Form 8-K/A, dated September 26, 2002
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No.1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report: September 26, 2002
(Date of earliest event reported: July 31, 2002)
ENTERPRISE PRODUCTS PARTNERS L.P.
ENTERPRISE PRODUCTS OPERATING L.P.
(Exact name of registrants as specified in their charters)
Delaware 1-14323 76-0568219
Delaware 333-93239-01 76-0568220
(State or other jurisdiction of (Commission (I.R.S. Employer Identification
incorporation of organization) File Number) No.)
2727 North Loop West, Houston, Texas 77008-1037
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code:
(713) 880-6500
EXPLANATORY NOTE
This report constitutes a combined report for Enterprise Products Partners L.P. ("Enterprise") (Commission File No. 1-14323) and its
98.9899% owned subsidiary, Enterprise Products Operating L.P. (the "Operating Partnership") (Commission File No. 333-93239-01).
Since the Operating Partnership owns substantially all of Enterprise's consolidated assets and conducts substantially all of
Enterprise's business and operations, the information set forth herein constitutes combined information for Enterprise and the
Operating Partnership.
Unless the context requires otherwise, references to "we", "us" or "our" are intended to mean the consolidated business and
operations of Enterprise Products Partners L.P., which includes Enterprise Products Operating L.P. and its subsidiaries.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Purchase of Interests in Mapletree and E-Oaktree
On August 1, 2002, we announced the purchase of equity interests in affiliates of The Williams Companies, Inc. ("Williams"), which
in turn, own controlling interests in Mid-America Pipeline Company, LLC (formerly Mid-America Pipeline Company) and Seminole
Pipeline Company. The purchase price of the acquisitions was approximately $1.2 billion (subject to certain post-closing purchase
price adjustments) and was determined pursuant to arms-length negotiations between the parties. The effective date of the
acquisitions was July 31, 2002.
The acquisitions include a 98% ownership interest in Mapletree, LLC, sole owner of the Mid-America pipeline system ("Mid-America")
and certain propane terminals and storage facilities. Mid-America is a major natural gas liquids ("NGL") pipeline system consisting
of three NGL pipelines, with 7,226 miles of pipeline, and average transportation volumes of approximately 641 MBPD during 2001.
Mid-America's 2,548-mile Rocky Mountain system transports mixed NGLs from the Rocky Mountain Overthrust and San Juan basin areas to
the Hobbs hub located on the Texas-New Mexico border. Its 2,740-mile Conway North segment links the large NGL hub at Conway, Kansas
to the upper Midwest; its 1,938 mile Conway South system connects the Conway hub with Kansas refineries and transports mixed NGLs
from Conway, Kansas to the Hobbs hub.
We also acquired a 98% ownership interest in E-Oaktree, LLC, owner of an 80% equity interest in Seminole Pipeline Company
(Seminole"). The Seminole pipeline consists of a 1,281-mile NGL pipeline, with average transportation volumes of approximately 241
MBPD during 2001. This pipeline transports mixed NGLs and NGL products from the Hobbs hub and the Permian basin to Mont Belvieu,
Texas.
These pipelines connect our Mont Belvieu and Gulf Coast NGL businesses with all of the major natural gas and NGL supply basins in
North America, giving us the ability to provide integrated midstream energy services to the two fastest growing natural gas basins
in the United States - the deepwater Gulf of Mexico and the Rocky Mountain Overthrust. Our predecessor and ultimate parent,
Enterprise Products Company, was a charter partner in the formation and development of Seminole in 1981.
We intend to utilize the Mid-America and Seminole pipelines in a manner consistent with their previous use by Williams. The
post-closing purchase price adjustments of the acquisitions are expected to be completed during the fourth quarter of 2002. These
acquisitions do not require any material governmental approvals.
In order to fund this transaction, our Operating Partnership entered into a $1.2 billion senior unsecured 364-day credit facility
(the "Term Loan"). The Term Loan will mature as follows: $150 million due on December 31, 2002, $450 million on March 31, 2003 and
$600 million on July 30, 2003. The lenders under this facility are Wachovia Bank, National Association; Lehman Brothers Bank, FSB;
Lehman Commercial Paper Inc. and Royal Bank of Canada. As defined in the Term Loan agreement, the Term Loan will generally bear
interest at either (i) the greater of (a) the Prime Rate or (b) the Federal Funds Effective Rate plus one-half percent or (ii) a
Eurodollar rate, with any rate in effect being increased by an appropriate applicable margin. The Term Loan credit agreement
PAGE 2
contains various affirmative and negative covenants applicable to the Operating Partnership similar to those required under our
previously existing revolving credit agreements.
The $1.2 billion Term Loan is guaranteed by Enterprise through an unsecured guarantee. Our plans for permanent financing of these
acquisitions include the issuance of equity and debt in amounts which are consistent with our objective of maintaining our financial
flexibility and investment grade balance sheet.
On August 1, 2002, Seminole had $60 million in senior unsecured notes due in December 2005. The principal amount of these notes
amortize by $15 million each December 1 beginning 2001 through 2005. In accordance with generally accepted accounting principles,
this debt will be consolidated on our balance sheet because of our 98% controlling interest in E-Oaktree, LLC, which owns 80% of
Seminole.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
1. Mid-America Pipeline System (A Division of the Williams Companies, Inc.) - audited financial statements for the
years ended December 31, 1999, 2000 and 2001 and unaudited financial statements for the six month periods ended
June 30, 2001 and 2002.
2. Seminole Pipeline Company - audited financial statements for the years ended December 31, 1999, 2000 and 2001 and
unaudited financial statements for the six month periods ended June 30, 2001 and 2002.
(b) Pro forma unaudited financial information.
1. Enterprise Products Partners L.P. and subsidiaries - pro forma condensed Consolidated Balance Sheet as of June 30,
2002 and pro forma condensed Statements of Consolidated Operations for the year ended December 31, 2001 and the
six month period ended June 30, 2002.
(c) Exhibits.
2.1 Purchase Agreement dated as of July 31, 2002 by and between E-Birchtree, LLC and E-Cypress, LLC. (Exhibit 2.1 to
our Form 8-K filed on August 12, 2002).
2.2 Purchase Agreement dated as of July 31, 2002 by and between E-Birchtree, LLC and Enterprise Products Operating
L.P. (Exhibit 2.2 to our Form 8-K filed on August 12, 2002).
4.1 Third Amendment and Supplement to Multi-Year Credit Facility dated July 31, 2002. (Exhibit 4.1 to our Form 8-K
filed on August 12, 2002).
4.2 Third Amendment and Supplement to 364-Day Credit Facility dated July 31, 2002. (Exhibit 4.2 to our Form 8-K filed
on August 12, 2002).
4.3 $1.2 billion 364-Day Term Loan Credit Agreement among Enterprise Products Operating L.P.; Wachovia Bank, National
Association, as administrative agent; Lehman Commercial Paper Inc., as co-syndication agent; and the Royal Bank of
Canada, as co-syndication agent and arranger dated July 31, 2002. (Exhibit 4.3 to our Form 8-K filed on August 12,
2002).
4.4 First Amendment and Supplement to Credit Agreement effective as of July 31, 2002 among Enterprise Products
Operating L.P., the lenders party hereto Wachovia Bank, National Association, as administrative agent and as a
lender, Lehman Commercial Paper Inc., as co-syndication agent, Royal Bank of Canada, as co-syndication agent and
arranger dated July 31, 2002.
PAGE 3
4.5 Guaranty Agreement (relating to the $1.2 billion 364-Day Term Loan Credit Agreement) by Enterprise Products
Partners L.P. in favor of Wachovia Bank, National Association, as administrative agent dated July 31, 2002.
(Exhibit 4.4 to our Form 8-K filed on August 12, 2002).
23.1 Consent of Ernst and Young.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
ENTERPRISE PRODUCTS PARTNERS L.P.
ENTERPRISE PRODUCTS OPERATING L.P.
By: Enterprise Products GP, LLC, the general partner of
Enterprise and the Operating Partnership
Date: September 26, 2002 By: /s/ Michael J. Knesek
--------------------------------------------------------------
Name: Michael J. Knesek
Title: Vice President, Controller and Principal Accounting
Officer of Enterprise Products GP, LLC
PAGE 4
ITEM 7. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
PRO FORMA UNAUDITED FINANCIAL INFORMATION
TABLE OF CONTENTS
Page No.
------------
Item 7 (a) Financial statements of businesses acquired.
Combined Financial Statements of Mid-America Pipeline System 6
Financial Statements of Seminole Pipeline Company 16
Item 7 (b) Unaudited pro forma financial information.
Enterprise Products Partners L.P. and subsidiaries unaudited pro forma financial information:
Pro Forma Statement of Consolidated Operations for the six months ended June 30, 2002 28
Pro Forma Statement of Consolidated Operations for the year ended December 31, 2001 29
Pro Forma Consolidated Balance Sheet at June 30, 2002 30
Notes to Unaudited Pro Forma Financial Statements 31
PAGE 5
COMBINED FINANCIAL STATEMENTS OF MID-AMERICA PIPELINE SYSTEM
Report of Independent Auditors
The Board of Directors of
The Williams Companies, Inc.:
We have audited the accompanying combined balance sheets of Mid-America Pipeline System (A Division of The Williams Companies, Inc.)
(See Note 1) as of December 31, 2000 and 2001 and the related combined statements of operations and owner equity and cash flows for
each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of The Williams
Companies, Inc.'s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 combined financial statements referred to above present fairly, in all material respects, the combined financial
position of Mid-America Pipeline System (A Division of The Williams Companies, Inc.) (See Note 1) at December 31, 2000 and 2001 and
the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.
ERNST and YOUNG LLP
Tulsa, Oklahoma
September 6, 2002
PAGE 6
MID-AMERICA PIPELINE SYSTEM
(A DIVISION OF THE WILLIAMS COMPANIES, INC.)
COMBINED BALANCE SHEETS
(Dollars in thousands)
December 31, June 30,
-------------------------------
2000 2001 2002
------------------------------- ---------------
ASSETS (Unaudited)
Current Assets
Accounts receivable - affiliates $ 9,396 $ 16,181 $ 20,506
Accounts receivable - other 743 540 1,383
Income taxes due from affiliates 8,213 - 11,855
Product inventory 30,562 15,416 10,210
Prepaid and other current assets 4,283 2,017 868
------------------------------- ---------------
Total current assets 53,197 34,154 44,822
Property, Plant and Equipment, net 680,735 673,627 633,937
Other assets 2,851 3,054 2,844
------------------------------- ---------------
Total $736,783 $710,835 $681,603
=============================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 7,263 $6,518 $5,178
Accounts payable - affiliates 163,552 93,292 26,726
Income taxes due to affiliates - 381 -
Accrued taxes, other than income taxes 4,616 5,400 7,777
Other current liabilities 475 1,951 2,468
------------------------------- ---------------
Total current liabilities 175,906 107,542 42,149
Long-Term Debt 90,000 90,000 90,000
Deferred Income Taxes 112,351 119,259 122,611
Other Long-Term Liabilities 342 6,225 384
Commitments
Owner Equity 358,184 387,809 426,459
------------------------------- ---------------
Total $736,783 $710,835 $681,603
=============================== ===============
See Notes to Financial Statements
PAGE 7
MID-AMERICA PIPELINE SYSTEM
(A DIVISION OF THE WILLIAMS COMPANIES, INC.)
COMBINED STATEMENTS OF OPERATIONS AND OWNER EQUITY
(Dollars in thousands)
Six Months Ended
For Years Ended December 31, June 30,
1999 2000 2001 2001 2002
----------- ------------ ------------- -- -----------------------
(unaudited)
REVENUES $190,686 $209,895 $214,518 $102,244 $109,865
COSTS AND EXPENSES
Operating costs and expenses 87,623 105,591 125,349 67,870 45,111
Selling, general and administrative 28,718 29,307 28,364 13,807 15,130
----------- ------------ ------------- ----------- -----------
Total 116,341 134,898 153,713 81,677 60,241
----------- ------------ ------------- ----------- -----------
OPERATING INCOME 74,345 74,997 60,805 20,567 49,624
OTHER INCOME (EXPENSE)
Interest expense (7,673) (13,500) (12,700) (6,947) (4,432)
Other, net 822 880 (1,035) 89 (748)
----------- ------------ ------------- ----------- -----------
Total (6,851) (12,620) (13,735) (6,858) (5,180)
----------- ------------ ------------- ----------- -----------
INCOME BEFORE INCOME TAXES 67,494 62,377 47,070 13,709 44,444
PROVISION FOR INCOME TAXES (23,651) (22,826) (17,445) (4,894) (16,604)
----------- ------------ ------------- ----------- -----------
NET INCOME $ 43,843 $ 39,551 $ 29,625 $ 8,815 $ 27,840
DIVIDEND OF ASSETS - (4,127) - - (23,571)
OWNER CONTRIBUTION - - - -
OWNER EQUITY AT BEGINNING OF PERIOD 34,381
OWNER EQUITY AT END OF PERIOD 278,917 322,760 358,184 358,184 387,809
----------- ------------ ------------- ----------- -----------
$322,760 $358,184 $387,809 $366,999 $426,459
=========== ============ ============= =========== ===========
See Notes to Financial Statements
PAGE 8
MID-AMERICA PIPELINE SYSTEM
(A DIVISION OF THE WILLIAMS COMPANIES, INC.)
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
For Years Ended December 31, June 30,
--------------------------------------- --------------------------
1999 2000 2001 2001 2002
--------------------------------------- --------------------------
OPERATING ACTIVITIES (unaudited)
Net income $43,843 $39,551 $29,625 $8,815 $27,840
Adjustments to reconcile net income to cash flows
provided by (used for) operating activities:
Depreciation 19,020 25,000 25,001 12,392 12,291
Lower of cost or market adjustment - - 18,833 12,903 -
Deferred income taxes 13,048 7,175 7,060 1,892 3,196
Net effect of changes in operating accounts 48,456 (51,002) (62,626) (32,600) (41,237)
--------------------------------------- --------------------------
Operating activities cash flows 124,367 20,724 17,893 3,402 2,090
--------------------------------------- --------------------------
INVESTING ACTIVITIES
Capital expenditures (137,427) (20,844) (18,573) (3,534) (2,192)
Proceeds from sale of assets 13,060 120 680 132 102
--------------------------------------- --------------------------
Investing activities cash flows (124,367) (20,724) (17,893) (3,402) (2,090)
--------------------------------------- --------------------------
CHANGE IN CASH AND CASH EQUIVALENTS - - - - -
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD - - - - -
CASH AND CASH EQUIVALENTS
--------------------------------------- --------------------------
AT END OF PERIOD $ - $ - $ - $ - $ -
======================================= ==========================
See Notes to Financial Statements
PAGE 9
MID-AMERICA PIPELINE SYSTEM
(A DIVISION OF THE WILLIAMS COMPANIES, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Information pertaining to June 30, 2002 and to the
six months ended June 30, 2001 and 2002 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
These financial statements and accompanying notes represent the combined historical financial information of (i) Mid-America
Pipeline Company ("MAPL") and (ii) certain terminals and storage facilities ("Terminals and Storage"), all of which is owned by The
Williams Companies, Inc. Unless the context requires otherwise, references to "we", "us", "our", or the "Company" are intended to
mean MAPL and the Terminals and Storage facilities. In addition, references to "Williams" in these footnotes are intended to mean
The Williams Companies, Inc. and its affiliates.
MAPL, a Delaware corporation, was organized in May 1968 for the purpose of owning and operating a natural gas liquids ("NGLs")
pipeline. Since its formation, MAPL's operations have expanded to include the transportation, pumping, metering and underground
storage of a variety of NGLs, including demethanized mix, ethane-propane mix and specification liquid products. Our primary asset is
the pipeline system located in the Rocky Mountains, the Midwest and a portion of the Southwest United States. Approximately 20
natural gas processing plants in Wyoming, Utah and Colorado feed NGLs into the MAPL system for delivery to several destinations.
The Terminals and Storage facilities, were contributed by Williams to Sapling LLC ("Sapling"), a Delaware corporation, organized in
July 2002 by Williams. The MAPL system serves the Midwestern U.S. heating market via Sapling's 16 propane truck-loading terminals
located on the MAPL system. Sapling also owns underground NGL storage capacity that provides operating flexibility along the MAPL
system.
Also in July 2002, Williams converted MAPL from a corporation to a limited liability company, Mid-America Pipeline Company, LLC
("MAPL, LLC"). Williams then contributed Sapling to MAPL, LLC. On July 31, 2002, Williams contributed its 100% equity interest in
MAPL, LLC to a newly formed affiliate of Williams, Mapletree, LLC. This contribution was done as part of a subsequent transaction
that took place between Williams and Enterprise Products Operating L.P ("EPOLP") on the same date, whereby EPOLP purchased a 98%
equity interest in Mapletree, LLC for $940.2 million.
Immediately prior to the sale of 98% of Williams' membership interest in MAPL, LLC to EPOLP, all long-term debt of MAPL, LLC was
repaid.
The interim financial data is unaudited; however, in the opinion of management, the interim financial data includes all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of the financial position as of June 30, 2002 and the
results of operations for the six-month periods ended June 30, 2001 and 2002. The results of operations for the six months ended
June 30, 2001 and 2002 are not necessarily indicative of the results to be expected for the full year.
DOLLAR AMOUNTS presented in the tabulations within the notes to our financial statements are stated in thousands of dollars,
unless otherwise indicated.
ENVIRONMENTAL expenditures that relate to current or future revenues are expensed or capitalized based upon the nature of the
expenditures. Expenditures resulting from an existing condition caused by past operations that do not contribute to current or
future revenue generation are expensed. Environmental liabilities are recorded independently of any potential claim for recovery.
Receivables are recognized in cases where the realization of reimbursements of remediation costs are considered probable. Accruals
related to environmental matters are generally determined based on site-specific plans for remediation, taking into account the
prior remediation experience of the Company.
PAGE 10
INCOME TAXES are computed using the liability method and are provided on all temporary differences between the financial
basis and the tax basis of the Company's assets and liabilities. For federal income tax reporting, the Company is included in
Williams' consolidated tax return. The provision for income taxes has been charged to the Company as if separate income tax returns
were filed.
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. Long-lived assets that are held for disposal are valued at the lower of carrying amount or fair
value less cost to sell.
PRODUCT INVENTORY consists of various NGL products we utilize in the operation of our pipeline. Product inventory is valued
at the lower of average cost or market. For the year ended December 31, 2001, operating costs and expenses include a lower of
average cost or market adjustment of $18.8 million.
PROPERTY,PLANT AND EQUIPMENT is recorded at cost and is depreciated using the straight-line method over the asset's estimated
useful life at annual rates ranging from 1.40% to 11.30%. Expenditures for maintenance and repairs are charged to operations in the
period incurred.
REVENUE is based on tariffs charged to customers for pipeline volumes transported. Shippers are invoiced and the related
revenue is recorded as deliveries are made.
USE OF ESTIMATES AND ASSUMPTIONS by management that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period are required for the preparation of financial statements in conformity with accounting principles generally
accepted in the United States. Our actual results could differ from these estimates.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations" in June 2001. This statement establishes accounting standards for the recognition and measurement
of a liability for an asset retirement obligation and the associated asset retirement cost. This statement is effective for our
fiscal year beginning January 1, 2003. We are evaluating the provisions of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement
addresses financial accounting and reporting for the impairment and/or disposal of long-lived assets. We adopted this statement
effective January 1, 2002 and determined that it did not have any significant impact on our financial statements as of that date.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and
Technical Corrections." The purpose of this statement is to update, clarify and simplify existing accounting standards. We
adopted this statement effective April 30, 2002 and determined that it did not have any significant impact on our financial
statements as of that date.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This standard
requires companies to recognize costs associated with exit or disposal activities when they are incurred. Examples of costs covered
by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by 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 No. 146 replaces Issue 94-3. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. This statement is effective for our fiscal year beginning January 1, 2003.
We are evaluating the provisions of this statement.
PAGE 11
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the periods indicated:
December 31, June 30,
--------------------------------
2000 2001 2002
-------------------------------- ----------------
(Unaudited)
Pipelines and related equipment $970,393 $981,733 $943,115
Land 1,303 1,445 1,445
-------------------------------- ----------------
Total 971,696 983,178 944,560
Less accumulated depreciation (290,961) (309,551) (310,623)
-------------------------------- ----------------
Property, plant and equipment, net $680,735 $673,627 $633,937
================================ ================
During 1999, we capitalized $7.0 million of interest related to a pipeline expansion project.
During 2002, we contributed fixed assets with a net book value of $23.6 million to an affiliate of Williams. The transaction was
accounted for as a non-cash dividend.
4. LONG-TERM DEBT
During 1992, we issued five different series of Senior Unsecured Notes in the private placement market. The notes have a combined
principal balance of $90 million with interest rates between 8.20% to 8.95%. The notes have principal payments beginning in July
2007. Interest is paid semi-annually either January 1 and July 1 or April 30 and October 30. The note agreements contain
restrictive covenants, which limit the payment of advances or dividends to stockholders and restrict additional borrowing of funds.
Such provisions restricted $100 million of combined net worth related to MAPL at December 31, 2001. We were in compliance with these
covenants at December 31, 2001.
5. INCOME TAXES
The provision for income taxes are as follows for the periods indicated:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Current:
Federal $ 9,327 $15,342 $ 9,718
State 1,276 309 667
--------------------------------------------
10,603 15,651 10,385
Deferred:
Federal 11,702 6,088 6,105
State 1,346 1,087 955
--------------------------------------------
Provision for income taxes $23,651 $22,826 $17,445
============================================
PAGE 12
Reconciliations from the provision for income taxes at the U.S federal statutory rate to the effective tax rate for the provision for
income taxes are as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Provision at statutory rate $23,623 $21,832 $16,474
Increases (reductions) in taxes resulting from:
State income taxes (net of federal benefit) 1,704 907 1,054
Other (1,676) 87 (83)
--------------------------------------------
Provision for income taxes $23,651 $22,826 $17,445
============================================
Significant components of deferred tax liabilities and assets as of December 31, 2000 and 2001 are as follows:
December 31,
-----------------------------
2000 2001
-----------------------------
Deferred tax liabilities:
Property, plant and equipment $115,474 $122,138
Other - 338
-----------------------------
Total deferred tax liabilities 115,474 122,476
-----------------------------
Deferred tax assets:
Accrued liabilities 167 140
Other 2,956 3,077
-----------------------------
Total deferred tax assets 3,123 3,217
-----------------------------
Net deferred tax liabilities $112,351 $119,259
=============================
6. RELATED PARTY TRANSACTIONS
Williams' affiliated companies transport product in our pipelines. Operating revenues from affiliates were as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Revenues from affiliates $30,328 $40,531 $46,954
Revenues from affiliates as
a percentage of total revenues 16% 19% 22%
At December 31, 2000 and 2001, we held affiliate receivable balances of $8.5 million and $14.3 million respectively, from Seminole
Pipeline Company ("Seminole"), an 80%-owned subsidiary of Williams, primarily for MAPL's share of the joint tariff on movements
generated in MAPL's pipeline system. MAPL is paid for its share of the joint tariff following delivery of NGLs to destinations on
Seminole's pipeline system.
Williams charges their affiliates for certain general and administrative expenses that are directly identifiable or allocable to the
affiliates. The majority of these expenses are reflected within general and administrative expenses. Allocated general and
administrative expenses are based on a three-factor formula, which is accepted by the Federal Energy Regulatory Commission and
considers operating margins, property, plant and equipment and payroll. These allocated costs from various Williams subsidiaries
were as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Allocated G and A expenses $23,321 $26,783 $19,067
PAGE 13
In addition to the above allocations, Williams allocates interest based on intercompany account balances. Allocated interest expense
from Williams was as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Allocated Interest Expense $6,931 $5,620 $4,300
Due to MAPL holding no cash, Williams pays all MAPL payables, causing us to hold payables to affiliates. Collections on our
receivables are netted against the affiliate payable account.
7. MAJOR CUSTOMERS
Two non-affiliated shippers accounted for 18% and 12% of operating revenues for the year ended December 31, 1999. One non-affiliated
shipper accounted for 21% and 17% of operating revenues for the years ended December 31, 2000 and 2001.
8. COMMITMENTS
During 2001, we leased certain fixed asset equipment under a 15-year capital lease. At December 31, 2001, the lease had a balance of
$5.8 million and an implied interest rate of approximately 14%. The balance of the lease along with the associated fixed assets were
transferred to an affiliate in April 2002.
9. SUPPLEMENTAL CASH FLOWS DISCLOSURE
Six Months Ended
For Years Ended December 31, June 30,
--------------------------------------- ---------------------------
1999 2000 2001 2001 2002
--------------------------------------- ---------------------------
(Increase) decrease in: (unaudited)
Accounts receivable $(2,124) $ (544) $(6,582) $ (5,358) $(5,168)
Income taxes due from affiliates - (8,213) 8,213 3,076 (11,855)
Product inventory - (41,455) (3,687) (1,162) 5,206
Prepaid and other current assets (346) (3,392) 2,266 1,633 1,149
Other assets 1,948 183 (203) (68) 210
Increase (decrease) in:
Accounts payable 54,124 23,646 (71,005) (33,906) (33,530)
Accrued taxes (2,579) (14,516) 1,160 2,863 2,001
Other current liabilities (1,762) (6,370) 1,329 322 809
Other liabilities (805) (341) 5,883 - (59)
--------------------------------------- ---------------------------
Net effect of changes in operating accounts $ 48,456 $(51,002) $(62,626) $(32,600) $(41,237)
======================================= ===========================
Income taxes paid were $12.8 million, $39.4 million and $2.0 million for the year ended December 31, 1999, 2000 and 2001,
respectively, and $25.6 million for the six months ended June 30, 2002. No income taxes were paid during the six months ended June
30, 2001. Interest paid was $7.8 million, $8.4 million and $13.0 million for 1999, 2000 and 2001, respectively, and $6.3 million and
$3.6 million for the six months ended June 30, 2001 and 2002, respectively.
During 2002, Williams made an equity contribution to us in the amount of $34.4 million. The non-cash transaction was accounted for
as a reduction to accounts payable - affiliate and an increase to owner equity.
PAGE 14
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by us, using available market information and appropriate valuation
methodologies. Considerable judgment, however, is necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize upon
disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Long-term debt. Debt consists of private placement senior notes. The fair value of private debt is valued based on the
prices of similar securities with similar terms and credit ratings.
The carrying amounts and fair values for our financial instruments at December 31, 2000 and 2001 are as follows:
2000 2001
------------------------------- --------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------- --------------------------------
Long-term debt $90,000 $99,479 $90,000 $98,737
11. SIGNIFICANT CONCENTRATIONS OF RISK
All of our revenues are derived from the transportation of NGLs to various companies in the NGL industry, primarily located in the
United States. Although this concentration could affect our overall exposure to credit risk since these customers might be affected
by similar economic or other conditions, management believes that the Company is exposed to minimal credit risk, since the majority
of our business is conducted with major companies within the industry. We perform periodic credit evaluations of our customers'
financial condition and generally do not require collateral for receivables.
PAGE 15
FINANCIAL STATEMENTS OF SEMINOLE PIPELINE COMPANY
Report of Independent Auditors
The Board of Directors of
Seminole Pipeline Company:
We have audited the accompanying balance sheets of Seminole Pipeline Company as of December 31, 2000 and 2001 and the related
accompanying statements of operations, statements of stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 financial statements referred to above present fairly, in all material respects, the financial position of
Seminole Pipeline Company at December 31, 2000 and 2001 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
ERNST and YOUNG LLP
Tulsa, Oklahoma
March 6, 2002,
except for the matter described in Note 14,
as to which the date is September 6, 2002
PAGE 16
SEMINOLE PIPELINE COMPANY
BALANCE SHEETS
(Dollars in thousands)
December 31, June 30,
-------------------------------
2000 2001 2002
------------------------------- ---------------
(Restated) (Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 11,535 $ 16,513 $ 11,160
Accounts receivable - trade 6,066 10,995 8,791
Accounts receivable - affiliates 1,582 2,783 7,791
Accounts receivable - other 117 152 408
Income taxes due from affiliates - - 1,637
Prepaid and other current assets 87 35 122
------------------------------- ---------------
Total current assets 19,388 30,479 29,909
Property, Plant and Equipment, net 261,358 251,751 249,390
Other assets 194 170 440
------------------------------- ---------------
Total $280,940 $282,399 $279,739
=============================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 15,000 $ 15,000 $ 15,000
Accounts payable - trade 4,644 2,646 2,389
Accounts payable - affiliates 15,437 15,460 17,948
Accrued income taxes due affiliates 54 8,471 -
Accrued taxes, other than income taxes 2,557 2,717 2,665
Other current liabilities 3,265 796 1,853
------------------------------- ---------------
Total current liabilities 40,957 45,090 39,855
Long-Term Debt 60,000 45,000 45,000
Deferred Income Taxes 58,858 59,226 59,116
Commitments and Contingencies
Stockholders' Equity
Capital stock:
Preferred stock, SeriesA, without par value, $100 stated value;
100 shares authorized and issued; involuntary liquidation
Preference aggregated $79,170 10 10 10
Common stock, $100 par value; 1,000 shares
Authorized and issued 100 100 100
Paid-in capital 114,357 114,357 114,357
Retained earnings 6,658 18,616 21,301
------------------------------- ---------------
Total stockholders' equity 121,125 133,083 135,768
------------------------------- ---------------
Total $280,940 $282,399 $279,739
=============================== ===============
See Notes to Financial Statements
PAGE 17
SEMINOLE PIPELINE COMPANY
STATEMENTS OF OPERATIONS
(Dollars in thousands)
Six Months Ended
For Years Ended December 31, June 30,
------------------------------------------- ----------------------------
1999 2000 2001 2001 2002
------------------------------------------- ----------------------------
(Restated) (Unaudited)
REVENUES $64,210 $66,609 $65,800 $30,880 $34,856
COSTS AND EXPENSES
Operating costs and expenses 27,278 37,293 33,539 16,430 17,315
Selling, general and administrative 1,035 1,700 1,535 750 796
------------------------------------------- ----------------------------
Total 28,313 38,993 35,074 17,180 18,111
------------------------------------------- ----------------------------
OPERATING INCOME 35,897 27,616 30,726 13,700 16,745
OTHER INCOME (EXPENSE)
Interest expense (5,002) (5,003) (5,160) (2,450) (2,006)
Other, net 670 (1,542) 662 (9) (7)
------------------------------------------- ----------------------------
Total (4,332) (6,545) (4,498) (2,459) (2,013)
------------------------------------------- ----------------------------
INCOME BEFORE INCOME TAXES 31,565 21,071 26,228 11,241 14,732
PROVISION FOR INCOME TAXES (11,611) (7,590) (9,470) (3,837) (5,347)
------------------------------------------- ----------------------------
NET INCOME $19,954 $13,481 $16,758 $ 7,404 $ 9,385
=========================================== ============================
See Notes to Financial Statements
PAGE 18
SEMINOLE PIPELINE COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Preferred Common Paid-in Retained
Stock Stock Capital Earnings Total
------------------------------------------------------------------------
Balance, December 31, 1998 $10 $100 $114,357 $28,813 $143,280
Net income - - - 19,954 19,954
Cash dividends paid to stockholders - - - (24,000) (24,000)
------------------------------------------------------------------------
Balance, December 31, 1999 10 100 114,357 24,767 139,234
Net income (restated) - - - 13,481 13,481
Cash dividends paid to stockholders - - - (31,590) (31,590)
------------------------------------------------------------------------
Balance, December 31, 2000 (restated) 10 100 114,357 6,658 121,125
Net income (restated) - - - 16,758 16,758
Cash dividends paid to stockholders - - - (4,800) (4,800)
------------------------------------------------------------------------
Balance, December 31, 2001 (restated) 10 100 114,357 18,616 133,083
Net income (unaudited) - - - 9,385 9,385
Cash dividends paid to stockholders (unaudited) - - - (6,700) (6,700)
------------------------------------------------------------------------
Balance, June 30, 2002 (unaudited) $10 $100 $114,357 $21,301 $135,768
========================================================================
See Notes to Financial Statements
PAGE 19
SEMINOLE PIPELINE COMPANY
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Six Months Ended
For Years Ended December 31, June 30,
--------------------------------------- --------------------------
1999 2000 2001 2001 2002
--------------------------------------- --------------------------
(Restated) (Unaudited)
OPERATING ACTIVITIES
Net income $19,954 $13,481 $16,758 $ 7,404 $ 9,385
Adjustments to reconcile net income to cash flows
provided by (used for) operating activities:
Depreciation and amortization 10,125 10,183 10,199 5,095 5,123
Deferred income taxes 1,199 759 368 374 (110)
Net effect of changes in operating accounts (12,030) 10,623 (1,982) (4,504) (10,302)
--------------------------------------- --------------------------
Operating activities cash flows 19,248 35,046 25,343 8,369 4,096
--------------------------------------- --------------------------
INVESTING ACTIVITIES
Capital expenditures (1,964) (810) (576) (297) (2,763)
Proceeds from sale of assets 18 15 11 11 14
--------------------------------------- --------------------------
Investing activities cash flows (1,946) (795) (565) (286) (2,749)
--------------------------------------- --------------------------
FINANCING ACTIVITIES
Long-term debt repayments - - (15,000) - -
Cash dividends paid to stockholders (24,000) (31,590) (4,800) (2,000) (6,700)
--------------------------------------- --------------------------
Financing activities cash flows (24,000) (31,590) (19,800) (2,000) (6,700)
--------------------------------------- --------------------------
CHANGE IN CASH AND CASH EQUIVALENTS (6,698) 2,661 4,978 6,083 (5,353)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 15,572 8,874 11,535 11,535 16,513
CASH AND CASH EQUIVALENTS
--------------------------------------- --------------------------
AT END OF PERIOD $ 8,874 $11,535 $16,513 $17,618 $11,160
======================================= ==========================
See Notes to Financial Statements
PAGE 20
SEMINOLE PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
(Information pertaining to June 30, 2002 and to the
six months ended June 30, 2001 and 2002 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Seminole Pipeline Company ("Seminole"), a Delaware corporation, was organized in 1981 for the purpose of constructing and operating
a common carrier liquified petroleum products pipeline. Unless the context requires otherwise, references to "we", "us", "our", or
the "Company" are intended to mean Seminole Pipeline Company. Seminole's 100 shares of non-voting and non-participating preferred
stockand 1,000 shares of common stock are held by Williams Natural Gas Liquids Inc. ("WNGL") (80%), AMOCO Pipeline Seminole
Investment Company ("AMOCO") (10%) and Texaco Natural Gas Liquids Inc. ("Texaco") (10%).
Our operations include the transportation, pumping, metering and underground storage of natural gas liquids ("NGLs"), including
demethanized mix, ethane-propane mix and specification liquid products. Our primary asset, the Seminole pipeline primarily
transports natural gas liquids ("NGLs") from Hobbs, Texas and the Permian Basin to Mont Belvieu, Texas. We have only one operating
segment, pipeline transportation.
These financial statements are prepared in accordance with generally accepted accounting principles in the United States. The
information contained in these financial statements may differ in some respects from the information filed with the Federal Energy
Regulatory Commission ("FERC").
The interim financial data are unaudited; however, in the opinion of management, the interim financial data includes all
adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results as of June 30, 2002 and
for the six-month periods ended June 30, 2001 and 2002. The results of operations for the six months ended June 30, 2002 and 2001
are not necessarily indicative of the results to be expected for the full year.
CASH AND CASH EQUIVALENTS consist of short-term, highly liquid investments that are readily convertible into cash. All
investments classified as cash equivalents have maturities at the date of purchase of three months or less. Cash flows are
computed using the indirect method.
DOLLAR AMOUNTS (except per share amounts) presented in the tabulations within the notes to our financial statements are
stated in thousands of dollars, unless otherwise indicated.
EARNINGS PER SHARE is generally computed by dividing net income by either common stock outstanding (for basic earnings per
share) or common and preferred stock outstanding (for diluted earnings per share). We have 1,000 shares of common stock
outstanding and 100 shares of preferred stock outstanding during all periods presented within these financial statements. Earnings
per share is not presented since the Company is a nonpublic entity that has a simple capital structure and few stockholders. As a
result, we believe an earnings per share computation would not be meaningful to users of our financial statements.
ENVIRONMENTAL expenditures that relate to current or future revenues are expensed or capitalized based upon the nature of
the expenditures. Expenditures resulting from an existing condition caused by past operations that do not contribute to current or
future revenue generation are expensed. Environmental liabilities are recorded independently of any potential claim for recovery.
Receivables are recognized in cases where the realization of reimbursements of remediation costs are considered probable. Accruals
related to environmental matters are generally determined based on site-specific plans for remediation, taking into account the
prior remediation experience of the Company.
PAGE 21
INCOME TAXES are computed using the liability method and are provided on all temporary differences between the financial
basis and the tax basis of the Company's assets and liabilities. For federal income tax reporting, the Company is included in The
Williams Companies, Inc. ("Williams") consolidated tax return. The provision for income taxes has been charged to Seminole as if
separate income tax returns were filed.
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. Long-lived assets that are held for disposal are valued at the lower of carrying amount or fair
value less cost to sell.
PROPERTY, PLANT AND EQUIPMENT is recorded at cost and is depreciated using the straight-line method over the asset's
estimated useful life at annual rates ranging from 2.25% to 25%. Expenditures for maintenance and repairs are charged to operations
in the period incurred. The cost of assets retired or sold, together with the related accumulated depreciation, is removed from the
accounts, and any gain or loss on disposition is included in income.
REVENUE is based on tariffs charged to customers for pipeline volumes transported. Shippers are invoiced and the related
revenue is recorded as deliveries are made.
USE OF ESTIMATES AND ASSUMPTIONS by management that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period are required for the preparation of financial statements in conformity with accounting principles generally
accepted in the United States. Our actual results could differ from these estimates.
2. RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting
for Asset Retirement Obligations" in June 2001. This statement establishes accounting standards for the recognition and measurement
of a liability for an asset retirement obligation and the associated asset retirement cost. This statement is effective for our
fiscal year beginning January 1, 2003. We are evaluating the provisions of this statement.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement
addresses financial accounting and reporting for the impairment and/or disposal of long-lived assets. We adopted this statement
effective January 1, 2002 and determined that it did not have any significant impact on our financial statements as of that date.
In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS Statements No. 4, 44, and 64, Amendment of SFAS No. 13, and
Technical Corrections." The purpose of this statement is to update, clarify and simplify existing accounting standards. We
adopted this statement effective April 30, 2002 and determined that it did not have any significant impact on our financial
statements as of that date.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This standard
requires companies to recognize costs associated with exit or disposal activities when they are incurred. Examples of costs covered
by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by 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 No. 146 replaces Issue 94-3. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. This statement is effective for our fiscal year beginning January 1, 2003.
We are evaluating the provisions of this statement.
PAGE 22
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at the periods indicated:
December 31, June 30,
--------------------------------
2000 2001 2002
-------------------------------- ----------------
(unaudited)
Pipelines and related equipment $381,010 $381,381 $384,065
Land 964 964 964
-------------------------------- ----------------
Total 381,974 382,345 385,029
Less accumulated depreciation (120,616) (130,594) (135,639)
-------------------------------- ----------------
Property, plant and equipment, net $261,358 $251,751 $249,390
================================ ================
Depreciation expense for the years ended December 31, 1999, 2000 and 2001 was $10.1 million, $10.2 million and $10.2
million, respectively. Depreciation expense for each of the six month periods ended June 30, 2001 and 2002 was $5.1 million.
4. LONG-TERM DEBT
In December 1993, we issued $75 million of 6.67% Senior Unsecured Notes in the private placement market. These notes are payable at
$15 million annually on December 1 from 2001 through 2005. Interest is paid semi-annually on June 1 and December 1. The Senior
Notes agreement contains restrictive covenants, which limit the payment of advances or dividends to stockholders and restrict
additional borrowing of funds. Such provisions restricted $90 million of consolidated net worth at December 31, 2001. We were in
compliance with these covenants at December 31, 2001.
5. CAPITAL STRUCTURE
In the event of involuntary liquidation or dissolution the Company, the holders of the preferred stock are entitled to be paid an
amount equal to the subscription price (stated value of $100 per share) and paid-in capital (contributions less distributions of
paid-in capital) before any holders of common stock or any other class of stock receive distributions.
Cash dividends paid to stockholders are calculated each quarter based on the amount of cash flow available. The stockholders
receive an amount proportionate to their ownership percentage.
6. INCOME TAXES
The provision for income taxes are as follows for the periods indicated:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Current:
Federal $10,139 $6,473 $8,718
State 273 358 384
--------------------------------------------
10,412 6,831 9,102
--------------------------------------------
Deferred:
Federal 1,012 797 334
State 187 (38) 34
--------------------------------------------
Provision for income taxes $11,611 $7,590 $9,470
============================================
PAGE 23
Reconciliation from the provision for income taxes at the U.S federal statutory rate to the effective tax rate for the provision for
income taxes are as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Provision at statutory rate $11,048 $7,375 $9,180
Increases (reductions) in taxes resulting from:
State income taxes (net of federal benefit) 299 208 272
Other 264 7 18
--------------------------------------------
Provision for income taxes $11,611 $7,590 $9,470
============================================
Significant components of deferred tax liabilities and assets as of December 31, 2000 and 2001 are as follows:
December 31,
-----------------------------
2000 2001
-----------------------------
Deferred tax liabilities:
Property, plant and equipment $61,184 $61,729
-----------------------------
Total deferred tax liabilities 61,184 61,729
-----------------------------
Deferred tax assets:
Accrued liabilities 2,184 2,361
Other 142 142
-----------------------------
Total deferred tax assets 2,326 2,503
-----------------------------
Net deferred tax liabilities $58,858 $59,226
=============================
7. RELATED PARTY TRANSACTIONS
Our stockholders or their affiliated companies transport product in our pipeline system. Operating revenues from affiliates for the
last three years were as follows:
For Years Ended December 31,
--------------------------------------------
1999 2000 2001
--------------------------------------------
Revenues from affiliates $30,477 $32,784 $33,006
Revenues from affiliates as
a percentage of total revenues 47% 49% 50%
At December 31, 2000 and 2001, we owed $8.5 million and $14.3 million respectively, to Mid-America Pipeline Company ("MAPL"), a
wholly-owned subsidiary of WNGL, primarily for its share of the joint tariff on movements originating in MAPL's pipeline system.
MAPL is paid for its share of the joint tariff following delivery of the NGLs to destinations on our system.
In addition, MAPL employees provide pipeline management services to us pursuant to a service agreement. MAPL charged us $1.0
million, $1.2 million and $1.2 million for such services during 1999, 2000 and 2001, respectively.
We lease land under an operating lease from an affiliate of AMOCO. Operating lease expense related to this arrangement was
approximately $0.1 million for each of the years 1999, 2000 and 2001. The fee is adjusted annually in accordance with the Gross
National Product price deflator. The original term of the lease was fifteen years, beginning August 1, 1981, with a renewal option
for three consecutive five-year periods. The lease was renewed on August 1, 1996 and August 1, 2001. Future minimum payments for
this lease are as follows:
PAGE 24
2002 $140
2003 143
2004 148
2005 151
2006 106
------------
Total minimum obligations $688
============
8. MAJOR CUSTOMERS
One non-affiliated shipper accounted for 17%, 15% and 15% of operating revenues for the years ended 1999, 2000 and 2001,
respectively.
9. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease land from an affiliate of AMOCO under an operating lease agreement. See Note 7 for a description of this arrangement.
Litigation
On August 10, 1999, a subcontractor installing utility poles for a local electric utility struck our pipeline. The accident
resulted in the death of one of the subcontractor's employees, destroyed the subcontractor's equipment and burned the vegetation on
nearby lots. During January 2000, the decedent's family filed suit against us, the subcontractor and the local electric utility.
We recorded an estimate for the settlement in 2000. Settlement was reached with the decedent's family during February 2001 for $2.3
million. The payment was made March 9, 2001. The remaining liability of $79,000 is included in other current liabilities at
December 31, 2001, which is to cover remaining legal expenses.
In addition to the foregoing, various proceedings are pending against the Company incidental to our operations. Management believes
the ultimate resolution of these matters will not have a material adverse effect upon our future financial position, results of
operations or cash flow requirements.
10. SUPPLEMENTAL CASH FLOWS DISCLOSURE
Six Months Ended
For Years Ended December 31, June 30,
--------------------------------------- ---------------------------
1999 2000 2001 2001 2002
--------------------------------------- ---------------------------
(Unaudited)
(Increase) decrease in:
Accounts receivable $ (6,760) $ 8,222 $(6,165) $(2,526) $ (3,060)
Income taxes due from affiliates - - - - (1,637)
Prepaid and other current assets 115 (22) 52 (175) (87)
Other assets 32 1 (2) 26 (283)
Increase (decrease) in:
Accounts payable (351) 10,678 (1,975) (4,500) 2,231
Accrued taxes 2,317 (10,324) 8,577 4,783 (8,523)
Other current liabilities (7,350) 2,068 (2,469) (2,112) 1,057
Other liabilities (33) - - - -
--------------------------------------- ---------------------------
Net effect of changes in operating accounts $ (12,030) $10,623 $(1,982) $(4,504) $(10,302)
======================================= ===========================
PAGE 25
Income taxes paid were $9.3 million, $7.5 million and $10.3 million for the year ended December 31, 1999, 2000 and 2001,
respectively, and $5.2 million for the six months ended June 30, 2002. No income taxes were paid during the six months ended June
30, 2001. Interest paid was $5.0 million, $5.1 million and $4.8 million for 1999, 2000 and 2001, respectively, and $2.5 million and
$2.1 million for the six months ended June 30, 2001 and 2002, respectively.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of estimated fair value was determined by us, using available market information and appropriate valuation
methodologies. Considerable judgment, however, is necessary to interpret market data and develop the related estimates of fair
value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that we could realize upon
disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Cash and cash equivalents. The carrying values reported in the balance sheets for cash and cash equivalents approximate
their fair value.
Long-term debt. Debt consists of a private placement of 6.67% Senior Notes. The fair value of private debt is valued based
on the prices of similar securities with similar terms and credit ratings.
The carrying amounts and fair values for our financial instruments at December 31, 2000 and 2001 are as follows:
2000 2001
------------------------------- --------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
------------------------------- --------------------------------
Long-term debt $75,000 $74,634 $60,000 $60,300
12. SIGNIFICANT CONCENTRATIONS OF RISK
All of our revenues are derived from the transportation of NGLs to various companies in the NGL industry, primarily located in the
United States. Although this concentration could affect our overall exposure to credit risk since these customers might be affected
by similar economic or other conditions, management believes that the Company is exposed to minimal credit risk, since the majority
of our business is conducted with major companies within the industry. We perform periodic credit evaluations of our customers'
financial condition and generally do not require collateral for receivables.
13. SUBSEQUENT EVENTS (UNAUDITED)
On July 31, 2002, WNGL contributed its 80% equity interest in the Company to a newly-formed affiliate of Williams, E-Oaktree, LLC.
This contribution was done as part of a subsequent transaction which took place between Williams and Enterprise Products Operating
L.P. ("EPOLP") on the same date, whereby EPOLP purchased a 98% equity interest in E-Oaktree, LLC.
14. RESTATEMENT OF FINANCIAL STATEMENTS
In June 2002, the Company discovered an error in the way their revenue system was calculating joint tariff revenue. The impact of
this error to revenues and net income was a decrease of $2.9 million and $1.8 million for the year ended December 31, 2000,
respectively, and a decrease of $4.3 million and $2.8 million for the year ended December 31, 2001, respectively. The correction of
these errors has been reflected in the accompanying restated financial statements.
PAGE 26
ENTERPRISE PRODUCTS PARTNERS L.P. AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Introduction
On July 31 2002, we acquired 98% of the ownership interests in two affiliates of The Williams Companies Inc. ("Williams"):
Mapletree, LLC and E-Oaktree, LLC. Mapletree, LLC owns 100% of the Mid-America pipeline system ("Mid-America") and certain propane
terminals and storage facilities. E-Oaktree, LLC owns 80% of Seminole Pipeline Company ("Seminole"). The pro forma financial
statements are primarily based upon the combined historical financial position and results of operations of Enterprise Products
Partners L.P. ("Enterprise"), Mid-America and Seminole. Unless the context requires otherwise, references to "we", "us", "our" or
"Enterprise" are intended to mean the consolidated business and operations of Enterprise Products Partners L.P. and Enterprise
Products Operating L.P. (the "Operating Partnership").
The unaudited pro forma Statements of Consolidated Operations have been prepared as if the acquisitions had occurred on January 1 of
the respective periods presented, and the pro forma balance sheet has been prepared as if the acquisitions occurred on June 30,
2002. The combined purchase price of these acquisitions was approximately $1.2 billion and was primarily funded by an unsecured
364-day term loan of the same amount (the "Term Loan").
The unaudited pro forma financial statements should be read in conjunction with and are qualified in their entirety by reference to
the notes accompanying such pro forma financial statements and with:
|X| the historical financial statements and related notes of Mid-America and Seminole included elsewhere in this report on Form
8-K; and,
|X| the historical financial statements and related notes of Enterprise in its Form 10-K for fiscal 2001 and its Form 10-Q for
the six months ended June 30, 2002.
The unaudited pro forma information is not necessarily indicative of the financial results which would have occurred had the
acquisitions described herein taken place on the dates indicated nor is it indicative of our future consolidated financial results.
PAGE 27
ENTERPRISE PRODUCTS PARTNERS L.P.
PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
For the Six Months Ended June 30, 2002
(Dollars in thousands, except per Unit amounts)
(Unaudited)
Mid-
Enterprise America Seminole Enterprise
Historical Historical Historical Other Adjustments Pro Forma
-----------------------------------------------------------------------
REVENUES
Revenues from consolidated operations $1,448,311 $109,865 $34,856 $17,434 $ (2,252) (f)$1,608,214
Equity income in unconsolidated affiliates 16,295 - - - 16,295
-------------------------------------------------------- -----------
Total 1,464,606 109,865 34,856 17,434 (2,252) 1,624,509
-------------------------------------------------------- -----------
COST AND EXPENSES
Operating costs and expenses 1,410,044 45,111 17,315 16,231 1,325 (b) 1,487,900
126 (c)
(2,252) (f)
Selling, general and administrative 15,702 15,130 796 260 31,888
-------------------------------------------------------- -----------
Total 1,425,746 60,241 18,111 16,491 (801) 1,519,788
-------------------------------------------------------- -----------
OPERATING INCOME 38,860 49,624 16,745 943 (1,451) 104,721
OTHER INCOME (EXPENSE)
Interest expense (37,545) (4,432) (2,006) - 4,148 (b) (67,195)
(26,709) (a)
(651) (c)
Interest income from unconsolidated affiliates 92 - - - 92
Dividend income from unconsolidated affiliates 2,196 - - - 2,196
Interest income - other 1,575 - - - 1,575
Other, net (31) (748) (7) - (786)
-------------------------------------------------------- -----------
Other income (expense) (33,713) (5,180) (2,013) - (23,212) (64,118)
-------------------------------------------------------- -----------
INCOME BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES 5,147 44,444 14,732 943 (24,663) 40,603
PROVISION FOR INCOME TAXES - (16,604) (5,347) - 16,582 (b) (5,369)
-------------------------------------------------------- -----------
INCOME BEFORE MINORITY INTEREST 5,147 27,840 9,385 943 (8,081) 35,234
MINORITY INTEREST (30) - - - (3,008) (d) (3,038)
-------------------------------------------------------- -----------
NET INCOME $ 5,117 $ 27,840 $ 9,385 $ 943 $(11,089) $ 32,196
======================================================== ===========
ALLOCATION OF NET INCOME TO:
Limited partners $ 1,223 $ 26,811 (e) $ 28,034
=========== =========== ===========
General partner $3,894 $ 268 (e) $ 4,162
=========== =========== ===========
BASIC EARNINGS PER UNIT
Number of Units used in computing
Basic Earnings per Unit 145,404 145,404
=========== ===========
Income before minority interest $0.01 $ 0.21
=========== ===========
Net income per Unit $0.01 $ 0.19
=========== ===========
DILUTED EARNINGS PER UNIT
Number of Units used in computing
Diluted Earnings per Unit 174,404 174,404
=========== ===========
Income before minority interest $ 0.01 $ 0.18
=========== ===========
Net income per Unit $ 0.01 $ 0.16
=========== ===========
The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.
PAGE 28
ENTERPRISE PRODUCTS PARTNERS L.P.
PRO FORMA STATEMENT OF CONSOLIDATED OPERATIONS
For the Year Ended December 31, 2001
(Dollars in thousands, except per Unit amounts)
(Unaudited)
Mid-
Enterprise America Seminole Enterprise
Historical Historical Historical Other Adjustments Pro Forma
-------------------------------------------------------------------------
REVENUES
Revenues from consolidated operations $3,154,369 $214,518 $65,800 $522,669 $ (4,413) (f)$3,952,943
Equity income in unconsolidated affiliates 25,358 - - (1,879) 23,479
---------------------------------------------------------- ------------
Total 3,179,727 214,518 65,800 520,790 (4,413) 3,976,422
---------------------------------------------------------- ------------
COST AND EXPENSES
Operating costs and expenses 2,861,743 125,349 33,539 507,869 2,230 (b) 3,528,057
1,740 (c)
(4,413) (f)
Selling, general and administrative 30,296 28,364 1,535 4,477 64,672
---------------------------------------------------------- ------------
Total 2,892,039 153,713 35,074 512,346 (443) 3,592,729
---------------------------------------------------------- ------------
OPERATING INCOME 287,688 60,805 30,726 8,444 (3,970) 383,693
OTHER INCOME (EXPENSE)
Interest expense (52,456) (12,700) (5,160) - 8,400 (b) (124,328)
(53,418) (a)
(8,994) (c)
Interest income from unconsolidated affiliates 31 - - 4 35
Dividend income from unconsolidated affiliates 3,462 - - - 3,462
Interest income - other 7,029 - - - 7,029
Other, net (1,104) (1,035) 662 (15) (1,492)
---------------------------------------------------------- ------------
Other income (expense) (43,038) (13,735) (4,498) (11) (54,012) (115,294)
---------------------------------------------------------- ------------
INCOME BEFORE MINORITY INTEREST
AND PROVISION FOR INCOME TAXES 244,650 47,070 26,228 8,433 (57,982) 268,399
PROVISION FOR INCOME TAXES - (17,445) (9,470) - 17,402 (b) (9,513)
---------------------------------------------------------- ------------
INCOME BEFORE MINORITY INTEREST 244,650 29,625 16,758 8,433 (40,580) 258,886
MINORITY INTEREST (2,472) - - - (4,746) (d) (7,218)
---------------------------------------------------------- ------------
NET INCOME $ 242,178 $ 29,625 $16,758 $ 8,433 $(45,326) $ 251,668
========================================================== ============
ALLOCATION OF NET INCOME TO:
Limited partners $ 236,570 $ 9,403 (e)$ 245,973
============ ============ ============
General partner $ 5,608 $ 87 (e)$ 5,695
============ ============ ============
BASIC EARNINGS PER UNIT
Number of Units used in computing
Basic Earnings per Unit 139,452 139,452
============ ============
Income before minority interest $ 1.72 $ 1.82
============ ============
Net income per Unit $ 1.70 $ 1.76
============ ============
DILUTED EARNINGS PER UNIT
Number of Units used in computing
Diluted Earnings per Unit 170,786 170,786
============ ============
Income before minority interest $ 1.40 $ 1.48
============ ============
Net income per Unit $ 1.39 $ 1.44
============ ============
The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.
PAGE 29
ENTERPRISE PRODUCTS PARTNERS L.P.
PRO FORMA CONSOLIDATED BALANCE SHEET AT JUNE 30, 2002
(Dollars in thousands, Unaudited)
Enterprise Mid-America Seminole Enterprise
Historical Historical Historical Adjustments Pro Forma
--------------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 7,929 $ - $ 11,160 $1,195,000 (a) $ 19,089
(1,195,000) (a)
Accounts receivable, net 284,021 1,383 9,199 294,603
Accounts receivable - affiliates 1,740 20,506 7,791 (16,333) (f) 13,704
Income taxes due from affiliates 11,855 1,637 (13,492) (b) -
Inventories 153,280 10,210 - 163,490
Prepaid and other current assets 34,089 868 122 15,000 (a) 50,079
------------------------------------------------------------ ---------------
Total current assets 481,059 44,822 29,909 (14,825) 540,965
Property, Plant and Equipment, Net 633,937 249,390 426,766 (b) 2,880,664
1,570,571
Investments in and Advances to
Unconsolidated Affiliates - - 403,070
403,070
Intangible assets 249,222 - - 249,222
Goodwill 81,543 - - 81,543
Other Assets 6,911 2,844 440 10,195
------------------------------------------------------------ ---------------
Total $2,792,376 $681,603 $279,739 $ 411,941 $4,165,659
============================================================ ===============
LIABILITIES AND EQUITY
Current Liabilities
Current maturities of debt $ - $ - $ 15,000 $1,200,000 (a) $1,215,000
Accounts payable - trade 70,716 5,178 2,389 78,283
Accounts payable - affiliates 21,233 26,726 17,948 (16,333) (f) 49,574
Accrued gas payables 303,983 - - 303,983
Accrued expenses 12,961 7,777 2,665 23,403
Accrued interest 24,676 2,100 668 (2,100) (b) 25,344
Other current liabilities 70,672 368 1,185 72,225
------------------------------------------------------------ ---------------
Total current liabilities 504,241 42,149 39,855 1,181,567 1,767,812
------------------------------------------------------------ ---------------
Long-Term Debt 1,223,552 90,000 45,000 10,000 (a) 1,278,552
(90,000) (b)
Deferred Income Taxes 122,611 59,116 (181,727) (b) -
Other Long-Term Liabilities 384 - 8,303
7,919
Minority Interest 10,818 - - 54,328 (b) 65,146
Commitments and Contingencies
Owners' Equity 426,459 135,768 (562,227) (b) -
Partners' Equity
Limited partners 1,051,956 1,051,956
General partner 10,626 10,626
Treasury Units (16,736) (16,736)
------------------------------------------------------------ ---------------
Total Equity 1,045,846 426,459 135,768 (562,227) 1,045,846
------------------------------------------------------------ ---------------
Total $2,792,376 $681,603 $279,739 $ 411,941 $4,165,659
============================================================ ===============
The accompanying notes are an integral part of these unaudited pro forma condensed financial statements.
PAGE 30
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
December 31, 2001 and June 30, 2002
These unaudited pro forma financial statements and underlying pro forma adjustments are based upon currently available information
and certain estimates and assumptions made by us; therefore, actual results will differ from pro forma results. However, we believe
the assumptions provide a reasonable basis for presenting the significant effects of the acquisitions noted herein. We believe the
pro forma adjustments give appropriate effect to those assumptions and are properly applied in the pro forma financial information.
(a) This group of pro forma adjustments reflects the following:
o The net cash proceeds of $1.195 billion needed to acquire our interests in Mid-America and Seminole consisting of a
$1.2 billion borrowing under the Term Loan, a $10 million borrowing under our revolving credit facilities, less $15
million in prepaid loan costs.
o An increase in variable rate-based interest expense due to the increase in borrowings. Interest expense also
reflects amortization of the $15 million in prepaid loan costs associated with the Term Loan (over its respective
one-year life). The combined pro forma increase in interest expense due to these borrowings and amortization was
$53.4 million for the year ended December 31, 2001 and $26.7 million for the six months ended June 30, 2002. If the
underlying variable interest rate used in such pro forma calculations were to increase by .125%, pro forma interest
expense would increase by $1.5 million for the year ended December 31, 2001 and by $0.8 million for the six months
ended June 30, 2002.
In preparing the pro forma Statements of Consolidated Operations, we have assumed that the $1.2 billion principal balance
of the Term Loan is outstanding during the entire period covered by such statements. Our future plans for permanent
financing of the Mid-America and Seminole acquisitions include the issuance of additional equity and debt in amounts which
are consistent with our objective of maintaining financial flexibility and an investment grade balance sheet.
To the extent that the proceeds of any future equity offering are again used to reduce the principal amount outstanding
under the Term Loan, our interest expense will be reduced. To the extent that the Term Loan is refinanced with debt, our
interest expense will generally be affected by any difference in interest rates on the Term Loan and the new debt and by
any fees associated with the new debt.
PAGE 31
(b) This group of pro forma adjustments primarily reflects our preliminary allocation of the $1.195 billion purchase price of
our ownership interests in Mid-America and Seminole. The pro forma estimated allocation of the purchase price for
Mid-America and Seminole is as follows:
Preliminary Allocation of
Purchase Price for
--------------------------------------------
Mid-America Seminole Total
--------------------------------------------
Cash and cash equivalents $ - $ 11,160 $ 11,160
Accounts receivable 21,889 16,990 38,879
Product inventory 10,210 - 10,210
Prepaids and other current assets 868 122 990
Property, plant and equipment 957,408 352,684 1,310,093
Other assets 2,844 440 3,284
Accounts payable (31,904) (20,337) (52,241)
Accrued taxes (7,777) (2,665) (10,442)
Other current liabilities (368) (1,853) (2,221)
Long-term debt - (60,000) (60,000)
Other long-term (384) - (384)
liabilities
Minority interest in assets and liabilities (12,586) (41,741) (54,328)
liabilities
--------------------------------------------
Total $940,200 $254,800 $1,195,000
============================================
In preparing these pro forma financial statements, we have assumed that the estimated $426.8 million difference between the
purchase price of the assets acquired and liabilities assumed in the Mid-America and Seminole acquisitions (or $1.195
billion) and their respective carrying values (an adjusted $768.2 million after deducting for $54.3 million of minority
interest) is attributable to the fair market value of property, plant and equipment. For purposes of calculating pro
forma depreciation expense, we have applied the straight-line method using an estimated remaining useful life of the
Mid-America and Seminole assets of 35 years to our new basis in these assets of $1.3 billion. After adjusting for
historical depreciation recorded on Mid-America and Seminole, pro forma depreciation expense increased $2.2 million for the
year ended December 31, 2001 and $1.3 million for the six months ended June 30, 2002.
We are currently working with third-party business valuation experts to develop a definitive allocation of the purchase
price. This fair market value study will not be complete until the fourth quarter of 2002. As a result, the final purchase
price allocation may result in some amounts being assigned to intangible assets and/or goodwill. To the extent that any
amount is assigned to an intangible asset, this amount may ultimately be amortized to earnings over the expected period of
benefit of the intangible asset. To the extent that any amount is assigned to goodwill, this amount would not be subject
to depreciation or amortization, but would be subject to periodic impairment testing and if necessary, written down to fair
value should circumstances warrant.
Other significant aspects of this group of pro forma adjustments are as follows:
o The pro forma adjustment to minority interest of $54.3 million is based on the 2% interest in Mid-America and
Seminole owned by Williams and the 20% interest in Seminole owned by its other joint owners.
o The pro forma adjustments also include those associated with the extinguishment of Mid-America's $90 million in
private placement debt (along with its associated $2.1 million interest payable) immediately prior to our purchase of
the Mid-America interest. The pro forma entries give effect to the removal of interest expense associated with this
debt of $8.4 million in 2001 and $4.1 million for the first six months of 2002.
o In connection with the Mid-America acquisition, immediately prior to the acquisition's effective date, Williams
PAGE 32
converted Mid-America from a corporation to a limited liability company resulting in the recognition of the historical
cumulative temporary differences previously recorded on Mid-America's books. In addition, our allocation of purchase
price for both book and tax purposes was the same, thus eliminating the need to set up any new cumulative temporary
differences on Mid-America's books. The pro forma adjustments reflect this change in Mid-America's tax structure by
eliminating these historical tax-related account balances. The impact on Mid-America's pro forma earnings was the
elimination of $17.4 million in income tax expense for the year ended December 31, 2001 and $16.6 million for the six
months ended June 30, 2002. This pro forma adjustment removed income taxes due from affiliates of $11.8 million and
deferred income taxes of $122.6 million from Mid-America's balance sheet.
o In connection with the Seminole acquisition, certain tax elections were made by the buyer and seller such that the
transaction was treated as an asset purchase for tax purposes. Our allocation of purchase price for both book and tax
purposes was the same, thus eliminating any historical cumulative temporary differences previously recorded on
Seminole's books. The pro forma adjustments reflect the elimination of these historical deferred tax balances. This
pro forma adjustment removed income taxes due from affiliates of $1.6 million and deferred income taxes of $59.1
million from Seminole's balance sheet.
(c) Since January 1, 2001, we have acquired three other strategic businesses that are incorporated into the pro forma
Statements of Operations (included under the "Other" column in these statements). These are the acquisition of a natural
gas pipeline business from Shell during the second quarter of 2001 and the acquisition of a propylene fractionation
business and NGL and petrochemical storage business from Diamond-Koch during the first quarter of 2002. Our June 30, 2002
historical balance sheet already reflects these acquisitions; thus, no pro forma adjustments to the balance sheet are
necessary. The unaudited pro forma Statements of Consolidated Operations have been prepared as if these acquisitions had
occurred on January 1 of the respective periods presented.
This group of pro forma adjustments reflects the following:
o As a result of the Diamond-Koch business acquisitions, we acquired certain contract-based intangible assets that are
subject to amortization. On a pro forma basis, amortization expense associated with these intangible assets increased
by $1.7 million for the year ended December 31, 2001 and $0.1 million for the six months ended June 30, 2002.
o Of the cumulative $612.3 million paid to acquire these three business, the natural gas pipeline business acquired from
Shell and the propylene fractionation business acquired from Diamond-Koch were financed using $482.2 million of fixed
and variable rate debt. This resulted in pro forma interest expense of $9.0 million for the year ended December 31,
2001 and $0.7 million for the six months ended June 30, 2002. If the variable-interest rate used in such pro forma
calculations were to increase by .125%, pro forma interest expense would increase by $0.3 million for the year ended
December 31, 2001 and by less than $0.1 million for the six months ended June 30, 2002.
(d) Represents the allocation of pro forma earnings to minority interest holders. Williams has a 2% minority interest in
Mid-America and Seminole. The other owners of Seminole hold a 20% minority interest. Finally, our General
Partner holds an approximate 1% minority interest in the earnings of our Operating Partnership.
(e) Represents the adjustments necessary to allocate pro forma earnings between our limited partners and General Partner.
(f) Reflects the elimination of material intercompany receivables, payables, revenues and expenses as appropriate in
consolidation between us and the acquired companies.
PAGE 33