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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A(Amendment No. 1)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended December 31, 2001

Commission File Number 1-10403

TEPPCO Partners, L.P.
(Exact name of Registrant as specified in its charter)

|                                                  |  |                                                   
|------------------------------------------------- |  | --------------------------------------------------
|Delaware
(State of Incorporation or Organization) |  | 76-0291058
(I.R.S. Employer Identification Number)

2929 Allen Parkway
P.O. Box 2521
Houston, Texas 77252-2521
(Address of principal executive offices, including zip code)

(713) 759-3636
(Registrants telephone number, including area code)

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

|                                                             |  |                                          
|------------------------------------------------------------ |  | -----------------------------------------
|Title of each class                                          |  | Name of each exchange on
which registered
|                                                             |  |                                          
|Limited Partner Units representing Limited
Partner Interests |  | New York Stock Exchange                  

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

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

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

At March 7, 2002, the aggregate market value of the registrants Limited
Partner Units held by non-affiliates was $1,240,803,750, which was
computed using the average of the high and low sales prices of the Limited
Partner Units on March 7, 2002.

Limited Partner Units outstanding as of March 7, 2002: 40,450,000.

Documents Incorporated by Reference: None



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|                                                                                              |  |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|Items 1 and 2. Business and Properties                                                       
|Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 8. Financial Statements and Supplementary Data                                          
|Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|Consent of KPMG LLP                                                                          

PURPOSE OF THIS AMENDMENT

The Registrant is amending its Annual Report on Form 10-K for the year
ended December 31, 2001, filed on March 14, 2002, to conform the Annual Report
on Form 10-K to current segment presentation based upon segment changes that
occurred effective January 1, 2002. Only those Items of Form 10-K that are
being amended in this Report are included in this amendment. Notes 2, 4 and 15
to the Registrants financial statements included herein have been revised to
reflect the segment changes.

TEPPCO Partners, L.P. (TEPPCO Partners) reports and operates in three
reporting segments: transportation and storage of refined products, liquefied
petroleum gases (LPGs) and petrochemicals (Downstream Segment); gathering,
transportation, marketing and storage of crude oil and distribution of
lubrication oils and specialty chemicals (Upstream Segment); and gathering of
natural gas, fractionation of natural gas liquids (NGLs) and transportation
of NGLs (Midstream Segment). TEPPCO Partners reportable segments offer
different products and services and are managed separately because each
requires different business strategies.

Effective January 1, 2002, TEPPCO Partners realigned its three reporting
segments in order to separate and better measure the performance of its natural
gas and NGL operations from its crude oil operations. The fractionation of
NGLs, which was previously reflected as part of the Downstream Segment, was
shifted to the Midstream Segment. The operation of NGL pipelines, which was
previously reflected as part of the Upstream Segment, was also shifted to the
Midstream Segment. The year-to-year comparisons have been adjusted to conform
to the current presentation.

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TABLE OF CONTENTS

|               |  |                                                                                       |  |  |    |  |  |  | 
|-------------- |  | ------------------------------------------------------------------------------------- |  |  | -- |  |  |  | 
|ITEMS 1
AND 2. |  | Business and Properties                                                               |  |  | 1  | 
|ITEM 7.        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  |  | 19 | 
|ITEM 8.        |  | Financial Statements and Supplementary Data                                           |  |  | 36 | 
|ITEM 14.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 36 | 

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Items 1 and 2.Business and Properties

General

TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership and was formed in March 1990. The Partnership
operates through TE Products Pipeline Company, Limited Partnership (TE
Products), TCTM, L.P. (TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO
Midstream). Collectively, TE Products, TCTM and TEPPCO Midstream are referred
to as the Operating Partnerships. Texas Eastern Products Pipeline Company,
LLC (the Company or General Partner), a Delaware limited liability company,
serves as the general partner of the Partnership. The General Partner is a
wholly-owned subsidiary of Duke Energy Field Services (DEFS), a joint venture
between Duke Energy Corporation (Duke Energy) and Phillips Petroleum Company
(Phillips). Duke Energy holds an approximate 70% interest in DEFS and
Phillips holds the remaining 30%. The Company, as general partner, performs all
management and operating functions required for the Partnership and the
Operating Partnerships, except for the management and operations of certain of
the TEPPCO Midstream assets, which is performed by DEFS under an agreement with
the Partnership. The General Partner is reimbursed by the Partnership for all
reasonable direct and indirect expenses incurred in managing the Partnership.

On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly-owned by
the Partnership. TEPPCO GP, Inc. (TEPPCO GP), a subsidiary of the
Partnership, succeeded the Company as general partner of the Operating
Partnerships. All remaining partner interests in the Operating Partnerships not
already owned by the Partnership were transferred to the Partnership. In
exchange for this contribution, the Companys interest as general partner of
the Partnership was increased to 2%. The increased percentage is the economic
equivalent of the aggregate interest that the Company had prior to the
restructuring through its combined interests in the Partnership and the
Operating Partnerships. As a result, the Partnership holds a 99.999% limited
partner interest in the Operating Partnerships and TEPPCO GP holds a 0.001%
general partner interest. This reorganization was undertaken to simplify
required financial reporting by the Operating Partnerships when guarantees of
Partnership debt are issued by the Operating Partnerships.

The Partnership operates and reports in three business segments:
transportation and storage of refined products, liquefied petroleum gases
(LPGs) and petrochemicals (Downstream Segment); gathering, transportation,
marketing and storage of crude oil; and distribution of lubrication oils and
specialty chemicals (Upstream Segment); and gathering of natural gas,
fractionation of natural gas liquids (NGLs) and transportation of NGLs
(Midstream Segment). The Partnerships reportable segments offer different
products and services and are managed separately because each requires
different business strategies. The Upstream Segment of the Partnerships
business was initially acquired in November 1998. Portions of the Midstream
Segment of the Partnerships business were acquired in March 1998, November
1998, December 2000 and on September 30, 2001. Certain of the assets of the
Midstream Segment are managed and operated by DEFS under an agreement with the
Partnership.

Effective January 1, 2002, the Partnership realigned its three reporting
segments in order to separate and better measure the performance of its natural
gas and NGL operations from its crude oil operations. The fractionation of
NGLs, which was previously reflected as part of the Downstream Segment, was
shifted to the Midstream Segment. The operation of NGL pipelines, which was
previously reflected as part of the Upstream Segment, was also shifted to the
Midstream Segment. The year-to-year comparisons have been adjusted to conform
to the current presentation.

The Partnerships interstate transportation operations, including rates
charged to customers, are subject to regulations prescribed by the Federal
Energy Regulatory Commission (FERC). Refined products, LPGs, petrochemicals,
crude oil, NGLs and natural gas are referred to in this Report, collectively,
as petroleum products or products.

At December 31, 2001, the Partnership had outstanding 40,450,000 Limited
Partner Units and 3,916,547 Class B Limited Partner Units (Class B Units).
All of the Class B Units were issued to Duke Energy in connection with an
acquisition of assets initially acquired in the Upstream Segment in 1998. The
Class B Units share

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in income and distributions on the same basis as the Limited Partner
Units, but they are not listed on the New York Stock Exchange. The Class B
Units may be converted into Limited Partner Units upon approval by the
unitholders. The Company has the option to seek approval for the conversion of
the Class B Units into Limited Partner Units; however, if the conversion is
denied, Duke Energy, as holder of the Class B Units, will have the right to
sell them to the Partnership at 95.5% of the then current market price of the
Limited Partner Units. As a result of this option, the Class B Units were not
included in partners capital at December 31, 2001. Collectively, the Limited
Partner Units and Class B Units are referred to as Units.

The Partnerships strategy is to expand and improve service in its current
markets, maintain the integrity of its pipeline systems and pursue a growth
strategy that is balanced between internal projects and targeted acquisitions.
The Partnership intends to leverage the advantages inherent in its pipeline
systems to maintain its status as the incremental provider of choice in its
market area. The Partnership also intends to grow by acquiring assets, from
both third parties and affiliates, which complement existing businesses or to
establish new core businesses. The Company routinely evaluates opportunities
to acquire assets and businesses that will complement existing operations with
a view to increasing earnings and cash available for distribution to
unitholders. Additional acquisitions may be funded with cash flow from
operations, borrowings under existing credit facilities, the issuance of debt
in the capital markets and the sale of additional units.

Downstream Segment  Transportation and Storage of Refined Products, LPGs and Petrochemicals

Operations

The Partnership conducts business in its Downstream Segment through TE
Products. TE Products owns and operates properties located in 13 states.
These operations consist of interstate transportation, storage and terminaling
of petroleum products; short-haul shuttle transportation of LPGs at the Mont
Belvieu, Texas complex; intrastate transportation of petrochemicals and other
ancillary services.

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

The Partnerships Downstream Segment depends in large part on the level of
demand for refined petroleum products and LPGs in the geographic locations
served by it and the ability and willingness of customers having access to the
pipeline system to supply such demand. The Partnership cannot predict the
impact of future fuel conservation measures, alternate fuel requirements,
governmental regulation, technological advances in fuel economy and
energy-generation devices, all of which could reduce the demand for refined
petroleum products and LPGs in the areas served by the Partnership.

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The following table lists the material properties and investments of and
ownership percentages in the Downstream Segment assets as of December 31, 2001:

|                                                            |  |             |     |  
|----------------------------------------------------------- |  | ----------- | --- | -
|                                                            |  | Partnership
|                                                            |  | Ownership  
|                                                            |  |            
|Refined products and LPGs pipeline                          |  |             | 100 | %
|Mont Belvieu LPGs storage and pipeline shuttle              |  |             | 100 | %
|Mont Belvieu to Port Arthur, Texas, petrochemical pipelines |  |             | 100 | %
|Centennial Pipeline (1)                                     |  |             | 33  | %



---

|(1) |  | Accounted for as an equity investment.
|--- |  | --------------------------------------

Centennial Pipeline Joint Venture

In August 2000, TE Products entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form a pipeline joint
venture, Centennial Pipeline, LLC (Centennial). Centennial owns and operates
an interstate refined petroleum products pipeline extending from the upper
Texas Gulf Coast to Illinois. Each participant owns a one-third interest in
Centennial. Centennial constructed a 74-mile, 24-inch diameter pipeline
connecting TE Products facility in Beaumont, Texas, with an existing 720-mile,
26-inch diameter pipeline extending from Longville, Louisiana, to Bourbon,
Illinois. The Centennial pipeline intersects TE Products existing mainline
pipeline near Creal Springs, Illinois, where Centennial has constructed a new
two million barrel refined petroleum products storage terminal. TE Products
interest is not subject to any encumbrances from mortgages or other secured
debt. Centennial has unsecured debt, one third of which, up to $50 million in
principal, is guaranteed by each owner, including TE Products. As of December
31, 2001, TE Products has contributed approximately $70 million for its
one-third interest in Centennial. The Partnership expects to contribute an
additional $4.9 million to Centennial in 2002. Centennial commenced operations
in the first quarter of 2002.

Refined Products and LPGs Pipeline System

TE Products is one of the largest pipeline common carriers of refined
petroleum products and LPGs in the United States. TE Products owns and operates
an approximate 4,500-mile pipeline system (together with the receiving, storage
and terminaling facilities mentioned below, the Products Pipeline System)
extending from southeast Texas through the central and midwestern United States
to the northeastern United States. The Products Pipeline System includes
delivery terminals for outloading product to other pipelines, tank trucks, rail
cars or barges, as well as substantial storage capacity at Mont Belvieu, Texas,
the largest LPGs storage complex in the United States, and at other locations.
TE Products also owns two marine receiving terminals, one near Beaumont, Texas,
and the other at Providence, Rhode Island. The Providence terminal is not
physically connected to the Products Pipeline System. The Products Pipeline
System also includes three 12-inch diameter petrochemical pipelines between
Mont Belvieu and Port Arthur, Texas, each approximately 70 miles in length.

All properties comprising the Products Pipeline System are wholly-owned by
subsidiaries of the Partnership and none are subject to any encumbrances from
mortgages or other secured debt.

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

The Products Pipeline System includes 30 storage facilities with an
aggregate storage capacity of 13 million barrels of refined petroleum products
and 38 million barrels of LPGs, including storage capacity leased to outside
parties. The Products Pipeline System makes deliveries to customers at 53
locations including 18 owned truck racks, rail car facilities and marine
facilities. Deliveries to other pipelines occur at various facilities owned by
TE Products or by third parties.

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

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

TE Products also owns two 12-inch diameter common carrier and one 12-inch
diameter proprietary petrochemical pipelines between Mont Belvieu and Port
Arthur, Texas, which were completed in the fourth quarter of 2000. Each of
these pipelines is approximately 70 miles in length. The pipelines transport
ethylene, propylene and natural gasoline. The Partnership entered into a
20-year agreement with a major petrochemical producer for guaranteed throughput
commitments. During the year ended December 31, 2001, and the two month period
ended December 31, 2000, the Partnership recognized $10.7 million and $1.8
million, respectively, of revenue under the throughput and deficiency contract.
The Partnership began transporting product through these pipelines in
September 2001.

The Partnership believes that the Products Pipeline System is in
compliance with applicable federal, state and local laws and regulations, and
accepted industry standards and practices. The Partnership performs regular
maintenance on all the facilities of the Products Pipeline System and has an
ongoing process of inspecting segments of the Products Pipeline System and
making repairs and replacements when necessary or appropriate. In addition, the
Partnership conducts periodic air patrols of the Products Pipeline System to
monitor pipeline integrity and third-party right of way encroachments.

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Major Business Sector Markets

The Partnerships major operations in the Downstream Segment consist of
the transportation, storage and terminaling of refined petroleum products and
LPGs along its mainline system, and the storage and short-haul transportation
of LPGs associated with its Mont Belvieu LPG operations. Product deliveries, in
millions of barrels (MMBbls) on a regional basis, over the last three years
were as follows:

|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ------------------------------------ | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                                      |                               |  | Product Deliveries (MMBbls)
|                                          |                                      |                               |  | Years Ended December 31,   
|                                          |                                      |                               |  |                            
|                                          |                                      |                               |  | 2001                        |       | 2000 |  | 1999
|                                          |                                      |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central (1)                          |                               |  | 62.0                        |       |      |  | 63.4 |       |  |  | 67.7 |      
|                                          | Midwest (2)                          |                               |  | 37.4                        |       |      |  | 36.7 |       |  |  | 37.9 |      
|                                          | Ohio and Kentucky                    |                               |  | 23.5                        |       |      |  | 28.0 |       |  |  | 27.0 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                      |  |                             | 122.9 |      |  |      | 128.1 |  |  |      | 132.6 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Central, Midwest and Kentucky (1)(2) |                               |  | 23.8                        |       |      |  | 23.4 |       |  |  | 22.9 |      
|                                          | Ohio and Northeast (3)               |                               |  | 16.2                        |       |      |  | 16.2 |       |  |  | 14.7 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Subtotal                      |  |                             | 40.0  |      |  |      | 39.6  |  |  |      | 37.6  | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Total Mainline Transportation |  |                             | 162.9 |      |  |      | 167.7 |  |  |      | 170.2 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                                      |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                                 |                               |  | 23.1                        |       |      |  | 27.2 |       |  |  | 28.5 |      
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                                      | Total Product Deliveries      |  |                             | 186.0 |      |  |      | 194.9 |  |  |      | 198.7 | 
|                                          |                                      |                               |  |                             |       |      |  |      |       |  |  |      |      



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

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

Refined products and LPGs deliveries over the last three years were as
follows:

|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |       | 
|----------------------------------------- | ---------------------- | ----------------------------- |  | --------------------------- | ----- | ---- |  | ---- | ----- |  |  | ---- | ----- | 
|                                          |                        |                               |  | Product Deliveries (MMBbls)
|                                          |                        |                               |  | Years Ended December 31,   
|                                          |                        |                               |  |                            
|                                          |                        |                               |  | 2001                        |       | 2000 |  | 1999
|                                          |                        |                               |  |                             |       |      |  |     
|Refined Products Mainline Transportation: |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Gasoline               |                               |  | 68.2                        |       |      |  | 67.8 |       |  |  | 71.6 |      
|                                          | Jet Fuels              |                               |  | 25.4                        |       |      |  | 28.1 |       |  |  | 26.9 |      
|                                          | Middle Distillates (1) |                               |  | 28.1                        |       |      |  | 26.6 |       |  |  | 28.4 |      
|                                          | MTBE(2)/Toluene        |                               |  | 1.2                         |       |      |  | 5.6  |       |  |  | 5.7  |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Subtotal                      |  |                             | 122.9 |      |  |      | 128.1 |  |  |      | 132.6 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|LPGs Mainline Transportation:             |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | Propane                |                               |  | 32.8                        |       |      |  | 33.1 |       |  |  | 30.8 |      
|                                          | Butanes                |                               |  | 7.2                         |       |      |  | 6.5  |       |  |  | 6.8  |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Subtotal                      |  |                             | 40.0  |      |  |      | 39.6  |  |  |      | 37.6  | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Total Mainline Transportation |  |                             | 162.9 |      |  |      | 167.7 |  |  |      | 170.2 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|Mont Belvieu Operations:                  |                        |                               |  |                             |       |      |  |      |       |  |  |     
|                                          | LPGs                   |                               |  | 23.1                        |       |      |  | 27.2 |       |  |  | 28.5 |      
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      
|                                          |                        | Total Product Deliveries      |  |                             | 186.0 |      |  |      | 194.9 |  |  |      | 198.7 | 
|                                          |                        |                               |  |                             |       |      |  |      |       |  |  |      |      



---

|(1) |  | Primarily diesel fuel, heating oil and other middle distillates.                              
|--- |  | ----------------------------------------------------------------------------------------------
|   
|(2) |  | Methyl tertiary butyl ether, a fuels additive, the use of which has
largely been discontinued.

Refined Products Mainline Transportation

The Products Pipeline System transports refined petroleum products from
the upper Texas Gulf Coast, eastern Texas and southern Arkansas to the Central
and Midwest regions of the United States with deliveries in

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Texas, Louisiana, Arkansas, Missouri, Illinois, Kentucky, Indiana and
Ohio. At these points, refined petroleum products are delivered to terminals
owned by TE Products, connecting pipelines and customer-owned terminals. TE
Products canceled its tariff for deliveries of MTBE into the Chicago market
area on July 1, 1999, and canceled contract deliveries of MTBE at its marine
terminal near Beaumont, Texas, effective April 22, 2001. The Partnership no
longer transports MTBE through the Products Pipeline System.

The volume of refined petroleum products transported by the Products
Pipeline System is directly affected by the demand for such products in the
geographic regions the system serves. This market demand varies based upon the
different end uses to which the refined products deliveries are applied. Demand
for gasoline, which accounts for a substantial portion of the volume of refined
products transported through the Products Pipeline System, depends upon price,
prevailing economic conditions and demographic changes in the markets served.
Demand for refined products used in agricultural operations is affected by
weather conditions, government policy and crop prices. Demand for jet fuel
depends upon prevailing economic conditions and military usage.

Market prices for refined petroleum products affect the demand in the
markets served by the Partnerships Downstream Segment. Therefore, quantities
and mix of products transported may vary. Transportation tariffs of refined
petroleum products vary among specific product types. As a result, market
price volatility may affect transportation revenues from period to period.

LPGs Mainline Transportation

The Products Pipeline System transports LPGs from the upper Texas Gulf
Coast to the Central, Midwest and Northeast regions of the United States. The
Products Pipeline System east of Todhunter, Ohio, is devoted solely to the
transportation of LPGs. Since LPGs demand is generally stronger in the winter
months, the Products Pipeline System often operates at or near capacity during
such time. Propane deliveries are generally sensitive to the weather and
meaningful year-to-year variations have occurred and will likely continue to
occur.

The Partnerships ability in its Downstream Segment to serve markets in
the Northeast is enhanced by its propane import terminal at Providence, Rhode
Island. This facility includes a 400,000-barrel refrigerated storage tank along
with ship unloading and truck loading facilities. Effective May 2001, the
Company entered into an agreement with DEFS to commit sole utilization of the
Providence terminal to DEFS. The terminal is operated by the Partnership.
During the year ended December 31, 2001, DEFS paid the Partnership $1.5 million
pursuant to this agreement.

Mont Belvieu LPGs Storage and Pipeline Shuttle

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

The Partnerships Downstream Segment has approximately 36 million barrels
of LPGs storage capacity, including storage capacity leased to outside parties,
at the Mont Belvieu complex. The Downstream Segment includes a Mont Belvieu
short-haul transportation shuttle system, consisting of a complex system of
pipelines and interconnects, that ties Mont Belvieu to virtually every refinery
and petrochemical facility on the upper Texas Gulf Coast.

In February 2000, the Partnership and Louis Dreyfus Plastics Corporation
(Louis Dreyfus) announced a joint marketing and development alliance. The
Partnerships Mont Belvieu LPGs storage and transportation shuttle system
services are jointly marketed by Louis Dreyfus and the Partnership. The
purpose of the alliance is to expand services to the upper Texas Gulf Coast
energy marketplace by increasing pipeline throughput and the mix of products
handled through the existing system and establishing new receipt and delivery
connections. TE Products operates the facilities for the alliance. The
alliance is a service-oriented, fee-based venture with no commodity

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trading activity. Under the alliance, Louis Dreyfus has invested $4.4
million for expansion projects at Mont Belvieu. The Partnership is required to
reimburse this amount to Louis Dreyfus if the alliance is terminated by either
Louis Dreyfus or the Partnership.

Other Operating Revenues

The Partnerships Downstream Segment also derives revenue from terminaling
activities and other ancillary services associated with the transportation and
storage of refined petroleum products and LPGs. From time to time, the
Partnership sells excess product inventory.

Customers

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

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

At December 31, 2001, the Downstream Segment had approximately 140
customers. Transportation revenues (and percentage of total revenues)
attributable to the top 10 customers were $115 million (44%), $102 million
(45%) and $105 million (47%), for the years ended December 31, 2001, 2000 and
1999, respectively. During 2001, no single customer accounted for 10% or more
of the Downstream Segments revenues.

Competition

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

Because pipelines are generally the lowest cost method for intermediate
and long-haul overland movement of refined petroleum products and LPGs, the
Products Pipeline Systems most significant competitors (other than indigenous
production in its markets) are pipelines in the areas where the Products
Pipeline System delivers products. Competition among common carrier pipelines
is based primarily on transportation charges, quality of customer service and
proximity to end users. The Partnership believes the Downstream Segment is
competitive with other pipelines serving the same markets; however, comparison
of different pipelines is difficult due to varying product mix and operations.

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

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Upstream Segment  Gathering, Transportation, Marketing and Storage of Crude Oil

Operations

The Partnership conducts business in its Upstream Segment through TCTM and
its wholly-owned subsidiaries, which gather, transport, market and store crude
oil, and distribute lubrication oils and specialty chemicals principally in
Oklahoma, Texas and the Rocky Mountain region. The Partnership commenced its
Upstream Segment business in connection with the acquisition of certain assets
from DEFS in November 1998. The Partnerships Upstream Segment utilizes its
asset base to aggregate crude oil and provide transportation and specialized
services to its regional customers. The Partnerships Upstream Segment
purchases crude oil at prevailing prices from producers at the wellhead,
aggregates such crude oil into its equity owned pipelines or third party owned
pipelines utilizing its truck fleet and transports the crude oil for ultimate
sale to or exchange with its customers.

Margins in the Upstream Segment are calculated as revenues generated from
the sale of crude oil and lubrication oil, and transportation of crude oil,
less the costs of purchases of crude oil and lubrication oil. Margins are a
more meaningful measure of financial performance than operating revenues and
operating expenses due to the significant fluctuations in revenues and expenses
caused by variations in the level of marketing activity and prices for products
marketed.

TCTM purchases crude oil and simultaneously establishes a margin by
selling crude oil for physical delivery to third party users. The Partnership
seeks to maintain a balanced marketing position until it makes physical
delivery of the crude oil, thereby minimizing or eliminating exposure to price
fluctuations occurring after the initial purchase. However, certain basis
risks, the risk that price relationships between delivery points, classes of
products or delivery periods will change, cannot be completely hedged or
eliminated. The Partnership makes limited use of commodity derivative products
for the purpose of speculating on price changes. Risk management policies have
been established for the Partnership by the Companys Risk Management Committee
to monitor and control market risks. The Risk Management Committee is
comprised, in part, of senior executives of the Company. The Partnership had no
commodity derivative contracts outstanding at December 31, 2001.

Volume information of TCTMs 100% owned pipeline systems and undivided
joint interest pipelines for the years ended December 31, 2001, 2000 and 1999,
is presented below (in thousands):

|                                         |                          |  |                          |         |      |  |       |         |  |  |       |        | 
|---------------------------------------- | ------------------------ |  | ------------------------ | ------- | ---- |  | ----- | ------- |  |  | ----- | ------ | 
|                                         |                          |  | Years Ended December 31,
|                                         |                          |  |                         
|                                         |                          |  | 2001                     |         | 2000 |  | 1999 
|                                         |                          |  |                          |         |      |  |      
|Total Barrels:                           |                          |  |                          |         |      |  |       |         |  |  |       |       
|                                         | Crude oil transportation |  |                          | 78,714  |      |  |       | 46,225  |  |  |       | 33,267 | 
|                                         | Crude oil marketing      |  |                          | 159,477 |      |  |       | 107,607 |  |  |       | 96,252 | 
|                                         | Crude oil terminaling    |  |                          | 121,932 |      |  |       | 56,473  |  |  |       |       | 
|Lubricants and chemicals (total gallons) |                          |  | 8,769                    |         |      |  | 7,974 |         |  |  | 8,891 |       

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Properties

The major crude oil pipelines and pipeline systems of the Partnerships
Upstream Segment are set forth in the following table, which include several
pipelines owned jointly with other industry participants or producers:

|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|----------------------- |  | ----------- | ------------------------------------ | -------- |  | ---------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------
|Crude Oil               |  | Partnership |                                      |          |  |                                   
|Pipeline                |  | Ownership   |                                      | Operator |  | Description                       
|                        |  |             |                                      |          |  |                                   
|Red River
System        |  |             | 100%                                 |          |  | TEPPCO Crude
Pipeline
(TCPL) (1) |  | 1,690 miles of pipeline; 1,484,000 barrels
storage  North Texas to South Oklahoma                                       
|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|South Texas
System      |  |             | 100%                                 |          |  | TCPL                               |  | 690 miles of pipeline; 740,000 barrels
storage  South Central Texas to Houston,
Texas area                              
|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|West Texas
Trunk System |  |             | 100%                                 |          |  | TCPL                               |  | 250 miles of smaller diameter pipeline 
connecting West Texas and Southeast New
Mexico to TCTMs Midland, Texas terminal
|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|Seaway                  |  |             | 50% general
partnership
interest (2) |          |  | TCPL                               |  | 500-mile, 30-inch diameter pipeline  Texas
Gulf Coast to Cushing, Oklahoma                                              
|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|Rancho                  |  |             | 25% joint
ownership                  |          |  | Equilon Pipeline
Company, LLC      |  | 400-mile, 24-inch diameter pipeline  West
Texas to Houston, Texas                                                       
|                        |  |             |                                      |          |  |                                    |  |                                                                                                                          
|Basin                   |  |             | 13% joint
ownership                  |          |  | Equilon Pipeline
Company, LLC      |  | 416-mile pipeline  Permian Basin (New
Mexico and Texas) to Cushing, Oklahoma                                            



---

|(1) |  | TCPL is a wholly-owned subsidiary of TCTM.                                                                                         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | TCPLs participation in revenues and expenses of Seaway vary as described below in Partnership Interest
in Seaway Crude Pipeline.

None of these pipelines or systems is subject to any encumbrance from a
mortgage or other secured debt.

The majority of the Red River System crude oil is delivered to Cushing,
Oklahoma via connecting pipelines or to two local refineries. The majority of
the crude oil on the South Texas System is delivered on a tariff basis to
Houston area refineries. The West Texas Trunk System connects gathering systems
to TCTMs Midland, Texas terminal. Other crude oil assets, located primarily in
Texas and Louisiana, consist of 344 miles of pipeline and 295,000 barrels of
storage capacity.

Partnership Interest in Seaway Crude Pipeline

Seaway Crude Pipeline Company (Seaway) is a partnership between TCTM and
Phillips. In July 2000, the Partnership acquired its 50-percent ownership
interest in Seaway from ARCO Pipe Line Company (ARCO), a wholly-owned
subsidiary of Atlantic Richfield Company. The Partnership assumed ARCOs role
as operator of this pipeline. The 30-inch diameter, 500-mile pipeline
transports crude oil from the U.S. Gulf Coast to Cushing, a central crude
distribution point for the central United States and a delivery point for the
New York Mercantile Exchange (NYMEX). The Freeport, Texas, marine terminal
is the origin point for the 30-inch diameter crude pipeline. Two large
diameter lines carry crude oil from the Freeport marine terminal to the
adjacent Jones Creek Tank Farm, which has six tanks capable of handling
approximately 2.6 million barrels of crude. A crude oil marine terminal
facility at Texas City, Texas, is used to supply refineries in the Houston
area. Two pipelines connect the Texas City marine terminal to tank farms in
Texas City and Galena Park, Texas, where there are seven tanks with a combined
capacity of approximately 3 million barrels. Seaway has the capability to
provide marine terminaling and storage services for all Houston area
refineries.

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The Seaway partnership agreement provides for varying participation ratios
throughout the life of Seaway. From July 20, 2000, through May 2002, the
Partnership will receive 80% of revenue and expense of Seaway. From June 2002
until May 2006, the Partnership will receive 60% of revenue and expense of
Seaway. Thereafter, the Partnership will receive 40% of revenue and expense of
Seaway.

Line Transfers, Pumpovers and Other

The Partnerships Upstream Segment provides trade documentation services
to its customers, primarily at Cushing and Midland. TCTM documents the
transfer of crude oil in its terminal facilities between contracting buyers and
sellers. This line transfer documentation service is related to the trading
activity by TCTMs customers of NYMEX open-interest crude oil contracts. This
service provides a documented record of receipts, deliveries and transactions
to each customer, including confirmation of trade matches, inventory management
and scheduled movements. Line transfer revenues are included as part of other
operating revenues in the Partnerships consolidated statements of income.

The line transfer services also attract physical barrels to TCTMs
facilities for final delivery to the ultimate owner. A pumpover occurs when
the last title transfer is executed and the physical barrels are delivered out
of TCTMs custody. TCTM owns and operates storage facilities with an
operational capacity of approximately 1.1 million barrels to facilitate the
pumpover business. Revenues from pumpover services are included as part of
crude oil transportation revenues in the Partnerships consolidated statements
of income and represents the crude oil terminaling component of margin. The
line transfer and pumpover operations were acquired from ARCO in July 2000.

Through its subsidiary, Lubrication Services, L.P. (LSI), TCTM
distributes lubrication oils and specialty chemicals to natural gas pipelines,
gas processors, and industrial and commercial accounts. LSIs distribution
networks are located in Colorado, Oklahoma, Kansas, New Mexico, Texas, and
Louisiana.

Customers

TCTM purchases crude oil primarily from major integrated oil companies and
independent oil producers. Crude oil sales are primarily to major integrated
oil companies and independent refiners. During 2001, no single customer
accounted for 10% or more of the margin of the Partnerships Upstream Segment.
The Company does not believe the loss of any single customer would have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Partnership.

Competition

The most significant competitors in pipeline operations in the
Partnerships Upstream Segment are primarily common carrier and proprietary
pipelines owned and operated by major oil companies, large independent pipeline
companies and other companies in the areas where its pipeline systems deliver
crude oil. Competition among common carrier pipelines is based primarily on
posted tariffs, quality of customer service, knowledge of products and markets,
and proximity to refineries and connecting pipelines. The crude oil gathering
and marketing business is characterized by thin margins and intense competition
for supplies of crude oil at the wellhead. Declines in domestic crude oil
production has intensified competition among gatherers and marketers.

A significant portion of the growth in the Partnerships Upstream Segment
has occurred through acquisitions of pipeline gathering systems. The
Partnerships acquisitions in this segment have provided increased efficiencies
for the gathering and transportation of crude oil with its existing pipeline
systems as well as expansion into new market areas. The Partnership
experiences competition from other gatherers and marketers in the bidding for
potential acquisitions. Within the past few years, the number of companies
involved in the gathering of crude oil in the United States has decreased as a
result of business consolidations, which may decrease the amount of potential
acquisitions of crude gathering systems available to the Partnership.

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Credit Policies and Procedures

As crude oil or lubrication oils are marketed, the Partnership must
determine the amount, if any, of credit to be extended to any given customer,
particularly in the Partnerships Upstream Segment, where transported volumes
are typically sold rather than transported for a fee. Due to the nature of
individual sales transactions, risk of non-payment and non-performance by
customers is a major consideration in the Partnerships business. The
Partnership manages its exposure to credit risk through credit analysis, credit
approvals, credit limits and monitoring procedures. The Partnership utilizes
letters of credit and guarantees for certain of its receivables. However,
these procedures and policies may not fully eliminate customer credit risk.
During the years ended 1999, 2000 and 2001, no reserves were necessary to
write-off uncollectible receivables of the Upstream Segment.

Midstream Segment  Gathering of Natural Gas, Fractionation of NGLs and
Transportation of NGLs

The Partnership conducts business in its Midstream Segment through TEPPCO
Colorado, LLC (TEPPCO Colorado), which fractionates NGLs, TCTM and its
wholly-owned subsidiaries, which transport NGLs through its NGL pipelines, and
Jonah Gas Gathering Company (Jonah), which gathers natural gas.

On December 31, 2000, the Company completed an acquisition of certain
pipeline assets from DEFS for $91.7 million, which included $0.7 million of
acquisition related costs. The purchase included two NGL pipelines in East
Texas: the Panola Pipeline, a pipeline from Carthage, Texas, to Mont Belvieu,
Texas, and the San Jacinto Pipeline, a pipeline from Carthage to Longview,
Texas. The pipelines originate at DEFS East Texas Plant Complex in Panola
County, Texas. The acquisition of the assets was accounted for under the
purchase method of accounting.

The Partnerships Midstream Segment acquired all of the partnership
interests of Jonah from Alberta Energy Company, effective September 30, 2001,
by subsidiaries of the Partnership. The original purchase price totaled $359.8
million. An additional $7.2 million was accrued at December 31, 2001, for
final purchase price adjustments related primarily to construction projects in
progress at the time of closing. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the results of operations of the
acquisition are included in the Partnerships consolidated financial statements
in the fourth quarter of 2001. The assets of Jonah are managed and operated by
DEFS under a contract arrangement. Jonah and its assets are not subject to any
encumbrances from mortgages or other secured debt.

In connection with the acquisition of Jonah, the Partnership assumed
responsibility for the completion of an ongoing expansion of the Jonah Gas
Gathering System (Jonah System) at a cost of approximately $25.0 million. The
expansion, which is expected to be completed by the end of March 2002, will
increase the capacity of the Jonah System by 62%, from approximately 450
million cubic feet per day (MMcf/day), to approximately 730 MMcf/day.

In February 2002, a producer on the Jonah System notified Alberta Energy
Company that it has a right to acquire all or a portion of the assets
comprising the Jonah System. This claim is based upon an alleged right of
first refusal contained in a gas gathering agreement between the producer and
Jonah. Subsidiaries of Alberta Energy Company have agreed to indemnify the
Partnership against losses resulting from the breach of representations
concerning the absence of third party rights in connection with the acquisition
of the entity that owns the Jonah System. The Partnership believes that it has
adequate legal defenses to the producers claim and that no right of first
refusal on any of the underlying Jonah System assets has been triggered.

Revenues of the Partnerships Midstream Segment are earned from
fractionation of NGLs in Colorado, transportation of NGLs and gathering fees
based on the volume and pressure of natural gas gathered, and also from sales
of condensate on the Jonah System. TEPPCO Midstream has multiple long-term
contracts with producers connected to the Jonah System. The Partnership cannot
influence or control the operation or development of the gas fields served by
the Jonah System. Production levels may be affected by price and price
volatility, market demand, depletion rates of existing wells and changes in
laws and regulations. The Partnership does not take title to the natural gas
gathered, NGLs transported or NGLs fractionated. Accordingly, the results of
operations of the Midstream Segment are not directly affected by changes in the
prices of natural gas or NGLs. It is expected that

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Midstream Segment revenues and cash flows will increase from historical
levels as the system capacity expansion becomes operational.

Volume information for the years ended December 31, 2001, 2000 and 1999,
is presented below:

|                                                     |  |                          |        |      |  |      |       |  |  |  |       | 
|---------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                     |  | Years Ended December 31,
|                                                     |  |                         
|                                                     |  | 2001                     |        | 2000 |  | 1999
|                                                     |  |                          |        |      |  |     
|Gathering  Natural Gas (billion cubic feet (Bcf)) |  |                          | 45.5   |      |  |      |      |  |  |  |      | 
|Transportation  NGLs (thousand barrels)             |  |                          | 21,538 |      |  |      | 5,201 |  |  |  | 4,580 | 
|Fractionation  NGLs (thousand barrels)              |  |                          | 4,078  |      |  |      | 4,078 |  |  |  | 3,819 | 
|Sales  Condensate (thousand barrels)                |  |                          | 16.2   |      |  |      |      |  |  |  |      | 

The Jonah Gas Gathering System

The Jonah System consists of approximately 350 miles of pipelines ranging
in size from four to 20 inches in diameter, four compressor stations with an
aggregate of approximately 21,200 horsepower and related metering facilities.
Gas gathered on the Jonah System is collected from approximately 375 producing
wells in the Green River Basin in southwestern Wyoming, which is one of the
most prolific natural gas basins in the United States. A component of the
system is a processing facility that extracts condensate prior to delivery of
natural gas to DEFS Overland Trail Transmission system and Questar. Gas is
delivered to gas processing facilities owned by others. From these processing
facilities, the natural gas is delivered to several interstate pipeline systems
located in the region for transportation to end-use markets, throughout the
Midwest, the West Coast and the Rocky Mountain regions. Interstate pipelines
in the region include the Overland Trail Transmission system, Kern River,
Northwest, Colorado Interstate Gas and Questar.

NGL Transportation

The NGL pipelines of the Midstream Segment are located along the Texas
Gulf Coast. They are all wholly-owned and operated by subsidiaries of the
Partnership. Information concerning these NGL pipelines is set forth in the
following table:

|             |  |               |        |             |  |                                                               
|------------ |  | ------------- | ------ | ----------- |  | --------------------------------------------------------------
|             |  | Capacity      |        |            
|NGL Pipeline |  | (barrels/day) |        | Description
|             |  |               |        |            
|Dean         |  |               | 20,000 |             |  | 338 miles of pipeline  South Texas to
Mont Belvieu, Texas    
|Panola       |  |               | 38,000 |             |  | 189 miles of pipeline  Carthage, Texas to
Mont Belvieu, Texas
|San Jacinto  |  |               | 11,000 |             |  | 34 miles of pipeline  Carthage, Texas to
Longview, Texas     
|Wilcox       |  |               | 7,000  |             |  | 90 miles of pipeline  Southeast Texas                        

None of these pipelines is subject to any encumbrance from a mortgage or other
secured debt.

The Wilcox NGL Pipeline transports NGLs for DEFS from two of their natural
gas processing plants. The Wilcox NGL Pipeline is currently supported by a
throughput agreement with DEFS through 2005. The Panola Pipeline and San
Jacinto Pipeline were purchased on December 31, 2000, from DEFS and originate
at DEFS East Texas Plant Complex in Panola County, Texas.

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Customers

The Midstream Segments customers for the gathering of natural gas include
major integrated oil and gas companies and large to medium-sized independent
producers. Natural gas from Jonah is delivered into major interstate gas
pipelines for delivery primarily to markets along the West Coast. NGL sales
are primarily to major integrated oil and gas companies and independent
refiners.

At December 31, 2001, the Midstream Segment had 16 customers. Revenues
attributable to the top 10 customers were $37.0 million (99%) for the year
ended December 31, 2001, of which DEFS, Enron Corp. and Alberta Energy Company
accounted for approximately 61%, 13% and 11% of revenues of the Partnerships
Midstream Segment, respectively. At December 31, 2000, the Midstream Segment
had three customers. Revenues attributable to the three customers were $14.5
million, of which DEFS and Enron Corp. accounted for 60% and 39% of revenues of
the Midstream Segment, respectively. At December 31, 1999, the Midstream
Segment had two customers. Revenues attributable to the two customers were
$13.5 million, of which DEFS and Enron Corp. accounted for 63% and 37% of
revenues of the Midstream Segment, respectively.

The Partnership manages its exposure to credit risk through credit
analysis, credit approvals, credit limits and monitoring procedures. The
Partnership utilizes letters of credit and guarantees for certain of its
receivables. However, these procedures and policies may not fully eliminate
customer credit risk. The bankruptcy of Enron Corp. and certain of its
subsidiaries in December 2001 has made doubtful the collection of approximately
$4.3 million of transportation deficiency payments by the Partnership.

Competition

The most significant
competition for the NGL pipeline operations portion of the
Partnerships Midstream Segment comes primarily from proprietary
pipelines owned and operated by major oil and gas companies or other
large independent pipeline companies with contiguous operations. The
ability to compete in the NGL pipeline area is based primarily on the
quality of customer service, knowledge of products and markets, and
market-responsive transportation rates.

The majority of the
recently reported growth in the Midstream Segment is due to the
acquisition of the Jonah Gas Gathering System in Wyoming. Typically
new supplies of natural gas are necessary to offset the natural
declines in production from wells connected to any gathering system.
The Jonah and Pinedale fields that are the focus of the
Partnerships Jonah System in Wyoming are both relatively young
producing areas, characterized by long-lived production profiles and
many years of significant growth potential ahead. The Partnership
expects to aggressively market this system by obtaining contracts to
gather additional natural gas supplies.

Competition in the
natural gas gathering portion of the Partnerships Midstream
Segment is based in large part on reputation, efficiency, system
reliability, system capacity, and market responsive pricing
arrangements. Key competitors in the gathering and treating segment
include independent gas gatherers as well as other major integrated
energy companies. Alternate gathering facilities may be available to
producers served by the Partnerships Midstream Segment, and
those producers could also elect to construct proprietary gas
gathering systems. Success in the gas gathering and treating business
segment is based primarily on thorough understanding of the needs of
the producers served, as well as a strong commitment to providing
responsive, high-quality customer service.

If the production
ultimately delivered to a Partnership gathering system declines,
revenues from such operations would also be adversely affected. If
such declines are sustained or substantial, then the Partnership could
experience a material adverse effect on its financial position,
results of operations or cash flows.

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Title to Properties

The Partnership believes it has satisfactory title to all of its assets.
The properties are subject to liabilities in certain cases, such as customary
interests generally contracted in connection with acquisition of the
properties, liens for taxes not yet due, easements, restrictions, and other
minor encumbrances. In February 2002, a producer on the Jonah System notified
Alberta Energy Company that it has a right to acquire all or a portion of the
assets comprising Jonah. See Items 1 and 2. Business and Properties,
Midstream Segment  Gathering of Natural Gas, Fractionation of NGLs and
Transportation of NGLs for a more detailed discussion of the matter. The
Partnership believes none of these liabilities materially affects the value of
its properties or the Partnerships interest therein or will materially
interfere with their use in the operation of the Partnerships business.

Capital Expenditures

Capital expenditures, excluding acquisitions, by the Partnership totaled
$107.6 million for the year ended December 31, 2001. Revenue generating
projects include those projects which expand service into new markets or expand
capacity into current markets. Maintenance capital spending includes projects
required by regulatory agencies or required life-cycle replacements. System
upgrade projects improve operational efficiencies or reduce cost. The
Partnership capitalizes interest costs incurred during the period that
construction is in progress. The following table identifies capital
expenditures by segment for the year ended 2001 (in millions):

|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |       | 
|------------------ | ----- | - | ---------- | ---- | ----------- | - | -------- | ---- | ----------- | - | ----- | --- |  | - | --- | --- |  | - | ---- | ----- | 
|                   |       |   | Revenue    |      | Maintenance |   | System   |      | Capitalized |   |       |     | 
|                   |       |   | Generating |      | Capital     |   | Upgrades |      | Interest    |   | Total
|                   |       |   |            |      |             |   |          |      |             |   |      
|Downstream Segment |       | $ | 62.2       |      |             | $ | 12.7     |      |             | $ | 3.0   |     |  | $ | 3.5 |     |  | $ | 81.4 |      
|Upstream Segment   |       |   | 5.0        |      |             |   | 4.7      |      |             |   | 2.8   |     |  |   | 0.4 |     |  |   | 12.9 |      
|Midstream Segment  |       |   | 12.1       |      |             |   | 1.1      |      |             |   |      |     |  |   | 0.1 |     |  |   | 13.3 |      
|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |      
|                   | Total |   | $          | 79.3 |             |   | $        | 18.5 |             |   | $     | 5.8 |  |   | $   | 4.0 |  |   | $    | 107.6 | 
|                   |       |   |            |      |             |   |          |      |             |   |       |     |  |   |     |     |  |   |      |      

Revenue generating capital spending by the Downstream Segment included
$35.5 million used to expand the Partnerships capacity to support the receipt
connection point at Beaumont, Texas, and delivery location at Creal Springs,
Illinois, with Centennial and $17.4 million used to construct connections and
related facilities for the petrochemical pipelines at Mont Belvieu. Revenue
generating capital spending of the Midstream Segment related to the Dean
pipeline and the ongoing expansion of the Jonah System that was assumed by the
Partnership upon the purchase on September 30, 2001.

The Partnership estimates that capital expenditures, excluding
acquisitions, for 2002 will be approximately $74 million (which includes $4
million of capitalized interest). Approximately $31 million is expected to be
used for revenue generating projects. Approximately $27 million is expected to
be used for maintenance capital spending and approximately $12 million for
system upgrade projects. Revenue generating projects will include the
completion of facilities to support the receipt and delivery locations with
Centennial, the completion of the Jonah System expansion, additional well
connections to the Jonah System and other projects to expand service
capabilities of the Partnership. Approximately $4.9 million of maintenance
capital spending is expected to be used for pipeline rehabilitation projects to
comply with regulations enacted by the United States Department of
Transportation Office of Pipeline Safety (OPS). The Partnership continually
reviews and evaluates potential capital improvements and expansions that would
be complementary to its present business segments. These expenditures can vary
greatly depending on the magnitude of these transactions by the Partnership.
Capital expenditures may be financed through internally generated funds, debt
or the issuance of additional Limited Partner Units.

Regulation

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

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Rates of interstate oil pipeline companies, like the Partnership, are
currently regulated by the FERC primarily through an index methodology, whereby
a pipeline is allowed to change its rates based on the change from year to year
in the Producer Price Index for finished goods less 1% (PPI Index). In the
alternative, interstate oil pipeline companies may elect to support rate
filings by using a cost-of-service methodology, competitive market showings
(Market-Based Rates) or agreements between shippers and the oil pipeline
company that the rate is acceptable (Settlement Rates).

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

Effective July 1, 1999, TE Products established Settlement Rates with
certain shippers of LPGs under which the rates in effect on June 30, 1999,
would not be adjusted for a period of either two or three years. Other LPGs
transportation tariff rates were reduced pursuant to the PPI Index
(approximately 1.83%), effective July 1, 1999.

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

While the FERC does not directly regulate the natural gas gathering
operations of the Jonah System, federal regulation, directly or indirectly,
influences the parties that gather natural gas on the Jonah System. The Jonah
System is exempt from FERC regulation under the Natural Gas Act of 1938 since
it is an intrastate gas gathering system rather than an interstate transmission
pipeline. However, FERC regulation still significantly affects the Midstream
Segment. In recent years, FERC has pursued pro-competition policies in its
regulation of interstate natural gas pipelines. If the FERC does not continue
the pro-competition policy as it considers pipeline rate case proposals,
revisions to rules and policies that affect shipper rights of access to
interstate natural gas transportation capacity, or proposals by natural gas
pipelines to allow natural gas pipelines to charge negotiated rates without
rate ceiling limits, such policy changes could have an adverse effect on the
gathering rates the Midstream Segment is able to charge in the future.

Environmental Matters

The operations of the Partnership are subject to federal, state and local
laws and regulations governing the discharge of materials into the environment
otherwise relating to environmental protection. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil, and
criminal penalties, imposition of injunctions delaying or prohibiting certain
activities, and the need to perform investigatory and remedial activities.
Although the Partnership believes its operations are in material compliance
with applicable environmental laws and regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages

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to property or persons resulting from its operations, could result in
substantial costs and liabilities to the Partnership. The Company does not
anticipate that changes in environmental laws and regulations will have a
material adverse effect on the Partnerships financial position, results of
operations or cash flows in the near term.

Water

The Federal Water Pollution Control Act of 1972, as renamed and amended as
the Clean Water Act (CWA), and analogous state laws impose strict controls
against the discharge of oil and its derivatives into navigable waters. The CWA
provides penalties for any discharges of petroleum products in reportable
quantities and imposes substantial potential liability for the costs of
removing petroleum or other hazardous substances. State laws for the control of
water pollution also provide varying civil and criminal penalties and
liabilities in the case of a release of petroleum or its derivatives in
navigable waters or into groundwater. Spill prevention control and
countermeasure requirements of federal laws require appropriate containment
berms and similar structures to help prevent a petroleum tank release from
impacting navigable waters.

Contamination resulting from spills or releases of refined petroleum
products is an inherent risk within the petroleum pipeline industry. To the
extent that groundwater contamination requiring remediation exists along its
pipeline systems as a result of past operations, the Partnership believes any
such contamination could be controlled or remedied without having a material
adverse effect on the financial condition of the Partnership, but such costs
are site specific, and there can be no assurance that the effect will not be
material in the aggregate.

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

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

Air Emissions

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

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Risk Management Plans

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

Solid Waste

The Partnership generates hazardous and non-hazardous solid wastes that
are subject to requirements of the federal Resource Conservation and Recovery
Act (RCRA) and comparable state statutes. Amendments to RCRA required the EPA
to promulgate regulations banning the land disposal of all hazardous wastes
unless the wastes meet certain treatment standards or the land-disposal method
meets certain waste containment criteria. From time to time, the EPA considers
the adoption of stricter disposal standards for non-hazardous wastes, including
crude oil and gas wastes. The adoption of such stricter standards for
non-hazardous wastes, or any future re-designation of non-hazardous wastes as
hazardous wastes will likely increase the operating expenses of the Partnership
as well as the industry in general. The Partnership utilizes waste
minimization and recycling processes to reduce the volume of its waste. The
Partnership currently has one permitted on-site waste water treatment facility.
Operating expenses of this facility has not had a material adverse effect on
the financial position, results of operations or cash flows of the Partnership.

Superfund

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

In December 1999, the Company was notified by the EPA of potential
liability for alleged waste disposal at Container Recycling, Inc., located in
Kansas City, Kansas. The Company was also asked to respond to an EPA
Information Request. The Companys response to the information request has
been filed with the EPA Region VII office. Based on information the Company
has received from the EPA, as well as through its internal investigations, the
Company is pursuing dismissal from this matter.

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Other Environmental Proceedings

In 1994, the Partnership and the Indiana Department of Environmental
Management (IDEM) entered into an Agreed Order that resulted in the
implementation of a remediation program for groundwater contamination
attributable to the Partnerships operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnerships proposed remediation
program, was approved by IDEM in 1999. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision is issued, the Partnership will enter into a subsequent Agreed Order
for the continued operation and maintenance of the remediation program. The
Partnership has an accrued liability of $0.6 million at December 31, 2001, for
future remediation costs at the Seymour terminal. In the opinion of the
Company, the completion of the remediation program will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

In 1994, the Partnership was issued a compliance order from the Louisiana
Department of Environmental Quality (LDEQ) relative to environmental
contamination at the Partnerships Arcadia, Louisiana, facility. This
contamination may be attributable to the operations of the Partnership, as well
as adjacent petroleum terminals operated by other companies. In 1999, the
Partnerships Arcadia facility and the adjacent terminals were directed by the
Remediation Services Division of the LDEQ to pursue remediation of this
containment phase. In the opinion of the Company, the completion of the
remediation program that is proposed by the Partnership will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

During 2001, the Partnership accrued $8.6 million to complete
environmental remediation activities at certain of the sites owned by TCTM and
its subsidiaries. In establishing this accrual, the Partnership expensed $4.4
million for these environmental remediation costs and recorded a receivable of
$4.2 million for the remainder. The receivable is based on a contractual
indemnity obligation for specified environmental liabilities owed by DEFS to
the Partnership in connection with the Partnerships acquisition of the
Upstream Segment from DEFS in November 1998. Under this indemnity obligation,
the Partnership is responsible for the first $3.0 million in specified
environmental liabilities, with DEFS becoming responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2001, an accrual of $6.4 million remains
outstanding related to TCTM environmental remediation activities. The majority
of the indemnified costs relate to remediation activities at the Velma crude
oil site in Stephens County, Oklahoma, attributable to operations prior to the
Partnerships acquisition of the Upstream Segment. Remediation activities at
the Velma crude oil site are being conducted according to a work plan approved
by the Oklahoma Corporation Commission. In the opinion of the Company, the
completion of remediation programs associated with this release will not have a
future material adverse effect on the Partnerships financial condition,
results of operations or cash flows.

Safety Regulation

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

The Partnership is subject to the OPS regulation requiring qualification
of pipeline personnel. The regulation requires pipeline operators to develop
and maintain a written qualification program for individuals performing covered
tasks on pipeline facilities. The intent of this regulation is to ensure a
qualified work force and to reduce the probability and consequence of incidents
caused by human error. The regulation establishes qualification requirements
for individuals performing covered tasks, and amends certain training
requirements in existing regulations. A written qualification program was
completed in April 2001, and individuals performing a covered task must be
qualified by October 2002.

The Partnership is also subject to the OPS Integrity Management
regulations which specifies how companies with greater than 500 miles of
pipeline should assess, evaluate, validate and maintain the integrity of

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pipeline segments that, in the event of a release, could impact High
Consequence Areas (HCA). HCA are defined as highly populated areas,
unusually sensitive environmental areas and commercially navigable waterways.
The regulation requires an Integrity Management Program (IMP) be developed
that utilizes internal pipeline inspection, pressure testing, or other equally
effective means to assess the integrity of HCA pipeline segments. The
regulation also requires periodic review of HCA pipeline segments to ensure
adequate preventative and mitigative measures exist and that companies take
prompt action to address integrity issues raised by the assessment and
analysis. In compliance with these OPS regulations, the Partnership has
identified its HCA pipeline segments and will develop an IMP by March 31, 2002.
The regulations require that initial HCA baseline integrity assessments are
conducted within seven years, with all subsequent assessments conducted on a
five-year cycle. The Partnership will evaluate each pipeline segments
integrity by analyzing available information and develop a range of potential
impacts resulting from a release to a HCA. The Partnership is currently
developing cost estimates related to its baseline integrity assessments.

The Partnership is also subject to the requirements of the federal OSHA
and comparable state statutes. The Partnership believes it is in material
compliance with OSHA and state requirements, including general industry
standards, record keeping requirements and monitoring of occupational
exposures.

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

In general, the General Partner expects to increase the expenditures of
the Partnership during the next decade to comply with stricter industry and
regulatory safety standards such as those described above. While such
expenditures cannot be accurately estimated at this time, the Company does not
believe that they will have a future material adverse effect on the
Partnerships financial condition, results of operations or cash flows.

Employees

The Partnership does not have any employees, officers or directors. The
General Partner is responsible for the management of the Partnership and
Operating Partnerships. As of December 31, 2001, the General Partner had 919
employees.




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

General

The following information is provided to facilitate increased
understanding of the 2001, 2000 and 1999 consolidated financial statements and
accompanying notes of the Partnership listed in the Index to Financial
Statements on page F-1 of this report. Accounting policies that are among the
most critical to the portrayal of the Partnerships financial condition and
results of operations are discussed under Critical Accounting Policies.
Material period-to-period variances in the consolidated statements of income
are discussed under Results of Operations. The Financial Condition and
Liquidity section analyzes cash flows and financial position. Discussion
included in Other Considerations addresses trends, future plans and
contingencies that are reasonably likely to materially affect future liquidity
or earnings.

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The Partnership operates and reports in three business segments:



| |  |  | Downstream Segment  transportation and storage of refined
products, LPGs, and petrochemicals;                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Upstream Segment  gathering, transportation, marketing and
storage of crude oil; and distribution of lubrication oils and
specialty chemicals; and
|
| |  |  | Midstream Segment  gathering of natural gas, fractionation
of NGLs and transportation of NGLs.                                                    

The Partnerships reportable segments offer different products and
services and are managed separately because each requires different business
strategies. Each of the subsidiaries of the Partnership that are limited
partnerships is managed by TEPPCO GP, a wholly-owned subsidiary of the
Partnership that acts as managing general partner with a 0.001% general partner
interest.

Effective January 1, 2002, the Partnership realigned its three business
segments in order to separate and better measure the performance of its natural
gas and NGL operations from its crude oil operations. The fractionation of
NGLs, which was previously reflected as part of the Downstream Segment, was
shifted to the Midstream Segment. The operation of NGL pipelines, which was
previously reflected as part of the Upstream Segment, was also shifted to the
Midstream Segment. The year-to-year comparisons have been adjusted to conform
to the current presentation.

The Downstream Segment revenues are derived from the transportation and
storage of refined products and LPGs, storage and short-haul shuttle
transportation of LPGs at the Mont Belvieu complex, intrastate transportation
of petrochemicals, sale of product inventory and other ancillary services.
Labor and electric power costs comprise the two largest operating expense items
of the Downstream Segment. Operations are somewhat seasonal with higher
revenues generally realized during the first and fourth quarters of each year.
Refined products volumes are generally higher during the second and third
quarters because of greater demand for gasolines during the spring and summer
driving seasons. LPGs volumes are generally higher from November through March
due to higher demand in the Northeast for propane, a major fuel for residential
heating.

The Upstream Segment revenues are earned from the gathering,
transportation, marketing and storage of crude oil and distribution of
lubrication oils and specialty chemicals, principally in Oklahoma, Texas and
the Rocky Mountain region. Marketing operations consist primarily of
aggregating purchased crude oil along its pipeline systems, or from third party
pipeline systems, and arranging the necessary logistics for the ultimate sale
of the crude oil to local refineries, marketers or other end users.

On July 20, 2000, the Partnership completed an acquisition of assets from
ARCO for $322.6 million, which included $4.1 million of acquisition-related
costs other than the purchase price. An additional $11.0 million was paid in
October 2001, for final post-closing adjustments. The purchased assets included
ARCOs 50-percent voting interest in Seaway. The Partnership assumed ARCOs
role as operator of this pipeline. The Company also acquired ARCOs crude oil
terminal facilities in Cushing and Midland, including the line transfer and
pumpover business at each location, an undivided ownership interest in both the
Rancho Pipeline and the Basin Pipeline, both of which are operated by another
joint owner, and the receipt and delivery pipelines known as the West Texas
Trunk System, located around the Midland terminal. The transaction was
accounted for under the purchase method of accounting. The results of
operations of the assets acquired have been included in the Upstream Segment
since the purchase on July 20, 2000.

The Midstream Segment revenues are earned from gathering of natural gas,
fractionation of NGLs in Colorado and transportation of NGLs. On December 31,
2000, the Company completed an acquisition of certain pipeline assets from DEFS
for $91.7 million, which included $0.7 million of acquisition related costs.
The purchase included two NGL pipelines in East Texas: the Panola Pipeline, a
pipeline from Carthage, Texas, to Mont Belvieu, Texas, and the San Jacinto
Pipeline, a pipeline from Carthage to Longview, Texas. The pipelines originate
at DEFS East Texas Plant Complex in Panola County, Texas. The acquisition of
the assets was accounted for under the purchase method of accounting.

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The Midstream Segment also includes operations acquired on September 30,
2001, when the Partnership acquired Jonah from Alberta Energy Company for
$359.8 million. An additional $7.2 million was accrued at December 31, 2001,
for final purchase adjustments related primarily to construction projects in
progress at the time of closing. The acquisition was accounted for under the
purchase method of accounting. Accordingly, the results of operations of the
acquisition are included in the Partnerships consolidated financial statements
in the fourth quarter of 2001. The Jonah assets are managed and operated by
DEFS under a contract arrangement.

Critical Accounting Policies

Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Changes in these estimates could materially affect
the financial condition, results of operations or cash flows.

Environmental Costs

The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable.
The balance of accrued undiscounted environmental liabilities are monitored on
a regular basis by management. Liabilities for environmental costs at a
specific site are initially recorded when the Partnerships liability for such
costs, including direct internal and legal costs, is probable and a reasonable
estimate of the associated costs can be made. Adjustments to initial estimates
are recorded, from time to time, to reflect changing circumstances and
estimates based upon additional information developed in subsequent periods.
Estimates of the Partnerships ultimate liabilities associated with
environmental costs are particularly difficult to make with certainty due to
the number of variables involved, including the early stage of investigation at
certain sites, the lengthy time frames required to complete remediation
alternatives available and the evolving nature of environmental laws and
regulations. For information concerning environmental regulation and
environmental costs and contingencies, see Item 1 and 2. Business and
Properties  Environmental Matters in this Report.

Property, Plant and Equipment

Statement of Financial Accounting Standards (SFAS) No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Ofrequires that an entity review long-lived assets, including
property, plant and equipment, whenever events occur that indicate that the
book value of an asset may not be recoverable in the future. In August 2001,
the Financial Accounting Standards Board (FASB) issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.SFAS 144
supercedes SFAS 121, but retains its fundamental provisions for reorganizing
and measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale. During the second quarter of
2001, Pennzoil-Quaker State Company (Pennzoil) sold its Shreveport,
Louisiana, refinery and canceled refined products production. Pennzoil and TE
Products negotiated a settlement of $18.9 million to terminate a long-term
transportation agreement from the Shreveport origin point on the Products
Pipeline System. Under the transportation agreement, Pennzoil had a throughput
commitment of 25,000 barrels per day. The Partnership is pursuing various
alternatives related to the reduced receipt volumes including making system
changes to allow for bi-directional product flow to make deliveries into the
Shreveport market area. The Partnership has evaluated the impact of the
contract termination on the pipeline segment from Shreveport to El Dorado,
Arkansas, in accordance with SFAS 144. The evaluation did not result in an
impairment of the carrying value of the related transportation assets. The
termination payment was recorded as refined products transportation revenue in
2001. However, if alternative revenue sources are not realized on this
pipeline segment, an impairment may be recorded, which could have a material
adverse effect on the Partnerships financial condition, results of operations
or cash flows.

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Intangible Assets

On September 30, 2001, the Partnership completed the purchase of all of
the partnership interests of Jonah from Alberta Energy Company for $359.8
million. An additional $7.2 million was accrued at December 31, 2001, for
final purchase adjustments related primarily to construction projects in
progress at the time of closing. In connection with this acquisition, the
Partnership assumed contracts that dedicate future production from natural gas
wells in the Green River Basin in the State of Wyoming. The Partnership
assigned $222.8 million of the purchase price to these production contracts
based upon a fair value appraisal at the time of closing. The value assigned to
intangible assets are amortized over the expected lives of the contracts
(approximately 16 years) in proportion to the timing of the expected
contractual volumes. On an annual basis, the Partnership will update
production estimates of the natural gas wells and reassess the remaining useful
life of the contract assets. Changes in the estimated remaining production
could negatively impact the timing of amortization expense reported for future
periods.

Results of Operations

Summarized below is financial data by business segment (in thousands):

|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |           | 
|------------------------- | ------------------------- | ------------------------------ | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- |  | ------- | --------- | --------- | 
|                          |                           |                                |         | Years Ended December 31,
|                          |                           |                                |         |                         
|                          |                           |                                |         | 2001                     |           | 2000 |         | 1999     
|                          |                           |                                |         |                          |           |      |         |          
|Operating revenues:       |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                | $       | 264,233                  |           |      | $       | 229,234   |           |  | $       | 222,915   |          
|                          | Midstream Segment         |                                |         | 37,242                   |           |      |         | 14,462    |           |  |         | 13,478    |          
|                          | Upstream Segment          |                                |         | 3,255,260                |           |      |         | 2,844,245 |           |  |         | 1,698,490 |          
|                          | Intercompany eliminations |                                |         | (322                     | )         |      |         |          |           |  |         |          |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|                          |                           | Total operating revenues       |         |                          | 3,556,413 |      |         |           | 3,087,941 |  |         |           | 1,934,883 | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|Operating income:         |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 117,676                  |           |      |         | 85,441    |           |  |         | 84,880    |          
|                          | Midstream Segment         |                                |         | 15,823                   |           |      |         | 8,886     |           |  |         | 8,302     |          
|                          | Upstream Segment          |                                |         | 17,490                   |           |      |         | 13,698    |           |  |         | 6,908     |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|                          |                           | Total operating income         |         |                          | 150,989   |      |         |           | 108,025   |  |         |           | 100,090   | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|Earnings before interest: |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 118,064                  |           |      |         | 87,092    |           |  |         | 86,351    |          
|                          | Midstream Segment         |                                |         | 15,897                   |           |      |         | 9,123     |           |  |         | 8,502     |          
|                          | Upstream Segment          |                                |         | 38,027                   |           |      |         | 26,373    |           |  |         | 7,433     |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|                          |                           | Total earnings before interest |         |                          | 171,988   |      |         |           | 122,588   |  |         |           | 102,286   | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|Interest expense          |                           |                                | (66,057 | )                        |           |      | (48,982 | )         |           |  | (31,563 | )        
|Interest capitalized      |                           |                                | 4,000   |                          |           |      | 4,559   |           |           |  | 2,133   |          
|Minority interest         |                           |                                | (800    | )                        |           |      | (789    | )         |           |  | (736    | )        
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          
|                          |                           | Net income                     |         | $                        | 109,131   |      |         | $         | 77,376    |  |         | $         | 72,120    | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |          

The results for the year ended 2001 reflect the acquisition of Jonah on
September 30, 2001. The results for the year ended 2000 reflect the increased
operations in the Upstream Segment resulting from the acquisition of the ARCO
assets in July 2000, which results were impacted in 2001 as a result of having
a full year of operations attributed to the former ARCO assets.

Following is a detailed analysis of the results of operations, discussing
the reasons for changes in results, by each operating segment of the
Partnership.

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Downstream Segment

Volume and average tariff information for 2001, 2000 and 1999 is presented
below:

|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |    |   
|------------------------- | ----------------------- | -------------------------------- | - | ----------------------------------------- | ------- | ------------------- | - | ------- | ------- | ---- | - | ------- | ------- |  |  | ---------- | -- | -- |  | -- | -- | --
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  | Percentage
|                          |                         |                                  |   | Years Ended December 31,                  |         | Increase (Decrease)
|                          |                         |                                  |   |                                           |         |                    
|                          |                         |                                  |   | 2001                                      |         | 2000                |   | 1999    |         | 2001 |   | 2000   
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |        
|                          |                         |                                  |   | (in thousands, except tariff information) |         |                     |   |         |         |      |   |        
|Volumes Delivered         |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |   
|                          | Refined products        |                                  |   | 122,947                                   |         |                     |   | 128,151 |         |      |   | 132,642 |         |  |  | (4         | )% |    |  | (3 | )% |   
|                          | LPGs                    |                                  |   | 39,957                                    |         |                     |   | 39,633  |         |      |   | 37,575  |         |  |  | 1          | %  |    |  | 5  | % 
|                          | Mont Belvieu operations |                                  |   | 23,122                                    |         |                     |   | 27,159  |         |      |   | 28,535  |         |  |  | (15        | )% |    |  | (5 | )%
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   
|                          |                         | Total                            |   |                                           | 186,026 |                     |   |         | 194,943 |      |   |         | 198,752 |  |  |            | (5 | )% |  |    | (2 | )%
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   
|Average Tariff per Barrel |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |   
|                          | Refined products        |                                  | $ | 0.98                                      | (1)     |                     | $ | 0.93    |         |      | $ | 0.93    |         |  |  | 5          | %  |    |  |   |   
|                          | LPGs                    |                                  |   | 1.95                                      |         |                     |   | 1.86    |         |      |   | 1.80    |         |  |  | 5          | %  |    |  | 3  | % 
|                          | Mont Belvieu operations |                                  |   | 0.18                                      |         |                     |   | 0.16    |         |      |   | 0.16    |         |  |  | 13         | %  |    |  |   |   
|                          |                         | Average system tariff per barrel |   | $                                         | 1.09    |                     |   | $       | 1.01    |      |   | $       | 0.98    |  |  |            | 8  | %  |  |    | 3  | % 
|                          |                         |                                  |   |                                           |         |                     |   |         |         |      |   |         |         |  |  |            |    |    |  |    |   



---

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

2001 Compared to 2000

For the year ended 2001, the Downstream Segment reported earnings before
interest of $118.1 million, compared with earnings before interest of $87.1
million for the year ended 2000. The $31.0 million increase in earnings before
interest was primarily due to a $35.0 million increase in operating revenues,
partially offset by a $2.8 million increase in costs and expenses, $1.1 million
in losses from equity investments and a $0.1 million decrease in other income
 net. Factors influencing these variances are described below.

Refined products transportation revenues increased $20.0 million for the
year ended 2001, compared with 2000, primarily due to $18.9 million of revenue
recognized on the canceled transportation agreement with Pennzoil and the
recognition of $1.7 million of previously deferred revenue related to the
approval of Market-Based Rates during the second quarter of 2001. See further
discussion regarding these factors included in Other Considerations. These
increases were partially offset by a 4% decrease in refined products volumes
delivered. Deliveries of MTBE decreased 4.3 million barrels as a result of the
expiration of contract deliveries to the Partnerships marine terminal near
Beaumont, Texas, in April 2001. As a result of the contract expiration, the
Partnership no longer transports MTBE through its Products Pipeline System.
Jet fuel volumes decreased 2.7 million barrels, or 10%, due to reduced air
travel demand in the Midwest market areas. The total refined products volume
decrease was partially offset by increased distillate demand in the
South-Central market areas and increased distillate deliveries at a third-party
terminal in Houston, Texas. The refined products average rate per barrel
increased 5% from the prior-year period primarily due to an increased
percentage of long-haul volumes delivered in 2001.

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

Revenues generated from Mont Belvieu operations increased $0.8 million
during the year ended 2001, compared with 2000, as a result of increased
loading fees, brine service revenue and butane segregation charges, partially
offset by lower contract storage revenue. Mont Belvieu shuttle deliveries
decreased 15% during the year

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ended 2001, compared with 2000, due to reduced propane and butane demand for
petrochemical feedstock along the upper Texas Gulf Coast. The Mont Belvieu
average rate per barrel increased in 2001 as a result of increased non-contract
deliveries, which generally carry higher rates.

Other operating revenues increased $10.3 million during the year ended
2001, compared with 2000, primarily due to an $8.9 million increase in contract
petrochemical delivery revenue, which started during the fourth quarter of
2000, increased refined products loading fees, increased propane deliveries at
the Providence, Rhode Island, import facility and increased gains on product
sales. These increases were partially offset by losses incurred as a result of
exchanging products at different geographic points of delivery to position
product in the Midwest market area.

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

Net loss from equity investments totaled $1.1 million during the year
ended 2001 due primarily to pre-operating expenses of Centennial. Other income
 net decreased $0.1 million during the year ended 2001, compared with 2000,
due primarily to lower interest income earned on cash investments.

The Downstream Segment is dependent in large part on the demand for
refined petroleum products in the markets served by its pipelines. Reductions
in that demand adversely affect the pipeline business of the Downstream
Segment. Market demand varies based upon the different end uses of the refined
products shipped in the Downstream Segment. Demand for gasoline, which has in
recent years accounted for approximately one-half of the Downstream Segments
refined products transportation revenues, depends upon price, prevailing
economic conditions and demographic changes in the markets served in the
Downstream Segment. Weather conditions, governmental policy and crop prices
affect the demand for refined products used in agricultural operations. Demand
for jet fuel, which has in recent years accounted for almost one-quarter of the
Downstream Segments refined products revenues, depends on prevailing economic
conditions and military usage. Propane deliveries are generally sensitive to
the weather and meaningful year-to-year variances have occurred and will likely
continue to occur.

2000 Compared to 1999

For the year ended 2000, earnings before interest of the Downstream
Segment increased $0.7 million compared with 1999 primarily due to a $6.3
million increase in operating revenues, partially offset by a $5.8 million
increase in costs and expenses. Factors influencing these variances are
described below.

Refined products transportation revenues decreased $3.7 million for the
year ended 2000, compared with 1999, as a result of a 3% decrease in total
refined products volumes delivered. Motor fuel volumes delivered decreased by
2.5 million barrels and distillate volumes delivered decreased by 1.8 million
barrels due primarily to a local refinery expansion in the West Memphis market
and unfavorable price differentials in the Midwest market area. Natural
gasoline volumes delivered declined 1.3 million barrels due primarily to the
expiration of a contract in late 1999 for deliveries to the Chicago area, along
with unfavorable processing and blending economics in the Chicago market area.
These decreases were primarily offset by a 1.2 million barrel increase in jet
fuel volumes delivered due to continued strong demand in the Chicago market
area and at the Cincinnati airport that is supplied by the Partnership. The
Partnership deferred recognition of approximately $1.5 million of revenue
during the year

24



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##### Table of Contents



ended 2000, with respect to potential refund obligations for rates charged
in excess of the PPI Index while its application for Market-Based Rates was
under review by the FERC.

LPGs transportation revenues increased $6.2 million for the year ended
2000, compared with 1999, due to a 5% increase in volumes delivered and a 3%
increase in the average LPGs tariff per barrel. Colder winter weather during
the first and fourth quarters of 2000, coupled with lower customer storage
levels contributed to a 1.2 million barrel increase in propane volumes
delivered in the Northeast market area and a 0.9 million barrel increase in
propane volumes delivered in the Midwest market area. Increased refinery demand
in the Northeast market area resulted in a 0.2 million barrel increase in
butane volumes delivered. The larger percentage of long-haul deliveries during
2000 resulted in a 3% increase in the average LPGs tariff per barrel.

Revenues generated from Mont Belvieu operations increased $0.5 million for
the year 2000, compared with 1999, primarily due to increased brine handling
fees and higher storage revenue.

Other operating revenues increased $3.3 million during the year ended
2000, compared with 1999, primarily due to $1.8 million of deficiency revenue
recognized in the fourth quarter of 2000 related to the beginning of a 20-year
contract for petrochemical deliveries at Port Arthur, and a $0.5 million
increase in gains on the sale of product inventory attributable to higher
market prices in 2000. The additional increases resulted from increased refined
products terminaling revenue and increased custody transfer services at Mont
Belvieu facilities.

Costs and expenses of the Downstream Segment increased $5.8 million during
the year ended 2000, compared with 1999, due to a $2.9 million increase in
operating, general and administrative expenses, a $2.3 million increase in
operating fuel and power expense and a $0.6 million increase in depreciation
and amortization charges. The increase in operating, general and
administrative expenses was primarily attributable to $0.9 million of expense
recognized in the first quarter of 2000 to write-off project evaluation costs,
a $2.3 million increase in general and administrative supplies and services, a
$1.5 million increase in legal services, a $1.0 million increase in pipeline
operations and maintenance expenses, a $0.7 million increase in labor related
expenses and a $0.3 million increase in product measurement losses. The
write-off of project evaluation costs resulted from the announcement in March
2000 of the Partnerships abandonment of its plan to construct a pipeline from
Beaumont to Little Rock in favor of participation in the Centennial joint
venture. These increases in operating, general and administrative expenses were
partially offset by a $3.9 million decrease in expenses associated with Year
2000 activities incurred in 1999. The increase in operating fuel and power
expense from the prior year resulted primarily from higher fuel prices charged
by electric utilities in 2000. Depreciation and amortization expense increased
as a result of $0.3 million in depreciation expense related to the completion
of the petrochemical pipelines and other capital additions placed in service
throughout 2000.

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##### Table of Contents



Upstream Segment

Margin of the Upstream Segment is calculated as revenues generated from
the sale of crude oil and lubrication oil, and transportation of crude oil,
less the costs of purchases of crude oil and lubrication oil. Margin is a more
meaningful measure of financial performance than operating revenues and
operating expenses due to the significant fluctuations in revenues and expenses
caused by variations in the level of marketing activity and prices for products
marketed. Margin and volume information for the years ended 2001, 2000 and
1999 is presented below (in thousands, except per barrel and per gallon
amounts):

|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |        | 
|--------------------------------------- | ------------------------ | ------------ | ----- | ------------------------ | ------ | ---- | ----- | ------- | ------ | - | ----- | ------ | ------ | 
|                                        |                          |              |       | Years Ended December 31,
|                                        |                          |              |       |                         
|                                        |                          |              |       | 2001                     |        | 2000 |       | 1999   
|                                        |                          |              |       |                          |        |      |       |        
|Margins:                                |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              | $     | 34,316                   |        |      | $     | 23,486  |        |   | $     | 17,873 |       
|                                        | Crude oil marketing      |              |       | 21,664                   |        |      |       | 13,320  |        |   |       | 12,065 |       
|                                        | Crude oil terminaling    |              |       | 9,769                    |        |      |       | 4,554   |        |   |       |       |       
|                                        | Lubrication oil sales    |              |       | 4,127                    |        |      |       | 3,503   |        |   |       | 2,510  |       
|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |       
|                                        |                          | Total margin |       | $                        | 69,876 |      |       | $       | 44,863 |   |       | $      | 32,448 | 
|                                        |                          |              |       |                          |        |      |       |         |        |   |       |        |       
|Total barrels:                          |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              |       | 78,714                   |        |      |       | 46,225  |        |   |       | 33,267 |       
|                                        | Crude oil marketing      |              |       | 159,477                  |        |      |       | 107,607 |        |   |       | 96,252 |       
|                                        | Crude oil terminaling    |              |       | 121,932                  |        |      |       | 56,473  |        |   |       |       |       
|Lubrication oil volume (total gallons): |                          |              | 8,769 |                          |        |      | 7,974 |         |        |   | 8,891 |       
|Margin per barrel:                      |                          |              |       |                          |        |      |       |         |        |   |       |       
|                                        | Crude oil transportation |              | $     | 0.436                    |        |      | $     | 0.508   |        |   | $     | 0.537  |       
|                                        | Crude oil marketing      |              | $     | 0.136                    |        |      | $     | 0.124   |        |   | $     | 0.125  |       
|                                        | Crude oil terminaling    |              | $     | 0.080                    |        |      | $     | 0.081   |        |   |       |       |       
|Lubrication oil margin (per gallon):    |                          | $            | 0.471 |                          |        | $    | 0.439 |         |        | $ | 0.282 |       

2001 Compared to 2000

For the year ended 2001, the Upstream Segment reported earnings before
interest of $38.0 million, compared with earnings before interest of $26.4
million for the year ended 2000. The $11.6 million increase in earnings before
interest was primarily due to a $25.0 million increase in margin, a $6.4
million increase in other operating revenues, a $6.3 million increase in equity
earnings of Seaway, and a $1.5 million increase in other income  net. These
increases were partially offset by a $27.9 million increase in costs and
expenses (excluding purchases of crude oil and petroleum products). Factors
influencing these variances are described below.

Margin increased $25.0 million during the year ended 2001, compared with
2000. Crude oil transportation margin increased $10.8 million primarily due to
a full year benefit from the ARCO assets acquired in July 2000 and higher
volume on the Red River and South Texas systems, which benefited from increased
regional crude oil production and pipeline assets acquired from Valero Energy
Corp. (formerly Ultramar Diamond Shamrock) (UDS), in March 2001. Crude oil
marketing margin increased $8.3 million primarily due to volumes transported by
Seaway on behalf of the Upstream Segment. The transportation revenues
associated with these volumes resulted in $10.1 million included as a component
of crude oil marketing margin when consolidating the Upstream Segments equity
ownership in Seaway. Lower margins on other crude oil volumes marketed
partially offset the increase in crude oil marketing margin. Crude oil
terminaling margin increased $5.2 million as a result of pumpover volumes at
Midland and Cushing, related to the ARCO assets acquired in July 2000. Margin
contributed from lubrication oil sales increased $0.6 million primarily due to
increased volumes and increased rates on the margin realized per gallon.

Costs and expenses of the Upstream Segment, excluding expenses associated
with purchases of crude oil and petroleum products, increased $27.9 million
during the year ended 2001, compared with 2000. The increase was comprised of
a $20.5 million increase in operating, general and administrative expenses, a
$3.0 million increase in depreciation and amortization expense, a $3.9 million
increase in taxes  other than income taxes, and a $0.6 million increase in
operating fuel and power expense. The increase in operating, general and
administrative expenses was primarily attributable to operating expenses of the
acquired assets from ARCO, DEFS and UDS, a $4.4 million expense recorded in
2001 for environmental remediation, increased labor related costs and increased
general and administrative supplies and services expense. The increases in
depreciation and amortization expense, taxes  other than income taxes, and
operating fuel and power expense were primarily attributable to assets
acquired.

Equity earnings in Seaway increased $6.3 million for the year ended 2001,
compared with 2000, due to the full year contribution to earnings during 2001.
Equity earnings in Seaway will be affected in 2002 as a result of the

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##### Table of Contents



reduction of the sharing percentages of TCTM under the Seaway partnership
agreement. Beginning in June 2002, the Partnership participation in Seaway
will decrease from 80% of revenue and expense of Seaway to 60%. See Items 1
and 2. Business and Properties, Upstream Segment  Gathering,
Transportation, Marketing and Storage of Crude Oil for a more detailed
discussion.

Other operating revenue of the Upstream Segment increased $6.4 million for
the year ended 2001, compared with 2000, attributable to revenue from
documentation and other services to support customer trading activity at
Midland and Cushing. These revenues were added to the Partnerships business
on July 20, 2000, with the acquired ARCO assets.

2000 Compared to 1999

For the year ended 2000, the Upstream Segment reported earnings before
interest of $26.4 million, compared with earnings before interest of $7.4
million for the year ended 1999. The $19.0 million increase in earnings before
interest was comprised of a $12.4 million increase in margin, a $4.8 million
increase in other operating revenues and $12.2 million of equity earnings of
Seaway, partially offset by a $10.4 million increase in costs and expenses
(excluding purchases of crude oil and petroleum products). Factors influencing
these variances are described below.

Margin increased $12.4 million for the year ended 2000, compared with
1999. The increase was comprised of a $5.6 million increase in crude oil
transportation; a $4.6 million increase in crude oil terminaling attributable
to pumpover fees charged at Midland and Cushing, related to the ARCO assets
acquired in July 2000; a $1.3 million increase in crude oil marketing activity
and a $1.0 million increase in lubrication oil sales. The increase in crude
oil transportation margin was primarily attributable to $3.3 million
contributed by the ARCO assets acquired and $2.3 million from increased volume
and higher transportation rates on the South Texas and Red River systems, which
benefited from higher crude oil market prices. The increase in crude oil
marketing margin resulted from an increase in volumes marketed and higher sales
prices on volumes in third party pipeline systems. Total lubrication oil
volumes decreased 10% from the prior year due primarily to the discontinuation
of low margin fuel oil sales, effective April 2000.

Other operating revenue of the Upstream Segment included $4.8 million of
revenue related to documentation and other services to support customer trading
activity at Midland and Cushing. These revenues were added to the
Partnerships business on July 20, 2000, with the acquired ARCO assets.

Costs and expenses of the Upstream Segment, excluding expenses associated
with purchases of crude oil and petroleum products, increased $10.4 million for
the year ended 2000, compared with 1999, attributable primarily to $6.9 million
in costs and expenses from the acquired ARCO assets and a $3.9 million increase
in other operating, general and administrative expenses. The costs and
expenses associated with the acquired ARCO assets included $4.3 million in
operating, general and administrative expenses, $1.3 million in depreciation
and amortization charges, $1.1 million in operating fuel and power and $0.2
million in taxes  other than income taxes. The remaining increase in
operating, general and administrative expenses of the Upstream Segment resulted
primarily from pipeline system maintenance on the South Texas System in the
third quarter, increased labor related costs, additional operating costs
associated with asset acquisitions in North Texas and increased general and
administrative expenses for telecommunications and contract labor charges.

Earnings before interest of the Upstream Segment included $12.2 million of
equity earnings in Seaway, which were added to the Partnerships business on
July 20, 2000, with the acquired ARCO assets.

27



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##### Table of Contents



Midstream Segment

The following table presents volume and average rate information for the
years ended December 31, 2001, 2000 and 1999:

|                         |                         |  |                          |        |      |  |      |       |  |  |   |       | 
|------------------------ | ----------------------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  | - | ----- | 
|                         |                         |  | Years Ended December 31,
|                         |                         |  |                         
|                         |                         |  | 2001                     |        | 2000 |  | 1999
|                         |                         |  |                          |        |      |  |     
|Gathering  Natural Gas: |                         |  |                          |        |      |  |      |       |  |  |   |      
|                         | Bcf                     |  |                          | 45.5   |      |  |      |      |  |  |   |      | 
|Transportation  NGLs:   |                         |  |                          |        |      |  |      |       |  |  |   |      
|                         | Thousand barrels        |  |                          | 21,538 |      |  |      | 5,201 |  |  |   | 4,580 | 
|                         | Average rate per barrel |  | $                        | 0.972  |      |  | $    | 1.348 |  |  | $ | 1.377 | 
|Fractionation  NGLs:    |                         |  |                          |        |      |  |      |       |  |  |   |      
|                         | Thousand barrels        |  |                          | 4,078  |      |  |      | 4,078 |  |  |   | 3,819 | 
|                         | Average rate per barrel |  | $                        | 1.813  |      |  | $    | 1.828 |  |  | $ | 1.926 | 
|Sales  Condensate:      |                         |  |                          |        |      |  |      |       |  |  |   |      
|                         | Thousand barrels        |  |                          | 16.2   |      |  |      |      |  |  |   |      | 
|                         | Average rate per barrel |  | $                        | 19.91  |      |  |      |      |  |  |   |      | 

2001 Compared to 2000

For the year ended 2001, the Midstream Segment reported earnings before
interest of $15.9 million, compared with earnings before interest of $9.1
million for the year ended 2000. The $6.8 million increase in earnings before
interest was due to a $22.8 million increase in operating revenues, partially
offset by an $15.8 million increase in costs and expenses and a $0.2 million
decrease in other income  net. Factors influencing these variances are
described below.

Operating revenues increased $22.8 million during the year ended 2001,
compared with the year ended 2000. Operating revenues for the year ended 2001
for Jonah were $9.1 million. Natural gas gathering revenues totaled $8.8
million from volumes delivered of 45.5 billion cubic feet. An additional $0.3
million was generated from the sale of 16,180 barrels of condensate liquid to
an Upstream Segment marketing affiliate. Other revenues increased $0.3 million
due to sales of gas condensate from the Jonah system, which was acquired on
September 30, 2001. NGL transportation revenues increased $13.7 million
primarily due to the acquisition of the Panola system on December 31, 2000, and
was partially offset by decreased volumes on the Dean pipeline system in South
Texas.

Costs and expenses
increased $15.8 million during the year ended 2001,
compared with the year ended 2000. Costs and expenses for Jonah were $6.0
million and were comprised of $4.5 million of depreciation and amortization
expense, $1.4 million of operating, general and administrative expense and $0.1
million of taxes  other than income taxes. Costs and expenses also included
$4.1 million due to the acquisition of the Panola system on December 31, 2000,
comprised of $1.4 million of operating, general and administrative expense,
$2.2 million of depreciation and amortization expense and $0.5 million of taxes
 other than income taxes. The increase in costs and expenses also included a
$4.3 million reserve for a doubtful receivable balance under a transportation
contract with an Enron Corp. subsidiary. The remaining increase was due to
increased labor related costs and increased general and administrative supplies
and services expense.

2000 Compared to 1999

For the year ended 2000, the Midstream Segment reported earnings before
interest of $9.1 million, compared with earnings before interest of $8.5
million for the year ended 1999. The $0.6 million increase in earnings before
interest was due to a $1.0 million increase in operating revenues, partially
offset by a $0.4 million increase in costs and expenses. Factors influencing
these variances are described below.

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Operating revenues increased $1.0 million during the year ended 2000,
compared with the year ended 1999. The increase is due to increased NGL
transportation volumes and higher prices on loss allowance barrels received on
the Dean Pipeline.

Costs and expenses increased $0.4 million during the year ended 2000,
compared with the year ended 1999. The increase is due to a $0.4 million
increase in operating, general and administrative expenses, resulting from
pipeline maintenance and increased labor related costs.

Interest Expense and Capitalized Interest

2001 Compared to 2000

Interest expense increased $17.1 million during the year ended 2001,
compared with the year ended 2000, primarily due to higher outstanding debt
balances used to finance the acquisition of assets acquired in the Midstream
Segment and the Upstream Segment. These increases were partially offset by
lower interest rates on borrowings under the variable-rate credit facilities
and the favorable impact of the fixed-to-floating interest rate swap on the TE
Products Senior Notes, effective October 4, 2001.

Capitalized interest decreased $0.6 million during the year ended 2001,
compared with the year ended 2000, due to the completion of the petrochemical
pipelines from Mont Belvieu to Port Arthur, Texas, during the fourth quarter of
2000. This decrease was partially offset by increased balances on construction
work-in-progress in the Upstream and Midstream Segments.

2000 Compared to 1999

Interest expense increased $17.4 million during the year ended 2000,
compared with the year ended 1999, primarily due to higher outstanding debt
balances under a term loan to finance construction of the petrochemical
pipelines between Mont Belvieu and Port Arthur. Additionally, amortization of
debt issue costs increased $0.8 million during the year ended 2000. Interest
expense also increased due to interest expense on the term loan and revolving
credit facilities used to finance the acquisition of the ARCO assets.

Capitalized interest increased $2.4 million during the year ended 2000,
compared with the year ended 1999, due to the construction of the petrochemical
pipelines from Mont Belvieu to Port Arthur.

Financial Condition and Liquidity

Net cash from operations for the year ended 2001 totaled $169.2 million,
and was comprised of $155.0 million of income before charges for depreciation
and amortization, and $14.2 million of cash provided by working capital
changes. Net cash from operations for the year ended 2000 totaled $108.0
million, and was comprised of $112.5 million of income before charges for
depreciation and amortization, partially offset by $4.5 million of cash used
for working capital changes. Net cash from operations for the year ended 1999
totaled $103.1 million, and was comprised of $104.8 million of income before
charges for depreciation and amortization, partially offset by $1.7 million of
cash used for working capital changes. Net cash from operations for the years
ended 2001, 2000, and 1999 included interest payments of $61.5 million, $36.8
million, and $28.6 million, respectively.

Cash flows used in investing activities totaled $557.9 million during the
year ended 2001, and was comprised of $359.8 million for the purchase of Jonah
on September 30, 2001, $107.6 million of capital expenditures, $65.0 million of
cash contributions for the Partnerships interest in the Centennial joint
venture, $20.0 million for the purchase of crude oil assets from UDS on March
1, 2001, and $11.0 million paid in October 2001, for the final purchase price
settlement related to the previously acquired ARCO assets. These uses of cash
were

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partially offset by $4.2 million received on matured cash investments and
$1.3 million of cash received from the sale of vehicles. Cash flows used in
investing activities totaled $494.1 million during the year ended 2000, and was
comprised of $322.6 million for the purchase of the ARCO assets, $99.5 million
for NGL and crude oil systems purchased in East Texas and North Texas, $68.5
million of capital expenditures, $5.0 million of cash contributions for the
Partnerships interest in the Centennial joint venture, and $2.0 million of
cash investments. These uses of cash were partially offset by $3.5 million
received from matured cash investments. Cash flows used in investing
activities totaled $76.6 million for the year ended 1999, and included $77.4
million of capital expenditures and $2.3 million for the purchase of a 125-mile
crude oil system in Southeast Texas, offset by net proceeds from cash
investments of $3.0 million. Capital expenditures during the years ended 2000
and 1999 included $29.9 million and $43.8 million, respectively, of spending
for construction of the petrochemical pipelines between the Partnerships
terminal in Mont Belvieu and Port Arthur.

In August 2000, TE Products entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form Centennial. TE Products
has contributed approximately $65.0 million and $5.0 million during the years
ended 2001 and 2000, respectively, for its one-third interest in Centennial.
The Partnership expects to contribute an additional $4.9 million to Centennial
in 2002. Centennial commenced operations in the first quarter of 2002.

Centennial has entered into credit facilities totaling $150 million. The
proceeds were used to fund construction and conversion costs of its pipeline
system. As of December 31, 2001, Centennial had borrowed $128 million under
its credit facility. TE Products has guaranteed one-third of the debt of
Centennial up to a maximum amount of $50 million.

Credit Facilities and Interest Rate Swap Agreements

In July 2000, the Partnership entered into a $75 million term loan and a
$475 million revolving credit facility (Three Year Facility) and borrowed $75
million and $340 million, respectively, to finance the acquisition of the ARCO
assets and to refinance existing bank credit facilities. The term loan was
repaid from proceeds received from the issuance of additional Limited Partner
Units on October 25, 2000. In April 2001, the Three Year Facility was amended
to provide for revolving borrowings of up to $500 million including the
issuance of letters of credit of up to $20 million. The term of the revised
Three Year Facility was extended to April 6, 2004. The interest rate is based
on the Partnerships option of either the lenders base rate plus a spread, or
LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement for the Three Year Facility contains restrictive financial covenants
that require the Partnership to maintain a minimum level of partners capital
as well as maximum debt-to-EBITDA (earnings before interest expense, income tax
expense and depreciation and amortization expense) and minimum fixed charge
coverage ratios.

In April 2001, the Partnership entered into a 364-day, $200 million
revolving credit agreement (Short-term Revolver). The interest rate is based
on the Partnerships option of either the lenders base rate plus a spread, or
LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement contains restrictive financial covenants that require the Partnership
to maintain a minimum level of partners capital as well as maximum
debt-to-EBITDA and minimum fixed charge coverage ratios. The Partnership has
requested an extension of the Short-term Revolver for an additional period of
364 days, commencing on the current termination date in April 2002. Extension
of the Short-term Revolver is expected prior to the termination date.

On September 28, 2001, the Three Year Facility and the Short-term Revolver
were amended to extend to December 31, 2001, the time period for the maximum
debt-to-EBITDA ratio covenant to allow for the additional debt incurred for the
acquisition of Jonah. On November 13, 2001, the Three Year Facility and the
Short-term Revolver were further amended to require prepayment of outstanding
borrowings only upon the receipt of net cash proceeds from asset dispositions
or from insurance proceeds in accordance with the terms of the respective
agreements. At such time, certain lenders under the agreements elected to
withdraw from the facilities, and the available borrowing capacities were
reduced to $411 million and $164 million, respectively. At December 31, 2001
and 2000, $340.7 million and $446 million was outstanding under the Three Year
Facility at a weighted average interest rate of 2.9% and 8.23%, respectively,
and no letters of credit were outstanding. At December 31, 2001, $160 million,
included in current liabilities, was outstanding under the Short-term Revolver
at a weighted average

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interest rate of 2.9%. As of December 31, 2001, the Partnership was in
compliance with the covenants contained in the agreements. On January 16,
2002, an additional $25 million was drawn down on the Three Year Facility. On
February 20, 2002, the Partnership repaid $115.7 million of the then
outstanding balance of the Three Year Facility and all of the then outstanding
balance of the Short-term Revolver with proceeds from the issuance by the
Partnership of the 7.625% Senior Notes, discussed below.

On September 28, 2001, the Partnership entered into a $400 million credit
facility with SunTrust Bank (Bridge Facility). The Partnership borrowed $360
million under the Bridge Facility for the acquisition of the Jonah assets.
During the fourth quarter of 2001, $160 million of the outstanding principal
was repaid from the proceeds received from the issuance of the Limited Partner
Units in November 2001. The interest rate is based on the Partnerships option
of either the lenders base rate plus a spread, or LIBOR plus a spread in
effect at the time of the borrowings. At December 31, 2001, $200 million was
outstanding under the Bridge Facility at an interest rate of 3.2%. As of
December 31, 2001, the Partnership was in compliance with the covenants
contained in this credit agreement. On February 5, 2002, an additional $15
million was drawn down on the Bridge Facility. On February 20, 2002, the
Partnership repaid the then outstanding balance of the Bridge Facility of $215
million, with proceeds from the issuance by the Partnership of its 7.625%
Senior Notes, discussed below, and canceled the remaining commitment.

On February 20, 2002, the Partnership received $494.6 million in net
proceeds from the issuance of $500 million principal amount of its 7.625%
Senior Notes due 2012. The proceeds from the offering were used to reduce the
outstanding balances of the credit facilities, described above, including those
issued in connection with the acquisition of Jonah. The Senior Notes may be
redeemed at any time at the option of the Partnership with the payment of
accrued interest and a make-whole premium determined by discounting remaining
interest and principal payments using a discount rate equal to the rate of the
United States Treasury securities of comparable remaining maturity plus 35
basis points.

In 2001 and 2000, the Partnership entered into interest rate hedge
agreements with notional amounts and expirations related to particular
indebtedness, as more fully described in Item 7A, Quantitative and Qualitative
Disclosures About Market Risk.

On March 1, 2002, the Partnership completed the acquisition of the
Chaparral and Quanah pipelines from Diamond-Koch II, L.P. and Diamond-Koch III,
L.P. for approximately $132 million. This purchase was funded by a drawdown on
the Three Year Facility. The Chaparral system is an 800-mile pipeline that
extends from West Texas and New Mexico to Mont Belvieu. The pipeline delivers
NGLs to fractionators and existing Partnership storage in Mont Belvieu. The
approximately 170-mile Quanah Pipeline is an NGL gathering system located in
West Texas. The Quanah Pipeline begins in Sutton County, Texas and connects to
the Chaparral Pipeline near Midland. The pipelines are connected to 27 gas
plants in West Texas and have approximately 28,000 horsepower of pumping
capacity at 14 stations. These systems will be managed and operated by DEFS
under a contract arrangement.

The following table summarizes the credit facilities of the Partnership as
of December 31, 2001, and March 7, 2002 (in millions):

|                    |  |                         |  |                     |  |          |       |             |  |           |       |          |  |              |   |  |  |  |  |   |       |  |       |        |       |  |   |              |   |               |  | 
|------------------- |  | ----------------------- |  | ------------------- |  | -------- | ----- | ----------- |  | --------- | ----- | -------- |  | ------------ | - |  |  |  |  | - | ----- |  | ----- | ------ | ----- |  | - | ------------ | - | ------------- |  | 
|                    |  | As of December 31, 2001 |  | As of March 7, 2002
|                    |  |                         |  |                    
|                    |  |                         |  |                     |  |          |       |             |  | Unused    |       |          |  |              |   |  |  |  |  |   |       |  |       | Unused |       |  |   |             
|                    |  | Outstanding             |  | Borrowing           |  | Maturity |       | Outstanding |  | Borrowing |       | Maturity
|Description:        |  | Principal               |  | Capacity            |  | Date     |       | Principal   |  | Capacity  |       | Date    
|                    |  |                         |  |                     |  |          |       |             |  |           |       |         
|Short-term Revolver |  |                         |  |                     |  | $        | 160.0 |             |  | $         | 4.0   |          |  | April 2002   |   |  |  |  |  | $ |      |  |       | $      | 164.0 |  |   | April 2002  
|Three Year Facility |  |                         |  |                     |  |          | 340.7 |             |  |           | 70.3  |          |  | April 2004   |   |  |  |  |  |   | 382.0 |  |       |        | 29.0  |  |   | April 2004  
|Bridge Facility     |  |                         |  |                     |  |          | 200.0 |             |  |           | 200.0 |          |  | June 2002    |   |  |  |  |  |   |      |  |       |        |      |  |   |              |  | (1)          
|6.45% Senior Notes  |  |                         |  |                     |  |          | 180.0 |             |  |           |      |          |  | January 2008 |   |  |  |  |  |   | 180.0 |  |       |        |      |  |   | January 2008
|7.51% Senior Notes  |  |                         |  |                     |  |          | 210.0 |             |  |           |      |          |  | January 2028 |   |  |  |  |  |   | 210.0 |  |       |        |      |  |   | January 2028
|7.625% Senior Notes |  |                         |  |                     |  |          |      |             |  |           |      |          |  |              |  |  |  |  |  |   |       |  | 500.0 |        |       |  |  |              |   | February 2012



---

|(1) |  | The remaining commitment under the Bridge Facility was canceled in February
2002.
|--- |  | ---------------------------------------------------------------------------------

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Distributions and Issuance of Additional Limited Partner Units

The Partnership paid cash distributions of $104.4 million ($2.15 per
Unit), $82.2 million ($2.00 per Unit) and $69.3 million ($1.85 per Unit), for
each of the years ended 2001, 2000 and 1999, respectively. Additionally, on
January 18, 2002, the Partnership declared a cash distribution of $0.575 per
Limited Partner Unit and Class B Unit for the quarter ended December 31, 2001.
The distribution of $33.5 million was paid on February 8, 2002, to unitholders
of record on January 31, 2002.

On November 20, 2001, the Partnership completed the issuance by public
offering of 5.5 million Limited Partner Units at $34.25 per Unit. The net
proceeds from the offering totaled approximately $180.1 million and were used
to repay $160.0 million under the Bridge Facility that was used to fund the
Jonah acquisition. The remaining proceeds were used to finance contributions
to Centennial and for other capital expenditures.

On February 6, 2001, the Partnership completed the issuance by public
offering of 2.0 million Limited Partner Units at $25.50 per Unit. The net
proceeds from the offering totaled approximately $48.5 million and was used to
reduce borrowings under the Three Year Facility. On March 6, 2001, 250,000
Units were issued in connection with the over-allotment provision of the
offering on February 6, 2001. Proceeds from the Units issued from the
over-allotment totaled $6.1 million and were used for general Partnership
purposes.

On October 25, 2000, the Partnership completed the issuance by public
offering of 3.7 million Limited Partner Units at $25.06 per Unit. The net
proceeds from the offering totaled approximately $88.5 million and was used to
repay the $75 million principal amount of the term loan and $11 million of the
outstanding principal amount of the revolving portion of the Three Year
Facility.

Future Capital Needs and Commitments

Capital expenditures for the year ended December 31, 2001, and estimated
capital expenditures, excluding acquisitions, for 2002 are described in Items 1
and 2, Business and Properties under the caption Capital Expenditures. The
Partnership continually reviews and evaluates potential acquisitions, capital
improvements and expansions and, to a more limited extent, joint venture
opportunities that would be complementary to its present business segments.
Should the Partnership elect to pursue any of these transactions, the
Partnership will likely need additional capital to fund the purchase price and
other capital improvements. These expenditures can vary greatly depending on
the magnitude of these transactions by the Partnership. In March 2002, the
Partnership completed the acquisition of the Chaparral and Quanah pipelines for
approximately $132 million. The purchase was funded by a drawdown on the Three
Year Facility.

The Partnerships debt repayment obligations consist of payments for
principal and interest on (i) outstanding principal amounts under the Three
Year Facility due in April 2004 ($382 million at March 7, 2002), (ii) the TE
Products Senior Notes, $180 million principal amount due January 15, 2008, and
$210 million principal amount due January 15, 2028, and (iii) the Partnerships
$500 million 7.625% Senior Notes due February 15, 2012. Repayment of the
long-term, senior unsecured obligations and bank debt is expected to be repaid
through issuance of additional long-term senior unsecured debt at the time the
2008, 2012 and 2028 debt matures, issuance of additional equity, proceeds from
dispositions of assets, or any combination of the above items.

TE Products is also contingently liable as guarantor for the lesser of
one-third or $50 million principal amount (plus interest) of the joint venture
borrowings of Centennial. The Partnership expects to contribute an additional
$4.9 million to Centennial in 2002. The Partnership does not rely on
off-balance sheet borrowings to fund its acquisitions. Other than the limited
guarantee of Centennial debt and leases covering assets utilized in several
areas of its operations, the Partnership has no off-balance sheet commitments
for indebtedness.

The following table summarizes the material contractual obligations of the
Partnership as of December 31, 2001, after giving pro forma effect to the
issuance and application of net proceeds of the Partnerships 7.625% Senior
Notes due 2012 in February 2002 and additional borrowings in March 2002 to fund
the purchase of the Chaparral and Quanah pipelines (in millions).

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|                                 |       |   |                                            |         |      |   |             |       |           |   |       |       |  |   |      |      |         |   |       |       | 
|-------------------------------- | ----- | - | ------------------------------------------ | ------- | ---- | - | ----------- | ----- | --------- | - | ----- | ----- |  | - | ---- | ---- | ------- | - | ----- | ----- | 
|                                 |       |   | Amount of Commitment Expiration Per Period
|                                 |       |   |                                           
|                                 |       |   |                                            |         |      |   | Less than 1 |       |           |   |       |       |  |   |      |      | After 5
|                                 |       |   | Total                                      |         | Year |   | 2-3 Years   |       | 4-5 Years |   | Years
|                                 |       |   |                                            |         |      |   |             |       |           |   |      
|Short-term Revolver (1)          |       | $ | 160.0                                      |         |      | $ | 160.0       |       |           | $ |      |       |  | $ |     |      |         | $ |      |      
|Three Year Facility (2)          |       |   | 340.7                                      |         |      |   |            |       |           |   | 340.7 |       |  |   |     |      |         |   |      |      
|Bridge Facility                  |       |   | 200.0                                      |         |      |   | 200.0       |       |           |   |      |       |  |   |     |      |         |   |      |      
|6.45% Senior Notes due 2008 (3)  |       |   | 180.0                                      |         |      |   |            |       |           |   |      |       |  |   |     |      |         |   | 180.0 |      
|7.51% Senior Notes due 2028 (3)  |       |   | 210.0                                      |         |      |   |            |       |           |   |      |       |  |   |     |      |         |   | 210.0 |      
|7.625% Senior Notes due 2012 (4) |       |   | 500.0                                      |         |      |   |            |       |           |   |      |       |  |   |     |      |         |   | 500.0 |      
|Centennial cash contributions    |       |   | 4.9                                        |         |      |   | 4.9         |       |           |   |      |       |  |   |     |      |         |   |      |      
|Operating leases                 |       |   | 36.0                                       |         |      |   | 8.8         |       |           |   | 14.8  |       |  |   | 11.0 |      |         |   | 1.4   |      
|                                 |       |   |                                            |         |      |   |             |       |           |   |       |       |  |   |      |      |         |   |       |      
|                                 | Total |   | $                                          | 1,631.6 |      |   | $           | 373.7 |           |   | $     | 355.5 |  |   | $    | 11.0 |         |   | $     | 891.4 | 
|                                 |       |   |                                            |         |      |   |             |       |           |   |       |       |  |   |      |      |         |   |       |      



---

|(1) |  | Approximately $160 million was paid down in February 2002 from net
proceeds from the offering of the Partnerships 7.625% Senior Notes due
2012.                                                                                                                                   
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Approximately $115.7 million was paid down in February 2002 from net
proceeds from the offering of the Partnerships 7.625% Senior Notes due
2012. Approximately $132 million was subsequently drawn down in March
2002 to fund the purchase of the Chaparral and Quanah pipelines.
|(3) |  | Obligations of TE Products.                                                                                                                                                                                                                                                        
|(4) |  | Issued by the Partnership in February 2002.                                                                                                                                                                                                                                        

Sources of Future Capital

Historically, the Partnership has funded its capital commitments from
operating cash flow and borrowings under bank credit facilities or bridge
loans. These loans were repaid in part by the issuance of long term debt in
capital markets and the public offering of Limited Partner Units. The Company
expects future capital needs would be similarly funded to the extent not
otherwise available from excess cash flow from operations after payment of
distributions on Limited Partner Units.

As of March 7, 2002, and after giving effect to borrowings required to
fund the acquisition of the Chaparral and Quanah pipelines, the Partnership has
approximately $193.0 million in combined available borrowing capacity under the
Three Year Facility and the Short-term Revolver.

The Company expects that the Partnerships cash flow from operating
activities will be adequate to fund cash distributions and capital additions
necessary to maintain existing operations. However, expansionary capital
projects and acquisitions may require funding through proceeds from the sale of
additional debt or equity capital markets offerings.

On February 11, 2002, Moodys Investors Service assigned the Partnership a
senior unsecured debt rating, including the rating on its 7.625% Senior Notes,
of Baa2 and confirmed the Baa2 senior unsecured rating of the subsidiary, TE
Products. These ratings were given with negative outlooks due primarily to
Moodys concerns about current debt levels resulting from financing of the
Partnerships recent acquisitions. Moodys indicated they may lower the
Partnerships ratings if the Partnership is not successful in reducing its debt
to target levels where the Partnerships debt-to-EBITDA ratio would be below 4
to 1. The Company is evaluating alternatives to lowering its debt-to-EBITDA
ratio. Reductions in the Partnerships credit ratings could increase the debt
financing costs or possibly reduce the availability of financing. A rating
reflects only the view of a rating agency and is not a recommendation to buy,
sell or hold any indebtedness. Any rating can be revised upward or downward or
withdrawn at any time by a rating agency if it decides that the circumstances
warrant such a change.

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Other Considerations

Credit Risks

Risks of nonpayment and nonperformance by customers are a major
consideration in the Partnerships businesses. The credit procedures and
policies of the Partnership may not fully eliminate customer credit risk. The
bankruptcy of Enron Corp. and certain of its subsidiaries in December 2001 has
made collection by the Partnership of a receivable for transportation fees of
approximately $4.3 million, or approximately $0.09 per limited partner and
Class B Units at December 31, 2001, doubtful.

Terrorist Threats

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

Environmental

The operations of the Partnership are subject to federal, state and local
laws and regulations relating to protection of the environment. Although the
Partnership believes its operations are in material compliance with applicable
environmental regulations, risks of significant costs and liabilities are
inherent in pipeline operations, and there can be no assurance that significant
costs and liabilities will not be incurred. Moreover, it is possible that
other developments, such as increasingly strict environmental laws and
regulations and enforcement policies thereunder, and claims for damages to
property or persons resulting from the operations of the pipeline system, could
result in substantial costs and liabilities to the Partnership. The
Partnership does not anticipate that changes in environmental laws and
regulations will have a material adverse effect on its financial position,
results of operations or cash flows in the near term.

In 1994, the Partnership and the IDEM entered into an Agreed Order that
resulted in the implementation of a remediation program for groundwater
contamination attributable to the Partnerships operations at the Seymour,
Indiana, terminal. A Feasibility Study, which includes the Partnerships
proposed remediation program, was approved by IDEM in 1999. IDEM is expected
to issue a Record of Decision formally approving the remediation program.
After the Record of Decision is issued, the Partnership will enter into a
subsequent Agreed Order for the continued operation and maintenance of the
remediation program. The Partnership has an accrued liability of $0.6 million
on December 31, 2001, for future remediation costs at the Seymour terminal. In
the opinion of the Company, the completion of the remediation program will not
have a future material adverse effect on the Partnerships financial condition,
results of operations or cash flows.

In 1994, the Partnership was issued a compliance order from the LDEQ
relative to environmental contamination at the Partnerships Arcadia,
Louisiana, facility. This contamination may be attributable to the operations
of the Partnership, as well as adjacent petroleum terminals operated by other
companies. In 1999, the Partnerships Arcadia facility and adjacent terminals
were directed by the Remediation Services Division of the LDEQ to pursue
remediation of this containment phase. In the opinion of the Company, the
completion of the remediation program that is proposed by the Partnership will
not have a future material adverse effect on the Partnerships financial
position, results of operations or cash flows.

During 2001, the Partnership accrued $8.6 million to complete
environmental remediation activities at certain of the sites owned by TCTM and
its subsidiaries. In establishing this accrual, the Partnership expensed $4.4
million for these environmental remediation costs and recorded a receivable of
$4.2 million for the remainder. The

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receivable is based on a contractual indemnity obligation for specified
environmental liabilities owed by DEFS to the Partnership in connection with
the Partnerships acquisition of the Upstream Segment from DEFS in November
1998. Under this indemnity obligation, the Partnership is responsible for the
first $3.0 million in specified environmental liabilities, with DEFS becoming
responsible for those environmental liabilities in excess of $3.0 million, up
to a maximum amount of $25.0 million. At December 31, 2001, an accrual of $6.4
million remains outstanding related to TCTM environmental remediation
activities. The majority of the indemnified costs relate to remediation
activities at the Velma crude oil site in Stephens County, Oklahoma,
attributable to operations prior to the Partnerships acquisition of the
Upstream Segment. Remediation activities at the Velma crude oil site are being
conducted according to a work plan approved by the Oklahoma Corporation
Commission. In the opinion of the Company, the completion of remediation
programs associated with this release will not have a future material adverse
effect on the Partnerships financial condition, results of operations or cash
flows.

Market-Based Rates

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

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires that the
purchase method of accounting be used for all business combinations and
specifies that certain acquired intangible assets be reported apart from
goodwill. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually. SFAS 142 requires that intangible assets with
definite useful lives be amortized over their respective estimated useful
lives. The Partnership adopted SFAS 141 during 2001, and SFAS 142 effective
January 1, 2002. At the date of this report, the Partnership is evaluating the
impact of adopting SFAS 142, including whether any transitional impairment
losses will be required to be recognized as the cumulative effect of a change
in accounting principle. At December 31, 2001, the Partnership had $14.7
million of unamortized goodwill. Amortization expense related to goodwill was
$0.9 million and $0.1 million for the years ended December 31, 2001 and 2000,
respectively. The goodwill associated with the acquisition of Jonah, which was
completed on September 30, 2001, is not being amortized due to the adoption of
certain provisions of SFAS 142.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the Partnership to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived assets that results from the acquisition, construction, development
and/or normal use of the assets. The Partnership also records a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Partnership
is required to adopt SFAS 143 effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. The Partnership was required to adopt

35



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##### Table of Contents



SFAS 144 effective January 1, 2002. The adoption of SFAS 144 did not have
a material effect on the financial position, results of operations or cash
flows of the Partnership.

Disclosures About Effects of Transactions with Related Parties

The Partnership has no employees and is managed by the Company, a
wholly-owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest
in DEFS and Phillips holds the remaining 30%. See Item 10, Directors and
Executive Officers of the Registrant and Item 13, Certain Relationships and
Related Transactions for discussion regarding transactions between the
Partnership and DEFS, Duke Energy and Phillips.

Forward-Looking Statements

The matters discussed in this Report include forward-looking statements
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that the Partnership expects or anticipates will or may occur in
the future, including such things as estimated future capital expenditures
(including the amount and nature thereof), business strategy and measures to
implement strategy, competitive strengths, goals, expansion and growth of the
Partnerships business and operations, plans, references to future success,
references to intentions as to future matters and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by the Partnership in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate under the
circumstances. However, whether actual results and developments will conform
with the Partnerships expectations and predictions is subject to a number of
risks and uncertainties, including general economic, market or business
conditions, the opportunities (or lack thereof) that may be presented to and
pursued by the Partnership, competitive actions by other pipeline companies,
changes in laws or regulations, and other factors, many of which are beyond the
control of the Partnership. Consequently, all of the forward-looking
statements made in this document are qualified by these cautionary statements
and there can be no assurance that actual results or developments anticipated
by the Partnership will be realized or, even if substantially realized, that
they will have the expected consequences to or effect on the Partnership or its
business or operations.




Item 8. Financial Statements and Supplementary Data

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




Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

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



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

|              |  |                     
|------------- |  | --------------------
|ExhibitNumber |  | Description         
|23.1*         |  | Consent of KPMG LLP.



---

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

36



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##### Table of Contents



(b)  Reports on Form 8-K filed during the quarter ended December 31, 2001:



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Reports on Form 8-K were filed on October 15, 2001, November
9, 2001, November 13, 2001, November 19, 2001, and November
30, 2001.

SIGNATURES

TEPPCO Partners, L.P., pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, has duly caused this amendment to this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.

|                    |  |                                           | 
|------------------- |  | ----------------------------------------- | 
|                    |  | TEPPCO Partners, L.P.                    
|                    |  | (Registrant)                             
|                    |  | (A Delaware Limited Partnership)         
|                   
|                    |  | By: Texas Eastern Products Pipeline      
|                    |  | Company, LLC, as General Partner         
|                   
|                    |  | By: /s/ BARRY R. PEARL                   
|                    |  | Barry R. Pearl                           
|                    |  | President and Chief Executive Officer    
|                   
|                    |  | By: /s/ CHARLES H. LEONARD               
|                    |  | Charles H. Leonard,                      
|                    |  | Senior Vice President and Chief Financial
|                    |  | Officer                                  
|Dated: June 3, 2002 |  |                                          

37



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##### Table of Contents



Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.

|                                          |  |                                                                                                                                                |  |                 
|----------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|SignatureBARRY R. PEARL
Barry R. Pearl    |  | TitlePresident and Chief Executive Officer
of Texas Eastern Products Pipeline Company, LLC                                                     |  | DateJune 3, 2002
|                                         
|CHARLES H. LEONARDCharles H. Leonard      |  | Senior Vice President and Chief Financial Officer
of Texas Eastern Products Pipeline Company, LLC
(Principal Accounting and Financial Officer) |  | June 3, 2002    
|                                         
|JIM W. MOGG*Jim W. Mogg                   |  | Chairman of the Board of Texas
Eastern Products Pipeline Company, LLC                                                                          |  | June 3, 2002    
|                                         
|MARK A. BORER *Mark A. Borer              |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|MILTON CARROLL*Milton Carroll             |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|CARL D. CLAY*Carl D. Clay                 |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|DERRILL CODY*Derrill Cody                 |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|JOHN P. DESBARRES*John P. DesBarres       |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|FRED J. FOWLER*Fred J. Fowler             |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    
|                                         
|WILLIAM W. SLAUGHTER*William W. Slaughter |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | June 3, 2002    



|* |  | Signed on behalf of the Registrant and each of these persons:
|- |  | -------------------------------------------------------------

|    |  |                                       
|--- |  | --------------------------------------
|By: |  | /s/ CHARLES H. LEONARD                
|    | 
|    |  | (Charles H. Leonard, Attorney-in-Fact)

38



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CONSOLIDATED FINANCIAL STATEMENTS
OF TEPPCO PARTNERS, L.P.

INDEX TO FINANCIAL STATEMENTS

|                                                                                                  |  |      |     | 
|------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                  |  | Page
|                                                                                                  |  |     
|Independent Auditors Report                                                                      |  |      | F-2 | 
|Consolidated Balance Sheets as of December 31, 2001 and 2000                                      |  |      | F-3 | 
|Consolidated Statements of Income for the years ended December 31, 2001, 2000 and 1999            |  |      | F-4 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999        |  |      | F-5 | 
|Consolidated Statements of Partners Capital for the years ended December 31, 2001,
2000 and 1999 |  |      | F-6 | 
|Notes to Consolidated Financial Statements                                                        |  |      | F-7 | 

F-1



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INDEPENDENT AUDITORS REPORT

To the Partners of
TEPPCO Partners, L.P.:

We have audited the accompanying consolidated balance sheets of TEPPCO
Partners, L.P. as of December 31, 2001 and 2000, and the related consolidated
statements of income, partners capital, and cash flows for each of the years
in the three-year period ended December 31, 2001. These consolidated financial
statements are the responsibility of the Partnerships management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TEPPCO
Partners, L.P. as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America.

As described in Note 2 to the consolidated financial statements, as of
January 1, 2001, the Partnership changed its method of accounting for
derivative instruments and hedging activities and, effective July 1, 2001,
adopted the provisions of Statement of Financial Accounting Standards (SFAS)
No. 141, Business Combinations,and certain provisions of SFAS No. 142,
Goodwill and Other Intangible Assets.

KPMG
LLP

Houston, Texas

January 17, 2002, except as

     to Note 15, which is as of

     May 30, 2002

F-2



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TEPPCO PARTNERS, L.P.

CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                   |                                          |                                         |           |         |           |              |         |         |           |  |  | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------------- | --------- | ------- | --------- | ------------ | ------- | ------- | --------- |  |  | 
|                                                                                                                   |                                          |                                         |           |         |           | December 31,
|                                                                                                                   |                                          |                                         |           |         |           |             
|                                                                                                                   |                                          |                                         |           |         |           | 2001         |         | 2000   
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|ASSETS                                                                                                             |                                          |                                         |           |         |           |              |         |        
|Current assets:                                                                                                    |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   | Cash and cash equivalents                |                                         | $         | 25,479  |           |              | $       | 27,096  |          
|                                                                                                                   | Accounts receivable, trade               |                                         |           | 221,541 |           |              |         | 303,394 |          
|                                                                                                                   | Accounts receivable, related party       |                                         |           | 4,310   |           |              |         |        |          
|                                                                                                                   | Inventories                              |                                         |           | 17,243  |           |              |         | 24,784  |          
|                                                                                                                   | Other                                    |                                         |           | 14,907  |           |              |         | 8,123   |          
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   |                                          | Total current assets                    |           |         | 283,480   |              |         |         | 363,397   | 
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|Property, plant and equipment, at cost (Net of
accumulated depreciation and amortization of
$290,248 and $251,165) |                                          |                                         | 1,180,461 |         |           |              | 949,705 |        
|Equity investments                                                                                                 |                                          |                                         | 292,224   |         |           |              | 241,648 |        
|Intangible assets                                                                                                  |                                          |                                         | 253,413   |         |           |              | 34,174  |        
|Goodwill                                                                                                           |                                          |                                         | 14,743    |         |           |              | 4,214   |        
|Other assets                                                                                                       |                                          |                                         | 41,027    |         |           |              | 29,672  |        
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   |                                          | Total assets                            |           | $       | 2,065,348 |              |         | $       | 1,622,810 | 
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|LIABILITIES AND PARTNERS CAPITAL                                                                                  |                                          |                                         |           |         |           |              |         |        
|Current liabilities:                                                                                               |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   | Notes payable                            |                                         | $         | 360,000 |           |              | $       |        |          
|                                                                                                                   | Accounts payable and accrued liabilities |                                         |           | 228,075 |           |              |         | 293,720 |          
|                                                                                                                   | Accounts payable, general partner        |                                         |           | 22,680  |           |              |         | 6,637   |          
|                                                                                                                   | Accrued interest                         |                                         |           | 15,649  |           |              |         | 18,633  |          
|                                                                                                                   | Other accrued taxes                      |                                         |           | 8,888   |           |              |         | 10,501  |          
|                                                                                                                   | Other                                    |                                         |           | 33,550  |           |              |         | 28,780  |          
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   |                                          | Total current liabilities               |           |         | 668,842   |              |         |         | 358,271   | 
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|Senior Notes                                                                                                       |                                          |                                         | 389,814   |         |           |              | 389,784 |        
|Other long-term debt                                                                                               |                                          |                                         | 340,658   |         |           |              | 446,000 |        
|Other liabilities and deferred credits                                                                             |                                          |                                         | 17,223    |         |           |              | 3,991   |        
|Minority interest                                                                                                  |                                          |                                         |          |         |           |              | 4,296   |        
|Redeemable Class B Units held by related party                                                                     |                                          |                                         | 105,630   |         |           |              | 105,411 |        
|Commitments and contingencies                                                                                      |                                          |                                         |           |         |           |              |         |        
|Partners capital:                                                                                                 |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   | Accumulated other comprehensive loss     |                                         |           | (20,324 | )         |              |         |        |          
|                                                                                                                   | General partners interest               |                                         |           | 13,190  |           |              |         | 1,824   |          
|                                                                                                                   | Limited partners interests              |                                         |           | 550,315 |           |              |         | 313,233 |          
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   |                                          | Total partners capital                 |           |         | 543,181   |              |         |         | 315,057   | 
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        
|                                                                                                                   |                                          | Total liabilities and partners capital |           | $       | 2,065,348 |              |         | $       | 1,622,810 | 
|                                                                                                                   |                                          |                                         |           |         |           |              |         |        

See accompanying Notes to Consolidated Financial Statements.

F-3



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TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per Unit amounts)

|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |           | 
|----------------------------------------------------------------- | --------------------------------------------- | ------------------------------- | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                  |                                               |                                 |         | Years Ended December 31,
|                                                                  |                                               |                                 |         |                         
|                                                                  |                                               |                                 |         | 2001                     |           | 2000 |         | 1999     
|                                                                  |                                               |                                 |         |                          |           |      |         |          
|Operating revenues:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Sales of crude oil and petroleum products     |                                 | $       | 3,219,816                |           |      | $       | 2,821,943 |           |   | $       | 1,692,767 |          
|                                                                  | Transportation  refined products             |                                 |         | 139,315                  |           |      |         | 119,331   |           |   |         | 123,004   |          
|                                                                  | Transportation  LPGs                         |                                 |         | 77,823                   |           |      |         | 73,896    |           |   |         | 67,701    |          
|                                                                  | Transportation  crude oil and NGLs           |                                 |         | 44,925                   |           |      |         | 24,533    |           |   |         | 11,846    |          
|                                                                  | Gathering  natural gas                       |                                 |         | 8,824                    |           |      |         |          |           |   |         |          |          
|                                                                  | Mont Belvieu operations                       |                                 |         | 14,116                   |           |      |         | 13,334    |           |   |         | 12,849    |          
|                                                                  | Other                                         |                                 |         | 51,594                   |           |      |         | 34,904    |           |   |         | 26,716    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total operating revenues        |         |                          | 3,556,413 |      |         |           | 3,087,941 |   |         |           | 1,934,883 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Costs and expenses:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Purchases of crude oil and petroleum products |                                 |         | 3,173,607                |           |      |         | 2,794,604 |           |   |         | 1,666,042 |          
|                                                                  | Operating, general and administrative         |                                 |         | 135,253                  |           |      |         | 104,918   |           |   |         | 94,340    |          
|                                                                  | Operating fuel and power                      |                                 |         | 36,575                   |           |      |         | 34,655    |           |   |         | 31,265    |          
|                                                                  | Depreciation and amortization                 |                                 |         | 45,899                   |           |      |         | 35,163    |           |   |         | 32,656    |          
|                                                                  | Taxes  other than income taxes               |                                 |         | 14,090                   |           |      |         | 10,576    |           |   |         | 10,490    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total costs and expenses        |         |                          | 3,405,424 |      |         |           | 2,979,916 |   |         |           | 1,834,793 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Operating income                |         |                          | 150,989   |      |         |           | 108,025   |   |         |           | 100,090   | 
|Interest expense                                                  |                                               |                                 | (66,057 | )                        |           |      | (48,982 | )         |           |   | (31,563 | )        
|Interest capitalized                                              |                                               |                                 | 4,000   |                          |           |      | 4,559   |           |           |   | 2,133   |          
|Equity earnings                                                   |                                               |                                 | 17,398  |                          |           |      | 12,214  |           |           |   |        |          
|Other income  net                                                |                                               |                                 | 3,601   |                          |           |      | 2,349   |           |           |   | 2,196   |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Income before minority interest |         |                          | 109,931   |      |         |           | 78,165    |   |         |           | 72,856    | 
|Minority interest                                                 |                                               |                                 | (800    | )                        |           |      | (789    | )         |           |   | (736    | )        
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Net income                      |         | $                        | 109,131   |      |         | $         | 77,376    |   |         | $         | 72,120    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Net income allocated to Limited Partner Unitholders               |                                               |                                 | 76,986  |                          |           |      | 56,091  |           |           |   | 55,349  |          
|Net income allocated to Class B Unitholder                        |                                               |                                 | 8,642   |                          |           |      | 7,385   |           |           |   | 7,475   |          
|Net income allocated to General Partner                           |                                               |                                 | 23,503  |                          |           |      | 13,900  |           |           |   | 9,296   |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total net income allocated      |         | $                        | 109,131   |      |         | $         | 77,376    |   |         | $         | 72,120    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Basic and diluted net income per Limited
Partner and Class B Unit |                                               | $                               | 2.18    |                          |           | $    | 1.89    |           |           | $ | 1.91    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|Weighted average Limited Partner and Class B
Units outstanding    |                                               |                                 | 39,258  |                          |           |      | 33,594  |           |           |   | 32,917  |          

See accompanying Notes to Consolidated Financial Statements.

F-4



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TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |         |         |  
|------------------------------------------------ | ----------------------------------------------------------------------------- | ------------------------------------------------------------ | --------------------------------------------------- | -------- | ------------------------ | -------- | ------ | -------- | ------- | -------- | ------- | ------- | ------- | ------- | -
|                                                 |                                                                               |                                                              |                                                     |          | Years Ended December 31,
|                                                 |                                                                               |                                                              |                                                     |          |                         
|                                                 |                                                                               |                                                              |                                                     |          | 2001                     |          | 2000   |          | 1999   
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |        
|Cash flows from operating activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Net income                                                                    |                                                              | $                                                   | 109,131  |                          |          | $      | 77,376   |         |          | $       | 72,120  |        
|                                                 | Adjustments to reconcile net income to cash provided by
operating activities: |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               | Depreciation and amortization                                |                                                     |          | 45,899                   |          |        |          | 35,163  |          |         |         | 32,656  |        
|                                                 |                                                                               | Equity in earnings, net of distributions                     |                                                     |          | 14,377                   |          |        |          | (10,084 | )        |         |         | 393     |        
|                                                 |                                                                               | Non-cash portion of interest expense                         |                                                     |          | 4,053                    |          |        |          | 2,218   |          |         |         | 337     |        
|                                                 |                                                                               | Decrease (increase) in accounts receivable                   |                                                     |          | 81,190                   |          |        |          | (90,006 | )        |         |         | (92,225 | )      
|                                                 |                                                                               | Decrease (increase) in inventories                           |                                                     |          | 7,541                    |          |        |          | (7,567  | )        |         |         | 1,037   |        
|                                                 |                                                                               | Decrease (increase) in other current assets                  |                                                     |          | (8,082                   | )        |        |          | 1,165   |          |         |         | (2,500  | )      
|                                                 |                                                                               | Increase (decrease) in accounts payable and accrued expenses |                                                     |          | (71,757                  | )        |        |          | 106,662 |          |         |         | 93,317  |        
|                                                 |                                                                               | Other                                                        |                                                     |          | (13,204                  | )        |        |          | (6,882  | )        |         |         | (2,065  | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash provided by operating activities           |          |                          | 169,148  |        |          |         | 108,045  |         |         |         | 103,070 |  
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash flows from investing activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Proceeds from cash investments                                                |                                                              |                                                     | 4,236    |                          |          |        | 3,475    |         |          |         | 6,275   |        
|                                                 | Purchases of cash investments                                                 |                                                              |                                                     |         |                          |          |        | (2,000   | )       |          |         | (3,235  | )      
|                                                 | Purchase of ARCO assets                                                       |                                                              |                                                     | (11,000  | )                        |          |        | (322,640 | )       |          |         |        |        
|                                                 | Purchase of Jonah Gas Gathering Company                                       |                                                              |                                                     | (359,834 | )                        |          |        |         |         |          |         |        |        
|                                                 | Purchase of crude oil assets and NGL system                                   |                                                              |                                                     | (20,000  | )                        |          |        | (99,508  | )       |          |         | (2,250  | )      
|                                                 | Proceeds from the sale of assets                                              |                                                              |                                                     | 1,300    |                          |          |        |         |         |          |         |        |        
|                                                 | Investment in Centennial Pipeline, LLC                                        |                                                              |                                                     | (64,953  | )                        |          |        | (5,040   | )       |          |         |        |        
|                                                 | Capital expenditures                                                          |                                                              |                                                     | (107,614 | )                        |          |        | (68,481  | )       |          |         | (77,431 | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash used in investing activities               |          |                          | (557,865 | )      |          |         | (494,194 | )       |         |         | (76,641 | )
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash flows from financing activities:            |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Proceeds from term and revolving credit facilities                            |                                                              |                                                     | 546,148  |                          |          |        | 552,000  |         |          |         | 33,000  |        
|                                                 | Repayments on term and revolving credit facilities                            |                                                              |                                                     | (291,490 | )                        |          |        | (172,000 | )       |          |         | (5,000  | )      
|                                                 | Debt issuance cost                                                            |                                                              |                                                     | (2,601   | )                        |          |        | (7,074   | )       |          |         |        |        
|                                                 | Issuance of Limited Partner Units, net                                        |                                                              |                                                     | 234,660  |                          |          |        | 88,158   |         |          |         |        |        
|                                                 | General partners contributions                                               |                                                              |                                                     | 4,795    |                          |          |        | 1,799    |         |          |         |        |        
|                                                 | Distributions                                                                 |                                                              |                                                     | (104,412 | )                        |          |        | (82,231  | )       |          |         | (69,259 | )      
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|                                                 |                                                                               |                                                              | Net cash provided by (used in) financing activities |          |                          | 387,100  |        |          |         | 380,652  |         |         |         | (41,259 | )
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Net decrease in cash and cash equivalents        |                                                                               |                                                              | (1,617                                              | )        |                          |          | (5,497 | )        |         |          | (14,830 | )      
|Cash and cash equivalents at beginning of period |                                                                               |                                                              | 27,096                                              |          |                          |          | 32,593 |          |         |          | 47,423  |        
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |         |        
|Cash and cash equivalents at end of period       |                                                                               | $                                                            | 25,479                                              |          |                          | $        | 27,096 |          |         | $        | 32,593  |        
|                                                 |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|Supplemental disclosure of cash flows:           |                                                                               |                                                              |                                                     |          |                          |          |        |          |         |          |         |        
|                                                 | Interest paid during the year (net of capitalized interest)                   |                                                              | $                                                   | 61,458   |                          |          | $      | 36,793   |         |          | $       | 28,625  |        

See accompanying Notes to Consolidated Financial Statements.

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TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(in thousands)

|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |         |  
|------------------------------------------------ | ----------------------------------------- | - | --------- | ------- | --------- | - | ------------- | ------- | ----- | - | ----------- | ------- | - | - | ------- | ------- | -
|                                                 |                                           |   |           |         |           |   |               |         |       |   | Accumulated |         |   |   |        
|                                                 |                                           |   | General   |         | Limited   |   | Other         |         |       |   |            
|                                                 |                                           |   | Partner's |         | Partners' |   | Comprehensive |         |       |   |            
|                                                 |                                           |   | Interest  |         | Interests |   | Loss          |         | Total
|                                                 |                                           |   |           |         |           |   |               |         |      
|Partners capital (deficit) at December 31, 1998 |                                           | $ | (380      | )       |           | $ | 227,566       |         |       | $ |            |         |   | $ | 227,186 |        
|                                                 | 1999 net income allocation                |   |           | 9,296   |           |   |               | 55,349  |       |   |             |        |   |   |         | 64,645  |  
|                                                 | 1999 cash distributions                   |   |           | (8,259  | )         |   |               | (53,650 | )     |   |             |        |   |   |         | (61,909 | )
|                                                 | Option exercises, net of Unit repurchases |   |           |        |           |   |               | (155    | )     |   |             |        |   |   |         | (155    | )
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        
|Partners capital at December 31, 1999           |                                           |   | 657       |         |           |   | 229,110       |         |       |   |            |         |   |   | 229,767 |        
|                                                 | Capital contributions                     |   |           | 890     |           |   |               |        |       |   |             |        |   |   |         | 890     |  
|                                                 | Issuance of Limited Partner Units, net    |   |           |        |           |   |               | 88,158  |       |   |             |        |   |   |         | 88,158  |  
|                                                 | 2000 net income allocation                |   |           | 13,900  |           |   |               | 56,091  |       |   |             |        |   |   |         | 69,991  |  
|                                                 | 2000 cash distributions                   |   |           | (13,623 | )         |   |               | (59,943 | )     |   |             |        |   |   |         | (73,566 | )
|                                                 | Option exercises, net of Unit repurchases |   |           |        |           |   |               | (183    | )     |   |             |        |   |   |         | (183    | )
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        
|Partners capital at December 31, 2000           |                                           |   | 1,824     |         |           |   | 313,233       |         |       |   |            |         |   |   | 315,057 |        
|                                                 | Capital contributions                     |   |           | 4,795   |           |   |               |        |       |   |             |        |   |   |         | 4,795   |  
|                                                 | Issuance of Limited Partner Units, net    |   |           |        |           |   |               | 234,660 |       |   |             |        |   |   |         | 234,660 |  
|                                                 | Minority interest restructured            |   |           | 4,598   |           |   |               |        |       |   |             |        |   |   |         | 4,598   |  
|                                                 | Cumulative effect of accounting change    |   |           |        |           |   |               |        |       |   |             | (10,103 | ) |   |         | (10,103 | )
|                                                 | Net loss on cash flow hedges              |   |           |        |           |   |               |        |       |   |             | (10,221 | ) |   |         | (10,221 | )
|                                                 | 2001 net income allocation                |   |           | 23,503  |           |   |               | 76,986  |       |   |             |        |   |   |         | 100,489 |  
|                                                 | 2001 cash distributions                   |   |           | (21,530 | )         |   |               | (73,961 | )     |   |             |        |   |   |         | (95,491 | )
|                                                 | Option exercises, net of Unit repurchases |   |           |        |           |   |               | (603    | )     |   |             |        |   |   |         | (603    | )
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        
|Partners capital at December 31, 2001           |                                           | $ | 13,190    |         |           | $ | 550,315       |         |       | $ | (20,324     | )       |   | $ | 543,181 |        
|                                                 |                                           |   |           |         |           |   |               |         |       |   |             |         |   |   |         |        

See accompanying Notes to Consolidated Financial Statements.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. PARTNERSHIP ORGANIZATION

TEPPCO Partners, L.P. (the Partnership), a Delaware limited partnership,
is a master limited partnership and was formed in March 1990. The Partnership
operates through TE Products Pipeline Company, Limited Partnership (TE
Products), TCTM, L.P. (TCTM) and TEPPCO Midstream Companies, L.P. (TEPPCO
Midstream). Collectively, TE Products, TCTM and TEPPCO Midstream are referred
to as the Operating Partnerships. Texas Eastern Products Pipeline Company,
LLC (the Company or General Partner), a Delaware limited liability company,
serves as the general partner of the Partnership. The General Partner is a
wholly-owned subsidiary of Duke Energy Field Services (DEFS), a joint venture
between Duke Energy Corporation (Duke Energy) and Phillips Petroleum Company
(Phillips). Duke Energy holds an approximate 70% interest in DEFS and
Phillips holds the remaining 30%. The Company, as general partner, performs all
management and operating functions required for the Partnership and the
Operating Partnerships, except for the management and operations of certain of
the TEPPCO Midstream assets, which is performed by DEFS under an agreement with
the Partnership. The General Partner is reimbursed by the Partnership for all
reasonable direct and indirect expenses incurred in managing the Partnership.

On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly-owned by
the Partnership. TEPPCO GP, Inc. (TEPPCO GP), a subsidiary of the
Partnership, succeeded the Company as general partner of the Operating
Partnerships. All remaining partner interests in the Operating Partnerships not
already owned by the Partnership were transferred to the Partnership. In
exchange for this contribution, the Companys interest as general partner of
the Partnership was increased to 2%. The increased percentage is the economic
equivalent of the aggregate interest that the Company had prior to the
restructuring through its combined interests in the Partnership and the
Operating Partnerships. As a result, the Partnership holds a 99.999% limited
partner interest in the Operating Partnerships and TEPPCO GP holds a 0.001%
general partner interest. This reorganization was undertaken to simplify
required financial reporting by the Operating Partnerships when guarantees of
Partnership debt are issued by the Operating Partnerships.

At formation in 1990, the Partnership completed an initial public offering
of 26,500,000 Units representing Limited Partner Interests (Limited Partner
Units) at $10 per Unit. In connection with the formation of the Partnership,
the Company received 2,500,000 Deferred Participation Interests (DPIs).
Effective April 1, 1994, the DPIs began participating in distributions of cash
and allocations of profit and loss and are treated as Limited Partner Units for
purposes of this Report. The Partnership has registered the resale of such
Limited Partner Units with the Securities and Exchange Commission. As of
December 31, 2001, no such Limited Partner Units had been sold by Duke Energy.

At December 31, 2001 and 2000, the Partnership had outstanding 40,450,000
and 32,700,000 Limited Partner Units and 3,916,547 and 3,916,547 Class B
Limited Partner Units (Class B Units), respectively. All of the Class B
Units were issued to Duke Energy in connection with an acquisition of assets
initially acquired in the Upstream Segment in 1998. The Class B Units share in
income and distributions on the same basis as the Limited Partner Units, but
they are not listed on the New York Stock Exchange. The Class B Units may be
converted into Limited Partner Units upon approval by the unitholders. The
Company has the option to seek approval for the conversion of the Class B Units
into Limited Partner Units; however, if the conversion is denied, Duke Energy,
as holder of the Class B Units, will have the right to sell them to the
Partnership at 95.5% of the then current market price of the Limited Partner
Units. As a result of this option, the Class B Units were not included in
partners capital at December 31, 2001 and 2000. Collectively, the Limited
Partner Units and Class B Units are referred to as Units.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements include the accounts of the Partnership on a
consolidated basis. The Companys 1% general partner interest in the Operating
Partnerships, prior to July 26, 2001, is accounted for as a minority interest.
All significant intercompany items have been eliminated in consolidation.
Certain amounts from prior years have been reclassified to conform to current
presentation.

Use of Estimates

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

Environmental Expenditures

The Partnership accrues for environmental costs that relate to existing
conditions caused by past operations. Environmental costs include initial site
surveys and environmental studies of potentially contaminated sites, costs for
remediation and restoration of sites determined to be contaminated and ongoing
monitoring costs, as well as fines, damages and other costs, when estimable.
The balance of accrued undiscounted environmental liabilities are monitored on
a regular basis by management. Liabilities for environmental costs at a
specific site are initially recorded when the Partnerships liability for such
costs, including direct internal and legal costs, is probable and a reasonable
estimate of the associated costs can be made. Adjustments to initial estimates
are recorded, from time to time, to reflect changing circumstances and
estimates based upon additional information developed in subsequent periods.
Estimates of the Partnerships ultimate liabilities associated with
environmental costs are particularly difficult to make with certainty due to
the number of variables involved, including the early stage of investigation at
certain sites, the lengthy time frames required to complete remediation
alternatives available and the evolving nature of environmental laws and
regulations.

Business Segments

The Partnership reports and operates in three business segments:
transportation and storage of refined products, liquefied petroleum gases
(LPGs) and petrochemicals (Downstream Segment); gathering, transportation,
marketing and storage of crude oil; and distribution of lubrication oils and
specialty chemicals (Upstream Segment); and gathering of natural gas,
fractionation of natural gas liquids (NGLs) and transportation of NGLs
(Midstream Segment). The Partnerships reportable segments offer different
products and services and are managed separately because each requires
different business strategies. The Upstream Segment of the Partnerships
business was initially acquired in November 1998. Portions of the Midstream
Segment of the Partnerships business were acquired in March 1998, November
1998, December 2000 and on September 30, 2001. Certain of the assets of the
Midstream Segment are managed and operated by DEFS under an agreement with the
Partnership.

Effective January 1, 2002, the Partnership realigned its three business
segments in order to separate and better measure the performance of its natural
gas and NGL operations and its crude oil operations. The fractionation of
NGLs, which was previously reflected as part of the Downstream Segment, was
shifted to the Midstream

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Segment. The operation of NGL pipelines, which was previously reflected as
part of the Upstream Segment, was also shifted to the Midstream Segment. The
year-to-year comparisons have been adjusted to conform to the current
presentation.

The Partnerships interstate transportation operations, including rates
charged to customers, are subject to regulations prescribed by the Federal
Energy Regulatory Commission (FERC). Refined products, LPGs, petrochemicals,
crude oil, NGLs and natural gas are referred to herein, collectively, as
petroleum products or products.

Revenue Recognition

Revenues of the Downstream Segment are derived from transportation and
storage of refined products and LPGs, storage and short-haul transportation of
LPGs at the Mont Belvieu complex, intrastate transportation of petrochemicals,
sale of product inventory and other ancillary services. Transportation
revenues are recognized as products are delivered to customers. Storage
revenues are recognized upon receipt of products into storage and upon
performance of storage services. Terminaling revenues are recognized as
products are out-loaded. Revenues from the sale of product inventory are
recognized when the products are sold.

Revenues of the Upstream Segment are derived from gathering,
transportation, marketing and storage of crude oil; and distribution of
lubrication oils and specialty chemicals principally in Oklahoma, Texas and the
Rocky Mountain region. Revenues are also generated from trade documentation
and pumpover services, primarily at Cushing, Oklahoma, and Midland, Texas
(effective July 20, 2000). Revenues are accrued at the time title to the
product sold transfers to the purchaser, which typically occurs upon receipt of
the product by the purchaser, and purchases are accrued at the time title to
the product purchased transfers to the Partnerships crude oil marketing
company, TEPPCO Crude Oil, L.P., which typically occurs upon receipt of the
product by the Partnership. Revenues related to trade documentation and
pumpover services are recognized as completed.

Except for crude oil purchased from time to time as inventory, the
Partnerships policy is to purchase only crude oil for which it has a market to
sell and to structure sales contracts so that crude oil price fluctuations do
not materially affect the margin received. As the Partnership purchases crude
oil, it establishes a margin by selling crude oil for physical delivery to
third party users or by entering into a future delivery obligation either
physically or a futures contract on the New York Mercantile Exchange (NYMEX).
Through these transactions, the Partnership seeks to maintain a position that
is balanced between crude oil purchases and sales and future delivery
obligations. However, certain basis risks (the risk that price relationships
between delivery points, classes of products or delivery periods will change)
cannot be completely hedged.

Revenues of the Midstream Segment are derived from gathering of natural
gas in the Green River Basin in southwestern Wyoming, fractionation of NGLs in
Colorado and transportation of NGLs. Gathering and transportation revenues are
recognized as natural gas or NGLs are delivered to customers. Revenues are
also earned from the sale of condensate liquid extracted from the natural gas
stream to an Upstream marketing affiliate. Fractionation revenues are
recognized ratably over the contract year as products are delivered to DEFS.
The Partnership does not take title to the natural gas gathered, NGLs
transported or NGLs fractionated, therefore, the results of the Midstream
Segment are not directly affected by changes in the prices of natural gas or
NGLs.

Use of Derivatives

Effective January 1, 2001, the Partnership adopted Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments
and Hedging Activities,and SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133.These statements establish accounting and reporting standards requiring
that derivative instruments (including certain derivative instruments embedded
in other contracts) be recorded on the balance sheet at fair value as either
assets or

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

liabilities. The accounting for changes in the fair value of a derivative
instrument depends on the intended use of the derivative and the resulting
designation, which is established at the inception of a derivative. Special
accounting for derivatives qualifying as fair value hedges allows a
derivatives gains and losses to offset related results on the hedged item in
the statement of income. For derivative instruments designated as cash flow
hedges, changes in fair value, to the extent the hedge is effective, are
recognized in other comprehensive income until the hedged item is recognized in
earnings. Hedge effectiveness is measured at least quarterly based on the
relative cumulative changes in fair value between the derivative contract and
the hedged item over time. Any change in fair value resulting from
ineffectiveness, as defined by SFAS 133, is recognized immediately in earnings.

Adoption of SFAS 133 at January 1, 2001, resulted in the recognition of
approximately $10.1 million of derivative liabilities, $4.1 million of which
were current liabilities and $6.0 million of which were noncurrent liabilities,
and $10.1 million of hedging losses included in accumulated other comprehensive
income, a component of Partners capital, as the cumulative effect of the
change in accounting. The hedging losses included in accumulated other
comprehensive loss are being transferred to earnings as the forecasted
transactions actually occur. Amounts were determined as of January 1, 2001,
based on the market quote of the Partnerships interest swap agreement in place
at the time of adoption.

The Partnership has utilized and expects to continue to utilize derivative
financial instruments with respect to a portion of its interest rate and fair
value risks and its crude oil marketing activities, as each is explained below.
The derivative financial instrument related to the Partnerships interest rate
risk is intended to reduce the Partnerships exposure to increases in the
benchmark interest rates underlying the Partnerships variable rate revolving
credit facility. The derivative financial instrument related to the
Partnerships fair value risks is intended to reduce the Partnerships exposure
to changes in the fair value of the fixed rate Senior Notes resulting from
changes in interest rates. The Partnerships Upstream Segment uses derivative
financial instruments to reduce the Partnerships exposure to fluctuations in
the market price of crude oil. By using derivative financial instruments to
hedge exposures to changes in interest rates, fair value of fixed rate Senior
Notes and crude oil prices, the Partnership exposes itself to credit risk and
market risk. Credit risk is the failure of the counterparty to perform under
the terms of the derivative contract. When the fair value of a derivative
contract is positive, the counterparty owes the Partnership, which creates
credit risk for the Partnership. When the fair value of a derivative contract
is negative, the Partnership owes the counterparty and, therefore, it does not
possess credit risk. The Partnership minimizes the credit risk in derivative
instruments by entering into transactions with major financial institutions or
commodities trading institutions. These derivative financial instruments
generally take the form of swaps and forward contracts. Market risk is the
adverse effect on the value of a financial instrument that results from a
change in interest rates or commodity prices. The market risk associated with
interest-rate and commodity-price contracts is managed by establishing and
monitoring parameters that limit the type and degree of market risk that may be
undertaken.

At December 31, 2001, the Upstream Segment had no open positions on
derivative financial contracts.

As of December 31, 2001, the Partnership had in place an interest rate
swap agreement to hedge its exposure to increases in the benchmark interest
rate underlying its variable rate revolving credit facilities. The Partnership
has designated this swap agreement, which hedges exposure to variability in
expected future cash flows attributed to changes in interest rates, as a cash
flow hedge. The swap agreement is based on a notional amount of $250 million.
Under the swap agreement, the Partnership pays a fixed rate of interest of
6.955% and receives a floating rate based on a three month U.S. Dollar LIBOR
rate. Since this swap is designated as a cash flow hedge, the changes in fair
value, to the extent the swap is effective, are recognized in other
comprehensive income until the hedged interest costs are recognized in
earnings. During the year ended December 31, 2001, the Partnership recognized
$6.8 million in losses, included in interest expense, on the interest rate swap
attributable to interest costs occurring in 2001. No gain or loss from
ineffectiveness was required to be recognized. The fair value of the interest
rate swap agreement was a loss of approximately $20.3 million at December 31,
2001. Approximately $11.7 million of such amount is anticipated to be
transferred into earnings over the next twelve months.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

As of December 31, 2001, TE Products also had in place an interest rate
swap agreement to hedge its exposure to changes in the fair value of its fixed
rate 7.51% Senior Notes due 2028. The Partnership has designated this swap
agreement, which hedges exposure to changes in the fair value of the TE
Products Senior Notes, as a fair value hedge. The swap agreement has a
notional amount of $210 million and matures in January 2028 to match the
principal and maturity of the TE Products Senior Notes. Under the swap
agreement, TE Products pays a floating rate based on a three month U.S. Dollar
LIBOR rate, plus a spread, and receives a fixed rate of interest of 7.51%.
Since this swap is designated as a fair value hedge, the changes in fair value
are recognized in current earnings. During the year ended December 31, 2001,
the Partnership recognized a gain of $1.8 million, included as a component of
interest expense, on the interest rate swap. No gain or loss from
ineffectiveness was required to be recognized.

During 2001, the Partnership entered into treasury rate lock agreements
with a combined notional amount of $400 million to hedge its exposure to
increases in the treasury rate that was to be used to establish the fixed
interest rate for an anticipated debt offering planned to occur in the fourth
quarter of 2001. The debt offering did not occur in 2001. Under the treasury
rate lock agreements, the Partnership would pay a fixed rate of interest, and
would receive a floating rate based on the three month treasury rate. The
treasury rate locks were designated as cash flow hedges. As a result, the
changes in fair value, to the extent the treasury rate locks were effective,
would be recognized in other comprehensive income until the actual debt
offering occurred. Upon completion of the debt offering, the realized gain or
loss on the treasury rate locks would be amortized out of accumulated other
comprehensive income into interest expense over the life of the debt
obligation. During April 2001, a treasury lock with a notional amount of $200
million was terminated and a gain of $1.1 million was realized. The realized
gain was recorded as a component of accumulated other comprehensive income.
During December 2001, the remaining treasury lock with a notional amount of
$200 million was terminated resulting in a realized loss of $1.1 million. The
realized loss was recorded as a component of interest expense. The realized
gain recorded in April 2001 to accumulated other comprehensive income was
reclassified to interest expense in December, upon termination of the treasury
lock agreement.

Inventories

Inventories consist primarily of petroleum products and crude oil which
are valued at the lower of cost (weighted average cost method) or market. The
Downstream Segment acquires and disposes of various products under exchange
agreements. Receivables and payables arising from these transactions are
usually satisfied with products rather than cash. The net balances of exchange
receivables and payables are valued at weighted average cost and included in
inventories.

Property, Plant and Equipment

Additions to property, plant and equipment, including major replacements
or betterments, are recorded at cost. Replacements and renewals of minor items
of property are charged to maintenance expense. Depreciation expense is
computed on the straight-line method using rates based upon expected useful
lives of various classes of assets (ranging from 2% to 20% per annum). Upon
sale or retirement of properties regulated by the FERC, cost less salvage is
normally charged to accumulated depreciation, and no gain or loss is
recognized.

Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Capitalization of Interest

The Partnership capitalizes interest on borrowed funds related to capital
projects only for periods that activities are in progress to bring these
projects to their intended use. The weighted average rate used to capitalize
interest on borrowed funds was 6.46%, 7.45% and 7.01% for 2001, 2000 and 1999,
respectively. During the years ended December 31, 2001, 2000 and 1999, the
amount of interest capitalized was $4.0 million, $4.6 million and $2.1 million,
respectively.

Intangible Assets

Intangible assets at December 31, 2001, consist primarily of production
contracts assumed in the acquisition of Jonah Gas Gathering Company (Jonah)
on September 30, 2001, and the fractionation agreement with DEFS. In
connection with the acquisition of Jonah, the Partnership assumed contracts
that dedicate future production from natural gas wells in the Green River Basin
in the State of Wyoming (see Note 3. Acquisitions). The value assigned to
intangible assets relates to contracts with customers that are for either a
fixed term or which dedicate total future lease production. The value assigned
to intangible assets are amortized over the expected lives of the contracts
(approximately 16 years) in proportion to the timing of the expected
contractual volumes. At December 31, 2001, the unamortized balance of these
production contracts was $219.5 million.

The fractionation agreement with DEFS was entered into in 1998 and is
being amortized over a period of 20 years. At December 31, 2001, the
unamortized balance of this agreement was $30.9 million. (See Note 4. Related
Party Transactions.)

Goodwill

Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 20 years. Goodwill is presented on the
consolidated balance sheets net of accumulated amortization. At December 31,
2001 and 2000, the Partnership had $14.7 million and $4.2 million,
respectively, of unamortized goodwill. Amortization expense related to
goodwill was $0.9 million and $0.1 million for the years ended December 31,
2001 and 2000, respectively.

In July 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead tested for impairment at least annually. SFAS 142
requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives. The Partnership adopted SFAS 142
effective January 1, 2002. At the date of this report, the Partnership is
evaluating the impact of adopting SFAS 142, including whether any transitional
impairment losses will be required to be recognized as the cumulative effect of
a change in accounting principle. Beginning January 1, 2002, effective with
the adoption of SFAS 142, the Partnership will no longer record amortization
expense related to goodwill. The goodwill associated with the acquisition of
Jonah, which was completed on September 30, 2001, is not being amortized due to
the adoption of certain provisions of SFAS 142 (see Note 2. New Accounting
Pronouncements).

Income Taxes

The Partnership is a limited partnership. As a result, the Partnerships
income or loss for federal income tax purposes is included in the tax return of
the individual partners, and may vary substantially from income or loss
reported for financial reporting purposes. Accordingly, no recognition has been
given to federal income taxes for the Partnerships operations.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Cash Flows

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

Net Income Per Unit

Basic net income per Unit is computed by dividing net income, after
deduction of the general partners interest, by the weighted average number of
Limited Partner and Class B Units outstanding (a total of 39.3 million Units
for 2001, 33.6 million Units for 2000 and 32.9 million Units for 1999). The
general partners percentage interest in net income is based on its percentage
of cash distributions from Available Cash for each year (see Note 10. Quarterly
Distributions of Available Cash). The general partner was allocated $23.5
million (representing 21.54%) of net income for the year ended December 31,
2001, $13.9 million (representing 17.96%) of net income for the year ended
December 31, 2000, and $9.3 million (representing 12.89%) of net income for the
year ended December 31, 1999.

Diluted net income per Unit is similar to the computation of basic net
income per Unit above, except that the denominator was increased to include the
dilutive effect of outstanding Unit options by application of the treasury
stock method. For the years ended December 31, 2001, 2000 and 1999, the
denominator was increased by 41,864 Units, 20,926 Units and 12,141 Units,
respectively.

Unit Option Plan

The Partnership follows the intrinsic value based method of accounting for
its stock-based compensation plans (see Note 11. Unit Option Plan). Under this
method, the Partnership records no compensation expense for unit options
granted when the exercise price of options granted is equal to the fair market
value of the Units on the date of grant.

New Accounting Pronouncements

In July 2001, the FASB issued SFAS No. In July 2001, the FASB issued SFAS No. 141, Business Combinations. SFAS
141 requires that the purchase method of accounting be used for all business
combinations and specifies that certain acquired intangible assets be reported
apart from goodwill. The Partnership adopted SFAS 141 during 2001.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 requires the Partnership to record the fair
value of an asset retirement obligation as a liability in the period in which
it incurs a legal obligation associated with the retirement of tangible
long-lived assets that results from the acquisition, construction, development
and/or normal use of the assets. The Partnership also records a corresponding
asset, which is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the obligation will be
adjusted at the end of each period to reflect the passage of time and changes
in the estimated future cash flows underlying the obligation. The Partnership
is required to adopt SFAS 143 effective January 1, 2003.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for Long-Lived Assets and For Long-Lived Assets to be Disposed Of,
but retains its fundamental provisions for reorganizing and measuring
impairment losses on long-lived assets held for use and long-lived assets to be
disposed of by sale. The Partnership was required to adopt SFAS 144 effective
January 1, 2002. The adoption of SFAS 144 did not have a material effect on
the financial position, results of operations or cash flows of the Partnership.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 3. ACQUISITIONS

On July 20, 2000, the Partnership completed an acquisition of ARCO Pipe
Line Company (ARCO), a wholly-owned subsidiary of Atlantic Richfield Company,
for $322.6 million, which included $4.1 million of acquisition related costs
other than the purchase price. The purchased assets included ARCOs 50-percent
ownership interest in Seaway Crude Pipeline Company (Seaway), which owns a
pipeline that carries mostly imported crude oil from a marine terminal at
Freeport, Texas, to Cushing, Oklahoma, and from a marine terminal at Texas
City, Texas, to refineries in the Texas City and Houston areas. The
Partnership assumed ARCOs role as operator of this pipeline. The Company also
acquired: (i) ARCOs crude oil terminal facilities in Cushing and Midland,
Texas, including the line transfer and pumpover business at each location; (ii)
an undivided ownership interest in both the Rancho Pipeline, a crude oil
pipeline from West Texas to Houston, and the Basin Pipeline, a crude oil
pipeline running from Jal, New Mexico, through Midland to Cushing, both of
which are operated by another joint owner; and (iii) the receipt and delivery
pipelines known as the West Texas Trunk System, which is located around the
Midland terminal. The acquisition was accounted for under the purchase method
of accounting. Accordingly, the results of the acquisition are included in the
consolidated financial statements from July 20, 2000.

In October 2000, the Partnership received a settlement notice from
Atlantic Richfield Company for payment of a net aggregate amount of
approximately $12.9 million in post-closing adjustments related to the purchase
of ARCO. A large portion of the requested adjustment related to an indemnity
for payment of accrued income taxes. In August 2001, the Partnership and
Atlantic Richfield Company reached a settlement of $11.0 million for the
post-closing adjustments. The Partnership recorded the settlement as an
increase to the purchase price of ARCO. The Partnership paid the settlement
amount to Atlantic Richfield Company on October 15, 2001.

On September 30, 2001, subsidiaries of the Partnership completed the
purchase of Jonah from Alberta Energy Company for $359.8 million. The
acquisition serves as an entry into the natural gas gathering industry for the
Partnership. Goodwill recognized in the purchase amounted to approximately $2.4
million. The acquisition was accounted for under the purchase method of
accounting. Accordingly, the results of the acquisition are included in the
consolidated financial statements from September 30, 2001. An additional $7.2
million was accrued at December 31, 2001, for final purchase adjustments
related primarily to construction projects in progress at the time of closing.

The following table allocates the estimated fair value of Jonah assets
acquired on September 30, 2001, and includes the additional purchase adjustment
paid in February 2002 (in thousands):

|                                                           |                     |   |         |         | 
|---------------------------------------------------------- | ------------------- | - | ------- | ------- | 
|Property, plant and equipment                              |                     | $ | 141,835 |        
|Intangible assets (primarily gas transportation contracts) |                     |   | 222,800 |        
|Goodwill                                                   |                     |   | 2,486   |        
|                                                           |                     |   |         |        
|                                                           | Total assets        |   |         | 367,121 | 
|                                                           |                     |   |         |        
|Total liabilities assumed                                  |                     |   | (489    | )      
|                                                           |                     |   |         |        
|                                                           | Net assets acquired |   | $       | 366,632 | 
|                                                           |                     |   |         |        

The value assigned to intangible assets relates to contracts with
customers that are for either a fixed term or which dedicate total future lease
production. The value assigned to intangible assets will be amortized over the
expected lives of the contracts (approximately 16 years) in proportion to the
timing of expected contractual volumes.

The following table presents the unaudited pro forma results of the
Partnership as though the acquisitions of the ARCO and Jonah businesses
occurred at the beginning of the respective periods (in thousands, except per
Unit amounts). The pro forma results do not include operating efficiencies or
revenue growth from historical results.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                                                  |  |                          |           |      |  |   |           | 
|----------------------------------------------------------------- |  | ------------------------ | --------- | ---- |  | - | --------- | 
|                                                                  |  | Years Ended December 31,
|                                                                  |  |                         
|                                                                  |  | 2001                     |           | 2000
|                                                                  |  |                          |           |     
|Revenues                                                          |  | $                        | 3,579,684 |      |  | $ | 3,128,612 | 
|Operating income                                                  |  |                          | 141,720   |      |  |   | 107,916   | 
|Net income                                                        |  |                          | 88,124    |      |  |   | 61,255    | 
|Basic and diluted net income per Limited
Partner and Class B Unit |  | $                        | 1.76      |      |  | $ | 1.50      | 

On December 31, 2000, the Company completed an acquisition of certain
pipeline assets from DEFS for $91.7 million, which included $0.7 million of
acquisition related costs. The purchase included two natural gas liquids
pipelines in East Texas: the Panola Pipeline, a pipeline from Carthage, Texas,
to Mont Belvieu, Texas, and the San Jacinto Pipeline, a pipeline from Carthage
to Longview, Texas. A lease of a condensate pipeline from Carthage to Marshall,
Texas, was also assumed. All three pipelines originate at DEFS East Texas
Plant Complex in Panola County, Texas. The acquisition of the assets was
accounted for under the purchase method of accounting.

NOTE 4. RELATED PARTY TRANSACTIONS

The Partnership has no employees and is managed by the Company, a
wholly-owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest
in DEFS and Phillips holds the remaining 30%. According to the Partnership
Agreements, the Company is entitled to reimbursement of all direct and indirect
expenses related to business activities of the Partnership (see Note 1.
Partnership Organization).

For the years ended December 31, 2001, 2000, and 1999, direct expenses
incurred by the Company in the amount of $68.2 million, $50.4 million, and
$49.6 million, respectively, were charged to the Partnership. Substantially all
such costs were related to payroll and payroll related expenses. For the years
ended December 31, 2001, 2000, and 1999, expenses for administrative service
and overhead allocated to the Partnership by Duke Energy and its affiliates
amounted to $0.6 million, $0.8 million, and $2.1 million, respectively.

Effective with the purchase of the fractionation facilities on March 31,
1998, TEPPCO Colorado, LLC (TEPPCO Colorado) and DEFS entered into a 20-year
Fractionation Agreement, under which TEPPCO Colorado receives a variable fee
for all fractionated volumes delivered to DEFS. Revenues recognized from the
fractionation facilities totaled $7.4 million, $7.5 million and $7.3 million
for the years ended December 31, 2001, 2000 and 1999, respectively. TEPPCO
Colorado and DEFS also entered into an Operation and Maintenance Agreement,
whereby DEFS operates and maintains the fractionation facilities. For these
services, TEPPCO Colorado pays DEFS a set volumetric rate for all fractionated
volumes delivered to DEFS. Expenses related to the Operation and Maintenance
Agreement totaled $0.9 million, $0.9 million and $0.8 million for the years
ended December 31, 2001, 2000 and 1999, respectively.

Included with certain crude oil assets purchased from DEFS effective
November 1, 1998, was the Wilcox NGL Pipeline located along the Texas Gulf
Coast. The Wilcox NGL Pipeline transports NGLs for DEFS from two of their
processing plants and is currently supported by a throughput agreement with
DEFS through 2005. The fees on the agreement totaled $1.2 million, $1.1
million and $1.1 million for the years ended December 31, 2001, 2000 and 1999,
respectively.

On July 20, 2000, the Partnership, through TCTM, acquired a 50-percent
ownership interest in Seaway. Phillips owns the remaining 50% interest in
Seaway. The Partnership is the operator of this pipeline. During the years
ended 2001 and 2000, the Partnership billed to Seaway $7.0 million and $2.9
million, respectively, for direct payroll and payroll related expenses for
operating Seaway. Additionally, during the years ended December 31, 2001 and
2000, the Partnership billed to Seaway $2.1 million and $0.9 million,
respectively, for indirect management fees for operating Seaway.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

Effective May 2001, the Company entered into an agreement with DEFS to
commit sole utilization of the Providence terminal to DEFS. The terminal is
operated by the Partnership. During the year ended December 31, 2001, DEFS
paid the Partnership $1.5 million pursuant to this agreement.

On September 30, 2001, the Partnership completed the acquisition of Jonah.
The Jonah assets are managed and operated by employees of DEFS under a
contractual arrangement under which DEFS is reimbursed for its actual costs.
Certain employees of DEFS also act as officers of TEPPCO GP in order to
facilitate management of the Jonah assets by DEFS. These DEFS employees
receive no additional compensation from the Partnership for these activities.
During the year ended December 31, 2001, the Partnership recognized $0.6
million of expense related to the management of the Jonah assets by DEFS.

NOTE 5. EQUITY INVESTMENTS

Seaway is a partnership between TCTM and Phillips. TCTM purchased its
50-percent ownership interest in Seaway on July 20, 2000 (see Note 3.
Acquisitions). The Seaway Crude Pipeline Company Partnership Agreement
provides for varying participation ratios throughout the life of the Seaway
partnership. From July 20, 2000, through May 2002, TCTM receives 80% of revenue
and expense of Seaway. From June 2002 until May 2006, TCTM receives 60% of
revenue and expense of Seaway. Thereafter, the sharing ratio becomes 40% of
revenue and expense to TCTM.

In August 2000, the Partnership entered into agreements with CMS Energy
Corporation and Marathon Ashland Petroleum LLC to form Centennial Pipeline, LLC
(Centennial). Centennial owns and operates an interstate refined petroleum
products pipeline extending from the upper Texas Gulf Coast to Illinois. Each
participant owns a one-third interest in Centennial. During 2001 and 2000, the
Partnership contributed approximately $65.0 million and $5.0 million,
respectively, for its investment in Centennial. Such amounts are included in
the equity investment balance at December 31, 2001 and 2000.

The Partnership uses the equity method of accounting for its investments
in Seaway and Centennial. Summarized combined financial information for Seaway
as of and for the year ended December 31, 2001, and as of December 31, 2000,
and for the period from July 20, 2000, through December 31, 2000, and for
Centennial as of and for the year ended December 31, 2001, is presented below
(in thousands):

|                    |  |      |         |      |  |   |         | 
|------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                    |  | 2001 |         | 2000
|                    |  |      |         |     
|Current assets      |  | $    | 57,368  |      |  | $ | 36,883  | 
|Noncurrent assets   |  |      | 528,835 |      |  |   | 288,191 | 
|Current liabilities |  |      | 31,308  |      |  |   | 9,220   | 
|Long-term debt      |  |      | 128,000 |      |  |   |        | 
|Partners capital   |  |      | 426,895 |      |  |   | 315,854 | 
|Revenues            |  |      | 72,026  |      |  |   | 31,989  | 
|Net income          |  |      | 30,294  |      |  |   | 12,449  | 

The Partnerships investment in Seaway at December 31, 2001 and 2000,
includes an excess investment amount of $25.5 million and $26.4 million, net of
accumulated amortization of $1.6 million and $0.7 million, respectively. This
excess investment relates to the Partnerships allocation of the purchase price
on July 20, 2000, in excess of its proportionate share of the net assets of
Seaway. The excess investment is being amortized using the straight-line
method over 20 years.

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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 6. INVENTORIES

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

|                       |       |   |              |        |      |   |        |        | 
|---------------------- | ----- | - | ------------ | ------ | ---- | - | ------ | ------ | 
|                       |       |   | December 31,
|                       |       |   |             
|                       |       |   | 2001         |        | 2000
|                       |       |   |              |        |     
|Crude oil              |       | $ | 3,783        |        |      | $ | 14,635 |       
|Gasolines              |       |   | 4,548        |        |      |   | 3,795  |       
|Propane                |       |   | 1,096        |        |      |   |       |       
|Butanes                |       |   | 1,431        |        |      |   | 267    |       
|Other products         |       |   | 2,866        |        |      |   | 2,775  |       
|Materials and supplies |       |   | 3,519        |        |      |   | 3,312  |       
|                       |       |   |              |        |      |   |        |       
|                       | Total |   | $            | 17,243 |      |   | $      | 24,784 | 
|                       |       |   |              |        |      |   |        |       

The costs of inventories did not exceed market values at December 31, 2001 and 2000.

NOTE 7. PROPERTY, PLANT AND EQUIPMENT

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

|                              |                                                |                                   |         |              |           |      |         |           |         | 
|----------------------------- | ---------------------------------------------- | --------------------------------- | ------- | ------------ | --------- | ---- | ------- | --------- | ------- | 
|                              |                                                |                                   |         | December 31,
|                              |                                                |                                   |         |             
|                              |                                                |                                   |         | 2001         |           | 2000
|                              |                                                |                                   |         |              |           |     
|Land and right of way         |                                                | $                                 | 92,664  |              |           | $    | 77,798  |          
|Line pipe and fittings        |                                                |                                   | 822,332 |              |           |      | 739,372 |          
|Storage tanks                 |                                                |                                   | 130,461 |              |           |      | 125,890 |          
|Buildings and improvements    |                                                |                                   | 15,131  |              |           |      | 13,127  |          
|Machinery and equipment       |                                                |                                   | 252,393 |              |           |      | 178,227 |          
|Construction work in progress |                                                |                                   | 157,728 |              |           |      | 66,456  |          
|                              |                                                |                                   |         |              |           |      |         |          
|                              | Total property, plant and equipment            |                                   | $       | 1,470,709    |           |      | $       | 1,200,870 |        
|                              | Less accumulated depreciation and amortization |                                   |         | 290,248      |           |      |         | 251,165   |        
|                              |                                                |                                   |         |              |           |      |         |          
|                              |                                                | Net property, plant and equipment |         | $            | 1,180,461 |      |         | $         | 949,705 | 
|                              |                                                |                                   |         |              |           |      |         |          

Depreciation expense on property, plant and equipment was $39.5 million,
$33.0 million and $30.7 million for the years ended December 31, 2001, 2000 and
1999, respectively.

NOTE 8. LONG TERM DEBT

Senior Notes

On January 27, 1998, TE Products completed the issuance of $180 million
principal amount of 6.45% Senior Notes due 2008, and $210 million principal
amount of 7.51% Senior Notes due 2028 (collectively the Senior Notes). The
6.45% Senior Notes were issued at a discount and are being accreted to their
face value over the term of the notes. The 6.45% Senior Notes due 2008 are not
subject to redemption prior to January 15, 2008. The 7.51% Senior Notes due
2028, issued at par, may be redeemed at any time after January 15, 2008, at the
option of TE Products, in whole or in part, at a premium.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The Senior Notes do not have sinking fund requirements. Interest on the
Senior Notes is payable semiannually in arrears on January 15 and July 15 of
each year. The Senior Notes are unsecured obligations of TE Products and rank
on a parity with all other unsecured and unsubordinated indebtedness of TE
Products. The indenture governing the Senior Notes contains covenants,
including, but not limited to, covenants limiting the creation of liens
securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit the Partnerships ability to incur additional
indebtedness. As of December 31, 2001, TE Products was in compliance with the
covenants of the Senior Notes.

On October 4, 2001, TE Products entered into an interest rate swap
agreement to hedge its exposure to changes in the fair value of its $210
million principal amount of 7.51% fixed rate Senior Notes. The swap agreement
has a notional amount of $210 million and matures in January 2028 to match the
principal and maturity of the Senior Notes. Under the swap agreement, TE
Products pays a floating rate based on a three month U.S. Dollar LIBOR rate,
plus a spread, and receives a fixed rate of interest of 7.51%.

At December 31, 2001 and 2000, the estimated fair value of the Senior
Notes was approximately $362 million and $385 million, respectively. Market
prices for recent transactions and rates currently available to the Partnership
for debt with similar terms and maturities were used to estimate fair value.

Other Long Term Debt and Credit Facilities

In connection with the purchase of fractionation assets from DEFS as of
March 31, 1998, TEPPCO Colorado, a subsidiary of TE Products, received a $38
million bank loan. The interest rate on this loan was 6.53%, which was payable
quarterly. The original maturity date was April 21, 2001. This loan was
refinanced by the Partnership on July 21, 2000, through the credit facility
discussed below.

On May 17, 1999, TE Products entered into a five-year $75 million term
loan agreement to finance construction of three new pipelines between TE
Products terminal in Mont Belvieu, Texas and Port Arthur, Texas. This loan was
refinanced by the Partnership on July 21, 2000, through the credit facility
discussed below.

On May 17, 1999, TE Products entered into a five-year $25 million
revolving credit agreement, and TCTM entered into a three-year $30 million
revolving credit agreement. Both of the credit facilities were terminated in
connection with the refinancing on July 21, 2000, discussed below. TE Products
did not make any borrowings under this revolving credit facility. TCTM had a $3
million principal amount outstanding under its revolving credit agreement as of
July 21, 2000.

On July 14, 2000, the Partnership entered into a $75 million term loan and
a $475 million revolving credit facility (Three Year Facility). On July 21,
2000, the Partnership borrowed $75 million under the term loan and $340 million
under the Three Year Facility. The funds were used to finance the acquisition
of the ARCO assets (see Note 3. Acquisitions) and to refinance existing bank
credit facilities, other than the Senior Notes. The term loan was repaid from
proceeds received from the issuance of additional Limited Partner Units on
October 25, 2000.

On April 6, 2001, the Partnerships Three Year Facility was amended to
provide for revolving borrowings of up to $500 million including the issuance
of letters of credit of up to $20 million. The term of the revised Three Year
Facility was extended to April 6, 2004. The interest rate is based on the
Partnerships option of either the lenders base rate plus a spread, or LIBOR
plus a spread in effect at the time of the borrowings. The credit agreement
for the Three Year Facility contains restrictive financial covenants that
require the Partnership to maintain a minimum level of partners capital as
well as maximum debt-to-EBITDA (earnings before interest expense, income tax
expense and depreciation and amortization expense) and minimum fixed charge
coverage ratios. On September 28, 2001, the Three Year Facility was amended to
extend to December 31, 2001, the time period for the maximum debt-to-EBITDA
ratio covenant to allow for the additional debt incurred for the acquisition of
Jonah. On November 13, 2001, the Three Year Facility was further amended to
require prepayment of
F-18Table of Contents

TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

outstanding borrowings only upon the receipt of net cash proceeds from
asset dispositions or from insurance proceeds in accordance with the terms of
the agreement. At such time, certain lenders under the agreement elected to
withdraw from the facility, and the available borrowing capacity was reduced to
$411 million. As of December 31, 2001, the Partnership was in compliance with
the covenants contained in this credit agreement. At December 31, 2001 and
2000, $340.7 million and $446 million was outstanding under the Three Year
Facility at a weighted average interest rate of 2.9% and 8.23%, respectively.
At December 31, 2001 and 2000, the carrying value of the revolving credit
facility approximated its fair value.

On July 21, 2000, the Partnership entered into a three year swap agreement
to hedge its exposure to increases in the benchmark interest rate underlying
its variable rate revolving credit facilities. On April 6, 2001, the swap
agreement was extended until April 6, 2004, to match the maturity of the
variable rate credit facility. The swap agreement is based on a notional
amount of $250 million. Under the swap agreement, the Partnership pays a fixed
rate of interest of 6.955% and receives a floating rate based on a three month
U.S. Dollar LIBOR rate. At December 31, 2001 and 2000, the estimated fair
value of the swap agreement was a loss of approximately $20.3 million and $10
million, respectively (see Note 2. Use of Derivatives).

Short Term Credit Facilities

On April 6, 2001, the Partnership entered into a 364-day, $200 million
revolving credit agreement (Short-term Revolver). The interest rate is based
on the Partnerships option of either the lenders base rate plus a spread, or
LIBOR plus a spread in effect at the time of the borrowings. The credit
agreement contains restrictive financial covenants that require the Partnership
to maintain a minimum level of partners capital as well as maximum
debt-to-EBITDA and minimum fixed charge coverage ratios. On September 28,
2001, the Short-term Revolver was amended to extend to December 31, 2001, the
time period for the maximum debt-to-EBITDA ratio covenant to allow for the
additional debt incurred for the acquisition of Jonah. On November 13, 2001,
the Short-term Revolver was further amended to require prepayment of
outstanding borrowings only upon the receipt of net cash proceeds from asset
dispositions or from insurance proceeds in accordance with the terms of the
agreement. At such time, certain lenders under the agreement elected to
withdraw from the facility, and the available borrowing capacity was reduced to
$164 million. At December 31, 2001, $160 million, included in current
liabilities, was outstanding under the Short-term Revolver at a weighted
average interest rate of 2.9%. As of December 31, 2001, the Partnership was in
compliance with the covenants contained in this credit agreement.

On September 28, 2001, the Partnership entered into a $400 million credit
facility with SunTrust Bank (Bridge Facility). The Partnership borrowed $360
million under the Bridge Facility for the acquisition of the Jonah assets (see
Note 3. Acquisitions). The Bridge Facility is payable in June 2002. During
the fourth quarter of 2001, $160 million of the outstanding principal was
repaid from the proceeds received from the issuance of the Limited Partner
Units in November 2001. The interest rate is based on the Partnerships option
of either the lenders base rate plus a spread, or LIBOR plus a spread in
effect at the time of the borrowings. The credit agreements contain restrictive
financial covenants that require the Partnership to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. At December 31, 2001, $200 million was outstanding under the
Bridge Facility at an interest rate of 3.2%. As of December 31, 2001, the
Partnership was in compliance with the covenants contained in this credit
agreement.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table summarizes the principal outstanding under the credit
facilities of the Partnership as of December 31, 2001 and 2000 (in thousands):

|                              |                                      |                                    |   |         |         |      |   |         |         | 
|----------------------------- | ------------------------------------ | ---------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | 
|                              |                                      |                                    |   | 2001    |         | 2000
|                              |                                      |                                    |   |         |         |     
|Short Term Credit Facilities: |                                      |                                    |   |         |         |      |   |        
|                              | Short-term Revolver, due April 2002  |                                    | $ | 160,000 |         |      | $ |        |        
|                              | Bridge Facility, due June 2002       |                                    |   | 200,000 |         |      |   |        |        
|                              |                                      |                                    |   |         |         |      |   |         |        
|                              |                                      | Total Short Term Credit Facilities |   | $       | 360,000 |      |   | $       |        | 
|                              |                                      |                                    |   |         |         |      |   |         |        
|Long Term Credit Facilities:  |                                      |                                    |   |         |         |      |   |        
|                              | Three Year Facility, due April 2004  |                                    | $ | 340,658 |         |      | $ | 446,000 |        
|                              | 6.45% Senior Notes, due January 2008 |                                    |   | 179,814 |         |      |   | 179,784 |        
|                              | 7.51% Senior Notes, due January 2028 |                                    |   | 210,000 |         |      |   | 210,000 |        
|                              |                                      |                                    |   |         |         |      |   |         |        
|                              |                                      | Total Long Term Credit Facilities  |   | $       | 730,472 |      |   | $       | 835,784 | 
|                              |                                      |                                    |   |         |         |      |   |         |        

NOTE 9. CONCENTRATIONS OF CREDIT RISK

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

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

NOTE 10. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

The Partnership makes quarterly cash distributions of all of its Available
Cash, generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the general partner in its sole
discretion. According to the Partnership Agreement, the Company receives
incremental incentive cash distributions on the portion that cash distributions
on a per Unit basis exceed certain target thresholds as follows:

|                                      |                                                                     |  |             |    |         |  |         |    |  
|------------------------------------- | ------------------------------------------------------------------- |  | ----------- | -- | ------- |  | ------- | -- | -
|                                      |                                                                     |  |             |    |         |  | General
|                                      |                                                                     |  | Unitholders |    | Partner
|                                      |                                                                     |  |             |    |        
|Quarterly 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 | %
|                                      | Second Target  $0.326 per Unit up to $0.45 per Unit                |  |             | 75 | %       |  |         | 25 | %
|                                      | Over Second Target  Cash distributions greater than $0.45 per Unit |  |             | 50 | %       |  |         | 50 | %

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TEPPCO PARTNERS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The following table reflects the allocation of total distributions paid
for the years ended December 31, 2001, 2000 and 1999 (in thousands, except per
Unit amounts).

|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |        | 
|-------------------------------------- | ------------------------------------------ | - | ------------------------ | ------- | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                       |                                            |   | Years Ended December 31,
|                                       |                                            |   |                         
|                                       |                                            |   | 2001                     |         | 2000 |   | 1999  
|                                       |                                            |   |                          |         |      |   |       
|Limited Partner Units                  |                                            | $ | 73,961                   |         |      | $ | 59,943 |        |  | $ | 53,650 |       
|General Partner Ownership Interest     |                                            |   | 1,273                    |         |      |   | 685    |        |  |   | 609    |       
|General Partner Incentive              |                                            |   | 20,257                   |         |      |   | 12,938 |        |  |   | 7,650  |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|                                       | Total Partners Capital Cash Distributions |   |                          | 95,491  |      |   |        | 73,566 |  |   |        | 61,909 | 
|Class B Units                          |                                            |   | 8,421                    |         |      |   | 7,833  |        |  |   | 6,651  |       
|Minority Interest                      |                                            |   | 500                      |         |      |   | 832    |        |  |   | 699    |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|                                       | Total Cash Distributions Paid              |   | $                        | 104,412 |      |   | $      | 82,231 |  |   | $      | 69,259 | 
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       
|Total Cash Distributions Paid Per Unit |                                            | $ | 2.15                     |         |      | $ | 2.00   |        |  | $ | 1.85   |       
|                                       |                                            |   |                          |         |      |   |        |        |  |   |        |       

On February 8, 2002, the Partnership paid a cash distribution of $0.575
per Limited Partner Unit and Class B Unit for the quarter ended December 31,
2001. The fourth quarter 2001 cash distribution totaled $33.5 million.

NOTE 11. UNIT OPTION PLAN

During 1994, the Company adopted the Texas Eastern Products Pipeline
Company 1994 Long Term Incentive Plan (1994 LTIP). The 1994 LTIP provides key
employees with an incentive award whereby a participant is granted an option to
purchase Limited Partner Units together with a stipulated number of Performance
Units. Under the provisions of the 1994 LTIP, no more than one million options
and two million Performance Units may be granted. Each Performance Unit creates
a credit to a participants Performance Unit account when earnings exceed a
threshold. When earnings for a calendar year (exclusive of certain special
items) exceed the threshold, the excess amount is credited to the participants
Performance Unit account. The balance in the account may be used to exercise
Limited Partner Unit options granted in connection with the Performance Units
or may be withdrawn two years after the underlying options expire, usually 10
years from the date of grant. Under the agreement for such Limited Partner Unit
options, the options become exercisable in equal installments over periods of
one, two, and three years from the date of the grant. Options may also be
exercised by normal means once vesting requirements are met. A summary of
Performance Units and Limited Partner Unit options granted under the terms of
the 1994 LTIP is presented below:

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

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                              |                                  |                    |  |             |         |             |  |          |         |   |   |              |              | 
|----------------------------- | -------------------------------- | ------------------ |  | ----------- | ------- | ----------- |  | -------- | ------- | - | - | ------------ | ------------ | 
|                              |                                  |                    |  | Options     |         | Options     |  | Exercise
|                              |                                  |                    |  | Outstanding |         | Exercisable |  | Range   
|                              |                                  |                    |  |             |         |             |  |         
|Limited Partner Unit Options: |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 1998 |                    |  | 190,796     |         |             |  | 72,359   |         |   | $ | 13.81-$21.66 |             
|                              |                                  | Granted            |  |             | 162,000 |             |  |          |        |   |   |              | $25.25       | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 40,737  |   |   | $            | 21.66-$25.69 | 
|                              |                                  | Exercised          |  |             | (14,000 | )           |  |          | (14,000 | ) |   | $            | 13.81-$14.34 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 1999 |                    |  | 338,796     |         |             |  | 99,096   |         |   | $ | 13.81-$25.69 |             
|                              |                                  | Forfeited          |  |             | (28,000 | )           |  |          | (4,000  | ) |   | $            | 25.25-$25.69 | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 85,365  |   |   | $            | 21.66-$25.69 | 
|                              |                                  | Exercised          |  |             | (19,932 | )           |  |          | (19,932 | ) |   | $            | 13.81-$14.34 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2000 |                    |  | 290,864     |         |             |  | 160,529  |         |   | $ | 13.81-$25.69 |             
|                              |                                  | Forfeited          |  |             | (10,666 | )           |  |          |        |   |   |              | $25.25       | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 81,669  |   |   | $            | 25.25-$25.69 | 
|                              |                                  | Exercised          |  |             | (98,376 | )           |  |          | (98,376 | ) |   | $            | 13.81-$25.69 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2001 |                    |  | 181,822     |         |             |  | 143,822  |         |   | $ | 13.81-$25.69 |             
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             

As discussed in Note 2, the Partnership uses the intrinsic value method
for recognizing stock-based compensation expense. The exercise price of all
options awarded under the 1994 LTIP equaled the market price of the
Partnerships Limited Partner Units on the date of grant. Accordingly, no
compensation expense was recognized at the date of grant. Had compensation
expense been determined consistent with SFAS No. 123, Accounting for
Stock-Based Compensation, compensation expense related to option grants would
have totaled $226,152, $202,634 and $99,076 during 1999, 2000 and 2001,
respectively. The disclosures as required by SFAS 123 are not representative
of the effects on pro forma net income for future years as options vest over
several years and additional awards may be granted in subsequent years.

For purposes of determining compensation costs using the provisions of
SFAS 123, the fair value of 1999 option grants were determined using the
Black-Scholes option-valuation model. The key input variables used in valuing
the options were:

|                        |  |         |     |  
|----------------------- |  | ------- | --- | -
|                        |  | 1999   
|                        |  |        
|Risk-free interest rate |  |         | 4.7 | %
|Dividend yield          |  |         | 7.6 | %
|Unit price volatility   |  |         | 23  | %
|Expected option lives   |  | 6 years

NOTE 12. LEASES

The Partnership utilizes leased assets in several areas of its operations.
Total rental expense during 2001, 2000 and 1999 was $10.8 million, $10.7
million and $8.7 million, respectively. The minimum rental payments under the
Partnerships various operating leases for the years 2002 through 2006 are $8.8
million, $7.7 million, $7.1 million, $6.1 million and $4.9 million,
respectively. Thereafter, payments aggregate $1.4 million through 2007.

NOTE 13. EMPLOYEE BENEFITS

Retirement Plans

Prior to the transfer of the General Partner interest from Duke Energy to
DEFS on April 1, 2000, the Companys employees participated in the Duke Energy
Retirement Cash Balance Plan (Duke Energy RCBP), which is a noncontributory,
trustee-administered pension plan. In addition, certain executive officers
participated in

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

the Duke Energy Executive Cash Balance Plan (Duke Energy ECBP), which is
a noncontributory, nonqualified, defined benefit retirement plan. The Duke
Energy ECBP was established to restore benefit reductions caused by the maximum
benefit limitations that apply to qualified plans. Effective January 1, 1999,
the benefit formula for all eligible employees was a cash balance formula.
Under a cash balance formula, a plan participant accumulates a retirement
benefit based upon pay credits and current interest credits. The pay credits
are based on a participants salary, age, and service. As part of the change
in ownership, the Company is no longer responsible for the funding of the
liabilities associated with these plans.

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

The components of net pension benefits costs for the TEPPCO RCBP and the
TEPPCO SBP for the years ended December 31, 2001 and 2000, and for the Duke
Energy RCBP and the Duke Energy ECBP for the years ended December 31, 2000 and
1999 were as follows (in thousands):

|                                              |                            |   |       |       |      |   |       |       |  |   |        |       | 
|--------------------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ------ | ----- | 
|                                              |                            |   | 2001  |       | 2000 |   | 1999 
|                                              |                            |   |       |       |      |   |      
|Service cost benefit earned during the year   |                            | $ | 2,419 |       |      | $ | 2,054 |       |  | $ | 1,651  |      
|Interest cost on projected benefit obligation |                            |   | 129   |       |      |   | 782   |       |  |   | 2,666  |      
|Expected return on plan assets                |                            |   | (166  | )     |      |   | (663  | )     |  |   | (2,243 | )    
|Amortization of prior service cost            |                            |   | 8     |       |      |   |      |       |  |   | 2      |      
|Amortization of net transition liability      |                            |   |      |       |      |   | 4     |       |  |   | 15     |      
|Recognized net actuarial loss                 |                            |   |      |       |      |   |      |       |  |   | 285    |      
|                                              |                            |   |       |       |      |   |       |       |  |   |        |      
|                                              | Net pension benefits costs |   | $     | 2,390 |      |   | $     | 2,177 |  |   | $      | 2,376 | 
|                                              |                            |   |       |       |      |   |       |       |  |   |        |      

Other Postretirement Benefits

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

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

The components of net postretirement benefits cost for the Duke Energy OPB
for the years ended December 31, 2000 and 1999, and for the TEPPCO OPB for the
year ended December 31, 2001, were as follows (in thousands):

|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |     | 
|-------------------------------------------------------------- | --------------------------------- | - | ---- | --- | ---- | - | ---- | -- |  | - | ---- | --- | 
|                                                               |                                   |   | 2001 |     | 2000 |   | 1999
|                                                               |                                   |   |      |     |      |   |     
|Service cost benefit earned during the year                    |                                   | $ | 99   |     |      | $ | 39   |    |  | $ | 172  |    
|Interest cost on accumulated postretirement benefit obligation |                                   |   | 113  |     |      |   | 134  |    |  |   | 500  |    
|Expected return on plan assets                                 |                                   |   |     |     |      |   | (85  | )  |  |   | (299 | )  
|Amortization of prior service cost                             |                                   |   | 126  |     |      |   | (96  | )  |  |   | (384 | )  
|Amortization of net transition liability                       |                                   |   |     |     |      |   | 54   |    |  |   | 217  |    
|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |    
|                                                               | Net postretirement benefits costs |   | $    | 338 |      |   | $    | 46 |  |   | $    | 206 | 
|                                                               |                                   |   |      |     |      |   |      |    |  |   |      |    

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The weighted average assumptions used in the actuarial computations for
the retirement plans and other postretirement benefit plans for the years ended
December 31, 2001 and 2000 are as follows:

|                                                 |  |                  |      |          |  |      |      |      |  |                      |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------- |  | ---- | ---- | ---- |  | -------------------- | ---- | - |  |  | ---- | -
|                                                 |  |                  |      |          |  |      |      |      |  | Other Postretirement
|                                                 |  | Pension Benefits |      | Benefits
|                                                 |  |                  |      |         
|                                                 |  | 2001             |      | 2000     |  | 2001 |      | 2000
|                                                 |  |                  |      |          |  |      |      |     
|Discount rate                                    |  |                  | 7.25 | %        |  |      | 7.50 | %    |  |                      | 7.25 | % |  |  | 7.50 | %
|Increase in compensation levels                  |  |                  | 5.06 | %        |  |      | 4.50 | %    |  |                      |     |   |  |  |     |  
|Expected long-term rate of return on plan assets |  |                  | 9.00 | %        |  |      | 9.25 | %    |  |                      |     |   |  |  |     |  

The following table sets forth the Companys pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets and funded status as of December 31, 2001 and 2000.

|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |   | 
|------------------------------- | ---------------------------------------------- |  | ---------------- | ----- | -------- |  | ---- | ------ | ------- |  | -------------------- | ------ | - |  | - | - | 
|                                |                                                |  |                  |       |          |  |      |        |         |  | Other Postretirement
|                                |                                                |  | Pension Benefits |       | Benefits
|                                |                                                |  |                  |       |         
|                                |                                                |  | 2001             |       | 2000     |  | 2001 |        | 2000(1)
|                                |                                                |  |                  |       |          |  |      |        |        
|Change in benefit obligation    |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Benefit obligation at beginning of year        |  | $                | 1,518 |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                | Service cost                                   |  |                  | 2,419 |          |  |      | 1,518  |         |  |                      | 99     |   |  |   |  | 
|                                | Interest cost                                  |  |                  | 129   |          |  |      | (1     | )       |  |                      | 113    |   |  |   |  | 
|                                | Plan amendments                                |  |                  | 62    |          |  |      |       |         |  |                      | 1,508  |   |  |   |  | 
|                                | Actuarial (gain)/loss                          |  |                  | (136  | )        |  |      | 1      |         |  |                      | 57     |   |  |   |  | 
|                                | Retiree contributions                          |  |                  |      |          |  |      |       |         |  |                      | 9      |   |  |   |  | 
|                                | Benefits paid                                  |  |                  | (206  | )        |  |      |       |         |  |                      | (5     | ) |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Benefit obligation at end of year              |  | $                | 3,786 |          |  | $    | 1,518  |         |  | $                    | 1,781  |   |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|Change in plan assets           |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Fair value of plan assets at beginning of year |  | $                |      |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                | Actual return on plan assets                   |  |                  | (37   | )        |  |      |       |         |  |                      |       |   |  |   |  | 
|                                | Retiree contributions                          |  |                  |      |          |  |      |       |         |  |                      | 9      |   |  |   |  | 
|                                | Employer contributions                         |  |                  | 4,202 |          |  |      |       |         |  |                      | (4     | ) |  |   |  | 
|                                | Benefits paid                                  |  |                  | (206  | )        |  |      |       |         |  |                      | (5     | ) |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Fair value of plan assets at end of year       |  | $                | 3,959 |          |  | $    |       |         |  | $                    |       |   |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|Reconciliation of funded status |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Funded status                                  |  | $                | 173   |          |  | $    | (1,518 | )       |  | $                    | (1,781 | ) |  | $ |  | 
|                                | Unrecognized prior service cost                |  |                  | 54    |          |  |      |       |         |  |                      | 1,381  |   |  |   |  | 
|                                | Unrecognized actuarial loss                    |  |                  | 68    |          |  |      |       |         |  |                      | 57     |   |  |   |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  
|                                | Net amount recognized                          |  | $                | 295   |          |  | $    | (1,518 | )       |  | $                    | (343   | ) |  | $ |  | 
|                                |                                                |  |                  |       |          |  |      |        |         |  |                      |        |   |  |   |  



---

|(1) |  | The TEPPCO OPB became effective on January 1, 2001.
|--- |  | ---------------------------------------------------

Other Plans

Duke Energy also sponsors an employee savings plan, which covers
substantially all employees. Plan contributions on behalf of the Company of
$3.1 million, $2.2 million and $2.2 million were expensed in 2001, 2000 and
1999, respectively.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 14. COMMITMENTS AND CONTINGENCIES

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

On December 21, 2001, the Partnership was named as a defendant in a
lawsuit in the 10th Judicial District, Natchitoches Parish, Louisiana, in
Rebecca L. Grisham et. al. v. TE Products Pipeline Company, Limited
Partnership. In this case, the plaintiffs contend that the defendants
pipeline, which crosses the plaintiffs property, leaked toxic products onto
the plaintiffs property. The plaintiffs further contend that this leak caused
damages to the plaintiffs. The Partnership has filed an answer to the
plaintiffs petition denying the allegations. The plaintiffs have not
stipulated the amount of damages they are seeking in the suit. The Partnership
is defending itself vigorously against the lawsuit. The Partnership cannot
estimate the damages, if any, associated with this pending lawsuit, however,
this case is covered by insurance.

In addition to the litigation discussed above, the Partnership has been,
in the ordinary course of business, a defendant in various lawsuits and a party
to various other legal proceedings, some of which are covered in whole or in
part by insurance. The Company believes that the outcome of such lawsuits and
other proceedings will not individually or in the aggregate have a material
adverse effect on the Partnerships consolidated financial condition, results
of operations or cash flows.

In February 2002, a producer on the Jonah Gas Gathering System (Jonah
System) notified Alberta Energy Company that it has a right to acquire all or
a portion of the assets comprising the Jonah System. This claim is based upon
an alleged right of first refusal contained in a gas gathering agreement
between the producer and Jonah. Subsidiaries of Alberta Energy have agreed
to indemnify the Partnership against losses resulting from the breach of
representations concerning the absence of third party rights in connection with
the acquisition of the entity that owns the Jonah System. The Partnership
believes that it has adequate legal defenses to the producers claim and that
no right of first refusal on any of the underlying Jonah System assets has been
triggered.

The operations of the Partnership are subject to federal, state and local
laws and regulations governing the discharge of materials into the environment
otherwise relating to environmental protection. Failure to comply with these
laws and regulations may result in the assessment of administrative, civil, and
criminal penalties, imposition of injunctions delaying or prohibiting certain
activities, and the need to perform investigatory and remedial activities.
Although the Partnership believes its operations are in material compliance
with applicable environmental laws and regulations, risks of significant costs
and liabilities are inherent in pipeline operations, and there can be no
assurance that significant costs and liabilities will not be incurred.
Moreover, it is possible that other developments, such as increasingly strict
environmental laws and regulations and enforcement policies thereunder, and
claims for damages to property or persons resulting from its operations, could
result in substantial costs and liabilities to the Partnership. The Company
does not anticipate that changes in environmental laws and regulations will
have a material adverse effect on the Partnerships financial position, results
of operations or cash flows in the near term.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

In 1994, the Partnership and the Indiana Department of Environmental
Management (IDEM) entered into an Agreed Order that resulted in the
implementation of a remediation program for groundwater contamination
attributable to the Partnerships operations at the Seymour, Indiana, terminal.
A Feasibility Study, which includes the Partnerships proposed remediation
program, was approved by IDEM in 1999. IDEM is expected to issue a Record of
Decision formally approving the remediation program. After the Record of
Decision is issued, the Partnership will enter into a subsequent Agreed Order
for the continued operation and maintenance of the remediation program. The
Partnership has an accrued liability of $0.6 million at December 31, 2001, for
future remediation costs at the Seymour terminal. In the opinion of the
Company, the completion of the remediation program will not have a material
adverse effect on the Partnerships financial condition, results of operations
or cash flows.

In 1994, the Partnership was issued a compliance order from the Louisiana
Department of Environmental Quality (LDEQ) relative to environmental
contamination at the Partnerships Arcadia, Louisiana, facility. This
contamination may be attributable to the operations of the Partnership, as well
as adjacent petroleum terminals operated by other companies. In 1999, the
Partnerships Arcadia facility and the adjacent terminals were directed by the
Remediation Services Division of the LDEQ to pursue remediation of this
containment phase. In the opinion of the Company, the completion of the
remediation program that is proposed by the Partnership will not have a future
material adverse effect on the Partnerships financial condition, results of
operations or cash flows.

During 2001, the Partnership accrued $8.6 million to complete
environmental remediation activities at certain of the sites owned by TCTM and
its subsidiaries. In establishing this accrual, the Partnership expensed $4.4
million for these environmental remediation costs and recorded a receivable of
$4.2 million for the remainder. The receivable is based on a contractual
indemnity obligation for specified environmental liabilities owed by DEFS to
the Partnership in connection with the Partnerships acquisition of the
Upstream Segment from DEFS in November 1998. Under this indemnity obligation,
the Partnership is responsible for the first $3.0 million in specified
environmental liabilities, with DEFS becoming responsible for those
environmental liabilities in excess of $3.0 million, up to a maximum amount of
$25.0 million. At December 31, 2001, an accrual of $6.4 million remains
outstanding related to TCTM environmental remediation activities. The majority
of the indemnified costs relate to remediation activities at the Velma crude
oil site in Stephens County, Oklahoma, attributable to operations prior to the
Partnerships acquisition of the Upstream Segment. Remediation activities at
the Velma crude oil site are being conducted according to a work plan approved
by the Oklahoma Corporation Commission. In the opinion of the Company, the
completion of remediation programs associated with this release will not have a
future material adverse effect on the Partnerships financial condition,
results of operations or cash flows.

Rates of interstate oil pipeline companies, like the Partnership, are
currently regulated by the FERC, primarily through an index methodology,
whereby a pipeline is allowed to change its rates based on the change from year
to year in the Producer Price Index for finished goods less 1% (PPI Index).
In the alternative, interstate oil pipeline companies may elect to support rate
filings by using a cost-of-service methodology, competitive market showings
(Market-Based Rates) or agreements between shippers and the oil pipeline
company that the rate is acceptable (Settlement Rates).

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

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Centennial has entered into credit facilities totaling $150 million. The
proceeds were used to fund construction and conversion costs of its pipeline
system. TE Products has guaranteed one-third of the debt of Centennial up to a
maximum amount of $50 million.

Substantially all of the petroleum products transported and stored by the
Partnership are owned by the Partnerships customers. At December 31, 2001,
TCTM and TE Products had approximately 3.8 million barrels and 19.7 million
barrels, respectively, of products in its custody owned by customers. The
Partnership is obligated for the transportation, storage and delivery of such
products on behalf of its customers. The Partnership maintains insurance
adequate to cover product losses through circumstances beyond its control.

NOTE 15. SEGMENT DATA

The Partnership has three reporting segments: transportation and storage
of refined products, LPGs, and petrochemicals, which operates as the Downstream
Segment; gathering, transportation, marketing and storage of crude oil; and
distribution of lubrication oils and specialty chemicals, which operates as the
Upstream Segment; and gathering of natural gas, fractionation of NGLs and
transportation of NGLs, which operates as the Midstream Segment. The amounts
indicated below as Partnership and Other relate primarily to intercompany
eliminations and assets held by the Partnership that have not been allocated to
any reporting segment of the Partnership.

Effective January 1, 2002, the Partnership realigned its three business
segments in order to separate and better measure the performance of its natural
gas and NGL operations from its crude oil operations. The fractionation of
NGLs, which was previously reflected as part of the Downstream Segment, was
shifted to the Midstream Segment. The operation of NGL pipelines, which was
previously reflected as part of the Upstream Segment, was also shifted to the
Midstream Segment. The year-to-year comparisons have been adjusted to conform
to the current presentation.

The Partnerships Downstream Segment includes the interstate
transportation, storage and terminaling of petroleum products and LPGs and
intrastate transportation of petrochemicals. Revenues are derived from
transportation and storage of refined products and LPGs, storage and short-haul
shuttle transportation of LPGs at the Mont Belvieu, Texas, complex, intrastate
transportation of petrochemicals, sale of product inventory and other ancillary
services. The Partnerships Downstream Segment, operating through TE Products,
is one of the largest pipeline common carriers of refined petroleum products
and LPGs in the United States. TE Products owns and operates a pipeline system
extending from southeast Texas through the central and midwestern United States
to the northeastern United States.

The Partnerships Upstream Segment includes: gathering, transportation,
marketing and storage of crude oil and distribution of lubrication oils and
specialty chemicals principally in Oklahoma, Texas and the Rocky Mountain
region. On July 20, 2000, the Partnership acquired certain assets from ARCO
(see Note 3. Acquisitions). The acquisition was accounted for under the
purchase method of accounting. The results of the acquisition have been
included in the Partnerships Upstream Segment since the purchase on July 20,
2000. The Upstream Segment also includes the equity earnings from the
Partnerships investment in Seaway. Seaway is a large diameter pipeline that
transports crude oil from the U.S. Gulf Coast to Cushing, Oklahoma, a central
crude oil distribution point for the Central United States.

The Partnerships Midstream Segment includes the fractionation of NGLs in
Colorado; operating two trunkline NGL pipelines in South Texas and two NGL
Pipelines in East Texas; and the gathering of natural gas in the Green River
Basin in southwestern Wyoming, through Jonah, which was acquired by
subsidiaries of the Partnership on September 30, 2001, from Alberta Energy
Company (see Note 3. Acquisitions). The acquisition was accounted for under
the purchase method of accounting. The results of operations of the Jonah
acquisition are included in periods subsequent to September 30, 2001.

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies discussed above (see Note 2.
Summary of Significant Accounting Policies).

The following table includes financial information by reporting segment
for the years ended December 31, 2001, 2000 and 1999 (in thousands):

|                                      |                          |   |                              |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |         |   |  |   |           |         | 
|------------------------------------- | ------------------------ | - | ---------------------------- | ------- | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------- |  | - | ------- | - |  | - | --------- | ------- | 
|                                      |                          |   | Year Ended December 31, 2001
|                                      |                          |   |                             
|                                      |                          |   | Downstream                   |         | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |          
|                                      |                          |   | Segment                      |         | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                              |         |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 264,233                      |         |          | $ | 3,255,260 |        |          | $ | 37,242      |        |              | $ | 3,556,735 |         |  | $ | (322    | ) |  | $ | 3,556,413 |        
|Operating expenses,
including power   |                          |   | 119,858                      |         |          |   | 3,228,507 |        |          |   | 11,482      |        |              |   | 3,359,847 |         |  |   | (322    | ) |  |   | 3,359,525 |        
|Depreciation and
amortization expense |                          |   | 26,699                       |         |          |   | 9,263     |        |          |   | 9,937       |        |              |   | 45,899    |         |  |   |        |   |  |   | 45,899    |        
|                                      |                          |   |                              |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |         |   |  |   |           |        
|                                      | Operating income         |   |                              | 117,676 |          |   |           | 17,490 |          |   |             | 15,823 |              |   |           | 150,989 |  |   |         |  |  |   |           | 150,989 | 
|Equity earnings                       |                          |   | (1,149                       | )       |          |   | 18,547    |        |          |   |            |        |              |   | 17,398    |         |  |   |        |   |  |   | 17,398    |        
|Other income, net                     |                          |   | 1,537                        |         |          |   | 1,990     |        |          |   | 74          |        |              |   | 3,601     |         |  |   |        |   |  |   | 3,601     |        
|                                      |                          |   |                              |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |         |   |  |   |           |        
|                                      | Earnings before interest |   | $                            | 118,064 |          |   | $         | 38,027 |          |   | $           | 15,897 |              |   | $         | 171,988 |  |   | $       |  |  |   | $         | 171,988 | 
|                                      |                          |   |                              |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |         |   |  |   |           |        
|Total assets                          |                          | $ | 844,036                      |         |          | $ | 694,934   |        |          | $ | 541,195     |        |              | $ | 2,080,165 |         |  | $ | (14,817 | ) |  | $ | 2,065,348 |        

|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |      |   |  |   |           |         | 
|------------------------------------- | ------------------------ | - | ---------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ----- | ------------ | - | --------- | ------- |  | - | ---- | - |  | - | --------- | ------- | 
|                                      |                          |   | Year Ended December 31, 2000
|                                      |                          |   |                             
|                                      |                          |   | Downstream                   |        | Upstream |   | Midstream |        | Segments |   | Partnership |       |              |   |          
|                                      |                          |   | Segment                      |        | Segment  |   | Segment   |        | Total    |   | and Other   |       | Consolidated
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |             
|Revenues                              |                          | $ | 229,234                      |        |          | $ | 2,844,245 |        |          | $ | 14,462      |       |              | $ | 3,087,941 |         |  | $ |     |   |  | $ | 3,087,941 |        
|Operating expenses,
including power   |                          |   | 118,065                      |        |          |   | 2,824,265 |        |          |   | 2,423       |       |              |   | 2,944,753 |         |  |   |     |   |  |   | 2,944,753 |        
|Depreciation and
amortization expense |                          |   | 25,728                       |        |          |   | 6,282     |        |          |   | 3,153       |       |              |   | 35,163    |         |  |   |     |   |  |   | 35,163    |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |      |   |  |   |           |        
|                                      | Operating income         |   |                              | 85,441 |          |   |           | 13,698 |          |   |             | 8,886 |              |   |           | 108,025 |  |   |      |  |  |   |           | 108,025 | 
|Equity earnings                       |                          |   |                             |        |          |   | 12,214    |        |          |   |            |       |              |   | 12,214    |         |  |   |     |   |  |   | 12,214    |        
|Other income, net                     |                          |   | 1,651                        |        |          |   | 461       |        |          |   | 237         |       |              |   | 2,349     |         |  |   |     |   |  |   | 2,349     |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |      |   |  |   |           |        
|                                      | Earnings before interest |   | $                            | 87,092 |          |   | $         | 26,373 |          |   | $           | 9,123 |              |   | $         | 122,588 |  |   | $    |  |  |   | $         | 122,588 | 
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |      |   |  |   |           |        
|Total assets                          |                          | $ | 714,233                      |        |          | $ | 752,581   |        |          | $ | 156,662     |       |              | $ | 1,623,476 |         |  | $ | (666 | ) |  | $ | 1,622,810 |        

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                      |                          |   |                              |        |          |   |           |       |          |   |             |       |              |   |           |         |  |   |        |   |  |   |           |         | 
|------------------------------------- | ------------------------ | - | ---------------------------- | ------ | -------- | - | --------- | ----- | -------- | - | ----------- | ----- | ------------ | - | --------- | ------- |  | - | ------ | - |  | - | --------- | ------- | 
|                                      |                          |   | Year Ended December 31, 1999
|                                      |                          |   |                             
|                                      |                          |   | Downstream                   |        | Upstream |   | Midstream |       | Segments |   | Partnership |       |              |   |          
|                                      |                          |   | Segment                      |        | Segment  |   | Segment   |       | Total    |   | and Other   |       | Consolidated
|                                      |                          |   |                              |        |          |   |           |       |          |   |             |       |             
|Revenues                              |                          | $ | 222,915                      |        |          | $ | 1,698,490 |       |          | $ | 13,478      |       |              | $ | 1,934,883 |         |  | $ |       |   |  | $ | 1,934,883 |        
|Operating expenses,
including power   |                          |   | 112,941                      |        |          |   | 1,687,159 |       |          |   | 2,037       |       |              |   | 1,802,137 |         |  |   |       |   |  |   | 1,802,137 |        
|Depreciation and
amortization expense |                          |   | 25,094                       |        |          |   | 4,423     |       |          |   | 3,139       |       |              |   | 32,656    |         |  |   |       |   |  |   | 32,656    |        
|                                      |                          |   |                              |        |          |   |           |       |          |   |             |       |              |   |           |         |  |   |        |   |  |   |           |        
|                                      | Operating income         |   |                              | 84,880 |          |   |           | 6,908 |          |   |             | 8,302 |              |   |           | 100,090 |  |   |        |  |  |   |           | 100,090 | 
|Equity earnings                       |                          |   |                             |        |          |   |          |       |          |   |            |       |              |   |          |         |  |   |       |   |  |   |          |        
|Other income, net                     |                          |   | 1,471                        |        |          |   | 525       |       |          |   | 200         |       |              |   | 2,196     |         |  |   |       |   |  |   | 2,196     |        
|                                      |                          |   |                              |        |          |   |           |       |          |   |             |       |              |   |           |         |  |   |        |   |  |   |           |        
|                                      | Earnings before interest |   | $                            | 86,351 |          |   | $         | 7,433 |          |   | $           | 8,502 |              |   | $         | 102,286 |  |   | $      |  |  |   | $         | 102,286 | 
|                                      |                          |   |                              |        |          |   |           |       |          |   |             |       |              |   |           |         |  |   |        |   |  |   |           |        
|Total assets                          |                          | $ | 680,433                      |        |          | $ | 297,007   |       |          | $ | 66,353      |       |              | $ | 1,043,793 |         |  | $ | (2,420 | ) |  | $ | 1,041,373 |        

The following table reconciles the segments total to consolidated net
income (in thousands):

|                         |            |   |                          |         |      |   |         |        |  |   |         |        | 
|------------------------ | ---------- | - | ------------------------ | ------- | ---- | - | ------- | ------ |  | - | ------- | ------ | 
|                         |            |   | Years Ended December 31,
|                         |            |   |                         
|                         |            |   | 2001                     |         | 2000 |   | 1999   
|                         |            |   |                          |         |      |   |        
|Earnings before interest |            | $ | 171,988                  |         |      | $ | 122,588 |        |  | $ | 102,286 |       
|Interest expense         |            |   | (66,057                  | )       |      |   | (48,982 | )      |  |   | (31,563 | )     
|Interest capitalized     |            |   | 4,000                    |         |      |   | 4,559   |        |  |   | 2,133   |       
|Minority interest        |            |   | (800                     | )       |      |   | (789    | )      |  |   | (736    | )     
|                         |            |   |                          |         |      |   |         |        |  |   |         |       
|                         | Net income |   | $                        | 109,131 |      |   | $       | 77,376 |  |   | $       | 72,120 | 
|                         |            |   |                          |         |      |   |         |        |  |   |         |       

NOTE 16. COMPREHENSIVE INCOME

SFAS 130, Reporting Comprehensive Incomerequires certain items such as
foreign currency translation adjustments, minimum pension liability adjustments
and unrealized gains and losses on certain investments to be reported in a
financial statement. As of and for the year ended December 31, 2001, the
components of comprehensive income were due to the interest rate swap related
to its variable rate revolving credit facility. The table below reconciles
reported net income to total comprehensive income for the year ended December
31, 2001 (in thousands).

|                                                                                        |                            |   |         |        | 
|--------------------------------------------------------------------------------------- | -------------------------- | - | ------- | ------ | 
|Net income                                                                              |                            | $ | 109,131 |       
|Cumulative effect attributable to adoption of SFAS 133 (see Note
2. Use of Derivatives) |                            |   | (10,103 | )     
|Net loss on cash flow hedges                                                            |                            |   | (10,221 | )     
|                                                                                        |                            |   |         |       
|                                                                                        | Total comprehensive income |   | $       | 88,807 | 
|                                                                                        |                            |   |         |       

The accumulated balance of other comprehensive loss related to cash flow
hedges is as follows (in thousands):

|                                       |  |   |         |  
|-------------------------------------- |  | - | ------- | -
|Balance at December 31, 2000           |  | $ |        |  
|Cumulative effect of accounting change |  |   | (10,103 | )
|Net loss on cash flow hedges           |  |   | (10,221 | )
|                                       |  |   |         |  
|Balance at December 31, 2001           |  | $ | (20,324 | )
|                                       |  |   |         |  

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TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 17. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

Under the Partnerships shelf registration statement on Form S-3 filed
with the Securities and Exchange Commission on February 12, 2002, TE Products
Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream Companies,
L.P. and Jonah Gas Gathering Company, the Partnerships significant operating
subsidiaries (the Guarantor Subsidiaries), may issue unconditional guarantees
of senior or subordinated debt securities of the Partnership in the event that
the Partnership issues such securities from time to time under the registration
statement. If issued, the guarantees will be full, unconditional and joint and
several.

The following supplemental condensed consolidating financial information
reflects the separate accounts of the Partnership, the combined accounts of the
Guarantor Subsidiaries (including Jonah for all periods and dates from and
after September 30, 2001, the date Jonah became a subsidiary of the
Partnership), the combined accounts of the other non-guarantor subsidiaries of
the Partnership, the combined consolidating adjustments and eliminations and
the consolidated Partnership accounts for the dates and periods indicated. For
purposes of the following consolidating information, the Partnerships and
Guarantor Subsidiaries investments in their respective subsidiaries are
accounted for by the equity method of accounting.

|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |           |           | 
|--------------------------------- | ------------------------------------------------- | --------------------------------------- | - | ------------ | --------- | ------------ | - | ------------- | --------- | ------------- | - | -------------- | ------- |  | - | -------- | ---------- | - | - | --------- | --------- | 
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   | TEPPCO   
|                                  |                                                   |                                         |   | TEPPCO       |           | Guarantor    |   | Non-Guarantor |           | Consolidating |   | Partners, L.P.
|December 31, 2001                 |                                                   | Partners, L.P.                          |   | Subsidiaries |           | Subsidiaries |   | Adjustments   |           | Consolidated 
|                                  |                                                   |                                         |   |              |           |              |   |               |           |              
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   | (in thousands) |         |  |   |          |            |   |   |          
|Assets                            |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          
|                                  | Current assets                                    |                                         | $ | 3,100        |           |              | $ | 59,730        |           |               | $ | 223,345        |         |  | $ | (2,695   | )          |   | $ | 283,480   |          
|                                  | Property, plant and equipment  net               |                                         |   |             |           |              |   | 849,978       |           |               |   | 330,483        |         |  |   |         |            |   |   | 1,180,461 |          
|                                  | Equity investments                                |                                         |   | 669,370      |           |              |   | 309,080       |           |               |   | 222,815        |         |  |   | (909,041 | )          |   |   | 292,224   |          
|                                  | Intercompany notes receivable                     |                                         |   | 700,564      |           |              |   | 11,269        |           |               |   | 7,404          |         |  |   | (719,237 | )          |   |   |          |          
|                                  | Other assets                                      |                                         |   | 3,853        |           |              |   | 244,448       |           |               |   | 65,386         |         |  |   | (4,504   | )          |   |   | 309,183   |          
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          
|                                  |                                                   | Total assets                            |   | $            | 1,376,887 |              |   | $             | 1,474,505 |               |   | $              | 849,433 |  |   | $        | (1,635,477 | ) |   | $         | 2,065,348 | 
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          
|Liabilities and partners capital |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          
|                                  | Current liabilities                               |                                         | $ | 367,094      |           |              | $ | 361,547       |           |               | $ | 310,476        |         |  | $ | (370,275 | )          |   | $ | 668,842   |          
|                                  | Long term debt                                    |                                         |   | 340,658      |           |              |   | 389,814       |           |               |   |               |         |  |   |         |            |   |   | 730,472   |          
|                                  | Intercompany notes payable                        |                                         |   |             |           |              |   | 45,410        |           |               |   | 294,801        |         |  |   | (340,211 | )          |   |   |          |          
|                                  | Other long term liabilities and
minority interest |                                         |   |             |           |              |   | 8,364         |           |               |   | 231            |         |  |   | 8,628    |            |   |   | 17,223    |          
|                                  | Redeemable Class B Units held by
related party    |                                         |   | 105,630      |           |              |   |              |           |               |   |               |         |  |   |         |            |   |   | 105,630   |          
|                                  | Total partners capital                           |                                         |   | 563,505      |           |              |   | 669,370       |           |               |   | 243,925        |         |  |   | (933,619 | )          |   |   | 543,181   |          
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          
|                                  |                                                   | Total liabilities and partners capital |   | $            | 1,376,887 |              |   | $             | 1,474,505 |               |   | $              | 849,433 |  |   | $        | (1,635,477 | ) |   | $         | 2,065,348 | 
|                                  |                                                   |                                         |   |              |           |              |   |               |           |               |   |                |         |  |   |          |            |   |   |          

F-30



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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |         |           | 
|--------------------------------- | ------------------------------------------------- | --------------------------------------- | - | ------------ | ------- | ------------ | - | ------------- | ------- | ------------- | - | -------------- | ------- |  | - | -------- | ---------- | - | - | ------- | --------- | 
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   | TEPPCO 
|                                  |                                                   |                                         |   | TEPPCO       |         | Guarantor    |   | Non-Guarantor |         | Consolidating |   | Partners, L.P.
|December 31, 2000                 |                                                   | Partners, L.P.                          |   | Subsidiaries |         | Subsidiaries |   | Adjustments   |         | Consolidated 
|                                  |                                                   |                                         |   |              |         |              |   |               |         |              
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   | (in thousands) |         |  |   |          |            |   |   |        
|Assets                            |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        
|                                  | Current assets                                    |                                         | $ | 6,083        |         |              | $ | 52,773        |         |               | $ | 315,488        |         |  | $ | (10,947  | )          |   | $ | 363,397 |          
|                                  | Property, plant and equipment  net               |                                         |   |             |         |              |   | 640,657       |         |               |   | 309,048        |         |  |   |         |            |   |   | 949,705 |          
|                                  | Equity investments                                |                                         |   | 420,433      |         |              |   | 202,811       |         |               |   | 236,232        |         |  |   | (617,828 | )          |   |   | 241,648 |          
|                                  | Intercompany notes receivable                     |                                         |   | 441,836      |         |              |   |              |         |               |   |               |         |  |   | (441,836 | )          |   |   |        |          
|                                  | Other assets                                      |                                         |   | 5,322        |         |              |   | 15,385        |         |               |   | 48,475         |         |  |   | (1,122   | )          |   |   | 68,060  |          
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        
|                                  |                                                   | Total assets                            |   | $            | 873,674 |              |   | $             | 911,626 |               |   | $              | 909,243 |  |   | $        | (1,071,733 | ) |   | $       | 1,622,810 | 
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        
|Liabilities and partners capital |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        
|                                  | Current liabilities                               |                                         | $ | 7,206        |         |              | $ | 45,085        |         |               | $ | 318,049        |         |  | $ | (12,069  | )          |   | $ | 358,271 |          
|                                  | Long term debt                                    |                                         |   | 446,000      |         |              |   | 389,784       |         |               |   |               |         |  |   |         |            |   |   | 835,784 |          
|                                  | Intercompany notes payable                        |                                         |   |             |         |              |   | 48,037        |         |               |   | 393,799        |         |  |   | (441,836 | )          |   |   |        |          
|                                  | Other long term liabilities and minority interest |                                         |   |             |         |              |   | 3,991         |         |               |   |               |         |  |   | 4,296    |            |   |   | 8,287   |          
|                                  | Redeemable Class B Units held by related party    |                                         |   | 105,411      |         |              |   |              |         |               |   |               |         |  |   |         |            |   |   | 105,411 |          
|                                  | Total partners capital                           |                                         |   | 315,057      |         |              |   | 424,729       |         |               |   | 197,395        |         |  |   | (622,124 | )          |   |   | 315,057 |          
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        
|                                  |                                                   | Total liabilities and partners capital |   | $            | 873,674 |              |   | $             | 911,626 |               |   | $              | 909,243 |  |   | $        | (1,071,733 | ) |   | $       | 1,622,810 | 
|                                  |                                                   |                                         |   |              |         |              |   |               |         |               |   |                |         |  |   |          |            |   |   |        

|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |         | 
|---------------------------- | ------------------------------- | -------------- | ------- | ------------ | --------- | ------------ | -------------- | ----------- | ------------- | ------------ | -------------- | ------ |  | - | -------- | -------- | - | - | --------- | ------- | 
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   | TEPPCO   
|                             |                                 |                | TEPPCO  |              | Guarantor |              | Non-Guarantor  |             | Consolidating |              | Partners, L.P.
|Year Ended December 31, 2001 |                                 | Partners, L.P. |         | Subsidiaries |           | Subsidiaries |                | Adjustments |               | Consolidated
|                             |                                 |                |         |              |           |              |                |             |               |             
|                             |                                 |                |         |              |           |              | (in thousands) |             |               |              |                |        |  |   |         
|Operating revenues           |                                 | $              |        |              |           | $            | 273,379        |             |               | $            | 3,283,356      |        |  | $ | (322     | )        |   | $ | 3,556,413 |        
|Costs and expenses           |                                 |                |        |              |           |              | 152,558        |             |               |              | 3,253,188      |        |  |   | (322     | )        |   |   | 3,405,424 |        
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |        
|                             | Operating income                |                |         |             |           |              |                | 120,821     |               |              |                | 30,168 |  |   |          |         |   |   |           | 150,989 | 
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |        
|Interest expense  net       |                                 |                | (40,143 | )            |           |              | (30,605        | )           |               |              | (31,452        | )      |  |   | 40,143   |          |   |   | (62,057   | )      
|Equity earnings              |                                 |                | 109,131 |              |           |              | 18,178         |             |               |              | 18,547         |        |  |   | (128,458 | )        |   |   | 17,398    |        
|Other income  net           |                                 |                | 40,143  |              |           |              | 1,537          |             |               |              | 2,064          |        |  |   | (40,143  | )        |   |   | 3,601     |        
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |        
|                             | Income before minority interest |                |         | 109,131      |           |              |                | 109,931     |               |              |                | 19,327 |  |   |          | (128,458 | ) |   |           | 109,931 | 
|Minority interest            |                                 |                |        |              |           |              |               |             |               |              |               |        |  |   | (800     | )        |   |   | (800      | )      
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |        
|                             | Net income                      |                | $       | 109,131      |           |              | $              | 109,931     |               |              | $              | 19,327 |  |   | $        | (129,258 | ) |   | $         | 109,131 | 
|                             |                                 |                |         |              |           |              |                |             |               |              |                |        |  |   |          |          |   |   |           |        

F-31



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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |         | 
|---------------------------- | ------------------------------- | -------------- | ------- | ------------ | --------- | ------------ | ------------- | ----------- | ------------- | ------------ | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   | TEPPCO   
|                             |                                 |                | TEPPCO  |              | Guarantor |              | Non-Guarantor |             | Consolidating |              | Partners, L.P.
|Year Ended December 31, 2000 |                                 | Partners, L.P. |         | Subsidiaries |           | Subsidiaries |               | Adjustments |               | Consolidated
|                             |                                 |                |         |              |           |              |               |             |               |             
|                             |                                 |                |         |              |           |              |               |             |               |              | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues           |                                 | $              |        |              |           | $            | 229,234       |             |               | $            | 2,858,707      |        |  | $ |        |         |   | $ | 3,087,941 |        
|Costs and expenses           |                                 |                |        |              |           |              | 143,793       |             |               |              | 2,836,123      |        |  |   |        |         |   |   | 2,979,916 |        
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Operating income                |                |         |             |           |              |               | 85,441      |               |              |                | 22,584 |  |   |         |        |   |   |           | 108,025 | 
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|Interest expense  net       |                                 |                | (17,773 | )            |           |              | (27,572       | )           |               |              | (16,851        | )      |  |   | 17,773  |         |   |   | (44,423   | )      
|Equity earnings              |                                 |                | 77,376  |              |           |              | 18,602        |             |               |              | 12,214         |        |  |   | (95,978 | )       |   |   | 12,214    |        
|Other income  net           |                                 |                | 17,773  |              |           |              | 1,694         |             |               |              | 655            |        |  |   | (17,773 | )       |   |   | 2,349     |        
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Income before minority interest |                |         | 77,376       |           |              |               | 78,165      |               |              |                | 18,602 |  |   |         | (95,978 | ) |   |           | 78,165  | 
|Minority interest            |                                 |                |        |              |           |              |              |             |               |              |               |        |  |   | (789    | )       |   |   | (789      | )      
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Net income                      |                | $       | 77,376       |           |              | $             | 78,165      |               |              | $              | 18,602 |  |   | $       | (96,767 | ) |   | $         | 77,376  | 
|                             |                                 |                |         |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        

|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |         | 
|---------------------------- | ------------------------------- | -------------- | ------ | ------------ | --------- | ------------ | ------------- | ----------- | ------------- | ------------ | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   | TEPPCO   
|                             |                                 |                | TEPPCO |              | Guarantor |              | Non-Guarantor |             | Consolidating |              | Partners, L.P.
|Year Ended December 31, 1999 |                                 | Partners, L.P. |        | Subsidiaries |           | Subsidiaries |               | Adjustments |               | Consolidated
|                             |                                 |                |        |              |           |              |               |             |               |             
|                             |                                 |                |        |              |           |              |               |             |               |              | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues           |                                 | $              |       |              |           | $            | 222,915       |             |               | $            | 1,711,968      |        |  | $ |        |         |   | $ | 1,934,883 |        
|Costs and expenses           |                                 |                |       |              |           |              | 138,035       |             |               |              | 1,696,758      |        |  |   |        |         |   |   | 1,834,793 |        
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Operating income                |                |        |             |           |              |               | 84,880      |               |              |                | 15,210 |  |   |         |        |   |   |           | 100,090 | 
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|Interest expense  net       |                                 |                |       |              |           |              | (26,682       | )           |               |              | (2,748         | )      |  |   |        |         |   |   | (29,430   | )      
|Equity earnings              |                                 |                | 72,120 |              |           |              | 13,188        |             |               |              |               |        |  |   | (85,308 | )       |   |   |          |        
|Other income  net           |                                 |                |       |              |           |              | 1,470         |             |               |              | 726            |        |  |   |        |         |   |   | 2,196     |        
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Income before minority interest |                |        | 72,120       |           |              |               | 72,856      |               |              |                | 13,188 |  |   |         | (85,308 | ) |   |           | 72,856  | 
|Minority interest            |                                 |                |       |              |           |              |              |             |               |              |               |        |  |   | (736    | )       |   |   | (736      | )      
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        
|                             | Net income                      |                | $      | 72,120       |           |              | $             | 72,856      |               |              | $              | 13,188 |  |   | $       | (86,044 | ) |   | $         | 72,120  | 
|                             |                                 |                |        |              |           |              |               |             |               |              |                |        |  |   |         |         |   |   |           |        

|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |          |         |        |        |  
|------------------------------------ | ---------------------------------------------------- | -------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ------------ | ------ | ----------- | ------- | -------------- | ------ | ------------- | ------ | -------------- | ------- | -------- | -------- | - | ------ | -------- | ------- | ------ | ------ | -
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |          |         | TEPPCO
|                                     |                                                      |                |                                                                                   |                                             |         | TEPPCO       |        | Guarantor   |         | Non-Guarantor  |        | Consolidating |        | Partners, L.P.
|Year Ended December 31, 2001         |                                                      | Partners, L.P. |                                                                                   | Subsidiaries                                |         | Subsidiaries |        | Adjustments |         | Consolidated  
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |               
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         | (in thousands) |        |               |        |                |         |          |          |  
|Cash flows from operating activities |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         
|                                     |                                                      | Net income     |                                                                                   | $                                           | 109,131 |              |        | $           | 109,931 |                |        | $             | 19,327 |                |         | $        | (129,258 | ) |        | $        | 109,131 |       
|                                     |                                                      |                | Adjustments to reconcile net income to net
cash provided by operating activities: |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |          |         |        |       
|                                     |                                                      |                |                                                                                   | Depreciation and amortization               |         |              |       |             |         |                | 31,226 |               |        |                | 14,673  |          |          |   |       |          |         |        | 45,899 |  
|                                     |                                                      |                |                                                                                   | Equity earnings, net of distributions       |         |              | (5,219 | )           |         |                | 10,131 |               |        |                | 13,417  |          |          |   | (3,952 | )        |         |        | 14,377 |  
|                                     |                                                      |                |                                                                                   | Changes in assets and liabilities and
other |         |              | 2,874  |             |         |                | 16,850 |               |        |                | (20,783 | )        |          |   | 800    |          |         |        | (259   | )
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         
|                                     | Net cash provided by operating activities            |                |                                                                                   | 106,786                                     |         |              |        | 168,138     |         |                |        | 26,634        |        |                |         | (132,410 | )        |   |        | 169,148  |        
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         
|                                     | Cash flows from investing activities                 |                |                                                                                   | (498,711                                    | )       |              |        | (514,178    | )       |                |        | (43,687       | )      |                |         | 498,711  |          |   |        | (557,865 | )      
|                                     | Cash flows from financing activities                 |                |                                                                                   | 391,925                                     |         |              |        | 340,529     |         |                |        | 20,947        |        |                |         | (366,301 | )        |   |        | 387,100  |        
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         
|                                     | Net increase (decrease) in cash and cash equivalents |                |                                                                                   |                                            |         |              |        | (5,511      | )       |                |        | 3,894         |        |                |         |         |          |   |        | (1,617   | )      
|                                     | Cash and cash equivalents at beginning of period     |                |                                                                                   |                                            |         |              |        | 9,166       |         |                |        | 17,930        |        |                |         |         |          |   |        | 27,096   |        
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         
|                                     | Cash and cash equivalents at end of period           |                | $                                                                                 |                                            |         |              | $      | 3,655       |         |                | $      | 21,824        |        |                | $       |         |          |   | $      | 25,479   |        
|                                     |                                                      |                |                                                                                   |                                             |         |              |        |             |         |                |        |               |        |                |         |          |          |   |        |         

F-32



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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |        |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | -------- | ------------ | ----- | ------------ | ------- | -------------- | ------ | ------------- | -------- | -------------- | ------- | - | -------- | ------- | ------ | - | -------- | ------ | ------- | -
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          | TEPPCO
|                                                     |                                                                                   |                                             |          | TEPPCO       |       | Guarantor    |         | Non-Guarantor  |        | Consolidating |          | Partners, L.P.
|Year Ended December 31, 2000                         |                                                                                   | Partners, L.P.                              |          | Subsidiaries |       | Subsidiaries |         | Adjustments    |        | Consolidated 
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |              
|                                                     |                                                                                   |                                             |          |              |       |              |         | (in thousands) |        |               |          |                |         |   |          |        
|Cash flows from operating activities                 |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       
|                                                     | Net income                                                                        |                                             | $        | 77,376       |       |              | $       | 78,165         |        |               | $        | 18,602         |         |   | $        | (96,767 | )      |   | $        | 77,376 |        
|                                                     | Adjustments to reconcile net income to net
cash provided by operating activities: |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |        |        
|                                                     |                                                                                   | Depreciation and amortization               |          |              |      |              |         |                | 25,728 |               |          |                | 9,435   |   |          |         |       |   |          |        | 35,163  |  
|                                                     |                                                                                   | Equity earnings, net of distributions       |          |              | 4,025 |              |         |                | (1,962 | )             |          |                | (10,260 | ) |          |         | (1,887 | ) |          |        | (10,084 | )
|                                                     |                                                                                   | Changes in assets and liabilities and
other |          |              | 7,242 |              |         |                | 1,046  |               |          |                | 845     |   |          |         | (3,543 | ) |          |        | 5,590   |  
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       
|Net cash provided by operating activities            |                                                                                   |                                             | 88,643   |              |       |              | 102,977 |                |        |               | 18,622   |                |         |   | (102,197 | )       |        |   | 108,045  |       
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       
|Cash flows from investing activities                 |                                                                                   |                                             | (535,048 | )            |       |              | (67,225 | )              |        |               | (434,113 | )              |         |   | 542,192  |         |        |   | (494,194 | )     
|Cash flows from financing activities                 |                                                                                   |                                             | 446,405  |              |       |              | (42,870 | )              |        |               | 417,112  |                |         |   | (439,995 | )       |        |   | 380,652  |       
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       
|Net increase (decrease) in cash and cash
equivalents |                                                                                   |                                             |         |              |       |              | (7,118  | )              |        |               | 1,621    |                |         |   |         |         |        |   | (5,497   | )     
|Cash and cash equivalents at beginning of period     |                                                                                   |                                             |         |              |       |              | 16,284  |                |        |               | 16,309   |                |         |   |         |         |        |   | 32,593   |       
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       
|Cash and cash equivalents at end of period           |                                                                                   | $                                           |         |              |       | $            | 9,166   |                |        | $             | 17,930   |                |         | $ |         |         |        | $ | 27,096   |       
|                                                     |                                                                                   |                                             |          |              |       |              |         |                |        |               |          |                |         |   |          |         |        |   |          |       

|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |        |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ------------ | ------ | ------------ | ------- | ------------- | ------ | ------------- | ------- | -------------- | ------ | - | ------- | ------- | ----- | - | ------- | ------ | ------ | -
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         | TEPPCO
|                                                     |                                                                                   |                                             |         | TEPPCO       |        | Guarantor    |         | Non-Guarantor |        | Consolidating |         | Partners, L.P.
|Year Ended December 31, 1999                         |                                                                                   | Partners, L.P.                              |         | Subsidiaries |        | Subsidiaries |         | Adjustments   |        | Consolidated 
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |              
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         | (in thousands) |        |   |         |         |       |   |         |       
|Cash flows from operating activities                 |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       
|                                                     | Net income                                                                        |                                             | $       | 72,120       |        |              | $       | 72,856        |        |               | $       | 13,188         |        |   | $       | (86,044 | )     |   | $       | 72,120 |       
|                                                     | Adjustments to reconcile net income to net
cash provided by operating activities: |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |        |       
|                                                     |                                                                                   | Depreciation and amortization               |         |              |       |              |         |               | 25,094 |               |         |                | 7,562  |   |         |         |      |   |         |        | 32,656 |  
|                                                     |                                                                                   | Equity earnings, net of distributions       |         |              | (3,561 | )            |         |               | (5,144 | )             |         |                |       |   |         |         | 9,098 |   |         |        | 393    |  
|                                                     |                                                                                   | Changes in assets and liabilities and
other |         |              | 369    |              |         |               | 451    |               |         |                | (2,917 | ) |         |         | (2    | ) |         |        | (2,099 | )
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       
|Net cash provided by operating activities            |                                                                                   |                                             | 68,928  |              |        |              | 93,257  |               |        |               | 17,833  |                |        |   | (76,948 | )       |       |   | 103,070 |       
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       
|Cash flows from investing activities                 |                                                                                   |                                             |        |              |        |              | (66,282 | )             |        |               | (10,359 | )              |        |   |        |         |       |   | (76,641 | )     
|Cash flows from financing activities                 |                                                                                   |                                             | (68,928 | )            |        |              | (44,628 | )             |        |               | (4,651  | )              |        |   | 76,948  |         |       |   | (41,259 | )     
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       
|Net increase (decrease) in cash and cash
equivalents |                                                                                   |                                             |        |              |        |              | (17,653 | )             |        |               | 2,823   |                |        |   |        |         |       |   | (14,830 | )     
|Cash and cash equivalents at beginning of period     |                                                                                   |                                             |        |              |        |              | 33,937  |               |        |               | 13,486  |                |        |   |        |         |       |   | 47,423  |       
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       
|Cash and cash equivalents at end of period           |                                                                                   | $                                           |        |              |        | $            | 16,284  |               |        | $             | 16,309  |                |        | $ |        |         |       | $ | 32,593  |       
|                                                     |                                                                                   |                                             |         |              |        |              |         |               |        |               |         |                |        |   |         |         |       |   |         |       

F-33



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##### Table of Contents



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

NOTE 18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

|                                                                  |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|----------------------------------------------------------------- |  | --------------------------------------- | ------- | ------- |  | ------- | --------- | ------- |  | - | ------- |  |  | - | ------- | 
|                                                                  |  | First                                   |         | Second  |  | Third   |           | Fourth 
|                                                                  |  | Quarter                                 |         | Quarter |  | Quarter |           | Quarter
|                                                                  |  |                                         |         |         |  |         |           |        
|                                                                  |  | (in thousands, except per Unit amounts)
|2001(1)                                                           |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|Operating revenues                                                |  | $                                       | 785,235 |         |  | $       | 1,073,682 |         |  | $ | 990,816 |  |  | $ | 706,680 | 
|Operating income                                                  |  |                                         | 36,306  |         |  |         | 53,069    |         |  |   | 27,121  |  |  |   | 34,493  | 
|Net income                                                        |  |                                         | 25,735  |         |  |         | 43,038    |         |  |   | 19,092  |  |  |   | 21,266  | 
|Basic income per Limited
Partner and Class B Unit                 |  | $                                       | 0.55    |         |  | $       | 0.90      |         |  | $ | 0.35    |  |  | $ | 0.40    | 
|Diluted income per Limited
Partner and Class B Unit (1)           |  | $                                       | 0.55    |         |  | $       | 0.89      |         |  | $ | 0.35    |  |  | $ | 0.40    | 
|2000(2)                                                           |  |                                         |         |         |  |         |           |         |  |   |         |  |  |   |         | 
|Operating revenues                                                |  | $                                       | 750,692 |         |  | $       | 747,704   |         |  | $ | 749,898 |  |  | $ | 839,647 | 
|Operating income                                                  |  |                                         | 30,767  |         |  |         | 20,151    |         |  |   | 21,907  |  |  |   | 35,200  | 
|Net income                                                        |  |                                         | 23,881  |         |  |         | 13,570    |         |  |   | 17,189  |  |  |   | 22,736  | 
|Basic and diluted income per
Limited Partner
and Class B Unit (2) |  | $                                       | 0.60    |         |  | $       | 0.35      |         |  | $ | 0.41    |  |  | $ | 0.53    | 



---

|(1) |  | Per Unit calculation includes 2,000,000 Limited Partner Units issued in
February 2001, 250,000 Limited Partner Units issued in March 2001, and
5,500,000 Limited Partner Units issued in November 2001.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Per Unit calculation includes 3,700,000 Limited Partner Units issued on
October 25, 2000.                                                                                                              

NOTE 19. SUBSEQUENT EVENTS

On January 9, 2002, the Partnership announced a definitive agreement to
acquire the Chaparral and Quanah pipelines from Diamond-Koch II, L.P. and
Diamond-Koch III, L.P. for approximately $130 million. The transaction closed
on March 1, 2002, at a cost of approximately $132 million. The purchase was
funded by a drawdown of the Partnerships Three Year Facility.

In January and February 2002, $25 million and $15 million was drawn down
on the Three Year Facility and the Bridge Facility, respectively.

On February 20, 2002, the Partnership received $494.6 million in net
proceeds from the issuance of $500 million principal amount of 7.625% Senior
Notes due 2012. The Senior Notes may be redeemed at any time at the option of
the Partnership with the payment of accrued interest and a make-whole premium
determined by discounting remaining interest and principal payments using a
discount rate equal to the rate of the United States Treasury securities of
comparable remaining maturity plus 35 basis points. The proceeds from the
offering were used to reduce the outstanding balances of the credit facilities
(see Note 8. Long Term Debt). The repayments included $160 million
outstanding on the Short-term Revolver, $215 million outstanding on the Bridge
Facility and $115.7 million outstanding on the Three Year Facility. The
Partnerships Guarantor Subsidiaries issued unconditional guarantees of these
Senior Notes (see Note 17. Supplemental Condensed Consolidating Financial
Information).

F-34



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##### Table of Contents



INDEX TO EXHIBITS

|              |  |                     
|------------- |  | --------------------
|ExhibitNumber |  | Description         
|              |  |                     
|23.1*         |  | Consent of KPMG LLP.



---

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