##### Table of Contents



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 March 31, 2007
 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 No. 1-10403
 TEPPCO Partners, L.P.
 (Exact name of Registrant as specified in its charter)
 Delaware
(State of Other Jurisdiction of 
Incorporation or Organization)
    
    76-0291058
(I.R.S. Employer Identification Number)
 1100 Louisiana Street, Suite 1600
Houston, Texas 77002
(Address of principal executive offices, including zip code)
 (713) 381-3636
(Registrants telephone number, including area code)
  þ o
  þ o o
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TEPPCO PARTNERS, L.P.
 TABLE OF CONTENTS
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2007 and December 31, 2006 (unaudited)
    
    
    1Statements of Consolidated Income and Comprehensive Income For the Three Months Ended
March 31, 2007 and 2006 (unaudited)
    
    
    2Statements of Consolidated Cash Flows For the Three Months Ended March 31, 2007
and 2006 (unaudited)
    
    
    4Statement of Consolidated Partners Capital For the Three Months Ended March 31, 2007
(unaudited)
    
    
    5Notes to the Consolidated Financial Statements (unaudited)
    
    
    6Note 1. Organization and Basis of Presentation
    
    
    6Note 2. Recent Accounting Developments
    
    
    8Note 3. Employee Benefit Plans
    
    
    9Note 4. Financial Instruments  Interest Rate Swaps
    
    
    10Note 5. Inventories
    
    
    11Note 6. Investments in Unconsolidated Affiliates
    
    
    11Note 7. Dispositions and Discontinued Operations
    
    
    14Note 8. Goodwill and Other Intangible Assets
    
    
    16Note 9. Debt Obligations
    
    
    18Note 10. Partners Capital and Distributions
    
    
    20Note 11. Business Segments
    
    
    22Note 12. Related Party Transactions
    
    
    25Note 13. Earnings per Unit
    
    
    27Note 14. Commitments and Contingencies
    
    
    28Note 15. Supplemental Cash Flow Information
    
    
    34Note 16. Supplemental Condensed Consolidating Financial Information
    
    
    34Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    39Cautionary Note Regarding Forward-Looking Statements
    
    
    39Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    57Item 4. Controls and Procedures
    
    
    59PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    60Item 1A. Risk Factors
    
    
    60Item 6. Exhibits
    
    
    60Signatures
    
    
    63Form of Option GrantForm of TPP Unit Appreciation Right GrantForm of Restricted Unit GrantForm of Phantom Unit GrantStatement of Computation of Ratio of Earnings to Fixed ChargesCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TEPPCO PARTNERS, L.P.
 
 CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 March 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    71
    
    
    $
    70Accounts receivable, trade (net of allowance for doubtful accounts of
$103 and $100)
    
    
    776,570
    
    
    
    852,816Accounts receivable, related parties
    
    
    11,046
    
    
    
    11,788Inventories
    
    
    63,834
    
    
    
    72,193Other
    
    
    29,065
    
    
    
    29,843Total current assets
    
    
    880,586
    
    
    
    966,710Property, plant and equipment, at cost(net of accumulated
depreciation and amortization of $526,533 and $509,889)
    
    
    1,650,547
    
    
    
    1,642,095Equity investments
    
    
    997,559
    
    
    
    1,039,710Intangible assets
    
    
    179,499
    
    
    
    185,410Goodwill
    
    
    15,506
    
    
    
    15,506Other assets
    
    
    73,253
    
    
    
    72,661Total assets
    
    $
    3,796,950
    
    
    $
    3,922,092LIABILITIES AND PARTNERS CAPITALCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    780,131
    
    
    $
    855,306Accounts payable, related parties
    
    
    45,451
    
    
    
    34,461Accrued interest
    
    
    15,667
    
    
    
    35,523Other accrued taxes
    
    
    13,649
    
    
    
    14,482Other
    
    
    23,735
    
    
    
    36,776Total current liabilities
    
    
    878,633
    
    
    
    976,548Senior notes
    
    
    1,112,802
    
    
    
    1,113,287Other long-term debt
    
    
    399,500
    
    
    
    490,000Deferred tax liability
    
    
    10
    
    
    
    652Other liabilities and deferred credits
    
    
    19,330
    
    
    
    19,461Other liabilities, related party
    
    
    
    
    
    
    1,814Commitments and contingenciesPartners capital:Accumulated other comprehensive income
    
    
    969
    
    
    
    426General partners interest
    
    
    (74,759
    )
    
    
    (85,655
    )Limited partners interests
    
    
    1,460,465
    
    
    
    1,405,559Total partners capital
    
    
    1,386,675
    
    
    
    1,320,330Total liabilities and partners capital
    
    $
    3,796,950
    
    
    $
    3,922,092
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TEPPCO PARTNERS, L.P.
 
 STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands)
 For the Three Months EndedMarch 31,2007
    
    
    2006Operating revenues:Sales of petroleum products
    
    $
    1,850,128
    
    
    $
    2,396,346Transportation  Refined products
    
    
    37,135
    
    
    
    31,799Transportation  LPGs
    
    
    36,053
    
    
    
    29,421Transportation  Crude oil
    
    
    10,790
    
    
    
    8,923Transportation  NGLs
    
    
    10,941
    
    
    
    10,653Gathering  Natural gas
    
    
    15,408
    
    
    
    41,375Other
    
    
    17,974
    
    
    
    17,852Total operating revenues
    
    
    1,978,429
    
    
    
    2,536,369Costs and expenses:Purchases of petroleum products
    
    
    1,813,994
    
    
    
    2,371,040Operating expense
    
    
    45,166
    
    
    
    46,503Operating fuel and power
    
    
    15,274
    
    
    
    14,297General and administrative
    
    
    8,598
    
    
    
    9,201Depreciation and amortization
    
    
    25,369
    
    
    
    28,757Taxes  other than income taxes
    
    
    5,243
    
    
    
    5,311Gains on sales of assets
    
    
    (18,649
    )
    
    
    (1,378
    )Total costs and expenses
    
    
    1,894,995
    
    
    
    2,473,731Operating income
    
    
    83,434
    
    
    
    62,638Other income (expense):Interest expense  net
    
    
    (22,211
    )
    
    
    (21,143
    )Gain on sale of ownership interest in Mont Belvieu
Storage Partners, L.P.
    
    
    59,837
    
    
    
    Equity earnings
    
    
    16,563
    
    
    
    989Interest income
    
    
    342
    
    
    
    472Other income  net
    
    
    244
    
    
    
    427Income before provision for income taxes
    
    
    138,209
    
    
    
    43,383Provision for income taxes
    
    
    18
    
    
    
    Income from continuing operations
    
    
    138,191
    
    
    
    43,383Income from discontinued operations
    
    
    
    
    
    
    1,607Gain on sale of discontinued operations
    
    
    
    
    
    
    17,884Discontinued operations
    
    
    
    
    
    
    19,491Net income
    
    $
    138,191
    
    
    $
    62,874Changes in fair values of interest rate cash flow hedges
    
    
    217
    
    
    
    1,671Changes in fair values of crude oil cash flow hedges
    
    
    360
    
    
    
    236Pension benefit SFAS No. 158 adjustment
    
    
    (34
    )
    
    
    Comprehensive income
    
    $
    138,734
    
    
    $
    64,781
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TEPPCO PARTNERS, L.P.
 STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME  (Continued)
(Unaudited)
(Dollars in thousands, except per Unit amounts)
 For the Three Months EndedMarch 31,2007
    
    
    2006Net Income Allocation:Limited Partner Unitholders:Income from continuing operations
    
    $
    115,524
    
    
    $
    30,628Income from discontinued operations
    
    
    
    
    
    
    13,760Total Limited Partner Unitholders net income allocation
    
    
    115,524
    
    
    
    44,388General Partner:Income from continuing operations
    
    
    22,667
    
    
    
    12,755Income from discontinued operations
    
    
    
    
    
    
    5,731Total General Partner net income allocation
    
    
    22,667
    
    
    
    18,486Total net income allocated
    
    $
    138,191
    
    
    $
    62,874Basic and diluted net income per Limited Partner Unit:Continuing operations
    
    $
    1.29
    
    
    $
    0.43Discontinued operations
    
    
    
    
    
    
    0.20Basic and diluted net income per Limited Partner Unit
    
    $
    1.29
    
    
    $
    0.63Weighted average Limited Partner Units outstanding
    
    
    89,805
    
    
    
    69,964
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TEPPCO PARTNERS, L.P.
 
 STATEMENTS OF CONSOLIDATED CASH FLOWS
(Unaudited)
(Dollars in thousands)
 For the Three Months EndedMarch 31,2007
    
    
    2006Operating activities:Net income
    
    $
    138,191
    
    
    $
    62,874Adjustments to reconcile net income to cash provided by
continuing operating activities:Income from discontinued operations
    
    
    
    
    
    
    (19,491
    )Deferred income taxes
    
    
    (642
    )
    
    
    Depreciation and amortization
    
    
    25,369
    
    
    
    28,757Earnings in equity investments
    
    
    (16,563
    )
    
    
    (989
    )Distributions from equity investments
    
    
    40,304
    
    
    
    16,297Gains on sales of assets
    
    
    (18,649
    )
    
    
    (1,378
    )Gain on sale of ownership interest in Mont Belvieu Storage
Partners, L.P.
    
    
    (59,837
    )
    
    
    Non-cash portion of interest expense
    
    
    294
    
    
    
    443Net effect of changes in operating accounts
    
    
    (39,736
    )
    
    
    (49,420
    )Net cash provided by continuing operating activities
    
    
    68,731
    
    
    
    37,093Net cash provided by discontinued operations
    
    
    
    
    
    
    1,631Net cash provided by operating activities
    
    
    68,731
    
    
    
    38,724Investing activities:Proceeds from sales of assets and ownership interest
    
    
    165,266
    
    
    
    39,030Investment in Mont Belvieu Storage Partners, L.P.
    
    
    
    
    
    
    (1,720
    )Investment in Centennial Pipeline LLC
    
    
    (6,081
    )
    
    
    Investment in Jonah Gas Gathering Company
    
    
    (30,942
    )
    
    
    Capital expenditures
    
    
    (34,084
    )
    
    
    (38,272
    )Net cash provided by (used in) investing activities
    
    
    94,159
    
    
    
    (962
    )Financing activities:Proceeds from revolving credit facility
    
    
    235,000
    
    
    
    187,700Repayments on revolving credit facility
    
    
    (325,500
    )
    
    
    (158,600
    )Distributions paid
    
    
    (72,389
    )
    
    
    (66,892
    )Net cash used in financing activities
    
    
    (162,889
    )
    
    
    (37,792
    )Net change in cash and cash equivalents
    
    
    1
    
    
    
    (30
    )Cash and cash equivalents, January 1
    
    
    70
    
    
    
    119Cash and cash equivalents, March 31
    
    $
    71
    
    
    $
    89
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TEPPCO PARTNERS, L.P.
 
 STATEMENT OF CONSOLIDATED PARTNERS CAPITAL
(Unaudited)
(Dollars in thousands, except Unit amounts)
 Outstanding
    
    
    
    
    
    
    
    
    
    
    AccumulatedLimited
    
    
    General
    
    
    Limited
    
    
    OtherPartner
    
    
    Partners
    
    
    Partners
    
    
    ComprehensiveUnits
    
    
    Interest
    
    
    Interests
    
    
    Income
    
    
    TotalBalance, December 31, 2006
    
    
    89,804,829
    
    
    $
    (85,655
    )
    
    $
    1,405,559
    
    
    $
    426
    
    
    $
    1,320,330Net income allocation
    
    
    
    
    
    
    22,667
    
    
    
    115,524
    
    
    
    
    
    
    
    138,191Cash distributions
    
    
    
    
    
    
    (11,771
    )
    
    
    (60,618
    )
    
    
    
    
    
    
    (72,389
    )Changes in fair values of crude oil cash
flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    360
    
    
    
    360Changes in fair values of interest rate
cash flow hedges
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    217
    
    
    
    217Pension benefit SFAS No. 158
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Balance, March 31, 2007
    
    
    89,804,829
    
    
    $
    (74,759
    )
    
    $
    1,460,465
    
    
    $
    969
    
    
    $
    1,386,675
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TEPPCO PARTNERS, L.P.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION
     Business Segments
  6




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Dollar Amounts
  Income Taxes
  Net Income Per Unit
    Revenue Recognition
   7




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   Accounting for
Purchases and Sales of Inventory with the Same Counterparty
  
 NOTE 2. RECENT ACCOUNTING DEVELOPMENTS
 How Taxes Collected from Customers and
Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross
versus Net Presentation)
 8




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities  Including an amendment of FASB Statement No. 115
 
 NOTE 3. EMPLOYEE BENEFIT PLANS
   9




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits
  
 NOTE 4. FINANCIAL INSTRUMENTS  INTEREST RATE SWAPS
    10




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  .
 
 NOTE 5. INVENTORIES
  March 31,
    
    
    December 31,2007
    
    
    2006Crude oil (1)
    
    $
    42,098
    
    
    $
    49,312Refined products and LPGs (2)
    
    
    7,226
    
    
    
    7,636Lubrication oils and specialty chemicals
    
    
    7,545
    
    
    
    7,500Materials and supplies
    
    
    6,965
    
    
    
    7,029Other
    
    
    
    
    
    
    716Total
    
    $
    63,834
    
    
    $
    72,193
 
 (1)
    
    At March 31, 2007 and December 31, 2006, the substantial majority of our crude oil
inventory was subject to forward sales contracts.(2)
    
    Refined products and LPGs inventory is managed on a combined basis. 
 NOTE 6. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
 Seaway
  11




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Centennial
  MB Storage
   12




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Summarized Financial Information for Seaway, Centennial and MB Storage
  For the Three Months EndedMarch 31,2007
    
    2006Revenues
    
    $
    34,585
    
    
    $
    38,635Net income
    
    
    9,287
    
    
    
    7,041
  March 31,
    
    December 31,2007
    
    2006Current assets
    
    $
    34,219
    
    
    $
    58,241Noncurrent assets
    
    
    510,482
    
    
    
    615,790Current liabilities
    
    
    29,552
    
    
    
    37,663Long-term debt
    
    
    137,500
    
    
    
    150,000Noncurrent liabilities
    
    
    6,742
    
    
    
    6,055Partners capital
    
    
    370,907
    
    
    
    480,313
 Jonah
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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   Revenues
    
    $
    56,524Net income
    
    
    20,169
  March 31,
    
    December 31,2007
    
    2006Current assets
    
    $
    49,362
    
    
    $
    33,963Noncurrent assets
    
    
    868,992
    
    
    
    800,591Current liabilities
    
    
    31,467
    
    
    
    25,113Noncurrent liabilities
    
    
    195
    
    
    
    191Partners capital
    
    
    886,692
    
    
    
    809,250
 
 NOTE 7. DISPOSITIONS AND DISCONTINUED OPERATIONS
 MB Storage
   14




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Other Refined Products Assets
  Pioneer Plant
   For the Three MonthsEnded March 31,2006Operating revenues:Sales of petroleum products
    
    $
    3,810Other
    
    
    921Total operating revenues
    
    
    4,731Costs and expenses:Purchases of petroleum products
    
    
    2,861Operating expense
    
    
    182Depreciation and amortization
    
    
    51Taxes  other than income taxes
    
    
    30Total costs and expenses
    
    
    3,124Income from discontinued operations
    
    $
    1,607
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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  For the Three MonthsEnded March 31,2006Cash flows from discontinued operations:Net income
    
    $
    19,491Depreciation and amortization
    
    
    51Gain on sale of Pioneer plant
    
    
    (17,884
    )Increase in inventories
    
    
    (27
    )Net cash provided by discontinued operations
    
    $
    1,631
 
 NOTE 8. GOODWILL AND OTHER INTANGIBLE ASSETS
 Goodwill
 Goodwill and Other Intangible Assets,
   Downstream
    
    Midstream
    
    Upstream
    
    SegmentsSegment
    
    Segment
    
    Segment
    
    TotalGoodwill
    
    $
    1,339
    
    
    $
    
    
    
    $
    14,167
    
    
    $
    15,506
 16




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Other Intangible Assets
  March 31, 2007
    
    
    December 31, 2006Gross Carrying
    
    
    Accumulated
    
    
    Gross Carrying
    
    
    AccumulatedAmount
    
    
    Amortization
    
    
    Amount
    
    
    AmortizationIntangible assets:Gathering and transportation agreements
    
    $
    241,537
    
    
    $
    (92,279
    )
    
    $
    241,537
    
    
    $
    (87,121
    )Fractionation agreement
    
    
    38,000
    
    
    
    (17,100
    )
    
    
    38,000
    
    
    
    (16,625
    )Other
    
    
    12,310
    
    
    
    (2,969
    )
    
    
    12,310
    
    
    
    (2,691
    )Subtotal
    
    
    291,847
    
    
    
    (112,348
    )
    
    
    291,847
    
    
    
    (106,437
    )Excess investments:Centennial Pipeline LLC
    
    
    33,390
    
    
    
    (17,196
    )
    
    
    33,390
    
    
    
    (16,579
    )Seaway Crude Pipeline Company
    
    
    26,908
    
    
    
    (4,621
    )
    
    
    26,908
    
    
    
    (4,450
    )Jonah Gas Gathering Company
    
    
    3,949
    
    
    
    (19
    )
    
    
    2,924
    
    
    
    Subtotal
    
    
    64,247
    
    
    
    (21,836
    )
    
    
    63,222
    
    
    
    (21,029
    )Total intangible assets
    
    $
    356,094
    
    
    $
    (134,184
    )
    
    $
    355,069
    
    
    $
    (127,466
    )
     17




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   Intangible Assets
    
    Excess Investments2007
    
    $
    23,135
    
    
    $
    4,4982008
    
    
    20,664
    
    
    
    4,6212009
    
    
    18,053
    
    
    
    4,8272010
    
    
    18,034
    
    
    
    3,6212011
    
    
    18,026
    
    
    
    919
 
 NOTE 9. DEBT OBLIGATIONS
  March 31,
    
    
    December 31,2007
    
    
    2006Revolving Credit Facility, due December 2011
    
    $
    399,500
    
    
    $
    490,0006.45% TE Products Senior Notes, due January 2008 (1)
    
    
    179,976
    
    
    
    179,9687.625% Senior Notes, due February 2012
    
    
    498,921
    
    
    
    498,8666.125% Senior Notes, due February 2013
    
    
    199,166
    
    
    
    199,1307.51% TE Products Senior Notes, due January 2028
    
    
    210,000
    
    
    
    210,000Total borrowings
    
    
    1,487,563
    
    
    
    1,577,964Adjustment to carrying value associated with hedges
of
fair value swaps
    
    
    24,739
    
    
    
    25,323Total Debt Instruments (1)
    
    $
    1,512,302
    
    
    $
    1,603,287
 
 (1)
    
    In accordance with SFAS No. 6, Classification of Short-Term Obligations Expected to be
Refinanced, long-term debt reflects the classification of short-term obligations at March 31,
2007 as long-term. With respect to the 6.45% TE Products Senior Notes due in January 2008,
we have the ability to use available credit capacity under our Revolving Credit Facility to
fund the repayment of these Senior Notes. Revolving Credit Facility
  18




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Senior Notes
  Redemption
    
    
    
    
    
    RedemptionYear
    
    Price
    
    Year
    
    Price2008
    
    
    103.755
    %
    
    
    2013
    
    
    
    101.878
    %2009
    
    
    103.380
    %
    
    
    2014
    
    
    
    101.502
    %2010
    
    
    103.004
    %
    
    
    2015
    
    
    
    101.127
    %2011
    
    
    102.629
    %
    
    
    2016
    
    
    
    100.751
    %2012
    
    
    102.253
    %
    
    
    2017
    
    
    
    100.376
    %
    19




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
    Fair ValueMarch 31,
    
    December 31,Face Value
    
    2007
    
    20066.45% TE Products Senior Notes, due January 2008
    
    $
    180,000
    
    
    $
    181,080
    
    
    $
    181,6417.625% Senior Notes, due February 2012
    
    
    500,000
    
    
    
    541,589
    
    
    
    537,0676.125% Senior Notes, due February 2013
    
    
    200,000
    
    
    
    203,100
    
    
    
    201,6107.51% TE Products Senior Notes, due January 2028
    
    
    210,000
    
    
    
    219,450
    
    
    
    221,471
  Letter of Credit
  
 NOTE 10. PARTNERS CAPITAL AND DISTRIBUTIONS
 Quarterly Distributions of Available Cash
  GeneralUnitholders
    
    PartnerQuarterly Cash Distribution per Unit:Up to Minimum Quarterly Distribution ($0.275 per Unit)
    
    
    98
    %
    
    
    2
    %First Target  $0.276 per Unit up to $0.325 per Unit
    
    
    85
    %
    
    
    15
    %Over First Target  Cash distributions greater than $0.325 per Unit
    
    
    75
    %
    
    
    25
    %
 20




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  For the Three Months EndedMarch 31,2007
    
    
    2006Limited Partner Units (1)
    
    $
    60,618
    
    
    $
    47,224General Partner Ownership Interest
    
    
    1,237
    
    
    
    964General Partner Incentive
    
    
    10,534
    
    
    
    18,704Total Cash Distributions Paid
    
    $
    72,389
    
    
    $
    66,892Total Cash Distributions Paid Per Unit
    
    $
    0.675
    
    
    $
    0.675
 
 (1)
    
    The 2007 amount includes $9.5 million of distributions paid to affiliates of our
General Partner in respect of the 14.1 million Units we issued in December 2006.  General Partners Interest
     21




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  Accumulated Other Comprehensive Income
 Reporting Comprehensive Income
  Balance at December 31, 2006
    
    $
    426Changes in fair values of interest rate cash flow hedges
    
    
    217Changes in fair values of crude oil cash flow hedges
    
    
    360Pension benefit SFAS No. 158 adjustment
    
    
    (34
    )Balance at March 31, 2007
    
    $
    969
 
 NOTE 11. BUSINESS SEGMENTS
  
    
    Our Downstream Segment, which is engaged in the transportation, marketing and
storage of refined products, LPGs and petrochemicals;
    
    Our Upstream Segment, which is engaged in the gathering, transportation, marketing
and storage of crude oil and distribution of lubrication oils and specialty chemicals;
and
    
    Our Midstream Segment, which is engaged in the gathering of natural gas,
fractionation of NGLs and transportation of NGLs.
   22




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
    23




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  For the Three Months Ended March 31, 2007Downstream
    
    
    Upstream
    
    
    Midstream
    
    
    Segments
    
    
    PartnershipSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    and Other
    
    
    ConsolidatedSales of petroleum products
    
    $
    9,376
    
    
    $
    1,841,031
    
    
    $
    
    
    
    $
    1,850,407
    
    
    $
    (279
    )
    
    $
    1,850,128Operating revenues
    
    
    85,542
    
    
    
    13,386
    
    
    
    29,373
    
    
    
    128,301
    
    
    
    
    
    
    
    128,301Purchases of petroleum products
    
    
    9,394
    
    
    
    1,807,166
    
    
    
    
    
    
    
    1,816,560
    
    
    
    (2,566
    )
    
    
    1,813,994Operating expenses, including
power and taxes  other than
income taxes
    
    
    35,023
    
    
    
    19,038
    
    
    
    11,703
    
    
    
    65,764
    
    
    
    (81
    )
    
    
    65,683General and administrative
expenses
    
    
    4,075
    
    
    
    1,828
    
    
    
    2,695
    
    
    
    8,598
    
    
    
    
    
    
    
    8,598Depreciation and amortization
expense
    
    
    11,136
    
    
    
    4,068
    
    
    
    10,165
    
    
    
    25,369
    
    
    
    
    
    
    
    25,369Gains on sales of assets
    
    
    (18,651
    )
    
    
    2
    
    
    
    
    
    
    
    (18,649
    )
    
    
    
    
    
    
    (18,649
    )Operating income
    
    
    53,941
    
    
    
    22,315
    
    
    
    4,810
    
    
    
    81,066
    
    
    
    2,368
    
    
    
    83,434Gain on sale of ownership interest
in MB Storage
    
    
    59,837
    
    
    
    
    
    
    
    
    
    
    
    59,837
    
    
    
    
    
    
    
    59,837Equity (losses) earnings
    
    
    (1,487
    )
    
    
    1,789
    
    
    
    18,629
    
    
    
    18,931
    
    
    
    (2,368
    )
    
    
    16,563Interest income
    
    
    202
    
    
    
    29
    
    
    
    111
    
    
    
    342
    
    
    
    
    
    
    
    342Other income, net
    
    
    229
    
    
    
    14
    
    
    
    1
    
    
    
    244
    
    
    
    
    
    
    
    244Earnings before interest
expense, provision for income
taxes and discontinued
operations
    
    $
    112,722
    
    
    $
    24,147
    
    
    $
    23,551
    
    
    $
    160,420
    
    
    $
    
    
    
    $
    160,420
 For the Three Months Ended March 31, 2006Downstream
    
    
    Upstream
    
    
    Midstream
    
    
    Segments
    
    
    PartnershipSegment
    
    
    Segment
    
    
    Segment
    
    
    Total
    
    
    and Other
    
    
    ConsolidatedSales of petroleum products (1)
    
    $
    
    
    
    $
    2,400,436
    
    
    $
    
    
    
    $
    2,400,436
    
    
    $
    (4,090
    )
    
    $
    2,396,346Operating revenues
    
    
    74,067
    
    
    
    11,146
    
    
    
    56,377
    
    
    
    141,590
    
    
    
    (1,567
    )
    
    
    140,023Purchases of petroleum products (1).
    
    
    
    
    
    
    2,376,396
    
    
    
    
    
    
    
    2,376,396
    
    
    
    (5,356
    )
    
    
    2,371,040Operating expenses, including
power and taxes  other than
income taxes
    
    
    35,402
    
    
    
    16,802
    
    
    
    14,208
    
    
    
    66,412
    
    
    
    (301
    )
    
    
    66,111General and administrative
expenses
    
    
    5,094
    
    
    
    1,807
    
    
    
    2,300
    
    
    
    9,201
    
    
    
    
    
    
    
    9,201Depreciation and amortization
expense
    
    
    10,297
    
    
    
    3,271
    
    
    
    15,189
    
    
    
    28,757
    
    
    
    
    
    
    
    28,757Gains on sales of assets
    
    
    (7
    )
    
    
    
    
    
    
    (1,371
    )
    
    
    (1,378
    )
    
    
    
    
    
    
    (1,378
    )Operating income
    
    
    23,281
    
    
    
    13,306
    
    
    
    26,051
    
    
    
    62,638
    
    
    
    
    
    
    
    62,638Equity (losses) earnings
    
    
    (1,266
    )
    
    
    2,255
    
    
    
    
    
    
    
    989
    
    
    
    
    
    
    
    989Interest income
    
    
    396
    
    
    
    
    
    
    
    76
    
    
    
    472
    
    
    
    
    
    
    
    472Other income, net
    
    
    383
    
    
    
    44
    
    
    
    
    
    
    
    427
    
    
    
    
    
    
    
    427Earnings before interest
expense, provision for income
taxes and discontinued
operations
    
    $
    22,794
    
    
    $
    15,605
    
    
    $
    26,127
    
    
    $
    64,526
    
    
    $
    
    
    
    $
    64,526
 24




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 
 (1)
    
    Effective April 1, 2006, we adopted EITF 04-13, which resulted in the netting of
certain sales and purchases of petroleum products transactions. The three months ended
March 31, 2006 was not adjusted for the adoption of EITF 04-13, as retroactive restatement
was not permitted, which impacts comparability.  Downstream
    
    Upstream
    
    Midstream
    
    Segments
    
    PartnershipSegment
    
    Segment
    
    Segment
    
    Total
    
    and Other
    
    ConsolidatedMarch 31, 2007:Total assets
    
    $
    1,091,234
    
    
    $
    1,422,182
    
    
    $
    1,365,792
    
    
    $
    3,879,208
    
    
    $
    (82,258
    )
    
    $
    3,796,950Capital expenditures
    
    
    17,797
    
    
    
    13,590
    
    
    
    2,107
    
    
    
    33,494
    
    
    
    590
    
    
    
    34,084Non-cash investing activities
    
    
    
    
    
    
    
    
    
    
    14,935
    
    
    
    14,935
    
    
    
    
    
    
    
    14,935December 31, 2006:Total assets
    
    $
    1,160,929
    
    
    $
    1,504,699
    
    
    $
    1,335,502
    
    
    $
    4,001,130
    
    
    $
    (79,038
    )
    
    $
    3,922,092Capital expenditures
    
    
    75,344
    
    
    
    48,351
    
    
    
    42,929
    
    
    
    166,624
    
    
    
    3,422
    
    
    
    170,046Non-cash investing activities
    
    
    
    
    
    
    
    
    
    
    581,341
    
    
    
    581,341
    
    
    
    
    
    
    
    581,341
  For the Three Months EndedMarch 31,2007
    
    
    2006Earnings before interest expense, provision for income taxes and
discontinued operations
    
    $
    160,420
    
    
    $
    64,526Interest expense  net
    
    
    (22,211
    )
    
    
    (21,143
    )Income before provision for income taxes
    
    
    138,209
    
    
    
    43,383Provision for income taxes
    
    
    18
    
    
    
    Income from continuing operations
    
    
    138,191
    
    
    
    43,383Discontinued operations
    
    
    
    
    
    
    19,491Net income
    
    $
    138,191
    
    
    $
    62,874
 
 NOTE 12. RELATED PARTY TRANSACTIONS
 EPCO and Affiliates
  25




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  For the Three Months EndedMarch 31,2007
    
    2006Revenues from EPCO and affiliates:Sales of petroleum products (1)
    
    $
    355
    
    
    $
    22Transportation  NGLs (2)
    
    
    2,810
    
    
    
    1,712Transportation  LPGs (3)
    
    
    1,606
    
    
    
    1,723Other operating revenues (4)
    
    
    306
    
    
    
    37Costs and Expenses from EPCO and affiliates:Payroll, administrative and other (5) (6)
    
    
    31,351
    
    
    
    31,210Purchases of petroleum products (7)
    
    
    8,784
    
    
    
    5,707
 
 (1)
    
    Includes sales of Lubrication Services, L.P. (LSI) to various EPCO affiliates.(2)
    
    Includes revenues from NGL transportation on the Chaparral and Panola NGL pipelines.(3)
    
    Includes revenues from LPG transportation on the TE Products pipeline.(4)
    
    Includes other operating revenues on the TE Products pipeline.(5)
    
    Includes payroll, payroll related expenses, administrative expenses, including
reimbursements related to employee benefits and employee benefit plans, incurred in
managing us and our subsidiaries in accordance with the ASA, and other operating expenses.(6)
    
    Includes insurance expense for the three months ended March 31, 2007 and 2006, related
to premiums paid by EPCO of $5.1 million and $2.7 million, respectively. The majority of
our insurance coverage, including property, liability, business interruption, auto and
directors and officers liability insurance, was obtained through EPCO.(7)
    
    Includes TCO purchases of condensate for the three months ended March 31, 2007 and 2006
of $8.8 million and $5.7 million, respectively.  March 31,
    
    December 31,2007
    
    2006Accounts receivable, related parties (1)
    
    $
    245
    
    
    $
    272Gas imbalance receivable
    
    
    
    
    
    
    1,278Insurance reimbursement receivable
    
    
    1,426
    
    
    
    1,426Accounts payable, related parties (2)
    
    
    44,911
    
    
    
    26,350Deferred revenue, related parties
    
    
    
    
    
    
    252Other liabilities, related party (3)
    
    
    
    
    
    
    1,814
 
 (1)
    
    Relates to sales and transportation services provided to EPCO and affiliates.(2)
    
    Relates to direct payroll, payroll related costs and other operational related charges
from EPCO and affiliates.(3)
    
    Relates to our share of EPCOs Oil Insurance Limited insurance program retrospective
premiums obligation. 26




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 Sale of Pioneer plant
  Jonah Joint Venture
   Other Transactions
  
 NOTE 13. EARNINGS PER UNIT
  27




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  For Three Months EndedMarch 31,2007
    
    
    2006Income from continuing operations
    
    $
    138,191
    
    
    $
    43,383Discontinued operations
    
    
    
    
    
    
    19,491Net income
    
    
    138,191
    
    
    
    62,874General Partner interest in net income
    
    
    16.4
    %
    
    
    29.4
    %Earnings allocated to General Partner:Income from continuing operations
    
    $
    22,667
    
    
    $
    12,755Discontinued operations
    
    
    
    
    
    
    5,731Net income allocated
    
    
    22,667
    
    
    
    18,486BASIC AND DILUTED EARNINGS PER UNIT:Numerator:Income from continuing operations
    
    $
    115,524
    
    
    $
    30,628Discontinued operations
    
    
    
    
    
    
    13,760Limited partners interest in net income
    
    
    115,524
    
    
    
    44,388Denominator:Weighted average Units outstanding
    
    
    89,805
    
    
    
    69,964Basic and diluted earnings per Unit:Continuing operations
    
    $
    1.29
    
    
    $
    0.43Discontinued operations
    
    
    
    
    
    
    0.20Limited partners interest in net income
    
    $
    1.29
    
    
    $
    0.63
  
 NOTE 14. COMMITMENTS AND CONTINGENCIES
 Litigation
 Ryan E. McCleery and Marcia S.
McCleery, et al. and Michael and Linda Robson, et al. v. Texas Eastern Corporation, et al. Michael
 28




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 and Linda Robson, et al.
v. Texas Eastern Corporation, et al
 Rebecca L. Grisham et al. v. TE Products Pipeline
Company, Limited Partnership
 Jimmy R. Green, et al. v. Cities
Service Refinery, et al. th
   29




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
     Regulatory Matters
   30




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
       31




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
     Contractual Obligations
  Other
  32




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
       33




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
  
 NOTE 15. SUPPLEMENTAL CASH FLOW INFORMATION
  For the Three Months EndedMarch 31,2007
    
    
    2006Decrease (increase) in:Accounts receivable, trade
    
    $
    76,246
    
    
    $
    (171,920
    )Accounts receivable, related parties
    
    
    (10,774
    )
    
    
    2,397Inventories
    
    
    8,359
    
    
    
    (17,488
    )Other current assets
    
    
    778
    
    
    
    11,187Other
    
    
    (4,181
    )
    
    
    (3,421
    )Increase (decrease) in:Accounts payable and accrued expenses
    
    
    (111,763
    )
    
    
    134,962Accounts payable, related parties
    
    
    4,789
    
    
    
    (5,639
    )Other
    
    
    (3,190
    )
    
    
    502Net effect of changes in operating accounts
    
    $
    (39,736
    )
    
    $
    (49,420
    )Non-cash investing activities:Payable to Enterprise Gas Processing, LLC for spending
for Phase V expansion of Jonah Gas Gathering Company
    
    $
    14,935
    
    
    $
    Supplemental disclosure of cash flows:Cash paid for interest (net of amounts capitalized)
    
    $
    42,947
    
    
    $
    38,450
 
 NOTE 16. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
  34




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
   March 31, 2007TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedAssetsCurrent assets
    
    $
    13,086
    
    
    $
    58,379
    
    
    $
    894,973
    
    
    $
    (85,852
    )
    
    $
    880,586Property, plant and equipment  net
    
    
    
    
    
    
    1,044,636
    
    
    
    605,911
    
    
    
    
    
    
    
    1,650,547Equity investments
    
    
    1,385,734
    
    
    
    1,252,280
    
    
    
    194,047
    
    
    
    (1,834,502
    )
    
    
    997,559Intercompany notes receivable
    
    
    1,123,773
    
    
    
    
    
    
    
    
    
    
    
    (1,123,773
    )
    
    
    Intangible assets
    
    
    
    
    
    
    148,663
    
    
    
    30,836
    
    
    
    
    
    
    
    179,499Other assets
    
    
    5,174
    
    
    
    23,336
    
    
    
    60,255
    
    
    
    (6
    )
    
    
    88,759Total assets
    
    $
    2,527,767
    
    
    $
    2,527,294
    
    
    $
    1,786,022
    
    
    $
    (3,044,133
    )
    
    $
    3,796,950Liabilities and partners capitalCurrent liabilities
    
    $
    17,400
    
    
    $
    153,367
    
    
    $
    793,718
    
    
    $
    (85,852
    )
    
    $
    878,633Long-term debt
    
    
    1,124,375
    
    
    
    387,927
    
    
    
    
    
    
    
    
    
    
    
    1,512,302Intercompany notes payable
    
    
    
    
    
    
    607,624
    
    
    
    516,149
    
    
    
    (1,123,773
    )
    
    
    Other long-term liabilities
    
    
    419
    
    
    
    16,889
    
    
    
    2,038
    
    
    
    (6
    )
    
    
    19,340Total partners capital
    
    
    1,385,573
    
    
    
    1,361,487
    
    
    
    474,117
    
    
    
    (1,834,502
    )
    
    
    1,386,675Total liabilities and
partners capital
    
    $
    2,527,767
    
    
    $
    2,527,294
    
    
    $
    1,786,022
    
    
    $
    (3,044,133
    )
    
    $
    3,796,950
 35




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TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 December 31, 2006TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedAssetsCurrent assets
    
    $
    37,534
    
    
    $
    149,056
    
    
    $
    894,916
    
    
    $
    (114,796
    )
    
    $
    966,710Property, plant and equipment  net
    
    
    
    
    
    
    958,266
    
    
    
    683,829
    
    
    
    
    
    
    
    1,642,095Equity investments
    
    
    1,319,931
    
    
    
    1,317,671
    
    
    
    195,606
    
    
    
    (1,793,498
    )
    
    
    1,039,710Intercompany notes receivable
    
    
    1,215,132
    
    
    
    
    
    
    
    
    
    
    
    (1,215,132
    )
    
    
    Intangible assets
    
    
    
    
    
    
    153,803
    
    
    
    31,607
    
    
    
    
    
    
    
    185,410Other assets
    
    
    5,769
    
    
    
    21,657
    
    
    
    60,741
    
    
    
    
    
    
    
    88,167Total assets
    
    $
    2,578,366
    
    
    $
    2,600,453
    
    
    $
    1,866,699
    
    
    $
    (3,123,426
    )
    
    $
    3,922,092Liabilities and partners capitalCurrent liabilities
    
    $
    40,578
    
    
    $
    161,101
    
    
    $
    889,665
    
    
    $
    (114,796
    )
    
    $
    976,548Long-term debt
    
    
    1,215,948
    
    
    
    387,339
    
    
    
    
    
    
    
    
    
    
    
    1,603,287Intercompany notes payable
    
    
    
    
    
    
    711,381
    
    
    
    503,751
    
    
    
    (1,215,132
    )
    
    
    Other long-term liabilities
    
    
    2,251
    
    
    
    17,857
    
    
    
    1,819
    
    
    
    
    
    
    
    21,927Total partners capital
    
    
    1,319,589
    
    
    
    1,322,775
    
    
    
    471,464
    
    
    
    (1,793,498
    )
    
    
    1,320,330Total liabilities and
partners capital
    
    $
    2,578,366
    
    
    $
    2,600,453
    
    
    $
    1,866,699
    
    
    $
    (3,123,426
    )
    
    $
    3,922,092
 For the Three Months Ended March 31, 2007TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating revenues
    
    $
    
    
    
    $
    98,918
    
    
    $
    1,879,790
    
    
    $
    (279
    )
    
    $
    1,978,429Costs and expenses
    
    
    
    
    
    
    66,167
    
    
    
    1,850,124
    
    
    
    (2,647
    )
    
    
    1,913,644Gains on sales of assets
    
    
    
    
    
    
    (18,651
    )
    
    
    2
    
    
    
    
    
    
    
    (18,649
    )Operating income
    
    
    
    
    
    
    51,402
    
    
    
    29,664
    
    
    
    2,368
    
    
    
    83,434Interest expense  net
    
    
    
    
    
    
    (15,962
    )
    
    
    (6,249
    )
    
    
    
    
    
    
    (22,211
    )Gain on sale of ownership interest in MB
Storage
    
    
    
    
    
    
    59,837
    
    
    
    
    
    
    
    
    
    
    
    59,837Equity earnings
    
    
    138,191
    
    
    
    41,935
    
    
    
    1,789
    
    
    
    (165,352
    )
    
    
    16,563Other income  net
    
    
    
    
    
    
    489
    
    
    
    97
    
    
    
    
    
    
    
    586Income before provision for income taxes
    
    
    138,191
    
    
    
    137,701
    
    
    
    25,301
    
    
    
    (162,984
    )
    
    
    138,209Provision for income taxes
    
    
    
    
    
    
    (490
    )
    
    
    508
    
    
    
    
    
    
    
    18Net income
    
    $
    138,191
    
    
    $
    138,191
    
    
    $
    24,793
    
    
    $
    (162,984
    )
    
    $
    138,191
 36




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 For the Three Months Ended March 31, 2006TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating revenues
    
    $
    
    
    
    $
    115,060
    
    
    $
    2,426,966
    
    
    $
    (5,657
    )
    
    $
    2,536,369Costs and expenses
    
    
    
    
    
    
    75,764
    
    
    
    2,405,002
    
    
    
    (5,657
    )
    
    
    2,475,109Gains on sales of assets
    
    
    
    
    
    
    (1,378
    )
    
    
    
    
    
    
    
    
    
    
    (1,378
    )Operating income
    
    
    
    
    
    
    40,674
    
    
    
    21,964
    
    
    
    
    
    
    
    62,638Interest expense  net
    
    
    
    
    
    
    (14,377
    )
    
    
    (6,766
    )
    
    
    
    
    
    
    (21,143
    )Equity earnings
    
    
    62,874
    
    
    
    16,263
    
    
    
    2,255
    
    
    
    (80,403
    )
    
    
    989Other income  net
    
    
    
    
    
    
    823
    
    
    
    76
    
    
    
    
    
    
    
    899Income from continuing operations
    
    
    62,874
    
    
    
    43,383
    
    
    
    17,529
    
    
    
    (80,403
    )
    
    
    43,383Discontinued operations
    
    
    
    
    
    
    19,491
    
    
    
    
    
    
    
    
    
    
    
    19,491Net income
    
    $
    62,874
    
    
    $
    62,874
    
    
    $
    17,529
    
    
    $
    (80,403
    )
    
    $
    62,874
 For the Three Months Ended March 31, 2007TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activities:Net income
    
    $
    138,191
    
    
    $
    138,191
    
    
    $
    24,793
    
    
    $
    (162,984
    )
    
    $
    138,191Adjustments to reconcile net income to net
cash
from continuing operating activities:
    
    
    Deferred income taxes
    
    
    
    
    
    
    (638
    )
    
    
    (4
    )
    
    
    
    
    
    
    (642
    )Depreciation and amortization
    
    
    
    
    
    
    18,380
    
    
    
    6,989
    
    
    
    
    
    
    
    25,369Earnings in equity investments, net of
distributions
    
    
    (65,802
    )
    
    
    20,564
    
    
    
    2,011
    
    
    
    66,968
    
    
    
    23,741Gains on sales of assets and ownership
interest
    
    
    
    
    
    
    (78,488
    )
    
    
    2
    
    
    
    
    
    
    
    (78,486
    )Changes in assets and liabilities and other
    
    
    85,031
    
    
    
    38,365
    
    
    
    (87,101
    )
    
    
    (75,737
    )
    
    
    (39,442
    )Net cash from operating activities
    
    
    157,420
    
    
    
    136,374
    
    
    
    (53,310
    )
    
    
    (171,753
    )
    
    
    68,731Cash flows from investing activities
    
    
    
    
    
    
    55,360
    
    
    
    68,119
    
    
    
    (29,320
    )
    
    
    94,159Cash flows from financing activities
    
    
    (162,889
    )
    
    
    (191,510
    )
    
    
    (14,808
    )
    
    
    206,318
    
    
    
    (162,889
    )Net change in cash and cash equivalents
    
    
    (5,469
    )
    
    
    224
    
    
    
    1
    
    
    
    5,245
    
    
    
    1Cash and cash equivalents, January 1
    
    
    10,975
    
    
    
    
    
    
    
    70
    
    
    
    (10,975
    )
    
    
    70Cash and cash equivalents, March 31
    
    $
    5,506
    
    
    $
    224
    
    
    $
    71
    
    
    $
    (5,730
    )
    
    $
    71
 37




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##### Table of Contents



TEPPCO PARTNERS, L.P.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Unaudited)
 For the Three Months Ended March 31, 2006TEPPCOTEPPCO
    
    
    Guarantor
    
    
    Non-Guarantor
    
    
    Consolidating
    
    
    Partners, L.P.Partners, L.P.
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Adjustments
    
    
    ConsolidatedOperating activitiesNet income
    
    $
    62,874
    
    
    $
    62,874
    
    
    $
    17,529
    
    
    $
    (80,403
    )
    
    $
    62,874Adjustments to reconcile net income to net
cash
from operating activities:Income from discontinued operations
    
    
    
    
    
    
    (19,491
    )
    
    
    
    
    
    
    
    
    
    
    (19,491
    )Depreciation and amortization
    
    
    
    
    
    
    22,701
    
    
    
    6,056
    
    
    
    
    
    
    
    28,757Earnings in equity investments, net of
distributions
    
    
    4,018
    
    
    
    11,644
    
    
    
    6,202
    
    
    
    (6,556
    )
    
    
    15,308Gains on sales of assets
    
    
    
    
    
    
    (1,378
    )
    
    
    
    
    
    
    
    
    
    
    (1,378
    )Changes in assets and liabilities and other
    
    
    (25,236
    )
    
    
    (22,609
    )
    
    
    (26,347
    )
    
    
    25,215
    
    
    
    (48,977
    )Net cash from continuing operating activities
    
    
    41,656
    
    
    
    53,741
    
    
    
    3,440
    
    
    
    (61,744
    )
    
    
    37,093Cash flows from discontinued operations
    
    
    
    
    
    
    1,631
    
    
    
    
    
    
    
    
    
    
    
    1,631Net cash provided by operating activities
    
    
    41,656
    
    
    
    55,372
    
    
    
    3,440
    
    
    
    (61,744
    )
    
    
    38,724Cash flows from investing activities
    
    
    
    
    
    
    59,377
    
    
    
    (10,176
    )
    
    
    (50,163
    )
    
    
    (962
    )Cash flows from financing activities
    
    
    (37,792
    )
    
    
    (114,811
    )
    
    
    6,769
    
    
    
    108,042
    
    
    
    (37,792
    )Net change in cash and cash equivalents
    
    
    3,864
    
    
    
    (62
    )
    
    
    33
    
    
    
    (3,865
    )
    
    
    (30
    )Cash and cash equivalents, January 1
    
    
    1,978
    
    
    
    62
    
    
    
    45
    
    
    
    (1,966
    )
    
    
    119Cash and cash equivalents, March 31
    
    $
    5,842
    
    
    $
    
    
    
    $
    78
    
    
    $
    (5,831
    )
    
    $
    89
 38




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
  
    
    Cautionary Note Regarding Forward-Looking Statements.
    
    Overview of Critical Accounting Policies and Estimates.
    
    Overview of Business.
    
    Results of Operations  Discusses material period-to-period variances in the
statements of consolidated income.
    
    Financial Condition and Liquidity  Analyzes cash flows and financial position.
    
    Other Considerations  Addresses available sources of liquidity, trends, future
plans and contingencies that are reasonably likely to materially affect future
liquidity or earnings.
    
    Recent Accounting Pronouncements.
  /d
    
    =
    
    per dayBBtus
    
    =
    
    billion British Thermal unitsBcf
    
    =
    
    billion cubic feetMMBtus
    
    =
    
    million British Thermal unitsMMcf
    
    =
    
    million cubic feetMcf
    
    =
    
    thousand cubic feetMMBbls
    
    =
    
    million barrels
 we us our TEPPCO
 TE Products, TCTM TEPPCO Midstream Operating
Partnerships.
 General Partner
 Enterprise
 EPCO
 
 Cautionary Note Regarding Forward-Looking Statements
  39




---



##### Table of Contents



Overview of Critical Accounting Policies and Estimates
  Overview of Business
  40




---



##### Table of Contents




    
    Our Downstream Segment, which is engaged in the transportation, marketing and
storage of refined products, liquefied petroleum gases (LPGs) and petrochemicals;
    
    Our Upstream Segment, which is engaged in the gathering, transportation,
marketing and storage of crude oil and distribution of lubrication oils and
specialty chemicals; and
    
    Our Midstream Segment, which is engaged in the gathering of natural gas,
transportation of natural gas liquids (NGLs) and fractionation of NGLs.
   Recent Developments
  41




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##### Table of Contents



Results of Operations
  For the Three Months EndedMarch 31,2007
    
    
    2006Operating revenues:Downstream Segment
    
    $
    94,918
    
    
    $
    74,067Upstream Segment
    
    
    1,854,417
    
    
    
    2,411,582Midstream Segment (1)
    
    
    29,373
    
    
    
    56,377Intersegment eliminations
    
    
    (279
    )
    
    
    (5,657
    )Total operating revenues
    
    
    1,978,429
    
    
    
    2,536,369Operating income:Downstream Segment
    
    
    53,941
    
    
    
    23,281Upstream Segment
    
    
    22,315
    
    
    
    13,306Midstream Segment (1)
    
    
    4,810
    
    
    
    26,051Intersegment eliminations
    
    
    2,368
    
    
    
    Total operating income
    
    
    83,434
    
    
    
    62,638Equity earnings (losses):Downstream Segment
    
    
    (1,487
    )
    
    
    (1,266
    )Upstream Segment
    
    
    1,789
    
    
    
    2,255Midstream Segment (1)
    
    
    18,629
    
    
    
    Intersegment eliminations
    
    
    (2,368
    )
    
    
    Total equity earnings
    
    
    16,563
    
    
    
    989Earnings before interest:Downstream Segment
    
    
    112,722
    
    
    
    22,794Upstream Segment
    
    
    24,147
    
    
    
    15,605Midstream Segment (1)
    
    
    23,551
    
    
    
    26,127Interest expense
    
    
    (25,939
    )
    
    
    (24,402
    )Interest capitalized
    
    
    3,728
    
    
    
    3,259Income before provision for income taxes
    
    
    138,209
    
    
    
    43,383Provision for income taxes
    
    
    18
    
    
    
    Income from continuing operations
    
    
    138,191
    
    
    
    43,383Discontinued operations
    
    
    
    
    
    
    19,491Net income
    
    $
    138,191
    
    
    $
    62,874
 
 (1)
    
    Effective August 1, 2006, with the formation of a joint venture with Enterprise, Jonah
Gas Gathering Company (Jonah) was deconsolidated and has been subsequently accounted for
as an equity investment (see Note 6 in the Notes to the Consolidated Financial Statements).  42




---



##### Table of Contents



Downstream Segment
  For the Three Months EndedMarch 31,Increase2007
    
    
    2006
    
    
    (Decrease)Operating revenues:Sales of petroleum products
    
    $
    9,376
    
    
    $
    
    
    
    $
    9,376Transportation  Refined products
    
    
    37,135
    
    
    
    31,799
    
    
    
    5,336Transportation  LPGs
    
    
    36,053
    
    
    
    29,421
    
    
    
    6,632Other
    
    
    12,354
    
    
    
    12,847
    
    
    
    (493
    )Total operating revenues
    
    
    94,918
    
    
    
    74,067
    
    
    
    20,851Costs and expenses:Purchases of petroleum products
    
    
    9,394
    
    
    
    
    
    
    
    9,394Operating expense
    
    
    21,520
    
    
    
    23,502
    
    
    
    (1,982
    )Operating fuel and power
    
    
    10,413
    
    
    
    9,305
    
    
    
    1,108General and administrative
    
    
    4,075
    
    
    
    5,094
    
    
    
    (1,019
    )Depreciation and amortization
    
    
    11,136
    
    
    
    10,297
    
    
    
    839Taxes  other than income taxes
    
    
    3,090
    
    
    
    2,595
    
    
    
    495Gains on sales of assets
    
    
    (18,651
    )
    
    
    (7
    )
    
    
    (18,644
    )Total costs and expenses
    
    
    40,977
    
    
    
    50,786
    
    
    
    (9,809
    )Operating income
    
    
    53,941
    
    
    
    23,281
    
    
    
    30,660Gain on sale of ownership interest in MB Storage
    
    
    59,837
    
    
    
    
    
    
    
    59,837Equity losses
    
    
    (1,487
    )
    
    
    (1,266
    )
    
    
    (221
    )Interest income
    
    
    202
    
    
    
    396
    
    
    
    (194
    )Other income  net
    
    
    229
    
    
    
    383
    
    
    
    (154
    )Earnings before interest
    
    $
    112,722
    
    
    $
    22,794
    
    
    $
    89,928
  For the Three Months
    
    
    PercentageEnded March 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)Volumes Delivered:Refined products
    
    
    35,754
    
    
    
    35,808
    
    
    
    LPGs
    
    
    16,598
    
    
    
    12,840
    
    
    
    29
    %Total
    
    
    52,352
    
    
    
    48,648
    
    
    
    8
    %Average Tariff per Barrel:Refined products
    
    $
    1.04
    
    
    $
    0.89
    
    
    
    17
    %LPGs
    
    
    2.17
    
    
    
    2.29
    
    
    
    (5
    %)Average system tariff per barrel
    
    $
    1.40
    
    
    $
    1.26
    
    
    
    11
    %
  43




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##### Table of Contents



Three Months Ended March 31, 2007 Compared with Three Months Ended March 31, 2006
      44




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##### Table of Contents



For the Three MonthsEnded March 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)Centennial
    
    $
    (3,987
    )
    
    $
    (3,913
    )
    
    $
    (74
    )MB Storage
    
    
    2,491
    
    
    
    2,651
    
    
    
    (160
    )Other
    
    
    9
    
    
    
    (4
    )
    
    
    13Total equity losses
    
    $
    (1,487
    )
    
    $
    (1,266
    )
    
    $
    (221
    )
  Upstream Segment
  For the Three Months EndedMarch 31,Increase2007
    
    
    2006
    
    
    (Decrease)Operating revenues: (1)Sales of petroleum products (2) (3)
    
    $
    1,841,031
    
    
    $
    2,400,436
    
    
    $
    (559,405
    )Transportation  Crude oil
    
    
    10,790
    
    
    
    8,923
    
    
    
    1,867Other
    
    
    2,596
    
    
    
    2,223
    
    
    
    373Total operating revenues
    
    
    1,854,417
    
    
    
    2,411,582
    
    
    
    (557,165
    )Costs and expenses: (1)Purchases of petroleum products (2) (3)
    
    
    1,807,166
    
    
    
    2,376,396
    
    
    
    (569,230
    )Operating expense
    
    
    15,473
    
    
    
    13,144
    
    
    
    2,329Operating fuel and power
    
    
    2,058
    
    
    
    2,193
    
    
    
    (135
    )General and administrative
    
    
    1,828
    
    
    
    1,807
    
    
    
    21Depreciation and amortization
    
    
    4,068
    
    
    
    3,271
    
    
    
    797Taxes  other than income taxes
    
    
    1,507
    
    
    
    1,465
    
    
    
    42Gains on sales of assets
    
    
    2
    
    
    
    
    
    
    
    2Total costs and expenses
    
    
    1,832,102
    
    
    
    2,398,276
    
    
    
    (566,174
    )Operating income
    
    
    22,315
    
    
    
    13,306
    
    
    
    9,009Equity earnings
    
    
    1,789
    
    
    
    2,255
    
    
    
    (466
    )Interest income
    
    
    29
    
    
    
    
    
    
    
    29Other income  net
    
    
    14
    
    
    
    44
    
    
    
    (30
    )Earnings before interest
    
    $
    24,147
    
    
    $
    15,605
    
    
    $
    8,542
 45




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##### Table of Contents



(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.(3)
    
    On April 1, 2006, we adopted Emerging Issues Task Force (EITF) 04-13. The three
months ended March 31, 2006 has not been adjusted for the adoption of EITF 04-13, as
retroactive restatement was not permitted, which impacts comparability (for further
discussion, see below).  For the Three Months Ended
    
    
    PercentageMarch 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)Margins: (1)Crude oil marketing
    
    $
    22,006
    
    
    $
    12,786
    
    
    
    72
    %Lubrication oil sales
    
    
    2,154
    
    
    
    2,131
    
    
    
    1
    %Revenues: (1)Crude oil transportation
    
    
    17,123
    
    
    
    15,768
    
    
    
    9
    %Crude oil terminaling
    
    
    3,372
    
    
    
    2,278
    
    
    
    48
    %Total margin/revenues
    
    $
    44,655
    
    
    $
    32,963
    
    
    
    35
    %Total barrels/gallons:Crude oil marketing (barrels) (1)
    
    
    55,946
    
    
    
    52,941
    
    
    
    6
    %Lubrication oil volume (gallons)
    
    
    3,831
    
    
    
    3,855
    
    
    
    (1
    %)Crude oil transportation (barrels)
    
    
    24,133
    
    
    
    22,328
    
    
    
    8
    %Crude oil terminaling (barrels)
    
    
    40,143
    
    
    
    24,443
    
    
    
    64
    %Margin per barrel or gallon:Crude oil marketing (per barrel) (1)
    
    $
    0.393
    
    
    $
    0.242
    
    
    
    63
    %Lubrication oil margin (per gallon).
    
    
    0.562
    
    
    
    0.553
    
    
    
    2
    %Average rate per barrel:Crude oil transportation
    
    
    0.710
    
    
    
    0.706
    
    
    
    Crude oil terminaling
    
    
    0.084
    
    
    
    0.093
    
    
    
    (10
    %)
 
 (1)
    
    Amounts in this table are presented prior to the eliminations of intercompany sales,
revenues and purchases between TEPPCO Crude Oil, L.P. (TCO) and TEPPCO Crude Pipeline, L.P.
(TCPL), both of which are our wholly-owned subsidiaries. TCO is a significant shipper on
TCPL. Crude oil marketing volumes also include inter-region transfers, which are transfers
among TCOs various geographically managed regions. 46




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##### Table of Contents



For the Three Months EndedMarch 31,2007
    
    
    2006Sales of petroleum products
    
    $
    1,841,031
    
    
    $
    2,400,436Transportation  Crude oil
    
    
    10,790
    
    
    
    8,923Less: Purchases of petroleum products
    
    
    (1,807,166
    )
    
    
    (2,376,396
    )Total margin/revenues
    
    
    44,655
    
    
    
    32,963Other operating revenues
    
    
    2,596
    
    
    
    2,223Net operating revenues
    
    
    47,251
    
    
    
    35,186Operating expense
    
    
    15,473
    
    
    
    13,144Operating fuel and power
    
    
    2,058
    
    
    
    2,193General and administrative
    
    
    1,828
    
    
    
    1,807Depreciation and amortization
    
    
    4,068
    
    
    
    3,271Taxes  other than income taxes
    
    
    1,507
    
    
    
    1,465Gains on sales of assets
    
    
    2
    
    
    
    Operating income
    
    $
    22,315
    
    
    $
    13,306
 Accounting for Purchases and Sales of Inventory with
the Same Counterparty
 Three Months Ended March 31, 2007 Compared with Three Months Ended March 31, 2006
  47




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48




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Midstream Segment
  For the Three Months EndedMarch 31,Increase2007
    
    
    2006
    
    
    (Decrease)Operating revenues: (1)
Gathering  Natural gas
    
    $
    15,408
    
    
    $
    41,375
    
    
    $
    (25,967
    )Transportation  NGLs
    
    
    10,941
    
    
    
    10,653
    
    
    
    288Other
    
    
    3,024
    
    
    
    4,349
    
    
    
    (1,325
    )Total operating revenues
    
    
    29,373
    
    
    
    56,377
    
    
    
    (27,004
    )Costs and expenses: (1)Operating expense
    
    
    8,254
    
    
    
    10,158
    
    
    
    (1,904
    )Operating fuel and power
    
    
    2,803
    
    
    
    2,799
    
    
    
    4General and administrative
    
    
    2,695
    
    
    
    2,300
    
    
    
    395Depreciation and amortization
    
    
    10,165
    
    
    
    15,189
    
    
    
    (5,024
    )Taxes  other than income taxes
    
    
    646
    
    
    
    1,251
    
    
    
    (605
    )Gains on sales of assets
    
    
    
    
    
    
    (1,371
    )
    
    
    1,371Total costs and expenses
    
    
    24,563
    
    
    
    30,326
    
    
    
    (5,763
    )Operating income
    
    
    4,810
    
    
    
    26,051
    
    
    
    (21,241
    )Equity earnings (1)
    
    
    18,629
    
    
    
    
    
    
    
    18,629Interest income
    
    
    111
    
    
    
    76
    
    
    
    35Other income  net
    
    
    1
    
    
    
    
    
    
    
    1Earnings before interest
    
    $
    23,551
    
    
    $
    26,127
    
    
    $
    (2,576
    )
 
 (1)
    
    Effective August 1, 2006, with the formation of a joint venture with Enterprise, Jonah
was deconsolidated and operating results, including revenues and costs and expenses, after
August 1, 2006 are included in equity earnings (see Note 6 in the Notes to the Consolidated
Financial Statements). 49




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##### Table of Contents



For the Three Months Ended
    
    
    PercentageMarch 31,
    
    
    Increase2007
    
    
    2006
    
    
    (Decrease)Gathering  Natural Gas  Jonah: (1)MMcf
    
    
    132,583
    
    
    
    108,669
    
    
    
    22
    %BBtus
    
    
    146,104
    
    
    
    120,007
    
    
    
    22
    %Average fee per MMBtu
    
    $
    0.204
    
    
    $
    0.206
    
    
    
    (1
    %)Gathering  Natural Gas  Val Verde:MMcf
    
    
    43,567
    
    
    
    45,350
    
    
    
    (4
    %)BBtus
    
    
    38,582
    
    
    
    39,932
    
    
    
    (3
    %)Average fee per MMBtu
    
    $
    0.399
    
    
    $
    0.418
    
    
    
    (5
    %)Transportation  NGLs:Barrels
    
    
    17,565
    
    
    
    15,866
    
    
    
    11
    %Average rate per barrel
    
    $
    0.636
    
    
    $
    0.671
    
    
    
    (5
    %)Natural Gas Sales: (1)BBtus
    
    
    3,546
    
    
    
    
    
    
    
    Average rate per MMBtu
    
    $
    7.059
    
    
    $
    
    
    
    
    Fractionation  NGLs:Barrels
    
    
    978
    
    
    
    1,153
    
    
    
    (15
    %)Average rate per barrel
    
    $
    1.721
    
    
    $
    1.486
    
    
    
    16
    %Sales  Condensate: (1)
Barrels
    
    
    35.2
    
    
    
    24.7
    
    
    
    43
    %Average rate per barrel
    
    $
    72.90
    
    
    $
    63.54
    
    
    
    15
    %
 
 (1)
    
    Effective August 1, 2006, with the formation of a joint venture with Enterprise, Jonah
was deconsolidated and operating results after August 1, 2006 are included in equity
earnings (see Note 6 in the Notes to the Consolidated Financial Statements). However, the
table includes Jonahs volume and average rate information for the full three months ended
March 31, 2007 and 2006.  Three Months Ended March 31, 2007 Compared with Three Months Ended March 31, 2006
  50




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Discontinued Operations
  51




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##### Table of Contents



For the Three MonthsEnded March 31,2006Operating revenues:Sales of petroleum products
    
    $
    3,810Other
    
    
    921Total operating revenues
    
    
    4,731Costs and expenses:Purchases of petroleum products
    
    
    2,861Operating expense
    
    
    182Depreciation and amortization
    
    
    51Taxes  other than income taxes
    
    
    30Total costs and expenses
    
    
    3,124Income from discontinued operations
    
    $
    1,607
  Interest Expense and Capitalized Interest
   Income Taxes  Texas Margin Tax
  52




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##### Table of Contents



Financial Condition and Liquidity
  For the Three Months EndedMarch 31,2007
    
    2006Cash provided by (used in):Operating activities
    
    $
    68.7
    
    
    $
    38.7Investing activities
    
    
    94.2
    
    
    
    (1.0
    )Financing activities
    
    
    (162.9
    )
    
    
    (37.8
    )
 Operating Activities
  For the Three Months EndedMarch 31,2007
    
    
    2006Net income
    
    $
    138.2
    
    
    $
    62.9Income from discontinued operations
    
    
    
    
    
    
    (19.5
    )Deferred income tax
    
    
    (0.6
    )
    
    
    Depreciation and amortization
    
    
    25.4
    
    
    
    28.8Earnings in equity investments
    
    
    (16.6
    )
    
    
    (1.0
    )Distributions from equity investments
    
    
    40.3
    
    
    
    16.3Gains on sales of assets
    
    
    (18.7
    )
    
    
    (1.4
    )Gain on sale of ownership interest in MB Storage
    
    
    (59.8
    )
    
    
    Non-cash portion of interest expense
    
    
    0.3
    
    
    
    0.4Net effect of changes in operating accounts
    
    
    (39.8
    )
    
    
    (49.4
    )Net cash provided by continuing operating activities
    
    
    68.7
    
    
    
    37.1Net cash provided by discontinued operations
    
    
    
    
    
    
    1.6Net cash provided by operating activities
    
    $
    68.7
    
    
    $
    38.7
   53




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##### Table of Contents



Investing Activities
  Financing Activities
   Other Considerations
 Universal Shelf
  54




---



##### Table of Contents



Credit Facility
  Treasury Locks
  Future Capital Needs and Commitments
   55




---



##### Table of Contents



Liquidity Outlook
  Classification of Short-Term Obligations Expected to be Refinanced.
 Off-Balance Sheet Arrangements
    56




---



##### Table of Contents



Contractual Obligations
   Other
  Recent Accounting Pronouncements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Commodity Risk
  57




---



##### Table of Contents



Accounting for
Derivative Instruments and Hedging Activities Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133
   Interest Rate Risk
   58




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##### Table of Contents



Fair ValueMarch 31,
    
    December 31,Face Value
    
    2007
    
    20066.45% TE Products Senior Notes, due January 2008
    
    $
    180,000
    
    
    $
    181,080
    
    
    $
    181,6417.625% Senior Notes, due February 2012
    
    
    500,000
    
    
    
    541,589
    
    
    
    537,0676.125% Senior Notes, due February 2013
    
    
    200,000
    
    
    
    203,100
    
    
    
    201,6107.51% TE Products Senior Notes, due January 2028
    
    
    210,000
    
    
    
    219,450
    
    
    
    221,471
   
 Item 4. Controls and Procedures
    59




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##### Table of Contents



Changes in Internal Control over Financial Reporting
   
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 6. Exhibits.
 ExhibitNumber
    
    Description3.1
    
    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
    
    Third Amended and Restated Agreement of Limited Partnership of TEPPCO Partners,
L.P., dated September 21, 2001 (Filed as Exhibit 3.7 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).3.3
    
    Limited Liability Company Agreement of Texas Eastern Products Pipeline Company,
LLC, dated March 31, 2000 (Filed as Exhibit 3.3 to Form 10-Q/A of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended June 30, 2005 and incorporated
herein by reference).3.4
    
    Amendment to Limited Liability Company Agreement of Texas Eastern Products
Pipeline Company, LLC, dated March 22, 2005 (Filed as Exhibit 3.4 to Form 10-Q/A of
 60




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##### Table of Contents



ExhibitNumber
    
    DescriptionTEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter ended June 30, 2005
and incorporated herein by reference).3.5
    
    Amendment to Limited Liability Company Agreement of Texas Eastern Products
Pipeline Company, LLC, dated June 15, 2006, but effective as of February 24, 2005
(Filed as Exhibit 3.1 to the Current Report on Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) filed on June 16, 2006.3.6
    
    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).4.1
    
    Form of Certificate representing Limited Partner Units (Filed as Exhibit 4.1 to
the Registration Statement of TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).4.2
    
    Form of Indenture between TE Products Pipeline Company, Limited Partnership and
The Bank of New York, as Trustee, dated as of January 27, 1998 (Filed as Exhibit 4.3 to
TE Products Pipeline Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by reference).4.3
    
    Form of Certificate representing Class B Units (Filed as Exhibit 4.3 to Form
10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).4.4
    
    Form of Indenture between TEPPCO Partners, L.P., as issuer, TE Products
Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and
Jonah Gas Gathering Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to Form 8-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) dated as of February 20, 2002 and
incorporated herein by reference).4.5
    
    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).4.6
    
    Second Supplemental Indenture, dated as of June 27, 2002, among TEPPCO
Partners, L.P., as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., and Jonah Gas Gathering Company, as Initial
Subsidiary Guarantors, and Val Verde Gas Gathering Company, L.P., as New Subsidiary
Guarantor, and Wachovia Bank, National Association, formerly known as First Union
National Bank, as trustee (Filed as Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended June 30, 2002 and incorporated
herein by reference).4.7
    
    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).4.8
    
    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).10.1
    
    Fourth Amended and Restated Administrative Services Agreement by and among
EPCO, Inc., Enterprise Products Partners L.P., Enterprise Products Operating L.P.,
Enterprise Products GP, LLC, Enterprise Products OLPGP, Inc., Enterprise GP Holdings
L.P., Duncan Energy Partners L.P., DEP Holdings, LLC, DEP Operating Partnership, L.P.,
 61




---



##### Table of Contents



ExhibitNumber
    
    DescriptionEPE Holdings, LLC, TEPPCO Partners, L.P., Texas Eastern Products Pipeline Company, LLC,
TE Products Pipeline Company, Limited Partnership, TEPPCO Midstream Companies, L.P.,
TCTM, L.P. and TEPPCO GP, Inc. dated January 30, 2007, but effective as of February 5,
2007 (Filed as Exhibit 10.18 to Current Report on Form 8-K of Duncan Energy Partners
L.P. (Commission File No. 1-33266) filed February 5, 2007 and incorporated herein by
reference).10.2+
    
    Form of Supplemental Agreement to Employment Agreement between Texas Eastern
Products Pipeline Company, LLC and assumed by EPCO, Inc., and John N. Goodpasture,
Samuel N. Brown and J. Michael Cockrell (Filed as Exhibit 10.62 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended December 31, 2006 and
incorporated herein by reference).10.3
    
    Amended and Restated Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P. by and between TEPPCO GP, Inc. and TEPPCO Partners, L.P. dated as of
February 28, 2007 (Filed as Exhibit 10.64 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2006 and incorporated
herein by reference).10.4
    
    Second Amended and Restated Agreement of Limited Partnership of TCTM, L.P. by
and between TEPPCO GP, Inc. and TEPPCO Partners, L.P. dated as of February 27, 2007
(Filed as Exhibit 10.65 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2006 and incorporated herein by reference).10.5
    
    Third Amended and Restated Agreement of Limited Partnership of TE Products
Pipeline Company, Limited Partnership by and between TEPPCO GP, Inc. and TEPPCO
Partners, L.P. dated as of February 27, 2007 (Filed as Exhibit 10.66 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year ended December 31,
2006 and incorporated herein by reference).10.6
    
    First Amendment to the Fourth Amended and Restated Administrative Services
Agreement by and among EPCO, Inc., Enterprise Products Partners L.P., Enterprise
Products Operating L.P., Enterprise Products GP, LLC, Enterprise Products OLPGP, Inc.,
Enterprise GP Holdings L.P., Duncan Energy Partners L.P., DEP Holdings, LLC, DEP
Operating Partnership, L.P., EPE Holdings, LLC, TEPPCO Partners, L.P., Texas Eastern
Products Pipeline Company, LLC, TE Products Pipeline Company, Limited Partnership,
TEPPCO Midstream Companies, L.P., TCTM, L.P. and TEPPCO GP, Inc. dated February 28,
2007 (Filed as Exhibit 10.8 to Form 10-K of Enterprise Products Partners L.P.
(Commission File No. 1-14323) for the year ended December 31, 2006 and incorporated
herein by reference).10.7+*
    
    Form of Option Grant under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.10.8+*
    
    Form of TPP Unit Appreciation Right Grant (Texas Eastern Products Pipeline Company
LLC Directors).10.9+*
    
    Form of Restricted Unit Grant under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.10.10+*
    
    Form of Phantom Unit Grant for Directors of Texas Eastern Products Pipeline Company
LLC under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.12.1*
    
    Statement of Computation of Ratio of Earnings to Fixed Charges.31.1*
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1**
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith pursuant to Item 601(b)-(32) of Regulation S-K.+
    
    A management contract or compensation plan or arrangement. 62




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##### Table of Contents



SIGNATURES
  TEPPCO Partners, L.P.By:
    
    /s/ JERRY E. THOMPSONJerry E. Thompson,Date: May 4, 2007
    
    President and Chief Executive Officer ofTexas Eastern Products Pipeline Company, LLC, General PartnerBy:
    
    /s/ WILLIAM G. MANIASWilliam G. Manias,Date: May 4, 2007
    
    Vice President and Chief Financial Officer ofTexas Eastern Products Pipeline Company, LLC, General Partner
 63




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##### Table of Contents



Index to Exhibits
 ExhibitNumber
    
    Description3.1
    
    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
    
    Third Amended and Restated Agreement of Limited Partnership of TEPPCO Partners,
L.P., dated September 21, 2001 (Filed as Exhibit 3.7 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).3.3
    
    Limited Liability Company Agreement of Texas Eastern Products Pipeline Company,
LLC, dated March 31, 2000 (Filed as Exhibit 3.3 to Form 10-Q/A of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended June 30, 2005 and incorporated
herein by reference).3.4
    
    Amendment to Limited Liability Company Agreement of Texas Eastern Products
Pipeline Company, LLC, dated March 22, 2005 (Filed as Exhibit 3.4 to Form 10-Q/A of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter ended June 30, 2005
and incorporated herein by reference).3.5
    
    Amendment to Limited Liability Company Agreement of Texas Eastern Products
Pipeline Company, LLC, dated June 15, 2006, but effective as of February 24, 2005
(Filed as Exhibit 3.1 to the Current Report on Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) filed on June 16, 2006.3.6
    
    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).4.1
    
    Form of Certificate representing Limited Partner Units (Filed as Exhibit 4.1 to
the Registration Statement of TEPPCO Partners, L.P. (Commission File No. 33-32203) and
incorporated herein by reference).4.2
    
    Form of Indenture between TE Products Pipeline Company, Limited Partnership and
The Bank of New York, as Trustee, dated as of January 27, 1998 (Filed as Exhibit 4.3 to
TE Products Pipeline Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by reference).4.6
    
    Form of Certificate representing Class B Units (Filed as Exhibit 4.3 to Form
10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year ended December
31, 1998 and incorporated herein by reference).4.7
    
    Form of Indenture between TEPPCO Partners, L.P., as issuer, TE Products
Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies, L.P. and
Jonah Gas Gathering Company, as subsidiary guarantors, and First Union
National Bank, NA, as trustee, dated as of February 20, 2002 (Filed as
Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) dated as of February 20, 2002 and incorporated herein by
reference).4.8
    
    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).4.6
    
    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




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##### Table of Contents



ExhibitNumber
    
    DescriptionNational Bank, as trustee (Filed as Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the quarter ended June 30, 2002 and incorporated
herein by reference).4.7
    
    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).4.8
    
    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).10.1
    
    Fourth Amended and Restated Administrative Services Agreement by and among
EPCO, Inc., Enterprise Products Partners L.P., Enterprise Products Operating L.P.,
Enterprise Products GP, LLC, Enterprise Products OLPGP, Inc., Enterprise GP Holdings
L.P., Duncan Energy Partners L.P., DEP Holdings, LLC, DEP Operating Partnership, L.P.,
EPE Holdings, LLC, TEPPCO Partners, L.P., Texas Eastern Products Pipeline Company, LLC,
TE Products Pipeline Company, Limited Partnership, TEPPCO Midstream Companies, L.P.,
TCTM, L.P. and TEPPCO GP, Inc. dated January 30, 2007, but effective as of February 5,
2007 (Filed as Exhibit 10.18 to Current Report on Form 8-K of Duncan Energy Partners
L.P. (Commission File No. 1-33266) filed February 5, 2007 and incorporated herein by
reference).10.2+
    
    Form of Supplemental Agreement to Employment Agreement between Texas Eastern
Products Pipeline Company, LLC and assumed by EPCO, Inc., and John N. Goodpasture,
Samuel N. Brown and J. Michael Cockrell (Filed as Exhibit 10.62 to Form 10-K of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the year ended December 31, 2006 and
incorporated herein by reference).10.3
    
    Amended and Restated Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P. by and between TEPPCO GP, Inc. and TEPPCO Partners, L.P. dated as of
February 28, 2007 (Filed as Exhibit 10.64 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2006 and incorporated
herein by reference).10.4
    
    Second Amended and Restated Agreement of Limited Partnership of TCTM, L.P. by
and between TEPPCO GP, Inc. and TEPPCO Partners, L.P. dated as of February 27, 2007
(Filed as Exhibit 10.65 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 2006 and incorporated herein by
reference).10.5
    
    Third Amended and Restated Agreement of Limited Partnership of TE Products
Pipeline Company, Limited Partnership by and between TEPPCO GP, Inc. and TEPPCO
Partners, L.P. dated as of February 27, 2007 (Filed as Exhibit 10.66 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year ended December 31,
2006 and incorporated herein by reference).10.6
    
    First Amendment to the Fourth Amended and Restated Administrative Services
Agreement by and among EPCO, Inc., Enterprise Products Partners L.P., Enterprise
Products Operating L.P., Enterprise Products GP, LLC, Enterprise Products OLPGP, Inc.,
Enterprise GP Holdings L.P., Duncan Energy Partners L.P., DEP Holdings, LLC, DEP
Operating Partnership, L.P., EPE Holdings, LLC, TEPPCO Partners, L.P., Texas Eastern
Products Pipeline Company, LLC, TE Products Pipeline Company, Limited Partnership,
TEPPCO Midstream Companies, L.P., TCTM, L.P. and TEPPCO GP, Inc. dated February 28,
2007 (Filed as Exhibit 10.8 to Form 10-K of Enterprise Products Partners L.P.
(Commission File No. 1-14323) for the year ended December 31, 2006 and incorporated
herein by reference).10.7+*
    
    Form of Option Grant under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.




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##### Table of Contents



ExhibitNumber
    
    Description10.8+*
    
    Form of TPP Unit Appreciation Right Grant (Texas Eastern Products Pipeline Company
LLC Directors).10.9+*
    
    Form of Restricted Unit Grant under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.10.10+*
    
    Form of Phantom Unit Grant for Directors of Texas Eastern Products Pipeline Company
LLC under the EPCO, Inc. 2006 TPP Long-Term Incentive Plan.12.1*
    
    Statement of Computation of Ratio of Earnings to Fixed Charges.31.1*
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1**
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2**
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith.**
    
    Furnished herewith pursuant to Item 601(b)-(32) of Regulation S-K.+
    
    A management contract or compensation plan or arrangement.