditure commitments decreased by an estimated $68.0 million.  See
Note 7 in the Notes to Unaudited Condensed Consolidated Financial Statements for
additional information regarding this event.





Summary
of Related Party Transactions





The following table summarizes related
party transactions for the periods indicated (in millions):





For
      the Three Months
                      Ended
      June 30,
                    
                    
                    For
      the Six Months
                      Ended
      June 30,2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Revenues
      from EPCO and affiliates:Sales
      of petroleum products
                    
                    $
                    0.2
                    
                    
                    $
                    0.3
                    
                    
                    $
                    0.3
                    
                    
                    $
                    0.9Transportation
      – NGLs
                    
                    
                    3.5
                    
                    
                    
                    3.4
                    
                    
                    
                    7.3
                    
                    
                    
                    6.8Transportation
      – LPGs
                    
                    
                    1.5
                    
                    
                    
                    1.0
                    
                    
                    
                    6.4
                    
                    
                    
                    3.3Other
      operating revenues
                    
                    
                    6.3
                    
                    
                    
                    0.2
                    
                    
                    
                    20.3
                    
                    
                    
                    0.6Related
      party revenues
                    
                    $
                    11.5
                    
                    
                    $
                    4.9
                    
                    
                    $
                    34.3
                    
                    
                    $
                    11.6Costs
      and Expenses from EPCO and affiliates:Purchases
      of petroleum products
                    
                    $
                    45.2
                    
                    
                    $
                    30.5
                    
                    
                    $
                    71.9
                    
                    
                    $
                    50.2Operating
      expense
                    
                    
                    29.5
                    
                    
                    
                    26.7
                    
                    
                    
                    58.1
                    
                    
                    
                    48.2General
      and administrative
                    
                    
                    7.4
                    
                    
                    
                    8.0
                    
                    
                    
                    15.5
                    
                    
                    
                    16.8Costs
      and Expenses from unconsolidated affiliates:Purchases
      of petroleum products
                    
                    
                    0.7
                    
                    
                    
                    2.0
                    
                    
                    
                    --
                    
                    
                    
                    3.5Operating
      expense
                    
                    
                    0.6
                    
                    
                    
                    1.6
                    
                    
                    
                    2.2
                    
                    
                    
                    3.9Costs and Expenses from Cenac
      and affiliates:Operating
      expense
                    
                    
                    13.6
                    
                    
                    
                    9.8
                    
                    
                    
                    27.0
                    
                    
                    
                    17.2General
      and administrative
                    
                    
                    0.5
                    
                    
                    
                    0.8
                    
                    
                    
                    1.6
                    
                    
                    
                    1.3Related
      party expenses
                    
                    $
                    97.5
                    
                    
                    $
                    79.4
                    
                    
                    $
                    176.3
                    
                    
                    $
                    141.1





The
following table summarizes our related party receivable and payable amounts at
the dates indicated (in millions):




June
      30,
                  
                  
                  December
      31,2009
                  
                  
                  2008Accounts
      receivable, related parties
                  
                  $
                  10.7
                  
                  
                  $
                  15.8Accounts
      payable, related parties
                  
                  
                  40.9
                  
                  
                  
                  17.2





For additional information regarding
our related party transactions, see Note 13 in the Notes to Unaudited Condensed
Consolidated Financial Statements.





Credit
Ratings


O ur publicly traded debt
securities are rated investment-grade.  Standard & Poor’s Ratings
Group (“S&P”) and Fitch Ratings each assigned a rating of BBB- and Moody’s
Investors Service, Inc. (“Moody’s”) assigned a rating of Baa3, all with stable
outlooks.  Such ratings reflect only the view of the rating agency and
should not be interpreted as a recommendation to buy, sell or hold our
securities.  These ratings may be revised or withdrawn at any time by
the agencies at their discretion and should be evaluated independently of any
other rating.  Based upon the characteristics of the fixed/floating
unsecured junior subordinated notes that we issued in May 2007, Moody’s and
S&P each assigned 50% equity treatment to these notes.  Fitch
Ratings assigned 75% equity treatment to these
notes.




Fitch Ratings affirmed its
BBB- rating of our publicly traded debt securities on June 29, 2009 following
the announcement that we had entered into definitive agreements to merge with
Enterprise




70




Products
Partners.  This rating assumes that (i) our debt and the debt of EPO, the
operating subsidiary of Enterprise Products
Partners, would be pari passu upon completion of the merger, (ii) EPO would be
able to maintain or refinance our Revolving Credit Facility borrowings, and
(iii) the pro forma credit measures of EPO remain consistent with Fitch Ratings’
pre-merger estimates.  We do not expect a change in our credit ratings if
the proposed merger is consummated in accordance with the terms of the
definitive merger agreements.




Recent
Accounting Pronouncements





The accounting standard setting bodies
have recently issued the following accounting guidance since those reported in
our Annual Report on Form 10-K for the year ended December 31, 2008 that will or
may affect our future financial statements:





§
            FSP
      FAS 157-4 (ASC 820), Determining Fair Value When
      the Volume and Level of Activity for the Asset or Liability Have
      Significantly Decreased and Identifying Transactions That Are Not
      Orderly;


§
              FSP
      FAS 107-1 and APB 28-1 (ASC 825), Interim Disclosures About Fair
      Value of
      Financial Instruments;


§
            SFAS
      No. 165 (ASC 855), Subsequent
      Events;





§
            SFAS
      No. 167 (ASC 810), Amendments to FASB
      Interpretation No. 46(R);and


§
              SFAS
      No. 168 (ASC 105), The
      FASB Accounting Standards Codification and the Hierarchy of Generally
      Accepted Accounting Principles – a replacement of FASB Statement No.
      162.


For
additional information regarding recent accounting developments, see Note 2 in
the Notes to Unaudited Condensed Consolidated Financial Statements included
under Item 1 of this Quarterly Report.





Insurance
Matters





EPCO completed its annual insurance
renewal process during the second quarter of 2009.  In light of recent
hurricane and other weather-related events, the renewal of policies for
weather-related risks resulted in significant increases in premiums and certain
deductibles, as well as changes in the scope of coverage.





EPCO’s
deductible for onshore physical damage from windstorms increased from $10.0
million per storm to $25.0 million per storm.  EPCO’s onshore program
currently provides $150.0 million per occurrence for named windstorm events
compared to $175.0 million per occurrence in the prior year.  For
non-windstorm events, EPCO’s deductible for onshore physical damage remained at
$5.0 million per occurrence.  Business interruption coverage in
connection with a windstorm event remained unchanged for onshore
assets.  Onshore assets covered by business interruption insurance
must be out-of-service in excess of 60 days before any losses from business
interruption will be covered.  Furthermore, pursuant to the current
policy, we will now absorb 50% of the first $50.0 million of any loss in excess
of deductible amounts for our onshore assets.  There were no changes
to insurance coverage for our marine transportation assets.








Item
3.  Quantitative and
Qualitative Disclosuresabout Market
Risk.





In the course of our
normal business operations, we are exposed to certain risks, including changes
in interest rates and commodity prices.  In order to manage risks
associated with certain identifiable and anticipated transactions, we use
derivative instruments.  Derivatives are financial instruments whose fair
value is determined by changes in a specified benchmark such as interest rates
or commodity prices.  Typical derivative instruments include futures,
forward contracts, swaps and other instruments with similar




71




characteristics.  Substantially
all of our derivatives are used for non-trading activities.  See Note
4 in theNotes to
Unaudited Condensed Consolidated Financial Statements included under Item 1 of
this Quarterly Report for additional information regarding our derivative
instruments and hedging activities.


O ur exposures to market
risk have not changed materially since those reported under Part II,
Item 7A. Quantitative and Qualitative Disclosures About Market Risk of our
Annual Report on Form 10-K for the year ended December 31,
2008.




Interest
Rate Derivative Instruments





We utilize interest rate swaps,
treasury locks and similar derivative instruments to manage our exposure to
changes in the interest rates of certain debt agreements.  This strategy is
a component in controlling our cost of capital associated with such
borrowings.  At June 30, 2009, we had no interest rate derivative
instruments outstanding.





Commodity
Derivative Instruments





We seek to maintain a position that is
substantially balanced between crude oil purchases and related sales and future
delivery obligations.  The price of crude oil is subject to
fluctuations in response to changes in supply, market uncertainty and a variety
of additional factors that are beyond our control. In order to manage the
price risk associated with crude oil, we enter into commodity derivative
instruments such as forwards, basis swaps and futures contracts.  The
purpose of such hedging strategy is to either balance our inventory position or
to lock in a profit margin.





The
following table shows the effect of hypothetical price movements on the
estimated fair value (“FV”) of our portfolio at the dates indicated (dollars in
millions):




Portfolio
      Fair Value atScenario
                        Resulting
                          Classification
                        
                        June
      30,
                          2009
                        
                        
                        July
      21,
                          2009FV
      assuming no change in underlying commodity prices
                        Asset
      (Liability)
                        
                        $
                        0.4
                        
                        
                        $
                        (0.5
                        )FV
      assuming 10% increase in underlying commodity prices
                        Asset
      (Liability)
                        
                        
                        0.4
                        
                        
                        
                        (0.6
                        )FV
      assuming 10% decrease in underlying commodity prices
                        Asset
      (Liability)
                        
                        
                        0.4
                        
                        
                        
                        (0.3
                        )








Item
4.  Controls and
Procedures.





As of the end of the period covered by
this Quarterly Report, our management carried out an evaluation, with the
participation of our principal executive officer (the “CEO”) and our principal
financial officer (the “CFO”), of the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of
1934.  Based on that evaluation, as of the end of the period covered
by this Quarterly Report, the CEO and CFO concluded:





(i)
            that
      our disclosure controls and procedures are designed to ensure that
      information required to be disclosed by us in the reports that we file or
      submit under the Securities Exchange Act of 1934 is recorded, processed,
      summarized and reported within the time periods specified in the SEC’s
      rules and forms, and that such information is accumulated and communicated
      to our management, including the CEO and CFO, as appropriate to allow
      timely decisions regarding required disclosure;
  and





(ii)
            that
      our disclosure controls and procedures are effective at a reasonable
      assurance level.





Changes
in Internal Control over Financial Reporting





Other than as discussed
under “TEPPCO Marine Services Transactions” below, there were no changes in our
internal controls over financial reporting (as defined in Rule 13a-15(f) under
the Securities




72




Exchange Act of 1934) or
in other factors during the second quarter of 2009, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.




TEPPCO
Marine Services Transactions


O n February 1, 2008, we
acquired transportation assets and certain intangible assets that comprised the
marine transportation business of Cenac.  On February 29, 2008, we
purchased marine assets from Horizon, a privately-held Houston-based company and
an affiliate of Mr. Cenac.  These purchases were
recorded using purchase accounting.  In recording the TEPPCO Marine
Services purchase transactions, we followed our normal accounting procedures and
internal controls.





T he Office of the Chief
Accountant of the SEC has issued guidance regarding the reporting of internal
control over financial reporting in connection with a material
acquisition.  This guidance was reiterated in September 2007 to affirm
that management may omit an assessment of an acquired business’ internal control
over financial reporting from management’s assessment of internal control over
financial reporting for a period not to exceed one year. We excluded
the operations acquired from Cenac and Horizon from the scope of our
Sarbanes-Oxley Section 404 report on internal control over financial reporting
for the year ended December 31, 2008.  We expect to complete the
implementation of our internal control structure over the operations we
acquired from Cenac and Horizon in 2009.


T he certifications of our
General Partner’s CEO and CFO required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002 have been included as exhibits to this Quarterly
Report.








PART
II.  OTHER INFORMATION.





Item
1.  Legal
Proceedings.





For information on legal proceedings,
see Part I, Item 1, Financial Statements, Note 15, “Commitments and
Contingencies – Litigation,” in the Notes to Unaudited Condensed
Consolidated Financial Statements included in this Quarterly Report, which is
incorporated into this item by reference.








Item
1A.  Risk
Factors.





Security holders and potential
investors in our securities should carefully consider the risk factors set forth
below and the risk factors set forth in our Annual Report on Form 10-K for the
year ended December 31, 2008, in addition to other information in such report
and in this Quarterly Report.  We have identified these risk factors
as important factors that could cause our actual results to differ materially
from those contained in any written or oral forward-looking statements made by
us or on our behalf.





Failure
to complete the merger could negatively impact our Unit price and future
business and financial results.





We cannot assure you that the merger
with Enterprise Products Partners will be approved by our unitholders or that
the other conditions to the completion of the merger will be satisfied. In
addition, both we and Enterprise Products Partners have the right to terminate
the merger agreement and pursue alternative transactions under certain
conditions. If the merger is not completed, we will not receive any of the
expected benefits of the merger and will be subject to risks and/or liabilities,
including the following:




§
            failure
      to complete the merger might be followed by a decline in the market price
      of our Units;





§
            certain
      costs relating to the merger (such as legal, accounting and financial
      advisory fees) are payable by us whether or not the merger is completed;
      and




73




§
            we
      would continue to face the risks that we currently face as a separate
      public company.


I f the merger is not
completed, these risks and liabilities may materially adversely affect our
business, financial results, financial condition and Unit
price.




Uncertainties
associated with the merger may cause us to lose employees, customers and
business partners.  While the merger is pending, we are subject to
restrictions on the conduct of our business.





Current and prospective employees who
provide services to us may be uncertain about their future roles and
relationships with us or EPCO and its affiliates following the completion of the
merger. This uncertainty may adversely affect our ability to attract and
retain key management and employees.





Our customers and business partners may
not be as willing to continue business with us on the same or similar terms
pending the completion of the merger, which would materially and adversely
affect our business and results of operations.  In addition, the merger
agreement restricts us from taking specified actions without Enterprise Products
Partners’ approval including, among other things, making certain significant
acquisitions, dispositions or investments, making certain significant capital
expenditures, and entering into certain material contracts. Our management
may also be required to devote substantial time to merger-related activities,
which could otherwise be devoted to pursuing other beneficial business
opportunities.





Any
delay in completing the merger and integrating the businesses may substantially
reduce the benefits expected to be obtained from the merger.





In addition to obtaining the required
regulatory clearances and approvals, the merger is subject to a number of other
conditions beyond our control and the control Enterprise Products Partners that
may prevent, delay or otherwise materially adversely affect its
completion.  We cannot predict whether or when the conditions to
closing will be satisfied.  Any delay in completing the merger and
integrating the partnerships’ businesses may diminish the benefits that we
expect to achieve in the merger.





Our
prior interest in the TOPS partnership and dissociation from the partnership in
April 2009 could subject us to various liabilities.


T he TOPS
partnership was expected to represent an important component of our
business strategy, requiring an estimated $600.0 million in capital
contributions from us through 2011.  Effective April 16, 2009, we and
a subsidiary of Enterprise Products Partners elected to dissociate, or exit,
from TOPS.  In dissociating from TOPS, we forfeited our investment and
one-third ownership interest in the partnership.  As a result, our
equity earnings and net income for the second quarter of 2009 include
a non-cash charge of $34.2 million.


T he third
partner, an affiliate of Oiltanking, has filed an original petition against
Enterprise Offshore Port System, LLC, EPO, TEPPCO O/S Port System, LLC, us and
our General Partner in the District Court of Harris County, Texas, 61st Judicial
District (Cause No. 2009-31367), asserting, among other things, that the
dissociation was wrongful and in breach of the TOPS partnership agreement,
citing provisions of the agreement that, if applicable, would continue to
obligate us and Enterprise Products Partners to make capital contributions to
fund the project and impose liabilities on us.  We have not recorded
any reserves for potential liabilities relating to this matter, although we may
determine in future periods that an accrual of reserves for potential
liabilities (including costs of litigation) should be
made.


If
the merger agreement with Enterprise Products Partners is terminated and we were
unable to obtain external financing to repay any borrowings under the Loan
Agreement with EPO, we may suffer a default under a substantial majority of our
outstanding indebtedness.


In order to supplement our
liquidity position during the pendency of the proposed merger with Enterprise
Products Partners, we entered into the Loan Agreement with EPO, which is a
wholly-owned subsidiary of Enterprise Products Partners.  We are not
entitled to borrow under the Loan Agreement unless
  74
  there is
no remaining availability for borrowing under our Revolving Credit
Facility.  In addition, borrowings under the Loan Agreement mature
upon termination by either party of the merger agreement with Enterprise
Products Partners, among other events.  If we were to incur material
indebtedness under the Loan Agreement that became due either because of
termination of the merger agreement or otherwise, we would likely be required to
seek additional bank financing to fund a repayment to EPO due to the likely
unavailability of borrowing capacity under our Revolving Credit Facility and of
timely access to the capital markets.  Failure to satisfy timely the
accelerated obligations under the Loan Agreement would constitute a default
under the Loan Agreement, which would entitle EPO to declare unpaid amounts
under the Loan Agreement immediately due and payable.  Such a default
would constitute an event of default under our Revolving Credit Facility and may
constitute an event of default under our senior notes, which would allow for the
acceleration of a substantial majority of our
indebtedness.


Item
5.  Other
Information.





Loan Agreement with Enterprise Products
Operating LLC




On August 5, 2009, we entered into a
Loan Agreement with EPO under which EPO agreed to make an unsecured
revolving loan to us in an aggregate maximum outstanding principal amount not to
exceed $100.0 million.  Borrowings under the Loan Agreement
mature on the earliest to occur of (i) the consummation of
our proposed merger with Enterprise Products Partners, (ii) the termination
of the related merger agreement in accordance with the provisions thereof, (iii)
December 31, 2009, (iv) the date upon which the maturity of the loan is
otherwise accelerated upon an event of default, and (v) the date upon which
EPO’s commitment to make the loan is terminated by us pursuant to the Loan
Agreement.  Borrowings under the Loan Agreement will bear
interest at a floating rate equivalent to the one-month LIBOR Rate (as defined
in the Loan Agreement) plus 2.00%.  Interest is payable
monthly.
  The Loan Agreement provides that
amounts borrowed are non-recourse to our General Partner and our limited
partners.  The Loan Agreement contains customary events of default,
including (i) nonpayment of principal when due or nonpayment of interest or
other amounts within three business days of when due; (ii) bankruptcy or
insolvency with respect to us; (iii) a change of control; or (iv) an event of
default under our Revolving Credit Facility.  Any amounts due by us
under the Loan Agreement will be unconditionally and irrevocably guaranteed by
each of our subsidiaries that guarantee our obligations under our Revolving
Credit Facility.  EPO’s obligation to fund any borrowings under the
Loan Agreement is subject to specified conditions, including the condition that,
on and as of the applicable date of funding, no additional amounts are available
to us pursuant to our Revolving Credit Facility (either as borrowings or under
any letters of credit).  The ACG
Committee reviewed and approved the Loan Agreement, such approval constituting
“Special Approval” under the conflict of interest provisions of our Partnership
Agreement.  The execution of the Loan Agreement was also unanimously
approved by the ACG Committee of EPGP.
  The foregoing description of the Loan
Agreement is qualified in its entirety by reference to the full and complete
terms of the Loan Agreement, which is filed with this Quarterly Report as
Exhibit 10.4.


Settlement Agreement


O n August 5, 2009, the
parties to the Merger Action and the Derivative Action described in Note 15 in
the Notes to Unaudited Condensed Consolidated Financial Statements entered into
a Stipulation and Agreement of Compromise, Settlement and Release (the
“Settlement Agreement”) contemplated by the Memorandum of
Understanding.  Pursuant to the Settlement Agreement, the board of
directors of our General Partner will recommend to our unitholders that they
approve the adoption of the merger agreement governing our proposed merger with
a subsidiary of Enterprise Products Partners and take all necessary steps to
seek unitholder approval for the merger as soon as
practicable.  Pursuant to the Settlement Agreement, approval of the
merger will require, in addition to votes required under our partnership
agreement, that the actual votes cast in favor of the proposal by holders of our
outstanding Units, excluding
 75
  those
held by defendants to the Derivative Action, exceed the actual votes cast
against the proposal by those holders.  The Settlement Agreement
further provides that the Derivative Action was considered by the Special
Committee to be a significant benefit of ours for which fair value was
obtained in the merger
consideration.


The Settlement Agreement is subject to
customary conditions, including Court of Chanery of the State of Delaware (the
“Delaware Court”) approval.  There can be no assurance that the
Delaware Court will approve the settlement in the Settlement
Agreement.  In such event, the proposed settlement as contemplated by
the Settlement Agreement may be terminated.  See Note 13 in the Notes
to Unaudited Condensed Consolidated Financial Statements for additional
information regarding our relationship with Enterprise Products Partners,
including information related to the proposed merger.  See Note 15 in
the Notes to Unaudited Condensed Consolidated Financial Statements for
additional information related to the Merger Action and the Derivative Action,
including the Settlement Agreement.
  The foregoing description of the
Settlement Agreement is qualified in its entirety by reference to the full and
complete terms of the Settlement Agreement, which is filed with this Quarterly
Report as Exhibit 10.3.
 T ermination
of Transitional Operating Agreement; Entry into Consulting
Agreement
 Effective August 1, 2009, personnel
providing services to us under the transitional operating agreement with Cenac
Towing Co., L.L.C., Cenac Offshore, L.L.C. and Mr. Arlen B. Cenac, Jr. became
employees of EPCO, and the transitional operating agreement was
terminated.  Concurrently with the termination, TEPPCO Marine Services
entered into a two-year consulting agreement with Mr. Cenac and Cenac Marine
Services, L.L.C. under which Mr. Cenac has agreed to supervise TEPPCO Marine
Services’ day-to-day operations on a part-time basis and, at TEPPCO Marine
Services’ request, provide related management and transitional
services.  The agreement entitles Mr. Cenac to $500,000 per year in
fees, plus a one-time retainer of $200,000.  The consulting agreement
contains noncompetition and nonsolitation provisions similar to those contained
in the transitional operating agreement, which apply until the expiration of the
two-year period following the date of last service provided under the consulting
agreement.
 
 The foregoing description of the
consulting agreement is qualified in its entirety by reference to the full and
complete terms of such agreement, which is filed with this Quarterly Report as
Exhibit 10.6.
  Borrowing
under Revolving Credit Facility
 On August 4, 2009, we submitted a
request for borrowings under our Revolving Credit Facility expected to be
received on August 7, 2009 in an aggregate amount of $95.9
million.  Such borrowings will be used to pay the $91.6 million
aggregate amount of our previously disclosed cash distribution on our
outstanding Units with respect to the quarter ended June 30, 2009 and for
general partnership purposes.  Immediately following the payment of
such distribution, we expect to have approximately $820 million principal amount
outstanding under our Revolving Credit Facility.
  For a description of the terms and
conditions of our Revolving Credit Facility, as amended to date, please see Note
12 in the Notes to Consolidated Financial Statements included in our Annual
Report on Form 10-K for the year ended December 31, 2008 (our “2008 10-K”),
which description is incorporated herein by reference. The Revolving Credit
Facility and the amendments and supplements thereto to date, are filed as
Exhibits 10.42 through 10.49 to our 2008 10-K.  For further discussion
of our quarterly distribution payments, see Note 11 in the Notes to Unaudited
Condensed Consolidated Financial Statements included in this Quarterly
Report.


76





Item
6.  Exhibits.





Exhibit
      Number
                Exhibit2.1
                Agreement
      and Plan of Merger, dated as of June 28, 2009, by and among Enterprise
      Products Partners L.P., Enterprise Products GP, LLC, Enterprise Sub B LLC,
      TEPPCO Partners, L.P. and Texas Eastern Products Pipeline Company, LLC
      (Filed as Exhibit 2.1 to the Current Report on Form 8-K of TEPPCO
      Partners, L.P. (Commission File No. 1-10403) filed on June 29, 2009 and
      incorporated herein by reference).2.2
                Agreement
      and Plan of Merger, dated as of June 28, 2009 by and among Enterprise
      Products Partners L.P., Enterprise Products GP, LLC, Enterprise Sub A LLC,
      TEPPCO Partners, L.P. and Texas Eastern Products Pipeline Company, LLC
      (Filed as Exhibit 2.2 to the Current Report on Form 8-K of TEPPCO
      Partners, L.P. (Commission File No. 1-10403) filed on June 29, 2009 and
      incorporated herein by reference).3.1
                Certificate
      of Limited Partnership of TEPPCO Partners, L.P. (Filed as Exhibit 3.2 to
      the Registration Statement of TEPPCO Partners, L.P. (Commission File No.
      33-32203) and incorporated herein by reference).3.2
                Fourth
      Amended and Restated Agreement of Limited Partnership of TEPPCO Partners,
      L.P., dated December 8, 2006 (Filed as Exhibit 3 to the Current Report on
      Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) filed on
      December 13, 2006 and incorporated herein by
reference).3.3
                First
      Amendment to Fourth Amended and Restated Partnership Agreement of TEPPCO
      Partners, L.P. dated as of December 27, 2007 (Filed as Exhibit 3.1 to
      Current Report on Form 8-K of TEPPCO Partners, L.P. (Commission File No.
      1-10403) filed December 28, 2007 and incorporated herein by
      reference).3.4
                Amendment
      No. 2 to the Fourth Amended and Restated Agreement of Limited Partnership
      of TEPPCO Partners, L.P., dated as of November 6, 2008 (Filed as Exhibit
      3.5 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
      for the quarter ended September 30, 2008 and incorporated herein by
      reference).3.5
                Amended
      and Restated Limited Liability Company Agreement of Texas Eastern Products
      Pipeline Company, LLC (Filed as Exhibit 3 to the Current Report on Form
      8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) filed on May
      10, 2007 and incorporated herein by reference).3.6
                First
      Amendment to the Amended and Restated Limited Liability Company Agreement
      of Texas Eastern Products Pipeline Company, LLC, dated as of November 6,
      2008 (Filed as Exhibit 3.6 to Form 10-Q of TEPPCO Partners, L.P.
      (Commission File No. 1-10403) for the quarter ended September 30, 2008 and
      incorporated herein by reference).4.1
                Form
      of Certificate representing Limited Partner Units (Filed as Exhibit 4.4 to
      the Form S-3 of TEPPCO Partners, L.P. filed on September 3, 2008
      (Commission File No. 1-10403) and incorporated herein by
      reference).4.2
                Indenture
      between TEPPCO Partners, L.P., as issuer, TE Products Pipeline Company,
      Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and
      Jonah Gas Gathering Company,
      as subsidiary guarantors, and First Union National Bank, NA, as trustee,
      dated as of February 20, 2002 (Filed as Exhibit 99.2 to Form 8-K of TEPPCO
      Partners, L.P. (Commission File No. 1-10403) dated as of February 20, 2002
      and incorporated herein by reference).4.3
                First
      Supplemental Indenture between TEPPCO Partners, L.P., as issuer, TE
      Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO
      Midstream Companies, L.P. and Jonah Gas Gathering Company, as subsidiary
      guarantors, and First Union National Bank, NA, as trustee, dated as of
      February 20, 2002 (Filed as Exhibit 99.3 to Form 8-K of TEPPCO Partners,
      L.P. (Commission File No. 1-10403) dated as of February 20, 2002 and
      incorporated herein by reference).4.4
                Second
      Supplemental Indenture, dated as of June 27, 2002, among TEPPCO Partners,
      L.P., as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
      L.P., TEPPCO Midstream Companies, L.P., and Jonah Gas Gathering Company,
      as Initial Subsidiary Guarantors, and Val Verde Gas Gathering Company,
      L.P., as New Subsidiary Guarantor, and Wachovia Bank, National
      Association, formerly known as First Union National Bank, as trustee
      (Filed as Exhibit
  77
 
  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).4.6
                                  Full
      Release of Guarantee dated as of July 31, 2006 by Wachovia Bank, National
      Association, as trustee, in favor of Jonah Gas Gathering Company (Filed as
      Exhibit 4.8 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
      1-10403) for the quarter ended September 30, 2006 and incorporated herein
      by reference).4.7
                                  Indenture,
      dated as of May 14, 2007, by and among TEPPCO Partners, L.P., as
      issuer, TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
      TEPPCO Midstream Companies, L.P. and Val Verde Gas Gathering Company,
      L.P., as subsidiary guarantors, and The Bank of New York Trust Company,
      N.A., as trustee (Filed as Exhibit 99.1 to the Current Report on Form 8-K
      of TEPPCO Partners, L.P. (Commission File No. 1-10403) filed on May 15,
      2007 and incorporated herein by reference).4.8
                                  First
      Supplemental Indenture, dated as of May 18, 2007, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, Limited
      Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and Val Verde
      Gas Gathering Company, L.P., as subsidiary guarantors, and The Bank of New
      York Trust Company, N.A., as trustee (Filed as Exhibit 4.2 to the Current
      Report on Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
      filed on May 18, 2007 and incorporated herein by
      reference).4.9
                                  Second
      Supplemental Indenture, dated as of June 30, 2007, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, Limited
      Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. , Val Verde Gas
      Gathering Company, L.P., TE Products Pipeline Company, LLC and TEPPCO
      Midstream Companies, LLC, as subsidiary guarantors, and The Bank of New
      York Trust Company, N.A., as trustee (Filed as Exhibit 4.2 to the Current
      Report on Form 8-K of TE Products Pipeline Company, LLC (Commission File
      No. 1-13603) filed on July 6, 2007 and incorporated herein by
      reference).4.10
                                  Fourth
      Supplemental Indenture, dated as of June 30, 2007, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, Limited
      Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P., Val Verde Gas
      Gathering Company, L.P., TE Products Pipeline Company, LLC and TEPPCO
      Midstream Companies, LLC, as subsidiary guarantors, and U.S. Bank National
      Association, as trustee (Filed as Exhibit 4.3 to the Current Report on
      Form 8-K of TE Products Pipeline Company, LLC (Commission File No.
      1-13603) filed on July 6, 2007 and incorporated herein by
      reference).4.11
                                  Fifth
      Supplemental Indenture, dated as of March 27, 2008, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, LLC, TCTM, L.P.,
      TEPPCO Midstream Companies, LLC, and Val Verde Gathering Company, L.P., as
      subsidiary guarantors, and U.S. Bank National Association, as trustee
      (Filed as Exhibit 4.11 to Form 10-Q of TEPPCO Partners, L.P. (Commission
      File No. 1-10403) for the quarter ended March 31, 2008 and incorporated
      herein by reference).4.12
                                  Sixth
      Supplemental Indenture, dated as of March 27, 2008, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, LLC, TCTM, L.P.,
      TEPPCO Midstream Companies, LLC and Val Verde Gas Gathering Company, L.P.,
      as subsidiary guarantors, and U.S. Bank National Association, as trustee
      (Filed as Exhibit 4.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission
      File No. 1-10403) for the quarter ended March 31, 2008 and incorporated
      herein by reference).4.13
                                  Seventh
      Supplemental Indenture, dated as of March 27, 2008, by and among TEPPCO
      Partners, L.P., as issuer, TE Products Pipeline Company, LLC, TCTM, L.P.,
      TEPPCO Midstream Companies, LLC and Val Verde Gas Gathering Company, L.P.,
      as subsidiary guarantors, and U.S. Bank National Association, as trustee
      (Filed as Exhibit 4.13 to Form 10-Q of TEPPCO Partners, L.P. (Commission
      File No. 1-10403) for the quarter ended March 31, 2008 and incorporated
      herein by reference).
 78
 4.14
                Replacement
      of Capital Covenant, dated May 18, 2007, executed by TEPPCO Partners,
      L.P., TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
      TEPPCO Midstream Companies, L.P. and Val Verde Gas Gathering Company, L.P.
      in favor of the covered debt holders described therein (Filed as Exhibit
      99.1 to the Current Report on Form 8-K of TEPPCO Partners, L.P.
      (Commission File No. 1-10403) filed on May 18, 2007 and incorporated
      herein by reference).10.1*
                Second
      Amendment to Transitional Operating Agreement between Cenac Towing Co.,
      L.L.C., Cenac Offshore, L.L.C., CTCO Benefits Services, L.L.C., Mr. Arlen
      B. Cenac, Jr., and TEPPCO Marine Services, LLC, effective as of June 5,
      2009.10.2
                Memorandum
      of Understanding, dated June 28, 2009 (Filed as Exhibit 10.1 to the
      Current Report on Form 8-K of TEPPCO Partners, L.P. (Commission File No.
      1-10403) filed on June 29, 2009 and incorporated herein by
      reference).10.3*
                Stipulation
      and Agreement of Compromise, Settlement and Release, dated August 5,
      2009.10.4*
                Loan
      Agreement, dated August 5, 2009, by and between Enterprise Products
      Operating, LLC, as Lender, and TEPPCO Partners, L.P., as
      Borrower.10.5*
                Termination
      of Transitional Operating Agreement between Cenac Towing Co., L.L.C.,
      Cenac Offshore, L.L.C., CTCO Benefits Services, L.L.C., Mr. Arlen B.
      Cenac, Jr., and TEPPCO Marine Services, LLC, effective as of July 31,
      2009.10.6*
                Consulting
      Agreement Between TEPPCO Marine Services, LLC and Cenac Marine Services,
      L.L.C., effective as of August 1, 2009.12.1*
                Statement
      of Computation of Ratio of Earnings to Fixed Charges.31.1*
                Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Act of 1934, as
      amended.31.2*
                Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a),
      promulgated under the Securities Exchange Act of 1934, as
      amended.32.1**
                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.32.2**
                Certification
      Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.




*  Filed
herewith.


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


+ A management contract
or compensation plan or arrangement.




SIGNATURES





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







TEPPCO
      Partners, L.P.






Date:  August
      6, 2009
            By:  /s/   JERRY
      E.  THOMPSON
              Jerry E. Thompson,
              President and Chief Executive Officer of
              Texas
      Eastern Products Pipeline Company, LLC, General PartnerDate:  August
      6, 2009
            By:  /s/   TRACY
      E. OHMART
              Tracy
      E. Ohmart,
              Acting
      Chief Financial Officer, Controller, Assistant Secretary
              and
      Assistant Treasurer of
              Texas
      Eastern Products Pipeline Company, LLC, General
  Partner








79