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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-K

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

For the Fiscal Year ended December 31, 2002

Commission File Number 1-10403

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:

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

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

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

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes  x  Noo

At June 30, 2002, the aggregate market value of the registrants Limited
Partner Units held by non-affiliates was $1,355,892,023, which was computed
using the average of the high and low sales prices of the Limited Partner
Units on June 30, 2002.

Limited Partner Units outstanding as of March 14, 2003: 53,812,697.

Documents Incorporated by Reference: None

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TABLE OF CONTENTS



|                                              |                                                                                               |  |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|                                              | Items 1 and 2. Business and Properties                                                       
|                                              | Item 3. Legal Proceedings                                                                    
|                                              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                      
|                                              | Item 5. Market for Registrants Units and Related Unitholder Matters                         
|                                              | Item 6. Selected Financial Data                                                              
|                                              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|                                              | Item 8. Financial Statements and Supplementary Data                                          
|                                              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III                                     
|                                              | Item 10. Directors and Executive Officers of the Registrant                                  
|                                              | Item 11. Executive Compensation                                                              
|                                              | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                              | Item 13. Certain Relationships and Related Transactions                                      
|                                              | Item 14. Controls and Procedures                                                             
|PART IV                                      
|                                              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|Exhibit Index                                
|3rd Supplemental Indenture                   
|Amended TEPPCO Supplemental Benefit Plan     
|2000 Long Term Incentive Plan                
|Management Incentive Compensation Plan       
|Amended TEPPCO Retirement Cash Balance Plan  
|Formation Agreement dated 8/10/2000          
|Amended Limited Liability Company Agreement  
|Guarantee Agreement dated 9/27/2002          
|LLC Membership Interest Purchase Agreement   
|Statement of Computation of Ratio of Earnings
|Consent of KPMG LLP                          
|Powers of Attorney                           
|Certification of Chief Executive Officer     
|Certification of Chief Financial Officer     

TABLE OF CONTENTS

|         |  |                                                                                       |  |  |    |  |  | 
|-------- |  | ------------------------------------------------------------------------------------- |  |  | -- |  |  | 
|PART I  
|ITEMS 1. |  | Business and Properties                                                               |  |  | 1  | 
|AND 2.  
|ITEM 3.  |  | Legal Proceedings                                                                     |  |  | 21 | 
|ITEM 4.  |  | Submission of Matters to a Vote of Security Holders                                   |  |  | 22 | 
|PART II 
|ITEM 5.  |  | Market for Registrants Units and Related Unitholder Matters                          |  |  | 22 | 
|ITEM 6.  |  | Selected Financial Data                                                               |  |  | 24 | 
|ITEM 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  |  | 25 | 
|ITEM 7A. |  | Quantitative and Qualitative Disclosures About Market Risk                            |  |  | 47 | 
|ITEM 8.  |  | Financial Statements and Supplementary Data                                           |  |  | 48 | 
|ITEM 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  |  | 48 | 
|PART III
|ITEM 10. |  | Directors and Executive Officers of the Registrant                                    |  |  | 49 | 
|ITEM 11. |  | Executive Compensation                                                                |  |  | 51 | 
|ITEM 12. |  | Security Ownership of Certain Beneficial Owners and Management                        |  |  | 58 | 
|ITEM 13. |  | Certain Relationships and Related Transactions                                        |  |  | 59 | 
|ITEM 14. |  | Controls and Procedures                                                               |  |  | 60 | 
|PART IV 
|ITEM 15. |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  |  | 61 | 

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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 formed in March 1990. We operate 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 our general partner and owns a 2% general partner interest in us. The
General Partner is a wholly owned subsidiary of Duke Energy Field Services, LLC
(DEFS), a joint venture between Duke Energy Corporation (Duke Energy) and
ConocoPhillips. Duke Energy holds an approximate 70% interest in DEFS, and
ConocoPhillips holds the remaining 30%. The Company, as general partner,
performs all management and operating functions required for us, except for the
management and operations of certain of the TEPPCO Midstream assets that are
managed by DEFS on our behalf. We reimburse the General Partner for all
reasonable direct and indirect expenses incurred in managing us. TEPPCO GP,
Inc. (TEPPCO GP), our subsidiary, is the general partner of our Operating
Partnerships. We hold a 99.999% limited partner interest in the Operating
Partnerships and TEPPCO GP holds a 0.001% general partner interest.

As used in this Report, we, us, our, and the Partnership means
TEPPCO Partners, L.P. and, where the context requires, includes our
subsidiaries.

We operate and report 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).
Our reportable segments offer different products and services and are managed
separately because each requires different business strategies.

Effective January 1, 2002, we realigned our three business segments to
reflect our entry into the natural gas gathering business and the expanded
scope of NGLs operations. We transferred the fractionation of NGLs, which was
previously reflected as part of the Downstream Segment, to the Midstream
Segment. The operation of NGL pipelines, which was previously reflected as
part of the Upstream Segment, was also transferred to the Midstream Segment.
We have adjusted our period-to-period comparisons to conform with the current
presentation.

Our 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, 2002 and 2001, we had outstanding 53,809,597 and
40,450,000 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. We have the
option to seek approval for the conversion of the Class B Units into Limited
Partner Units; however, if the conversion is denied, Duke Energy, as holder of
the Class B Units, will have the right to sell them to us at 95.5% of the
20-day average market closing price of the Limited Partner Units, as determined
under our Partnership Agreement. As a result of this option, we have not
included the Class B Units in partners capital at December 31, 2002 and 2001.
Collectively, the Limited Partner Units and Class B Units are referred to as
Units.

Our strategy is to expand and improve service in our current markets,
maintain the integrity of our pipeline systems and pursue growth initiatives
that are balanced between internal projects and acquisitions. We intend to
leverage the advantages inherent in our pipeline systems to maintain our status
as a preferred provider in our

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market areas. We also intend to grow by acquiring assets, from both third
parties and affiliates, which complement existing businesses or to establish
new core businesses. We routinely evaluate opportunities to acquire assets and
businesses that will complement existing operations with a view to increasing
earnings and cash available for distribution to our unitholders. We may fund
additional acquisitions with cash flow from operations, borrowings under
existing credit facilities, the issuance of debt in the capital
markets, the
sale of additional Units, or any combination thereof.

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

Operations

We conduct business in our 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, our 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 our pipeline system from our interstate tariffs, we also
receive revenues from the shuttling of LPGs between refinery and petrochemical
facilities on the upper Texas Gulf Coast and ancillary transportation, storage
and marketing services at key points along the pipeline system. Substantially
all of the petroleum products transported and stored in the pipeline system are
owned by 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 from the upper Texas Gulf Coast to
the Northeast.

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

The following table lists the material properties and investments of and
ownership percentages in the Downstream Segment assets as of December 31, 2002:

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



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

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Centennial Pipeline Equity Investment

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

TE Products interest in Centennial is not subject to any encumbrances
from mortgages or other secured debt. Centennial has unsecured debt, one third
of which, up to $50.0 million in principal, was originally guaranteed by each
owner, including TE Products. During the third quarter of 2002, PEPL, one of
the participants in Centennial, was downgraded by Moodys and Standard & Poors
to below investment grade, which resulted in PEPL being in default under its
portion of the Centennial guaranty. Effective September 27, 2002, TE Products
and Marathon increased their guaranteed amounts to one-half of the debt of
Centennial, up to a maximum amount of $75.0 million each, to avoid a default on
the Centennial debt. As compensation to TE Products and Marathon for providing
their additional guarantees, PEPL was required to pay interest at a rate of 4%
per annum to each of TE Products and Marathon on the portion of the additional
guaranty that each had provided for PEPL. On February 10, 2003, TE Products
and Marathon each acquired an additional interest in Centennial from PEPL for
$20.0 million each, increasing their percentage ownerships in Centennial to 50%
each. In connection with the acquisition of the additional interest in
Centennial, the guaranty agreement between TE Products, Marathon and PEPL was
terminated. TE Products guaranty of up to a maximum of $75.0 million of
Centennials debt remains in effect.

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

Refined Products, LPGs and Petrochemical Pipeline Systems

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, the
largest LPGs storage complex in the United States, and at other locations. TE
Products also owns two marine receiving terminals, one near Beaumont 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 parallel 12-inch diameter petrochemical pipelines between Mont
Belvieu and Port Arthur, each approximately 70 miles in length.

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

Products are transported in liquid form from the upper Texas Gulf Coast
through two parallel underground pipelines that extend to Seymour, Indiana.
From Seymour, segments of 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.

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The Products Pipeline System includes 29 storage facilities with an
aggregate storage capacity of 17 million barrels of refined petroleum products
and 37 million barrels of LPGs, including storage capacity leased to outside
parties. The Products Pipeline System makes deliveries to customers at 53
locations including 18 company owned truck racks, rail car facilities and
marine facilities. Deliveries to other pipelines occur at various facilities
owned by TE Products or by third parties.

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, 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. 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. The Products Pipeline System also has a 6-inch diameter pipeline
connection to the Greater Cincinnati/Northern Kentucky International Airport
and an 8-inch diameter pipeline connection to the George Bush Intercontinental
Airport in Houston. In addition, there are numerous smaller diameter lines
associated with the gathering and distribution system.

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, and the line
starting at Greensburg and ending at Marcus Hook varies in diameter from 6
inches to 8 inches.

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

TE Products also owns three 12-inch diameter common carrier petrochemical
pipelines between Mont Belvieu and Port Arthur, which were completed in the
fourth quarter of 2000. Each of these pipelines is approximately 70 miles in
length. The pipelines transport ethylene, propylene and natural gasoline. We
entered into a 20-year agreement with a major petrochemical producer for
guaranteed throughput commitments. During the years ended December 31, 2002
and 2001, and the two month period ended December 31, 2000, we recognized $11.9
million, $10.7 million and $1.8 million, respectively, of revenue under the
throughput and deficiency contract. We began transporting product through
these pipelines in September 2001.

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

Major Business Sector Markets

Our major operations in the Downstream Segment consist of the
transportation, storage and terminaling of refined petroleum products and LPGs
along our mainline system, and the storage and short-haul transportation of

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LPGs associated with our Mont Belvieu LPG operations. Product deliveries,
in millions of barrels (MMBbls) on a regional basis, for the years ended
December 31, 2002, 2001 and 2000 were as follows:

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



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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 our Products Pipeline System also affect the demand
for, and the mix of, the products delivered.

Refined products and LPGs deliveries for the years ended December 31,
2002, 2001 and 2000 were as follows:

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



---

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

5



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##### 



|(2) |  | Methyl tertiary butyl ether (MTBE). Effective April 22, 2001, we
ceased transportation of MTBE through our Products Pipeline System.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------

Refined Products Mainline Transportation

Our 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 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.

The volume of refined petroleum products transported by our 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 accounted for approximately 59% of the volume of refined
products transported through the Products Pipeline System during 2002, depends
upon price, prevailing economic conditions and demographic changes in the
markets that we serve. Demand for refined products used in agricultural
operations is affected by weather conditions, government policy and crop
prices. Demand for jet fuel depends upon prevailing economic conditions and
military usage.

Market prices for refined petroleum products affect the demand in the
markets served by our 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 volumes and revenues from period to
period.

LPGs Mainline Transportation

Our 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. Because propane demand is generally sensitive to
weather in the winter months, year-to-year variations of propane deliveries
have occurred and will likely continue to occur.

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

Mont Belvieu LPGs Storage and Pipeline Shuttle

A key aspect of 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.

Our Downstream Segment has approximately 37 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, we entered into a joint marketing and development
alliance with Louis Dreyfus Plastics Corporation, now known as Louis Dreyfus
Energy Services, L.P. (Louis Dreyfus), in which our Mont Belvieu LPGs storage
and transportation shuttle system services were jointly marketed by Louis
Dreyfus and TE Products.

6



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The purpose of the alliance was to expand services to the upper Texas Gulf
Coast energy marketplace by increasing pipeline throughput and the mix of
products handled through the existing system and establishing new receipt and
delivery connections. The alliance was a service-oriented, fee-based venture
with no commodity trading activity. TE Products operated the facilities for
the alliance. Under the alliance, Louis Dreyfus invested $6.1 million for
expansion projects at Mont Belvieu. The alliance also stipulated that if
certain earnings thresholds were achieved, a partnership between TE Products
and Louis Dreyfus was to be created effective January 1, 2003. All terms and
earnings thresholds have been met; therefore, we will be contributing our Mont
Belvieu assets to the newly formed partnership. The economic terms of the
partnership are the same as those under the joint development and marketing
alliance. TE Products will continue to operate the facilities for the
partnership. The net book value of the Mont Belvieu assets and liabilities
that we are contributing to the partnership is approximately $68.2 million.
Our interest in the partnership will be accounted for as an equity investment.

Other Operating Revenues

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

Customers

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

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

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

We manage our exposure to credit risk through credit analysis, credit
approvals, credit limits and monitoring procedures. We utilize letters of
credit and guarantees for certain of our receivables. However, these
procedures and policies do not fully eliminate customer credit risk. During
the year ended December 31, 2002, several customers of the Downstream Segment
filed for bankruptcy protection. During the year ended December 31, 2002, we
expensed approximately $0.7 million of uncollectible receivables of the
Downstream Segment.

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. We believe our Downstream Segment is competitive with
other

7



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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. We face competition from rail movements of
LPGs from Sarnia, Ontario, Canada, and waterborne imports into New Hampshire.

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

Operations

We conduct business in our Upstream Segment through TCTM and certain of
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. We commenced our Upstream
Segment business in connection with the acquisition of assets from DEFS in
November 1998. Our Upstream Segment utilizes its asset base to aggregate crude
oil and provide transportation and specialized services to its regional
customers. Our Upstream Segment purchases crude oil from various producers and
operators at the wellhead and makes bulk purchases of crude oil at pipeline and
terminal facilities. The crude oil is then sold to refiners and other
customers. The Upstream Segment transports crude oil through equity owned
pipelines, its trucking operations and third party pipelines.

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 (see Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations  Upstream Segment for margin and volume
information).

TCTM purchases crude oil and simultaneously establishes a margin by
selling crude oil for physical delivery to third party users. We seek to
maintain a balanced marketing position until we make physical delivery of the
crude oil, thereby minimizing or eliminating our exposure to price fluctuations
occurring after the initial purchase. However, certain basis risks, which are
the risks that price relationships between delivery points, classes of products
or delivery periods will change, cannot be completely hedged or eliminated. We
make limited use of commodity derivative products for the purpose of hedging
price changes. Risk management policies have been established by the Risk
Management Committee to monitor and control market risks. The Risk Management
Committee is comprised, in part, of senior executives of the Company. We had no
commodity derivative contracts outstanding at December 31, 2002.

Product deliveries on TCTMs 100% owned pipeline systems and undivided
joint interest pipelines for the years ended December 31, 2002, 2001 and 2000,
were as follows (in millions):

|                                         |                          |  |                          |       |      |  |      |       |  |  |     |       | 
|---------------------------------------- | ------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  | --- | ----- | 
|                                         |                          |  | Years Ended December 31,
|                                         |                          |  |                         
|                                         |                          |  | 2002                     |       | 2001 |  | 2000
|                                         |                          |  |                          |       |      |  |     
|Barrels Delivered:                       |                          |  |                          |       |      |  |      |       |  |  |     |      
|                                         | Crude oil transportation |  |                          | 82.8  |      |  |      | 78.7  |  |  |     | 46.2  | 
|                                         | Crude oil marketing      |  |                          | 139.2 |      |  |      | 159.5 |  |  |     | 107.6 | 
|                                         | Crude oil terminaling    |  |                          | 127.4 |      |  |      | 121.9 |  |  |     | 56.5  | 
|Lubricants and chemicals (total gallons) |                          |  | 9.6                      |       |      |  | 8.8  |       |  |  | 8.0 |      

8



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Properties

The major crude oil pipelines and pipeline systems of our 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; 630,000
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;
6,320,000 barrels
storage  Texas
Gulf Coast to
Cushing, Oklahoma                   
|                       
|Rancho (3)              |  |             | 25% joint ownership                  |          |  | Plains All American
Pipeline, L.P. |  | 400-mile, 24-inch
diameter pipeline 
West Texas to
Houston, Texas                                                       
|                       
|Basin                   |  |             | 13% joint ownership                  |          |  | Plains All American
Pipeline, L.P. |  | 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 Our
Interest in Seaway Crude Pipeline.    
|   
|(3) |  | Under the terms of the Rancho System operating agreement, the operating agreement will
expire during the first quarter of 2003.

None of these pipelines or systems are mortgaged or encumbered to secure funded
debt. TCTM has provided guarantees of our unsecured debt (see Item 7.
Managements Discussion and Analysis of Financial Condition and Results of
Operations).

The majority of the Red River System crude oil is delivered to Cushing,
Oklahoma, via third party 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 is a fee based system
which connects gathering systems to TCTMs Midland, Texas terminal. Other crude
oil assets, located primarily in Texas and Oklahoma, consist of 310 miles of
pipeline and 295,000 barrels of storage capacity.

Under the terms of the Rancho System operating agreement, the operating
agreement will expire during the first quarter of 2003. Upon expiration of
the operating agreement, the Rancho System will cease operations in crude oil
service from West Texas to Houston, Texas. The owners of the Rancho System are
currently pursuing future opportunities for use of the system.

9



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Our Interest in Seaway Crude Pipeline

Seaway Crude Pipeline Company (Seaway) is a partnership between a
subsidiary of TCTM, TEPPCO Seaway, L.P. (TEPPCO Seaway), and ConocoPhillips.
TCTM acquired its 50% ownership interest in Seaway on July 20, 2000, as part of
its purchase of ARCO Pipe Line Company (ARCO), a wholly owned subsidiary of
Atlantic Richfield Company, and transferred the investment to TEPPCO Seaway.
We 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.
Three 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 oil. 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 crude oil storage services for all Houston area
refineries.

The Seaway partnership agreement provides for varying participation ratios
throughout the life of Seaway. From July 20, 2000, through May 2002, we
received 80% of revenue and expense of Seaway. From June 2002 until May 2006,
we will receive 60% of revenue and expense of Seaway. Thereafter, we will
receive 40% of revenue and expense of Seaway. For the year ended December 31,
2002, our portion of equity earnings on a pro-rated basis averaged
approximately 67%.

Line Transfers, Pumpovers and Other

Our 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 and other physical
trading activity. 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 our 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 primarily in
Midland and Cushing 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 our consolidated
statements of income and represents the crude oil terminaling component of
margin. The line transfer and pumpover operations were acquired as part of our
purchase of 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, Wyoming, 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. Gross sales revenue of the Upstream
Segment attributable to the top 10 customers was $1.9 billion (66%) for the
year ended December 31, 2002, of which Valero Energy Corp. (Valero) accounted
for 18%. For the year ended December 31, 2001, gross sales revenue
attributable to the top 10 customers was $2.0 billion (61%), of which Valero
accounted for 16%. For the year ended December 31, 2000, gross sales revenue
attributable to the top 10 customers was $1.6 billion (56%), of which Valero
accounted for 13%.

10



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Competition

The most significant competitors in pipeline operations in our 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 our 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 have intensified competition among gatherers and marketers.

A significant portion of the growth in our Upstream Segment has occurred
through acquisitions of pipeline gathering systems. Our acquisitions in this
Segment have provided increased efficiencies for the gathering and
transportation of crude oil with our existing pipeline systems as well as
expansion into new market areas. We experience competition from other
gatherers and marketers in 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 and
bankruptcies, which may decrease the number of potential acquisitions of crude
gathering systems available to us.

Credit Policies and Procedures

As crude oil or lubrication oils are marketed, we must determine the
amount, if any, of credit to be extended to any given customer, particularly in
our 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 our business. We manage our exposure to credit risk through credit
analysis, credit approvals, credit limits and monitoring procedures. We
utilize letters of credit and guarantees for certain of our receivables.
However, these procedures and policies do not fully eliminate customer credit
risk. During the years ended December 31, 2001 and 2000, no reserves were
necessary for uncollectible receivables of the Upstream Segment. During the
year ended December 31, 2002, we expensed approximately $0.2 million of
uncollectible receivables of the Upstream Segment.

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

We conduct business in our Midstream Segment through the following:



| |  |  | TEPPCO Colorado, LLC (TEPPCO Colorado), which fractionates NGLs,                                                                                                                                                                                                                                                                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | TEPPCO Midstream Companies, LLC, and its wholly owned
subsidiaries, Chaparral Pipeline Company, L.P. and Quanah
Pipeline Company, L.P. (collectively referred to as Chaparral
or Chaparral NGL system), Dean Pipeline Company, L.P., Panola
Pipeline Company, L.P. and Wilcox Pipeline Company, L.P., which
transport NGLs, and
|
| |  |  | Jonah Gas Gathering Company (Jonah) and Val Verde Gas
Gathering Company, L.P. (Val Verde), which gather natural gas.                                                                                                                                                                                                           

On December 31, 2000, we completed an acquisition of 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 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.
Accordingly, the results of operations of the acquisition were included in our
consolidated financial statements in the fourth quarter of 2000.

11



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Our subsidiaries acquired all of the partnership interests of Jonah from
Alberta Energy Company, effective September 30, 2001, for $359.8 million. We
paid an additional $7.3 million on February 4, 2002, 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 were
included in our consolidated financial statements in the fourth quarter of
2001. Under a contractual agreement, DEFS manages and operates the Jonah
assets on our behalf.

In connection with the acquisition of Jonah, we assumed responsibility for
the completion of an ongoing expansion of the Jonah Gas Gathering System at a
cost of approximately $25.0 million. The expansion, which was completed in
March 2002, increased the capacity of the Jonah system by 62%, from
approximately 450 million cubic feet per day (MMcf/day), to approximately 730
MMcf/day. In October 2002, additional expansion projects were completed, which
increased the capacity of the Jonah system from 730 MMcf/day to approximately
880 MMcf/day. These projects were completed at a combined cost of
approximately $45.0 million.

In February 2002, a producer on the Jonah system sent a letter to Alberta
Energy Company implying that as a result of our acquisition of the Jonah
system, it may have a right to acquire all or a portion of the assets
comprising the Jonah system pursuant to an alleged right of first refusal in a
gas gathering agreement between the producer and Jonah. Subsidiaries of
Alberta Energy Company have agreed to indemnify us against losses resulting
from any breach of representations concerning the absence of third party rights
in connection with our acquisition of the entity that owns the Jonah system.
We believe that we have adequate legal defenses if the producer should assert a
claim, and we also believe that no right of first refusal on any of the
underlying Jonah system assets has been triggered.

On March 1, 2002, we completed the purchase of the Chaparral NGL system
for $132.4 million from Diamond-Koch II, L.P. and Diamond-Koch III, L.P.,
including acquisition related costs of approximately $0.4 million. The
Chaparral NGL system extends from West Texas and New Mexico to Mont Belvieu.
The pipeline delivers NGLs to fractionators and to our existing storage in Mont
Belvieu. We accounted for the acquisition of the assets under the purchase
method of accounting. Accordingly, the results of the acquisition have been
included in our consolidated financial statements from March 1, 2002. Under a
contractual agreement, DEFS manages and operates the Chaparral NGL system
assets on our behalf.

On June 30, 2002, we completed the purchase of the Val Verde Gathering
System for $444.2 million from Burlington Resources Gathering Inc., a
subsidiary of Burlington Resources Inc., including acquisition related costs of
approximately $1.2 million. The Val Verde system gathers coal bed methane
(CBM) from the Fruitland Coal Formation of the San Juan Basin in New Mexico
and Colorado. The system is one of the largest CBM gathering and treating
facilities in the United States. We accounted for the acquisition of the
assets under the purchase method of accounting. Accordingly, the results of
the acquisition have been included in our consolidated financial statements
from June 30, 2002. Under a contractual agreement, DEFS manages and operates
the Val Verde assets on our behalf.

Revenues of our 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 from sales of condensate on the Jonah
system. We do 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. TEPPCO Midstream has multiple long-term contracts with producers
connected to the Jonah and Val Verde systems. We cannot influence or control
the operation, development or production levels of the gas fields served by the
Jonah and Val Verde systems, which may be affected by price and price
volatility, market demand, depletion rates of existing wells and changes in
laws and regulations.

None of these pipelines or systems are mortgaged or encumbered to secure
funded debt. TEPPCO Midstream, Jonah and Val Verde have each provided
guarantees of our unsecured debt (see Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations).

12



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Volume information for the years ended December 31, 2002, 2001 and 2000,
is presented below:

|                                                     |  |  |  |  |  |                          |       |      |  |      |      |  |  |  |     | 
|---------------------------------------------------- |  |  |  |  |  | ------------------------ | ----- | ---- |  | ---- | ---- |  |  |  | --- | 
|                                                     |  |  |  |  |  | Years Ended December 31,
|                                                     |  |  |  |  |  |                         
|                                                     |  |  |  |  |  | 2002                     |       | 2001 |  | 2000
|                                                     |  |  |  |  |  |                          |       |      |  |     
|Gathering  Natural Gas (billion cubic feet (Bcf)) |  |  |  |  |  |                          | 340.7 |      |  |      | 45.5 |  |  |  |    | 
|Transportation  NGLs (million barrels)              |  |  |  |  |  |                          | 54.0  |      |  |      | 21.5 |  |  |  | 5.2 | 
|Fractionation  NGLs (million barrels)               |  |  |  |  |  |                          | 4.1   |      |  |      | 4.1  |  |  |  | 4.1 | 

The Jonah Gas Gathering System

The Jonah system consists of over 400 miles of pipelines ranging in size
from four inches to 24 inches in diameter, four compressor stations with an
aggregate of approximately 40,000 horsepower and related metering facilities.
Gas gathered on the Jonah system is collected from over 450 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 also 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  Kern River, Northwest, Colorado Interstate Gas and Questar.

The Val Verde Gas Gathering System

The Val Verde Gas Gathering System consists of approximately 360 miles of
pipeline ranging in size from four inches to 36 inches in diameter, 14
compressor stations operating over 93,000 horsepower of compression and a large
amine treating facility for the removal of carbon dioxide. The system has a
pipeline capacity of approximately one billion cubic feet of gas per day. The
Val Verde Gas Gathering System gathers CBM from the Fruitland Coal Formation of
the San Juan Basin in New Mexico and Colorado, a long-term source of natural
gas supply in North America. The basin is one of the most prolific sources of
CBM and also contains significant conventional gas reserves. The system is one
of the largest CBM gathering and treating facilities in the United States,
gathering CBM from more than 540 separate wells throughout northern New Mexico
and southern Colorado, and provides gathering and treating services pursuant to
60 long-term contracts with approximately 40 different natural gas producers in
the San Juan Basin. Gas transported on the Val Verde system is delivered to
several interstate pipeline systems serving the western United States, as well
as local New Mexico markets.

NGL Transportation

The NGL pipelines of the Midstream Segment are located along the Texas
Gulf Coast and along southeastern New Mexico and West Texas to Mont Belvieu.
They are all wholly owned and operated by either our subsidiaries or DEFS.
Information concerning these NGL pipelines is set forth in the following table:

13



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|             |  |               |         |             |  |                                                                                           
|------------ |  | ------------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------
|             |  | Capacity      |         |            
|NGL Pipeline |  | (barrels/day) |         | Description
|             |  |               |         |            
|Dean (1)     |  |               | 20,000  |             |  | Dean North  137 miles of pipeline  Mont
Belvieu, Texas to Point Comfort, Texas          
|             |  |               |         |             |  | Dean South  148 miles of pipeline  South
Texas to Point Comfort, 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                                                    
|Chaparral    |  |               | 135,000 |             |  | 800 miles of pipeline  West Texas and New
Mexico to Mont Belvieu, Texas                  
|Quanah       |  |               | 22,000  |             |  | 170 miles of pipeline  Sutton County,
Texas to the Chaparral pipeline near
Midland, Texas



---

|(1) |  | Beginning in January 2003, the northern portion of the Dean pipeline
was converted to transport refinery grade propylene from Mont Belvieu to
Point Comfort, Texas. Effective in 2003, Dean North will be classified as
a part of the Downstream Segment at the time of the change in the product
being transported.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

None of these pipelines are mortgaged or encumbered to secure funded 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 fees paid to us by DEFS under
the agreement totaled $1.2 million, $1.2 million and $1.1 million for the years
ended December 31, 2002, 2001 and 2000, respectively. The Panola Pipeline and
San Jacinto Pipeline were purchased on December 31, 2000, from DEFS for $91.7
million and originate at DEFS East Texas Plant Complex in Panola County,
Texas. For the years ended December 31, 2002 and 2001, revenues recognized
included $12.0 million and $13.9 million, respectively, from a subsidiary of
DEFS for NGL transportation fees on the Panola and San Jacinto Pipelines.

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 and Val Verde 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, 2002, the Midstream Segment had approximately 70
customers. Revenues attributable to the top 10 customers were $117.5 million
(85%) for the year ended December 31, 2002, of which DEFS, EnCana Corporation
(formerly Alberta Energy Company), and Burlington Resources Inc. accounted for
approximately 21%, 19% and 15% of revenues of the Midstream Segment,
respectively. 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
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.

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We manage our exposure to credit risk through credit analysis, credit
approvals, credit limits and monitoring procedures. We utilize letters of
credit and guarantees for certain of our receivables. However, these
procedures and policies do not fully eliminate customer credit risk. In
December 2001, we expensed approximately $4.3 million of uncollected
transportation deficiency revenues due to the bankruptcy of Enron Corp. and
certain of its subsidiaries in December 2001.

Competition

The most significant competition for the NGL pipeline operations of our
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 recent growth in the Midstream Segment is due to the
acquisition of Jonah in Wyoming and Val Verde in New Mexico and Colorado.
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 our Jonah system in Wyoming are both
relatively young producing areas, characterized by long-lived production
profiles and many years of significant growth potential ahead. We expect to
aggressively market this system by obtaining contracts to gather additional
natural gas supplies.

Competition in the natural gas gathering operations of our 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 our 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 a
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 one of our gathering systems
declines, revenues from such operations would also be adversely affected. If
such declines are sustained or substantial, then we could experience a material
adverse effect on our financial position, results of operations or cash flows.

Title to Properties

We believe we have satisfactory title to all of our assets. The properties
are subject to liabilities in certain cases, such as customary interests
generally contracted in connection with acquisition of the properties, liens
for taxes not yet due, easements, restrictions, and other minor encumbrances.
In February 2002, a producer on the Jonah system sent a letter to Alberta
Energy Company implying that as a result of our acquisition of the Jonah
system, it may have a right to acquire all or a portion of the assets
comprising the Jonah system. 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. We
believe none of these liabilities materially affect the value of our properties
or our interest in the properties or will materially interfere with their use
in the operation of our business.

Capital Expenditures

Capital expenditures, excluding acquisitions, totaled $133.4 million for
the year ended December 31, 2002. Revenue generating projects include those
projects which expand service into new markets or expand capacity into current
markets. Capital expenditures to sustain existing operations include projects
required by regulatory agencies or required life-cycle replacements. System
upgrade projects improve operational efficiencies or reduce cost. We
capitalize interest costs incurred during the period that construction is in
progress. The following table identifies capital expenditures by segment for
the year ended December 31, 2002 (in millions):

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|                   |       |   |            |       |            |   |            |      |             |   |       |     |  |   |     |     |  |   |      |       | 
|------------------ | ----- | - | ---------- | ----- | ---------- | - | ---------- | ---- | ----------- | - | ----- | --- |  | - | --- | --- |  | - | ---- | ----- | 
|                   |       |   |            |       |            |   | Sustaining |      |             |   |       |     |  |   |     |     |  |   |     
|                   |       |   | Revenue    |       | Existing   |   | System     |      | Capitalized |   |       |     | 
|                   |       |   | Generating |       | Operations |   | Upgrades   |      | Interest    |   | Total
|                   |       |   |            |       |            |   |            |      |             |   |      
|Downstream Segment |       | $ | 37.7       |       |            | $ | 13.6       |      |             | $ | 6.9   |     |  | $ | 2.7 |     |  | $ | 60.9 |      
|Upstream Segment   |       |   | 4.8        |       |            |   | 4.8        |      |             |   | 0.1   |     |  |   | 0.5 |     |  |   | 10.2 |      
|Midstream Segment  |       |   | 58.1       |       |            |   | 3.6        |      |             |   |      |     |  |   | 0.6 |     |  |   | 62.3 |      
|                   |       |   |            |       |            |   |            |      |             |   |       |     |  |   |     |     |  |   |      |      
|                   | Total |   | $          | 100.6 |            |   | $          | 22.0 |             |   | $     | 7.0 |  |   | $   | 3.8 |  |   | $    | 133.4 | 
|                   |       |   |            |       |            |   |            |      |             |   |       |     |  |   |     |     |  |   |      |      

Revenue generating capital spending by the Downstream Segment included
$24.9 million used to expand our capacity to support Centennials throughput
with additional tankage and system capacity improvements at our Beaumont
terminal, and additional receipt connections and pumping capacity in the
Houston Ship Channel area. An additional $3.2 million was used to construct
connections and related facilities for our petrochemical pipeline system
extending from Mont Belvieu to Port Arthur. We also spent approximately $3.7
million to expand capacity at truck loading facilities at Princeton, Indiana,
and Lebanon, Ohio. Revenue generating capital spending by the Midstream
Segment related primarily to a $45.0 million expansion of the Jonah system to
increase its capacity. The remaining revenue generating capital spending of
the Midstream Segment was used to construct well connections.

We estimate that capital expenditures, excluding acquisitions, for 2003
will be approximately $55.0 million (which includes $3.6 million of capitalized
interest). We expect to use approximately $18.4 million for revenue generating
projects. Capital spending on revenue generating projects will include
approximately $7.5 million for the expansion of our pumping capacity of LPGs
into the Northeast markets, approximately $1.9 million for expansion of our
Downstream Segments deliverability capacity, $4.0 million to expand Upstream
Segment facilities and approximately $5.0 million for the expansion of
Midstream assets. We expect to spend approximately $26.0 million to sustain
existing operations, of which approximately $19.3 million will be for
Downstream Segment pipeline projects, including the replacement of storage
tanks, pipeline rehabilitation projects to comply with regulations enacted by
the United States Department of Transportation Office of Pipeline Safety
(OPS) and the installation of replacement electrical distribution facilities
at our Mont Belvieu facilities, $4.8 million for upgrades of our Upstream
Segment and $1.9 million of capital expenditures to sustain existing operations
on the Midstream Segment. An additional $7.0 million will be expended on
system upgrade projects among all of our business segments. We continually
review and evaluate potential capital improvements and expansions that would be
complementary to our present business segments. These expenditures can vary
greatly depending on the magnitude of our transactions. We may finance capital
expenditures through internally generated funds, debt or the issuance of
additional equity.

Regulation

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

Rates of interstate refined petroleum products and crude oil pipeline
companies, like us, are currently regulated by the FERC primarily through an
index methodology, which allows a pipeline to change its rates based on the
change from year to year in the Producer Price Index for finished goods (PPI
Index). Effective as of February 24, 2003, FERC Order on Remand modified the
PPI Index from PPI  1% to PPI. In the alternative, interstate refined
petroleum products and crude 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 refined petroleum
products and crude oil pipeline companies 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

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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, and Arcadia and
Shreveport-Arcadia, Louisiana, destination markets, which are currently subject
to the PPI Index. As a result, we made refunds of approximately $1.0 million
in the third quarter of 2001 for those destination markets.

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

The natural gas gathering operations of the Jonah and Val Verde systems
are exempt from FERC regulation under the Natural Gas Act of 1938 since they
are intrastate gas gathering systems rather than interstate transmission
pipelines. However, FERC regulation still significantly affects the Midstream
Segment, directly or indirectly, by its influences on the parties that produce
the natural gas gathered on the Jonah and Val Verde systems. In addition, 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 policies 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

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

Water

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

Contamination resulting from spills or releases of petroleum products is
an inherent risk within the petroleum pipeline industry. To the extent that
groundwater contamination requiring remediation exists along our pipeline
systems as a result of past operations, we believe any such contamination could
be controlled or remedied

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without having a material adverse effect on our financial position, but
such costs are site specific, and we cannot assure you that the effect will not
be material in the aggregate.

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

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

Air Emissions

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

Risk Management Plans

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

Solid Waste

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

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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 our ordinary
operations, our pipeline system generates wastes that may fall within CERCLAs
definition of a hazardous substance. In the event a disposal facility
previously used by us requires clean up in the future, we may be responsible
under CERCLA for all or part of the costs required to clean up sites at which
such wastes have been disposed.

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

In November 2002, we were notified by the EPA of a potential liability for
alleged waste disposal at Industrial Pollution Control located in Jackson,
Mississippi. Based on the pro-rata share of waste disposed of at the facility,
the potentially responsible parties were requested to file a tolling agreement.
We filed this agreement with the EPA in December 2002. Our contribution of
total waste disposed of at the facility was estimated to be less than 1% and
potential liabilities are not expected to exceed $30,000.

Other Environmental Proceedings

In 1994, we entered into an Agreed Order with the Indiana Department of
Environmental Management (IDEM) that resulted in the implementation of a
remediation program for groundwater contamination attributable to our
operations at the Seymour terminal. In 1999, the IDEM approved a Feasibility
Study, which includes our proposed remediation program. In March 2003, the
IDEM issued a Record of Decision formally approving the remediation program.
As the Record of Decision has been issued, we will enter into an Agreed Order
for the continued operation and maintenance of the remediation program. We have
an accrued liability of $0.4 million at December 31, 2002, for future
remediation costs at the Seymour terminal. We do not expect that the completion
of the remediation program will have a future material adverse effect on our
financial position, results of operations or cash flows.

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
adjacent petroleum terminals operated by other companies. In 1999, our Arcadia
facility and adjacent terminals were directed by the Remediation Services
Division of the LDEQ to pursue remediation of this containment phase. At
December 31, 2002, we have an accrued liability of $0.2 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program that we have proposed will have a future material adverse
effect on our financial position, results of operations or cash flows.

At December 31, 2002, we had an accrued liability of $5.6 million and a
receivable of $4.2 million from DEFS related to various TCTM sites requiring
environmental remediation activities. The receivable is based on a contractual
indemnity obligation we received in connection with our acquisition of assets
from a DEFS affiliate in November 1998. The indemnity relates to future
environmental remediation activities attributable to operations of these assets
prior to our acquisition. Under this indemnity obligation, we are responsible
for the first $3.0 million in specified environmental liabilities, and DEFS is
responsible for those environmental liabilities in excess of $3.0

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million, up to a maximum amount of $25.0 million. The majority of the
receivable from DEFS relates to remediation activities at the Velma crude oil
site in Stephens County, Oklahoma. The accrued liability balance at December
31, 2002, also includes an accrual of $2.3 million related to the Shelby crude
oil site in Stephens County, Oklahoma. At December 31, 2002, it is uncertain
if these costs related to Shelby are covered under the indemnity obligation
from DEFS. We are currently in discussions with DEFS regarding these
matters. We do not expect that the completion of remediation programs
associated with TCTM activities will have a future material adverse effect on
our financial position, results of operations or cash flows.

DOT Pipeline Compliance Matters

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

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

We are also subject to the OPS Integrity Management regulations which
specify how companies with greater than 500 miles of pipeline should assess,
evaluate, validate and maintain the integrity of pipeline segments that, in the
event of a release, could impact High Consequence Areas (HCA). HCA are
defined as highly populated areas, unusually sensitive environmental areas and
commercially navigable waterways. The regulation requires an Integrity
Management Program (IMP) be developed that utilizes internal pipeline
inspection, pressure testing, or other equally effective means to assess the
integrity of HCA pipeline segments. The regulation also requires periodic
review of HCA pipeline segments to ensure adequate preventative and mitigative
measures exist and that companies take prompt action to address integrity
issues raised by the assessment and analysis. In compliance with these OPS
regulations, we identified our HCA pipeline segments and developed an IMP by
the March 31, 2002 deadline. The regulations require that initial HCA baseline
integrity assessments are conducted within seven years, with all subsequent
assessments conducted on a five-year cycle. We will evaluate each pipeline
segments integrity by analyzing available information and develop a range of
potential impacts resulting from a potential release to a HCA. We are
currently developing cost estimates related to our baseline integrity
assessments.

Safety Matters

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

The OSHA hazard communication standard, the EPA community right-to-know
regulations under Title III of the federal Superfund Amendment and
Reauthorization Act and comparable state statutes require us to organize and
disclose information about the hazardous materials used in our operations.
Certain parts of this information must be reported to employees, state and
local governmental authorities, and local citizens upon request. We are subject
to OSHA Process Safety Management (PSM) regulations, which are designed to
prevent or minimize the consequences of catastrophic releases of toxic,
reactive, flammable or explosive chemicals. These regulations apply to any
process which involves a chemical at or above the specified thresholds or any
process which involves a flammable liquid or gas, as defined in the
regulations, stored on-site in one location, in a quantity of 10,000 pounds or
more. We utilize certain covered processes and maintain storage of LPGs in
pressurized tanks, caverns and wells, in excess of 10,000 pounds at various
locations. Flammable liquids stored in atmospheric tanks below their normal

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boiling point without benefit of chilling or refrigeration are exempt. We
believe we are in material compliance with the OSHA regulations.

In general, we expect to increase our expenditures during the next decade
to comply with stricter industry and regulatory safety standards such as those
described above. While such expenditures cannot be accurately estimated at
this time, we do not believe that they will have a future material adverse
effect on our financial position, results of operations or cash flows.

Employees

We do not have any employees, officers or directors. The General Partner
is responsible for the management of us and our subsidiaries. As of December
31, 2002, the General Partner had 970 employees.

Available Information

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

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




Item 3.Legal Proceedings

Toxic Tort Litigation - Seymour, Indiana

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

Other Litigation

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

21



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##### 



cannot estimate the damages, if any, associated with this pending lawsuit;
however, this case is covered by insurance.

On April 19, 2002, we, through our subsidiary TEPPCO Crude Oil, L.P.,
filed a declaratory judgment action in the U.S. District Court for the Western
District of Oklahoma against D.R.D. Environmental Services, Inc. (D.R.D.)
seeking resolution of billing and other contractual disputes regarding
potential overcharges for environmental remediation services provided by D.R.D.
On May 28, 2002, D.R.D. filed a counterclaim for alleged breach of contract in
the amount of $2,243,525, and for unspecified damages for alleged tortious
interference with D.R.D.s contractual relations with DEFS. We have denied the
counterclaims. Discovery is ongoing. If D.R.D. should be successful,
management believes that a substantial portion of the $2,243,525 breach of
contract claim will be covered under an indemnity from DEFS. We cannot predict
the outcome of the litigation against us; however, we are defending ourselves
vigorously against the counterclaim. We do not believe that the outcome of
this lawsuit will have a material adverse effect on our financial position,
results of operations or cash flows.

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




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

None.




PART II




Item 5.Market for Registrants Units and Related Unitholder Matters

Our Limited Partner Units are listed and traded on the New York Stock
Exchange under the symbol TPP. The high and low trading prices of our Limited
Partner Units in 2002 and 2001, respectively, as reported on The New York
Times, were as follows:

|        |  |      |       |      |  |      |       |     |  |   |       |  |  |   |       | 
|------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- | 
|        |  | 2002 |       | 2001
|        |  |      |       |     
|Quarter |  | High |       | Low  |  | High |       | Low
|        |  |      |       |      |  |      |       |    
|First   |  | $    | 33.25 |      |  | $    | 27.30 |     |  | $ | 27.44 |  |  | $ | 24.38 | 
|Second  |  |      | 33.20 |      |  |      | 29.35 |     |  |   | 30.10 |  |  |   | 25.76 | 
|Third   |  |      | 32.19 |      |  |      | 23.90 |     |  |   | 32.90 |  |  |   | 26.00 | 
|Fourth  |  |      | 29.98 |      |  |      | 26.00 |     |  |   | 36.50 |  |  |   | 28.50 | 

Based on the information received from our transfer agent and from brokers
and nominees, we estimate the number of beneficial unitholders of our Limited
Partner Units as of March 14, 2003, to be approximately 51,300.

22



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##### 



The quarterly cash distributions for 2001 and 2002 were as follows:

|                 |  |                  |  |          |       | 
|---------------- |  | ---------------- |  | -------- | ----- | 
|                 |  |                  |  | Amount  
|Record Date      |  | Payment Date     |  | Per Unit
|                 |  |                  |  |         
|April 30, 2001   |  | May 4, 2001      |  | $        | 0.525 | 
|July 31, 2001    |  | August 6, 2001   |  |          | 0.525 | 
|October 31, 2001 |  | November 5, 2001 |  |          | 0.575 | 
|January 31, 2002 |  | February 8, 2002 |  |          | 0.575 | 
|April 30, 2002   |  | May 8, 2002      |  | $        | 0.575 | 
|July 31, 2002    |  | August 8, 2002   |  |          | 0.600 | 
|October 31, 2002 |  | November 8, 2002 |  |          | 0.600 | 
|January 31, 2003 |  | February 7, 2003 |  |          | 0.600 | 

We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. Pursuant to the Partnership Agreement, the Company receives
incremental incentive cash distributions when cash distributions exceed certain
target thresholds (see Note 13. Quarterly Distributions of Available Cash).

We are a publicly traded master limited partnership and are not subject to
federal income tax. Instead, unitholders are required to report their allocated
share of our income, gain, loss, deduction and credit, regardless of whether we
make distributions. We have made quarterly distribution payments since May
1990.

Distributions of cash by us to a unitholder will not result in taxable
gain or income except to the extent the aggregate amount distributed exceeds
the tax basis of the Units owned by the unitholder.

23



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##### 






Item 6.Selected Financial Data

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

|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |         |         |         |       |  
|---------------------- | ----------------------------------------------------------------------- | ---------------------------------------------- | ------------------------ | ----------------------------------- | --------- | ------------------------ | ---- | --------- | --------- | --------------------------------------- | ---- | --------- | --------- | --------- | ---- | --------- | --------- | --------- | ---- | ------- | ------- | ------- | ----- | -
|                       |                                                                         |                                                |                          |                                     |           | Years Ended December 31,
|                       |                                                                         |                                                |                          |                                     |           |                         
|                       |                                                                         |                                                |                          |                                     |           | 2002(1)                  |      | 2001(2)   |           | 2000 (3)                                |      | 1999      |           | 1998 (4) 
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |          
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           | (in thousands, except per Unit amounts) |      |           |           |          
|Income Statement Data: |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       | Operating revenues:                                                     |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |         |        
|                       |                                                                         | Sales of crude oil and petroleum products      |                          | $                                   | 2,823,800 |                          |      | $         | 3,219,816 |                                         |      | $         | 2,821,943 |           |      | $         | 1,692,767 |           |      | $       | 214,463 |        
|                       |                                                                         | Transportation  Refined products              |                          |                                     | 123,476   |                          |      |           | 139,315   |                                         |      |           | 119,331   |           |      |           | 123,004   |           |      |         | 119,854 |        
|                       |                                                                         | Transportation  LPGs                          |                          |                                     | 74,577    |                          |      |           | 77,823    |                                         |      |           | 73,896    |           |      |           | 67,701    |           |      |         | 60,902  |        
|                       |                                                                         | Transportation  Crude oil                     |                          |                                     | 27,414    |                          |      |           | 24,223    |                                         |      |           | 17,524    |           |      |           | 11,846    |           |      |         | 3,392   |        
|                       |                                                                         | Transportation  NGLs                          |                          |                                     | 38,870    |                          |      |           | 20,702    |                                         |      |           | 7,009     |           |      |           |          |           |      |         |        |        
|                       |                                                                         | Gathering  Natural gas                        |                          |                                     | 90,053    |                          |      |           | 8,824     |                                         |      |           |          |           |      |           |          |           |      |         |        |        
|                       |                                                                         | Mont Belvieu operations                        |                          |                                     | 15,238    |                          |      |           | 14,116    |                                         |      |           | 13,334    |           |      |           | 12,849    |           |      |         | 10,880  |        
|                       |                                                                         | Other revenues                                 |                          |                                     | 48,735    |                          |      |           | 51,594    |                                         |      |           | 34,904    |           |      |           | 26,716    |           |      |         | 20,147  |        
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         |                                                | Total operating revenues |                                     |           | 3,242,163                |      |           |           | 3,556,413                               |      |           |           | 3,087,941 |      |           |           | 1,934,883 |      |         |         | 429,638 |      
|                       | Purchases of crude oil and petroleum products                           |                                                |                          | 2,772,328                           |           |                          |      | 3,172,805 |           |                                         |      | 2,793,643 |           |           |      | 1,666,042 |           |           |      | 212,371 |        
|                       | Operating expenses                                                      |                                                |                          | 213,556                             |           |                          |      | 185,918   |           |                                         |      | 150,149   |           |           |      | 136,095   |           |           |      | 110,363 |        
|                       | Depreciation and amortization                                           |                                                |                          | 86,032                              |           |                          |      | 45,899    |           |                                         |      | 35,163    |           |           |      | 32,656    |           |           |      | 26,938  |        
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         | Operating income                               |                          |                                     | 170,247   |                          |      |           | 151,791   |                                         |      |           | 108,986   |           |      |           | 100,090   |           |      |         | 79,966  |        
|                       | Interest expense  net                                                  |                                                |                          | (66,192                             | )         |                          |      | (62,057   | )         |                                         |      | (44,423   | )         |           |      | (29,430   | )         |           |      | (28,989 | )      
|                       | Equity earnings                                                         |                                                |                          | 11,980                              |           |                          |      | 17,398    |           |                                         |      | 12,214    |           |           |      |          |           |           |      |        |        
|                       | Other income  net                                                      |                                                |                          | 1,827                               |           |                          |      | 1,999     |           |                                         |      | 599       |           |           |      | 1,460     |           |           |      | 2,364   |        
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         | Income before extraordinary item               |                          |                                     | 117,862   |                          |      |           | 109,131   |                                         |      |           | 77,376    |           |      |           | 72,120    |           |      |         | 53,341  |        
|                       | Extraordinary loss on debt extinguishment, net
of minority interest (5) |                                                |                          |                                    |           |                          |      |          |           |                                         |      |          |           |           |      |          |           |           |      | (72,767 | )      
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         | Net income (loss) (as reported)                |                          |                                     | 117,862   |                          |      |           | 109,131   |                                         |      |           | 77,376    |           |      |           | 72,120    |           |      |         | (19,426 | )      
|                       | Amortization of goodwill and excess investment                          |                                                |                          |                                    |           |                          |      | 2,396     |           |                                         |      | 767       |           |           |      |          |           |           |      |        |        
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         | Adjusted net income (loss)                     |                          | $                                   | 117,862   |                          |      | $         | 111,527   |                                         |      | $         | 78,143    |           |      | $         | 72,120    |           |      | $       | (19,426 | )      
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       | Basic and diluted income per Unit: (6)                                  |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |         |        
|                       |                                                                         | Before extraordinary item (as reported)        |                          | $                                   | 1.79      |                          |      | $         | 2.18      |                                         |      | $         | 1.89      |           |      | $         | 1.91      |           |      | $       | 1.61    |        
|                       |                                                                         | Extraordinary loss on debt extinguishment (5)  |                          |                                     |          |                          |      |           |          |                                         |      |           |          |           |      |           |          |           |      |         | (2.21   | )      
|                       |                                                                         | Amortization of goodwill and excess investment |                          |                                     |          |                          |      |           | 0.05      |                                         |      |           | 0.02      |           |      |           |          |           |      |         |        |        
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        
|                       |                                                                         |                                                |                          | Adjusted net income (loss) per Unit |           | $                        | 1.79 |           |           | $                                       | 2.23 |           |           | $         | 1.91 |           |           | $         | 1.91 |         |         | $       | (0.60 | )
|                       |                                                                         |                                                |                          |                                     |           |                          |      |           |           |                                         |      |           |           |           |      |           |           |           |      |        

|                    |                                            |  |              |           |         |  |          |           |      |  |                |           |  |  |   |           |  |  |   |         | 
|------------------- | ------------------------------------------ |  | ------------ | --------- | ------- |  | -------- | --------- | ---- |  | -------------- | --------- |  |  | - | --------- |  |  | - | ------- | 
|                    |                                            |  | December 31,
|                    |                                            |  |             
|                    |                                            |  | 2002(1)      |           | 2001(2) |  | 2000 (3) |           | 1999 |  | 1998 (4)      
|                    |                                            |  |              |           |         |  |          |           |      |  |               
|                    |                                            |  |              |           |         |  |          |           |      |  | (in thousands) |           |  |  |   |           |  |  |  
|Balance Sheet Data: |                                            |  |              |           |         |  |          |           |      |  |                |           |  |  |   |           |  |  |   |        
|                    | Property, plant and equipment  net        |  | $            | 1,587,824 |         |  | $        | 1,180,461 |      |  | $              | 949,705   |  |  | $ | 720,919   |  |  | $ | 671,611 | 
|                    | Total assets                               |  |              | 2,770,642 |         |  |          | 2,065,348 |      |  |                | 1,622,810 |  |  |   | 1,041,373 |  |  |   | 916,919 | 
|                    | Long-term debt (net of current maturities) |  |              | 1,377,692 |         |  |          | 715,842   |      |  |                | 835,784   |  |  |   | 455,753   |  |  |   | 427,722 | 
|                    | Total debt                                 |  |              | 1,377,692 |         |  |          | 1,075,842 |      |  |                | 835,784   |  |  |   | 455,753   |  |  |   | 427,722 | 
|                    | Class B Units held by related party        |  |              | 103,363   |         |  |          | 105,630   |      |  |                | 105,411   |  |  |   | 105,859   |  |  |   | 105,036 | 
|                    | Partners capital                          |  |              | 891,842   |         |  |          | 543,181   |      |  |                | 315,057   |  |  |   | 229,767   |  |  |   | 227,186 | 

24



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|                |                                                     |  |                          |          |         |  |                                         |          |      |  |          |         |   |  |   |         |   |  |   |         |  
|--------------- | --------------------------------------------------- |  | ------------------------ | -------- | ------- |  | --------------------------------------- | -------- | ---- |  | -------- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                |                                                     |  | Years Ended December 31,
|                |                                                     |  |                         
|                |                                                     |  | 2002(1)                  |          | 2001(2) |  | 2000 (3)                                |          | 1999 |  | 1998 (4)
|                |                                                     |  |                          |          |         |  |                                         |          |      |  |         
|                |                                                     |  |                          |          |         |  | (in thousands, except per Unit amounts) |          |      |  |         
|Cash Flow Data: |                                                     |  |                          |          |         |  |                                         |          |      |  |          |         |   |  |   |         |   |  |   |        
|                | Net cash provided by operating activities           |  | $                        | 234,917  |         |  | $                                       | 169,148  |      |  | $        | 108,045 |   |  | $ | 103,070 |   |  | $ | 93,215  |  
|                | Capital expenditures to sustain existing
operations |  |                          | (21,978  | )       |  |                                         | (18,578  | )    |  |          | (21,859 | ) |  |   | (24,890 | ) |  |   | (20,320 | )
|                | Distributions paid                                  |  |                          | (151,853 | )       |  |                                         | (104,412 | )    |  |          | (82,231 | ) |  |   | (69,259 | ) |  |   | (56,774 | )
|                | Distributions paid per Unit                         |  | $                        | 2.35     |         |  | $                                       | 2.15     |      |  | $        | 2.00    |   |  | $ | 1.85    |   |  | $ | 1.75    |  



---

|(1) |  | Data reflects the operations of Val Verde and Chaparral assets acquired
on June 30, 2002 and March 1, 2002, respectively.                                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Data reflects the operations of the Jonah assets acquired on September
30, 2001.                                                                                                                                                       
|   
|(3) |  | Data reflects the operations of the ARCO assets acquired on July 20,
2000.                                                                                                                                                             
|   
|(4) |  | Data reflects the commencement of the Upstream Segment, effective
November 1, 1998.                                                                                                                                                    
|   
|(5) |  | Extraordinary item reflects the loss related to the early extinguishment
of the First Mortgage Notes on January 27, 1998.                                                                                                              
|   
|(6) |  | Per Unit calculation includes 3,916,547 Class B Units issued on November
1, 1998; 3,700,000 Limited Partner Units issued in 2000; 7,750,000 Limited

Partner Units issued in 2001, and 13,359,597 Limited Partner Units issued
in 2002.




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

General

The following information is provided to facilitate increased
understanding of our 2002, 2001 and 2000 consolidated financial statements and
our accompanying notes listed in the Index to Financial Statements on page F-1
of this Report. Accounting policies that are among the most critical to the
portrayal of our financial condition and results of operations are discussed
under Critical Accounting Policies. Material period-to-period variances in
the consolidated statements of income are discussed under Results of
Operations. The Financial Condition and Liquidity section analyzes cash
flows and financial position. Discussion included in Other Considerations
addresses trends, future plans and contingencies that are reasonably likely to
materially affect future liquidity or earnings.

We operate and report in 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.                                                    

Our reportable segments offer different products and services and are
managed separately because each requires different business strategies. TEPPCO
GP, our wholly owned subsidiary, acts as managing general partner of our
Operating Partnerships with a 0.001% general partner interest and manages our
subsidiaries.

Effective January 1, 2002, we realigned our three business segments to
reflect our entry into the natural gas gathering business and the expanded
scope of NGLs operations. We transferred the fractionation of NGLs, which was
previously reflected as part of the Downstream Segment, to the Midstream
Segment. The operation of NGL pipelines, which was previously reflected as
part of the Upstream Segment, was also transferred to the Midstream Segment.
We have adjusted our period-to-period comparisons to conform with the current
presentation.

Our Downstream Segment revenues are earned from transportation and storage
of refined products and LPGs, storage and short-haul shuttle transportation of
LPGs at the Mont Belvieu complex, intrastate transportation

25



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##### 



of petrochemicals, sale of product inventory and other ancillary services.
The two largest operating expense items of the Downstream Segment are labor and
electric power. We generally realize higher revenues during the first and
fourth quarters of each year since our operations are somewhat seasonal.
Refined products volumes are generally higher during the second and third
quarters because of greater demand for gasolines during the spring and summer
driving seasons. LPGs volumes are generally higher from November through March
due to higher demand in the Northeast for propane, a major fuel for residential
heating. Our Downstream Segment also includes our equity investment in
Centennial.

Our Upstream Segment revenues are earned 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. Marketing operations consist primarily of aggregating purchased crude
oil along our 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. Our Upstream Segment also
includes the equity earnings from our investment in Seaway. Seaway is a large
diameter pipeline that transports crude oil from the U.S. Gulf Coast to
Cushing, a central crude oil distribution point for the Central United States.

Our Midstream Segment revenues are earned from the gathering of natural
gas, fractionation of NGLs and transportation of NGLs. The Midstream Segment
includes the operations from the acquisition of Jonah on September 30, 2001,
from Alberta Energy Company for $359.8 million. We paid an additional $7.3
million on February 4, 2002, for final purchase adjustments related primarily
to construction projects in progress at the time of closing. The results of
operations of the acquisition are included in our consolidated financial
statements beginning in the fourth quarter of 2001. The Jonah assets are
managed and operated by DEFS under a contractual agreement.

On March 1, 2002, we completed the purchase of the Chaparral NGL system
for $132.4 million from Diamond-Koch II, L.P. and Diamond-Koch III, L.P.,
including acquisition related costs of approximately $0.4 million. The
Chaparral NGL system has an 800-mile pipeline that extends from West Texas and
New Mexico to Mont Belvieu. The pipeline delivers NGLs to fractionators and to
our existing storage in Mont Belvieu. The Chaparral NGL system also has an
approximately 170-mile NGL gathering system located in West Texas, which begins
in Sutton County, Texas, and connects to the 800-mile 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. The
Chaparral NGL system is managed and operated by DEFS under a contractual
agreement. These assets are included in the Midstream Segment.

On June 30, 2002, we completed the purchase of the Val Verde Gathering
System for $444.2 million from Burlington Resources Gathering Inc., a
subsidiary of Burlington Resources Inc., including acquisition related costs of
approximately $1.2 million. Val Verde gathers CBM from the Fruitland Coal
Formation of the San Juan Basin in New Mexico and Colorado. The system is one
of the largest CBM gathering and treating facilities in the United States,
gathering CBM from more than 540 separate wells throughout New Mexico. The
system provides gathering and treating services pursuant to approximately 60
long-term contracts with approximately 40 different gas producers in the San
Juan Basin. Gas gathered on the Val Verde Gathering System is delivered to
several interstate pipeline systems serving the western United States and to
local New Mexico markets. The Val Verde Gathering System consists of 360 miles
of pipeline ranging in size from 4 inches to 36 inches in diameter, 14
compressor stations operating over 93,000 horsepower of compression and a large
amine treating facility for the removal of carbon dioxide. The system has a
pipeline capacity of approximately one billion cubic feet per day. The Val
Verde assets are managed and operated by DEFS under a contractual agreement.
These assets are included in the Midstream Segment.

Critical Accounting Policies

The preparation of financial statements in conformity with generally
accepted accounting principles in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses and disclosure of contingent assets and
liabilities in the accompanying financial statements. Changes in these
estimates could materially affect our financial position, results of operations
or cash flows. Key estimates used by management include revenue and expense
accruals, environmental costs, depreciation and amortization, asset impairment
and fair values of assets acquired. Significant accounting policies that we
employ are presented in the notes to the consolidated financial statements.

26



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##### 



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

Revenue and Expense Accruals

We routinely make accruals for both revenues and expenses before we
receive certain third party information and reconcile our records with those of
third parties. The delayed information from third parties includes, among
other things, actual volumes of crude oil purchased, transported or sold,
adjustments to inventory and invoices for purchases and other operating
expenses. We make accruals to reflect estimates for these items based on our
internal records and information from third parties. The estimated accruals
are reversed in the following month when actual information is received from
third parties and our internal records have been reconciled.

Environmental Costs

At December 31, 2002, we have accrued a liability for our estimate of the
future payments we expect to pay for environmental costs to remediate existing
conditions attributable to past operations. We accrue for environmental costs
that relate to existing conditions caused by past operations. Environmental
costs include initial site surveys and environmental studies of potentially
contaminated sites, costs for remediation and restoration of sites determined
to be contaminated and ongoing monitoring costs, as well as fines, damages and
other costs, when estimable. We monitor the balance of accrued undiscounted
environmental liabilities on a regular basis. We record liabilities for
environmental costs at a specific site when our liability for such costs,
including direct internal and legal costs, is probable and a reasonable
estimate of the associated costs can be made. Adjustments to initial estimates
are recorded, from time to time, to reflect changing circumstances and
estimates based upon additional information developed in subsequent periods.
Estimates of our ultimate liabilities associated with environmental costs are
particularly difficult to make with certainty due to the number of variables
involved, including the early stage of investigation at certain sites, the
lengthy time frames required to complete remediation alternatives available and
the evolving nature of environmental laws and regulations. For information
concerning environmental regulation and environmental costs and contingencies,
see Item 1 and 2. Business and Properties  Environmental Matters in this
Report.

Property, Plant and Equipment

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

We evaluate impairment of long-lived assets in accordance with Statement
of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of, and effective January 1,
2002, SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of the carrying amount of assets to be held and
used is measured by a comparison of the carrying amount of the asset to future
net cash flows expected to be generated by the asset. Estimates of future net
cash flows include anticipated future revenues, expected future operating costs
and other estimates. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

27



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

We have evaluated the impact of the contract termination on the pipeline
segment from Shreveport to El Dorado, Arkansas, in accordance with SFAS 144.
The evaluation did not result in an impairment of the carrying value of the
related transportation assets, which was $28.1 million at December 31, 2002.
We are pursuing various alternatives including making system changes to allow
for bi-directional product flow to make deliveries into the Shreveport market
area. We have completed feasibility studies, and we are in discussions with
potential customers regarding the transportation of volumes through this
pipeline. If alternative revenue sources are not realized on this pipeline
segment, an impairment may be recorded for the excess of the carrying value
over discounted future net cash flows.

Goodwill and Intangible Assets

Goodwill and intangible assets represent the excess of consideration paid
over the fair value of tangible net assets acquired. Certain assumptions and
estimates are employed in determining the fair value of assets acquired
including goodwill and other intangible assets as well as determining the
allocation of goodwill to the appropriate reporting unit. In addition, we
assess the recoverability of these intangibles by determining whether the
amortization of these intangibles over their remaining useful lives can be
recovered through undiscounted future net cash flows of the acquired
operations. The amount of impairment, if any, is measured by the amount by
which the carrying amounts exceed the projected discounted future operating
cash flows. During 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets,which discontinues the amortization of goodwill and
indefinite life intangibles and requires an annual test of impairment based on
a comparison of fair value to carrying values. The evaluation of impairment
under SFAS 142 requires the use of projections, estimates and assumptions as to
the future performance of the operations, including anticipated future
revenues, expected future operating costs and the discount factor used. Actual
results could differ from projections resulting in revisions to our assumptions
and, if required, recognizing an impairment loss. Based on our assessment, we
do not believe our goodwill is impaired and we have not recorded a charge from
the adoption of SFAS 142.

At December 31, 2002, we have $433.7 million of natural gas transportation
contracts which were recorded as part of our acquisitions of Jonah on September
30, 2001, and Val Verde on June 30, 2002 (see Note 5. Acquisitions). The
value assigned to the natural gas transportation contracts required management
to make estimates regarding the fair value of the assets acquired. In
connection with the acquisition of Jonah, we assumed contracts that dedicate
future production from natural gas wells in the Green River Basin in Wyoming.
We assigned $222.8 million of the purchase price to these production contracts
based upon a fair value appraisal at the time of closing. In connection with
the acquisition of Val Verde, we assumed fixed-term gas transportation
contracts with customers in the San Juan Basin in New Mexico and Colorado. We
assigned $239.6 million of the purchase price to these fixed term contracts
based upon a fair value appraisal at the time of the closing. The value
assigned to intangible assets is amortized on a unit of production basis, based
upon the actual throughput of the system over the expected total throughput for
the lives of the contracts. The amortization of the Jonah and Val Verde
systems are expected to average approximately 16 years and 20 years,
respectively. On a quarterly basis, we update production estimates of the
natural gas wells and evaluate the remaining expected useful life of the
contract assets. Changes in the estimated remaining production will impact the
timing of amortization expense reported for future periods.

28



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Results of Operations

The following table summarizes financial data by business segment (in
thousands):

|                          |                           |                                |         |                          |           |      |         |           |           |  |         |           |           | 
|------------------------- | ------------------------- | ------------------------------ | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- |  | ------- | --------- | --------- | 
|                          |                           |                                |         | Years Ended December 31,
|                          |                           |                                |         |                         
|                          |                           |                                |         | 2002                     |           | 2001 |         | 2000     
|                          |                           |                                |         |                          |           |      |         |          
|Operating revenues:       |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                | $       | 243,538                  |           |      | $       | 264,233   |           |  | $       | 229,234   |          
|                          | Upstream Segment          |                                |         | 2,861,700                |           |      |         | 3,255,260 |           |  |         | 2,844,245 |          
|                          | Midstream Segment         |                                |         | 138,922                  |           |      |         | 37,242    |           |  |         | 14,462    |          
|                          | Intercompany eliminations |                                |         | (1,997                   | )         |      |         | (322      | )         |  |         |          |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          |                           | Total operating revenues       |         |                          | 3,242,163 |      |         |           | 3,556,413 |  |         |           | 3,087,941 | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|Operating income:         |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 83,098                   |           |      |         | 117,676   |           |  |         | 85,441    |          
|                          | Upstream Segment          |                                |         | 26,408                   |           |      |         | 18,292    |           |  |         | 14,659    |          
|                          | Midstream Segment         |                                |         | 60,741                   |           |      |         | 15,823    |           |  |         | 8,886     |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          |                           | Total operating income         |         |                          | 170,247   |      |         |           | 151,791   |  |         |           | 108,986   | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|Earnings before interest: |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          | Downstream Segment        |                                |         | 77,115                   |           |      |         | 118,064   |           |  |         | 87,092    |          
|                          | Upstream Segment          |                                |         | 46,735                   |           |      |         | 38,027    |           |  |         | 26,373    |          
|                          | Midstream Segment         |                                |         | 61,010                   |           |      |         | 15,897    |           |  |         | 9,123     |          
|                          | Intercompany eliminations |                                |         | (806                     | )         |      |         |          |           |  |         |          |          
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          |                           | Total earnings before interest |         |                          | 184,054   |      |         |           | 171,988   |  |         |           | 122,588   | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|Interest expense          |                           |                                | (70,537 | )                        |           |      | (66,057 | )         |           |  | (48,982 | )        
|Interest capitalized      |                           |                                | 4,345   |                          |           |      | 4,000   |           |           |  | 4,559   |          
|Minority interest         |                           |                                |        |                          |           |      | (800    | )         |           |  | (789    | )        
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          
|                          |                           | Net income                     |         | $                        | 117,862   |      |         | $         | 109,131   |  |         | $         | 77,376    | 
|                          |                           |                                |         |                          |           |      |         |           |           |  |         |          

Below is a detailed analysis of the results of operations, including
reasons for changes in results, by each of our operating segments.

29



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Downstream Segment

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

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



---

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

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

Our Downstream Segment reported earnings before interest of $77.1 million
for the year ended December 31, 2002, compared with earnings before interest of
$118.1 million for the year ended December 31, 2001. Earnings before interest
decreased $41.0 million primarily due to a decrease of $20.7 million in
operating revenues, an increase of $13.9 million in costs and expenses,
additional losses of $5.7 million from equity investments and a decrease of
$0.7 million in other income  net. We discuss the factors influencing these
variances below.

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

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

30



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

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

Costs and expenses increased $13.9 million for the year ended December 31,
2002, compared with the year ended December 31, 2001. The increase was
comprised of an increase of $11.8 million in operating, general and
administrative expenses, an increase of $3.4 million in depreciation and
amortization expense and an increase of $3.1 million in taxes  other than
income taxes. These increases were partially offset by a decrease of $4.4
million in operating fuel and power expense. Operating, general and
administrative expenses increased primarily due to higher pipeline maintenance
expenses, increased consulting and contract services, increased labor costs and
increased general and administrative supplies expense. Depreciation expense
increased from the prior year because of assets placed in service during 2002.
Taxes  other than income taxes increased as a result of a higher property base
in 2002. Operating fuel and power expense decreased as a result of decreased
long-haul volumes delivered related to Midwest volumes received from Centennial
and lower power costs.

Net losses from equity investments totaled $6.8 million during the year
ended December 31, 2002, due to pre-operating expenses and start-up costs of
Centennial, which commenced operations in early April 2002.

Other income  net decreased $0.7 million for the year ended December 31,
2002, compared with the year ended December 31, 2001. The decrease was
primarily due to lower interest income earned on cash investments.

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 in
recent years has 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 and governmental policy affect the
demand for refined products used in agricultural operations. Demand for jet
fuel, which in recent years has accounted for approximately 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.

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

Our Downstream Segment reported earnings before interest of $118.1 million
for the year ended December 31, 2001, compared with earnings before interest of
$87.1 million for the year ended December 31, 2000. Earnings before interest
increased $31.0 million primarily due to an increase of $35.0 million in
operating revenues, partially offset by an increase of $2.8 million in costs
and expenses, additional losses of $1.1 million from equity investments and a
decrease of $0.1 million in other income  net. We discuss the factors
influencing these variances below.

Revenues from refined products transportation increased $20.0 million for
the year ended December 31, 2001, compared with the year ended December 31,
2000, primarily due to $18.9 million of revenue recognized on the canceled
transportation agreement with Pennzoil in 2001 and the recognition of $1.7
million of previously deferred revenue related to the approval of market-based
rates during the second quarter of 2001. These increases were partially offset
by a 4% decrease in refined products volumes delivered. Deliveries of MTBE
decreased 4.3 million barrels as a result of the expiration of contract
deliveries to our marine terminal near Beaumont in April

31



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2001. Jet fuel volumes decreased 2.7 million barrels, or 10%, due to
reduced air travel demand in the Midwest market areas. The total refined
products volume decrease was partially offset by increased distillate demand in
the South-Central market areas and increased distillate deliveries at a
third-party terminal in Houston, Texas. The refined products average rate per
barrel increased 5% from the prior-year period primarily due to an increased
percentage of long-haul volumes delivered in 2001.

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

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

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

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

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

Other income  net decreased $0.1 million during the year ended December
31, 2001, compared with the year ended December 31, 2000, primarily due to
lower interest income earned on cash investments.

Upstream Segment

We calculate the margin of the Upstream Segment 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

32



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##### 



for products marketed. Margin and volume information for the years ended
December 31, 2002, 2001 and 2000 is presented below (in thousands, except per
barrel and per gallon amounts):

|                                       |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |     |    |  
|-------------------------------------- | ------------------------ | ------------ | ----- | ------------------------ | ------ | ------------------- | ----- | ------- | ------ | ---- | ----- | ------- | ------ |  | -- | ---------- | -- | - | -- | --- | -- | -
|                                       |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    | Percentage
|                                       |                          |              |       | Years Ended December 31, |        | Increase (Decrease)
|                                       |                          |              |       |                          |        |                    
|                                       |                          |              |       | 2002                     |        | 2001                |       | 2000    |        | 2002 |       | 2001   
|                                       |                          |              |       |                          |        |                     |       |         |        |      |       |        
|Margins:                               |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |    
|                                       | Crude oil transportation |              | $     | 39,025                   |        |                     | $     | 34,121  |        |      | $     | 23,486  |        |  |    | 14         | %  |   |    | 45  | % 
|                                       | Crude oil marketing      |              |       | 22,914                   |        |                     |       | 22,502  |        |      |       | 14,281  |        |  |    | 2          | %  |   |    | 58  | % 
|                                       | Crude oil terminaling    |              |       | 10,124                   |        |                     |       | 10,163  |        |      |       | 4,554   |        |  |    |           |    |   |    | 123 | % 
|                                       | Lubrication oil sales    |              |       | 4,826                    |        |                     |       | 4,127   |        |      |       | 3,503   |        |  |    | 17         | %  |   |    | 18  | % 
|                                       |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |    
|                                       |                          | Total margin |       | $                        | 76,889 |                     |       | $       | 70,913 |      |       | $       | 45,824 |  |    |            | 8  | % |    |     | 55 | %
|                                       |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |    
|Total barrels:                         |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |    
|                                       | Crude oil transportation |              |       | 82,813                   |        |                     |       | 78,714  |        |      |       | 46,225  |        |  |    | 5          | %  |   |    | 70  | % 
|                                       | Crude oil marketing      |              |       | 139,182                  |        |                     |       | 159,477 |        |      |       | 107,607 |        |  |    | (13        | %) |   |    | 48  | % 
|                                       | Crude oil terminaling    |              |       | 127,376                  |        |                     |       | 121,932 |        |      |       | 56,473  |        |  |    | 5          | %  |   |    | 116 | % 
|Lubrication oil volume (total gallons) |                          |              | 9,648 |                          |        |                     | 8,769 |         |        |      | 7,974 |         |        |  | 10 | %          |    |   | 10 | %  
|Margin per barrel:                     |                          |              |       |                          |        |                     |       |         |        |      |       |         |        |  |    |            |    |   |    |    
|                                       | Crude oil transportation |              | $     | 0.471                    |        |                     | $     | 0.434   |        |      | $     | 0.508   |        |  |    | 9          | %  |   |    | (15 | %)
|                                       | Crude oil marketing      |              | $     | 0.165                    |        |                     | $     | 0.141   |        |      | $     | 0.133   |        |  |    | 17         | %  |   |    | 6   | % 
|                                       | Crude oil terminaling    |              | $     | 0.080                    |        |                     | $     | 0.083   |        |      | $     | 0.081   |        |  |    | (4         | %) |   |    | 3   | % 
|Lubrication oil margin (per gallon):   |                          | $            | 0.500 |                          |        | $                   | 0.471 |         |        | $    | 0.439 |         |        |  | 6  | %          |    |   | 7  | %  

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

Our Upstream Segment reported earnings before interest of $46.7 million
for the year ended December 31, 2002, compared with earnings before interest of
$38.0 million for the year ended December 31, 2001. Earnings before interest
increased $8.7 million primarily due to an increase of $6.0 million in margin,
a decrease of $2.9 million in costs and expenses (excluding purchases of crude
oil and lubrication oil), an increase of $0.3 million in other income  net and
an increase of $0.2 million in equity earnings of Seaway. These increases were
partially offset by a decrease of $0.7 million in other operating revenues. We
discuss the factors influencing these variances below.

Our margin increased $6.0 million during the year ended December 31, 2002,
compared with the year ended December 31, 2001. Crude oil transportation margin
increased $4.9 million primarily due to volumes transported on the pipeline
assets acquired from Valero in March 2001 and higher revenues on our Basin, Red
River and West Texas systems. Crude oil terminaling margin remained constant
between years as a result of higher volumes at Midland and our Red River
system, offset by lower volumes at Cushing and on our Basin system.
Lubrication oil sales margin increased $0.7 million due to increased volumes
related to the acquisition of a lubrication oil distributor in Amarillo, Texas,
in the fourth quarter of 2001. Crude oil marketing margin increased $0.4
million primarily due to increased volumes marketed, renegotiated supply
contracts and lower trucking expenses.

Other operating revenues of the Upstream Segment decreased $0.7 million
during the year ended December 31, 2002, compared with the year ended December
31, 2001, due to lower revenues from documentation and other services to
support customers trading activity at Midland and Cushing.

Costs and expenses, excluding expenses associated with purchases of crude
oil and lubrication oil, decreased $2.9 million during the year ended December
31, 2002, compared with the year ended December 31, 2001. Operating, general
and administrative expenses decreased $3.8 million from the prior year due to
$4.4 million of environmental costs recognized in 2001 and decreased labor
related costs, partially offset by increased general and administrative
supplies and services expense and environmental costs recognized in 2002,
primarily related to the Shelby site (see Note 17. Commitments and
Contingencies in Notes to the Consolidated Financial Statements). Depreciation
and amortization expense increased $1.9 million due to increased depreciation
expense on the assets

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acquired from Valero and from the acquisition of a lubrication oil distributor
in Amarillo, Texas, partially offset by lower amortization costs from the
adoption of SFAS 142 effective January 1, 2002, in which goodwill and excess
investment are no longer being amortized. Taxes  other than income taxes
decreased $1.6 million due to reductions in property tax accruals. These
decreases were partially offset by an increase of $0.6 million in operating
fuel and power costs attributed to higher transportation volumes.

Equity earnings in Seaway for the year ended December 31, 2002, increased
$0.2 million from the year ended December 31, 2001, due to higher third party
transportation volumes. This increase was partially offset by our portion of
equity earnings being reduced from 80% to 60% on a pro rated basis in 2002
(averaging approximately 67% for the year ended December 31, 2002). Equity
earnings in Seaway were affected in 2002 as a result of the reduction of the
sharing percentages of TCTM under the Seaway partnership agreement. Beginning
in June 2002, our participation in Seaway decreased 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.

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

Our Upstream Segment reported earnings before interest of $38.0 million
for the year ended December 31, 2001, compared with earnings before interest of
$26.4 million for the year ended December 31, 2000. Earnings before interest
increased $11.6 million primarily due to an increase of $25.1 million in
margin, an increase of $6.4 million in other operating revenues, an increase of
$6.3 million in equity earnings of Seaway and an increase of $1.7 million in
other income  net. These increases were partially offset by an increase of
$27.9 million in costs and expenses (excluding purchases of crude oil and
petroleum products). We discuss the factors influencing these variances below.

Our margin increased $25.1 million during the year ended December 31,
2001, compared with the year ended December 31, 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 volumes on the Red River and South
Texas systems, which benefited from increased regional crude oil production and
pipeline assets acquired from Valero 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.

Other operating revenue of the Upstream Segment increased $6.4 million
during the year ended December 31, 2001, compared with the year ended December
31, 2000. The increase is attributable to revenue from documentation and other
services to support customer trading activity at Midland and Cushing. These
revenues were added to our business on July 20, 2000, with the acquired ARCO
assets.

Costs and expenses, excluding expenses associated with purchases of crude
oil and lubrication oil, increased $27.9 million during the year ended December
31, 2001, compared with the year ended December 31, 2000. The increase was
comprised of an increase of $20.5 million in operating, general and
administrative expenses, an increase of $3.0 million in depreciation and
amortization expense, an increase of $3.9 million in taxes  other than income
taxes and an increase of $0.6 million 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
Valero, $4.4 million of 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 during the year ended
December 31, 2001, compared with the year ended December 31, 2000, due to the
full year contribution to earnings during 2001.

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Midstream Segment

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

|                         |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  |  |     |    |  |  |     |    |  |  |  | 
|------------------------ | --------------------------------------- |  |  |  |  |  | ------------------------ | ------- | ------------------- |  | ---- | ------ |  |  | - | ----- | ---- |  | ---------- |  |  |  |  | --- | -- |  |  | --- | -- |  |  |  | 
|                         |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  | Percentage
|                         |                                         |  |  |  |  |  | Years Ended December 31, |         | Increase (Decrease)
|                         |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |     
|                         |                                         |  |  |  |  |  | 2002                     |         | 2001                |  | 2000 |        |  |  |   |       | 2002 |  | 2001       |  |  |  | 
|                         |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  | 
|Gathering  Natural Gas: |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  |  |     |    |  |  |    
|                         | Million cubic feet                      |  |  |  |  |  |                          | 340,697 |                     |  |      | 45,496 |  |  |   |      |      |  |            |  |  |  |  | 649 | %  |  |  |    |   
|                         | Million British thermal units
(MMBtu) |  |  |  |  |  |                          | 353,663 |                     |  |      | 50,650 |  |  |   |      |      |  |            |  |  |  |  | 598 | %  |  |  |    |   
|                         | Average fee per MMBtu                   |  |  |  |  |  | $                        | 0.255   |                     |  | $    | 0.174  |  |  |   |      |      |  |            |  |  |  |  | 47  | %  |  |  |    |   
|Transportation  NGLs:   |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  |  |     |    |  |  |    
|                         | Thousand barrels                        |  |  |  |  |  |                          | 53,980  |                     |  |      | 21,538 |  |  |   | 5,201 |      |  |            |  |  |  |  | 151 | %  |  |  | 314 | % 
|                         | Average rate per barrel                 |  |  |  |  |  | $                        | 0.720   |                     |  | $    | 0.961  |  |  | $ | 1.348 |      |  |            |  |  |  |  | (25 | %) |  |  | (29 | %)
|Fractionation  NGLs:    |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  |  |     |    |  |  |    
|                         | Thousand barrels                        |  |  |  |  |  |                          | 4,072   |                     |  |      | 4,078  |  |  |   | 4,078 |      |  |            |  |  |  |  |    |    |  |  |    |   
|                         | Average rate per barrel                 |  |  |  |  |  | $                        | 1.824   |                     |  | $    | 1.813  |  |  | $ | 1.828 |      |  |            |  |  |  |  | 1   | %  |  |  | (1  | %)
|Sales  Condensate:      |                                         |  |  |  |  |  |                          |         |                     |  |      |        |  |  |   |       |      |  |            |  |  |  |  |     |    |  |  |    
|                         | Thousand barrels                        |  |  |  |  |  |                          | 80.0    |                     |  |      | 16.2   |  |  |   |      |      |  |            |  |  |  |  | 394 | %  |  |  |    |   
|                         | Average rate per barrel                 |  |  |  |  |  | $                        | 25.39   |                     |  | $    | 19.91  |  |  |   |      |      |  |            |  |  |  |  | 28  | %  |  |  |    |   

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

Our Midstream Segment reported earnings before interest of $61.0 million
for the year ended December 31, 2002, compared with earnings before interest of
$15.9 million for the year ended December 31, 2001. Earnings before interest
increased $45.1 million due to an increase of $101.6 million in operating
revenues and an increase of $0.3 million in other income  net, partially
offset by an increase of $56.8 million in costs and expenses. We discuss the
factors influencing these variances below.

Operating revenues increased $101.6 million during the year ended December
31, 2002, compared with the year ended December 31, 2001, due to an increase of
$81.2 million in natural gas gathering revenues, an increase of $18.2 million
in NGL transportation revenues and an increase of $2.2 million in other
revenues. Natural gas gathering revenues from the Jonah system increased $41.3
million and volumes delivered increased 202.9 billion cubic feet during the
year ended December 31, 2002, due to a full years contribution to earnings
from Jonah in 2002. The Jonah system was acquired on September 30, 2001.
Natural gas gathering revenues from the Val Verde system, which was acquired on
June 30, 2002, totaled $39.9 million and volumes delivered totaled 92.3 billion
cubic feet during the year ended December 31, 2002. Other revenues increased
$2.2 million primarily due to sales of gas condensate from the Jonah system.
NGL transportation revenues increased $18.2 million, primarily due to the
acquisition of the Chaparral NGL system on March 1, 2002, partially offset by
lower revenues on a take-or-pay contract on the Dean pipeline system that was
in effect until the bankruptcy of Enron Corp. in December 2001. The decrease
in the NGL transportation average rate per barrel resulted from the
cancellation of the Enron Corp. take-or-pay contract and a lower average rate
per barrel on volumes transported on Chaparral.

Costs and expenses increased $56.8 million during the year ended December
31, 2002, compared with the year ended December 31, 2001, due to an increase of
$34.8 million in depreciation and amortization expense, an increase of $15.5
million in operating, general and administrative expense, an increase of $4.1
million in operating fuel and power costs and an increase of $2.4 million in
taxes  other than income taxes. Depreciation and amortization expense
increased $34.6 million due to the Jonah, Chaparral and Val Verde assets
acquired on September 30, 2001, March 1, 2002, and June 30, 2002, respectively.
Operating, general and administrative

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expense increased $15.5 million due to an increase of $17.6 million from assets
acquired, an increase of $2.2 million attributable to higher general and
administrative labor and supplies expense, partially offset by decreased
operating expenses. Operating, general and administrative expenses for the
year ended December 31, 2001, included a $4.3 million reserve for a doubtful
receivable balance under a transportation contract with an Enron Corp.
subsidiary. Operating fuel and power costs and taxes  other than income taxes
increased $4.1 million and $2.4 million, respectively, due to the assets
acquired in 2001 and 2002.

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

Our Midstream Segment reported earnings before interest of $15.9 million
for the year ended December 31, 2001, compared with earnings before interest of
$9.1 million for the year ended December 31, 2000. Earnings before interest
increased $6.8 million due to an increase of $22.8 million in operating
revenues, partially offset by an increase of $15.8 million in costs and
expenses and a decrease of $0.2 million in other income  net. We discuss the
factors influencing these variances below.

Operating revenues increased $22.8 million during the year ended December
31, 2001, compared with the year ended December 31, 2000. Operating revenues
for the year ended December 31, 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, partially offset by decreased volumes on the Dean
pipeline system in South Texas.

Costs and expenses increased $15.8 million during the year ended December
31, 2001, compared with the year ended December 31, 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.

Interest Expense and Capitalized Interest

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

Interest expense increased $4.5 million during the year ended December 31,
2002, compared with the year ended December 31, 2001, primarily due to higher
outstanding debt balances used for capital expenditures and to finance the
acquisition of assets acquired in the Midstream Segment, partially offset by
lower LIBOR rates in effect during the year ended December 31, 2002.

Capitalized interest increased $0.3 million during the year ended December
31, 2002, compared with the year ended December 31, 2001, due to interest
capitalized on the investment during the construction of the Jonah expansion
and increased balances during 2002 on construction work-in-progress.

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

Interest expense increased $17.1 million during the year ended December
31, 2001, compared with the year ended December 31, 2000, primarily due to
higher outstanding debt balances used to finance the acquisition of assets
acquired in the Midstream and Upstream Segments. These increases were
partially offset by lower interest

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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 December
31, 2001, compared with the year ended December 31, 2000, due to the completion
of the petrochemical pipelines from Mont Belvieu to Port Arthur 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.

Financial Condition and Liquidity

Net cash from operations totaled $234.9 million for the year ended
December 31, 2002. This cash was made up of $203.9 million of income before
charges for depreciation and amortization and $31.0 million of cash provided by
working capital changes. This compares with net cash from operations of $169.2
million for the year ended December 31, 2001, 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 December 31, 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 charges. Net
cash from operations for the years ended December 31, 2002, 2001 and 2000
included interest payments of $48.9 million, $61.5 million and $36.8 million,
respectively.

Cash flows used in investing activities totaled $724.7 million during the
year ended December 31, 2002, and were comprised of $7.3 million for the final
purchase price adjustments on the acquisition of Jonah, $133.4 million of
capital expenditures, $10.9 million of cash contributions for our ownership
interest in Centennial, $132.4 million for the purchase of the Chaparral NGL
system on March 1, 2002, and $444.2 million for the purchase of Val Verde on
June 30, 2002. These uses of cash were partially offset by $3.5 million in
cash proceeds from the sale of assets. Cash flows used in investing activities
totaled $557.9 million during the year ended December 31, 2001, and were
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
our ownership interest in Centennial, $20.0 million for the purchase of assets
from Valero 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 partially offset by $1.3 million of cash received from
the sale of vehicles and $4.2 million received on matured cash investments.
Cash flows used in investing activities totaled $494.2 million during the year
ended December 31, 2000, and were comprised of $322.6 million for the purchase
of the ARCO assets, $99.5 million for the purchase of NGL and crude oil systems
in East Texas and North Texas, $68.5 million of capital expenditures, $5.0
million of cash contributions for our ownership interest in Centennial and $2.0
million of cash investments. These uses of cash were partially offset by $3.4
million received from matured cash investments. Capital expenditures during
the year ended December 31, 2000, included $29.9 million of spending for
construction of the petrochemical pipelines between our terminals in Mont
Belvieu and Port Arthur.

Cash flows provided by financing activities totaled $495.3 million during
the year ended December 31, 2002, and were comprised of $675.0 million in
proceeds from term and revolving credit facilities; $497.8 million from the
issuance in February 2002 of our 7.625% Senior Notes due 2012, partially offset
by debt issuance costs of $7.0 million; $372.5 million from the issuance of
13.4 million Limited Partner Units during the year ended December 31, 2002, and
$7.6 million of related General Partner contributions; and $44.9 million of
proceeds from the termination of our interest rate swaps on our 7.625% Senior
Notes due 2012. These sources of cash during the year ended December 31, 2002,
were partially offset by $943.7 million of repayments on our term and revolving
credit facilities and $151.8 million of distributions to Limited Partner
unitholders. Cash flows provided by financing activities totaled $387.1
million during the year ended December 31, 2001, and were comprised of $546.1
million of proceeds from term and revolving credit facilities, partially offset
by debt issuance costs of $2.6 million; and $234.7 million from the issuance of
7.8 million Limited Partner Units during the year ended December 31, 2001, and
$4.8 million of related General Partner contributions. These sources of cash
during the year ended December 31, 2001 were partially offset by $291.5 million
of repayments on our term and revolving credit facilities and $104.4 million of
distributions to Limited Partner unitholders. Cash flows provided by financing
activities totaled $380.7 million during the year ended December 31, 2000, and
were comprised of $552.0 million in proceeds from term and

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revolving credit facilities, partially offset by debt issuance costs of
$7.1 million; and $88.2 million from the issuance of 3.7 million Limited
Partner Units during the year ended December 31, 2000, and $1.8 million of
related General Partner contributions. These sources of cash during the year
ended December 31, 2000, were partially offset by $172.0 million of repayments
on our term and revolving credit facilities and $82.2 million of distributions
to Limited Partner unitholders.

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

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

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus in which our Mont Belvieu LPGs storage and
transportation shuttle system services were jointly marketed by Louis Dreyfus
and TE Products. The purpose of the alliance was to expand services to the
upper Texas Gulf Coast energy marketplace by increasing pipeline throughput and
the mix of products handled through the existing system and establishing new
receipt and delivery connections. The alliance was a service-oriented,
fee-based venture with no commodity trading activity. TE Products operated
the facilities for the alliance. Under the alliance, Louis Dreyfus invested
$6.1 million for expansion projects at Mont Belvieu. The alliance also
stipulated that if certain earnings thresholds were achieved, a partnership
between TE Products and Louis Dreyfus was to be created effective January 1,
2003. All terms and earnings thresholds have been met; therefore, we will be
contributing our Mont Belvieu assets to the newly formed partnership. The
economic terms of the partnership are the same as those under the joint
development and marketing alliance. TE Products will continue to operate the
facilities for the partnership. The net book value of the Mont Belvieu assets
that we are contributing to the partnership is approximately $68.2 million.
Our interest in the partnership will be accounted for as an equity investment.

Credit Facilities and Interest Rate Swap Agreements

On July 14, 2000, we entered into a $75.0 million term loan and $475.0
million revolving credit facility (Three Year Facility). On July 21, 2000,
we borrowed $75.0 million under the term loan and $340.0 million under the
Three Year Facility. The funds were used to finance the acquisition of the
ARCO assets 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 Three Year Facility was amended to provide for revolving borrowings
of up to $500.0 million for a period of three years including the issuance of
letters of credit of up to $20.0 million. The interest rate is based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement for the Three
Year Facility contains restrictive financial covenants that require us to
maintain a minimum level of partners

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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 February 20, 2002, we repaid $115.7
million of the then outstanding balance of the Three Year Facility with
proceeds from the issuance of our 7.625% Senior Notes. On March 1, 2002, we
borrowed $132.0 million under the Three Year Facility to finance the
acquisition of the Chaparral NGL system. On March 22, 2002, we repaid a
portion of the Three Year Facility with proceeds we received from the issuance
of additional Limited Partner Units (see Note 11. Partners Capital). To
facilitate our financing of a portion of the purchase price of the Val Verde
assets, on June 27, 2002, the Three Year Facility was amended to increase the
maximum permitted debt-to-EBITDA ratio covenant to allow us to incur additional
indebtedness. For the twelve month period ending June 30, 2002, the maximum
permitted ratio was 5.5-to-1 on a pro forma basis. For the twelve month period
ending September 30, 2002, the maximum permitted ratio was 5.0-to-1 on a pro
forma basis. At December 31, 2002, the maximum permitted debt-to-EBITDA ratio
under our revolving credit facility returned to its pre-amendment level of
4.5-to-1. We then drew down the existing capacity of the Three Year Facility
and acquired the Val Verde assets. During the fourth quarter of 2002, we
repaid $68.0 million of the outstanding balance of the Three Year Facility with
proceeds from our November 2002 equity offering and proceeds from the
termination of our interest rate swaps. At December 31, 2002, $432.0 million
was outstanding under the Three Year Facility at a weighted average interest
rate of 2.5%. As of December 31, 2002, we were in compliance with the
covenants contained in this credit agreement.

On April 6, 2001, we entered into a 364-day, $200.0 million revolving
credit agreement (Short-term Revolver). The interest rate is based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contains
restrictive financial covenants that require us to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. On March 28, 2002, the Short-term Revolver was extended for
an additional period of 364 days, ending in March 2003. To facilitate our
financing of a portion of the purchase price of the Val Verde assets, on June
27, 2002, the Short-term Revolver was amended to increase the maximum
debt-to-EBITDA ratio covenant to allow us to incur additional indebtedness.
For the twelve month period ending June 30, 2002, the maximum permitted ratio
was 5.5-to-1 on a pro forma basis. For the twelve month period ending
September 30, 2002, the maximum permitted ratio was 5.0-to-1 on a pro forma
basis. At December 31, 2002, the maximum permitted debt-to-EBITDA ratio under
our revolving credit facility returned to its pre-amendment level of 4.5-to-1.
We then drew down $72.0 million under the Short-term Revolver. In the fourth
quarter of 2002, we repaid the existing amounts outstanding under the
Short-term Revolver with proceeds we received from the issuance of Limited
Partner Units in November and December 2002. At December 31, 2002, no amounts
were outstanding under the Short-term Revolver. As of December 31, 2002, we
were in compliance with the covenants contained in this credit agreement. In
February 2003, we gave notice that we will not renew the Short-term Revolver.
As a result, the facility will expire on March 27, 2003.

On September 28, 2001, we entered into a $400.0 million credit facility
with SunTrust Bank (Bridge Facility) payable in June 2002. We borrowed
$360.0 million under the Bridge Facility to acquire the Jonah assets (see Note
5. Acquisitions). During the fourth quarter of 2001, we repaid $160.0 million
of the outstanding principal from proceeds received from the issuance of
Limited Partner Units in November 2001. On February 5, 2002, we drew down an
additional $15.0 million under the Bridge Facility. On February 20, 2002, we
repaid the outstanding balance of the Bridge Facility of $215.0 million with
proceeds from the issuance of the 7.625% Senior Notes and canceled the
facility.

On February 20, 2002, we received $494.6 million in net proceeds, after
underwriting discount, from the issuance of $500.0 million principal amount of
7.625% Senior Notes due 2012. The 7.625% Senior Notes were issued at a
discount of $2.2 million and are being accreted to their face value over the
term of the notes. We used the proceeds from the offering to reduce a portion
of the outstanding balances of our credit facilities, described above,
including those issued in connection with the acquisition of Jonah. The Senior
Notes may be redeemed at any time at our option with the payment of accrued
interest and a make-whole premium determined by discounting remaining interest
and principal payments using a discount rate equal to the rate of the United
States Treasury securities of comparable remaining maturity plus 35 basis
points. The indenture governing the 7.625% Senior Notes contains covenants,
including, but not limited to, covenants limiting the creation of liens
securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit our ability to incur additional indebtedness. As of
December 31, 2002, we were in compliance with the covenants of these Senior
Notes.

39



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On June 27, 2002, we entered into a $200.0 million six-month term loan
with SunTrust Bank (Six-Month Term Loan) payable in December 2002. We
borrowed $200.0 million under the Six-Month Term Loan to acquire the Val Verde
assets (see Note 5. Acquisitions). The interest rate was based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contained
restrictive financial covenants that required us to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. On July 11, 2002, we repaid $90.0 million of the outstanding
principal from proceeds primarily received from the issuance of Limited Partner
Units in July 2002. On September 10, 2002, we repaid the remaining outstanding
balance of $110.0 million with proceeds received from the issuance of Limited
Partner Units in September 2002 (see Note 11. Partners Capital) and canceled
the facility.

On January 30, 2003, we received $197.3 million in net proceeds, after
underwriting discount, from the issuance of $200.0 million principal amount of
6.125% Senior Notes due 2013. The 6.125% Senior Notes were issued at a
discount of $1.4 million and will be accreted to their face value over the term
of the notes. We used $182.0 million of the proceeds from the offering to
reduce the outstanding principal on the Three Year Facility to $250.0 million.
The balance of the proceeds of $15.3 million was used for general purposes.
The Senior Notes may be redeemed at any time at our option with the payment of
accrued interest and a make-whole premium determined by discounting remaining
interest and principal payments using a discount rate equal to the rate of the
United States Treasury securities of comparable remaining maturity plus 35
basis points. The indenture governing our 6.125% Senior Notes contains
covenants, including, but not limited to, covenants limiting the creation of
liens securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit our ability to incur additional indebtedness.

The following table summarizes our credit facilities as of December 31,
2002 (in millions):

|                        |       |           |                         |          |           |      |          |       |  |               |  |  | 
|----------------------- | ----- | --------- | ----------------------- | -------- | --------- | ---- | -------- | ----- |  | ------------- |  |  | 
|                        |       |           | As of December 31, 2002
|                        |       |           |                        
|                        |       |           |                         |          |           |      | Unused   |       |  |               | 
|                        |       |           | Outstanding             |          | Borrowing |      | Maturity
|Description:            |       | Principal |                         | Capacity |           | Date
|                        |       |           |                         |          |           |     
|Short-term Revolver (1) |       | $         |                        |          |           | $    | 200.0    |       |  | March 2003   
|Three Year Facility     |       |           | 432.0                   |          |           |      | 68.0     |       |  | April 2004   
|6.45% Senior Notes (2)  |       |           | 180.0                   |          |           |      |         |       |  | January 2008 
|7.625% Senior Notes (2) |       |           | 500.0                   |          |           |      |         |       |  | February 2012
|7.51% Senior Notes (2)  |       |           | 210.0                   |          |           |      |         |       |  | January 2028 
|                        |       |           |                         |          |           |      |          |       |  |               |  | 
|                        | Total |           | $                       | 1,322.0  |           |      | $        | 268.0 |  |               |  |  | 
|                        |       |           |                         |          |           |      |          |       |  |               |  | 



---

|(1) |  | In February 2003, we gave notice that we will not renew the
Short-term Revolver.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our TE Products subsidiary entered into an interest rate swap
agreement to hedge its exposure to changes in the fair value of the
7.51% Senior Notes due 2028. At December 31, 2002, the 7.51% Senior
Notes include an adjustment to increase the fair value of the debt by
$13.6 million related to this interest rate swap agreement. We also
entered into interest rate swap agreements to hedge our exposure to
changes in the fair value of our 7.625% Senior Notes due 2012. At
December 31, 2002, the 7.625% Senior Notes include a deferred gain, net
of amortization, from previous interest rate swap terminations of $44.3
million. At December 31, 2002, our 6.45% Senior Notes and our 7.625%
Senior Notes include $2.2 million of unamortized debt discounts. The
fair value adjustments, the deferred gain adjustment and the
unamortized debt discounts are excluded from this table.

Distributions and Issuance of Additional Limited Partner Units

We paid cash distributions of $151.9 million ($2.35 per Unit), $104.4
million ($2.15 per Unit) and $82.2 million ($2.00 per Unit), during each of the
years ended December 31, 2002, 2001 and 2000, respectively. Additionally, on
January 16, 2003, we declared a cash distribution of $0.60 per Limited Partner
Unit and Class B

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Unit for the quarter ended December 31, 2002. The distribution of $46.5
million was paid on February 7, 2003, to unitholders of record on January 31,
2003.

On February 6, 2001, we sold in an underwritten public offering 2.0
million Limited Partner Units at $25.50 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $48.7 million and
were used to reduce borrowings under the Three Year Facility. On March 6, 2001,
250,000 Units were sold upon exercise of the underwriters over-allotment
option granted in connection with the offering on February 6, 2001. Proceeds
from that sale totaled $6.1 million and were used for general purposes.

On November 14, 2001, we sold in an underwritten public offering 5.5
million Limited Partner Units at $34.25 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $180.3 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 March 22, 2002, we sold in an underwritten public offering 1.92 million
Limited Partner Units at $31.18 per Unit. The proceeds from the offering, net
of underwriting discount, totaled approximately $57.3 million and were used to
repay $50.0 million of the outstanding balance on the Three Year Facility, with
the remaining amount being used for general purposes.

On July 11, 2002, we sold in an underwritten public offering 3.0 million
Limited Partner Units at $30.15 per Unit. The proceeds from the offering, net
of underwriting discount, totaled approximately $86.6 million and were used to
reduce borrowings under our Six-Month Term Loan. On August 14, 2002, 175,000
Units were sold upon exercise of the underwriters over-allotment option
granted in connection with the offering on July 11, 2002. Proceeds from that
sale totaled $5.1 million and were used for general purposes.

On September 6, 2002, we sold in an underwritten public offering 3.8
million Limited Partner Units at $29.72 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $108.1 million
and were used to reduce borrowings under our Six-Month Term Loan. On September
19, 2002, 570,000 Units were sold upon exercise of the underwriters
over-allotment option granted in connection with the offering on September 6,
2002. Proceeds from that sale totaled $16.2 million and were used to reduce
borrowings under our Short-term Revolver.

On November 7, 2002, we sold in an underwritten public offering 3.3
million Limited Partner Units at $26.83 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $84.8 million and
were used to reduce borrowings under our Short-term Revolver and Three Year
Facility. On December 4, 2002, 495,000 Units were sold upon exercise of the
underwriters over-allotment option granted in connection with the offering on
November 7, 2002. Proceeds from that sale totaled $12.7 million and were used
to reduce borrowings under our Short-term Revolver and Three Year Facility.

Future Capital Needs and Commitments

We estimate that capital expenditures, excluding acquisitions, for 2003
will be approximately $55.0 million (which includes $3.6 million of capitalized
interest). We expect to use approximately $18.4 million for revenue generating
projects. Capital spending on revenue generating projects will include
approximately $7.5 million for the expansion of our pumping capacity of LPGs
into the Northeast markets, approximately $1.9 million for expansion of our
Downstream Segments deliverability capacity, $4.0 million to expand Upstream
Segment facilities and approximately $5.0 million for the expansion of
Midstream assets. We expect to spend approximately $26.0 million to sustain
existing operations, of which approximately $19.3 million will be for
Downstream Segment pipeline projects, including the replacement of storage
tanks, pipeline rehabilitation projects to comply with regulations enacted by
the OPS and the installation of replacement electrical distribution facilities
at our Mont Belvieu facilities, $4.8 million for upgrades of our Upstream
Segment and $1.9 million of capital expenditures to sustain existing operations
on the Midstream Segment. An additional $7.0 million will be expended on
system upgrade projects among all of our business segments. We continually
review and evaluate potential capital improvements and expansions that would be
complementary to our present business segments. These expenditures can vary
greatly depending on the magnitude of our transactions. We may finance capital
expenditures through internally generated funds, debt or the issuance of
additional equity.

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As of December 31, 2002, we had a working capital deficit of $6.2 million.
In the event of any working capital shortfalls, we have approximately $68.0
million in available borrowing capacity under our Three Year Facility to cover
these items.

Our debt repayment obligations consist of payments for principal and
interest on (i) outstanding principal amounts under the Three Year Facility due
in April 2004 ($432.0 million outstanding at December 31, 2002), (ii) the TE
Products Senior Notes, $180.0 million principal amount due January 15, 2008,
and $210.0 million principal amount due January 15, 2028, and (iii) our $500.0
million 7.625% Senior Notes due February 15, 2012.

TE Products is contingently liable as guarantor for the lesser of one-half
or $75.0 million principal amount (plus interest) of the borrowings of
Centennial. We expect to contribute an additional $10.0 million to Centennial
in 2003 to provide for its working capital needs. In January 2003, TE Products
entered into a pipeline capacity lease agreement with Centennial for a period
of five years. On February 10, 2003, we acquired an additional 16.7% ownership
interest in Centennial, bringing our ownership percentage to 50%.

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

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

|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |       | 
|----------------------------------- | -------------------------------- | - | ------------------------------------------ | ------- | --------- | - | --------- | ---- | --------- | - | ------- | ----- |  | - | --- | --- |  | - | ----- | ----- | 
|                                    |                                  |   | Amount of Commitment Expiration Per Period
|                                    |                                  |   |                                           
|                                    |                                  |   |                                            |         | Less than |   |           |      |           |   | After 5
|                                    |                                  |   | Total                                      |         | 1 Year    |   | 2-3 Years |      | 4-5 Years |   | Years  
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |        
|Three Year Facility                 |                                  | $ | 432.0                                      |         |           | $ |          |      |           | $ | 432.0   |       |  | $ |    |     |  | $ |      |      
|6.45% Senior Notes due 2008 (1) (2) |                                  |   | 180.0                                      |         |           |   |          |      |           |   |        |       |  |   |    |     |  |   | 180.0 |      
|7.51% Senior Notes due 2028 (1) (2) |                                  |   | 210.0                                      |         |           |   |          |      |           |   |        |       |  |   |    |     |  |   | 210.0 |      
|7.625% Senior Notes due 2012 (2)    |                                  |   | 500.0                                      |         |           |   |          |      |           |   |        |       |  |   |    |     |  |   | 500.0 |      
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |      
|                                    | Debt subtotal                    |   |                                            | 1,322.0 |           |   |           |     |           |   |         | 432.0 |  |   |     |    |  |   |       | 890.0 | 
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |      
|Centennial cash contributions       |                                  |   | 10.0                                       |         |           |   | 10.0      |      |           |   |        |       |  |   |    |     |  |   |      |      
|Operating leases                    |                                  |   | 35.4                                       |         |           |   | 9.5       |      |           |   | 17.0    |       |  |   | 7.8 |     |  |   | 1.1   |      
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |      
|                                    | Contractual commitments subtotal |   |                                            | 45.4    |           |   |           | 19.5 |           |   |         | 17.0  |  |   |     | 7.8 |  |   |       | 1.1   | 
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |      
|                                    | Total                            |   | $                                          | 1,367.4 |           |   | $         | 19.5 |           |   | $       | 449.0 |  |   | $   | 7.8 |  |   | $     | 891.1 | 
|                                    |                                  |   |                                            |         |           |   |           |      |           |   |         |       |  |   |     |     |  |   |       |      



---

|(1) |  | Obligations of TE Products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Our TE Products subsidiary entered into an interest rate swap agreement
to hedge its exposure to changes in the fair value of the 7.51% Senior
Notes due 2028. At December 31, 2002, the 7.51% Senior Notes include an
adjustment to increase the fair value of the debt by $13.6 million related
to this interest rate swap agreement. We also entered into interest rate
swap agreements to hedge our exposure to changes in the fair value of our
7.625% Senior Notes due 2012. At December 31, 2002, the 7.625% Senior
Notes include a deferred gain, net of amortization, from previous interest
rate swap terminations of $44.3 million. At December 31, 2002, our 6.45%
Senior Notes and our 7.625% Senior Notes include $2.2 million of
unamortized debt discounts. The fair value adjustments, the deferred gain
adjustments and the unamortized debt discounts are excluded from this
table.

We expect to repay the long-term, senior unsecured obligations and bank
debt through the 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, cash flow from operations or any
combination of the above items.

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Sources of Future Capital

Historically, we have funded our capital commitments from operating cash
flow and borrowings under bank credit facilities or bridge loans. We repaid
these loans in part by the issuance of long term debt in capital markets and
the public offering of Limited Partner Units. We expect future capital needs
would be similarly funded to the extent not otherwise available from cash flow
from operations.

As of December 31, 2002, we had approximately $268.0 million in combined
available borrowing capacity under the Three Year Facility and the Short-term
Revolver. In February 2003, we gave notice that we will not renew the
Short-term Revolver. As a result, the Short-term Revolver will expire on March
27, 2003.

We expect that cash flows from operating activities will be adequate to
fund cash distributions and capital additions necessary to sustain existing
operations. However, expansionary capital projects and acquisitions may
require funding through proceeds from the sale of additional debt or equity
capital markets offerings.

On May 29, 2002, Moodys Investors Service downgraded our senior unsecured
debt rating to Baa3 from Baa2. Our subsidiary, TE Products was also included
in this downgrade. These ratings were given with stable outlooks and followed
our announcement of the acquisition of Val Verde. The downgrades reflect
Moodys concern that we have a high level of debt relative to many of our peers
and that our debt may be continually higher than our long-term targets if we
continue to make a series of acquisitions of increasingly larger size. Because
of our high distribution rate, we are particularly reliant on external
financing to finance our acquisitions. Moodys indicated that our cash flows
are becoming less predictable as a result of our acquisitions and expansion
into the crude oil and natural gas gathering businesses. Further reductions in
our 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. On January
27, 2003, Moodys reaffirmed the Baa3 ratings on us and our subsidiary, TE
Products.

Other Considerations

Credit Risks

Risks of nonpayment and nonperformance by customers are a major
consideration in our businesses. Our credit procedures and policies do not
fully eliminate customer credit risk. During 2002, several of our customers
filed for bankruptcy protection. During the year ended December 31, 2002, we
expensed approximately $0.9 million of uncollectible receivables due to
customer bankruptcies and other customer nonpayments. In 2001, we expensed a
receivable for transportation fees of approximately $4.3 million, or
approximately $0.09 per Limited Partner and Class B Unit because of the
bankruptcy of Enron Corp. and certain of its subsidiaries in December 2001.

Terrorist Threats

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

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Environmental

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

In 1994, we entered into an Agreed Order with the IDEM that resulted in
the implementation of a remediation program for groundwater contamination
attributable to our operations at the Seymour terminal. In 1999, the IDEM
approved a Feasibility Study, which includes our proposed remediation program.
In March 2003, the IDEM issued a Record of Decision formally approving the
remediation program. As the Record of Decision has been issued, we will enter
into an Agreed Order for the continued operation and maintenance of the
remediation program. We have an accrued liability of $0.4 million at December
31, 2002, for future remediation costs at the Seymour terminal. We do not
expect that the completion of the remediation program will have a future
material adverse effect on our financial position, results of operations or
cash flows.

In 1994, the LDEQ issued a compliance order for environmental
contamination at our Arcadia, Louisiana, facility. This contamination may be
attributable to our operations, as well as adjacent petroleum terminals
operated by other companies. In 1999, our Arcadia facility and adjacent
terminals were directed by the Remediation Services Division of the LDEQ to
pursue remediation of this containment phase. At December 31, 2002, we have an
accrued liability of $0.2 million for remediation costs at our Arcadia
facility. We do not expect that the completion of the remediation program that
we have proposed will have a future material adverse effect on our financial
position, results of operations or cash flows.

At December 31, 2002, we had an accrued liability of $5.6 million and a
receivable of $4.2 million from DEFS related to various TCTM sites requiring
environmental remediation activities. The receivable is based on a contractual
indemnity obligation we received in connection with our acquisition of assets
from a DEFS affiliate in November 1998. The indemnity relates to future
environmental remediation activities attributable to operations of these assets
prior to our acquisition. Under this indemnity obligation, we are responsible
for the first $3.0 million in specified environmental liabilities, and DEFS is
responsible for those environmental liabilities in excess of $3.0 million, up
to a maximum amount of $25.0 million. The majority of the receivable from DEFS
relates to remediation activities at the Velma crude oil site in Stephens
County, Oklahoma. The accrued liability balance at December 31, 2002, also
includes an accrual of $2.3 million related to the Shelby crude oil site in
Stephens County, Oklahoma. At December 31, 2002, it is uncertain if these
costs related to Shelby are covered under the indemnity obligation from DEFS.
We are currently in discussions with DEFS regarding these matters. We do not expect that the completion of remediation programs associated with
TCTM activities will have a future material adverse effect on our financial
position, 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, and Arcadia
and Shreveport-Arcadia, Louisiana, destination markets, which are
currently subject to

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the PPI Index. As a result, we made refunds of
approximately $1.0 million in the third quarter of 2001 for those destination
markets.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 requires
us to record the fair value of an asset retirement obligation as a liability in
the period in which we incur a legal obligation for the retirement of tangible
long-lived assets. A corresponding asset is also recorded and depreciated over
the life of the asset. After the initial measurement of the asset retirement
obligation, the liability will be adjusted at the end of each reporting period
to reflect changes in the estimated future cash flows underlying the
obligation. We will adopt SFAS 143 effective January 1, 2003. Determination
of any amounts to be recognized upon adoption is based upon numerous estimates
and assumptions, including future retirement costs, future inflation rates and
the credit-adjusted risk-free interest rates.

The Downstream Segment assets consist primarily of a pipeline system and a
series of storage facilities that originate along the upper Texas Gulf Coast
and extend through the Midwest and northeastern United States. We transport
refined products, LPGs and petrochemicals through the pipeline system. These
products are primarily received in the south end of the system and stored
and/or transported to various points along the system per customer nominations.
The Upstream Segments operations include purchasing crude oil from producers
at the wellhead and providing delivery, storage and other services to its
customers and the distribution of lubrication oils and specialty chemicals.
The properties in the Upstream Segment consist of interstate trunk pipelines,
pump stations, trucking facilities, storage tanks and various gathering systems
primarily in Texas and Oklahoma. The Midstream Segment gathers natural gas
from producers and transports natural gas and NGLs on its pipeline systems,
primarily in Texas, Wyoming, New Mexico and Colorado. The Midstream Segment
also owns and operates two NGL fractionating facilities in Colorado.

The fair value of the asset retirement obligations for our trunk and
interstate pipelines and our surface facilities cannot be reasonably estimated,
as future dismantlement and removal dates are indeterminate. We will record
such asset retirement obligations in the period in which we determine the
settlement dates of the retirement obligations. Other assets in which future
operating lives may be determinable include our gathering assets in our
Midstream and Upstream Segments. However, our rights-of-way agreements, in
general, do not require us to remove pipe or otherwise perform restoration upon
taking the pipelines permanently out of service. We are continuing to evaluate
the effect of SFAS 143 on our Midstream and Upstream gathering assets, but we
do not currently anticipate that the adoption of SFAS 143 will have a material
impact on our financial position, results of operations or cash flows.

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

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

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires recognition of a liability for a cost associated with an exit or
disposal activity

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when the liability is incurred, as opposed to when the entity commits to an
exit plan under EITF No. 94-3. SFAS 146 is to be applied prospectively to exit
or disposal activities initiated after December 31, 2002. We do not believe
that the adoption of SFAS 146 will have a material effect on our financial
position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.SFAS 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation,to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of
SFAS 148 did not affect our financial position, results of operations or cash
flows.

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

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51(FIN 46). FIN
46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. We are required
to apply FIN 46 to all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, we are required to apply FIN 46 on July 1, 2003. We do not
believe FIN 46 will have a significant impact on our financial position,
results of operations or cash flows.

Disclosures About Effects of Transactions with Related Parties

We have no employees and are managed by the General Partner, a wholly
owned subsidiary of DEFS. Duke Energy holds an approximate 70% interest in DEFS
and ConocoPhillips holds the remaining 30%. See Item 10, Directors and
Executive Officers of the Registrant and Item 13, Certain Relationships and
Related Transactions for discussion regarding transactions between us and DEFS,
Duke Energy and ConocoPhillips.

Forward-Looking Statements

The matters discussed in this Report include forward-looking statements
within the meaning of various provisions of the Securities Act of 1933 and the
Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this document that address activities, events or
developments that we expect or anticipate will or may occur in the future,
including such things as estimated future capital expenditures (including the
amount and nature thereof), business strategy and measures to implement
strategy, competitive strengths, goals, expansion and growth of our business
and operations, plans, references to future success, references to intentions
as to future matters and other such matters are forward-looking statements.
These statements are based on certain assumptions and analyses based on our
experience and our perception of historical trends, current conditions and
expected future developments as well as other factors we believe are
appropriate under the

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circumstances. However, whether actual results and developments will
conform with our expectations and predictions is subject to a number of risks
and uncertainties, including general economic, market or business conditions,
the opportunities (or lack thereof) that may be presented to and pursued by us,
competitive actions by other pipeline companies, changes in laws or regulations
and other factors, many of which are beyond our control. Consequently, all of
the forward-looking statements made in this document are qualified by these
cautionary statements and we cannot assure you that actual results or
developments that we anticipate will be realized or, even if substantially
realized, will have the expected consequences to or effect on us or our
business or operations.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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

At December 31, 2002, we had $432.0 million outstanding under our variable
interest rate revolving credit agreements. The interest rate is based, at our
option, on either the lenders base rate plus a spread or LIBOR plus a spread
in effect at the time of the borrowings and is adjusted monthly, bimonthly,
quarterly or semiannually. Utilizing the balances of variable interest rate
debt outstanding at December 31, 2002, including the effects of hedging
activities discussed below, and assuming market interest rates increase 100
basis points, the potential annual increase in interest expense is $1.8
million.

We have utilized and expect to continue to utilize interest rate swap
agreements to hedge a portion of our cash flow and fair value risks. Interest
rate swap agreements are used to manage the fixed and floating interest rate
mix of our total debt portfolio and overall cost of borrowing. The interest
rate swap related to our cash flow risk is intended to reduce our exposure to
increases in the benchmark interest rates underlying our variable rate
revolving credit facility. The interest rate swaps related to our fair value
risks are intended to reduce our exposure to changes in the fair value of the
fixed rate Senior Notes. The interest rate swap agreements involve the
periodic exchange of payments without the exchange of the notional amount upon
which the payments are based. The related amount payable to or receivable from
counterparties is included as an adjustment to accrued interest.

At December 31, 2002, TE Products had outstanding $180.0 million principal
amount of 6.45% Senior Notes due 2008, and $210.0 million principal amount of
7.51% Senior Notes due 2028 (collectively the TE Products Senior Notes). At
December 31, 2002, the estimated fair value of the TE Products Senior Notes was
approximately $385.8 million. At December 31, 2002, $500.0 million principal
amount of the 7.625% Senior Notes due 2012 was outstanding. At December 31,
2002, the estimated fair value of the $500.0 million Senior Notes was
approximately $529.1 million.

As of December 31, 2002, TE Products had an interest rate swap agreement
in place to hedge its exposure to changes in the fair value of its fixed rate
7.51% TE Products Senior Notes due 2028. We designated this swap agreement as
a fair value hedge. The swap agreement has a notional amount of $210.0 million
and matures in January 2028 to match the principal and maturity of the 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%. During the years ended December 31, 2002,
and 2001, we recognized reductions in interest expense of $8.6 million and $1.8
million, respectively, related to the difference between the fixed rate and the
floating rate of interest on the interest rate swap. During the year ended
December 31, 2002, we measured the hedge effectiveness of this interest rate
swap and noted that no gain or loss from ineffectiveness was required to be
recognized. The fair value of this interest rate swap agreement was a gain of
approximately $13.6 million at December 31, 2002, and a loss of approximately
$14.6 million at December 31, 2001. Utilizing the balance of the 7.51% TE
Products Senior Notes outstanding at December 31, 2002, and including the
effects of hedging activities, assuming market interest rates increase 100
basis points, the potential annual increase in interest expense is $2.1
million.

As of December 31, 2002, we had an interest rate swap agreement in place
to hedge our exposure to increases in the benchmark interest rate underlying
our variable rate revolving credit facility. The term of the interest rate
swap matches the maturity of the credit facility. We designated this swap
agreement, which hedges

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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 $250.0 million. Under the swap agreement, we pay a fixed
rate of interest of 6.955% and receive 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 years ended December 31, 2002, and 2001, we recognized
increases in interest expense of $12.9 million and $6.8 million, respectively,
related to the difference between the fixed rate and the floating rate of
interest on the interest rate swap. During the year ended December 31, 2002,
we measured the hedge effectiveness of this interest rate swap and noted that
no gain or loss from ineffectiveness was required to be recognized. The fair
value of the interest rate swap agreement was a loss of approximately $20.1
million and $20.3 million at December 31, 2002, and 2001, respectively. We
anticipate that approximately $13.5 million of the fair value will be
transferred into earnings over the next twelve months.

On February 20, 2002, we entered into interest rate swap agreements to
hedge our exposure to changes in the fair value of our fixed rate 7.625% Senior
Notes due 2012. We designated these swap agreements as fair value hedges. The
swap agreements had a combined notional amount of $500.0 million and matured in
2012 to match the principal and maturity of the Senior Notes. Under the swap
agreements, we paid a floating rate based on a six month U.S. Dollar LIBOR
rate, plus a spread, and received a fixed rate of interest of 7.625%. On July
16, 2002, we terminated these interest rate swap agreements. Upon termination,
the fair value of the interest rate swap agreements was $25.8 million. From
inception of the swap agreements on February 20, 2002, through the termination
on July 16, 2002, $7.8 million had been recognized as a reduction to interest
expense. The remaining gain of approximately $18.0 million has been deferred
as an adjustment to the carrying value of the Senior Notes and is being
amortized using the effective interest method as a reduction to future interest
expense over the remaining term of the Senior Notes. In the event of early
extinguishment of the Senior Notes, any remaining unamortized gain would be
recognized in the consolidated statement of income at the time of
extinguishment.

Additionally, on July 16, 2002, we entered into new interest rate swap
agreements to hedge our exposure to changes in the fair value of our $500.0
million principal amount of 7.625% fixed rate Senior Notes due 2012. We
designated these swap agreements as fair value hedges. The swap agreements had
a combined notional amount of $500.0 million and matured in 2012 to match the
principal and maturity of the Senior Notes. Under these swap agreements, we
paid a floating rate based on a six month U.S. Dollar LIBOR rate, plus a
spread, which increased by approximately 50 basis points from the previous swap
agreements, and received a fixed rate of interest of 7.625%. On December 12,
2002, we terminated these interest rate swap agreements. Upon termination, the
fair value of the interest rate swap agreements was $33.5 million. From
inception of the swap agreements on July 16, 2002, through the termination on
December 12, 2002, $6.6 million had been recognized as a reduction to interest
expense. The remaining gain of approximately $26.9 million has been deferred
as an adjustment to the carrying value of the Senior Notes and is being
amortized using the effective interest method as a reduction to future interest
expense over the remaining term of the Senior Notes. In the event of early
extinguishment of the Senior Notes, any remaining unamortized gain would be
recognized in the consolidated statement of income at the time of
extinguishment.




Item 8.Financial Statements and Supplementary Data

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




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

None.

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PART III




Item 10.Directors and Executive Officers of the Registrant

We do not have directors or officers. We are managed by the General
Partner. Officers and directors of the General Partner have management
responsibilities with respect to us. Set forth below is certain information
concerning the directors and executive officers of the General Partner. All
directors of the General Partner are elected annually by DEFS. All officers
serve at the discretion of the directors. None of the officers of the General
Partner serve as officers or employees of DEFS or any other parent-affiliated
company.

Jim W. Mogg, age 54, was elected a director of the General Partner in
October 1997, Chairman of the Compensation Committee in April 2000 and Chairman
of the Board in May 2002. Mr. Mogg succeeded William L. Thacker as Chairman of
the Board in May 2002, when Mr. Thacker retired as Chairman. Prior to being
elected Chairman of the Board in 2002, Mr. Mogg served as Vice Chairman of the
Board from April 2000 to April 2002. Mr. Mogg is chairman, president and chief
executive officer of DEFS, having been named to these positions in December
1999. Mr. Mogg also serves as Senior Vice President  Field Services of Duke
Energy. Mr. Mogg was previously president of Centana Energy Corporation, a
subsidiary of a predecessor of Duke Energy, from 1992 to 1999. Mr. Mogg joined
Duke Energy in 1973 in the gas supply department of Panhandle Eastern Pipe Line
Company.

Mark A. Borer, age 48, was elected a director of the General Partner in
April 2000. Mr. Borer is executive vice president of marketing and corporate
development of DEFS, having been elected in April 2002. He previously served
as senior vice president, Southern Division, for DEFS, having been elected to that
position in 1999 when
Union Pacific Fuels, Inc. was acquired by DEFS. Before joining DEFS, he was
vice president of natural gas marketing for Union Pacific Fuels, Inc. from 1992
until 1999.

Michael J. Bradley, age 48, was elected a director of the General Partner
in February 2003. Mr. Bradley is executive vice president, gathering and
processing of DEFS, having been elected to that position in April 2002. He
previously served as senior vice president, Northern Division, for DEFS, having
been elected to that position in 1999. Mr. Bradley joined DEFS in 1979 and
served in a variety of positions in marketing, business development and
operations.

Milton Carroll, age 52, was elected a director of the General Partner in
November 1997, is a member of the Compensation, Special and Audit Committees.
He served as Chairman of the Audit Committee from April 2000 until January 16,
2003. Mr. Carroll is the chairman of CenterPoint Energy, Inc., having been
elected in September 2002. Mr. Carroll is the founder, and has been president
and chief executive officer of Instrument Products, Inc., a manufacturer of oil
field equipment and other precision products, since 1977. Mr. Carroll is a
director of Ocean Energy Inc., and Chairman of the Board of Health Care Service
Corporation.

Derrill Cody, age 64, was elected a director of the General Partner in
1989. He is a member of the Compensation Committee and was Chairman of the
Audit Committee from April 1990 until April 2000. Mr. Cody is currently of
counsel to McKinney and Stringer, P. C., which represents Duke Energy, DEFS and
us in certain matters. He is also an advisor to DEFS pursuant to a personal
contract. Mr. Cody served as chief executive officer of Texas Eastern Gas
Pipeline Company from 1987 to 1990. Prior to that, he was executive vice
president of Kerr McGee Corporation.

John P. DesBarres, age 63, was elected a director of the General Partner
in May 1995. He is a member of the Compensation and Audit Committees and
serves as Chairman of the Special Committee. Mr. DesBarres was formerly
chairman, president and chief executive officer of Transco Energy Company from
1992 to 1995. He joined Transco in 1991 as president and chief executive
officer. Prior to joining Transco, Mr. DesBarres served as chairman, president
and chief executive officer for Santa Fe Pacific Pipelines, Inc. from 1988 to
1991. Mr. DesBarres is a director of American Electric Power and Penn Virginia
G.P., LLC, an indirect wholly owned subsidiary of Penn Virginia Corporation,
which is the general partner of Penn Virginia Resource Partners, L.P.

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William W. Slaughter, age 55, was elected a director of the General
Partner in April 2000. Mr. Slaughter is executive vice president of DEFS. He
has been advisor to the chief executive officer of DEFS since January 1999. Mr.
Slaughter was vice president of energy services for Duke Energy from 1997 until
1998, and was vice president of corporate strategic planning for PanEnergy and
president of PanEnergy International Development Corporation from 1994 to 1997.

R. A. Walker, age 45, was elected director of the General Partner in July
2002, and is a member of the Compensation, Audit and Special Committees. He
was elected Chairman of the Audit Committee on January 16, 2003. Mr. Walker is
president, chief financial officer and director of 3TEC Energy Corporation, a
publicly held independent oil and gas company. Prior to joining 3TEC Energy
Corporation in 2000, Mr. Walker was senior managing director and co-head of
Prudential Capital Group, an asset management firm of The Prudential Insurance
Company of America from 1997 to 2000. Previously, he was managing director of
Prudential Capitals Dallas office from 1990 to 1997, where he was responsible
for its worldwide energy investing.

Barry R. Pearl, age 53, was elected President of the General Partner in
February 2001 and Chief Executive Officer and director in May 2002. He
succeeded William L. Thacker as Chief Executive Officer in May 2002, when Mr.
Thacker retired as Chief Executive Officer. Mr. Pearl was previously Chief
Operating Officer from February 2001 until May 2002. Prior to joining the
Company, Mr. Pearl was vice president  finance and administration, treasurer,
secretary and chief financial officer of Maverick Tube Corporation from June
1998. Mr. Pearl was senior vice president and chief financial officer of Santa
Fe Pacific Pipeline Partners, L.P. from 1995 until 1998, and senior vice
president, business development from 1992 to 1995.

Charles H. Leonard, age 54, is Senior Vice President and Chief Financial
Officer of the General Partner. Mr. Leonard joined the Company in 1988 as Vice
President and Controller. In November 1989, he was elected Vice President and
Chief Financial Officer. He was elected Senior Vice President in March 1990,
and was Treasurer from October 1996 until May 2002.

James C. Ruth, age 55, is Senior Vice President, General Counsel and
Secretary of the General Partner, having been elected in February 2001. Mr.
Ruth was previously Vice President, General Counsel and Secretary from 1998
until February 2001, and Vice President, General Counsel from 1991 until 1998.

Thomas R. Harper, age 62, is Senior Vice President, Commercial Downstream
of the General Partner, having been elected in February 2003. Mr. Harper was
previously Vice President, Commercial Downstream from September 2000 until
February 2003 and Vice President, Product Transportation and Refined Products
Marketing from 1988 until September 2000. Mr. Harper joined the Company in 1987
as Director of Product Transportation.

J. Michael Cockrell, age 56, is Senior Vice President, Commercial Upstream
of the General Partner, having been elected in February 2003. Mr. Cockrell was
previously Vice President, Commercial Upstream from September 2000 until
February 2003. He was elected Vice President of the General Partner in January
1999 and also serves as President of TEPPCO Crude GP, LLC. He joined PanEnergy
in 1987 and served in a variety of positions in supply and development,
including president of Duke Energy Transport and Trading Company.

Leonard W. Mallett, age 46, is Vice President, Operations of the General
Partner, having been elected in September 2000. Mr. Mallett was previously
Region Manager of the Southwest Region of the Company from 1994 until 1999 and
Director of Engineering, from 1992 until 1994. Mr. Mallett joined the Company
in 1979 as an engineer.

Stephen W. Russell, age 51, is Vice President, Support Services of the
General Partner, having been elected in September 2000. Mr. Russell was
previously Region Manager of the Southwest Region from July 1999 until
September 2000, and Technical Operations Superintendent of the Southwest Region
from 1994 until 1999. Mr. Russell joined the Company in 1988 as Project
Manager in Engineering.

David E. Owen, age 53, is Vice President, Human Resources of the General
Partner, having joined the Company in February 2001. He was previously
Northern Division human resources manager of DEFS from May

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2000 until he joined the Company. Prior to DEFS, Mr. Owen held various
positions with ARCO International Oil and Gas Company from October 1996 until
January 2000.

John N. Goodpasture,age 54, is Vice President, Corporate Development of
the General Partner, having joined the Company in November 2001. Mr.
Goodpasture was previously Vice President of Business Development for Enron
Transportation Services from June 1999 until he joined the Company. Prior to
his employment at Enron Transportation Services, Mr. Goodpasture spent 19 years
in various executive positions at Seagull Energy Corporation (now Ocean Energy,
Inc.), a large independent oil and gas company. At Seagull Energy, Mr.
Goodpasture had most recently served for over ten years as Senior Vice
President, Pipelines and Marketing.

Barbara A. Carroll,age 48, is Vice President, Environmental, Health and
Safety, having been elected in February 2002. Ms. Carroll joined ExxonMobil in
1990 and served in a variety of management positions, including Procurement
Services Manager, Materials and Service Manager and Baytown Area Public Affairs
Manager until she joined the Company in February 2002. Prior to ExxonMobil,
Ms. Carroll was General Manager, Corporate Environmental Protection and
Compliance with Panhandle Eastern Corporation. Ms. Carroll is not related to
Milton Carroll.

Mark G. Stockard,age 36, is Treasurer, having been elected in May 2002.
Mr. Stockard was Assistant Treasurer of the General Partner from July 2001
until May 2002. He was previously Controller from October 1996 until May 2002.
Mr. Stockard joined the Company in October 1990.

Based on information furnished to the Company and written representation
that no other reports were required, to the Companys knowledge, all applicable
Section 16(a) filing requirements were complied with during the year ended
December 31, 2002, except for reports covering certain transactions that were
filed late by Messrs. Owen, Mallett, Ruth and Thacker.




Item 11.Executive Compensation

The officers of the General Partner manage and operate our business. We
do not directly employ any of the persons responsible for managing or operating
our operations, but instead reimburse the General Partner for the services of
such persons. See Note 7 of the Notes to Consolidated Financial Statements
contained elsewhere in this Report for additional information.

Directors of the General Partner who are neither officers nor employees of
either the Company or DEFS receive a stipend, effective January 16, 2003, of
$30,000 per annum, $1,000 for attendance at each meeting of the Board of
Directors, $1,000 for attendance at each meeting of a committee of the Board of
Directors and reimbursement of expenses incurred in connection with attendance
at a meeting of the Board of Directors or a committee of the Board of
Directors. Each non-employee director who serves as chairman of a committee of
the Board of Directors receives an additional stipend of $5,000 per annum.
Effective September 1, 1999, non-employee directors may elect to defer payment
of retainer and attendance fees until termination of service on the Board of
Directors. Such deferral may be either 50% or 100% in either a fixed income
investment account that is credited with annual interest (currently 7%) or an
investment account based upon the market value of Limited Partner Units.

Effective April 1, 2002, each quarter that a non-employee director
continues to serve on the Board of Directors, such director will be credited
with an amount equal to the then current market value of 100 Limited Partner
Units and distribution equivalents on previously awarded amounts. In general,
such amounts will not become distributable until the non-employee director
terminates service on the Board of Directors. When a non-employee director
terminates service on the Board of Directors, payment will be distributed in
cash to the director according to the distribution schedule chosen by such
director.

Messrs. Thacker, Mogg, Pearl, Borer, Bradley and Slaughter were not
compensated for their services as directors, and it is not anticipated that any
compensation for service as a director will be paid in the future to directors
who are either officers or full-time employees of Duke Energy, DEFS, the
General Partner or any of their affiliates.

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The following table reflects cash compensation paid or accrued by the
General Partner for the years ended December 31, 2002, 2001 and 2000, with
respect to its Chief Executive Officer and the four most highly compensated
executive officers (collectively, the Named Executive Officers).

SUMMARY COMPENSATION TABLE

|                       |                           |      |                     |            |        |         |              |         |           |        |         |              |  |         |        |              |  |  |         |         |  |  |        |        | 
|---------------------- | ------------------------- | ---- | ------------------- | ---------- | ------ | ------- | ------------ | ------- | --------- | ------ | ------- | ------------ |  | ------- | ------ | ------------ |  |  | ------- | ------- |  |  | ------ | ------ | 
|                       |                           |      | Annual Compensation |            | Other  |         | Long Term    |         |           |        |        
|                       |                           |      |                     |            | Annual |         | Compensation |         | All Other
|Name and               |                           |      |                     |            |        |         |              |         |           | Bonus  |         | Compensation |  | Payouts |        | Compensation
|Principal Position     |                           | Year |                     | Salary ($) |        | ($) (3) |              | ($) (4) |           | ($)(5) |         | ($) (6)     
|                       |                           |      |                     |            |        |         |              |         |           |        |         |             
|William L. Thacker (1) |                           |      | 2002                |            |        |         | 268,989      |         |           |        | 122,100 |              |  |         | 38,540 |              |  |  | 451,214 |         |  |  | 32,844 |       
|                       | Chairman and              |      |                     | 2001       |        |         |              | 288,488 |           |        |         | 204,000      |  |         |        | 35,260       |  |  |         | 431,780 |  |  |        | 27,119 | 
|                       | Chief Executive Officer   |      |                     | 2000       |        |         |              | 269,434 |           |        |         | 149,400      |  |         |        | 15,200       |  |  |         | 188,335 |  |  |        | 25,039 | 
|Barry R. Pearl (2)     |                           |      | 2002                |            |        |         | 252,308      |         |           |        | 142,000 |              |  |         | 24,160 |              |  |  |        |         |  |  | 16,163 |       
|                       | President and Chief       |      |                     | 2001       |        |         |              | 190,385 |           |        |         | 131,900      |  |         |        | 7,800        |  |  |         |        |  |  |        | 78,423 | 
|                       | Executive Officer         |      |                     | 2000       |        |         |              |        |           |        |         |             |  |         |        |             |  |  |         |        |  |  |        |       | 
|J. Michael Cockrell    |                           |      | 2002                |            |        |         | 195,462      |         |           |        | 86,600  |              |  |         | 21,750 |              |  |  | 358,200 |         |  |  | 13,369 |       
|                       | Senior Vice President     |      |                     | 2001       |        |         |              | 189,504 |           |        |         | 100,500      |  |         |        | 32,250       |  |  |         |        |  |  |        | 10,722 | 
|                       |                           |      | 2000                |            |        |         | 182,021      |         |           |        | 78,000  |              |  |         | 30,000 |              |  |  |        |         |  |  | 14,853 |       
|Charles H. Leonard     |                           |      | 2002                |            |        |         | 182,342      |         |           |        | 88,200  |              |  |         | 18,095 |              |  |  | 32,062  |         |  |  | 11,241 |       
|                       | Senior Vice President
and |      |                     | 2001       |        |         |              | 170,404 |           |        |         | 106,700      |  |         |        | 11,395       |  |  |         | 46,581  |  |  |        | 8,347  | 
|                       | Chief Financial Officer   |      |                     | 2000       |        |         |              | 155,965 |           |        |         | 83,400       |  |         |        | 5,000        |  |  |         | 52,354  |  |  |        | 13,818 | 
|James C. Ruth          |                           |      | 2002                |            |        |         | 182,342      |         |           |        | 86,300  |              |  |         | 18,095 |              |  |  | 55,368  |         |  |  | 11,346 |       
|                       | Senior Vice President
and |      |                     | 2001       |        |         |              | 169,942 |           |        |         | 103,300      |  |         |        | 11,395       |  |  |         | 23,411  |  |  |        | 6,156  | 
|                       | General Counsel           |      |                     | 2000       |        |         |              | 147,899 |           |        |         | 76,400       |  |         |        | 5,000        |  |  |         | 40,182  |  |  |        | 13,013 | 
|John N. Goodpasture    |                           |      | 2002                |            |        |         | 182,885      |         |           |        | 91,000  |              |  |         | 5,875  |              |  |  |        |         |  |  | 7,226  |       
|                       | Vice President,           |      |                     | 2001       |        |         |              | 27,692  |           |        |         |             |  |         |        |             |  |  |         |        |  |  |        |       | 
|                       | Corporate Development     |      |                     | 2000       |        |         |              |        |           |        |         |             |  |         |        |             |  |  |         |        |  |  |        |       | 



---

|(1) |  | Mr. Thacker served as President until February 2001, and Chairman and
Chief Executive Officer until May 1, 2002. Mr. Thacker retired as
Chairman and Chief Executive Officer effective May 2002, but remained
with the Company until October 2002. Amounts shown in the table include
all compensation paid to Mr. Thacker for 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Mr. Pearl was elected as President in February 2001, and Chief
Executive Officer and director effective May 1, 2002. Amounts shown in
the table include all compensation paid to Mr. Pearl for 2002.                                                                                                                                
|   
|(3) |  | Amounts represent bonuses accrued during the year under the Management
Incentive Compensation Plan (MICP). Payments under the MICP are made in
the subsequent year. Annual compensation does not include awards under
long-term incentive plans, which are described in the table on page 56.                                     
|   
|(4) |  | Amounts represent quarterly distribution equivalents under the terms of
the Companys 2000 Long Term Incentive Plan (2000 LTIP), Long Term
Incentive Compensation Plan (LTICP) and Retention Incentive
Compensation Plan (RICP).                                                                                              

52



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##### 



|(5) |  | Amounts represent the value of redemptions under the 1996 amendment to the
LTICP, credits earned to Performance Unit accounts, options exercised
under the terms of 1994 LTIP and payouts under the RICP.                                                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | Includes (i) Company matching contributions under funded, qualified,
defined contribution retirement plans; (ii) Company matching
contribution credits under unfunded, non qualified plans; and (iii) the
imputed value of premiums paid by the Company for insurance on the Named
Executive Officers lives. Amount for Mr. Pearl in 2001 also includes
$74,302 of relocation expenses.

Executive Employment Contracts and Termination of Employment Arrangements

On February 12, 2001, Barry R. Pearl and the Company entered into an
employment agreement, which set a minimum base salary of $220,000 per year. The
Company may terminate the employment agreement for cause, death or disability.
In addition, the Company or Mr. Pearl may terminate the agreement upon written
notice. Mr. Pearl participates in other Company sponsored benefit plans on the
same basis as other senior executives of the Company. In the event Mr. Pearl
is terminated due to death or disability or by the Company for cause, Mr. Pearl
is entitled only to base salary earned through the date of termination. In the
event of termination for any other reason, Mr. Pearl is entitled to base salary
earned through the date of termination plus a lump sum severance payment equal
to two times his base annual salary and two times the current target bonus
approved under the MICP by the Compensation Committee. In the event that Mr.
Pearl is involuntarily terminated following a change in control, he is entitled
to a lump sum severance payment equal to two times his base annual salary plus
two times his current target bonus.

The Company has entered into employment agreements with certain executive
officers identified in Item 10. Directors and Executive Officers of the
Registrant. The agreements may be terminated for death, disability or by the
Company with or without cause. In the event one of the named executives
employment is terminated due to death or disability or by the Company for
cause, the executive is entitled only to base salary earned through the date of
termination. In the event of termination for any other reason, the executive is
entitled to base salary earned through the date of termination plus a lump sum
severance payment equal to two times such executives base annual salary and
two times the current target bonus approved under the MICP by the Compensation
Committee. In the event that an executive is involuntarily terminated following
a change in control, the executive is entitled to a lump sum severance payment
equal to two times his base annual salary plus two times his current target
bonus.

Committees of the Board of Directors

Audit Committee

The Audit Committee is a standing committee of the Board of Directors of
the General Partner and is comprised of three independent directors, R. A.
Walker (Chairman), John DesBarres and Milton Carroll. As independent
directors, the members of the Audit Committee are non-employee directors of the
General Partner and are not officers, directors or otherwise affiliated with
DEFS or its parent companies, ConocoPhillips or Duke Energy. The Audit
Committee provides independent oversight with respect to our internal controls,
accounting policies, financial reporting, internal audit function and the
independent auditors. The Audit Committee also reviews the scope and quality,
including the independence and objectivity of the independent and internal
auditors and the fees paid for both audit and non audit work and makes
recommendations on audit matters to the Board of Directors, including the
engagement of the independent auditors.

Special Committee

The Special Committee is a standing committee of the Board of Directors of
the General Partner and is composed of three independent directors, John
DesBarres (Chairman), Milton Carroll and R. A. Walker. The members of the
Special Committee are non-employee directors of the General Partner and are not
officers, directors or otherwise affiliated with DEFS or its parent companies,
ConocoPhillips or Duke Energy. The Special Committee is responsible for the
independent evaluation of the fairness and reasonableness of affiliate
transactions and the approval or rejection of those transactions that would
ordinarily require Board approval involving the General

53



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##### 



Partner, DEFS or an affiliate of either, and us. Such transactions
include related party asset sales and operating agreements. The Special
Committee is also responsible for the evaluation of the fairness and approval
or rejection of the issuance and pricing of additional Limited Partner Units
and debt.

Compensation Committee Interlocks and Insider Participation

During 2002, Jim W. Mogg, a director of the General Partner and chairman,
president and chief executive officer of DEFS, was chairman of the Compensation
Committee of the General Partner and participated in deliberations concerning
the General Partners executive officer compensation. The other four members
of the Compensation Committee of the General Partner, Milton Carroll, R. A.
Walker, Derrill Cody and John P. DesBarres, are non-employee directors of the
General Partner and are not officers or directors of DEFS or its parent
companies, ConocoPhillips or Duke Energy. In July 2002, Mr. Walker replaced
Carl D. Clay as a member of the Compensation Committee, upon Mr. Clays
retirement from the Board of Directors.

Compensation Pursuant to General Partner Plans

Management Incentive Compensation Plan

The General Partner has established the MICP, which provides for the
payment of additional cash compensation to participants if certain Partnership
performance objectives and personal objectives are met each year. The
Compensation Committee of the Board of Directors of the General Partner (the
Committee) determines at the beginning of each year which employees are
eligible to become participants in the MICP. Additional participants may be
added to the plan during the year by the Chief Executive Officer. Each
participant is assigned a target award, determined as a percentage of total
annual salary for the plan year less any incentive compensation payments during
the plan year, by the Committee. Such target award determines the additional
compensation to be paid if certain performance objectives and personal
objectives are met. The amount of the target awards may range from 10% to 55%
of a participants base salary. Maximum payout under the MICP is 144% of a
participants target award. Awards are paid as soon as practicable following
approval by the Committee after the close of a year.

1994 Long Term Incentive Plan

The 1994 LTIP authorized incentive awards to key employees whereby a
participant was granted an option to purchase Units together with a stipulated
number of Performance Units, which provided for cash credits to participants
accounts when annual earnings exceeded specified levels. No awards have been
made under the 1994 LTIP since 1999, and none are expected to be made in the
future.

The following table provides information concerning the Unit options
exercised under the 1994 LTIP by each of the Named Executive Officers during
2002 and the value of unexercised Unit options under the 1994 LTIP to the Named
Executive Officers as of December 31, 2002. The value assigned to each
unexercised, in the money option is based on the positive spread between the
exercise price of such option and the fair market value of a Limited Partner
Unit on December 31, 2002. The fair market value is the average of the high
and low prices of a Limited Partner Unit as reported in The New York Timeson
the last business day in 2002. In assessing the value, it should be kept in
mind that no matter what theoretical value is placed on an option on a
particular date, its ultimate value will be dependent on the market value of
our Limited Partner Unit price at a future date. The future value will depend
in part on the efforts of the Named Executive Officers to foster our future
success for the benefit of all unitholders.

54



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##### 



AGGREGATED OPTIONS EXERCISES IN YEAR ENDED DECEMBER 31, 2002 AND
OPTION VALUES AT DECEMBER 31, 2002

|            |  |             |        |          |  |                        |         |                      |  |              |        |  |  |             |         | 
|----------- |  | ----------- | ------ | -------- |  | ---------------------- | ------- | -------------------- |  | ------------ | ------ |  |  | ----------- | ------- | 
|            |  |             |        |          |  |                        |         |                      |  |              |        |  |  | Value of   
|            |  |             |        |          |  |                        |         |                      |  |              |        |  |  | Unexercised
|            |  | Shares      |        |          |  |                        |         | Number of Securities |  | In-the Money
|            |  | Acquired on |        | Value    |  | Underlying Unexercised |         | Options             
|Name        |  | Exercise    |        | Realized |  | Options at FY-end (1)  |         | at FY-end (1)       
|            |  |             |        |          |  |                        |         |                     
|Mr. Thacker |  |             | 53,079 |          |  | $                      | 451,214 |                      |  |              | 5,884  |  |  | $           | 47,458  | 
|Mr. Leonard |  |             | 5,000  |          |  |                        | 24,502  |                      |  |              | 17,328 |  |  |             | 48,259  | 
|Mr. Ruth    |  |             | 2,851  |          |  |                        | 47,808  |                      |  |              | 32,547 |  |  |             | 135,284 | 



---

|(1) |  | All unexercised options were exercisable at December 31, 2002.
|--- |  | --------------------------------------------------------------

2000 Long Term Incentive Plan

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

The performance period applicable to awards granted in 2002 is the
three-year period that commenced on January 1, 2002, and ends on December 31,
2004. Each participants performance percentage is the result of [(A) minus
(B)] divided by [(C) minus (B)] where (A) is the actual Economic Value Added
for the performance period, (B) is $59.9 million (which represents the actual
Economic Value Added for the three-year period immediately preceding the
performance period) and (C) is $71.7 million (which represents the Target
Economic Value Added during the three-year performance period). No amounts
will be payable under the awards granted in 2002 for the

55



---



##### 



2000 LTIP unless Economic Value Added for the three year performance
period exceeds $59.9 million. The performance percentage may not exceed 150%.

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

In addition to the payment described above, during the performance period,
the General Partner will pay to the Participant the amount of cash
distributions that we would have paid to our Unitholders had the participant
been the owner of the number of Limited Partner Units equal to the number of
phantom Limited Partner Units granted to the participant under this award.

The following table provides information concerning awards under the 2000
LTIP to each of the Named Executive Officers during 2002.

|                |  |         |       |             |  |           |  |                              |   |         |  |  |        |  |  |  |        |  |  | 
|--------------- |  | ------- | ----- | ----------- |  | --------- |  | ---------------------------- | - | ------- |  |  | ------ |  |  |  | ------ |  |  | 
|                |  | Number  |       |             |  |           |  | Estimated Future Payouts (1)
|                |  | of      |       |             |  |           |  |                             
|                |  | Phantom |       | Performance |  | Threshold |  | Target                       |   | Maximum
|Name            |  | Units   |       | Period      |  | (#)(2)    |  | (#) (3)                      |   | (#) (4)
|                |  |         |       |             |  |           |  |                              |   |        
|Mr. Pearl       |  |         | 6,900 |             |  | 3 years   |  |                              |  |         |  |  | 10,350 |  |  |  | 10,350 | 
|Mr. Leonard     |  |         | 2,400 |             |  | 3 years   |  |                              |  |         |  |  | 3,600  |  |  |  | 3,600  | 
|Mr. Ruth        |  |         | 2,400 |             |  | 3 years   |  |                              |  |         |  |  | 3,600  |  |  |  | 3,600  | 
|Mr. Goodpasture |  |         | 2,500 |             |  | 3 years   |  |                              |  |         |  |  | 3,750  |  |  |  | 3,750  | 



---

|(1) |  | Phantom units will be settled in cash based upon the then
market price of the Units at the end of the performance period as
described above.                                                                                                                                                                                                                                                             
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | No amounts will be payable for awards granted in 2002 unless
Economic Value Added for the three year performance period exceeds
$59.9 million.                                                                                                                                                                                                                                                           
|   
|(3) |  | In number of phantom units. Pursuant to Instruction 5 to
Regulation 402(e) of the Securities and Exchange Commission, these
amounts assume that the 44% increase in Economic Value Added for
2002 as compared with 2001 is maintained for each of the three years
in the performance period. There can be no assurance that any
specific amount of Economic Value Added will be attained for such
period.
|   
|(4) |  | The maximum potential payout under the 2000 LTIP is 150% of
phantom units awarded.                                                                                                                                                                                                                                                                                                                       

Pension Plan

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, which is a noncontributory, trustee-administered
pension plan. Effective January 1, 1999, the benefit formula for all eligible
employees was a cash balance formula. Under a cash balance formula, a plan
participant accumulated a retirement benefit based upon pay credits and current
interest credits. The pay credits were based on a participants salary, age,
and service. In addition, the Named Executive Officers participated in the Duke
Energy Executive Cash Balance Plan, which is a noncontributory, nonqualified,
defined benefit retirement plan. The Duke Energy Executive Cash Balance Plan
was established to restore benefit reductions caused by the maximum benefit
limitations that apply to qualified plans.

56



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##### 



Benefits under the Duke Energy Retirement Cash Balance Plan and the Duke
Energy Executive Cash Balance Plan were based on eligible pay, generally
consisting of base pay, short term incentive pay, and lump-sum merit increases.
The Duke Energy Retirement Cash Balance Plan excludes deferred compensation,
other than deferrals pursuant to Sections 401(k) and 125 of the Internal
Revenue Code. As part of the change in ownership on March 31, 2000, the
Company is no longer responsible for the funding of the liabilities associated
with the Duke Energy Retirement Cash Balance Plan or the Duke Energy Executive
Cash Balance Plan.

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 Retirement Cash Balance Plan and the Duke Energy Executive
Cash Balance Plan previously in effect prior to April 1, 2000.

Under the cash balance benefit accrual formula that applies in determining
benefits under the TEPPCO RCBP, an eligible employees plan account receives a
pay credit at the end of each month in which the employee remains eligible and
receives eligible pay for services. The monthly pay credit is equal to a
percentage of the employees monthly eligible pay. The percentage depends on
age added to completed years of services at the beginning of the year, as shown
below:

|                 |  |             |   |  
|---------------- |  | ----------- | - | -
|                 |  | Monthly Pay
|                 |  | Credit     
|Age plus Service |  | Percentage 
|                 |  |            
|34 or less       |  |             | 4 | %
|35 to 49         |  |             | 5 | %
|50 to 64         |  |             | 6 | %
|65 or more       |  |             | 7 | %

The above monthly pay credit is increased by an additional 4% of any
portion of eligible pay above the Social Security taxable wage base ($84,900
for 2002). Employee accounts also receive monthly interest credits on their
balances. The rate of the interest credit is adjusted quarterly and is derived
from the average annual yield on 30-year U.S. Treasury Bonds during the third
week of the last month of the previous quarter, subject to a minimum rate of 4%
per year and a maximum rate of 9% per year.

Assuming that the Named Executive Officers continue in their present
positions at their present salaries until retirement at age 65, their estimated
annual pensions in a single life annuity form under the applicable pension
plan(s) (including the Duke Energy Retirement Cash Balance Plan, the Duke
Energy Executive Cash Balance Plan, the TEPPCO RCBP and the TEPPCO SBP)
attributable to such salaries would be as follows: Barry R. Pearl, $63,658; J.
Michael Cockrell, $43,721; Charles H. Leonard, $98,340; James C. Ruth,
$166,111; and John N. Goodpasture, $33,270. Such estimates were calculated
assuming interest credits at a rate of 6% per annum and using a future Social
Security taxable wage base equal to $87,000.

In 2002, William L. Thacker commenced benefit payments in the Duke Energy
Retirement Cash Balance Plan, the TEPPCO RCBP and the Duke Energy Executive
Cash Balance Plan. Under the Duke Energy Retirement Cash Balance Plan and the
TEPPCO RCBP, Mr. Thacker elected to receive his benefits as a one time payment.
The amounts paid from the Duke Energy Retirement Cash Balance Plan and the
TEPPCO RCBP were $136,964 and $45,508, respectively. Mr. Thackers benefits
under the Duke Energy Executive Cash Balance Plan will be paid out over 10
years. On January 1, 2003, the remaining balance to be paid out under the Duke
Energy Executive Cash Balance Plan was $265,052. In February 2003, Mr. Thacker
received his benefit under the TEPPCO SBP in the form of a one time payment of
$191,670.

57



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##### 








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

Equity
Compensation Plan Information

The following table provides information about our Equity Compensation
Plans. See Note 14. Unit-Based Compensation for a description of
the compensation plans.

|                                                           |  |                  |        |                |  |                 |       |           |  |  |   | 
|---------------------------------------------------------- |  | ---------------- | ------ | -------------- |  | --------------- | ----- | --------- |  |  | - | 
|                                                           |  | Number of        |        |                |  |                 |       |           |  | 
|                                                           |  | securities to be |        |                |  |                 |       | Number of
|                                                           |  | issued upon      |        | Weighted       |  | securities     
|                                                           |  | exercise of      |        | average price  |  | remaining      
|                                                           |  | outstanding      |        | of outstanding |  | available for  
|Plan Category                                              |  | options          |        | options        |  | future issuance
|                                                           |  |                  |        |                |  |                
|Equity compensation plans approved by
Security holders     |  |                  |       |                |  |                 |      |           |  |  |  | 
|Equity compensation plans not
approved by
Security holders |  |                  | 90,091 |                |  | $               | 23.62 |           |  |  |  | 
|                                                           |  |                  |        |                |  |                 |       |           |  |  |   | 
|Total                                                      |  |                  | 90,091 |                |  | $               | 23.62 |           |  |  |  | 
|                                                           |  |                  |        |                |  |                 |       |           |  |  |   | 

Security Ownership of Certain Beneficial Owners

As of March 7, 2003, Duke Energy, through its ownership of the Company and
other subsidiaries, owns 2,500,000 Limited Partner Units, representing 4.6% of
the Limited Partner Units outstanding; and 3,916,547 Class B Units,
representing 100% of the Class B Units, or 11.1% of the two classes of Units
combined. The following table sets forth information of each person other than
Duke Energy known to us to be the beneficial owner of more than 5% of our
voting shares as of March 14, 2003:

|                                     |                    |           |                   |                  |  |  |      |   | 
|------------------------------------ | ------------------ | --------- | ----------------- | ---------------- |  |  | ---- | - | 
|                                     |                    |           | Amount and Nature |                  |  |  |     
|                                     |                    |           | of Beneficial     |                  |  |  |     
|Name and Address of Beneficial Owner |                    | Ownership |                   | Percentage Owned
|                                     |                    |           |                   |                 
|Goldman, Sachs & Co.                 |                    |           | 3,784,517         | (1)              |  |  | 7.03 | %
|                                     | 85 Broad St        |           |                   |                  |  |  |      |   | 
|                                     | New York, NY 10004 |           |                   |                  |  |  |      |   | 



---

|(1) |  | Goldman, Sachs & Co. reported shared voting and dispositive power in its
most recent report on Schedule 13G/A filed February 11, 2003. Goldman,
Sachs & Co. is registered investment adviser whose clients have the right
to receive distributions from, and the proceeds from the sale of, such
shares.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No other person is known by us to own more than 5% of our outstanding
Units.

Security Ownership of Management

The following table sets forth certain information, as of March 14, 2003,
concerning the beneficial ownership of Limited Partner Units by each director
and Named Executive Officer of the General Partner and by all directors and
officers of the General Partner as a group. Such information is based on data
furnished by the persons named. Based on information furnished to the General
Partner by such persons, no director or officer of the General Partner owned
beneficially, as of March 14, 2003, more than 1% of the 53.8 million Limited
Partner Units outstanding at that date.

|                                                                                  |  |           |         | 
|--------------------------------------------------------------------------------- |  | --------- | ------- | 
|                                                                                  |  | Number of
|Name                                                                              |  | Units (1)
|                                                                                  |  |          
|Mark A. Borer                                                                     |  |           | 1,000   | 
|Michael J. Bradley                                                                |  |           | 650     | 
|J. Michael Cockrell                                                               |  |           | 5,000   | 
|Derrill Cody                                                                      |  |           | 13,000  | 
|John P. DesBarres                                                                 |  |           | 20,000  | 
|Charles H. Leonard                                                                |  |           | 796     | 
|Jim W. Mogg (2)                                                                   |  |           | 4,427   | 
|Barry R. Pearl                                                                    |  |           | 10,000  | 
|James C. Ruth                                                                     |  |           | 4,494   | 
|William W. Slaughter                                                              |  |           | 8,000   | 
|William L. Thacker                                                                |  |           | 37,866  | 
|All directors and officers (consisting of 20 people, including those named above) |  |           | 116,550 | 



---

|(1) |  | Unless otherwise indicated, the persons named above have sole voting and
investment power over the Units reported. Includes Units that the named
person has the right to acquire within 60 days.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 2,227 Units owned by daughters.                                                                                                                                                        

58



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##### 






Item 13.Certain Relationships and Related Transactions

Our Management

We have no employees and are managed by the Company, a wholly owned
subsidiary of DEFS. Duke Energy holds an approximate 70% interest in DEFS and
ConocoPhillips holds the remaining 30%. According to the Partnership
Agreements, the Company is entitled to reimbursement of all direct and indirect
expenses related to our business activities.

For the years ended December 31, 2002, 2001, and 2000, direct expenses
incurred by the Company of $69.6 million, $68.2 million and $50.4 million,
respectively, were charged to us by DEFS. Substantially all such costs were
related to payroll and payroll related expenses. For the years ended December
31, 2002, 2001, and 2000, expenses for administrative services and overhead
allocated to us by Duke Energy and its affiliates were $0.8 million, $0.6
million, and $0.8 million, respectively.

Transactions with DEFS

Effective with the purchase of the fractionation facilities on March 31,
1998, TEPPCO Colorado and DEFS entered into a 20-year Fractionation Agreement,
under which TEPPCO Colorado receives a variable fee for all fractionated
volumes delivered to DEFS. Revenues recognized from the fractionation
facilities totaled $7.4 million, $7.4 million and $7.5 million for the years
ended December 31, 2002, 2001 and 2000, respectively. TEPPCO Colorado and DEFS
also entered into an Operation and Maintenance Agreement, whereby DEFS 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, $0.9 million for the years ended December 31, 2002,
2001 and 2000, respectively.

Included with 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 paid to us by DEFS under the agreement totaled $1.2 million,
$1.2 million and $1.1 million for the years ended December 31, 2002, 2001 and
2000, respectively. The Panola Pipeline and San Jacinto Pipeline were
purchased on December 31, 2000, from DEFS for $91.7 million. These pipelines
originate at DEFS East Texas Plant Complex in Panola County, Texas. For the
years ended December 31, 2002 and 2001, revenues recognized included $12.0
million and $13.9 million, respectively, from a subsidiary of DEFS for NGL
transportation fees on the Panola and San Jacinto Pipelines.

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

On September 30, 2001, we completed the acquisition of Jonah. The Jonah
assets are managed and operated by employees of DEFS under a contractual
agreement under which DEFS is reimbursed for its actual costs. During the
years ended December 31, 2002 and 2001, we recognized $3.3 million and $0.6
million, respectively, of expense related to the management of the Jonah assets
by DEFS.

On March 1, 2002, we completed the acquisition of the Chaparral NGL
system. The Chaparral assets are managed and operated by employees of DEFS
under a contractual agreement under which DEFS is reimbursed for its actual
costs. During the year ended December 31, 2002, we recognized $1.7 million of
expenses related to the management of the Chaparral assets by DEFS.

On June 30, 2002, we completed the acquisition of Val Verde. The Val
Verde assets are managed and operated by employees of DEFS under a contractual
agreement under which DEFS is reimbursed for its actual costs. During the
year ended December 31, 2002, we recognized $1.2 million of expenses related to
the management of the Val Verde assets by DEFS.

59



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##### 



Interest of the General Partner in the Partnership

We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. According to the Partnership Agreement, the Company receives
incremental incentive cash distributions when cash distributions 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 | %

During the year ended December 31, 2002, distributions paid to the General
Partner totaled $37.7 million, including incentive distributions of $35.4
million.

Interests of Duke Energy in the Partnership

In connection with our formation, the Company received 2,500,000 Deferred
Participation Interests (DPIs). Effective April 1, 1994, the DPIs began
participating in distributions of cash and allocations of profit and loss in a
manner identical to Limited Partner Units and are treated as Limited Partner
Units for purposes of this Report. These Limited Partner Units were assigned
to Duke Energy when ownership of the Company was transferred from Duke Energy
to DEFS in 2000. Pursuant to our Partnership Agreement, we have registered the
resale by Duke Energy of such Limited Partner Units with the Securities and
Exchange Commission. As of December 31, 2002, no such Limited Partner Units
had been sold by Duke Energy.

At December 31, 2002, Duke Energy also held 3,916,547 Class B Units. 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. We have the option to seek approval for the conversion of the
Class B Units into Limited Partner Units; however, if the conversion is denied,
Duke Energy, as holder of the Class B Units, will have the right to sell them
to us at 95.5% of the 20-day average market closing price of the Limited
Partner Units, as determined under our Partnership Agreement.




Item 14.Controls and Procedures

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

The principal executive officer and principal financial officer of our
general partner, after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14(c) and Rule 15d-14(c))
as of a date within 90 days before the filing date of this Report, have
concluded that, as of such date, our disclosure controls and procedures are
adequate and effective to ensure that material information relating to us and
our consolidated subsidiaries would be made known to them by others within
those entities.

60



---



##### 



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




PART IV




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

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



| | (1) |  | Financial Statements: See Index to Financial
Statements and Supplemental Schedule on page F-1 of this
Report for financial statements filed as part of this Report.                  
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (2) |  | Financial Statement Schedules: See Index to
Financial Statements and Supplemental Schedule on page F-1 of
this Report for financial statement schedules filed as part of
this Report.
|
| | (3) |  | Exhibits.                                                                                                                                                                            

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2     |  | Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.1     |  | Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.2     |  | Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.3     |  | Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.6     |  | Second Supplemental Indenture, dated as of June 27, 2002,
among TEPPCO Partners, L.P., as issuer, TE Products Pipeline
Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., and Jonah Gas Gathering Company, as Initial
Subsidiary Guarantors, and Val Verde Gas Gathering Company, L.P., as
New Subsidiary                                                                                                                                           

61



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                     |                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                     | Guarantor, and Wachovia Bank, National Association, formerly
known as First Union National Bank, as trustee (Filed as
Exhibit 4.6 to Form 10-Q of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the quarter ended June 30, 2002 and
incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7*    |  | Third Supplemental Indenture among TEPPCO Partners, L.P. as
issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., Jonah Gas Gathering Company
and Val Verde Gas Gathering Company, L.P. as Subsidiary Guarantors,
and Wachovia Bank, National Association, as trustee, dated as of
January 30, 2003.                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1+   |  | Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2+   |  | Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.3+   |  | Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.4+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.6    |  | Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.9+   |  | Form of Employment Agreement between the Company and Thomas
R. Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.11   |  | Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.12+  |  | Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 1999 and incorporated herein by
reference).                                                                                                                   

62



---



##### 



|        |        |                                                                                                                                                                                                                                                                                                                                                                                                    |                                                                                                                                                                                                                                                                                               
|------- | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|Number  |        | Description                                                                                                                                                                                                                                                                                                                                                                                       
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.13+ |                                                                                                                                                                                                                                                                                                                                                                                                    | Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.14+  |        | Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                        
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.15+  |        | Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).                                                                                                 
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.16+  |        | Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).                                                                                                                        
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.17   |        | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of ARCO Pipe Line Company, dated as
of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 2000 and incorporated herein by reference).                 
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.18+  |        | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).                                                                                          
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.19+  |        | TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                                 
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.20+  |        | Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                  
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.21   |        | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by reference).
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.22   |        | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).                                         
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.23   |        | Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).                                                 
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.24   |        | Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, dated as
of September 28, 2001 ($400,000,000 Term Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).                                     
|        |        |                                                                                                                                                                                                                                                                                                                                                                                                   
|10.25   |        | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000
Revolving Facility) (Filed as Exhibit 10.33 to Form 10-Q of                                                                            

63



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##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                    
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.26   |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.27   |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.28   |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001

($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.29   |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.30   |  | Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.31   |  | Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.32   |  | Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.33   |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.34   |  | Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.35   |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.36   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.37   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).                                                        

64



---



##### 



|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                    
|------- | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |       | Description                                                                                                                                                                                                                                                                                                                                                                                                           
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.38 |                                                                                                                                                                                                                                                                                                                                                                                                                        | Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.39   |       | Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                    
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.40   |       | Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit Facility) (Filed
as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of July 2, 2002 and incorporated herein
by reference).
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.41   |       | Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).                    
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.42   |       | Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002 (Filed as Exhibit 10.48 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                                  
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.43+  |       | Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002 (Filed as Exhibit 10.49 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended June 30, 2002 and incorporated herein by
reference).                                                                                                                                          
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.44+* |       | Amended and Restated TEPPCO Supplemental Benefit Plan, effective
November 1, 2002.                                                                                                                                                                                                                                                                                                                                    
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.45+* |       | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Second Amendment and Restatement, effective January
1, 2003.                                                                                                                                                                                                                                                                              
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.46+* |       | Amended and Restated Texas Eastern Products Pipeline Company, LLC
Management Incentive Compensation Plan, effective January 1, 2003.                                                                                                                                                                                                                                                                                  
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.47+* |       | Amended and Restated TEPPCO Retirement Cash Balance Plan,
effective January 1, 2002.                                                                                                                                                                                                                                                                                                                                  
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.48*  |       | Formation Agreement between Panhandle Eastern Pipe Line Company
and Marathon Ashland Petroleum LLC and TE Products Pipeline Company,
Limited Partnership, dated as of August 10, 2000.                                                                                                                                                                                                                                
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.49*  |       | Amended and Restated Limited Liability Company Agreement of
Centennial Pipeline LLC dated as of August 10, 2000.                                                                                                                                                                                                                                                                                                      
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.50*  |       | Guaranty Agreement, dated as of September 27, 2002, between TE
Products Pipeline Company, Limited Partnership and Marathon Ashland
Petroleum LLC for Note Agreements of Centennial Pipeline LLC.                                                                                                                                                                                                                      
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.51*  |       | LLC Membership Interest Purchase Agreement By and Between CMS
Panhandle Holdings, LLC, As Seller and Marathon Ashland Petroleum
LLC and TE Products Pipeline Company, Limited Partnership, Severally
as Buyers, dated February 10, 2003.                                                                                                                                                                              
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|12.1*   |       | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                       
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|21      |       | Subsidiaries of the Partnership (Filed as Exhibit 21 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                                                                                                   
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|23*     |       | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                  
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|24*     |       | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                   
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.1*   |       | Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                   
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.2*   |       | Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                   

65



---



##### 





---

|    |  | * Filed herewith.                                                                                          
|--- |  | -----------------------------------------------------------------------------------------------------------
|   
|    |  | + A management contract or compensation plan or arrangement.                                               
|    |  |                                                                                                            
|(b) |  | Reports on Form 8-K filed during the quarter ended December
31, 2002:                                      
|    |  |                                                                                                            
|    |  | Reports on Form 8-K were filed on October 8, 2002, October 9,
2002, October 21, 2002 and November 12, 2002.

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 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: March 21, 2003 |  |                                                                                                                                         

66



---



##### 



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

|                                           |  |                                                                                                                                                |  |               
|------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                  |  | Title                                                                                                                                          |  | Date          
|                                           |  |                                                                                                                                                |  |               
|                                          
|BARRY R. PEARL*
Barry R. Pearl             |  | President and Chief Executive Officer
of Texas Eastern Products Pipeline Company, LLC                                                          |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|CHARLES H. LEONARD
Charles H. Leonard      |  | Senior Vice President and Chief Financial Officer
of Texas Eastern Products Pipeline Company, LLC (Principal Accounting and Financial Officer) |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|JIM W. MOGG*
Jim W. Mogg                   |  | Chairman of the Board of Texas
Eastern Products Pipeline Company, LLC                                                                          |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|MARK A. BORER *
Mark A. Borer              |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|MILTON CARROLL*
Milton Carroll             |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|R.A. WALKER*
R.A. Walker                   |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|DERRILL CODY*
Derrill Cody                 |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|JOHN P. DESBARRES*
John P. DesBarres       |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|MICHAEL J. BRADLEY*
Michael J. Bradley     |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003
|                                           |  |                                                                                                                                                |  |               
|WILLIAM W. SLAUGHTER*
William W. Slaughter |  | Director of Texas Eastern
Products Pipeline Company, LLC                                                                                       |  | March 21, 2003

| |                                                                 |                                                              | 
| | --------------------------------------------------------------- | ------------------------------------------------------------ | 
| | * Signed on behalf of the Registrant and each of these persons:
| |                                                                 |                                                             
| | By:                                                             | /s/ CHARLES H.
LEONARD(Charles
H. Leonard, Attorney-in-Fact)
| |                                                                 |                                                              | 

67



---



##### 



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

I, BARRY R. PEARL, certify that:



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



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



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



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



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

March 21, 2003
Date

/s/ BARRY R. PEARL
Barry R. Pearl
Senior President and Chief Executive Officer

68



---



##### 



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

I, CHARLES H. LEONARD, certify that:



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



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



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



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



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

March 21, 2003
Date

/s/ CHARLES H. LEONARD
Charles H. Leonard
Senior Vice President and Chief Financial Officer

69



---



##### 



CONSOLIDATED FINANCIAL STATEMENTS
OF TEPPCO PARTNERS, L.P.INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE

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

F-1





---



##### 



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, 2002 and 2001, and the related consolidated
statements of income, partners capital, and cash flows for each of the years
in the three-year period ended December 31, 2002. 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

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 January 1, 2002,
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets.

KPMG LLP

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

F-2





---



##### 



TEPPCO PARTNERS, L.P.CONSOLIDATED BALANCE SHEETS
(in thousands)

|                                                                                                                   |                                          |                                         |           |         |              |  |           |         |           |  | 
|------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | --------------------------------------- | --------- | ------- | ------------ |  | --------- | ------- | --------- |  | 
|                                                                                                                   |                                          |                                         |           |         | December 31,
|                                                                                                                   |                                          |                                         |           |         |             
|                                                                                                                   |                                          |                                         |           |         | 2002         |  | 2001     
|                                                                                                                   |                                          |                                         |           |         |              |  |          
|ASSETS                                                                                                             |                                          |                                         |           |         |              |  |           |        
|Current assets:                                                                                                    |                                          |                                         |           |         |              |  |           |        
|                                                                                                                   | Cash and cash equivalents                |                                         | $         | 30,968  |              |  | $         | 25,479  |          
|                                                                                                                   | Accounts receivable, trade               |                                         |           | 276,450 |              |  |           | 221,541 |          
|                                                                                                                   | Accounts receivable, related party       |                                         |           | 4,313   |              |  |           | 4,310   |          
|                                                                                                                   | Inventories                              |                                         |           | 17,166  |              |  |           | 17,243  |          
|                                                                                                                   | Other                                    |                                         |           | 31,670  |              |  |           | 14,907  |          
|                                                                                                                   |                                          |                                         |           |         |              |  |           |         |          
|                                                                                                                   |                                          | Total current assets                    |           |         | 360,567      |  |           |         | 283,480   | 
|                                                                                                                   |                                          |                                         |           |         |              |  |           |        
|Property, plant and equipment, at cost (Net
of accumulated depreciation and amortization
of $338,746 and $290,248) |                                          |                                         | 1,587,824 |         |              |  | 1,180,461 |        
|Equity investments                                                                                                 |                                          |                                         | 284,705   |         |              |  | 292,224   |        
|Intangible assets                                                                                                  |                                          |                                         | 465,374   |         |              |  | 251,487   |        
|Goodwill                                                                                                           |                                          |                                         | 16,944    |         |              |  | 16,669    |        
|Other assets                                                                                                       |                                          |                                         | 55,228    |         |              |  | 41,027    |        
|                                                                                                                   |                                          |                                         |           |         |              |  |           |         |          
|                                                                                                                   |                                          | Total assets                            |           | $       | 2,770,642    |  |           | $       | 2,065,348 | 
|                                                                                                                   |                                          |                                         |           |         |              |  |           |        
|LIABILITIES AND PARTNERS CAPITAL                                                                                  |                                          |                                         |           |         |              |  |           |        
|Current liabilities:                                                                                               |                                          |                                         |           |         |              |  |           |        
|                                                                                                                   | Notes payable                            |                                         | $         |        |              |  | $         | 360,000 |          
|                                                                                                                   | Accounts payable and accrued liabilities |                                         |           | 261,080 |              |  |           | 228,075 |          
|                                                                                                                   | Accounts payable, general partner        |                                         |           | 6,619   |              |  |           | 22,680  |          
|                                                                                                                   | Accrued interest                         |                                         |           | 29,726  |              |  |           | 15,649  |          
|                                                                                                                   | Other accrued taxes                      |                                         |           | 11,260  |              |  |           | 8,888   |          
|                                                                                                                   | Other                                    |                                         |           | 58,098  |              |  |           | 33,550  |          
|                                                                                                                   |                                          |                                         |           |         |              |  |           |         |           | 
|                                                                                                                   |                                          | Total current liabilities               |           |         | 366,783      |  |           |         | 668,842   | 
|                                                                                                                   |                                          |                                         |           |         |              |  |           |        
|Senior Notes                                                                                                       |                                          |                                         | 945,692   |         |              |  | 375,184   |        
|Other long-term debt                                                                                               |                                          |                                         | 432,000   |         |              |  | 340,658   |        
|Other liabilities and deferred credits                                                                             |                                          |                                         | 30,962    |         |              |  | 31,853    |        
|Redeemable Class B Units held by related party                                                                     |                                          |                                         | 103,363   |         |              |  | 105,630   |        
|Commitments
and contingencies                                                                                      |                                          |                                         |           |         |              |  |           |        
|Partners capital:                                                                                                 |                                          |                                         |           |         |              |  |           |        
|                                                                                                                   | Accumulated other comprehensive loss     |                                         |           | (20,055 | )            |  |           | (20,324 | )        
|                                                                                                                   | General partners interest               |                                         |           | 12,770  |              |  |           | 13,190  |          
|                                                                                                                   | Limited partners interests              |                                         |           | 899,127 |              |  |           | 550,315 |          
|                                                                                                                   |                                          |                                         |           |         |              |  |           |         |           | 
|                                                                                                                   |                                          | Total partners capital                 |           |         | 891,842      |  |           |         | 543,181   | 
|                                                                                                                   |                                          |                                         |           |         |              |  |           |        
|                                                                                                                   |                                          | Total liabilities and partners capital |           | $       | 2,770,642    |  |           | $       | 2,065,348 | 
|                                                                                                                   |                                          |                                         |           |         |              |  |           |        

See accompanying Notes to Consolidated Financial Statements.

F-3





---



##### 



TEPPCO PARTNERS, L.P.CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per Unit amounts)

|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |           | 
|----------------------------------------------------------------- | --------------------------------------------- | ------------------------------- | ------- | ------------------------ | --------- | ---- | ------- | --------- | --------- | - | ------- | --------- | --------- | 
|                                                                  |                                               |                                 |         | Years Ended December 31,
|                                                                  |                                               |                                 |         |                         
|                                                                  |                                               |                                 |         | 2002                     |           | 2001 |         | 2000     
|                                                                  |                                               |                                 |         |                          |           |      |         |          
|Operating revenues:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Sales of crude oil and petroleum products     |                                 | $       | 2,823,800                |           |      | $       | 3,219,816 |           |   | $       | 2,821,943 |          
|                                                                  | Transportation  Refined products             |                                 |         | 123,476                  |           |      |         | 139,315   |           |   |         | 119,331   |          
|                                                                  | Transportation  LPGs                         |                                 |         | 74,577                   |           |      |         | 77,823    |           |   |         | 73,896    |          
|                                                                  | Transportation  Crude oil                    |                                 |         | 27,414                   |           |      |         | 24,223    |           |   |         | 17,524    |          
|                                                                  | Transportation  NGLs                         |                                 |         | 38,870                   |           |      |         | 20,702    |           |   |         | 7,009     |          
|                                                                  | Gathering  Natural gas                       |                                 |         | 90,053                   |           |      |         | 8,824     |           |   |         |          |          
|                                                                  | Mont Belvieu operations                       |                                 |         | 15,238                   |           |      |         | 14,116    |           |   |         | 13,334    |          
|                                                                  | Other                                         |                                 |         | 48,735                   |           |      |         | 51,594    |           |   |         | 34,904    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total operating revenues        |         |                          | 3,242,163 |      |         |           | 3,556,413 |   |         |           | 3,087,941 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|Costs and expenses:                                               |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  | Purchases of crude oil and petroleum products |                                 |         | 2,772,328                |           |      |         | 3,172,805 |           |   |         | 2,793,643 |          
|                                                                  | Operating, general and administrative         |                                 |         | 158,753                  |           |      |         | 135,253   |           |   |         | 104,918   |          
|                                                                  | Operating fuel and power                      |                                 |         | 36,814                   |           |      |         | 36,575    |           |   |         | 34,655    |          
|                                                                  | Depreciation and amortization                 |                                 |         | 86,032                   |           |      |         | 45,899    |           |   |         | 35,163    |          
|                                                                  | Taxes  other than income taxes               |                                 |         | 17,989                   |           |      |         | 14,090    |           |   |         | 10,576    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total costs and expenses        |         |                          | 3,071,916 |      |         |           | 3,404,622 |   |         |           | 2,978,955 | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  |                                               | Operating income                |         |                          | 170,247   |      |         |           | 151,791   |   |         |           | 108,986   | 
|Interest expense                                                  |                                               |                                 | (70,537 | )                        |           |      | (66,057 | )         |           |   | (48,982 | )        
|Interest capitalized                                              |                                               |                                 | 4,345   |                          |           |      | 4,000   |           |           |   | 4,559   |          
|Equity earnings                                                   |                                               |                                 | 11,980  |                          |           |      | 17,398  |           |           |   | 12,214  |          
|Other income  net                                                |                                               |                                 | 1,827   |                          |           |      | 2,799   |           |           |   | 1,388   |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|                                                                  |                                               | Income before minority interest |         |                          | 117,862   |      |         |           | 109,931   |   |         |           | 78,165    | 
|Minority interest                                                 |                                               |                                 |        |                          |           |      | (800    | )         |           |   | (789    | )        
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Net income                      |         | $                        | 117,862   |      |         | $         | 109,131   |   |         | $         | 77,376    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|Net Income Allocation:                                            |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|Limited Partner Unitholders                                       |                                               |                                 | 81,238  |                          |           |      | 76,986  |           |           |   | 56,091  |          
|Class B Unitholder                                                |                                               |                                 | 6,943   |                          |           |      | 8,642   |           |           |   | 7,385   |          
|General Partner                                                   |                                               |                                 | 29,681  |                          |           |      | 23,503  |           |           |   | 13,900  |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |           |          
|                                                                  |                                               | Total net income allocated      |         | $                        | 117,862   |      |         | $         | 109,131   |   |         | $         | 77,376    | 
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|Basic and diluted net income per Limited
Partner and Class B Unit |                                               | $                               | 1.79    |                          |           | $    | 2.18    |           |           | $ | 1.89    |          
|                                                                  |                                               |                                 |         |                          |           |      |         |           |           |   |         |          
|Weighted average Limited Partner and Class B
Units outstanding    |                                               |                                 | 49,202  |                          |           |      | 39,258  |           |           |   | 33,594  |          

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,
|                                                     |                                                                               |                                                              |                                           |          |                         
|                                                     |                                                                               |                                                              |                                           |          | 2002                     |          | 2001   |          | 2000   
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |        
|Cash flows from operating activities:                |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     | Net income                                                                    |                                                              | $                                         | 117,862  |                          |          | $      | 109,131  |         |          | $      | 77,376   |        
|                                                     | Adjustments to reconcile net income to cash provided by
operating activities: |                                                              |                                           |          |                          |          |        |          |         |          |        |          |        
|                                                     |                                                                               | Depreciation and amortization                                |                                           |          | 86,032                   |          |        |          | 45,899  |          |        |          | 35,163  |         
|                                                     |                                                                               | Earnings in equity investments, net of distributions         |                                           |          | 18,401                   |          |        |          | 14,377  |          |        |          | (10,084 | )       
|                                                     |                                                                               | Non-cash portion of interest expense                         |                                           |          | 4,916                    |          |        |          | 4,053   |          |        |          | 2,218   |         
|                                                     |                                                                               | Decrease (increase) in accounts receivable                   |                                           |          | (54,909                  | )        |        |          | 81,190  |          |        |          | (90,006 | )       
|                                                     |                                                                               | Decrease (increase) in inventories                           |                                           |          | 77                       |          |        |          | 7,541   |          |        |          | (7,567  | )       
|                                                     |                                                                               | Decrease (increase) in other current assets                  |                                           |          | (16,263                  | )        |        |          | (8,082  | )        |        |          | 1,165   |         
|                                                     |                                                                               | Increase (decrease) in accounts payable and accrued expenses |                                           |          | 73,294                   |          |        |          | (71,757 | )        |        |          | 106,662 |         
|                                                     |                                                                               | Other                                                        |                                           |          | 5,507                    |          |        |          | (13,204 | )        |        |          | (6,882  | )       
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |          |        
|                                                     |                                                                               |                                                              | Net cash provided by operating activities |          |                          | 234,917  |        |          |         | 169,148  |        |          |         | 108,045  |  
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|Cash flows from investing activities:                |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     | Proceeds from the sale of assets                                              |                                                              |                                           | 3,380    |                          |          |        | 1,300    |         |          |        |         |        
|                                                     | Proceeds from cash investments                                                |                                                              |                                           |         |                          |          |        | 4,236    |         |          |        | 3,475    |        
|                                                     | Purchases of cash investments                                                 |                                                              |                                           |         |                          |          |        |         |         |          |        | (2,000   | )      
|                                                     | Purchase of ARCO assets                                                       |                                                              |                                           |         |                          |          |        | (11,000  | )       |          |        | (322,640 | )      
|                                                     | Purchase of Val Verde Gathering System                                        |                                                              |                                           | (444,150 | )                        |          |        |         |         |          |        |         |        
|                                                     | Purchase of Jonah Gas Gathering Company                                       |                                                              |                                           | (7,319   | )                        |          |        | (359,834 | )       |          |        |         |        
|                                                     | Purchase of Chaparral NGL System                                              |                                                              |                                           | (132,372 | )                        |          |        |         |         |          |        |         |        
|                                                     | Purchase of crude oil assets                                                  |                                                              |                                           |         |                          |          |        | (20,000  | )       |          |        | (99,508  | )      
|                                                     | Investment in Centennial Pipeline LLC                                         |                                                              |                                           | (10,882  | )                        |          |        | (64,953  | )       |          |        | (5,040   | )      
|                                                     | Capital expenditures                                                          |                                                              |                                           | (133,372 | )                        |          |        | (107,614 | )       |          |        | (68,481  | )      
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     |                                                                               |                                                              | Net cash used in investing activities     |          |                          | (724,715 | )      |          |         | (557,865 | )      |          |         | (494,194 | )
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|Cash flows from financing activities:                |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     | Proceeds from term and revolving credit facilities                            |                                                              |                                           | 675,000  |                          |          |        | 546,148  |         |          |        | 552,000  |        
|                                                     | Repayments on term and revolving credit facilities                            |                                                              |                                           | (943,659 | )                        |          |        | (291,490 | )       |          |        | (172,000 | )      
|                                                     | Issuance of Senior Notes                                                      |                                                              |                                           | 497,805  |                          |          |        |         |         |          |        |         |        
|                                                     | Debt issuance costs                                                           |                                                              |                                           | (7,025   | )                        |          |        | (2,601   | )       |          |        | (7,074   | )      
|                                                     | Proceeds from termination of interest rate swaps                              |                                                              |                                           | 44,896   |                          |          |        |         |         |          |        |         |        
|                                                     | Issuance of Limited Partner Units, net                                        |                                                              |                                           | 372,506  |                          |          |        | 234,660  |         |          |        | 88,158   |        
|                                                     | General partners contributions                                               |                                                              |                                           | 7,617    |                          |          |        | 4,795    |         |          |        | 1,799    |        
|                                                     | Distributions paid                                                            |                                                              |                                           | (151,853 | )                        |          |        | (104,412 | )       |          |        | (82,231  | )      
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     |                                                                               |                                                              | Net cash provided by financing activities |          |                          | 495,287  |        |          |         | 387,100  |        |          |         | 380,652  |  
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|Net increase (decrease) in cash and cash equivalents |                                                                               |                                                              | 5,489                                     |          |                          |          | (1,617 | )        |         |          | (5,497 | )       
|Cash and cash equivalents at beginning of period     |                                                                               |                                                              | 25,479                                    |          |                          |          | 27,096 |          |         |          | 32,593 |         
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|Cash and cash equivalents at end of period           |                                                                               | $                                                            | 30,968                                    |          |                          | $        | 25,479 |          |         | $        | 27,096 |         
|                                                     |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|Supplemental disclosure of cash flows:               |                                                                               |                                                              |                                           |          |                          |          |        |          |         |          |        |         
|                                                     | Interest paid during the year (net of capitalized interest)                   |                                                              | $                                         | 48,908   |                          |          | $      | 61,458   |         |          | $      | 36,793   |        

See accompanying Notes to Consolidated Financial Statements.

F-5





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##### 



TEPPCO PARTNERS, L.P.

CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL
(in thousands, except Unit amounts)

|                                       |                                                            |  |             |            |           |   |           |         |               |   |         |          |             |   |         |         |   |   |         |          |  
|-------------------------------------- | ---------------------------------------------------------- |  | ----------- | ---------- | --------- | - | --------- | ------- | ------------- | - | ------- | -------- | ----------- | - | ------- | ------- | - | - | ------- | -------- | -
|                                       |                                                            |  | Outstanding |            |           |   |           |         |               |   |         |          | Accumulated |   |         |         |  
|                                       |                                                            |  | Limited     |            | General   |   | Limited   |         | Other         |   |         |          |            
|                                       |                                                            |  | Partner     |            | Partner's |   | Partners' |         | Comprehensive |   |         |          |            
|                                       |                                                            |  | Units       |            | Interest  |   | Interests |         | Loss          |   | Total  
|                                       |                                                            |  |             |            |           |   |           |         |               |   |        
|Partners capital at December 31, 1999 |                                                            |  | 29,000,000  |            |           | $ | 657       |         |               | $ | 229,110 |          |             | $ |        |         |   | $ | 229,767 |         
|                                       | Capital contributions                                      |  |             |           |           |   |           | 890     |               |   |         |         |             |   |         |        |   |   |         | 890      |  
|                                       | Issuance of Limited Partner Units, net                     |  |             | 3,700,000  |           |   |           |        |               |   |         | 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 |                                                            |  | 32,700,000  |            |           |   | 1,824     |         |               |   | 313,233 |          |             |   |        |         |   |   | 315,057 |         
|                                       | Capital contributions                                      |  |             |           |           |   |           | 4,795   |               |   |         |         |             |   |         |        |   |   |         | 4,795    |  
|                                       | Issuance of Limited Partner Units, net                     |  |             | 7,750,000  |           |   |           |        |               |   |         | 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 |                                                            |  | 40,450,000  |            |           |   | 13,190    |         |               |   | 550,315 |          |             |   | (20,324 | )       |   |   | 543,181 |         
|                                       | Capital contributions                                      |  |             |           |           |   |           | 7,568   |               |   |         |         |             |   |         |        |   |   |         | 7,568    |  
|                                       | Issuance of Limited Partner Units, net                     |  |             | 13,260,000 |           |   |           |        |               |   |         | 370,108  |             |   |         |        |   |   |         | 370,108  |  
|                                       | Net gain on cash flow hedges                               |  |             |           |           |   |           |        |               |   |         |         |             |   |         | 269     |   |   |         | 269      |  
|                                       | 2002 net income allocation                                 |  |             |           |           |   |           | 29,681  |               |   |         | 81,238   |             |   |         |        |   |   |         | 110,919  |  
|                                       | 2002 cash distributions                                    |  |             |           |           |   |           | (37,718 | )             |   |         | (104,932 | )           |   |         |        |   |   |         | (142,650 | )
|                                       | Issuance of Limited Partner Units
upon exercise of options |  |             | 99,597     |           |   |           | 49      |               |   |         | 2,398    |             |   |         |        |   |   |         | 2,447    |  
|                                       |                                                            |  |             |            |           |   |           |         |               |   |         |          |             |   |         |         |   |   |         |         
|Partners capital at December 31, 2002 |                                                            |  | 53,809,597  |            |           | $ | 12,770    |         |               | $ | 899,127 |          |             | $ | (20,055 | )       |   | $ | 891,842 |         
|                                       |                                                            |  |             |            |           |   |           |         |               |   |         |          |             |   |         |         |   |   |         |         

See accompanying Notes to Consolidated Financial Statements.

F-6





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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 formed in March 1990. We operate 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 our general partner and owns a 2% general partner interest in us. The
General Partner is a wholly owned subsidiary of Duke Energy Field Services, LLC
(DEFS), a joint venture between Duke Energy Corporation (Duke Energy) and
ConocoPhillips. Duke Energy holds an approximate 70% interest in DEFS, and
ConocoPhillips holds the remaining 30%. The Company, as general partner,
performs all management and operating functions required for us, except for the
management and operations of certain of the TEPPCO Midstream assets that are
managed by DEFS on our behalf. We reimburse the General Partner for all
reasonable direct and indirect expenses incurred in managing us.

As used in this Report, we, us, our, and the Partnership means
TEPPCO Partners, L.P. and, where the context requires, includes our
subsidiaries.

On July 26, 2001, the Company restructured its general partner ownership
of the Operating Partnerships to cause them to be indirectly wholly owned by
us. TEPPCO GP, Inc. (TEPPCO GP), our subsidiary, succeeded the Company as
general partner of the Operating Partnerships. All remaining partner interests
in the Operating Partnerships not already owned by us were transferred to us.
In exchange for this contribution, the Companys interest as our general
partner 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 us and the Operating
Partnerships. As a result, we hold 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 the Operating Partnerships issue guarantees of
our debt.

At formation in 1990, we completed an initial public offering of
26,500,000 Units representing Limited Partner Interests (Limited Partner
Units) at $10.00 per Unit. In connection with our formation, the Company
received 2,500,000 Deferred Participation Interests (DPIs). Effective April
1, 1994, the DPIs began participating in distributions of cash and allocations
of profit and loss in a manner identical to Limited Partner Units and are
treated as Limited Partner Units for purposes of this Report. These Limited
Partner Units were assigned to Duke Energy when ownership of the Company was
transferred from Duke Energy to DEFS in 2000. Pursuant to our Partnership
Agreement, we have registered the resale by Duke Energy of such Limited Partner
Units with the Securities and Exchange Commission. As of December 31, 2002, no
such Limited Partner Units had been sold by Duke Energy.

At December 31, 2002 and 2001, we had outstanding 53,809,597 and
40,450,000 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. We have the
option to seek approval for the conversion of the Class B Units into Limited
Partner Units; however, if the conversion is denied, Duke Energy, as holder of
the Class B Units, will have the right to sell them to us at 95.5% of the
20-day average market closing price of the Limited Partner Units, as determined
under our Partnership Agreement. As a result of this option, we have not
included the Class B Units in partners capital at December 31, 2002 and 2001.
Collectively, the Limited Partner Units and Class B Units are referred to as
Units.

F-7





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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

NOTE 2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Basis of Presentation and Principles of Consolidation

The financial statements include our accounts 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. We have eliminated all
significant intercompany items in consolidation. We have reclassified certain
amounts from prior periods to conform with the current presentation.

Use of Estimates

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

Environmental Expenditures

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

Business Segments

We operate and report 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).
Our reportable segments offer different products and services and are managed
separately because each requires different business strategies.

Effective January 1, 2002, we realigned our three business segments to
reflect our entry into the natural gas gathering business and the expanded
scope of NGLs operations. We transferred the fractionation of NGLs, which was
previously reflected as part of the Downstream Segment, to the Midstream
Segment. The operation of NGL

F-8





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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

pipelines, which was previously reflected as
part of the Upstream Segment, was also transferred to the Midstream Segment.
We have adjusted our period-to-period comparisons to conform with the current
presentation.

Our 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.

Revenue Recognition

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

Our Upstream Segment revenues are earned 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 our crude oil marketing company, TEPPCO Crude Oil, L.P.,
which typically occurs upon our receipt of the product. Revenues related to
trade documentation and pumpover fees are recognized as services are completed.

Except for crude oil purchased from time to time as inventory, our policy
is to purchase only crude oil for which we have a market to sell and to
structure sales contracts so that crude oil price fluctuations do not
materially affect the margin received. As we purchase crude oil, we establish
a margin by selling crude oil for physical delivery to third party users or by
entering into a future delivery obligation. Through these transactions, we
seek 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.

Our Midstream Segment revenues are derived from the gathering of natural
gas, fractionation of NGLs 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. We do not take title to the natural gas
gathered, NGLs transported or NGLs fractionated, therefore, the results of our
Midstream Segment are not directly affected by changes in the prices of natural
gas or NGLs.

Natural Gas Imbalances

Gas imbalances occur when gas producers (customers) deliver more or less actual
natural gas gathering volumes to our gathering systems than they originally
nominated. Actual deliveries are different from nominated volumes due to
fluctuations in gas production at the wellhead. If the customers supply more
natural gas gathering volumes than they nominated, the Val Verde Gathering
System (Val Verde) and the Jonah Gas Gathering System (Jonah) record a
payable for the amount due to customers and also record a receivable for the
same amount due from connecting pipeline transporters or shippers. If the
customers supply less natural gas gathering volumes than

F-9





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##### 



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

they nominated, the Val Verde and the Jonah systems record a receivable
reflecting the amount due from customers and a payable for the same amount due
to connecting pipeline transporters or shippers.

Quantities of natural gas over or under delivered related to imbalance
agreements are recorded monthly using then current index prices. These
imbalances are settled with cash or deliveries of natural gas. Gains are
recorded when gas volumes owed (receivables) are settled by gas producers at a
later date during a period of increasing prices, or if Val Verde and Jonah
settle payables at later date during a period of falling prices. Losses are
recorded if these processes are reversed.

Use of Derivatives

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

We have utilized and expect to continue to utilize interest rate swap
agreements to hedge a portion of our cash flow and fair value risks. Interest
rate swap agreements are used to manage the fixed and floating interest rate
mix of our total debt portfolio and overall cost of borrowing. The interest
rate swap related to our cash flow risk is intended to reduce our exposure to
increases in the benchmark interest rates underlying our variable rate
revolving credit facility. The interest rate swaps related to our fair value
risks are intended to reduce our exposure to changes in the fair value of our
fixed rate Senior Notes. The interest rate swap agreements involve the
periodic exchange of payments without the exchange of the notional amount upon
which the payments are based. The related amount payable to or receivable from
counterparties is included as an adjustment to accrued interest.

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

We adopted SFAS 133 at January 1, 2001, which 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 transferred to earnings as the forecasted transactions
actually occur. Amounts determined as of January 1, 2001, were based on the
market quote of our interest swap agreement in place at the time of adoption.

F-10



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##### 



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

Inventories

Inventories consist primarily of petroleum products and crude oil which
are valued at the lower of cost (weighted average cost method) or market. Our
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

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

We evaluate impairment of long-lived assets in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets to Be Disposed Of, and
effective January 1, 2002, SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Recoverability of the carrying amount of
assets to be held and used is measured by a comparison of the carrying amount
of the asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.

Capitalization of Interest

We capitalize interest on borrowed funds related to capital projects only
for periods that activities are in progress to bring these projects to their
intended use. The weighted average rate used to capitalize interest on borrowed
funds was 5.11%, 6.46% and 7.45% for the years ended December 31, 2002, 2001
and 2000, respectively. During the years ended December 31, 2002, 2001 and
2000, the amount of interest capitalized was $4.3 million, $4.0 million and
$4.6 million, respectively.

Intangible Assets

Intangible assets at December 31, 2002, consist primarily of production
contracts assumed in the acquisition of Jonah on September 30, 2001, and the
acquisition of Val Verde on June 30, 2002, and the fractionation agreement with
DEFS.

In connection with the acquisitions of Jonah and Val Verde, we assumed
contracts that dedicate future production from natural gas wells in the Green
River Basin in Wyoming, and we assumed fixed-term contracts with customers that
transport coal bed methane (CBM) from the Fruitland Coal Formation of the San
Juan Basin in New Mexico and Colorado, respectively (see Note 5. 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 is amortized on a unit of
production basis, based upon the actual throughput of the system over the
expected total throughput for the lives of the contracts. The amortization of
the Jonah and Val Verde systems are expected to average approximately 16 years
and 20 years, respectively. On a quarterly basis, we update production
estimates of the natural gas wells and evaluate the remaining expected useful
life of the contract

F-11



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##### 



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

assets. At December 31, 2002, the unamortized balance of
the Jonah and Val Verde production contracts were $205.2 million and $228.6
million, respectively.

In connection with the purchase of the fractionation facilities in 1998,
we entered into a fractionation agreement with DEFS. The fractionation
agreement is being amortized over a period of 20 years, which is the term of
the agreement with DEFS. At December 31, 2002, the unamortized balance of this
agreement was $29.0 million (see Note 7. Related Party Transactions.)

Goodwill

Goodwill represents the excess of purchase price over fair value of net
assets acquired and is presented on the consolidated balance sheets net of
accumulated amortization. We account for goodwill under SFAS No. 142, Goodwill
and Other Intangible Assetswhich was issued by the Financial Accounting
Standards Board (FASB) in July 2001 (see Note 3. 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. Beginning January 1, 2002, effective with the adoption of SFAS 142, we
no longer record amortization expense related to goodwill or amortization
expense related to the excess investment on our equity investment (equity
method goodwill).

Income Taxes

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

Cash Flows

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

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 49.2 million Units,
39.3 million Units and 33.6 million Units for the years ended December 31,
2002, 2001 and 2000, respectively). 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 13. Quarterly Distributions of
Available Cash). The General Partner was allocated $29.7 million (representing
25.18%) of net income for the year ended December 31, 2002, $23.5 million
(representing 21.54%) of net income for the year ended December 31, 2001, and
$13.9 million (representing 17.96%) of net income for the year ended December
31, 2000. The General Partners percentage interest in our net income
increases as cash distributions paid per Unit increases.

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

F-12



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##### 



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

treasury stock method. For the years ended December 31, 2002, 2001 and 2000, the
denominator was increased by 32,053 Units, 41,864 Units and 20,926 Units,
respectively.

Unit Option Plan

We have not granted options for any periods presented. For options
outstanding under the 1994 Long Term Incentive Plan (see Note 14. Unit-Based
Compensation), we followed the intrinsic value method of accounting for
recognizing stock-based compensation expense. Under this method, we record no
compensation expense for unit options granted when the exercise price of the
options granted is equal to, or greater than, the market price of our Limited
Partner Units on the date of the grant.

In December 2002, SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosurewas issued. SFAS 148 amends SFAS No. 123, Accounting
for Stock-Based Compensation, and provides alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosure in both annual and
interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
Certain of the disclosure modifications are required for fiscal years ending
after December 15, 2002, and are included in Note 14. Unit-Based Compensation.

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

|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |   |        |        | 
|------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------- | ------------------------------------ | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|                                                                   |  |                                                                                                                |                                      |   | Years Ended December 31,
|                                                                   |  |                                                                                                                |                                      |   |                         
|                                                                   |  |                                                                                                                |                                      |   | 2002                     |         | 2001 |   | 2000   
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |        
|Net income:                                                        |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  | Reported net income                                                                                            |                                      | $ | 117,862                  |         |      | $ | 109,131 |         |  | $ | 77,376 |       
|                                                                   |  | Deduct: Total unit-based employee compensation expense
determined under fair value based method for all awards |                                      |   | (6                       | )       |      |   | (118    | )       |  |   | (201   | )     
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                                                                                | Pro forma net income                 |   | $                        | 117,856 |      |   | $       | 109,013 |  |   | $      | 77,175 | 
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|Pro forma net income allocation:                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  | Limited Partner Unitholders                                                                                    |                                      | $ | 81,234                   |         |      | $ | 76,902  |         |  | $ | 55,945 |       
|                                                                   |  | Class B Unitholder                                                                                             |                                      |   | 6,943                    |         |      |   | 8,633   |         |  |   | 7,366  |       
|                                                                   |  | General Partner                                                                                                |                                      |   | 29,679                   |         |      |   | 23,478  |         |  |   | 13,864 |       
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                                                                                | Total pro forma net income allocated |   | $                        | 117,856 |      |   | $       | 109,013 |  |   | $      | 77,175 | 
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|Basic and diluted net income per Limited Partner and Class B Unit: |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  | As reported                                                                                                    |                                      | $ | 1.79                     |         |      | $ | 2.18    |         |  | $ | 1.89   |       
|                                                                   |  | Deduct: Total unit-based employee compensation expense
determined under fair value based method for all awards |                                      |   |                         |         |      |   |        |         |  |   | (0.01  | )     
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                                                                                | Pro forma net income per Unit        |   | $                        | 1.79    |      |   | $       | 2.18    |  |   | $      | 1.88   | 
|                                                                   |  |                                                                                                                |                                      |   |                          |         |      |   |         |         |  |  

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

F-13



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##### 



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

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS 143 requires
us to record the fair value of an asset retirement obligation as a liability in
the period in which we incur a legal obligation for the retirement of tangible
long-lived assets. A corresponding asset is also recorded and depreciated over
the life of the asset. After the initial measurement of the asset retirement
obligation, the liability will be adjusted at the end of each reporting period
to reflect changes in the estimated future cash flows underlying the
obligation. We will adopt SFAS 143 effective January 1, 2003. Determination
of any amounts to be recognized upon adoption is based upon numerous estimates
and assumptions, including future retirement costs, future inflation rates and
the credit-adjusted risk-free interest rates.

The Downstream Segment assets consist primarily of a pipeline system and a
series of storage facilities that originate along the upper Texas Gulf Coast
and extend through the Midwest and northeastern United States. We transport
refined products, LPGs and petrochemicals through the pipeline system. These
products are primarily received in the south end of the system and stored
and/or transported to various points along the system per customer nominations.
The Upstream Segments operations include purchasing crude oil from producers
at the wellhead and providing delivery, storage and other services to its
customers. The properties in the Upstream Segment consist of interstate trunk
pipelines, pump stations, trucking facilities, storage tanks and various
gathering systems primarily in Texas and Oklahoma. The Midstream Segment
gathers natural gas from producers and transports natural gas and NGLs on its
pipeline systems, primarily in Texas, Wyoming, New Mexico and Colorado. The
Midstream Segment also owns and operates two NGL fractionating facilities in
Colorado.

The fair value of the asset retirement obligations for our trunk and
interstate pipelines and our surface facilities cannot be reasonably estimated,
as future dismantlement and removal dates are indeterminate. We will record
such asset retirement obligations in the period in which we determine the
settlement dates of the retirement obligations. Other assets in which future
operating lives may be determinable include our gathering assets in our
Midstream and Upstream Segments. However, our rights-of-way agreements, in
general, do not require us to remove pipe or otherwise perform restoration upon
taking the pipelines permanently out of service. We are continuing to evaluate
the effect of SFAS 143 on our Midstream and Upstream gathering assets, but we
do not currently anticipate that the adoption of SFAS 143 will have a material
impact on our financial position, results of operations or cash flows.

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

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

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146
requires recognition of a liability for a cost associated with an exit or disposal activity

F-14



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##### 



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

when the liability is incurred, as opposed to when the entity
commits to an exit plan under EITF No. 94-3. SFAS 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
We do not believe that the adoption of SFAS 146 will have a material effect on
our financial position, results of operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS 148 amends SFAS No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS 148 amends the
disclosure requirements of SFAS 123 to require prominent disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on the
reported results. The provisions of SFAS 148 are effective for financial
statements for fiscal years ending after December 15, 2002. The adoption of
SFAS 148 did not affect our financial position, results of operations or cash
flows.

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

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities, an interpretation of ARB No. 51(FIN 46). FIN
46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. We are required
to apply FIN 46 to all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, we are required to apply FIN 46 on July 1, 2003. We do not
believe FIN 46 will have a significant impact on our financial position,
results of operations or cash flows.

NOTE 3. GOODWILL AND OTHER INTANGIBLE ASSETS

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

Beginning January 1, 2002, effective with the adoption of SFAS 142, we no
longer record amortization expense related to goodwill or amortization expense
related to the excess investment on our equity investment in Seaway Crude
Pipeline Company (see Note 6. Equity Investments). The following table
presents our results on a comparable basis, as if we had not recorded
amortization expense of goodwill or amortization expense of our excess
investment in Seaway Crude Pipeline Company for the years ended December 31,
2002, 2001 and 2000 (in thousands, except per Unit amounts):

F-15



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##### 



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

|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |   |        |        | 
|------------------------------------------------------------------ |  | ---------------------------------------------- | ---------------------------- | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|                                                                   |  |                                                |                              |   | Years Ended December 31,
|                                                                   |  |                                                |                              |   |                         
|                                                                   |  |                                                |                              |   | 2002                     |         | 2001 |   | 2000   
|                                                                   |  |                                                |                              |   |                          |         |      |   |        
|Net income:                                                        |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  | Reported net income                            |                              | $ | 117,862                  |         |      | $ | 109,131 |         |  | $ | 77,376 |       
|                                                                   |  | Amortization of goodwill and excess investment |                              |   |                         |         |      |   | 2,396   |         |  |   | 767    |       
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                | Adjusted net income          |   | $                        | 117,862 |      |   | $       | 111,527 |  |   | $      | 78,143 | 
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|Net income allocation:                                             |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  | Limited Partner Unitholders                    |                              | $ | 81,238                   |         |      | $ | 78,676  |         |  | $ | 56,647 |       
|                                                                   |  | Class B Unitholder                             |                              |   | 6,943                    |         |      |   | 8,832   |         |  |   | 7,458  |       
|                                                                   |  | General Partner                                |                              |   | 29,681                   |         |      |   | 24,019  |         |  |   | 14,038 |       
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                | Total net income allocated   |   | $                        | 117,862 |      |   | $       | 111,527 |  |   | $      | 78,143 | 
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|Basic and diluted net income per Limited Partner and Class B Unit: |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  | As reported                                    |                              | $ | 1.79                     |         |      | $ | 2.18    |         |  | $ | 1.89   |       
|                                                                   |  | Amortization of goodwill and excess investment |                              |   |                         |         |      |   | 0.05    |         |  |   | 0.02   |       
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  
|                                                                   |  |                                                | Adjusted net income per Unit |   | $                        | 1.79    |      |   | $       | 2.23    |  |   | $      | 1.91   | 
|                                                                   |  |                                                |                              |   |                          |         |      |   |         |         |  |  

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

In connection with the transitional goodwill impairment evaluation
required by SFAS 142, we were required to perform an assessment of whether
there was an indication that goodwill was impaired as of the date of adoption.
We accomplished this by identifying our reporting units and determining the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of the date of adoption. We then determined the fair value of each
reporting unit and compared it to the carrying value of the reporting unit. We
completed this analysis during the second quarter of 2002, resulting in no
transitional impairment loss. We will continue to compare the fair value of
each reporting unit to the carrying value on an annual basis to determine if an
impairment loss has occurred.

At December 31, 2002, we had $16.9 million of unamortized goodwill and
$25.5 million of excess investment in our equity investment (equity method
goodwill). We completed an impairment analysis of the excess investment in our
equity investment during the year ended December 31, 2002, and we noted no
indication of impairment. The excess investment is included in our equity
investments account at December 31, 2002. The following table presents the
carrying amount of goodwill and excess investment at December 31, 2002, by
business segment (in thousands):

|                       |  |            |   |           |  |          |       |          |  |   |        |  |  |   |        | 
|---------------------- |  | ---------- | - | --------- |  | -------- | ----- | -------- |  | - | ------ |  |  | - | ------ | 
|                       |  | Downstream |   | Midstream |  | Upstream |       | Segments
|                       |  | Segment    |   | Segment   |  | Segment  |       | Total   
|                       |  |            |   |           |  |          |       |         
|Goodwill               |  | $          |  |           |  | $        | 2,777 |          |  | $ | 14,167 |  |  | $ | 16,944 | 
|Equity method goodwill |  |            |  |           |  |          |      |          |  |   | 25,502 |  |  |   | 25,502 | 

F-16



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##### 



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

The following table reflects the components of amortized intangible
assets, excluding goodwill (in thousands):

|                             |                                      |       |   |                   |         |                   |   |                |         |              |   |         |         |  |   |        |         |  
|---------------------------- | ------------------------------------ | ----- | - | ----------------- | ------- | ----------------- | - | -------------- | ------- | ------------ | - | ------- | ------- |  | - | ------ | ------- | -
|                             |                                      |       |   | December 31, 2002 |         | December 31, 2001
|                             |                                      |       |   |                   |         |                  
|                             |                                      |       |   | Gross Carrying    |         | Accumulated       |   | Gross Carrying |         | Accumulated 
|                             |                                      |       |   | Amount            |         | Amortization      |   | Amount         |         | Amortization
|                             |                                      |       |   |                   |         |                   |   |                |         |             
|Amortized intangible assets: |                                      |       |   |                   |         |                   |   |                |         |              |   |         |         |  |   |       
|                             | Fractionation agreement              |       | $ | 38,000            |         |                   | $ | (9,025         | )       |              | $ | 38,000  |         |  | $ | (7,125 | )      
|                             | Natural gas transportation contracts |       |   | 462,449           |         |                   |   | (28,710        | )       |              |   | 222,800 |         |  |   | (3,275 | )      
|                             | Other                                |       |   | 3,745             |         |                   |   | (1,085         | )       |              |   | 1,458   |         |  |   | (371   | )      
|                             |                                      |       |   |                   |         |                   |   |                |         |              |   |         |         |  |   |       
|                             |                                      | Total |   | $                 | 504,194 |                   |   | $              | (38,820 | )            |   | $       | 262,258 |  |   | $      | (10,771 | )
|                             |                                      |       |   |                   |         |                   |   |                |         |              |   |         |         |  |   |       

Excluding goodwill, amortization expense on intangible assets was $27.9
million, $5.5 million and $2.0 million for the years ended December 31, 2002,
2001 and 2000, respectively.

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

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 50,799 | 
|2004 |  |   | 52,384 | 
|2005 |  |   | 52,657 | 
|2006 |  |   | 47,153 | 
|2007 |  |   | 42,174 | 

NOTE 4. DERIVATIVE FINANCIAL INSTRUMENTS

We have entered into an interest rate swap agreement to hedge our exposure
to increases in the benchmark interest rate underlying our variable rate
revolving credit facility. The term of the interest rate swap matches the
maturity of the credit facility. We 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 $250.0 million. Under the swap agreement, we pay a fixed
rate of interest of 6.955% and receive 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 years ended December 31, 2002, and 2001, we recognized
increases in interest expense of $12.9 million and $6.8 million, respectively,
related to the difference between the fixed rate and the floating rate of
interest on the interest rate swap. During the year ended December 31, 2002,
we measured the hedge effectiveness of this interest rate swap and noted that
no gain or loss from ineffectiveness was required to be recognized. The fair
value of the interest rate swap agreement was a loss of approximately $20.1
million and $20.3 million at December 31, 2002, and 2001, respectively. We
anticipate that approximately $13.5 million of the fair value will be
transferred into earnings over the next twelve months.

On October 4, 2001, our TE Products subsidiary entered into 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. We designated this swap agreement as a
fair value hedge. The swap agreement has a notional amount of $210.0 million
and matures in January 2028 to match the principal and maturity of the 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%. During the years ended December 31, 2002,
and 2001, we recognized reductions in interest expense of $8.6 million and $1.8
million, respectively, related to the difference between the fixed rate and the
floating rate of interest on the interest rate swap. During the year ended
December 31, 2002, we measured the hedge effectiveness of this interest rate
swap and noted that no gain or loss from ineffectiveness was required to be

F-17



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##### 



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

recognized. The fair value of this interest rate swap agreement was a gain of
approximately $13.6 million at December 31, 2002, and a loss of approximately
$14.6 million at December 31, 2001.

On February 20, 2002, we entered into interest rate swap agreements to
hedge our exposure to changes in the fair value of our fixed rate 7.625% Senior
Notes due 2012. We designated these swap agreements as fair value hedges. The
swap agreements had a combined notional amount of $500.0 million and matured in
2012 to match the principal and maturity of the Senior Notes. Under the swap
agreements, we paid a floating rate based on a six month U.S. Dollar LIBOR
rate, plus a spread, and received a fixed rate of interest of 7.625%. On July
16, 2002, we terminated these interest rate swap agreements. Upon termination,
the fair value of the interest rate swap agreements was $25.8 million. From
inception of the swap agreements on February 20, 2002, through the termination
on July 16, 2002, $7.8 million had been recognized as a reduction to interest
expense. The remaining gain of approximately $18.0 million has been deferred
as an adjustment to the carrying value of the Senior Notes and is being
amortized using the effective interest method as a reduction to future interest
expense over the remaining term of the Senior Notes. In the event of early
extinguishment of the Senior Notes, any remaining unamortized gain would be
recognized in the consolidated statement of income at the time of
extinguishment.

Additionally, on July 16, 2002, we entered into new interest rate swap
agreements to hedge our exposure to changes in the fair value of our $500.0
million principal amount of 7.625% fixed rate Senior Notes due 2012. We
designated these swap agreements as fair value hedges. The swap agreements had
a combined notional amount of $500.0 million and matured in 2012 to match the
principal and maturity of the Senior Notes. Under these swap agreements, we
paid a floating rate based on a six month U.S. Dollar LIBOR rate, plus a
spread, which increased by approximately 50 basis points from the previous swap
agreements, and received a fixed rate of interest of 7.625%. On December 12,
2002, we terminated these interest rate swap agreements. Upon termination, the
fair value of the interest rate swap agreements was $33.5 million. From
inception of the swap agreements on July 16, 2002, through the termination on
December 12, 2002, $6.6 million had been recognized as a reduction to interest
expense. The remaining gain of approximately $26.9 million has been deferred
as an adjustment to the carrying value of the Senior Notes and is being
amortized using the effective interest method as a reduction to future interest
expense over the remaining term of the Senior Notes. In the event of early
extinguishment of the Senior Notes, any remaining unamortized gain would be
recognized in the consolidated statement of income at the time of
extinguishment.

NOTE 5. ACQUISITIONS

On July 20, 2000, we 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% 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. We assumed ARCOs role as
operator of this pipeline. We 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, we 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, we reached a settlement with Atlantic Richfield Company
of $11.0 million for the post-closing adjustments.

F-18



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##### 



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

We recorded the settlement
as an increase to the purchase price of ARCO. We paid the settlement amount to
Atlantic Richfield Company on October 15, 2001.

On December 31, 2000, we completed an acquisition of 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. We
also assumed a lease of a condensate pipeline from Carthage to Marshall, Texas.
All three pipelines originate at DEFS East Texas Plant Complex in Panola
County, Texas. We accounted for the acquisition of these assets under the
purchase method of accounting.

On September 30, 2001, our subsidiaries completed the purchase of Jonah
from Alberta Energy Company for $359.8 million. The acquisition served as our
entry into the natural gas gathering industry. We recognized goodwill on the
purchase of approximately $2.8 million. We accounted for the acquisition under
the purchase method of accounting. Accordingly, the results of the acquisition
are included in the consolidated financial statements from September 30, 2001.
We paid an additional $7.3 million on February 4, 2002, for final purchase
adjustments related primarily to construction projects in progress at the time
of closing. Under a contractual agreement, DEFS manages and operates Jonah on
our behalf.

The following table allocates the estimated fair value of Jonah assets
acquired on September 30, 2001, and includes the additional purchase adjustment
paid on February 4, 2002 (in thousands):

|                                                           |                     |   |         |         | 
|---------------------------------------------------------- | ------------------- | - | ------- | ------- | 
|Property, plant and equipment                              |                     | $ | 141,835 |        
|Intangible assets (primarily gas transportation contracts) |                     |   | 222,800 |        
|Goodwill                                                   |                     |   | 2,777   |        
|Other                                                      |                     |   | 147     |        
|                                                           |                     |   |         |        
|                                                           | Total assets        |   |         | 367,559 | 
|                                                           |                     |   |         |        
|Total liabilities assumed                                  |                     |   | (489    | )      
|                                                           |                     |   |         |        
|                                                           | Net assets acquired |   | $       | 367,070 | 
|                                                           |                     |   |         |        

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. We are amortizing the value assigned to intangible assets on a
unit of production basis, based upon the actual throughput of the system over
the expected total throughput for the contracts (averaging approximately 16
years).

On March 1, 2002, we completed the purchase of the Chaparral NGL system
(Chaparral) for $132.4 million from Diamond-Koch II, L.P. and Diamond-Koch
III, L.P., including acquisition related costs of approximately $0.4 million.
We funded the purchase by a drawdown of our $500.0 million revolving credit
facility (see Note 10. Debt). Chaparral is an NGL pipeline system that
extends from West Texas and New Mexico to Mont Belvieu. The pipeline delivers
NGLs to fractionators and to our existing storage in Mont Belvieu. Under a
contractual agreement, DEFS manages and operates these assets on our behalf.
We accounted for the acquisition of these assets under the purchase method of
accounting. We allocated the purchase price to property, plant and equipment. Accordingly, the results of the acquisition are included in
the consolidated financial statements from March 1, 2002.

On June 30, 2002, we completed the purchase of Val Verde for $444.2
million from Burlington Resources Gathering Inc., a subsidiary of Burlington
Resources Inc., including acquisition related costs of approximately $1.2
million. We funded the purchase by drawing down $168.0 million under our
$500.0 million revolving credit facility, $72.0 million under our 364-day
revolving credit facility, and $200.0 million under a six-month term loan with
SunTrust Bank (see Note 10. Debt). The remaining purchase price was funded
through working capital sources of cash. The Val Verde system gathers CBM from
the Fruitland Coal Formation of the San Juan Basin in

F-19



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##### 



TEPPCO PARTNERS, L.P.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)

New Mexico and Colorado. The system is one of the largest CBM gathering and treating facilities in the
United States. Under a contractual agreement, DEFS manages and operates Val
Verde on our behalf. We accounted for the acquisition of these assets under
the purchase method of accounting. Accordingly, the results of the acquisition
are included in the consolidated financial statements from June 30, 2002.

The following table allocates the estimated fair value of the Val Verde
assets acquired on June 30, 2002 (in thousands):

|                                                           |                     |   |         |         | 
|---------------------------------------------------------- | ------------------- | - | ------- | ------- | 
|Property, plant and equipment                              |                     | $ | 205,146 |        
|Intangible assets (primarily gas transportation contracts) |                     |   | 239,649 |        
|                                                           |                     |   |         |        
|                                                           | Total assets        |   |         | 444,795 | 
|                                                           |                     |   |         |        
|Total liabilities assumed                                  |                     |   | (645    | )      
|                                                           |                     |   |         |        
|                                                           | Net assets acquired |   | $       | 444,150 | 
|                                                           |                     |   |         |        

The value assigned to intangible assets relates to fixed-term contracts
with customers. We are amortizing the value assigned to intangible assets on a
unit of production basis, based upon the actual throughput of the system over
the expected total throughput for the contracts (averaging approximately 20
years).

The following table presents our unaudited pro forma results as though the
acquisitions of Jonah and Val Verde occurred at the beginning of 2001 or 2002
(in thousands, except per Unit amounts). The unaudited pro forma results give
effect to certain pro forma adjustments including depreciation and amortization
expense adjustments of property, plant and equipment and intangible assets
based upon the purchase price allocations, interest expense related to
financing the acquisitions, amortization of debt issue costs and the removal of
income tax effects in historical results of operations. The pro forma results
do not include operating efficiencies or revenue growth from historical
results.

|                                                                  |  |              |           |      |  |   |           | 
|----------------------------------------------------------------- |  | ------------ | --------- | ---- |  | - | --------- | 
|                                                                  |  | Years Ended 
|                                                                  |  | December 31,
|                                                                  |  |             
|                                                                  |  | 2002         |           | 2001
|                                                                  |  |              |           |     
|Revenues                                                          |  | $            | 3,279,948 |      |  | $ | 3,659,496 | 
|Operating income                                                  |  |              | 181,717   |      |  |   | 179,600   | 
|Net income                                                        |  |              | 130,335   |      |  |   | 119,286   | 
|Basic and diluted net income per
Limited Partner and Class B Unit |  | $            | 1.70      |      |  | $ | 2.00      | 

The summarized pro forma information has been prepared for comparative
purposes only. It is not intended to be indicative of the actual operating
results that would have occurred had the acquisitions been consummated at the
beginning of 2001 or 2002, or the results which may be attained in the future.

NOTE 6. EQUITY INVESTMENTS

The acquisition of the ARCO assets in July 2000 included ARCOs 50%
ownership interest in 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. Seaway is a partnership between a subsidiary of
TCTM, TEPPCO Seaway, L.P. (TEPPCO Seaway), and ConocoPhillips. TCTM purchased
the 50% ownership interest in Seaway on July 20, 2000, and transferred the
investment to TEPPCO Seaway. 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, TEPPCO Seaway
received 80% of revenue and expense of Seaway. From June 2002 through May
2006, TEPPCO Seaway will receive 60% of revenue and expense of Seaway.
Thereafter, the sharing ratio becomes 40% of revenue and

F-20



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##### 



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

expense to TEPPCO
Seaway. For the year ended December 31, 2002, our portion of equity earnings
on a pro-rated basis averaged approximately 67%.

In August 2000, TE Products entered into agreements with Panhandle Eastern
Pipeline Company (PEPL), a subsidiary of CMS Energy Corporation, and Marathon
Ashland Petroleum LLC (Marathon) to form Centennial Pipeline LLC
(Centennial). Centennial owns an interstate refined petroleum products
pipeline extending from the upper Texas Gulf Coast to Illinois. Through
December 31, 2002, each participant owned a one-third interest in Centennial.
During the years ended December 31, 2002 and 2001, we contributed approximately
$10.9 million and $70.0 million, respectively, for our investment in
Centennial. These amounts are included in the equity investment balance at
December 31, 2002 and 2001.

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

|           |  |              |        |      |  |   |        | 
|---------- |  | ------------ | ------ | ---- |  | - | ------ | 
|           |  | Years Ended 
|           |  | December 31,
|           |  |             
|           |  | 2002         |        | 2001
|           |  |              |        |     
|Revenues   |  | $            | 83,237 |      |  | $ | 55,719 | 
|Net income |  |              | 5,389  |      |  |   | 26,218 | 

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

|                       |  |              |         |      |  |   |         | 
|---------------------- |  | ------------ | ------- | ---- |  | - | ------- | 
|                       |  | December 31,
|                       |  |             
|                       |  | 2002         |         | 2001
|                       |  |              |         |     
|Current assets         |  | $            | 32,528  |      |  | $ | 57,368  | 
|Noncurrent assets      |  |              | 551,324 |      |  |   | 528,835 | 
|Current liabilities    |  |              | 28,681  |      |  |   | 31,308  | 
|Long-term debt         |  |              | 140,000 |      |  |   | 128,000 | 
|Noncurrent liabilities |  |              | 14,875  |      |  |   |        | 
|Partners capital      |  |              | 400,296 |      |  |   | 426,895 | 

Our investment in Seaway at December 31, 2002, and 2001, includes an
excess net investment amount of $25.5 million. Excess investment is the amount
by which our investment balance exceeds our proportionate share of the net
assets of the investment. Prior to January 1, 2002, and our adoption of SFAS
142, we were amortizing the excess investment in Seaway using the straight-line
method over 20 years.

NOTE 7. RELATED PARTY TRANSACTIONS

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

For the years ended December 31, 2002, 2001, and 2000, direct expenses
incurred by the Company of $69.6 million, $68.2 million and $50.4 million,
respectively, were charged to us by DEFS. Substantially all such costs were
related to payroll and payroll related expenses. For the years ended December
31, 2002, 2001, and 2000, expenses for administrative services and overhead
allocated to us by Duke Energy and its affiliates were $0.8 million, $0.6
million and $0.8 million, respectively.

F-21



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##### 



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

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, $7.4 million and $7.5 million
for the years ended December 31, 2002, 2001 and 2000, respectively. TEPPCO
Colorado and DEFS also entered into an Operation and Maintenance Agreement,
whereby DEFS 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 $0.9 million for the years
ended December 31, 2002, 2001 and 2000, respectively.

Included with 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 paid to us by DEFS under the agreement totaled $1.2 million,
$1.2 million and $1.1 million for the years ended December 31, 2002, 2001 and
2000, respectively. The Panola Pipeline and San Jacinto Pipeline were
purchased on December 31, 2000, from DEFS for $91.7 million. These pipelines
originate at DEFS East Texas Plant Complex in Panola County, Texas. For the
years ended December 31, 2002 and 2001, revenues recognized included $12.0
million and $13.9 million, respectively, from a subsidiary of DEFS for NGL
transportation fees on the Panola and San Jacinto Pipelines.

On July 20, 2000, we, through TCTM, acquired a 50% ownership interest in
Seaway. ConocoPhillips owns the remaining 50% interest in Seaway. TEPPCO
Crude Pipeline, L.P. is the operator of this pipeline. During the years ended
December 31, 2002, 2001 and 2000, we billed Seaway $7.1 million, $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, 2002,
2001 and 2000, we billed Seaway $2.1 million, $2.1 million and $0.9 million,
respectively, for indirect management fees for operating Seaway.

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

On September 30, 2001, we completed the acquisition of Jonah. The Jonah
assets are managed and operated by employees of DEFS under a contractual
agreement under which DEFS is reimbursed for its actual costs. During the
years ended December 31, 2002, and 2001, we recognized $3.3 million and $0.6
million, respectively, of expense related to the management of the Jonah assets
by DEFS.

On March 1, 2002, we completed the acquisition of the Chaparral NGL
system. The Chaparral assets are managed and operated by employees of DEFS
under a contractual agreement under which DEFS is reimbursed for its actual
costs. During the year ended December 31, 2002, we recognized $1.7 million of
expenses related to the management of the Chaparral assets by DEFS.

On June 30, 2002, we completed the acquisition of Val Verde. The Val
Verde assets are managed and operated by employees of DEFS under a contractual
agreement under which DEFS is reimbursed for its actual costs. During the year
ended December 31, 2002, we recognized $1.2 million of expenses related to the
management of the Val Verde assets by DEFS.

In August 2000, TE Products entered into agreements with PEPL and Marathon
to form Centennial (see Note 6. Equity Investments). At December 31, 2002, TE
Products had a one-third ownership interest in Centennial. TE Products has entered
into a management agreement with Centennial to operate Centennials terminal at
Creal Springs and pipeline connection in Beaumont, Texas. For the year ended
December 31, 2002, we recognized management fees of $0.2 million from
Centennial, and actual operating expenses billed to Centennial were $0.3

F-22



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##### 



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

million. TE Products also has a joint tariff with Centennial to deliver
products at TE Products locations using Centennials pipeline as part of the
delivery route to connecting carriers. TE Products, as the delivering
pipeline, invoices the shippers for the entire delivery rate, records only the
net rate attributable to it as transportation revenues and records a liability
for the amounts due to Centennial for its share of the tariff. At December 31,
2002, we have a payable balance of $1.0 million to Centennial for its share of
the joint tariff deliveries. In addition, TE Products performs ongoing
construction services for Centennial and bills Centennial for labor and other
costs to perform the construction. At December 31, 2002, TE Products has a
receivable of $1.9 million due from Centennial for reimbursement of
construction services provided to Centennial.

NOTE 8. INVENTORIES

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

|                       |       |   |              |        |      |   |       |        | 
|---------------------- | ----- | - | ------------ | ------ | ---- | - | ----- | ------ | 
|                       |       |   | December 31,
|                       |       |   |             
|                       |       |   | 2002         |        | 2001
|                       |       |   |              |        |     
|Crude oil              |       | $ |             |        |      | $ | 3,783 |       
|Gasolines              |       |   | 4,700        |        |      |   | 4,548 |       
|Propane                |       |   |             |        |      |   | 1,096 |       
|Butanes                |       |   | 1,991        |        |      |   | 1,431 |       
|Transmix               |       |   | 2,526        |        |      |   | 878   |       
|Other products         |       |   | 3,836        |        |      |   | 1,988 |       
|Materials and supplies |       |   | 4,113        |        |      |   | 3,519 |       
|                       |       |   |              |        |      |   |       |       
|                       | Total |   | $            | 17,166 |      |   | $     | 17,243 | 
|                       |       |   |              |        |      |   |       |       

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

NOTE 9. PROPERTY, PLANT AND EQUIPMENT

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

|                              |                                                |                                   |           |              |           |      |         |           |           | 
|----------------------------- | ---------------------------------------------- | --------------------------------- | --------- | ------------ | --------- | ---- | ------- | --------- | --------- | 
|                              |                                                |                                   |           | December 31,
|                              |                                                |                                   |           |             
|                              |                                                |                                   |           | 2002         |           | 2001
|                              |                                                |                                   |           |              |           |     
|Land and right of way         |                                                | $                                 | 106,279   |              |           | $    | 92,664  |          
|Line pipe and fittings        |                                                |                                   | 1,090,848 |              |           |      | 822,332 |          
|Storage tanks                 |                                                |                                   | 143,740   |              |           |      | 130,461 |          
|Buildings and improvements    |                                                |                                   | 20,408    |              |           |      | 15,131  |          
|Machinery and equipment       |                                                |                                   | 463,049   |              |           |      | 252,393 |          
|Construction work in progress |                                                |                                   | 102,246   |              |           |      | 157,728 |          
|                              |                                                |                                   |           |              |           |      |         |          
|                              | Total property, plant and equipment            |                                   | $         | 1,926,570    |           |      | $       | 1,470,709 |          
|                              | Less accumulated depreciation and amortization |                                   |           | 338,746      |           |      |         | 290,248   |          
|                              |                                                |                                   |           |              |           |      |         |          
|                              |                                                | Net property, plant and equipment |           | $            | 1,587,824 |      |         | $         | 1,180,461 | 
|                              |                                                |                                   |           |              |           |      |         |          

Depreciation expense on property, plant and equipment was $56.0 million,
$39.5 million and $33.0 million for the years ended December 31, 2002, 2001 and
2000, respectively.

F-23



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##### 



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

NOTE 10. LONG TERM DEBT

Senior Notes

On January 27, 1998, TE Products completed the issuance of $180.0 million
principal amount of 6.45% Senior Notes due 2008, and $210.0 million principal
amount of 7.51% Senior Notes due 2028 (collectively the TE Products Senior
Notes). The 6.45% TE Products Senior Notes were issued at a discount of $0.3
million and are being accreted to their face value over the term of the notes.
The 6.45% TE Products Senior Notes due 2008 are not subject to redemption prior
to January 15, 2008. The 7.51% TE Products 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.

The TE Products Senior Notes do not have sinking fund requirements.
Interest on the TE Products Senior Notes is payable semiannually in arrears on
January 15 and July 15 of each year. The TE Products 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 TE Products Senior Notes contains covenants, including, but not
limited to, covenants limiting the creation of liens securing indebtedness and
sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of December 31, 2002, TE Products
was in compliance with the covenants of the TE Products Senior Notes.

On February 20, 2002, we received $494.6 million in net proceeds, after
underwriting discount, from the issuance of $500.0 million principal amount of
7.625% Senior Notes due 2012. The 7.625% Senior Notes were issued at a
discount of $2.2 million and are being accreted to their face value over the
term of the notes. We used the proceeds from the offering to reduce a portion
of the outstanding balances of our credit facilities, including those issued in
connection with the acquisition of Jonah. The Senior Notes may be redeemed at
any time at our option with the payment of accrued interest and a make-whole
premium determined by discounting remaining interest and principal payments
using a discount rate equal to the rate of the United States Treasury
securities of comparable remaining maturity plus 35 basis points. The
indenture governing our 7.625% Senior Notes contains covenants, including, but
not limited to, covenants limiting the creation of liens securing indebtedness
and sale and leaseback transactions. However, the indenture does not limit our
ability to incur additional indebtedness. As of December 31, 2002, we were in
compliance with the covenants of these Senior Notes.

At December 31, 2002 and 2001, the estimated fair value of the Senior
Notes was approximately $914.9 million and $362.0 million, respectively.
Market prices for recent transactions and rates currently available to us for
debt with similar terms and maturities were used to estimate fair value.

We have entered into interest rate swap agreements to hedge our exposure
to changes in the fair value on a portion of the Senior Notes discussed above.
See Note 4. Derivative Financial Instruments.

Other Long Term Debt and Credit Facilities

On July 14, 2000, we entered into a $75.0 million term loan and a $475.0
million revolving credit facility (Three Year Facility). On July 21, 2000,
we borrowed $75.0 million under the term loan and $340.0 million under the
Three Year Facility. The funds were used to finance the acquisition of the
ARCO assets (see Note 5. 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 Three Year Facility was amended to provide for
revolving borrowings of up to $500.0 million for a period of three years
including the issuance of letters of credit of up to $20.0 million. The
interest rate is based, at our option, on either the lenders base rate plus a
spread, or LIBOR plus a spread in effect at the time of the borrowings. The
credit agreement for the Three Year Facility contains restrictive financial
covenants that require us to maintain a minimum level of partners capital as
well as maximum debt-to-EBITDA (earnings before interest expense, income

F-24



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##### 



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

tax expense and depreciation and amortization expense) and minimum fixed charge
coverage ratios. On February 20, 2002, we repaid $115.7 million of the then
outstanding balance of the Three Year Facility with proceeds from the issuance
of our 7.625% Senior Notes. On March 1, 2002, we borrowed $132.0 million under
the Three Year Facility to finance the acquisition of the Chaparral NGL system.
On March 22, 2002, we repaid a portion of the Three Year Facility with
proceeds we received from the issuance of additional Limited Partner Units (see
Note 11. Partners Capital). To facilitate our financing of a portion of the
purchase price of the Val Verde assets, on June 27, 2002, the Three Year
Facility was amended to increase the maximum permitted debt-to-EBITDA ratio
covenant to allow us to incur additional indebtedness. For the twelve month
period ending June 30, 2002, the maximum permitted ratio was 5.5-to-1 on a pro
forma basis. For the twelve month period ending September 30, 2002, the
maximum permitted ratio was 5.0-to-1 on a pro forma basis. At December 31,
2002, the maximum permitted debt-to-EBITDA ratio under our revolving credit
facility returned to its pre-amendment level of 4.5-to-1. We then drew down
the existing capacity of the Three Year Facility and acquired the Val Verde
assets. During the fourth quarter of 2002, we repaid $68.0 million of the
outstanding balance of the Three Year Facility with proceeds from our November
2002 equity offering (see Note 11. Partners Capital) and proceeds from the
termination of our interest rate swaps (see Note 4. Derivative Financial
Instruments). At December 31, 2002, $432.0 million was outstanding under the
Three Year Facility at a weighted average interest rate of 2.5%. As of
December 31, 2002, we were in compliance with the covenants contained in this
credit agreement.

We have entered into an interest rate swap agreement to hedge our exposure
to increases in interest rates on the Three Year Facility discussed above. See
Note 4. Derivative Financial Instruments.

Short Term Credit Facilities

On April 6, 2001, we entered into a 364-day, $200.0 million revolving
credit agreement (Short-term Revolver). The interest rate is based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contains
restrictive financial covenants that require us to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. On March 28, 2002, the Short-term Revolver was extended for an
additional period of 364 days, ending in March 2003. To facilitate our
financing of a portion of the purchase price of the Val Verde assets, on June
27, 2002, the Short-term Revolver was amended to increase the maximum permitted
debt-to-EBITDA ratio covenant to allow us to incur additional indebtedness.
For the twelve month period ending June 30, 2002, the maximum permitted ratio
was 5.5-to-1 on a pro forma basis. For the twelve month period ending
September 30, 2002, the maximum permitted ratio was 5.0-to-1 on a pro forma
basis. At December 31, 2002, the maximum permitted debt-to-EBITDA ratio under
our revolving credit facility returned to its pre-amendment level of 4.5-to-1.
We then drew down $72.0 million under the Short-term Revolver. In the fourth
quarter of 2002, we repaid the existing amounts outstanding under the
Short-term Revolver with proceeds we received from the issuance of Limited
Partner Units in November and December 2002. At December 31, 2002, no amounts
were outstanding under the Short-term Revolver. As of December 31, 2002, we
were in compliance with the covenants contained in this credit agreement. In February 2003, we gave notice that we will not
renew the Short-term Revolver. As a result, the facility will expire on March
27, 2003.

On September 28, 2001, we entered into a $400.0 million credit facility
with SunTrust Bank (Bridge Facility) payable in June 2002. We borrowed
$360.0 million under the Bridge Facility to acquire the Jonah assets (see Note
5. Acquisitions). During the fourth quarter of 2001, we repaid $160.0 million
of the outstanding principal from proceeds received from the issuance of
Limited Partner Units in November 2001. On February 5, 2002, we drew down an
additional $15.0 million under the Bridge Facility. On February 20, 2002, we
repaid the outstanding balance of the Bridge Facility of $215.0 million with
proceeds from the issuance of the 7.625% Senior Notes and canceled the
facility.

On June 27, 2002, we entered into a $200.0 million six-month term loan
with SunTrust Bank (Six-Month Term Loan) payable in December 2002. We
borrowed $200.0 million under the Six-Month Term Loan to acquire

F-25



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##### 



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

the Val Verde assets (see Note 5. Acquisitions). The interest rate was based, at our
option, on either the lenders base rate plus a spread, or LIBOR plus a spread
in effect at the time of the borrowings. The credit agreement contained
restrictive financial covenants that required us to maintain a minimum level of
partners capital as well as maximum debt-to-EBITDA and minimum fixed charge
coverage ratios. On July 11, 2002, we repaid $90.0 million of the outstanding
principal from proceeds primarily received from the issuance of Limited Partner
Units in July 2002. On September 10, 2002, we repaid the remaining outstanding
balance of $110.0 million with proceeds received from the issuance of Limited
Partner Units in September 2002 (see Note 11. Partners Capital), and canceled
the facility.

The following table summarizes the principal amounts outstanding under our
credit facilities as of December 31, 2002 and 2001 (in thousands):

|                              |                                                                   |                                                  |                                    |        |              |           |      |         |         |         | 
|----------------------------- | ----------------------------------------------------------------- | ------------------------------------------------ | ---------------------------------- | ------ | ------------ | --------- | ---- | ------- | ------- | ------- | 
|                              |                                                                   |                                                  |                                    |        | December 31,
|                              |                                                                   |                                                  |                                    |        |             
|                              |                                                                   |                                                  |                                    |        | 2002         |           | 2001
|                              |                                                                   |                                                  |                                    |        |              |           |     
|Short Term Credit Facilities: |                                                                   |                                                  |                                    |        |              |           |      |        
|                              |                                                                   | Short-term Revolver, due March 2003              |                                    | $      |             |           |      | $       | 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              |                                    | $      | 432,000      |           |      | $       | 340,658 |        
|                              |                                                                   | 6.45% TE Products Senior Notes, due January 2008 |                                    |        | 179,845      |           |      |         | 179,814 |        
|                              |                                                                   | 7.51% TE Products Senior Notes, due January 2028 |                                    |        | 210,000      |           |      |         | 210,000 |        
|                              |                                                                   | 7.625% Senior Notes, due February 2012           |                                    |        | 497,995      |           |      |         |        |        
|                              |                                                                   |                                                  |                                    |        |              |           |      |        
|                              |                                                                   |                                                  | Total borrowings                   |        |              | 1,319,840 |      |         |         | 730,472 | 
|                              | Adjustment to carrying value associated with
hedges of fair value |                                                  |                                    | 57,852 |              |           |      | (14,630 | )      
|                              |                                                                   |                                                  |                                    |        |              |           |      |        
|                              |                                                                   |                                                  | Total Long Term Credit Facilities  |        | $            | 1,377,692 |      |         | $       | 715,842 | 
|                              |                                                                   |                                                  |                                    |        |              |           |      |        

NOTE 11. PARTNERS CAPITAL

On February 6, 2001, we sold in an underwritten public offering 2.0
million Limited Partner Units at $25.50 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $48.7 million and
were used to reduce borrowings under the Three Year Facility. On March 6, 2001,
250,000 Units were sold upon exercise of the underwriters over-allotment
option granted in connection with the offering on February 6, 2001. Proceeds
from that sale totaled $6.1 million and were used for general purposes.

On November 14, 2001, we sold in an underwritten public offering 5.5
million Limited Partner Units at $34.25 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $180.3 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 March 22, 2002, we sold in an underwritten public offering 1.92 million
Limited Partner Units at $31.18 per Unit. The proceeds from the offering, net
of underwriting discount, totaled approximately $57.3 million and were used to
repay $50.0 million of the outstanding balance on the Three Year Facility, with
the remaining amount being used for general purposes.

On July 11, 2002, we sold in an underwritten public offering 3.0 million
Limited Partner Units at $30.15 per Unit. The proceeds from the offering, net
of underwriting discount, totaled approximately $86.6 million and were used to
reduce borrowings under our Six-Month Term Loan. On August 14, 2002, 175,000
Units were sold

F-26



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##### 



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

upon exercise of the underwriters over-allotment option
granted in connection with the offering on July 11, 2002. Proceeds from that
sale totaled $5.1 million and were used for general purposes.

On September 6, 2002, we sold in an underwritten public offering 3.8
million Limited Partner Units at $29.72 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $108.1 million
and were used to reduce borrowings under our Six-Month Term Loan. On September
19, 2002, 570,000 Units were sold upon exercise of the underwriters
over-allotment option granted in connection with the offering on September 6,
2002. Proceeds from that sale totaled $16.2 million and were used to reduce
borrowings under our Short-term Revolver.

On November 7, 2002, we sold in an underwritten public offering 3.3
million Limited Partner Units at $26.83 per Unit. The proceeds from the
offering, net of underwriting discount, totaled approximately $84.8 million and
were used to reduce borrowings under our Short-term Revolver and Three Year
Facility. On December 4, 2002, 495,000 Units were sold upon exercise of the
underwriters over-allotment option granted in connection with the offering on
November 7, 2002. Proceeds from that sale totaled $12.7 million and were used
to reduce borrowings under our Short-term Revolver and Three Year Facility.

NOTE 12. CONCENTRATIONS OF CREDIT RISK

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

For the years ended December 31, 2002, 2001 and 2000, we had one customer
from the Upstream Segment, Valero Energy Corp., which accounted for 16%, 14%
and 12%, respectively, of our total consolidated revenues.

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

NOTE 13. QUARTERLY DISTRIBUTIONS OF AVAILABLE CASH

We make quarterly cash distributions of all of our Available Cash,
generally defined as consolidated cash receipts less consolidated cash
disbursements and cash reserves established by the General Partner in its sole
discretion. Pursuant to the Partnership Agreement, the Company receives
incremental incentive cash distributions when cash distributions 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 | %

F-27



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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, 2002, 2001 and 2000 (in thousands, except per
Unit amounts).

|                                       |                                            |   |                          |         |      |   |        |         |  |   |        |        | 
|-------------------------------------- | ------------------------------------------ | - | ------------------------ | ------- | ---- | - | ------ | ------- |  | - | ------ | ------ | 
|                                       |                                            |   | Years Ended December 31,
|                                       |                                            |   |                         
|                                       |                                            |   | 2002                     |         | 2001 |   | 2000  
|                                       |                                            |   |                          |         |      |   |       
|Limited Partner Units                  |                                            | $ | 104,932                  |         |      | $ | 73,961 |         |  | $ | 59,943 |       
|General Partner Ownership Interest     |                                            |   | 2,329                    |         |      |   | 1,273  |         |  |   | 685    |       
|General Partner Incentive              |                                            |   | 35,389                   |         |      |   | 20,257 |         |  |   | 12,938 |       
|                                       |                                            |   |                          |         |      |   |        |         |  |   |        |       
|                                       | Total Partners Capital Cash Distributions |   |                          | 142,650 |      |   |        | 95,491  |  |   |        | 73,566 | 
|Class B Units                          |                                            |   | 9,204                    |         |      |   | 8,421  |         |  |   | 7,833  |       
|Minority Interest                      |                                            |   |                         |         |      |   | 500    |         |  |   | 832    |       
|                                       |                                            |   |                          |         |      |   |        |         |  |   |        |       
|                                       | Total Cash Distributions Paid              |   | $                        | 151,854 |      |   | $      | 104,412 |  |   | $      | 82,231 | 
|                                       |                                            |   |                          |         |      |   |        |         |  |   |        |       
|Total Cash Distributions Paid Per Unit |                                            | $ | 2.35                     |         |      | $ | 2.15   |         |  | $ | 2.00   |       
|                                       |                                            |   |                          |         |      |   |        |         |  |   |        |       

On February 7, 2003, we paid a cash distribution of $0.60 per Limited
Partner Unit and Class B Unit for the quarter ended December 31, 2002. The
fourth quarter 2002 cash distribution totaled $46.5 million.

NOTE 14. UNIT-BASED COMPENSATION

1994 Long Term Incentive Plan

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

When our calendar year earnings per unit (exclusive of certain special
items) exceeds a stated threshold, each participant receives a credit to their
respective Performance Unit account equal to the earnings per unit excess
multiplied by the number of Performance Units awarded. The balance in the
Performance Unit account may be used to offset the cost of exercising 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. We accrue compensation expense for the Performance Units
awarded annually based upon the terms of the plan discussed above.

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 |  |             | 11,100 |           |  | $          | 1.875 |  |  |  | 2009 | 

F-28



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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, 1999 |                    |  | 338,796     |         |             |  | 99,096   |         |   | $ | 13.81-$25.69 |             
|                              |                                  | Forfeited          |  |             | (28,000 | )           |  |          | (4,000  | ) |   | $            | 25.25-$25.69 | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 85,365  |   |   | $            | 21.66-$25.69 | 
|                              |                                  | Exercised          |  |             | (19,932 | )           |  |          | (19,932 | ) |   | $            | 13.81-$14.34 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2000 |                    |  | 290,864     |         |             |  | 160,529  |         |   | $ | 13.81-$25.69 |             
|                              |                                  | Forfeited          |  |             | (2,800  | )           |  |          |        |   |   | $            | 25.25        | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 81,669  |   |   | $            | 25.25-$25.69 | 
|                              |                                  | Exercised          |  |             | (98,376 | )           |  |          | (98,376 | ) |   | $            | 13.81-$25.69 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2001 |                    |  | 189,688     |         |             |  | 143,822  |         |   | $ | 13.81-$25.69 |             
|                              |                                  | Forfeited          |  |             |        |             |  |          |        |   |   | $            | 25.25        | 
|                              |                                  | Became exercisable |  |             |        |             |  |          | 45,866  |   |   | $            | 25.25        | 
|                              |                                  | Exercised          |  |             | (99,597 | )           |  |          | (99,597 | ) |   | $            | 13.81-$25.69 | 
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             
|                              | Outstanding at December 31, 2002 |                    |  | 90,091      |         |             |  | 90,091   |         |   | $ | 13.81-$25.69 |             
|                              |                                  |                    |  |             |         |             |  |          |         |   |   |             

We have not granted options for any periods presented. For options
outstanding, we followed the intrinsic value method for recognizing stock-based
compensation expense. The exercise price of all options awarded under the 1994
LTIP equaled the market price of our Limited Partner Units on the date of
grant. Accordingly, we recognized no compensation expense at the date of
grant. Had compensation expense been determined consistent with SFAS No. 123,
Accounting for Stock-Based Compensation, compensation expense related to option
grants would have totaled $5,570, $118,820 and $202,634 during the years ended
December 31, 2002, 2001 and 2000, respectively. The disclosures as required by
SFAS 123 are not representative of the effects on pro forma net income for
future years as options vest over several years and additional awards may be
granted in subsequent years.

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

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

1999 and 2002 Phantom Unit Plans

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

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

F-29



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##### 



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

amount of the cash distribution that we paid per unit to Limited Partner
Unitholders. A total of 58,800 phantom units have been granted under the 1999
PURP, of which 30,330 remain outstanding at December 31, 2002. A total of
71,400 phantom units have been granted under the 2002 PURP, of which all 71,400
remain outstanding at December 31, 2002. We accrue compensation expense
annually based upon the terms of the 1999 PURP and 2002 PURP discussed above.

2000 Long Term Incentive Plan

Effective January 1, 2000, the General Partner established the Texas
Eastern Products Pipeline Company, LLC 2000 Long Term Incentive Plan (2000
LTIP) to provide key employees incentives to achieve improvements in our
financial performance. Generally, upon the close of a three-year performance
period, if the participant is then still an employee of the General Partner,
the participant will receive a cash payment in an amount equal to (1) the
applicable performance percentage specified in the award multiplied by (2) the
number of phantom Limited Partner Units granted under the award multiplied by
(3) the average of the closing prices of a Limited Partner Unit over the ten
consecutive trading days immediately preceding the last day of the performance
period. Generally, a participants performance percentage is based upon the
improvement of our Economic Value Added during a three-year
performance period over the Economic Value Added during the three-year period
immediately preceding the performance period. The performance percentage may not exceed 150%. If a participant incurs a
separation from service during the performance period due to death, disability
or retirement (as such terms are defined in the 2000 LTIP), the participant
will be entitled to receive a cash payment in an amount equal to the amount
computed as described above multiplied by a fraction, the numerator of which is
the number of days that have elapsed during the performance period prior to the
participants separation from service and the denominator of which is the
number of days in the performance period. At December 31, 2002, phantom Limited Partner Units outstanding
were 22,300, 24,013 and 18,425 for awards granted in 2002, 2001 and 2000, respectively.

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

In addition to the payment described above, during the performance period,
the General Partner will pay to the Participant the amount of cash
distributions that we would have paid to our Unitholders had the participant
been the owner of the number of Limited Partner Units equal to the number of
phantom Limited Partner Units granted to the participant under this award. The
maximum potential payout under the 2000 LTIP is 150% of phantom units awarded.
We accrue compensation expense annually based upon the terms of the 2000 LTIP
discussed above.

F-30



---



##### 



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

NOTE 15. OPERATING LEASES

We utilize leased assets in several areas of our operations. Total rental
expense during the years ended December 31, 2002, 2001 and 2000 was $14.2
million, $10.8 million and $10.7 million, respectively. The following table
sets forth our minimum rental payments under our various operating leases for
the years ending December 31 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 9,479  | 
|2004       |  |   | 8,903  | 
|2005       |  |   | 8,102  | 
|2006       |  |   | 6,035  | 
|2007       |  |   | 1,820  | 
|Thereafter |  |   | 1,068  | 
|           |  |   |        | 
|           |  | $ | 35,407 | 
|           |  |   |        | 

NOTE 16. EMPLOYEE BENEFITS

Retirement Plans

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

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

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

|                                              |                            |   |       |       |      |   |       |       |  |   |       |       | 
|--------------------------------------------- | -------------------------- | - | ----- | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                              |                            |   | 2002  |       | 2001 |   | 2000 
|                                              |                            |   |       |       |      |   |      
|Service cost benefit earned during the year   |                            | $ | 2,925 |       |      | $ | 2,419 |       |  | $ | 2,054 |      
|Interest cost on projected benefit obligation |                            |   | 315   |       |      |   | 129   |       |  |   | 782   |      
|Expected return on plan assets                |                            |   | (390  | )     |      |   | (166  | )     |  |   | (663  | )    
|Amortization of prior service cost            |                            |   | 7     |       |      |   | 8     |       |  |   |      |      
|Amortization of net transition liability      |                            |   |      |       |      |   |      |       |  |   | 4     |      
|Recognized net actuarial loss                 |                            |   | 12    |       |      |   |      |       |  |   |      |      
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      
|                                              | Net pension benefits costs |   | $     | 2,869 |      |   | $     | 2,390 |  |   | $     | 2,177 | 
|                                              |                            |   |       |       |      |   |       |       |  |   |       |      

F-31



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##### 



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

Other Postretirement Benefits

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

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

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

|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |    | 
|-------------------------------------------------------------- | --------------------------------- | - | ---- | --- | ---- | - | ---- | --- |  | - | --- | -- | 
|                                                               |                                   |   | 2002 |     | 2001 |   | 2000
|                                                               |                                   |   |      |     |      |   |     
|Service cost benefit earned during the year                    |                                   | $ | 115  |     |      | $ | 99   |     |  | $ | 39  |   
|Interest cost on accumulated postretirement benefit obligation |                                   |   | 119  |     |      |   | 113  |     |  |   | 134 |   
|Expected return on plan assets                                 |                                   |   |     |     |      |   |     |     |  |   | (85 | ) 
|Amortization of prior service cost                             |                                   |   | 126  |     |      |   | 126  |     |  |   | (96 | ) 
|Amortization of net transition liability                       |                                   |   |     |     |      |   |     |     |  |   | 54  |   
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |   
|                                                               | Net postretirement benefits costs |   | $    | 360 |      |   | $    | 338 |  |   | $   | 46 | 
|                                                               |                                   |   |      |     |      |   |      |     |  |   |     |   

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

|                                                 |  |                  |      |          |  |      |      |      |  |                      |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------- |  | ---- | ---- | ---- |  | -------------------- | ---- | - |  |  | ---- | -
|                                                 |  |                  |      |          |  |      |      |      |  | Other Postretirement
|                                                 |  | Pension Benefits |      | Benefits
|                                                 |  |                  |      |         
|                                                 |  | 2002             |      | 2001     |  | 2002 |      | 2001
|                                                 |  |                  |      |          |  |      |      |     
|Discount rate                                    |  |                  | 6.75 | %        |  |      | 7.25 | %    |  |                      | 6.75 | % |  |  | 7.25 | %
|Increase in compensation levels                  |  |                  | 5.00 | %        |  |      | 5.06 | %    |  |                      |     |   |  |  |     |  
|Expected long-term rate of return on plan assets |  |                  | 9.00 | %        |  |      | 9.00 | %    |  |                      |     |   |  |  |     |  

F-32



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##### 



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

The following table sets forth the Companys pension and other
postretirement benefits changes in benefit obligation, fair value of plan
assets and funded status as of December 31, 2002 and 2001 (in thousands):

|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |        |  
|------------------------------- | ---------------------------------------------- |  | ---------------- | ----- | -------- |  | ---- | ----- | ---- |  | -------------------- | ------ | - |  | - | ------ | -
|                                |                                                |  |                  |       |          |  |      |       |      |  | Other Postretirement
|                                |                                                |  | Pension Benefits |       | Benefits
|                                |                                                |  |                  |       |         
|                                |                                                |  | 2002             |       | 2001     |  | 2002 |       | 2001
|                                |                                                |  |                  |       |          |  |      |       |     
|Change in benefit obligation    |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Benefit obligation at beginning of year        |  | $                | 3,786 |          |  | $    | 1,518 |      |  | $                    | 1,781  |   |  | $ |       |  
|                                | Service cost                                   |  |                  | 2,925 |          |  |      | 2,419 |      |  |                      | 115    |   |  |   | 99     |  
|                                | Interest cost                                  |  |                  | 315   |          |  |      | 129   |      |  |                      | 118    |   |  |   | 113    |  
|                                | Plan amendments                                |  |                  |      |          |  |      | 62    |      |  |                      |       |   |  |   | 1,508  |  
|                                | Actuarial (gain)/loss                          |  |                  | 711   |          |  |      | (136  | )    |  |                      | 1      |   |  |   | 57     |  
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 29     |   |  |   | 9      |  
|                                | Benefits paid                                  |  |                  | (159  | )        |  |      | (206  | )    |  |                      | (43    | ) |  |   | (5     | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Benefit obligation at end of year              |  | $                | 7,578 |          |  | $    | 3,786 |      |  | $                    | 2,001  |   |  | $ | 1,781  |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|Change in plan assets           |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Fair value of plan assets at beginning of year |  | $                | 3,959 |          |  | $    |      |      |  | $                    |       |   |  | $ |       |  
|                                | Actual return on plan assets                   |  |                  | (99   | )        |  |      | (37   | )    |  |                      |       |   |  |   |       |  
|                                | Retiree contributions                          |  |                  |      |          |  |      |      |      |  |                      | 29     |   |  |   | 9      |  
|                                | Employer contributions                         |  |                  | 3,119 |          |  |      | 4,202 |      |  |                      | 14     |   |  |   | (4     | )
|                                | Benefits paid                                  |  |                  | (159  | )        |  |      | (206  | )    |  |                      | (43    | ) |  |   | (5     | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Fair value of plan assets at end of year       |  | $                | 6,820 |          |  | $    | 3,959 |      |  | $                    |       |   |  | $ |       |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|Reconciliation of funded status |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Funded status                                  |  | $                | (758  | )        |  | $    | 173   |      |  | $                    | (2,001 | ) |  | $ | (1,781 | )
|                                | Unrecognized prior service cost                |  |                  | 47    |          |  |      | 54    |      |  |                      | 1,255  |   |  |   | 1,381  |  
|                                | Unrecognized actuarial loss                    |  |                  | 1,255 |          |  |      | 68    |      |  |                      | 58     |   |  |   | 57     |  
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       
|                                | Net amount recognized                          |  | $                | 544   |          |  | $    | 295   |      |  | $                    | (688   | ) |  | $ | (343   | )
|                                |                                                |  |                  |       |          |  |      |       |      |  |                      |        |   |  |   |       



---

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

Other Plans

DEFS also sponsors an employee savings plan, which covers substantially
all employees. Plan contributions on behalf of the Company of $2.8 million,
$3.1 million and $2.2 million were expensed during the years ended December 31,
2002, 2001 and 2000, respectively.

NOTE 17. COMMITMENTS AND CONTINGENCIES

In the fall of 1999 and on December 1, 2000, the General Partner and the
Partnership were named as defendants in two separate lawsuits in Jackson County
Circuit Court, Jackson County, Indiana, styled Ryan E. McCleery and Marcia S.
McCleery, et. al. v. Texas Eastern Corporation, et. al. (including the General
Partner and Partnership) and Gilbert Richards and Jean Richards v. Texas
Eastern Corporation, et. al. (including the General Partner and Partnership).
In both cases, the plaintiffs contend, among other things, that we and other
defendants stored and disposed of toxic and hazardous substances and hazardous
wastes in a manner that caused the materials to be released into the air, soil
and water. They further contend that the release caused damages to the
plaintiffs. In

F-33



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##### 



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

their complaints, the plaintiffs allege strict liability for
both personal injury and property damage together with gross negligence,
continuing nuisance, trespass, criminal mischief and loss of consortium. The
plaintiffs are seeking compensatory, punitive and treble damages. We have
filed an answer to both complaints, denying the allegations, as well as various
other motions. These cases are not covered by insurance. Discovery is
ongoing, and we are defending ourselves vigorously against the lawsuits. The
plaintiffs have not stipulated the amount of damages that they are seeking in
the suit. We cannot estimate the loss, if any, associated with these pending
lawsuits.

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

On April 19, 2002, we, through our subsidiary TEPPCO Crude Oil, L.P.,
filed a declaratory judgment action in the U.S. District Court for the Western
District of Oklahoma against D.R.D. Environmental Services, Inc. (D.R.D.)
seeking resolution of billing and other contractual disputes regarding
potential overcharges for environmental remediation services provided by D.R.D.
On May 28, 2002, D.R.D. filed a counterclaim for alleged breach of contract in
the amount of $2,243,525, and for unspecified damages for alleged tortious
interference with D.R.D.s contractual relations with DEFS. We have denied the
counterclaims. Discovery is ongoing. If D.R.D. should be successful,
management believes that a substantial portion of the $2,243,525 breach of
contract claim will be covered under an indemnity from DEFS. We cannot predict
the outcome of the litigation against us; however, we are defending ourselves
vigorously against the counterclaim. We do not believe that the outcome of
this lawsuit will have a material adverse effect on our financial position,
results of operations or cash flows.

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

In February 2002, a producer on the Jonah system sent a letter to Alberta
Energy Company implying that as a result of our acquisition of the Jonah
system, it may have a right to acquire all or a portion of the assets
comprising the Jonah system pursuant to an alleged right of first refusal in a
gas gathering agreement between the producer and Jonah. Subsidiaries of Alberta Energy Company have agreed to indemnify us
against losses resulting from any breach of representations concerning the
absence of third party rights in connection with our acquisition of the entity
that owns the Jonah system. We believe that we have adequate legal defenses if
the producer should assert a claim, and we also believe that no right of first
refusal on any of the underlying Jonah system assets has been triggered.

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

F-34



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##### 



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

In 1994, we entered into an Agreed Order with the Indiana Department of
Environmental Management (IDEM) that resulted in the implementation of a
remediation program for groundwater contamination attributable to our
operations at the Seymour, Indiana, terminal. In 1999, the IDEM approved a
Feasibility Study, which includes our proposed remediation program. We expect
the IDEM to issue a Record of Decision formally approving the remediation
program. After the Record of Decision is issued, we will enter into a
subsequent Agreed Order for the continued operation and maintenance of the
remediation program. We have an accrued liability of $0.4 million at December
31, 2002, for future remediation costs at the Seymour terminal. We do not
expect that the completion of the remediation program will have a future
material adverse effect on our financial position, results of operations or
cash flows.

In 1994, the Louisiana Department of Environmental Quality (LDEQ) issued
a compliance order for environmental contamination at our Arcadia, Louisiana,
facility. This contamination may be attributable to our operations, as well as
adjacent petroleum terminals operated by other companies. In 1999, our Arcadia
facility and adjacent terminals were directed by the Remediation Services
Division of the LDEQ to pursue remediation of this containment phase. At
December 31, 2002, we have an accrued liability of $0.2 million for remediation
costs at our Arcadia facility. We do not expect that the completion of the
remediation program that we have proposed will have a future material adverse
effect on our financial position, results of operations or cash flows.

At December 31, 2002, we have an accrued liability of $5.6 million and a
receivable of $4.2 million from DEFS related to various TCTM sites requiring
environmental remediation activities. The receivable is based on a contractual
indemnity obligation we received in connection with our acquisition of assets
from a DEFS affiliate in November 1998. The indemnity relates to future
environmental remediation activities attributable to operations of these assets
prior to our acquisition. Under this indemnity obligation, we are responsible
for the first $3.0 million in specified environmental liabilities, and DEFS is
responsible for those environmental liabilities in excess of $3.0 million, up
to a maximum amount of $25.0 million. The majority of the receivable from DEFS
relates to remediation activities at the Velma crude oil site in Stephens
County, Oklahoma. The accrued liability balance at December 31, 2002, also
includes an accrual of $2.3 million related to the Shelby crude oil site in
Stephens County, Oklahoma. At December 31, 2002, it is uncertain if these
costs related to Shelby are covered under the indemnity obligation from DEFS.
We are currently in discussions with DEFS regarding these matters. We do not expect that the completion of remediation programs associated with
TCTM activities will have a future material adverse effect on our financial
position, results of operations or cash flows.

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

In February 2000, we entered into a joint marketing and development
alliance with Louis Dreyfus Plastics Corporation, now known as Louis Dreyfus
Energy Services, L.P. (Louis Dreyfus), in which our Mont Belvieu LPGs storage
and transportation shuttle system services were jointly marketed by Louis
Dreyfus and TE Products. The purpose of the alliance was to expand services to
the upper Texas Gulf Coast energy marketplace by increasing pipeline throughput
and the mix of products handled through the existing system and establishing
new receipt and delivery connections. The alliance was a service-oriented,
fee-based venture with no commodity trading activity. TE Products operated
the facilities for the alliance. Under the alliance, Louis Dreyfus invested
$6.1 million for expansion projects at Mont Belvieu. The alliance also
stipulated that if certain earnings thresholds were achieved, a

F-35



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##### 



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

partnership between TE Products and Louis Dreyfus was to be created effective January 1,
2003. All terms and earnings thresholds have been met; therefore, we will be
contributing our Mont Belvieu assets to the newly formed partnership. The
economic terms of the partnership are the same as those under the joint
development and marketing alliance. TE Products will continue to operate the
facilities for the partnership. The net book value of the Mont Belvieu assets
that we are contributing to the partnership is approximately $68.2 million.
Our interest in the partnership will be accounted for as an equity investment.

Rates of interstate refined petroleum products and crude oil pipeline
companies, like us, are currently regulated by the FERC primarily through an
index methodology, which allows a pipeline to change its rates based on the
change from year to year in the Producer Price Index for finished goods (PPI
Index). Effective as of February 24, 2003, FERC Order on Remand modified the
PPI Index from PPI  1% to PPI. In the alternative, interstate refined
petroleum products and crude 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 refined petroleum
products and crude oil pipeline companies 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, and Arcadia
and Shreveport-Arcadia, Louisiana, destination markets, which are currently
subject to the PPI Index. As a result, we made refunds of approximately $1.0
million in the third quarter of 2001 for those destination markets.

Substantially all of the petroleum products that we transport and store
are owned by our customers. At December 31, 2002, TCTM and TE Products had
approximately 2.7 million barrels and 17.4 million barrels, respectively, of
products in their custody that was owned by customers. We are obligated for
the transportation, storage and delivery of such products on behalf of our
customers. We maintain insurance adequate to cover product losses through
circumstances beyond our control.

NOTE 18. SEGMENT DATA

We have 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 that we hold that have not been allocated to any of our reporting
segments.

Effective January 1, 2002, we realigned our three business segments to
reflect our entry into the natural gas gathering business and the expanded
scope of NGLs operations. We transferred the fractionation of NGLs, which was
previously reflected as part of the Downstream Segment, to the Midstream
Segment. The operation of NGL pipelines, which was previously reflected as
part of the Upstream Segment, was also transferred to the Midstream Segment.
We have adjusted our period-to-period comparisons to conform with the current
presentation.

Our Downstream Segment includes the interstate transportation, storage and
terminaling of petroleum products and LPGs and intrastate transportation of
petrochemicals. Revenues are earned from transportation and

F-36



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##### 



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

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. Our Downstream Segments
pipeline system extends from southeast Texas through the central and midwestern
United States to the northeastern United States, and is one of the largest
pipeline common carriers of refined petroleum products and LPGs in the United
States. Our Downstream Segment also includes our equity investment in
Centennial.

Our Upstream Segment includes 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. Our
Upstream Segment also includes the equity earnings from our 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.

Our Midstream Segment includes the fractionation of NGLs in Colorado; the
ownership and operation of 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 our
subsidiaries on September 30, 2001. This segment also includes Chaparral,
which we acquired on March 1, 2002. Chaparral is an NGL pipeline system that
extends from West Texas and New Mexico to Mont Belvieu. The pipeline delivers
NGLs to fractionators and to our existing storage in Mont Belvieu. On June 30,
2002, we acquired the Val Verde system, which gathers CBM from the Fruitland
Coal Formation of the San Juan Basin in New Mexico and Colorado, and is one of
the largest CBM gathering and treating facilities in the United States. The
results of operations of the Jonah, Chaparral, and Val Verde acquisitions are
included in periods subsequent to September 30, 2001, March 1, 2002, and June
30, 2002, respectively (See Note 5. Acquisitions).

The tables below include financial information by reporting segment for
the years ended December 31, 2002, 2001 and 2000 (in thousands):

|                                      |                          |   |                              |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |      |   |   |           |         | 
|------------------------------------- | ------------------------ | - | ---------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------- |  | - | ------ | ---- | - | - | --------- | ------- | 
|                                      |                          |   | Year Ended December 31, 2002
|                                      |                          |   |                             
|                                      |                          |   | Downstream                   |        | Upstream |   | Midstream |        | Segments |   | Partnership |        |              |   |          
|                                      |                          |   | Segment                      |        | Segment  |   | Segment   |        | Total    |   | and Other   |        | Consolidated
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |        |             
|Revenues                              |                          | $ | 243,538                      |        |          | $ | 2,861,700 |        |          | $ | 138,922     |        |              | $ | 3,244,160 |         |  | $ | (1,997 | )    |   | $ | 3,242,163 |        
|Operating expenses,
including power   |                          |   | 130,324                      |        |          |   | 2,824,106 |        |          |   | 33,451      |        |              |   | 2,987,881 |         |  |   | (1,997 | )    |   |   | 2,985,884 |        
|Depreciation and
amortization expense |                          |   | 30,116                       |        |          |   | 11,186    |        |          |   | 44,730      |        |              |   | 86,032    |         |  |   |       |      |   |   | 86,032    |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |      |   |   |           |        
|                                      | Operating income         |   |                              | 83,098 |          |   |           | 26,408 |          |   |             | 60,741 |              |   |           | 170,247 |  |   |        |     |   |   |           | 170,247 | 
|Equity earnings                       |                          |   | (6,815                       | )      |          |   | 18,795    |        |          |   |            |        |              |   | 11,980    |         |  |   |       |      |   |   | 11,980    |        
|Other income, net                     |                          |   | 832                          |        |          |   | 1,532     |        |          |   | 269         |        |              |   | 2,633     |         |  |   | (806   | )    |   |   | 1,827     |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |      |   |   |           |        
|                                      | Earnings before interest |   | $                            | 77,115 |          |   | $         | 46,735 |          |   | $           | 61,010 |              |   | $         | 184,860 |  |   | $      | (806 | ) |   | $         | 184,054 | 
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |        |              |   |           |         |  |   |        |      |   |   |           |        

F-37



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##### 



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

|                                      |                          |                              |            |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |      |   |  |   |           |         | 
|------------------------------------- | ------------------------ | ---------------------------- | ---------- | ------- | -------- | - | --------- | ------ | -------- | - | ----------- | ------ | ------------ | - | --------- | ------- |  | - | ---- | - |  | - | --------- | ------- | 
|                                      |                          | 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    |         |          |   | 3,227,705 |        |          |   | 11,482      |        |              |   | 3,359,045 |         |  |   | (322 | ) |  |   | 3,358,723 |        
|Depreciation and
amortization expense |                          |                              | 26,699     |         |          |   | 9,263     |        |          |   | 9,937       |        |              |   | 45,899    |         |  |   |     |   |  |   | 45,899    |        
|                                      |                          |                              |            |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |      |   |  |   |           |        
|                                      | Operating income         |                              |            | 117,676 |          |   |           | 18,292 |          |   |             | 15,823 |              |   |           | 151,791 |  |   |      |  |  |   |           | 151,791 | 
|Equity earnings                       |                          |                              | (1,149     | )       |          |   | 18,547    |        |          |   |            |        |              |   | 17,398    |         |  |   |     |   |  |   | 17,398    |        
|Other income, net                     |                          |                              | 1,537      |         |          |   | 1,188     |        |          |   | 74          |        |              |   | 2,799     |         |  |   |     |   |  |   | 2,799     |        
|                                      |                          |                              |            |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |      |   |  |   |           |        
|                                      | Earnings before interest |                              | $          | 118,064 |          |   | $         | 38,027 |          |   | $           | 15,897 |              |   | $         | 171,988 |  |   | $    |  |  |   | $         | 171,988 | 
|                                      |                          |                              |            |         |          |   |           |        |          |   |             |        |              |   |           |         |  |   |      |   |  |   |           |        

|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |   |   |  |   |           |         | 
|------------------------------------- | ------------------------ | - | ---------------------------- | ------ | -------- | - | --------- | ------ | -------- | - | ----------- | ----- | ------------ | - | --------- | ------- |  | - | - | - |  | - | --------- | ------- | 
|                                      |                          |   | 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                      |        |          |   | 2,823,304 |        |          |   | 2,423       |       |              |   | 2,943,792 |         |  |   |  |   |  |   | 2,943,792 |        
|Depreciation and
amortization expense |                          |   | 25,728                       |        |          |   | 6,282     |        |          |   | 3,153       |       |              |   | 35,163    |         |  |   |  |   |  |   | 35,163    |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |   |   |  |   |           |        
|                                      | Operating income         |   |                              | 85,441 |          |   |           | 14,659 |          |   |             | 8,886 |              |   |           | 108,986 |  |   |   |  |  |   |           | 108,986 | 
|Equity earnings                       |                          |   |                             |        |          |   | 12,214    |        |          |   |            |       |              |   | 12,214    |         |  |   |  |   |  |   | 12,214    |        
|Other income, net                     |                          |   | 1,651                        |        |          |   | (500      | )      |          |   | 237         |       |              |   | 1,388     |         |  |   |  |   |  |   | 1,388     |        
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |   |   |  |   |           |        
|                                      | Earnings before interest |   | $                            | 87,092 |          |   | $         | 26,373 |          |   | $           | 9,123 |              |   | $         | 122,588 |  |   | $ |  |  |   | $         | 122,588 | 
|                                      |                          |   |                              |        |          |   |           |        |          |   |             |       |              |   |           |         |  |   |   |   |  |   |           |        

The following table provides the total assets for each segment as of
December 31, 2002, 2001 and 2000 (in thousands):

|     |  |            |         |          |  |           |         |          |  |             |           |              |  |   |           |  |  |   |         |   |  |   |           | 
|---- |  | ---------- | ------- | -------- |  | --------- | ------- | -------- |  | ----------- | --------- | ------------ |  | - | --------- |  |  | - | ------- | - |  | - | --------- | 
|     |  | Downstream |         | Upstream |  | Midstream |         | Segments |  | Partnership |           |              |  |  
|     |  | Segment    |         | Segment  |  | Segment   |         | Total    |  | and Other   |           | Consolidated
|     |  |            |         |          |  |           |         |          |  |             |           |             
|2002 |  | $          | 883,450 |          |  | $         | 724,860 |          |  | $           | 1,174,010 |              |  | $ | 2,782,320 |  |  | $ | (11,678 | ) |  | $ | 2,770,642 | 
|2001 |  |            | 844,036 |          |  |           | 694,934 |          |  |             | 541,195   |              |  |   | 2,080,165 |  |  |   | (14,817 | ) |  |   | 2,065,348 | 
|2000 |  |            | 714,233 |          |  |           | 752,581 |          |  |             | 156,662   |              |  |   | 1,623,476 |  |  |   | (666    | ) |  |   | 1,622,810 | 

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

|                         |            |   |                          |         |      |   |         |         |  |   |         |        | 
|------------------------ | ---------- | - | ------------------------ | ------- | ---- | - | ------- | ------- |  | - | ------- | ------ | 
|                         |            |   | Years Ended December 31,
|                         |            |   |                         
|                         |            |   | 2002                     |         | 2001 |   | 2000   
|                         |            |   |                          |         |      |   |        
|Earnings before interest |            | $ | 184,054                  |         |      | $ | 171,988 |         |  | $ | 122,588 |       
|Interest expense         |            |   | (70,537                  | )       |      |   | (66,057 | )       |  |   | (48,982 | )     
|Interest capitalized     |            |   | 4,345                    |         |      |   | 4,000   |         |  |   | 4,559   |       
|Minority interest        |            |   |                         |         |      |   | (800    | )       |  |   | (789    | )     
|                         |            |   |                          |         |      |   |         |         |  |   |         |       
|                         | Net income |   | $                        | 117,862 |      |   | $       | 109,131 |  |   | $       | 77,376 | 
|                         |            |   |                          |         |      |   |         |         |  |   |         |       

F-38



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##### 



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

NOTE 19. COMPREHENSIVE INCOME

SFAS No. 130, Reporting Comprehensive Incomerequires certain items such
as foreign currency translation adjustments, minimum pension liability
adjustments, and unrealized gains and losses on certain investments to be
reported in a financial statement. As of and for the years ended December 31,
2002 and 2001, the components of comprehensive income were due to the interest
rate swap related to our variable rate revolving credit facility, which is
designated as a cash flow hedge. Changes in the fair value of the cash flow
hedge, to the extent the hedge is effective, are recognized in other
comprehensive income until the hedge interest costs are recognized in earnings.
The table below reconciles reported net income to total comprehensive income
for the years ended December 31, 2002, 2001 and 2000 (in thousands).

|                                                       |                            |   |                          |         |      |   |         |        |  |   |        |        | 
|------------------------------------------------------ | -------------------------- | - | ------------------------ | ------- | ---- | - | ------- | ------ |  | - | ------ | ------ | 
|                                                       |                            |   | Years Ended December 31,
|                                                       |                            |   |                         
|                                                       |                            |   | 2002                     |         | 2001 |   | 2000   
|                                                       |                            |   |                          |         |      |   |        
|Net income                                             |                            | $ | 117,862                  |         |      | $ | 109,131 |        |  | $ | 77,376 |       
|Cumulative effect attributable to adoption of SFAS 133 |                            |   |                         |         |      |   | (10,103 | )      |  |   |       |       
|Net income (loss) on cash flow hedge                   |                            |   | 269                      |         |      |   | (10,221 | )      |  |   |       |       
|                                                       |                            |   |                          |         |      |   |         |        |  |   |        |       
|                                                       | Total comprehensive income |   | $                        | 118,131 |      |   | $       | 88,807 |  |   | $      | 77,376 | 
|                                                       |                            |   |                          |         |      |   |         |        |  |   |        |       

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 hedge            |   |         | (10,221 | )
|                             |                                        |   |         |        
|Balance at December 31, 2001 |                                        | $ | (20,324 | )      
|                             | Net income on cash flow hedge          |   |         | 269     |  
|                             |                                        |   |         |         |   | 
|Balance at December 31, 2002 |                                        | $ | (20,055 | )      
|                             |                                        |   |         |        

NOTE 20. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION

In connection with our issuance of Senior Notes on February 20, 2002, TE
Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P. and Jonah Gas Gathering Company, our significant operating
subsidiaries, issued unconditional guarantees of our debt securities.
Effective with the acquisition of the Val Verde assets on June 30, 2002, our
subsidiary, Val Verde Gas Gathering Company, L.P. also became a significant
operating subsidiary and issued unconditional guarantees of our debt
securities. The guarantees are full, unconditional, and joint and several. TE
Products Pipeline Company, Limited Partnership, TCTM, L.P., TEPPCO Midstream
Companies, L.P., Jonah Gas Gathering Company and Val Verde Gas Gathering
Company, L.P. are collectively referred to as the Guarantor Subsidiaries.

The following supplemental condensed consolidating financial information
reflects our separate accounts, the combined accounts of the Guarantor
Subsidiaries, the combined accounts of our other non-guarantor subsidiaries,
the combined consolidating adjustments and eliminations and our consolidated
accounts for the dates and periods indicated. For purposes of the following
consolidating information, our investments in our subsidiaries and the
Guarantor Subsidiaries investments in their subsidiaries are accounted for
under the equity method of accounting.

F-39



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##### 



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

|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |           |           |  | 
|--------------------------------- | ------------------------------------------------- | --------------------------------------- | ------ | --------- | -------------- | - | ------------ | --------- | ------------- | - | ------------- | ------- | ----------------- | - | ------- | ---------- | ---------- | - | ------- | --------- | --------- |  | 
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         | December 31, 2002 |   |         |            |            |   |         |           |          
|                                  |                                                   |                                         |        |           |               
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |           | TEPPCO   
|                                  |                                                   |                                         |        |           | TEPPCO         |   | Guarantor    |           | Non-Guarantor |   | Consolidating |         | Partners, L.P.   
|                                  |                                                   |                                         |        |           | Partners, L.P. |   | Subsidiaries |           | Subsidiaries  |   | Adjustments   |         | Consolidated     
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                  
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         | (in thousands)    |   |         |            |            |   |         |           |          
|Assets                            |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |           |          
|                                  | Current assets                                    |                                         | $      | 241       |                |   | $            | 92,798    |               |   | $             | 286,379 |                   |   | $       | (18,851    | )          |   | $       | 360,567   |          
|                                  | Property, plant and equipment  net               |                                         |        |          |                |   |              | 1,128,803 |               |   |               | 459,021 |                   |   |         |           |            |   |         | 1,587,824 |          
|                                  | Equity investments                                |                                         |        | 1,011,935 |                |   |              | 846,991   |               |   |               | 211,229 |                   |   |         | (1,785,450 | )          |   |         | 284,705   |          
|                                  | Intercompany notes receivable                     |                                         |        | 986,852   |                |   |              |          |               |   |               |        |                   |   |         | (986,852   | )          |   |         |          |          
|                                  | Intangible assets                                 |                                         |        |          |                |   |              | 434,941   |               |   |               | 30,433  |                   |   |         |           |            |   |         | 465,374   |          
|                                  | Other assets                                      |                                         |        | 6,200     |                |   |              | 31,135    |               |   |               | 34,837  |                   |   |         |           |            |   |         | 72,172    |          
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |          
|                                  |                                                   | Total assets                            |        | $         | 2,005,228      |   |              | $         | 2,534,668     |   |               | $       | 1,021,899         |   |         | $          | (2,791,153 | ) |         | $         | 2,770,642 | 
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |          
|Liabilities
and partners capital |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |           |          
|                                  | Current liabilities                               | $                                       | 30,715 |           |                | $ | 123,169      |           |               | $ | 272,538       |         |                   | $ | (59,639 | )          |            | $ | 366,783 |          
|                                  | Long-term debt                                    |                                         |        | 974,264   |                |   |              | 403,428   |               |   |               |        |                   |   |         |           |            |   |         | 1,377,692 |          
|                                  | Intercompany notes payable                        |                                         |        |          |                |   |              | 508,652   |               |   |               | 437,411 |                   |   |         | (946,063   | )          |   |         |          |          
|                                  | Other long term liabilities and
minority interest |                                         |        | 6,523     |                |   |              | 24,230    |               |   |               | 209     |                   |   |         |           |            |   |         | 30,962    |          
|                                  | Redeemable Class B Units held by
related party    |                                         |        | 103,363   |                |   |              |          |               |   |               |        |                   |   |         |           |            |   |         | 103,363   |          
|                                  | Total partners capital                           |                                         |        | 890,363   |                |   |              | 1,475,189 |               |   |               | 311,741 |                   |   |         | (1,785,451 | )          |   |         | 891,842   |          
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |          
|                                  |                                                   | Total liabilities and partners capital |        | $         | 2,005,228      |   |              | $         | 2,534,668     |   |               | $       | 1,021,899         |   |         | $          | (2,791,153 | ) |         | $         | 2,770,642 | 
|                                  |                                                   |                                         |        |           |                |   |              |           |               |   |               |         |                   |   |         |            |            |   |         |          

|                                  |                                                   |                                         |         |         |                |   |              |         |               |   |               |         |                   |   |          |          |            |   |         |           |           |  | 
|--------------------------------- | ------------------------------------------------- | --------------------------------------- | ------- | ------- | -------------- | - | ------------ | ------- | ------------- | - | ------------- | ------- | ----------------- | - | -------- | -------- | ---------- | - | ------- | --------- | --------- |  | 
|                                  |                                                   |                                         |         |         |                |   |              |         |               |   |               |         | December
31, 2001 |   |          |          |            |   |         |           |          
|                                  |                                                   |                                         |         |         |               
|                                  |                                                   |                                         |         |         |                |   |              |         |               |   |               |         |                   |   |          |          |            |   |         |           | TEPPCO   
|                                  |                                                   |                                         |         |         | TEPPCO         |   | Guarantor    |         | Non-Guarantor |   | Consolidating |         | Partners, L.P.   
|                                  |                                                   |                                         |         |         | 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 | )          |   |         |          |          
|                                  | Intangible assets                                 |                                         |         |        |                |   |              | 219,525 |               |   |               | 31,962  |                   |   |          |         |            |   |         | 251,487   |          
|                                  | Other assets                                      |                                         |         | 3,853   |                |   |              | 24,923  |               |   |               | 33,424  |                   |   |          | (4,504   | )          |   |         | 57,696    |          
|                                  |                                                   |                                         |         |         |                |   |              |         |               |   |               |         |                   |   |          |          |            |   |         |          
|                                  |                                                   | 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 |                |   |              | 375,184 |               |   |               |        |                   |   |          |         |            |   |         | 715,842   |          
|                                  | Intercompany notes payable                        |                                         |         |        |                |   |              | 45,410  |               |   |               | 294,801 |                   |   |          | (340,211 | )          |   |         |          |          
|                                  | Other long term liabilities and minority interest |                                         |         |        |                |   |              | 22,994  |               |   |               | 231     |                   |   |          | 8,628    |            |   |         | 31,853    |          
|                                  | 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-40



---



##### 



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

|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   |           |         | 
|---------------------- | ---------------- | - | ---------------------------- | ------- | ------------ | - | ------------- | ------- | ------------- | - | -------------- | ------ |  | - | -------- | -------- | - | - | --------- | ------- | 
|                       |                  |   | Year Ended December 31, 2002
|                       |                  |   |                             
|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   | TEPPCO   
|                       |                  |   | TEPPCO                       |         | Guarantor    |   | Non-Guarantor |         | Consolidating |   | Partners, L.P.
|                       |                  |   | Partners, L.P.               |         | Subsidiaries |   | Subsidiaries  |         | Adjustments   |   | Consolidated  
|                       |                  |   |                              |         |              |   |               |         |               |   |               
|                       |                  |   |                              |         |              |   |               |         |               |   | (in thousands) |        |  |   |          |          |   |   |          
|Operating revenues     |                  | $ |                             |         |              | $ | 336,045       |         |               | $ | 2,908,115      |        |  | $ | (1,997   | )        |   | $ | 3,242,163 |        
|Costs and expenses     |                  |   |                             |         |              |   | 216,552       |         |               |   | 2,857,361      |        |  |   | (1,997   | )        |   |   | 3,071,916 |        
|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   |           |        
|                       | Operating income |   |                              |        |              |   |               | 119,493 |               |   |                | 50,754 |  |   |          |         |   |   |           | 170,247 | 
|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   |           |        
|Interest expense  net |                  |   | (51,947                      | )       |              |   | (40,651       | )       |               |   | (26,347        | )      |  |   | 52,753   |          |   |   | (66,192   | )      
|Equity earnings        |                  |   | 117,862                      |         |              |   | 59,428        |         |               |   | 18,795         |        |  |   | (184,105 | )        |   |   | 11,980    |        
|Other income  net     |                  |   | 51,947                       |         |              |   | 967           |         |               |   | 1,666          |        |  |   | (52,753  | )        |   |   | 1,827     |        
|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   |           |        
|                       | Net income       |   | $                            | 117,862 |              |   | $             | 139,237 |               |   | $              | 44,868 |  |   | $        | (184,105 | ) |   | $         | 117,862 | 
|                       |                  |   |                              |         |              |   |               |         |               |   |                |        |  |   |          |          |   |   |           |        

|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |         |        |  | 
|---------------------- | ------------------------------- | - | ------- | ------- | ---------------------------- | - | ------------ | ------- | ------------- | - | ------------- | ------ | -------------- | - | -------- | -------- | - | - | --------- | ------- | ------ |  | 
|                       |                                 |   |         |         | Year
Ended December 31, 2001
|                       |                                 |   |         |         |                             
|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |         | TEPPCO
|                       |                                 |   |         |         | TEPPCO                       |   | Guarantor    |         | Non-Guarantor |   | Consolidating |        | Partners, L.P.
|                       |                                 |   |         |         | 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      |         |               |   | 3,252,386     |        |                |   | (322     | )        |   |   | 3,404,622 |        
|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |        
|                       | Operating income                |   |         |        |                              |   |              | 120,821 |               |   |               | 30,970 |                |   |          |         |   |   |           | 151,791 |       
|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |        
|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        |         |               |   | 1,262         |        |                |   | (40,143  | )        |   |   | 2,799     |        
|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |        
|                       | 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 |       
|                       |                                 |   |         |         |                              |   |              |         |               |   |               |        |                |   |          |          |   |   |           |        

|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |         | 
|---------------------- | ------------------------------- | - | -------------- | ---------------------------- | ------------ | - | ------------- | ------ | ------------- | - | -------------- | ------ |  | - | ------- | ------- | - | - | --------- | ------- | 
|                       |                                 |   |                | Year Ended
December 31, 2000
|                       |                                 |   |               
|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   | TEPPCO   
|                       |                                 |   | TEPPCO         |                              | Guarantor    |   | Non-Guarantor |        | Consolidating |   | Partners, L.P.
|                       |                                 |   | Partners, L.P. |                              | Subsidiaries |   | Subsidiaries  |        | Adjustments   |   | Consolidated  
|                       |                                 |   |                |                              |              |   |               |        |               |   |               
|                       |                                 |   |                |                              |              |   |               |        |               |   | (in thousands) |        |  |   |         |         |   |   |          
|Operating revenues     |                                 | $ |               |                              |              | $ | 229,234       |        |               | $ | 2,858,707      |        |  | $ |        |         |   | $ | 3,087,941 |        
|Costs and expenses     |                                 |   |               |                              |              |   | 143,793       |        |               |   | 2,835,162      |        |  |   |        |         |   |   | 2,978,955 |        
|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        
|                       | Operating income                |   |                |                             |              |   |               | 85,441 |               |   |                | 23,545 |  |   |         |        |   |   |           | 108,986 | 
|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        
|Interest expense  net |                                 |   | (17,773        | )                            |              |   | (27,529       | )      |               |   | (16,894        | )      |  |   | 17,773  |         |   |   | (44,423   | )      
|                       | Equity earnings                 |   |                | 77,376                       |              |   |               | 18,602 |               |   |                | 12,214 |  |   |         | (95,978 | ) |   |           | 12,214  | 
|Other income  net     |                                 |   | 17,773         |                              |              |   | 1,651         |        |               |   | (263           | )      |  |   | (17,773 | )       |   |   | 1,388     |        
|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        
|                       | 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  | 
|                       |                                 |   |                |                              |              |   |               |        |               |   |                |        |  |   |         |         |   |   |           |        

F-41



---



##### 



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

|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |        |        | 
|------------------------------------ | ---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ---------------------------- | -------- | ------------ | ---------- | ------------- | ------ | ------------- | -------- | -------------- | ------ | - | ---------- | - | ------- | - | -------- | ------ | ------ | 
|                                     |                                                      |                                                                                   |                                                      |          | Year Ended December 31, 2002
|                                     |                                                      |                                                                                   |                                                      |          |                             
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          | TEPPCO
|                                     |                                                      |                                                                                   |                                                      |          | TEPPCO                       |          | Guarantor    |            | Non-Guarantor |        | Consolidating |          | Partners, L.P.
|                                     |                                                      |                                                                                   |                                                      |          | Partners, L.P.               |          | Subsidiaries |            | Subsidiaries  |        | Adjustments   |          | Consolidated  
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |               
|                                     |                                                      |                                                                                   |                                                      |          | (in thousands)              
|Cash flows from operating activities |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |         
|                                     | Net income                                           |                                                                                   | $                                                    | 117,862  |                              |          | $            | 139,237    |               |        | $             | 44,869   |                |        | $ | (184,106   | ) |         | $ | 117,862  |       
|                                     |                                                      | Adjustments to reconcile net income to net cash provided by operating
activities: |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |        |       
|                                     |                                                      |                                                                                   | Depreciation and amortization                        |          |                              |         |              |            |               | 66,175 |               |          |                | 19,857 |   |            |   |        |   |          |        | 86,032 | 
|                                     |                                                      |                                                                                   | Earnings in equity investments, net of distributions |          |                              | 33,994   |              |            |               | (2,496 | )             |          |                | 11,586 |   |            |   | (24,683 | ) |          |        | 18,401 | 
|                                     |                                                      |                                                                                   | Changes in assets and liabilities and other          |          |                              | (269,102 | )            |            |               | 48,638 |               |          |                | 40,253 |   |            |   | 192,833 |   |          |        | 12,622 | 
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |       
|                                     | Net cash provided by operating activities            |                                                                                   |                                                      | (117,246 | )                            |          |              | 251,554    |               |        |               | 116,565  |                |        |   | (15,956    | ) |         |   | 234,917  |       
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |       
|                                     | Cash flows from investing activities                 |                                                                                   |                                                      | (378,039 | )                            |          |              | (1,150,967 | )             |        |               | (253,879 | )              |        |   | 1,058,170  |   |         |   | (724,715 | )     
|                                     | Cash flows from financing activities                 |                                                                                   |                                                      | 495,285  |                              |          |              | 904,006    |               |        |               | 138,210  |                |        |   | (1,042,214 | ) |         |   | 495,287  |       
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |       
|                                     | Net increase (decrease) in cash and cash equivalents |                                                                                   |                                                      |         |                              |          |              | 4,593      |               |        |               | 896      |                |        |   |           |   |         |   | 5,489    |       
|                                     | Cash and cash equivalents at beginning of period     |                                                                                   |                                                      |         |                              |          |              | 3,654      |               |        |               | 21,825   |                |        |   |           |   |         |   | 25,479   |       
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |       
|                                     | Cash and cash equivalents at end of period           |                                                                                   | $                                                    |         |                              |          | $            | 8,247      |               |        | $             | 22,721   |                |        | $ |           |   |         | $ | 30,968   |       
|                                     |                                                      |                                                                                   |                                                      |          |                              |          |              |            |               |        |               |          |                |        |   |            |   |         |   |          |       

|                                                     |            |                                                                                   |                                                      |         |                              |        |              |         |               |        |               |        |                |         |          |          |   |        |          |         |        |        |  
|---------------------------------------------------- | ---------- | --------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ---------------------------- | ------ | ------------ | ------- | ------------- | ------ | ------------- | ------ | -------------- | ------- | -------- | -------- | - | ------ | -------- | ------- | ------ | ------ | -
|                                                     |            |                                                                                   |                                                      |         | Year
Ended December 31, 2001
|                                                     |            |                                                                                   |                                                      |         |                             
|                                                     |            |                                                                                   |                                                      |         |                              |        |              |         |               |        |               |        |                |         |          |          |   |        |          |         | TEPPCO
|                                                     |            |                                                                                   |                                                      |         | TEPPCO                       |        | Guarantor    |         | Non-Guarantor |        | Consolidating |        | Partners, L.P.
|                                                     |            |                                                                                   |                                                      |         | 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 |  
|                                                     |            |                                                                                   | Earnings in equity investments, 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-42



---



##### 



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

|                                                     |                                                                                   |                                                      |          |                              |       |              |         |               |        |               |          |                |         |   |          |   |        |   |          |        |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------------------------- | -------- | ---------------------------- | ----- | ------------ | ------- | ------------- | ------ | ------------- | -------- | -------------- | ------- | - | -------- | - | ------ | - | -------- | ------ | ------- | -
|                                                     |                                                                                   |                                                      |          | Year Ended December 31, 2000
|                                                     |                                                                                   |                                                      |          |                             
|                                                     |                                                                                   |                                                      |          |                              |       |              |         |               |        |               |          |                |         |   |          |   |        |   |          | TEPPCO
|                                                     |                                                                                   |                                                      |          | TEPPCO                       |       | Guarantor    |         | Non-Guarantor |        | Consolidating |          | Partners, L.P.
|                                                     |                                                                                   |                                                      |          | 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  |  
|                                                     |                                                                                   | Earnings in equity investments,
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   |       
|                                                     |                                                                                   |                                                      |          |                              |       |              |         |               |        |               |          |                |         |   |          |   |        |   |          |       

NOTE 21. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (1)

|                                                                  |                              |   |                                         |      |         |   |           |      |         |   |         |      |  |   |         |      | 
|----------------------------------------------------------------- | ---------------------------- | - | --------------------------------------- | ---- | ------- | - | --------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ---- | 
|                                                                  |                              |   | First                                   |      | Second  |   | Third     |      | Fourth 
|                                                                  |                              |   | Quarter                                 |      | Quarter |   | Quarter   |      | Quarter
|                                                                  |                              |   |                                         |      |         |   |           |      |        
|                                                                  |                              |   | (in thousands, except per Unit amounts)
|2002(2)                                                           |                              |   |                                         |      |         |   |           |      |         |   |         |      |  |   |         |     
|Operating revenues                                                |                              | $ | 631,137                                 |      |         | $ | 888,329   |      |         | $ | 880,804 |      |  | $ | 841,893 |     
|Operating income                                                  |                              |   | 37,586                                  |      |         |   | 37,356    |      |         |   | 47,087  |      |  |   | 48,218  |     
|Net income                                                        |                              |   | 26,808                                  |      |         |   | 24,377    |      |         |   | 32,093  |      |  |   | 34,584  |     
|Basic and Diluted income per Limited
Partner and Class B Unit (2) |                              | $ | 0.46                                    |      |         | $ | 0.39      |      |         | $ | 0.48    |      |  | $ | 0.46    |     
|2001(3)                                                           |                              |   |                                         |      |         |   |           |      |         |   |         |      |  |   |         |     
|Operating revenues                                                |                              | $ | 785,235                                 |      |         | $ | 1,073,682 |      |         | $ | 990,816 |      |  | $ | 706,680 |     
|Operating income                                                  |                              |   | 36,465                                  |      |         |   | 53,247    |      |         |   | 27,352  |      |  |   | 34,727  |     
|Net income                                                        |                              |   | 25,735                                  |      |         |   | 43,038    |      |         |   | 19,092  |      |  |   | 21,266  |     
|Basic income per Limited                                          |                              |   |                                         |      |         |   |           |      |         |   |         |      |  |   |         |     
|                                                                  | Partner and Class B Unit (3) |   | $                                       | 0.55 |         |   | $         | 0.90 |         |   | $       | 0.35 |  |   | $       | 0.40 | 
|Diluted income per Limited                                        |                              |   |                                         |      |         |   |           |      |         |   |         |      |  |   |         |     
|                                                                  | Partner and Class B Unit (3) |   | $                                       | 0.55 |         |   | $         | 0.89 |         |   | $       | 0.35 |  |   | $       | 0.40 | 



---

|(1) |  | Certain reclassifications have been made to the quarterly
information to conform with the current presentation.                                                                                        
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 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.

F-43



---



##### 



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



|(3) |  | Per Unit calculation includes 1,920,000 Limited Partner Units
issued in March 2002, 3,175,000 Limited Partner Units issued in July
and August 2002, 4,370,000 Limited Partner Units issued in September
2002, 3,300,000 Limited Partner Units issued in November 2002, 495,000
Limited Partner Units issued in December 2002, and 99,597 Limited
Partner Units issued through the exercise of Unit options in 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

NOTE 22. SUBSEQUENT EVENTS

On January 30, 2003, we received $197.3 million in net proceeds, after
underwriting discount, from the issuance of $200.0 million principal amount of
6.125% Senior Notes due 2013. The 6.125% Senior Notes were issued at a
discount of $1.4 million and will be accreted to their face value over the term
of the notes. We used $182.0 million of the proceeds from the offering to
reduce the outstanding principal on the Three Year Facility to $250.0 million.
The balance of the proceeds of $15.3 million was used for general purposes.
The Senior Notes may be redeemed at any time at our option with the payment of
accrued interest and a make-whole premium determined by discounting remaining
interest and principal payments using a discount rate equal to the rate of the
United States Treasury securities of comparable remaining maturity plus 35
basis points. The indenture governing our 6.125% Senior Notes contains
covenants, including, but not limited to, covenants limiting the creation of
liens securing indebtedness and sale and leaseback transactions. However, the
indenture does not limit our ability to incur additional indebtedness. Our
Guarantor Subsidiaries issued unconditional guarantees of these Senior Notes
(see Note 20. Supplemental Condensed Consolidating Financial Information).

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

F-44



---



##### 



INDEPENDENT AUDITORS REPORT ON CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE

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

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

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

KPMG LLP

Houston, Texas
January 22, 2003

S-1



---



##### 



SCHEDULE II
TEPPCO PARTNERS, L.P.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002
(in thousands)

|                                 |  |              |        |              |  |            |      |                |  |               |        |   |  |   |       |  |  |   |        |  
|-------------------------------- |  | ------------ | ------ | ------------ |  | ---------- | ---- | -------------- |  | ------------- | ------ | - |  | - | ----- |  |  | - | ------ | -
|                                 |  | Balance at   |        | Additions    |  | Charged to |      |                |  |               |        |   |  |  
|                                 |  | Beginning of |        | Related to   |  | Costs and  |      | Deductions and |  | Balance at   
|                                 |  | Period       |        | Acquisitions |  | Expenses   |      | Other          |  | End of Period
|                                 |  |              |        |              |  |            |      |                |  |              
|Environmental Reserve:           |  |              |        |              |  |            |      |                |  |               |        |   |  |   |       |  |  |   |        |  
|Year Ended December 31, 2000     |  | $            | (5,089 | )            |  | $          |     |                |  | $             | (497   | ) |  | $ | 1,938 |  |  | $ | (3,648 | )
|Year Ended December 31, 2001     |  |              | (3,648 | )            |  |            | (300 | )              |  |               | (8,691 | ) |  |   | 6,205 |  |  |   | (6,434 | )
|Year Ended December 31, 2002     |  |              | (6,434 | )            |  |            |     |                |  |               | (5,785 | ) |  |   | 4,526 |  |  |   | (7,693 | )
|Allowance For Doubtful Accounts: |  |              |        |              |  |            |      |                |  |               |        |   |  |   |       |  |  |   |        |  
|Year Ended December 31, 2000     |  | $            |       |              |  | $          |     |                |  | $             |       |   |  | $ |      |  |  | $ |       |  
|Year Ended December 31, 2001     |  |              |       |              |  |            |     |                |  |               | (4,422 | ) |  |   |      |  |  |   | (4,422 | )
|Year Ended December 31, 2002     |  |              | (4,422 | )            |  |            |     |                |  |               | (325   | ) |  |   | 139   |  |  |   | (4,608 | )

S-2



---



##### 






Exhibit Index

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1     |  | Certificate of Limited Partnership of TEPPCO Partners, L.P.
(Filed as Exhibit 3.2 to the Registration Statement of TEPPCO
Partners, L.P. (Commission File No. 33-32203) and incorporated
herein by reference).                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.2     |  | Third Amended and Restated Agreement of Limited Partnership
of TEPPCO Partners, L.P., dated September 21, 2001 (Filed as Exhibit
3.7 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.1     |  | Form of Certificate representing Limited Partner Units (Filed
as Exhibit 4.1 to the Registration Statement of TEPPCO Partners,
L.P. (Commission File No. 33-32203) and incorporated herein by
reference).                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.2     |  | Form of Indenture between TE Products Pipeline Company,
Limited Partnership and The Bank of New York, as Trustee, dated as
of January 27, 1998 (Filed as Exhibit 4.3 to TE Products Pipeline
Company, Limited Partnerships Registration Statement on Form S-3
(Commission File No. 333-38473) and incorporated herein by
reference).                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.3     |  | Form of Certificate representing Class B Units (Filed as
Exhibit 4.3 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.4     |  | Form of Indenture between TEPPCO Partners, L.P., as issuer,
TE Products Pipeline Company, Limited Partnership, TCTM, L.P.,
TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering Company, as
subsidiary guarantors, and First Union National Bank, NA, as
trustee, dated as of February 20, 2002 (Filed as Exhibit 99.2 to
Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.5     |  | First Supplemental Indenture between TEPPCO Partners, L.P.,
as issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P. and Jonah Gas Gathering
Company, as subsidiary guarantors, and First Union National Bank,
NA, as trustee, dated as of February 20, 2002 (Filed as Exhibit 99.3
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of February 20, 2002 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|4.6     |  | Second Supplemental Indenture, dated as of June 27, 2002,
among TEPPCO Partners, L.P., as issuer, TE Products Pipeline
Company, Limited Partnership, TCTM, L.P.,TEPPCO Midstream Companies, L.P.,
and Jonah Gas Gathering Company, as Initial Subsidiary Guarantors, and Val Verde Gas
Gathering Company, L.P., as New Subsidiary                                                                                                                                            

61



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  | Guarantor, and Wachovia Bank, National Association, formerly known as First
Union National Bank, as trustee (Filed as Exhibit 4.6 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2002 and incorporated herein
by reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|4.7*    |  | Third Supplemental Indenture among TEPPCO Partners, L.P. as
issuer, TE Products Pipeline Company, Limited Partnership, TCTM,
L.P., TEPPCO Midstream Companies, L.P., Jonah Gas Gathering Company
and Val Verde Gas Gathering Company, L.P. as Subsidiary Guarantors,
and Wachovia Bank, National Association, as trustee, dated as of
January 30, 2003.                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.1+   |  | Duke Energy Corporation Executive Savings Plan (Filed as
Exhibit 10.7 to Form 10-K of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the year ended December 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.2+   |  | Duke Energy Corporation Executive Cash Balance Plan (Filed
as Exhibit 10.8 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 1999 and
incorporated herein by reference).                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.3+   |  | Duke Energy Corporation Retirement Benefit Equalization Plan
(Filed as Exhibit 10.9 to Form 10-K for TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1999
and incorporated herein by reference).                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.4+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan executed on March 8, 1994 (Filed as Exhibit 10.1 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended March 31, 1994 and incorporated herein by
reference).                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.5+   |  | Texas Eastern Products Pipeline Company 1994 Long Term
Incentive Plan, Amendment 1, effective January 16, 1995 (Filed as
Exhibit 10.12 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended June 30, 1999 and incorporated
herein by reference).                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.6    |  | Asset Purchase Agreement between Duke Energy Field Services,
Inc. and TEPPCO Colorado, LLC, dated March 31, 1998 (Filed as
Exhibit 10.14 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.7    |  | Contribution Agreement between Duke Energy Transport and
Trading Company and TEPPCO Partners, L.P., dated October 15, 1998
(Filed as Exhibit 10.16 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 1998
and incorporated herein by reference).                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.8    |  | Guaranty Agreement by Duke Energy Natural Gas Corporation for
the benefit of TEPPCO Partners, L.P., dated November 30, 1998,
effective November 1, 1998 (Filed as Exhibit 10.17 to Form 10-K of
TEPPCO Partners, L.P. (Commission File No. 1-10403) for the year
ended December 31, 1998 and incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.9+   |  | Form of Employment Agreement between the Company and Thomas
R. Harper, Charles H. Leonard, James C. Ruth, John N. Goodpasture,
Leonard W. Mallett, Stephen W. Russell, David E. Owen, and Barbara
A. Carroll (Filed as Exhibit 10.20 to Form 10-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the year ended December 31,
1998 and incorporated herein by reference).               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.10   |  | Services and Transportation Agreement between TE Products
Pipeline Company, Limited Partnership and Fina Oil and Chemical
Company, BASF Corporation and BASF Fina Petrochemical Limited
Partnership, dated February 9, 1999 (Filed as Exhibit 10.22 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.11   |  | Call Option Agreement, dated February 9, 1999 (Filed as
Exhibit 10.23 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1999 and incorporated
herein by reference).                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.12+  |  | Texas Eastern Products Pipeline Company Retention Incentive
Compensation Plan, effective January 1, 1999 (Filed as Exhibit 10.24
to Form 10-Q of TEPPCO Partners,L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 1999 and incorporated herein by reference).                                                                                                                    

62



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.13+  |  | Form of Employment and Non-Compete Agreement between the Company
and J. Michael Cockrell effective January 1, 1999 (Filed as Exhibit
10.29 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.14+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Unit Accumulation Plan, effective April 1, 1999 (Filed as Exhibit
10.30 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 1999 and incorporated
herein by reference).                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.15+  |  | Texas Eastern Products Pipeline Company Non-employee Directors
Deferred Compensation Plan, effective November 1, 1999 (Filed as
Exhibit 10.31 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended September 30, 1999 and
incorporated herein by reference).                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.16+  |  | Texas Eastern Products Pipeline Company Phantom Unit Retention
Plan, effective August 25, 1999 (Filed as Exhibit 10.32 to Form 10-Q
of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 1999 and incorporated herein by
reference).                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.17   |  | Amended and Restated Purchase Agreement By and Between
Atlantic Richfield Company and Texas Eastern Products Pipeline
Company With Respect to the Sale of ARCO Pipe Line Company, dated as
of May 10, 2000. (Filed as Exhibit 2.1 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
March 31, 2000 and incorporated herein by reference).                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.18+  |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Amendment and Restatement, effective January 1, 2000
(Filed as Exhibit 10.28 to Form 10-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) for the year ended December 31, 2000
and incorporated herein by reference).                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.19+  |  | TEPPCO Supplemental Benefit Plan, effective April 1, 2000 (Filed
as Exhibit 10.29 to Form 10-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) for the year ended December 31, 2000 and
incorporated herein by reference).                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.20+  |  | Employment Agreement with Barry R. Pearl (Filed as Exhibit 10.30
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended March 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.21   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank as Administrative Agent and LC
Issuing Bank, and Certain Lenders, dated as of April 6,  2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.31 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended March 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.22   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended March 31, 2001 and incorporated
herein by reference).                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.23   |  | Purchase and Sale Agreement By and Among Green River
Pipeline, LLC and McMurry Oil Company, Sellers, and TEPPCO Partners,
L.P., Buyer, dated as of September 7, 2000. (Filed as Exhibit 10.31
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended September 30, 2001 and incorporated herein by
reference).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.24   |  | Credit Agreement Among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, dated as
of September 28, 2001 ($400,000,000 Term Facility) (Filed as Exhibit
10.32 to Form 10-Q of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the quarter ended September 30, 2001 and incorporated
herein by reference).                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                    
|10.25   |  | Amendment 1, dated as of September 28, 2001, to the Amended
and Restated Credit Agreement among TEPPCO Partners, L.P. as
Borrower, SunTrust Bank as Administrative Agent and LC Issuing Bank,
and Certain Lenders, dated as of April 6, 2001 ($500,000,000 Revolving Facility)
(Filed as Exhibit 10.33 to Form 10-Q of                                                                             

63



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  | TEPPCO Partners, L.P. (Commission File No. 1-10403) for the quarter ended September 30, 2001 and
incorporated herein by reference).                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.26   |  | Amendment 1, dated as of September 28, 2001, to the Credit
Agreement among TEPPCO Partners, L.P. as Borrower, SunTrust Bank as
Administrative Agent, and Certain Lenders, dated as of April 6, 2001
($200,000,000 Revolving Facility) (Filed as Exhibit 10.34 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.27   |  | Amendment and Restatement, dated as of November 13, 2001, to
the Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent, and Certain Lenders, dated as
of April 6, 2001 ($200,000,000 Revolving Facility) (Filed as Exhibit
10.35 to Form 10-K of TEPPCO Partners, L.P (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.28   |  | Second Amendment and Restatement, dated as of November 13,
2001, to the Amended and Restated Credit Agreement amount TEPPCO
Partners, L.P. as Borrower, SunTrust Bank as Administrative Agent
and LC Issuing Bank, and Certain Lenders, dated as of April 6, 2001
($500,000,000 Revolving Facility) (Filed as Exhibit 10.36 to Form
10-K of TEPPCO Partners, L.P (Commission File No. 1-10403) for the
year ended December 31, 2001 and incorporated herein by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.29   |  | Second Amended and Restated Agreement of Limited Partnership
of TE Products Pipeline Company, Limited Partnership, dated
September 21, 2001 (Filed as Exhibit 3.8 to Form 10-Q of TEPPCO
Partners, L.P. (Commission File No. 1-10403) for the quarter ended
September 30, 2001 and incorporated herein by reference).                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.30   |  | Amended and Restated Agreement of Limited Partnership of
TCTM, L.P., dated September 21, 2001 (Filed as Exhibit 3.9 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.31   |  | Contribution, Assignment and Amendment Agreement among
TEPPCO Partners, L.P., TE Products Pipeline Company, Limited
Partnership, TCTM, L.P., Texas Eastern Products Pipeline Company,
LLC, and TEPPCO GP, Inc., dated July 26, 2001 (Filed as Exhibit 3.6
to Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403)
for the quarter ended June 30, 2001 and incorporated herein by
reference).                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.32   |  | Certificate of Formation of TEPPCO Colorado, LLC (Filed as
Exhibit 3.2 to Form 10-Q of TEPPCO Partners, L.P. (Commission File
No. 1-10403) for the quarter ended March 31, 1998 and incorporated
herein by reference).                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.33   |  | Agreement of Limited Partnership of TEPPCO Midstream
Companies, L.P., dated September 24, 2001 (Filed as Exhibit 3.10 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended September 30, 2001 and incorporated herein by
reference).                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.34   |  | Agreement of Partnership of Jonah Gas Gathering Company
dated June 20, 1996 as amended by that certain Assignment of
Partnership Interests dated September 28, 2001 (Filed as Exhibit
10.40 to Form 10-K of TEPPCO Partners, L.P. (Commission File No.
1-10403) for the year ended December 31, 2001 and incorporated
herein by reference).                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.35   |  | Unanimous Written Consent of the Board of Directors of
TEPPCO GP, Inc. dated February 13, 2002 (Filed as Exhibit 10.41 to
Form 10-K of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the year ended December 31, 2001 and incorporated herein by
reference).                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.36   |  | Credit Agreement among TEPPCO Partners, L.P. as Borrower,
SunTrust Bank as Administrative Agent and Certain Lenders, as
Lenders dated as of March 28, 2002 ($200,000,000 Revolving Credit
Facility) (Filed as Exhibit 10.44 to Form 10-Q of TEPPCO Partners,
L.P. (Commission File No. 1-10403) for the three months ended March
31, 2002 and incorporated herein by reference).                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.37   |  | Amended and Restated Credit Agreement among TEPPCO Partners,
L.P. as Borrower, SunTrust Bank, as Administrative Agent and LC
Issuing Bank and Certain Lenders, as Lenders dated as of March 28,
2002 ($500,000,000 Revolving Facility) (Filed as Exhibit 10.45 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the three months ended March 31, 2002 and incorporated herein by
reference).                                                       

64



---



##### 



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  | Description                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.38   |  | Purchase and Sale Agreement between Burlington Resources
Gathering Inc. as Seller and TEPPCO Partners, L.P., as Buyer, dated
May 24, 2002 (Filed as Exhibit 99.1 to Form 8-K of TEPPCO Partners,
L.P. (Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.39   |  | Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent and Certain Lenders, as
Lenders dated as of June 27, 2002 ($200,000,000 Term Facility)
(Filed as Exhibit 99.2 to Form 8-K of TEPPCO Partners, L.P.
(Commission File No. 1-10403) dated as of July 2, 2002 and
incorporated herein by reference).                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.40   |  | Amendment, dated as of June 27, 2002 to the Amended and
Restated Credit Agreement among TEPPCO Partners, L.P., as Borrower,
SunTrust Bank, as Administrative Agent, and Certain Lenders, dated
as of March 28, 2002 ($500,000,000 Revolving Credit Facility) (Filed
as Exhibit 99.3 to Form 8-K of TEPPCO Partners, L.P. (Commission
File No. 1-10403) dated as of July 2, 2002 and incorporated herein
by reference).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.41   |  | Amendment 1, dated as of June 27, 2002 to the Credit
Agreement among TEPPCO Partners, L.P., as Borrower, SunTrust Bank,
as Administrative Agent and Certain Lenders, dated as of March 28,
2002 ($200,000,000 Revolving Credit Facility) (Filed as Exhibit 99.4
to Form 8-K of TEPPCO Partners, L.P. (Commission File No. 1-10403)
dated as of July 2, 2002 and incorporated herein by reference).                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.42   |  | Agreement of Limited Partnership of Val Verde Gas Gathering
Company, L.P., dated May 29, 2002 (Filed as Exhibit 10.48 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.43+  |  | Texas Eastern Products Pipeline Company, LLC 2002 Phantom Unit
Retention Plan, effective June 1, 2002 (Filed as Exhibit 10.49 to
Form 10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for
the quarter ended June 30, 2002 and incorporated herein by
reference).                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.44+* |  | Amended and Restated TEPPCO Supplemental Benefit Plan, effective
November 1, 2002.                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.45+* |  | Texas Eastern Products Pipeline Company, LLC 2000 Long Term
Incentive Plan, Second Amendment and Restatement, effective January
1, 2003.                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.46+* |  | Amended and Restated Texas Eastern Products Pipeline Company, LLC
Management Incentive Compensation Plan, effective January 1, 2003.                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.47+* |  | Amended and Restated TEPPCO Retirement Cash Balance Plan,
effective January 1, 2002.                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.48*  |  | Formation Agreement between Panhandle Eastern Pipe Line Company
and Marathon Ashland Petroleum LLC and TE Products Pipeline Company,
Limited Partnership, dated as of August 10, 2000.                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.49*  |  | Amended and Restated Limited Liability Company Agreement of
Centennial Pipeline LLC dated as of August 10, 2000.                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.50*  |  | Guaranty Agreement, dated as of September 27, 2002, between TE
Products Pipeline Company, Limited Partnership and Marathon Ashland
Petroleum LLC for Note Agreements of Centennial Pipeline LLC.                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.51*  |  | LLC Membership Interest Purchase Agreement By and Between CMS
Panhandle Holdings, LLC, As Seller and Marathon Ashland Petroleum
LLC and TE Products Pipeline Company, Limited Partnership, Severally
as Buyers, dated February 10, 2003.                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|12.1*   |  | Statement of Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|21      |  | Subsidiaries of the Partnership (Filed as Exhibit 21 to Form
10-Q of TEPPCO Partners, L.P. (Commission File No. 1-10403) for the
quarter ended June 30, 2002 and incorporated herein by reference).                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|23*     |  | Consent of KPMG LLP.                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|24*     |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.1*   |  | Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99.2*   |  | Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                   

65