e424b5
Filed Pursuant to 424(b)(5)
Registration Nos. 333-123150
333-123150-01
PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 23, 2005)
Enterprise Products Operating L.P.
Unconditionally Guaranteed by
Enterprise Products Partners L.P.
$500,000,000 4.95% Senior Notes due 2010
The notes will mature on June 1, 2010. We will pay interest
on the notes on June 1 and December 1 of each year,
beginning December 1, 2005. We may redeem some or all of
the notes at any time at the applicable redemption price
described beginning on page S-27 of this prospectus
supplement, which includes a make-whole premium.
The notes are unsecured and rank equally with all other senior
indebtedness of Enterprise Products Operating L.P. The notes
will be guaranteed by our parent, Enterprise Products Partners
L.P.
Investing in the notes involves risk. See Risk
Factors beginning on page S-14 of this prospectus
supplement and on page 3 of the accompanying prospectus.
The notes will not be listed on
any securities exchange. Currently, there is no public market
for the notes.
Neither the Securities and
Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if
this prospectus supplement or the accompanying prospectus
is truthful or complete. Any representation to the contrary
is a criminal offense.
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Per Note | |
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Total | |
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Public Offering Price
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99.834% |
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$ |
499,170,000 |
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Underwriting Discount
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0.600% |
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$ |
3,000,000 |
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Proceeds to Enterprise Products Operating L.P. (before expenses)
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99.234% |
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$ |
496,170,000 |
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The senior notes are expected to
be delivered through the book-entry delivery system of The
Depository Trust Company and its direct participants,
including Euroclear and Clearstream, on or about June 1,
2005.
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UBS Investment Bank |
Barclays Capital |
Wachovia Securities |
BNP PARIBAS
May 25, 2005
This document is in two parts. The first part is this prospectus
supplement, which describes the terms of this offering of notes
and certain terms of the notes. The second part is the
accompanying prospectus, which describes the terms of the notes
and which gives more general information, some of which may not
apply to this offering of notes. If the information varies
between this prospectus supplement and the accompanying
prospectus, you should rely on the information in this
prospectus supplement.
You should rely only on the information contained or
incorporated by reference in this prospectus supplement or the
accompanying prospectus. We have not authorized anyone to
provide you with additional or different information. We are not
making an offer to sell these securities in any state where the
offer is not permitted. You should not assume that the
information contained in this prospectus supplement or the
accompanying prospectus is accurate as of any date other than
the date on the front of these documents or that any information
we have incorporated by reference is accurate as of any date
other than the date of the document incorporated by reference.
Our business, financial condition, results of operations and
prospects may have changed since these dates.
TABLE OF CONTENTS
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Prospectus Supplement |
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S-1 |
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S-14 |
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S-18 |
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S-19 |
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S-21 |
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S-25 |
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S-30 |
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S-31 |
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S-34 |
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S-36 |
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S-36 |
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S-36 |
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S-37 |
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F-1 |
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Prospectus |
About This Prospectus
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iv |
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Our Company
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1 |
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Risk Factors
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3 |
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Use of Proceeds
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16 |
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Ratio of Earnings to Fixed Charges
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16 |
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Description of Debt Securities
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16 |
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Description of Our Common Units
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30 |
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Cash Distribution Policy
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32 |
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Description of Our Partnership Agreement
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36 |
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Material Tax Consequences
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41 |
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Selling Unitholders
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54 |
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Plan of Distribution
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55 |
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Where You Can Find More Information
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57 |
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Forward-Looking Statements
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59 |
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Legal Matters
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59 |
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Experts
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60 |
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i
SUMMARY
This summary highlights information from this prospectus
supplement and the accompanying prospectus to help you
understand our business and the notes. It does not contain all
of the information that is important to you. You should read
carefully the entire prospectus supplement, the accompanying
prospectus, the documents incorporated by reference and the
other documents to which we refer for a more complete
understanding of this offering. You should read Risk
Factors beginning on page S-14 of this prospectus
supplement and on page 3 of the accompanying prospectus for
more information about important risks that you should consider
before making a decision to purchase notes in this offering.
Unless the context otherwise requires, our,
we, us and Enterprise as
used in this prospectus supplement refer solely to Enterprise
Products Operating L.P. and its subsidiaries, and do not include
our parent, Enterprise Products Partners L.P. Enterprise
Parent or Parent Guarantor as used in this
prospectus supplement refers to Enterprise Products Partners
L.P., GulfTerra as used in this prospectus
supplement refers to GulfTerra Energy Partners, L.P. and its
wholly owned subsidiaries, and El Paso
Corporation as used in this prospectus supplement refers
to El Paso Corporation and its wholly owned subsidiaries.
Effective February 3, 2005, GulfTerras name was
changed to Enterprise GTM Holdings L.P., and
GulfTerras general partners name was changed to
Enterprise GTM GP, LLC.
Enterprise and Enterprise Parent
Enterprise Parent conducts substantially all of its business
through us. We are the borrower on substantially all of the
consolidated companys credit facilities, and we are the
issuer of all of the companys publicly traded notes, all
of which are guaranteed by Enterprise Parent. Our financial
results do not differ materially from those of Enterprise
Parent; the number and dollar amount of reconciling items
between our consolidated financial statements and those of
Enterprise Parent are insignificant. All financial results
presented in this prospectus supplement are those of Enterprise
Parent.
We are a leading North American midstream energy company
that provides a wide range of services to producers and
consumers of natural gas and natural gas liquids, or NGLs and
crude oil, and we are an industry leader in the development of
pipeline and other midstream infrastructure in the deepwater
trend in the Gulf of Mexico. We have the only integrated North
American midstream network, which includes natural gas
transportation, gathering, processing and storage; NGL
fractionation (or separation), transportation, storage and
import and export terminaling; and crude oil transportation and
offshore production platform services. Our midstream network
links producers of natural gas, NGLs and crude oil from the
largest supply basins in the United States, Canada and the Gulf
of Mexico with the largest consumers and international markets.
NGLs are used by the petrochemical and refining industries to
produce plastics, motor gasoline and other industrial and
consumer products and also are used as residential, agricultural
and industrial fuels. We provide integrated services to our
customers and generate fee-based cash flow from multiple sources
along our natural gas and NGL value chain.
For the year ended December 31, 2004, Enterprise Parent had
revenues of $8.3 billion, operating income of
$423 million and net income of $268.3 million. On a
pro forma as adjusted basis for the year ended December 31,
2004, Enterprise Parent had revenues of $9.6 billion,
operating income of $595.7 million and income from
continuing operations of $336.7 million. For the three
months ended March 31, 2005, Enterprise Parent had revenues
of $2.6 billion, operating income of $165.5 million
and net income of $109.3 million. On a pro forma as
adjusted basis for the three months ended March 31, 2005,
Enterprise Parent had revenues of $2.6 billion, operating
income of $159.7 million and income from continuing
operations of $104.6 million. Please read
Summary Historical and Pro Forma Financial and
Operating Data of Enterprise Parent and Enterprise
Parents unaudited pro forma financial statements beginning
on page F-1 of this prospectus supplement for a description
of the transactions we have included in Enterprise Parents
pro forma presentation.
S-1
Our Business Segments
We have four reportable business segments that are generally
organized and managed along our midstream energy value chain
according to the type of services rendered and products produced
and/or sold: (i) Offshore Pipelines & Services,
(ii) Onshore Natural Gas Pipelines & Services,
(iii) NGL Pipelines & Services, and
(iv) Petrochemical Services, which are generally organized
and managed along our midstream energy value chain according to
the type of services rendered and products produced and sold.
Offshore Pipelines & Services. Our Offshore
Pipelines & Services segment consists of
(i) approximately 1,150 miles of natural gas pipelines
strategically located to serve production activities in some of
the most active drilling and development regions in the Gulf of
Mexico, (ii) approximately 800 miles of Gulf of Mexico
offshore crude oil pipeline systems, and (iii) seven
multi-purpose offshore hub platforms located in the Gulf of
Mexico.
Onshore Natural Gas Pipelines & Services. Our
Onshore Natural Gas Pipelines & Services segment includes
onshore natural gas pipeline systems aggregating approximately
17,200 miles that provide for the gathering and transmission of
natural gas in Alabama, Colorado, Louisiana, Mississippi, New
Mexico and Texas. Included in this segment are two salt dome
natural gas storage facilities located in Mississippi, which are
strategically located to serve the Northeast, Mid-Atlantic and
Southeast natural gas markets. We also lease natural gas storage
facilities located in Texas and Louisiana.
NGL Pipelines & Services. Our NGL Pipelines
& Services segment is comprised of (i) our natural gas
processing business and related NGL marketing activities,
(ii) NGL pipelines aggregating approximately 12,775 miles
and related storage facilities, which include our strategic
Mid-America and Seminole NGL pipeline systems and (iii) NGL
fractionation facilities located in Texas and Louisiana. This
segment also includes our NGL import and export terminaling
operations. We also lease two NGL storage facilities located in
Texas.
Petrochemical Services. Our Petrochemical Services
segment includes our four propylene fractionation facilities,
our isomerization complex, and our octane additive production
facility. This segment also includes approximately 460 miles of
various propylene pipeline systems and a 70-mile hi-purity
isobutane pipeline.
Business Strategy
Our business strategy is to:
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capitalize on expected increases in natural gas, NGL and oil
production resulting from development activities in the
deepwater and continental shelf areas of the Gulf of Mexico and
in the Rocky Mountain region; |
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maintain a balanced and diversified portfolio of midstream
energy assets and expand this asset base through organic
development projects and accretive acquisitions of complementary
midstream energy assets; |
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share capital costs and risks through joint ventures or
alliances with strategic partners that will provide the raw
materials for these projects or purchase the projects end
products; and |
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increase fee-based cash flows by investing in pipelines and
other fee-based businesses and de-emphasize commodity-based
activities. |
Competitive Strengths
We believe we have the following competitive strengths:
Large-Scale, Integrated Network of Diversified Assets in
Strategic Locations. We have the only integrated natural gas
and NGL transportation, fractionation, processing, storage and
import/export network in North America. Our operations are
strategically located to serve the major supply basins for
NGL-rich natural gas, the major NGL storage hubs in North
America and international markets. We believe that our location
in these markets provides better access to natural gas, NGL and
petrochemical supply volumes,
S-2
anticipated demand growth and business expansion opportunities.
The GulfTerra merger has resulted in a more balanced,
diversified company with access to new geographic areas, such as
the San Juan and Permian Basins. We believe that the larger
scope and scale of the combined company should result in greater
operating strength and promote long-term unitholder value.
Cash-Flow Stability Through Fee-Based Businesses and Balanced
Asset Mix. Our cash flow is derived primarily from fee-based
businesses which are not directly affected by volatility in
energy commodity prices. We expect that our more diversified
asset portfolio resulting from the GulfTerra merger should
provide operating income from a broader range of sources than
our operations on a stand-alone basis prior to the merger.
GulfTerras historical operations generally benefitted from
strong or average hydrocarbon prices, while our historical
operations prior to the merger generally benefitted from stable
or lower hydrocarbon prices. This relationship results in a
natural hedge to natural gas prices that should provide greater
cash flow stability to the combined company.
Relationships with Major Oil, Natural Gas and Petrochemical
Companies. We have long-term relationships with many of our
suppliers and customers, and we believe that we will continue to
benefit from these relationships. We jointly own facilities with
many of our customers who either provide raw materials to or
consume the end products from our facilities. These joint
venture partners include major oil, natural gas and
petrochemical companies, including BP, Burlington Resources,
ChevronTexaco, Dow Chemical, Duke Energy Field Services,
El Paso Corporation, ExxonMobil, Marathon and Shell.
Strategic Platform for Continued Expansion. We believe
that the GulfTerra merger has strengthened our leading business
positions across the midstream energy value chain in some of the
largest producing basins in North America. We have a significant
portfolio of organic growth opportunities to construct new
facilities or expand existing assets. To date, we have
identified approximately $2 billion of organic growth
projects over the next three years, including our recently
announced Independence Trail and Independence Hub projects and
the Constitution oil and natural gas pipeline projects in the
deepwater areas of the Gulf of Mexico; the expansion of some of
our key western NGL assets to support new production in the
Rocky Mountain and San Juan regions; and enhancements to
some of our existing facilities on the Texas Gulf Coast to serve
our refining and petrochemical customers.
Lower Cost of Capital. We believe that we have a lower
cost of capital than many of our competitors, enabling us to
compete more effectively in acquiring assets and expanding our
asset base.
Experienced Operator and Management Team. We have
historically operated our largest natural gas processing and
fractionation facilities and most of our pipelines. As the
leading provider of NGL-related services, we have established a
reputation in the industry as a reliable and cost-effective
operator. Affiliates of Dan L. Duncan, Enterprise Parents
co-founder and the chairman of Enterprise Parents general
partner, own a 100% membership interest in Enterprise
Parents general partner. In addition, Mr. Duncan and
his affiliates, including EPCO, Inc., or EPCO, collectively own
approximately 34% of the outstanding limited partner interests
in Enterprise Parent at April 30, 2005. The officers of
Enterprise Parents general partner average more than
25 years of industry experience.
S-3
Ownership Structure and Management
The following chart depicts our current organizational structure.
Information regarding our management is set forth under
Management beginning on page S-21 of this
prospectus supplement. Our principal executive offices are
located at 2727 North Loop West, Houston, Texas 77008, and
our telephone number is (713) 880-6500.
S-4
The Offering
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Securities Offered |
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$500,000,000 principal amount of 4.95% senior notes due June
2010. |
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Interest Payment Dates |
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Interest on the notes of each series will be paid in cash
semi-annually in arrears on June 1 and December 1 of
each year, beginning December 1, 2005. |
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Maturity |
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June 1, 2010. |
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Use of Proceeds |
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We will use the net proceeds to temporarily reduce borrowings
outstanding under our multi-year revolving credit facility and
for general partnership purposes, including capital expenditures
and acquisitions. Please read Use of Proceeds. |
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Guarantees |
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The notes will be fully and unconditionally guaranteed by the
Parent Guarantor on an unsecured and unsubordinated basis.
Initially, the notes will not be guaranteed by any of our
subsidiaries. In the future, however, if any of our subsidiaries
become guarantors or co-obligors of our funded debt, then these
subsidiaries will jointly and severally, fully and
unconditionally, guarantee our payment obligations under the
notes. Please read Description of Notes. |
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Optional Redemption |
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We may redeem the notes of each series for cash in whole, at any
time, or in part, from time to time, prior to maturity, at a
redemption price with respect to the applicable series of the
notes that includes accrued and unpaid interest and a make-whole
premium. Please read Description of Notes
Optional Redemption. |
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Ranking |
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The notes will be our unsecured and unsubordinated obligations
and will rank equally with all of our other existing and future
unsubordinated indebtedness. Please read Description of
Notes Ranking. |
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Certain Covenants |
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We will issue the notes under an Indenture (as defined below)
with Wells Fargo Bank, N.A., as trustee. The Indenture covenants
include a limitation on liens and a restriction on
sale-leasebacks. Each covenant is subject to a number of
important exceptions, limitations and qualifications that are
described under Description of Debt Securities
Certain Covenants in the accompanying prospectus. |
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Form of Notes |
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The notes will be represented by one or more global notes. The
global notes will be deposited with the Trustee, as custodian
for The Depository Trust Company, or DTC. |
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Ownership of beneficial interests in the global notes will be
shown on, and transfers of such interests will be effected only
through, records maintained in book-entry form by DTC and its
direct and indirect participants. Direct participants include
securities brokers and dealers (including certain of the
underwriters), banks, trust companies, clearing corporations and
other organizations and include Euroclear Bank S.A./ N.V., as
operator of Euroclear System, and Clearstream, societe anonyme. |
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Risk Factors |
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Please read Risk Factors beginning on page S-14
of this prospectus supplement and on page 3 of the
accompanying prospectus and the other information included or
incorporated by reference in |
S-5
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this prospectus supplement for a discussion of factors you
should consider carefully before investing in the notes. |
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Trading |
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We do not expect to list the notes for trading on any securities
exchange. |
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Trustee and Registrar |
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Wells Fargo Bank, N.A. |
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Governing Law |
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The notes and the Indenture will be governed by, and construed
in accordance with, the laws of the State of New York. |
S-6
Summary Historical and Pro Forma Financial and Operating
Data
The following tables set forth, for the periods and at the dates
indicated, summary historical and pro forma financial and
operating data for Enterprise. The summary historical income
statement and balance sheet data for the three years in the
period ended December 31, 2004 are derived from and should
be read in conjunction with the audited financial statements of
Enterprise Parent, GulfTerra and the South Texas midstream
assets that are incorporated by reference into this prospectus
supplement. The summary historical income statement data for the
three-month periods ended March 31, 2004 and 2005 and
balance sheet data at March 31, 2005 are derived from and
should be read in conjunction with the unaudited financial
statements of Enterprise Parent that are incorporated by
reference into this prospectus supplement.
The summary unaudited pro forma financial and operating data of
Enterprise Parent gives effect to the following transactions:
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The completion of our merger with GulfTerra and the related
transactions on September 30, 2004 (including our purchase
of certain midstream assets located in South Texas, effective as
of September 1, 2004, and the sale of our 50% equity
interest in Starfish Pipeline Company, LLC on March 31,
2005). |
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Our issuance of $2 billion of senior unsecured notes on
October 4, 2004, and the application of the net proceeds
therefrom to reduce debt amounts outstanding under our 364-Day
acquisition credit facility that was used to fund a portion of
the purchase price at the closing of the GulfTerra merger and
related transactions on September 30, 2004. |
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The completion on October 5, 2004 of our four cash tender
offers for $915 million in principal amount of
GulfTerras senior and senior subordinated notes using
$1.1 billion in cash borrowed under our 364-day acquisition
credit facility. |
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Enterprise Parents public offerings of 17,250,000 common
units in both May 2004 and August 2004 and the issuance of a
total of 5,183,591 common units in connection with Enterprise
Parents distribution reinvestment plan, or DRIP, and
related programs during 2004. |
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The conversion of 80 Series F2 convertible units, which
were originally issued by GulfTerra, into 1,950,317 Enterprise
Parent common units in October 2004 and November 2004. |
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Enterprise Parents public offering of 17,250,000 common
units in February 2005 and the application of the net proceeds
therefrom to repay debt amounts outstanding under and terminate
our 364-day acquisition credit facility and to reduce
indebtedness outstanding under our multi-year revolving credit
facility. |
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The issuance of 1,926,810 common units by Enterprise Parent
during the first five months of 2005 in connection with its DRIP
and related programs. |
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Our issuance in February 2005 of $250 million in principal
amount of 5.00% senior notes due March 2015 and
$250 million in principal amount of 5.75% senior notes
due March 2035 and the application of the net proceeds therefrom
to refinance $350 million in principal amount
8.25% senior notes due March 15, 2005, and for general
partnership purposes, including the repayment of indebtedness
outstanding under our multi-year revolving credit facility. |
Our summary unaudited pro forma as adjusted financial data also
gives effect to the issuance of $500 million in principal
amount of our 4.95% senior notes due June 2010, and the
application of net proceeds as described in Use of
Proceeds. Net proceeds from this offering are expected to
be approximately $495.7 million after deducting applicable
discounts and estimated offering expenses.
The unaudited pro forma financial and operating data for the
year ended December 31, 2004 and for the three months ended
March 31, 2005 assume the pro forma transactions described
above and this offering all occurred on January 1, 2004 (to
the extent not already reflected in Enterprise Parents
historical statement of operations). The unaudited
pro forma condensed consolidated balance sheet data shows
the financial effects
S-7
of the pro forma transactions described above and this offering
as if they had occurred on March 31, 2005 (to the extent
these transactions are not already recorded in Enterprise
Parents historical balance sheet).
The non-generally accepted accounting principle, or non-GAAP,
financial measures of gross operating margin and earnings before
interest, income taxes, depreciation and amortization, which we
refer to as EBITDA, are presented in the summary
historical and pro forma financial data for Enterprise Parent.
In supplemental sections titled Enterprise
Parent Non-GAAP Financial Measures and
Enterprise Parent Non-GAAP
Reconciliations, we have provided the necessary
explanations and reconciliations for the non-GAAP financial
measures presented in this prospectus supplement.
S-8
Summary Historical and Pro Forma Financial and Operating Data
of Enterprise Parent
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Consolidated Historical | |
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For Year Ended | |
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December 31, 2004 | |
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For Year Ended December 31, | |
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Pro Forma | |
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2002 | |
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2003 | |
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2004 | |
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Pro Forma | |
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as Adjusted | |
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(Unaudited) | |
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(Dollars in millions, except per unit amounts) | |
Income Statement Data:
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Revenues
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$ |
3,584.8 |
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$ |
5,346.4 |
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$ |
8,321.2 |
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$ |
9,615.1 |
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$ |
9,615.1 |
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Costs and expenses:
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Operating costs and expenses
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3,382.8 |
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5,046.8 |
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7,904.3 |
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8,951.1 |
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8,951.1 |
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General and administrative
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42.9 |
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37.5 |
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46.7 |
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93.2 |
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93.2 |
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Total costs and expenses
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3,425.7 |
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5,084.3 |
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7,951.0 |
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9,044.3 |
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9,044.3 |
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Equity in income (loss) of unconsolidated affiliates
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35.2 |
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(14.0 |
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52.8 |
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24.9 |
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24.9 |
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Operating income
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194.3 |
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248.1 |
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423.0 |
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595.7 |
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595.7 |
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Other income (expense):
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Interest expense
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(101.6 |
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(140.8 |
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(155.7 |
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(222.3 |
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(236.3 |
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Other, net
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7.3 |
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6.4 |
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2.1 |
|
|
|
(12.6 |
) |
|
|
(12.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(94.3 |
) |
|
|
(134.4 |
) |
|
|
(153.6 |
) |
|
|
(234.9 |
) |
|
|
(248.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes and minority interest
|
|
|
100.0 |
|
|
|
113.7 |
|
|
|
269.4 |
|
|
|
360.8 |
|
|
|
346.8 |
|
|
Provision for income taxes
|
|
|
(1.6 |
) |
|
|
(5.3 |
) |
|
|
(3.8 |
) |
|
|
(3.8 |
) |
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest
|
|
|
98.4 |
|
|
|
108.4 |
|
|
|
265.6 |
|
|
|
357.0 |
|
|
|
343.0 |
|
|
Minority interest
|
|
|
(2.9 |
) |
|
|
(3.9 |
) |
|
|
(8.1 |
) |
|
|
(6.3 |
) |
|
|
(6.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
95.5 |
|
|
$ |
104.5 |
|
|
$ |
257.5 |
|
|
$ |
350.7 |
|
|
$ |
336.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
95.5 |
|
|
$ |
104.5 |
|
|
$ |
268.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit (net of general partner interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per unit
|
|
$ |
0.55 |
|
|
$ |
0.42 |
|
|
$ |
0.83 |
|
|
$ |
0.78 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit (net of general partner
interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per unit
|
|
$ |
0.48 |
|
|
$ |
0.41 |
|
|
$ |
0.83 |
|
|
$ |
0.78 |
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit
|
|
$ |
1.36 |
|
|
$ |
1.47 |
|
|
$ |
1.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
4,230.3 |
|
|
$ |
4,802.8 |
|
|
$ |
11,315.5 |
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
2,246.5 |
|
|
|
2,139.5 |
|
|
|
4,281.2 |
|
|
|
|
|
|
|
|
|
|
Total partners equity
|
|
|
1,200.9 |
|
|
|
1,705.9 |
|
|
|
5,328.8 |
|
|
|
|
|
|
|
|
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(1)
|
|
|
2.1 |
x |
|
|
2.0 |
x |
|
|
2.7 |
x |
|
|
2.7 |
x |
|
|
2.5 |
x |
|
Cash provided by operating activities
|
|
$ |
326.8 |
|
|
$ |
419.6 |
|
|
$ |
379.2 |
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
1,708.3 |
|
|
|
657.0 |
|
|
|
929.1 |
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
1,263.3 |
|
|
|
254.0 |
|
|
|
544.0 |
|
|
|
|
|
|
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
57.7 |
|
|
|
31.9 |
|
|
|
68.0 |
|
|
|
|
|
|
|
|
|
|
Gross operating margin
|
|
|
332.3 |
|
|
|
410.4 |
|
|
|
655.2 |
|
|
$ |
1,067.6 |
|
|
$ |
1,067.6 |
|
|
EBITDA
|
|
|
284.8 |
|
|
|
366.4 |
|
|
|
623.2 |
|
|
|
965.4 |
|
|
|
965.4 |
|
|
|
|
(1) |
|
For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items: pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees; plus fixed charges;
plus distributed income of equity investees; less capitalized
interest; and less minority interest in pre-tax income of
subsidiaries that have not incurred fixed charges. The term
fixed charges means the sum of the following:
interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to indebtedness; and
an estimate of the interest within rental expenses. For the
years ended December 31, 2000 and 2001, Enterprise
Parents ratios of earnings to fixed charges were 6.4x and
5.1x, respectively. |
S-9
Summary Historical and Pro Forma Financial and Operating Data
of Enterprise Parent (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
|
|
|
|
Historical | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
For Three Months | |
|
For Three Months Ended | |
|
|
Ended | |
|
March 31, 2005 | |
|
|
March 31, | |
|
| |
|
|
| |
|
|
|
Pro Forma | |
|
|
2004 | |
|
2005 | |
|
Pro Forma | |
|
as Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(Dollars in millions, except per unit amounts) | |
Income Statement Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$ |
1,704.9 |
|
|
$ |
2,555.5 |
|
|
$ |
2,555.5 |
|
|
$ |
2,555.5 |
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
1,621.5 |
|
|
|
2,383.6 |
|
|
|
2,389.1 |
|
|
|
2,389.1 |
|
|
|
General and administrative
|
|
|
9.5 |
|
|
|
14.7 |
|
|
|
14.7 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
1,631.0 |
|
|
|
2,398.3 |
|
|
|
2,403.8 |
|
|
|
2,403.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
14.9 |
|
|
|
8.3 |
|
|
|
8.0 |
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
88.8 |
|
|
|
165.5 |
|
|
|
159.7 |
|
|
|
159.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32.6 |
) |
|
|
(53.4 |
) |
|
|
(48.9 |
) |
|
|
(52.3 |
) |
|
|
Other, net
|
|
|
0.1 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(32.5 |
) |
|
|
(52.5 |
) |
|
|
(48.0 |
) |
|
|
(51.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes, minority interest and
change in accounting principles
|
|
|
56.3 |
|
|
|
113.0 |
|
|
|
111.7 |
|
|
|
108.3 |
|
|
Provision for income taxes
|
|
|
(1.6 |
) |
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before minority interest and changes in accounting
principles
|
|
|
54.7 |
|
|
|
111.2 |
|
|
|
109.9 |
|
|
|
106.5 |
|
|
Minority interest
|
|
|
(3.0 |
) |
|
|
(1.9 |
) |
|
|
(1.9 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
51.7 |
|
|
|
109.3 |
|
|
$ |
108.0 |
|
|
$ |
104.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principles
|
|
|
10.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$ |
62.5 |
|
|
$ |
109.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per unit (net of general partner interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per unit
|
|
$ |
0.21 |
|
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per unit (net of general partner
interest):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per unit
|
|
$ |
0.21 |
|
|
$ |
0.25 |
|
|
$ |
0.24 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to limited partners:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per common unit
|
|
$ |
0.3725 |
|
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
Balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$ |
4,782.3 |
|
|
$ |
11,527.7 |
|
|
$ |
11,538.1 |
|
|
$ |
11,737.3 |
|
|
Total debt
|
|
|
2,210.9 |
|
|
|
4,157.3 |
|
|
|
4,157.3 |
|
|
|
4,356.5 |
|
|
Total partners equity
|
|
|
1,720.9 |
|
|
|
5,773.3 |
|
|
|
5,783.7 |
|
|
|
5,783.7 |
|
Other financial data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges(1)
|
|
|
2.9 |
x |
|
|
3.0 |
x |
|
|
3.1 |
x |
|
|
2.9 |
x |
|
Cash provided by operating activities
|
|
$ |
29.6 |
|
|
$ |
180.0 |
|
|
|
|
|
|
|
|
|
|
Cash used in investing activities
|
|
|
15.8 |
|
|
|
365.0 |
|
|
|
|
|
|
|
|
|
|
Cash provided by financing activities
|
|
|
0.5 |
|
|
|
218.1 |
|
|
|
|
|
|
|
|
|
|
Distributions received from unconsolidated affiliates
|
|
|
17.0 |
|
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
Gross operating margin
|
|
|
131.1 |
|
|
|
275.2 |
|
|
$ |
269.4 |
|
|
$ |
269.4 |
|
|
EBITDA
|
|
|
127.3 |
|
|
|
266.4 |
|
|
|
260.6 |
|
|
|
260.6 |
|
|
|
|
(1) |
|
For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items: pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees; plus fixed charges;
plus distributed income of equity investees; less capitalized
interest; and less minority interest in pre-tax income of
subsidiaries that have not incurred fixed charges. The term
fixed charges means the sum of the following:
interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to indebtedness; and
an estimate of the interest within rental expenses. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise Parent Consolidated Historical | |
|
|
| |
|
|
|
|
For Three | |
|
|
For Year Ended | |
|
Months Ended | |
|
|
December 31, | |
|
March 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Selected Volumetric Operating Data by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offshore Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes in billion British thermal
units per day (BBtus/d)
|
|
|
500 |
|
|
|
433 |
|
|
|
2,081 |
|
|
|
429 |
|
|
|
1,851 |
|
|
Crude oil transportation volumes in thousands of barrels per day
(MBbls/d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121 |
|
|
Platform gas treating in thousands of decatherms per day (Mdth/d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
316 |
|
|
Platform oil treating (MBbls/d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Onshore Natural Gas Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas transportation volumes (BBtus/d)
|
|
|
701 |
|
|
|
600 |
|
|
|
5,638 |
|
|
|
646 |
|
|
|
5,746 |
|
NGL Pipelines & Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL transportation volumes (MBbls/d)
|
|
|
1,306 |
|
|
|
1,275 |
|
|
|
1,411 |
|
|
|
1,368 |
|
|
|
1,394 |
|
|
NGL fractionation volumes (MBbls/d)
|
|
|
235 |
|
|
|
227 |
|
|
|
307 |
|
|
|
229 |
|
|
|
338 |
|
|
Equity NGL production (MBbls/d)
|
|
|
73 |
|
|
|
43 |
|
|
|
129 |
|
|
|
48 |
|
|
|
100 |
|
|
Fee-based natural gas processing in million cubit feet per day
(MMcf/d)
|
|
|
* |
|
|
|
194 |
|
|
|
1,692 |
|
|
|
362 |
|
|
|
2,018 |
|
Petrochemical Services, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Butane isomerization volumes (MBbls/d)
|
|
|
84 |
|
|
|
77 |
|
|
|
76 |
|
|
|
60 |
|
|
|
66 |
|
|
Propylene fractionation volumes (MBbls/d)
|
|
|
55 |
|
|
|
57 |
|
|
|
56 |
|
|
|
54 |
|
|
|
67 |
|
|
Octane additive production volumes (MBbls/d)
|
|
|
5 |
|
|
|
4 |
|
|
|
10 |
|
|
|
5 |
|
|
|
|
|
|
Petrochemical transportation volumes (MBbls/d)
|
|
|
46 |
|
|
|
68 |
|
|
|
71 |
|
|
|
63 |
|
|
|
74 |
|
* Fee-based natural gas processing volumes prior to 2003
were negligible.
S-10
Enterprise Parent Non-GAAP Financial Measures
We include in this prospectus supplement the non-GAAP financial
measures of gross operating margin and EBITDA for Enterprise
Parent, and provide reconciliations of these non-GAAP financial
measures to their most directly comparable financial measure or
measures calculated and presented in accordance with GAAP.
Gross Operating Margin
We define gross operating margin as operating income before: (1)
depreciation and amortization expense; (2) operating lease
expenses for which we do not have the cash payment obligation;
(3) gains and losses on the sale of assets; and
(4) selling, general and administrative expenses. We view
gross operating margin as an important performance measure of
the core profitability of our operations. This measure forms the
basis of our internal financial reporting and is used by our
senior management in deciding how to allocate capital resources
among business segments. We believe that investors benefit from
having access to the same financial measures that our management
uses. The GAAP measure most directly comparable to gross
operating margin is operating income.
EBITDA
EBITDA is defined as net income (income from continuing
operations with regards to pro forma information) plus interest
expense, provision for income taxes and depreciation and
amortization expense. EBITDA is used as a supplemental financial
measure by our management and by external users of financial
statements such as investors, commercial banks, research
analysts and ratings agencies, to assess:
|
|
|
|
|
the financial performance of our assets without regard to
financing methods, capital structures or historical costs basis; |
|
|
|
the ability of our assets to generate cash sufficient to pay
interest cost and support our indebtedness; |
|
|
|
our operating performance and return on capital as compared to
those of other companies in the midstream energy sector, without
regard to financing and capital structure; and |
|
|
|
the viability of projects and the overall rates of return on
alternative investment opportunities. |
EBITDA should not be considered an alternative to net income or
income from continuing operations, operating income, cash flow
from operating activities or any other measure of financial
performance presented in accordance with GAAP. This non-GAAP
financial measure is not intended to represent GAAP-based cash
flows. We have reconciled Enterprise Parents historical
and pro forma EBITDA amounts to its consolidated net income
(income from continuing operations with regards to pro forma
information) and historical EBITDA amounts further to operating
activities cash flows.
S-11
Enterprise Parent Non-GAAP Reconciliations
The following table presents a reconciliation of Enterprise
Parents non-GAAP financial measures of gross operating
margin to the GAAP financial measure of operating income and a
reconciliation of the non-GAAP financial measure of EBITDA to
the GAAP financial measures of net income (income from
continuing operations with regards to pro forma
information) and of operating activities cash flows, on a
historical and pro forma as adjusted basis, as applicable, for
each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Historical | |
|
|
|
|
| |
|
For Year Ended | |
|
|
|
|
December 31, 2004 | |
|
|
For Year Ended December 31, | |
|
| |
|
|
| |
|
|
|
Pro Forma | |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
Pro Forma | |
|
as Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
(Unaudited) | |
|
|
(Dollars in millions) | |
Reconciliation of Non-GAAP Gross operating margin
to GAAP Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$ |
194.3 |
|
|
$ |
248.1 |
|
|
$ |
423.0 |
|
|
$ |
595.7 |
|
|
$ |
595.7 |
|
|
Adjustments to reconcile Operating income to Gross operating
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization in operating costs and expenses
|
|
|
86.0 |
|
|
|
115.7 |
|
|
|
193.7 |
|
|
|
386.9 |
|
|
|
386.9 |
|
|
|
Retained lease expense, net in operating costs and expenses
|
|
|
9.1 |
|
|
|
9.1 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
7.7 |
|
|
|
Gain on sale of assets in operating costs and expenses
|
|
|
|
|
|
|
|
|
|
|
(15.9 |
) |
|
|
(15.9 |
) |
|
|
(15.9 |
) |
|
|
General and administrative costs
|
|
|
42.9 |
|
|
|
37.5 |
|
|
|
46.7 |
|
|
|
93.2 |
|
|
|
93.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Operating Margin
|
|
$ |
332.3 |
|
|
$ |
410.4 |
|
|
$ |
655.2 |
|
|
$ |
1,067.6 |
|
|
$ |
1,067.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP EBITDA to GAAP
Net income or Income from continuing
operations and GAAP Cash provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Income from continuing operations with regards to
pro forma information)
|
|
$ |
95.5 |
|
|
$ |
104.5 |
|
|
|
268.3 |
|
|
$ |
350.7 |
|
|
$ |
336.7 |
|
|
Adjustments to derive EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
101.6 |
|
|
|
140.8 |
|
|
|
155.7 |
|
|
|
222.3 |
|
|
|
236.3 |
|
|
|
Provision for income taxes
|
|
|
1.6 |
|
|
|
5.3 |
|
|
|
3.8 |
|
|
|
3.8 |
|
|
|
3.8 |
|
|
|
Depreciation and amortization (excluding amortization component
in interest expenses)
|
|
|
86.1 |
|
|
|
115.8 |
|
|
|
195.4 |
|
|
|
388.6 |
|
|
|
388.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
284.8 |
|
|
|
366.4 |
|
|
|
623.2 |
|
|
$ |
965.4 |
|
|
$ |
965.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(101.6 |
) |
|
|
(140.8 |
) |
|
|
(155.7 |
) |
|
|
|
|
|
|
|
|
|
Amortization in interest expense
|
|
|
8.8 |
|
|
|
12.6 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(1.6 |
) |
|
|
(5.3 |
) |
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
Provision for impairment charge
|
|
|
|
|
|
|
1.2 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
Equity in loss (income) of unconsolidated affiliates
|
|
|
(35.2 |
) |
|
|
14.0 |
|
|
|
(52.8 |
) |
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated affiliates
|
|
|
57.7 |
|
|
|
31.9 |
|
|
|
68.0 |
|
|
|
|
|
|
|
|
|
|
Gain on sale of assets
|
|
|
|
|
|
|
|
|
|
|
(15.9 |
) |
|
|
|
|
|
|
|
|
|
Operating lease expense paid by EPCO (excluding minority
interest portion)
|
|
|
9.0 |
|
|
|
9.0 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
Other expenses paid by EPCO
|
|
|
|
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
2.9 |
|
|
|
3.9 |
|
|
|
8.1 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
2.1 |
|
|
|
10.5 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
Changes in fair market value of financial instruments
|
|
|
10.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of changes in accounting principles
|
|
|
|
|
|
|
|
|
|
|
(10.8 |
) |
|
|
|
|
|
|
|
|
|
Increase in restricted cash
|
|
|
(3.0 |
) |
|
|
(5.1 |
) |
|
|
(12.3 |
) |
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
92.7 |
|
|
|
120.9 |
|
|
|
(93.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$ |
326.8 |
|
|
$ |
419.6 |
|
|
$ |
379.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-12
Enterprise Parent Non-GAAP Reconciliations (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated | |
|
|
|
|
|
|
Historical | |
|
|
|
|
|
|
| |
|
|
|
|
|
|
For Three Months Ended | |
|
|
For Three Months | |
|
March 31, 2005 | |
|
|
Ended March 31, | |
|
| |
|
|
| |
|
|
|
Pro Forma | |
|
|
2004 | |
|
2005 | |
|
Pro Forma | |
|
as Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(Unaudited) | |
|
|
(Dollars in millions) | |
Reconciliation of Non-GAAP Gross operating margin
to GAAP Operating income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
$ |
88.8 |
|
|
$ |
165.5 |
|
|
$ |
159.7 |
|
|
$ |
159.7 |
|
|
Adjustments to reconcile Operating income to Gross operating
margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization in operating costs and expenses
|
|
|
30.5 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
100.0 |
|
|
|
Retained lease expense, net in operating costs and expenses
|
|
|
2.2 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
Loss (gain) on sale of assets in operating costs and expenses
|
|
|
0.1 |
|
|
|
(5.5 |
) |
|
|
(5.5 |
) |
|
|
(5.5 |
) |
|
|
General and administrative costs
|
|
|
9.5 |
|
|
|
14.7 |
|
|
|
14.7 |
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross operating margin
|
|
$ |
131.1 |
|
|
$ |
275.2 |
|
|
$ |
269.4 |
|
|
$ |
269.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP EBITDA to GAAP
Net income or Income from continuing
operations and GAAP Cash provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Income from continuing operations with regards to
pro forma information)
|
|
$ |
62.5 |
|
|
$ |
109.3 |
|
|
$ |
108.0 |
|
|
$ |
104.6 |
|
|
Adjustments to derive EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
32.6 |
|
|
|
53.4 |
|
|
|
48.9 |
|
|
|
52.3 |
|
|
|
Provision for income taxes
|
|
|
1.6 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
1.8 |
|
|
|
Depreciation and amortization (excluding amortization component
in interest expenses)
|
|
|
30.6 |
|
|
|
101.9 |
|
|
|
101.9 |
|
|
|
101.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
127.3 |
|
|
|
266.4 |
|
|
$ |
260.6 |
|
|
$ |
260.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(32.6 |
) |
|
|
(53.4 |
) |
|
|
|
|
|
|
|
|
|
Amortization in interest expense
|
|
|
0.8 |
|
|
|
(0.5 |
) |
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
(1.6 |
) |
|
|
(1.8 |
) |
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
(10.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated affiliates
|
|
|
(14.9 |
) |
|
|
(8.3 |
) |
|
|
|
|
|
|
|
|
|
Distributions from unconsolidated affiliates
|
|
|
17.0 |
|
|
|
21.8 |
|
|
|
|
|
|
|
|
|
|
Loss (gain) on sale of assets
|
|
|
0.1 |
|
|
|
(5.5 |
) |
|
|
|
|
|
|
|
|
|
Operating lease expense paid by EPCO (excluding minority
interest portion)
|
|
|
2.2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
3.0 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
Deferred income tax expense
|
|
|
1.7 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
Decrease in restricted cash
|
|
|
5.8 |
|
|
|
15.8 |
|
|
|
|
|
|
|
|
|
|
Changes in fair market value of financial instruments
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
Net effect of changes in operating accounts
|
|
|
(68.4 |
) |
|
|
(58.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by operating activities
|
|
$ |
29.6 |
|
|
$ |
180.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-13
RISK FACTORS
An investment in the notes involves risks. You should
consider carefully the risk factors included below, under the
caption Risk Factors beginning on page 3 of the
accompanying prospectus, and under Business and
Properties Risk Factors in Enterprise
Parents Annual Report on Form 10-K for the year ended
December 31, 2004, together with all of the other
information included in, or incorporated by reference into, this
prospectus supplement, when evaluating an investment in the
notes. If any of these risks were to occur, our business,
financial condition or results of operations could be materially
adversely affected.
Risks Related to Our Business
|
|
|
Our debt level may limit our future financial and
operating flexibility. |
As of March 31, 2005, on a pro forma as adjusted basis, we
had approximately $4.4 billion of consolidated debt
outstanding. Our debt level could have significant effects on
our future operations, including, among other things:
|
|
|
|
|
a significant portion of our cash flow from operations will be
dedicated to the payment of principal and interest on
outstanding debt and will not be available for other purposes,
including capital expenditures; |
|
|
|
credit rating agencies may view our debt level negatively; |
|
|
|
covenants contained in our existing debt arrangements will
require us to continue to meet financial tests that may
adversely affect our flexibility in planning for and reacting to
changes in our business; |
|
|
|
our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general partnership
purposes may be limited; |
|
|
|
we may be at a competitive disadvantage relative to similar
companies that have less debt; and |
|
|
|
we may be more vulnerable to adverse economic and industry
conditions as a result of our significant debt level. |
Our public debt indentures currently do not limit the amount of
future indebtedness that we can create, incur, assume or
guarantee. Our multi-year revolving credit facility, however,
restricts our ability to incur additional debt, though any debt
we may incur in compliance with these restrictions may still be
substantial.
Our multi-year revolving credit facility and indentures for our
public debt contain conventional financial covenants and other
restrictions. A breach of any of these restrictions by us could
permit the lenders to declare all amounts outstanding under
those debt agreements to be immediately due and payable and, in
the case of the credit facility, to terminate all commitments to
extend further credit.
Our ability to access the capital markets to raise capital on
favorable terms will be affected by our debt level, the amount
of our debt maturing in the next several years and current
maturities, and by adverse market conditions resulting from,
among other things, general economic conditions, contingencies
and uncertainties that are difficult to predict and impossible
to control. Moreover, if the rating agencies were to downgrade
our corporate credit, then we could experience an increase in
our borrowing costs, difficulty assessing capital markets or a
reduction in the market price of Enterprise Parents common
units. Such a development could adversely affect our ability to
obtain financing for working capital, capital expenditures or
acquisitions or to refinance existing indebtedness. If we are
unable to access the capital markets on favorable terms in the
future, we might be forced to seek extensions for some of our
short-term securities or to refinance some of our debt
obligations through bank credit, as opposed to long-term public
debt securities or equity securities of Enterprise Parent. The
price and terms upon which we might receive such extensions or
additional bank credit, if at all, could be more onerous than
those contained in existing debt agreements. Any such
arrangements could, in turn, increase the risk that our leverage
may adversely affect our future financial and operating
flexibility and thereby impact our ability to make principal and
interest payments on the notes.
S-14
|
|
|
We could be required to divest significant assets as a
result of a non-public investigation by the Bureau of
Competition of the Federal Trade Commission. |
On February 24, 2005, an affiliate of EPCO acquired Texas
Eastern Products Pipeline Company, LLC, or TEPPCO GP, from Duke
Energy Field Services, LLC. TEPPCO GP owns a 2% general partner
interest in and is the general partner of TEPPCO Partners, L.P.
On March 11, 2005, the Bureau of Competition of the Federal
Trade Commission delivered written notice to the EPCO
affiliates legal advisor that it was conducting a
non-public investigation to determine whether such
affiliates acquisition of TEPPCO GP may substantially
lessen competition. No filings were required under the
Hart-Scott-Rodino Act in connection with the EPCO
affiliates purchase of TEPPCO GP. EPCO and its affiliates
may receive similar inquiries from other regulatory authorities.
We intend to cooperate fully with any such investigation and
inquiries. In response to such FTC investigation or any
inquiries EPCO and its affiliates may receive from other
regulatory authorities, we may be required to divest certain
assets. In the event we are required to divest significant
assets, our future financial and operating flexibility may be
materially adversely affected, which could impact our ability to
make principal and interest payments on the notes.
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Substantially all of the equity interests in Enterprise
Parent that are owned by EPCO and its affiliates are pledged as
security under an EPCO credit facility. Upon an event of default
under this credit facility, a change in control of Enterprise
Parent could result. |
EPCO has pledged substantially all of its limited partner
interests in Enterprise Parent and its 95% ownership interest in
the general partner of Enterprise Parent as security under its
revolving credit facility with a syndicate of banks. EPCOs
revolving credit facility contains customary and other events of
default relating to defaults of EPCO and certain of its
subsidiaries, including certain defaults of Enterprise Parent
and other EPCO affiliates. An event of default, followed by a
foreclosure on EPCOs pledged collateral could result in a
change in control of Enterprise Parent.
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The credit and risk profile of our general partner and its
owners could adversely affect our credit ratings and
profile. |
The credit and business risk profiles of the general partner or
owners of a general partner may be a factor in credit
evaluations of a master limited partnership. This is because the
general partner can exercise significant influence over the
business activities of the partnership, including its cash
distribution and acquisition strategy and business risk profile.
Another factor that may be considered is the financial condition
of the general partner and its owners, including the degree of
financial leverage and their dependence on cash flow from the
partnership to service such indebtedness. Entities controlling
the owner of Enterprise Parents general partner have
significant indebtedness outstanding and are dependent
principally on the cash flow from their general partner and
limited partner equity interests in Enterprise Parent to service
such indebtedness. Any distributions by us to Enterprise Parent
(and by Enterprise Parent to such entities) will be made only
after satisfying our then current obligations to our creditors.
Although Enterprise Parent has taken certain steps in its
organizational structure, financial reporting and contractual
relationships to reflect the separateness of itself and its
general partner from the entities that control its general
partner, our credit ratings and business risk profile could be
adversely affected if the ratings and risk profiles of the
entities that control Enterprise Parents general partner
were viewed as substantially lower or more risky than ours.
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An impairment of goodwill could reduce our
earnings. |
We had $456.7 million of goodwill and $960.1 million
of intangible assets recorded on our consolidated balance sheet
at March 31, 2005. Goodwill is recorded when the purchase
price of a business exceeds the fair market value of the
tangible and separately measurable intangible net assets. GAAP
will require us to test goodwill for impairment on an annual
basis or when events or circumstances occur indicating that
goodwill might be impaired. Long-lived assets such as intangible
assets with finite useful lives are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If we determine that any
of our goodwill or intangible assets were impaired, we would be
required
S-15
to take an immediate charge to earnings with a correlative
effect on partners equity and balance sheet leverage as
measured by debt to total capitalization.
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Increases in interest rates could adversely affect our
business. |
In addition to our exposure to commodity prices, we have
significant exposure to increases in interest rates. As of
March 31, 2005, we had approximately $4.2 billion of
consolidated debt, of which approximately $3.0 billion was
at fixed interest rates and approximately $1.2 billion was
at variable interest rates, after giving effect to existing
interest swap arrangements. We may from time to time enter into
additional interest rate swap arrangements, which could increase
our exposure to variable interest rates. As a result, our
results of operations, cash flows and financial condition, could
be materially adversely affected by significant increases in
interest rates.
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All of our executive officers face conflicts in the
allocation of their time to our business. |
All of Enterprise Parents general partners executive
officers will allocate time among EPCO, Enterprise Parent,
TEPPCO Partners, L.P. and other EPCO affiliates. These officers
face conflicts regarding the allocation of their time, which may
adversely affect our business, results of operations and
financial condition.
Risks Associated with the Notes
Discussed below are some of the risks related to the notes
offered by this prospectus supplement.
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Your ability to transfer the notes may be limited by the
absence of a trading market. |
The notes of each series will be new securities for which
currently there is no trading market. We do not currently intend
to apply for listing of the notes on any securities exchange.
Although the underwriters have informed us that they currently
intend to make a market in the notes, they are not obligated to
do so. In addition, the underwriters may discontinue any such
market making at any time without notice. The liquidity of any
market for the notes will depend on the number of holders of
those notes, the interest of securities dealers in making a
market in those notes and other factors. Accordingly, we cannot
assure you as to the development or liquidity of any market for
the notes of any series.
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Enterprise Parent does not have the same flexibility as
other types of organizations to accumulate cash, which may limit
cash available to us to service the notes or to repay them at
maturity. |
Unlike a corporation, Enterprise Parents partnership
agreement requires it to distribute, on a quarterly basis, 100%
of its available cash to its unitholders of record and its
general partner. Available cash is generally all of Enterprise
Parents consolidated cash receipts adjusted for cash
distributions and net changes to reserves. Enterprise
Parents general partner will determine the amount and
timing of such distributions and has broad discretion to
establish and make additions to Enterprise Parents
reserves or our reserves in amounts the general partner
determines in its reasonable discretion to be necessary or
appropriate:
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to provide for the proper conduct of our business and the
business of Enterprise Parent (including reserves for future
capital expenditures and for Enterprise Parents
anticipated future credit needs); |
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to provide funds for distributions to Enterprise Parents
unitholders and its general partner for any one or more of the
next four calendar quarters; or |
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to comply with applicable law or any of Enterprise Parents
loan or other agreements. |
Although Enterprise Parents payment obligations to its
unitholders are subordinate to its obligations as guarantor of
the notes, the value of Enterprise Parents units will
decrease in direct correlation with decreases in the amount it
distributes per unit. Accordingly, if Enterprise Parent
experiences a liquidity problem in the future, it may not be
able to issue equity to recapitalize, and we may not be able to
service the notes or repay them at maturity. For the four
calendar quarters ended March 31, 2005, Enterprise Parent
distributed
S-16
$512.2 million to its unitholders and general partner. In
addition, Enterprise Parent recently increased its quarterly
cash distribution rate to its unitholders to $0.41 per
common unit, or $1.64 on an annualized basis. This
distribution was paid on May 10, 2005 to unitholders of
record on April 29, 2005, representing a 10% increase from
the annualized distribution rate of $1.49 per common unit
paid in the second quarter of 2004.
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Federal and state statutes allow courts, under specific
circumstances, to void subsidiary guarantees. |
The indenture governing the notes does not require any
subsidiary to guarantee the notes unless that subsidiary
guarantees or co-issues other Funded Debt of ours as described
under Description of Notes Potential Guarantee
of Notes by Subsidiaries. Initially, there will be no
subsidiary guarantors. Various fraudulent conveyance laws have
been enacted for the protection of creditors, and a court may
use these laws to subordinate or avoid any subsidiary guarantee
that may be delivered in the future. A court could avoid or
subordinate a subsidiary guarantee in favor of that subsidiary
guarantors other creditors if the court found that either:
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the guarantee was incurred with the intent to hinder, delay or
defraud any present or future creditor or the subsidiary
guarantor contemplated insolvency with a design to favor one or
more creditors to the exclusion in whole or in part of
others; or |
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the subsidiary guarantor did not receive fair consideration or
reasonably equivalent value for issuing its subsidiary guarantee; |
and, in either case, the subsidiary guarantor, at the time it
issued the subsidiary guarantee:
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was insolvent or rendered insolvent by reason of the issuance of
the subsidiary guarantee; |
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was engaged or about to engage in a business or transaction for
which its remaining assets constituted unreasonably small
capital; or |
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intended to incur, or believed that it would incur, debts beyond
its ability to pay such debts as they matured. |
Among other things, a legal challenge of the subsidiary
guarantee on fraudulent conveyance grounds may focus on the
benefits, if any, realized by the subsidiary guarantor as a
result of our issuance of the notes or the delivery of the
subsidiary guarantee. To the extent the subsidiary guarantee was
avoided as a fraudulent conveyance or held unenforceable for any
other reason, you would cease to have any claim against that
subsidiary guarantor and would be solely a creditor of us and of
any subsidiary guarantors whose subsidiary guarantees were not
avoided or held unenforceable. In that event, your claims
against the issuer of an invalid subsidiary guarantee would be
subject to the prior payment of all liabilities of that
subsidiary guarantor.
S-17
USE OF PROCEEDS
We expect to receive aggregate net proceeds of approximately
$495.7 million from the sale of the notes to the
underwriters after deducting discounts and estimated offering
expenses payable by us. We will use the net proceeds of this
offering to temporarily reduce borrowings outstanding under our
multi-year revolving credit facility and for general partnership
purposes, including capital expenditures and acquisitions. In
general, our indebtedness under the multi-year revolving credit
facility was incurred for working capital purposes, capital
expenditures and business combinations. Amounts repaid under our
multi-year revolving credit facility may be reborrowed from time
to time for acquisitions, capital expenditures and other general
partnership purposes. Affiliates of each of the underwriters are
lenders under our multi-year revolving credit facility and, as
such, will receive their respective share of any repayment of
amounts outstanding under this facility.
As of April 30, 2005, we had $380.0 million of
borrowings outstanding under our multi-year revolving credit
facility that bear interest at a rate of approximately 3.8% per
annum. Our multi-year revolving credit facility matures in
September 2009.
S-18
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2005:
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on a consolidated historical basis; and |
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on a pro forma as adjusted basis to (i) give effect to
the issuance of $500 million in principal amount of senior
notes in this offering and the application of the net proceeds
as described under Use of Proceeds and (ii) the
issuance by Enterprise Parent of 410,249 common units in May
2005 in connection with its DRIP and related programs. |
The historical data in the table on the following page are
derived from and should be read in conjunction with our
historical financial statements, including the accompanying
notes, incorporated by reference in this prospectus supplement.
Please read Enterprise Parents unaudited pro forma
financial statements beginning on page F-1 this prospectus
supplement for a complete description of the adjustments we have
made to arrive at the pro forma as adjusted capitalization
that we present in the following table. You should also read
Enterprise Parents financial statements and notes that are
incorporated by reference in this prospectus supplement for
additional information regarding Enterprise Parents
capital structure.
S-19
Enterprise Parent Historical and Pro Forma Capitalization
As of March 31, 2005
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Pro Forma | |
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Historical | |
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As Adjusted | |
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| |
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Cash and cash equivalents
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$ |
57.7 |
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$ |
263.8 |
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Long-term borrowings, including current portions:
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Multi-Year Revolving Credit Facility, variable rate, due
September 2009
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$ |
300.0 |
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Seminole Notes, 6.67% fixed-rate, $15 million due in
December 2005
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15.0 |
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$ |
15.0 |
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Pascagoula MBFC Loan, 8.70% fixed-rate, due March 2010
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54.0 |
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54.0 |
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Senior Notes B, 7.50% fixed-rate, due February 2011
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450.0 |
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450.0 |
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Senior Notes C, 6.375% fixed-rate, due February 2013
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350.0 |
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350.0 |
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Senior Notes D, 6.875% fixed-rate, due March 2033
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500.0 |
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500.0 |
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Senior Notes E, 4.00% fixed-rate, due October 2007
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500.0 |
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500.0 |
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Senior Notes F, 4.625% fixed-rate, due October 2009
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500.0 |
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500.0 |
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Senior Notes G, 5.60% fixed-rate, due October 2014
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650.0 |
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650.0 |
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Senior Notes H, 6.65% fixed-rate, due October 2034
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350.0 |
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350.0 |
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Senior Notes I, 5.00% fixed-rate, due March 2015
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250.0 |
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250.0 |
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Senior Notes J, 5.75% fixed-rate, due March 2035
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250.0 |
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250.0 |
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Senior Notes, 4.95% fixed-rate, due June 2010
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500.0 |
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Dixie short-term commercial paper debt obligations
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14.0 |
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14.0 |
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GulfTerra senior notes and senior subordinated notes
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5.7 |
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5.7 |
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Other, including unamortized discounts and premiums
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(31.4 |
) |
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(32.2 |
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Total debt obligations
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4,157.3 |
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4,356.5 |
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Minority interest
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82.5 |
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82.5 |
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Partners equity
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Limited partners
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5,646.1 |
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5,656.3 |
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General partner
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115.4 |
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115.6 |
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Accumulated other comprehensive income
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22.1 |
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22.1 |
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Other
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(10.3 |
) |
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(10.3 |
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Total partners equity
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5,773.3 |
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5,783.7 |
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Total capitalization
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$ |
10,013.1 |
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$ |
10,222.7 |
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S-20
MANAGEMENT
Enterprise Parents Management
The following table sets forth certain information with respect
to the executive officers and members of the board of directors
of Enterprise Parents general partner. Executive officers
and directors are elected for one-year terms.
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Position with General Partner |
Name |
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Age |
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of Enterprise Parent |
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Dan L. Duncan
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72 |
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Director and Chairman |
O.S. Andras
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69 |
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Director and Vice Chairman |
Robert G. Phillips
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50 |
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Director, President and Chief Executive Officer |
E. William Barnett
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72 |
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Director* |
W. Matt Ralls
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55 |
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Director* |
Richard S. Snell
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62 |
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Director* |
Richard H. Bachmann
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52 |
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Executive Vice President, Secretary and Chief Legal Officer |
Michael A. Creel
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51 |
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Executive Vice President and Chief Financial Officer |
James H. Lytal
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47 |
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Executive Vice President |
A. James Teague
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60 |
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Executive Vice President |
Charles E. Crain
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71 |
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Senior Vice President |
W. Ordemann
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46 |
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Senior Vice President |
Gil H. Radtke
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44 |
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Senior Vice President |
James M. Collingsworth
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50 |
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Senior Vice President |
James A. Cisarik
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47 |
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Senior Vice President |
Lynn L. Bourdon, III
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43 |
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Senior Vice President |
Bart H. Heijermans
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38 |
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Senior Vice President |
Richard A. Hoover
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48 |
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Senior Vice President |
Joel D. Moxley
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47 |
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Senior Vice President |
Michael J. Knesek
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50 |
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Senior Vice President, Controller and Principal Accounting
Officer |
W. Randall Fowler
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48 |
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Senior Vice President and Treasurer |
Dan L. Duncan was elected Chairman and a Director of
Enterprise Parents general partner in April 1998.
Mr. Duncan has served as Chairman of the Board of our
predecessor, EPCO, Inc., since 1979. Mr. Duncan is
currently a non-voting director of Enterprise Parents
general partner. Until a fourth independent director is
appointed to Enterprise Parents general partners
board, Mr. Duncan will remain a non-voting director to
preserve the voting majority of the independent directors.
O.S. Andras was elected Vice Chairman and a Director of
Enterprise Parents general partner in February 2005.
Mr. Andras served as Chief Executive Officer, Vice Chairman
and a Director of Enterprise Parents general partner from
September 2004 to February 2005. Mr. Andras served as
President, Chief Executive Officer and a Director of Enterprise
Parents general partner from April 1998 until
September 2004. Mr. Andras served as President and
Chief Executive Officer of EPCO from 1996 to February 2001 and
currently serves as Vice Chairman of the Board of EPCO.
Robert G. Phillips was elected President and Chief
Executive Officer of Enterprise Parents general partner in
February 2005. Mr. Phillips served as President, Chief
Operating Officer and Director of Enterprise Parents
general partner from September 2004 to February 2005.
Mr. Phillips served as a Director of GulfTerras
general partner from August 1998 until September 2004. He
served as Chief Executive Officer
S-21
for GulfTerra and its general partner from November 1999 and as
Chairman from October 2002 until September 2004. He served
as Executive Vice President from August 1998 to October 1999.
Mr. Phillips served as President of El Paso Field
Services Company between June 1997 and September 2004. He served
as President of El Paso Energy Resources Company from
December 1996 to June 1997, President of El Paso Field
Services Company from April 1996 to December 1996 and Senior
Vice President of El Paso Corporation from September 1995
to April 1996. For more than five years prior, Mr. Phillips
was Chief Executive Officer of Eastex Energy, Inc.
E. William Barnett was elected a Director of
Enterprise Parents general partner in March 2005.
Mr. Barnett practiced law with Baker Botts L.L.P. from 1958
until his retirement in 2004. In 1984, he became Managing
Partner of Baker Botts L.L.P. and continued in that role for
14 years until 1998. He was Senior Counsel to the firm from
1998 until June 1, 2004 when he retired from the firm.
Mr. Barnett is Chairman of the Board of Trustees of Rice
University; a Life Trustee of The University of Texas Law School
Foundation; a director of St. Lukes Episcopal Health
System; a director of the Center for Houstons Future and a
current director and former Chairman of the Board of Directors
of the Houston Zoo, Inc. (the operating arm of the Houston Zoo).
He is a director of Reliant Energy, Inc., a publicly traded
electric services company. He is also a director and former
Chairman of the Greater Houston Partnership. He also served as a
trustee of Baylor College of Medicine from 1993 until 2004.
Mr. Barnett is a member of Enterprise Parents general
partners audit and conflicts committee and serves as
chairman of its governance committee.
W. Matt Ralls was elected a Director of Enterprise
Parents general partner in September 2004.
Mr. Ralls served as a Director of GulfTerras general
partner from May 2003 to September 2004 and is the
Senior Vice President and Chief Financial Officer of
GlobalSantaFe, an international contract drilling company. From
1997 to 2001, he was Vice President, Chief Financial Officer,
and Treasurer of Global Marine, Inc. Previously, he served as
Executive Vice President, Chief Financial Officer, and Director
of Kelley Oil and Gas Corporation and as Vice President of
Capital Markets and Corporate Development for The Meridian
Resource Corporation before joining Global Marine. He spent the
first 17 years of his career in commercial banking at the
senior management level. Mr. Ralls is a member of
Enterprise Parents general partners Audit and
Conflicts Committee and serves as Chairman of Enterprise
Parents general partners Governance Committee.
Richard S. Snell was elected a Director of Enterprise
Parents general partner in June 2000. Mr. Snell was
an attorney with the Snell & Smith, P.C. law firm
in Houston, Texas from the founding of the firm in 1993 until
May 2000. Since May 2000, he has been a partner with the law
firm of Thompson & Knight LLP in Houston, Texas.
Mr. Snell is also a certified public accountant.
Mr. Snell is a member of Enterprise Parents general
partners Governance Committee.
Richard H. Bachmann was elected Executive Vice President,
Chief Legal Officer and Secretary of Enterprise Parents
general partner and EPCO in January 1999. Mr. Bachmann
served as a director of Enterprise Parents general partner
from June 2000 to January 2004.
Michael A. Creel was elected an Executive Vice President
of Enterprise Parents general partner and EPCO in February
2001, having served as a Senior Vice President of Enterprise
Parents general partner and EPCO since November 1999. In
June 2000, Mr. Creel, a certified public accountant,
assumed the role of Chief Financial Officer of our general
partner and EPCO along with his other responsibilities.
James H. Lytal was elected Executive Vice President of
Enterprise Parents general partner in September 2004.
Mr. Lytal served as a Director of GulfTerras general
partner from August 1994 until September 2004 and as
GulfTerras President and the President of GulfTerras
general partner from July 1995 until September 2004.
He served as Senior Vice President of GulfTerra and its general
partner from August capacities in the oil and gas exploration
and production and gas pipeline industries with United Gas
Pipeline Company, Texas Oil and Gas, Inc. and American Pipeline
Company.
A.J. Teague was elected an Executive Vice President of
Enterprise Parents general partner in November 1999. From
1998 to 1999, he served as President of Tejas Natural Gas
Liquids, LLC, then a Shell affiliate.
S-22
Charles E. Crain was elected a Senior Vice President of
Enterprise Parents general partner in April 1998.
Mr. Crain served as Senior Vice President of Operations for
EPCO from 1991 to 1998.
William Ordemann joined us as a Vice President of
Enterprise Parents general partner in October 1999 and was
elected a Senior Vice President in September 2001. From January
1997 to February 1998, Mr. Ordemann was a Vice President of
Shell Midstream Enterprises, LLC, and from February 1998 to
September 1999 was a Vice President of Tejas Natural Gas
Liquids, LLC, both Shell affiliates.
Gil H. Radtke was elected a Senior Vice President of
Enterprise Parents general partner in February 2002.
Mr. Radtke joined us in connection with our purchase of
Diamond-Kochs storage and propylene fractionation assets
in January and February 2002. Before joining us, Mr. Radtke
served as President of the Diamond-Koch joint venture from 1999
to 2002, where he was responsible for its storage, propylene
fractionation, pipeline and NGL fractionation businesses. From
1997 to 1999 he was Vice President, Petrochemicals and Storage
of Diamond-Koch.
James M. Collingsworth joined Enterprise Parents
general partner as a Vice President in November 2001 and was
elected a Senior Vice President in November 2002. Previously, he
served as a board member of Texaco Canada Petroleum Inc. from
July 1998 to October 2001 and was employed by Texaco from 1991
to 2001 in various management positions, including Senior Vice
President of NGL Assets and Business Services from July 1998 to
October 2001.
James A. Cisarik was elected a Senior Vice President of
Enterprise Parents general partner in February 2003.
Mr. Cisarik joined us in April 2001 when we acquired
Acadian Gas from Shell. His primary responsibility since joining
us has been oversight of the commercial activities of our
natural gas businesses, principally those of Acadian Gas and our
Gulf of Mexico natural gas pipeline investments. From February
1999 through March 2001, Mr. Cisarik was a Senior Vice
President of Coral Energy, LLC, and from 1997 to February 1999
was Vice President, Market Development of Tejas Energy, LLC,
both affiliates of Shell, with responsibilities in market
development for their Texas and Louisiana natural gas pipeline
systems.
Lynn L. Bourdon, III was elected a Senior Vice
President of Enterprise Parents general partner on
December 10, 2003. His primary responsibility since joining
us has been oversight of all NGL supply and marketing functions.
Previously, Mr. Bourdon served as Senior Vice President and
Chief Commercial Officer of Orion Refining Corporation from July
2001 through November 2003, and was a shareholder in En*Vantage,
Inc., a business investment and energy services company serving
the petrochemicals and energy industries, from September 1999
through July 2001. He also served as a Senior Vice President of
PG&E Corporation for gas transmission commercial operations
from August 1997 through August 1999.
Bart H. Heijermans was elected Senior Vice President of
Enterprise Parents general partner in September 2004.
Mr. Heijermans served as GulfTerras Vice President,
Offshore from June 2003 until September 2004. From June 2001 to
June 2003, he served as GulfTerras Vice President,
Deepwater Project Development. He served as GulfTerras
Vice President, Operations and Engineering from August 1997 to
June 2001. Prior to joining GulfTerra, Mr. Heijermans
served in various capacities in the development and construction
of offshore oil and gas infrastructure for Shell E&P
International and Shell Research in The Netherlands, United
Kingdom and United States of America.
Richard A. Hoover was elected Senior Vice President of
Enterprise Parents general partner in September 2004.
Mr. Hoover served as GulfTerras Vice President
Western Division Commercial from January 2001 until
September 2004. This position included management of
GulfTerras San Juan and Permian Basin assets.
Mr. Hoover has held various other commercial positions
since joining GulfTerra in June 1996 including management of
assets in the Texas Gulf Coast, Anadarko Basin, Mid Continent
and Rockies. Prior to joining GulfTerra, Mr. Hoover held various
positions over 16 years in the Midstream, Independent Power
and E&P sectors with Delhi Gas Pipeline Corporation, Panda
Energy Corporation and Champlin Petroleum Corporation.
Joel D. Moxley was elected Senior Vice President of
Enterprise Parents general partner in September 2004. Mr.
Moxley served as GulfTerras Vice President, Processing and
NGL Marketing from December 2000 until September 2004. From
August 1997 to December 2000, Mr. Moxley was a Vice
President at
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PG&E Gas Transmission-Texas where he had responsibilities
for gas processing, gas supply and NGL marketing.
Mr. Moxley held various positions with natural gas, gas
processing and business development operations at Valero Energy
Corporation from July 1991 to July 1997. He spent the first
11 years of his career at Occidental Petroleum where he
served in various engineering, operations, marketing and
business development positions within the gas processing
division.
Michael J. Knesek was elected Senior Vice President and
Principal Accounting Officer of Enterprise Parents general
partner in February 2005. Mr. Knesek served as Principal
Accounting Officer and a Vice President of Enterprise
Parents general partner from August 2000 to February 2005.
Since 1990, Mr. Knesek, a certified public accountant, has
been the Controller and a Vice President of EPCO.
W. Randall Fowler was elected Senior Vice President
and Treasurer of Enterprise Parents general partner in
February 2005. Mr. Fowler, a certified public accountant
(inactive), joined Enterprise Parent as director of investor
relations in January 1999 and served as Treasurer and a Vice
President of Enterprise Parents general partner and EPCO
from August 2000 to February 2005.
S-24
DESCRIPTION OF NOTES
The notes are a new series of debt securities that will be
issued under an Indenture dated as of October 4, 2004 among
Enterprise Products Operating L.P., as issuer (the
Issuer), Enterprise Products Partners L.P., as
parent guarantor (the Parent Guarantor), any
Subsidiary Guarantors (as defined below) party thereto and Wells
Fargo Bank, N.A., as trustee (the Trustee), as
supplemented by a supplemental indenture creating the notes (the
Indenture). You can find the definition of various
terms used in this Description of Notes under Description
of Debt Securities Certain Definitions in the
accompanying prospectus.
This Description of Notes is intended to be a useful overview of
certain material provisions of the notes, the guarantees and the
Indenture. You should read carefully the section entitled
Description of Debt Securities in the accompanying
prospectus for a description of other material terms of the
notes, the guarantees and the Indenture. Since this Description
of Notes and the Description of Debt Securities in the
accompanying prospectus are only summaries, you should refer to
the notes and the Indenture, forms of which are available from
us, for a complete description of our obligations and your
rights.
References in this Description of Notes to the
Issuer or we or us mean only
Enterprise Products Operating L.P. and not its subsidiaries.
References to the Parent Guarantor mean only
Enterprise Products Partners L.P. and not its subsidiaries, and
references to the Subsidiary Guarantors mean any
subsidiaries of the Parent Guarantor that guarantee the notes in
the future. The term Guarantors includes both the
Parent Guarantor and any Subsidiary Guarantor.
In addition to this new series of notes, there are currently
outstanding under the Indenture $500 million in aggregate
principal amount of 4.000% senior notes due 2007,
$500 million in aggregate principal amount of 4.625% senior
notes due 2009, $650 million in aggregate principal amount
of 5.600% senior notes due 2014, $350 million in aggregate
principal amount of 6.650% senior notes due 2034,
$250 million in aggregate principal amount of 5.00% senior
notes due 2015 and $250 million in aggregate principal
amount of 5.75% senior notes due 2035.
General
The Notes. The notes:
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will be general unsecured, senior obligations of the Issuer; |
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will constitute a new series of debt securities issued under the
Indenture and will be initially limited to $500 million
aggregate principal amount; |
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will mature on June 1, 2010; |
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will be issued in denominations of $1,000 and integral multiples
of $1,000; |
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initially will be issued only in book-entry form represented by
one or more notes in global form registered in the name of
Cede & Co., as nominee of The Depository Trust Company
(DTC), or such other name as may be requested by an
authorized representative of DTC, and deposited with the Trustee
as custodian for DTC; and |
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will be fully and unconditionally guaranteed on an unsecured,
unsubordinated basis by the Parent Guarantor, and in certain
circumstances may be guaranteed in the future on the same basis
by one or more Subsidiary Guarantors. |
Interest. Interest on the notes will:
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accrue from June 1, 2005 at the rate of 4.95% per
annum; |
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accrue from the date of issuance or the most recent interest
payment date; |
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be payable in cash semi-annually in arrears on June 1 and
December 1 of each year, commencing on December 1,
2005; |
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be payable to holders of record on the May 15 and
November 15 immediately preceding the related interest
payment dates; and |
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be computed on the basis of a 360-day year consisting of twelve
30-day months. |
Payment and Transfer.
Initially, the notes will be issued only in global form.
Beneficial interests in notes in global form will be shown on,
and transfers of interests in notes in global form will be made
only through, records maintained by DTC and its participants.
Notes in definitive form, if any, may be presented for
registration of transfer or exchange at the office or agency
maintained by us for such purpose (which initially will be the
corporate trust office of the Trustee located at 45 Broadway,
12th Floor, New York, New York 10002).
Payment of principal of, premium, if any, and interest on notes
in global form registered in the name of DTCs nominee will
be made in immediately available funds to DTCs nominee, as
the registered holder of such global notes. If any of the notes
is no longer represented by a global note, payment of interest
on the notes in definitive form may, at our option, be made at
the corporate trust office of the Trustee indicated above or by
check mailed directly to holders at their respective registered
addresses or by wire transfer to an account designated by a
holder.
No service charge will be made for any registration of transfer
or exchange of notes, but we may require payment of a sum
sufficient to cover any transfer tax or other governmental
charge payable in connection therewith. We are not required to
register the transfer of or exchange any note selected for
redemption or for a period of 15 days before mailing a
notice of redemption of notes of the same series.
The registered holder of a note will be treated as the owner of
it for all purposes, and all references in this Description of
Notes to holders mean holders of record, unless
otherwise indicated.
Investors may hold interests in the notes outside the United
States through Euroclear or Clearstream if they are participants
in those systems, or indirectly through organizations which are
participants in those systems. Euroclear and Clearstream will
hold interests on behalf of their participants through
customers securities accounts in Euroclears and
Clearstreams names on the books of their respective
depositaries which in turn will hold such positions in
customers securities accounts in the names of the nominees
of the depositaries on the books of DTC. All securities in
Euroclear or Clearstream are held on a fungible basis without
attribution of specific certificates to specific securities
clearance accounts.
Transfers of notes by persons holding through Euroclear or
Clearstream participants will be effected through DTC, in
accordance with DTCs rules, on behalf of the relevant
European international clearing system by its depositaries;
however, such transactions will require delivery of exercise
instructions to the relevant European international clearing
system by the participant in such system in accordance with its
rules and procedures and within its established deadlines
(European time). The relevant European international clearing
system will, if the exercise meets its requirements, deliver
instructions to its depositaries to take action to effect
exercise of the notes on its behalf by delivering notes through
DTC and receiving payment in accordance with its normal
procedures for next-day funds settlement. Payments with respect
to the notes held through Euroclear or Clearstream will be
credited to the cash accounts of Euroclear participants in
accordance with the relevant systems rules and procedures,
to the extent received by its depositaries.
Replacement of Notes.
We will replace any mutilated, destroyed, stolen or lost notes
at the expense of the holder upon surrender of the mutilated
notes to the Trustee or evidence of destruction, loss or theft
of a note satisfactory to us and the Trustee. In the case of a
destroyed, lost or stolen note, we may require an indemnity
satisfactory to the Trustee and to us before a replacement note
will be issued.
Further Issuances
We may from time to time, without notice or the consent of the
holders of the notes, create and issue further notes of the same
series ranking equally and ratably with the original notes in
all respects (or in all
S-26
respects except for the payment of interest accruing prior to
the issue date of such further notes), so that such further
notes form a single series with the original notes and have the
same terms as to status, redemption or otherwise as the original
notes.
Optional Redemption
The notes will be redeemable, at our option, at any time in
whole, or from time to time in part, at a price equal to the
greater of:
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100% of the principal amount of the notes to be redeemed; or |
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the sum of the present values of the remaining scheduled
payments of principal and interest (at the rate in effect on the
date of calculation of the redemption price) on the notes to be
redeemed (exclusive of interest accrued to the date of
redemption) discounted to the Redemption Date on a semi-annual
basis (assuming a 360-day year consisting of twelve 30-day
months) at the applicable Treasury Yield plus 20 basis
points; |
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plus, in either case, accrued interest to the date of redemption
(the Redemption Date). |
The actual redemption price, calculated as provided below, will
be calculated and certified to the Trustee and us by the
Independent Investment Banker.
Notes called for redemption become due on the Redemption Date.
Notices of optional redemption will be mailed at least 30 but
not more than 60 days before the Redemption Date to each
holder of the notes to be redeemed at its registered address.
The notice of optional redemption for the notes will state,
among other things, the amount of notes to be redeemed, the
Redemption Date, the method of calculating the redemption price
and each place that payment will be made upon presentation and
surrender of notes to be redeemed. Unless we default in payment
of the redemption price, interest will cease to accrue on any
notes that have been called for redemption at the Redemption
Date. If less than all of the notes are redeemed at any time,
the Trustee will select the notes to be redeemed on a pro rata
basis or by any other method the Trustee deems fair and
appropriate. Unless we default in payment of the redemption
price, interest will cease to accrue on the Redemption Date with
respect to any notes called for optional redemption.
For purposes of determining the optional redemption price, the
following definitions are applicable:
Treasury Yield means, with respect to any Redemption
Date applicable to the notes, the rate per annum equal to the
semi-annual equivalent yield to maturity (computed as of the
third business day immediately preceding such Redemption Date)
of the Comparable Treasury Issue, assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its
principal amount) equal to the applicable Comparable Treasury
Price for such Redemption Date.
Comparable Treasury Issue means the United States
Treasury security selected by the Independent Investment Banker
as having a maturity comparable to the remaining term of the
notes to be redeemed that would be utilized, at the time of
selection and in accordance with customary financial practice,
in pricing new issues of corporate debt securities of comparable
maturity to the remaining terms of the notes to be redeemed;
provided, however, that if no maturity is within three months
before or after the maturity date for such notes, yields for the
two published maturities most closely corresponding to such
United States Treasury security will be determined and the
treasury rate will be interpolated or extrapolated from those
yields on a straight line basis rounding to the nearest month.
Independent Investment Banker means either
UBS Securities LLC (and its successors), Barclays Capital
Inc. (and its successors), Wachovia Capital Markets, LLC (and
its successors) or, if no such firm is willing and able to
select the applicable Comparable Treasury Issue, an independent
investment banking institution of national standing appointed by
the Trustee and reasonably acceptable to the Issuer.
Comparable Treasury Price means, with respect to any
Redemption Date, (a) the bid price for the Comparable
Treasury Issue (expressed as a percentage of its principal
amount) at 4:00 p.m. on the third business day preceding
such Redemption Date, as set forth on Moneyline Telerate
Page 500 (or such other
S-27
page as may replace Moneyline Telerate Page 500), or
(b) if such page (or any successor page) is not displayed
or does not contain such bid prices at such time, the average of
the Reference Treasury Dealer Quotations obtained by the Trustee
for such Redemption Date.
Reference Treasury Dealer means
(a) UBS Securities LLC (and its successors) and
(b) one other primary U.S. government securities
dealer in New York City selected by the Independent Investment
Banker (each, a Primary Treasury Dealer); provided,
however, that if either of the foregoing shall cease to be a
Primary Treasury Dealer, the Issuer will substitute therefor
another Primary Treasury Dealer.
Reference Treasury Dealer Quotations means, with
respect to each Reference Treasury Dealer and any Redemption
Date for the notes, an average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue for
the notes (expressed in each case as a percentage of its
principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m., New York City time,
on the third business day preceding such Redemption Date.
Ranking
The notes will be unsecured, unless we are required to secure
them pursuant to the limitations on liens covenant described in
the accompanying prospectus under Description of Debt
Securities Certain Covenants Limitations
on Liens. The notes will also be the unsubordinated
obligations of the Issuer and will rank equally with all other
existing and future unsubordinated indebtedness of the Issuer.
Each guarantee of the notes will be an unsecured and
unsubordinated obligation of the Guarantor and will rank equally
with all other existing and future unsubordinated indebtedness
of the Guarantor. The notes and each guarantee will effectively
rank junior to any future indebtedness of the Issuer and the
Guarantor that is both secured and unsubordinated to the extent
of the assets securing such indebtedness, and the notes will
effectively rank junior to all indebtedness and other
liabilities of the Issuers subsidiaries that are not
Subsidiary Guarantors.
On a pro forma as adjusted basis at March 31, 2005, the
Issuer had approximately $4.4 billion of consolidated
indebtedness (including $4.3 billion in senior notes
outstanding under the Indenture and another similar indenture),
and the Parent Guarantor had no indebtedness (excluding
guarantees of approximately $4.3 billion), in each case
excluding intercompany loans. Please read
Capitalization.
Parent Guarantee
The Parent Guarantor will fully and unconditionally guarantee to
each holder and the Trustee, on an unsecured and unsubordinated
basis, the full and prompt payment of principal of, premium, if
any, and interest on the notes, when and as the same become due
and payable, whether at stated maturity, upon redemption, by
declaration of acceleration or otherwise.
Potential Guarantee of Notes by Subsidiaries
Initially, the notes will not be guaranteed by any of our
Subsidiaries. In the future, however, if our Subsidiaries become
guarantors or co-obligors of our Funded Debt (as defined below),
then these Subsidiaries will jointly and severally, fully and
unconditionally, guarantee our payment obligations under the
notes. We refer to any such Subsidiaries as Subsidiary
Guarantors and sometimes to such guarantees as
Subsidiary Guarantees. Each Subsidiary Guarantor
will execute a supplement to the Indenture to effect its
guarantee.
The obligations of each Guarantor under its guarantee of the
notes will be limited to the maximum amount that will not result
in the obligations of the Guarantor under the guarantee
constituting a fraudulent conveyance or fraudulent transfer
under federal or state law, after giving effect to:
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all other contingent and fixed liabilities of the Guarantor; and |
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any collection from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other
Guarantor under its guarantee. |
Funded Debt means all Indebtedness maturing one year
or more from the date of the creation thereof, all Indebtedness
directly or indirectly renewable or extendible, at the option of
the debtor, by its terms or by
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the terms of any instrument or agreement relating thereto, to a
date one year or more from the date of the creation thereof, and
all Indebtedness under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period
of one year or more.
Addition and Release of Subsidiary Guarantors
The guarantee of any Guarantor may be released under certain
circumstances. If we exercise our legal or covenant defeasance
option with respect to notes of any series as described in the
accompanying prospectus under Description of Debt
Securities Defeasance and Discharge, then any
Guarantee will be released with respect to that series. Further,
if no Default has occurred and is continuing under the
Indenture, a Subsidiary Guarantor will be unconditionally
released and discharged from its guarantee:
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automatically upon any sale, exchange or transfer, whether by
way of merger or otherwise, to any person that is not our
affiliate, of all of the Parent Guarantors direct or
indirect limited partnership or other equity interests in the
Subsidiary Guarantor; |
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automatically upon the merger of the Subsidiary Guarantor into
us or any other Guarantor or the liquidation and dissolution of
the Subsidiary Guarantor; or |
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following delivery of a written notice by us to the Trustee,
upon the release of all guarantees or other obligations of the
Subsidiary Guarantor with respect to any Funded Debt of ours,
except the notes. |
If at any time following any release of a Subsidiary Guarantor
from its initial guarantee of the notes pursuant to the third
bullet point in the preceding paragraph, the Subsidiary
Guarantor again guarantees or co-issues any of our Funded Debt
(other than our obligations under the Indenture), then the
Parent Guarantor will cause the Subsidiary Guarantor to again
guarantee the notes in accordance with the Indenture.
No Sinking Fund
We are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
S-29
ERISA CONSIDERATIONS
The notes may not be sold to, and each purchaser by its purchase
of the notes will be deemed to have represented and covenanted
that it is not acquiring the notes for or on account of any
employee benefit plan (as defined in Section 3 of the
Employee Retirement Income Security Act of 1974
(ERISA)) and/or plan (as defined in
Section 4975(e)(1) of the Internal Revenue Code of 1986),
except that such a purchase for or on account of an employee
benefit plan and/or plan shall be permitted to the extent:
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such purchase is being made by or on behalf of a bank collective
investment fund maintained by the purchaser in which no plan
(together with any other plans maintained by the same employer
or employee organization) has an interest in excess of 10% of
the total assets in such collective investment fund and the
conditions of Section III of Prohibited Transaction Class
Exemption 91-38 issued by the Department of Labor are
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such purchase is made by or on behalf of an insurance company
pooled separate account maintained by the purchaser in which, at
any time while the notes offered hereby are outstanding, no plan
(together with any other plans maintained by the same employer
or employee organization) has an interest in excess of 10% of
the total of all assets in such pooled separate account and the
conditions of Section III of Prohibited Transaction Class
Exemption 90-1 issued by the Department of Labor are
satisfied; |
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such purchase is made on behalf of a plan by (1) an
investment advisor registered under the Investment Advisers Act
of 1940 that had as of the last day of its most recent fiscal
year total assets under its management and control in excess of
$50.0 million and had stockholders or partners
equity in excess of $0.75 million, as shown in its most
recent balance sheet prepared in accordance with generally
accepted accounting principles, (2) a bank as defined in
Section 202(a)(2) of the Investment Advisers Act of 1940
with equity capital in excess of $1.0 million as of the
last day of its most recent fiscal year or (3) an insurance
company which is qualified under the laws of more than one state
to manage, acquire or dispose of any assets of an employee
benefit plan and/or a plan, which insurance company has as of
the last day of its most recent fiscal year, net worth in excess
of $1.0 million and which is subject to supervision and
examination by state authority having supervision over insurance
companies, and in any case, such investment advisor, bank or
insurance company is otherwise a qualified professional asset
manager, as such term is used in Prohibited Transaction
Exemption 84-14 issued by the Department of Labor, and the
assets of such plan when combined with the assets of the other
plans established or maintained by the same employer (or
affiliate thereof) or employee organization and managed by such
investment advisor, bank or insurance company, do not represent
more than 20% of the total client assets managed by such
investment advisor, bank or insurance company and the conditions
of Section I of such exemption are otherwise satisfied; |
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such plan is a governmental plan (as defined in Section 3
of ERISA) which is not subject to the provisions of Title I
of ERISA or Section 4975 of the Internal Revenue Code; |
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such purchase is made by or on behalf of an insurance company
using the assets of its general account, the reserves and
liabilities for the general account contracts held by or on
behalf of any plan, together with any other plans maintained by
the same employer (or its affiliates) or employee organization
do not exceed 10% of the total reserves and liabilities of the
insurance company general account (exclusive of separate account
liabilities), plus surplus as set forth in the National
Association of Insurance Commissioners Annual Statement filed
with the state of domicile of the insurer, in accordance with
Prohibited Transaction Class Exemption 95-60, and the other
applicable conditions of such exemption are otherwise satisfied; |
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such purchase is made by an in-house asset manager within the
meaning of Part IV(a) of Prohibited Transaction
Exemption 96-23 issued by the Department of Labor, and such
manager has made or properly authorized the decision for such
plan to purchase the notes offered hereby, under circumstances
such that Prohibited Transaction Exemption 96-23 is
applicable to the purchase and holding of the notes; or |
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such purchase would not otherwise constitute a non-exempt
prohibited transaction. |
S-30
MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF NOTES
The following is a general discussion of the material U.S.
federal income and estate tax considerations with respect to the
ownership and disposition of notes applicable to non-U.S.
holders. For purposes of this discussion a non-U.S.
holder is any beneficial owner of notes (other than a
partnership) that is not for U.S. federal income tax purposes:
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a citizen or resident of the United States, |
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a corporation or other entity taxed as a corporation for U.S.
federal income tax purposes created or organized in or under the
laws of the United States, any state thereof or the District of
Columbia, |
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an estate, the income of which is includible in gross income for
U.S. federal income tax purposes regardless of its source, or |
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a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more United States persons (as defined in the Internal
Revenue Code of 1986, as amended) have the authority to control
all substantial decisions of the trust, or that has a valid
election in effect under applicable U.S. Treasury Regulations to
be treated as a United States person. |
In addition, in the case of notes held by a partnership
(including an entity treated as a partnership for U.S. federal
income tax purposes), the tax treatment of a partner generally
will depend upon the status of the partner as a non-U.S. holder
and the activities of the partnership. This discussion is based
on provisions of the Internal Revenue Code, Treasury Regulations
promulgated thereunder, judicial opinions, published positions
of the Internal Revenue Service (IRS), and other
applicable authorities now in effect, all of which are subject
to change, possibly with retroactive effect. This discussion
only applies to you if you are a non-U.S. holder who holds the
notes as capital assets. This discussion does not address all
aspects of U.S. federal income and estate taxation or any
aspects of state, local, or non-U.S. taxes, nor does it consider
any specific tax considerations that may apply to particular
non-U.S. holders that may be subject to special treatment under
the U.S. federal tax laws, such as insurance companies,
tax-exempt organizations, financial institutions, brokers,
dealers in securities, and U.S. expatriates.
You are urged to consult your tax advisor regarding the U.S.
federal, state, local and non-U.S. income and other tax
considerations of directly or indirectly acquiring, holding and
disposing of notes.
Interest on the Notes
If you are a non-U.S. holder, payments of interest on the notes
that are not effectively connected with a U.S. trade or business
generally will be exempt from withholding of U.S. federal income
tax under the portfolio interest exemption if you
properly certify as to your foreign status as described below,
and:
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you do not own, actually or constructively (including through an
interest in Enterprise Parent), 10% or more of the interests in
our capital or profits; and |
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you are not a controlled foreign corporation that is
related to us. |
The portfolio interest exemption and several of the special
rules for non-U.S. holders described below generally apply only
if you appropriately certify as to your foreign status. You can
generally meet this certification requirement by providing a
properly executed IRS Form W-8BEN or appropriate substitute
form to us, or our paying agent. If you hold the notes through a
financial institution or other agent acting on your behalf, you
may be required to provide appropriate certifications to the
agent. Your agent will then generally be required to provide
appropriate certifications to us or our paying agent, either
directly or through other intermediaries. Special rules apply to
foreign partnerships, estates and trusts, and in certain
circumstances certifications as to the foreign status of
partners, trust owners or beneficiaries may have to be provided
to us or our paying agent. In addition, special rules apply to
qualified intermediaries that enter into withholding agreements
with the IRS.
S-31
If you cannot satisfy the requirements described above, payments
of interest made to you will be subject to the 30% U.S. federal
withholding tax, unless you provide us with a properly executed
IRS Form W-8BEN (or successor form) claiming an exemption
from (or a reduction of) withholding under the benefits of a tax
treaty, or the payments of interest are effectively connected
with your conduct of a trade or business in the United States
and you meet the certification requirements described below. See
Income or Gain Effectively Connected With a
U.S. Trade or Business.
Sale or Other Taxable Disposition of Notes
You generally will not be subject to U.S. federal income tax on
any gain realized on the sale, redemption, exchange, retirement
or other taxable disposition of a note unless:
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the gain is effectively connected with the conduct by you of a
U.S. trade or business (and in the case of an applicable tax
treaty, is attributable to your permanent establishment in the
United States); or |
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you are an individual who has been present in the United States
for 183 days or more in the taxable year of disposition and
certain other requirements are met. |
Income or Gain Effectively Connected With a U.S.
Trade or Business
The preceding discussion of the tax consequences of the
purchase, ownership and disposition of notes by you generally
assumes that you are not engaged in a U.S. trade or business. If
any interest on the notes or gain from the sale, exchange or
other taxable disposition of the notes is effectively connected
with a U.S. trade or business conducted by you, then the income
or gain will be subject to U.S. federal income tax at regular
graduated income tax rates, but will not be subject to
withholding tax if certain certification requirements are
satisfied. You can generally meet the certification requirements
by providing a properly executed IRS Form W-8ECI or
appropriate substitute form to us, or our paying agent. If you
are eligible for the benefits of a tax treaty between the United
States and your country of residence, any effectively
connected income or gain will generally be subject to U.S.
federal income tax only if it is also attributable to a
permanent establishment maintained by you in the United States.
If you are a foreign corporation, any income or gain that is
effectively connected with your U.S. trade or business (and in
the case of an applicable tax treaty, is attributable to your
permanent establishment in the United States) also may be
subject to a branch profits tax at a 30% rate,
although an applicable tax treaty may provide for a
lower rate.
U.S. Federal Estate Tax
If you are an individual and are not a resident of the United
States (as defined for U.S. federal estate tax purposes),
and interest on the notes qualifies for the portfolio interest
exemption under the rules described above, the notes will not be
included in your estate for U.S. federal estate tax purposes.
|
|
|
Information Reporting and Backup Withholding |
Payments to you of interest on a note, and amounts withheld from
such payments, if any, generally will be required to be reported
to the IRS and to you.
U.S. backup withholding tax generally will not apply to payments
to you of interest and principal if the statement described in
Interest on the Notes is duly provided
by you or you otherwise establish an exemption, provided that we
do not have actual knowledge or reason to know that you are a
United States person.
Payment of the proceeds of a sale of a note effected by the U.S.
office of a U.S. or foreign broker will be subject to
information reporting requirements and backup withholding unless
you properly certify under penalties of perjury as to your
foreign status and certain other conditions are met or you
otherwise establish an exemption. Information reporting
requirements and backup withholding generally will not apply to
any payment of the proceeds of the sale of a note effected
outside the United States by a foreign office of a broker.
However, unless such a broker has documentary evidence in its
records that you are a non-U.S. holder and
S-32
certain other conditions are met, or you otherwise establish an
exemption, information reporting will apply to a payment of the
proceeds of the sale of a note effected outside the United
States by such a broker if it:
|
|
|
|
|
is a United States person; |
|
|
|
derives 50% or more of its gross income for certain periods from
the conduct of a trade or business in the United States; |
|
|
|
is a controlled foreign corporation for U.S. federal income tax
purposes; or |
|
|
|
is a foreign partnership that, at any time during its taxable
year, has more than 50% of its income or capital interests owned
by United States persons or is engaged in the conduct of a U.S.
trade or business. |
Any amount withheld under the backup withholding rules may be
credited against your U.S. federal income tax liability and any
excess may be refundable if the proper information is provided
to the IRS.
The preceding discussion of certain U.S. federal income tax
considerations is for general information only and is not tax
advice. Each prospective investor should consult its own tax
advisor regarding the particular federal, state, local and
non-U.S. tax consequences of purchasing, holding, and disposing
of our notes, including the consequences of any proposed change
in applicable laws.
S-33
UNDERWRITING
We are selling the notes to the underwriters named in the table
below pursuant to an underwriting agreement dated the date of
this prospectus supplement. We have agreed to sell to each of
the underwriters, and each of the underwriters has severally
agreed to purchase, the principal amount of notes set forth
opposite that underwriters name in the table below. UBS
Securities LLC, Barclays Capital Inc. and Wachovia Capital
Markets, LLC are acting as joint book-running managers, and UBS
Securities LLC is acting as representative of the underwriters.
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|
|
|
|
|
|
|
Principal | |
|
|
Amount of | |
Name of Underwriter |
|
Notes | |
|
|
| |
UBS Securities LLC
|
|
$ |
125,000,000 |
|
Barclays Capital Inc.
|
|
|
125,000,000 |
|
Wachovia Capital Markets, LLC
|
|
|
125,000,000 |
|
BNP Paribas Securities Corp.
|
|
|
25,000,000 |
|
HVB Capital Markets, Inc.
|
|
|
25,000,000 |
|
Lazard Capital Markets LLC
|
|
|
25,000,000 |
|
Greenwich Capital Markets, Inc.
|
|
|
25,000,000 |
|
Scotia Capital (USA) Inc.
|
|
|
25,000,000 |
|
|
|
|
|
|
Total
|
|
$ |
500,000,000 |
|
|
|
|
|
Under the terms and conditions of the underwriting agreement,
the underwriters must buy all of the notes if they buy any of
them. The underwriting agreement provides that the obligations
of the underwriters pursuant thereto are subject to certain
conditions. In the even of a default by an underwriter, the
underwriting agreement provides that, in certain circumstances,
the purchase commitments of the non-defaulting underwriters may
be increased or the underwriting agreement may be terminated.
The underwriters will sell the notes to the public when and if
the underwriters buy the notes from us.
The notes are offered for sale only in those jurisdictions where
it is legal to offer them.
Commissions and Expenses
We have been advised by the underwriters that the underwriters
propose to offer the notes directly to the public at the
offering price to the public set forth on the cover page of this
prospectus supplement and to dealers (who may include the
underwriters) at this price to the public less a concession not
in excess of 0.350% of the principal amount per note. The
underwriters may allow, and the dealers may reallow, a
concession not in excess of 0.250% of the principal amount per
note on sale to certain brokers and dealers. If all of the notes
are not sold at the public offering price, the underwriters may
change the offering price and other selling terms.
We estimate that total expenses of the offering, other than
underwriting discounts and commissions, will be approximately
$0.5 million. This estimate includes expenses relating to
the filing fee for the registration statement, printing, rating
agency fees, trustees fees, legal fees and other expenses.
Price Stabilization, Short Positions and Penalty Bids
In order to facilitate the offering of the notes, the
underwriters may engage in transactions that stabilize, maintain
or otherwise affect the price of the notes. Specifically, the
underwriters may over-allot in connection with the offering,
creating a short position in the notes for their own accounts.
In addition, to cover short positions or to stabilize the price
of the notes, the underwriters may bid for, and purchase, the
notes in the open market. Finally, the underwriters may reclaim
selling concessions allowed to a particular dealer for
distributing the notes in the offering if the dealer repurchases
previously distributed notes in transactions to cover short
positions, in stabilization transactions or otherwise. Any of
these activities may stabilize or maintain the market price of
the notes above independent market levels. The underwriters are
not required to
S-34
engage in these activities and may end any of these activities
at any time. These transactions may be effected in the
over-the-counter market or elsewhere.
Neither we nor any of the underwriters makes any representation
or prediction as to the direction or magnitude of any effect
that the transactions described above may have on the price of
the notes. In addition, neither we nor any of the underwriters
makes any representation that the underwriters will engage in
such transactions or that such transactions, once commenced,
will not be discontinued without notice.
Delivery
We expect to deliver the notes against payment for the notes on
or about the date specified in the last paragraph of the cover
page of this prospectus supplement, which will be the fourth
business day following the date of the pricing of the notes.
Under Rule 15c6-1 of the Exchange Act, trades in the
secondary market generally are required to settle in three
business days, unless the parties to a trade expressly agree
otherwise. Accordingly, purchasers who wish to trade notes on
the date of pricing or the next succeeding business day will be
required, by virtue of the fact that the notes initially will
settle in T+4, to specify alternative settlement arrangements to
prevent a failed settlement.
Affiliations
Some of the underwriters and their affiliates have performed
investment banking, commercial banking and advisory services for
us and our affiliates from time to time for which they have
received customary fees and expenses. The underwriters and their
affiliates may, from time to time in the future, engage in
transactions with and perform services for us and our affiliates
in the ordinary course of business.
Affiliates of UBS Securities LLC, Barclays Capital Inc.,
Wachovia Capital Markets, LLC, BNP Paribas Securities Corp., HVB
Capital Markets, Inc., Greenwich Capital Markets, Inc. and
Scotia Capital (USA) Inc. and an affiliate of Mitsubishi
Securities (USA), Inc., with whom Lazard Capital Markets LLC has
an advisory relationship, are lenders under our multi-year
revolving credit facility. These affiliates will receive their
respective share of any repayment by us of amounts outstanding
under the multi-year revolving credit facility from the proceeds
of this offering. Because we intend to use more than 10% of the
net proceeds from this offering to reduce indebtedness owed by
us to affiliates of the underwriters, this offering is being
conducted in compliance with the requirements of
Rule 2710(h) of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Lazard Capital Markets LLC has entered into an agreement with
Mitsubishi Securities (USA), Inc. pursuant to which Mitsubishi
provides certain advisory and/or other services to Lazard
Capital Markets, including in respect of this offering. In
return for the provision of such services by Mitsubishi to
Lazard Capital Markets, Lazard Capital Markets will pay to
Mitsubishi a mutually agreed upon fee.
Indemnification
We, our general partner and certain of our affiliates have
agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, as amended, and to contribute to payments that may be
required to be made in respect of these liabilities.
Electronic Distribution
A prospectus in electronic format may be made available by one
or more of the underwriters or their affiliates. The
representatives may agree to allocate a number of notes to
underwriters for sale to their online brokerage account holders.
The representatives will allocate a number of the notes to
underwriters that may make Internet distributions on the same
basis as other allocations. In addition, notes may be sold by
the underwriters to securities dealers who resell notes to
online brokerage account holders.
Other than the prospectus in electronic format, the information
on any underwriters web site and any information contained
in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this
prospectus forms a part, has not been approved and/or endorsed
by us or any underwriter in its capacity as an underwriter and
should not be relied upon by investors.
S-35
LEGAL MATTERS
Certain legal matters with respect to the notes will be passed
upon for us by Vinson & Elkins L.L.P., Houston, Texas.
Certain legal matters with respect to the notes will be passed
upon for the underwriters by Andrews Kurth LLP, Houston,
Texas. Attorneys at Vinson & Elkins L.L.P. who have
participated in the preparation of this prospectus supplement,
the accompanying prospectus, the registration statement of which
they are a part and the related transaction documents
beneficially own approximately 3,200 common units of
Enterprise Parent.
EXPERTS
The (1) consolidated financial statements and the related
consolidated financial statement schedule and managements
report on the effectiveness of internal control over financial
reporting of Enterprise Products Partners L.P. and subsidiaries
incorporated in this prospectus supplement, by reference from
Enterprise Products Partners L.P.s Annual Report on
Form 10-K for the year ended December 31, 2004 filed
with the Securities and Exchange Commission on March 15,
2005, and (2) the balance sheet of Enterprise Products GP,
LLC as of December 31, 2004, incorporated in this
prospectus supplement by reference from Enterprise Products
Partners L.P.s Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 31, 2005,
have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in
their reports, which are incorporated herein by reference, and
have been so incorporated in reliance upon the reports of such
firm given upon their authority as experts in accounting and
auditing.
The (1) consolidated financial statements of GulfTerra
Energy Partners, L.P. (GulfTerra), (2) the
financial statements of Poseidon Oil Pipeline Company, L.L.C.
(Poseidon) and (3) the combined financial
statements of El Paso Hydrocarbons, L.P. and El Paso
NGL Marketing Company, L.P. (the Companies) all
incorporated in this prospectus supplement by reference to
Enterprise Products Partners L.P.s Current Reports on
Form 8-K dated April 20, 2004 for (1) and (2) and
April 16, 2004 for (3), have been so incorporated in
reliance on the reports (which (i) report on the
consolidated financial statements of GulfTerra contains an
explanatory paragraph relating to GulfTerras agreement to
merge with Enterprise Products Partners L.P. as described in
Note 2 to the consolidated financial statements,
(ii) report on the financial statements of Poseidon
contains an explanatory paragraph relating to Poseidons
restatement of its prior year financial statements as described
in Note 1 to the financial statements, and
(iii) report on the combined financial statements of the
Companies contains an explanatory paragraph relating to the
Companies significant transactions and relationships with
affiliated entities as described in Note 5 to the combined
financial statements) of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
Information derived from the report of Netherland,
Sewell & Associates, Inc., independent petroleum
engineers and geologists, with respect to GulfTerras
estimated oil and natural gas reserves incorporated in this
prospectus supplement and accompanying base prospectuses by
reference to the Current Report on Form 8-K dated
April 20, 2004 of Enterprise Products Partners L.P. has
been so incorporated in reliance on the authority of said firm
as experts with respect to such matters contained in their
report.
INCORPORATION OF DOCUMENTS BY REFERENCE
The Commission allows us to incorporate by reference into this
prospectus supplement and the accompanying prospectus the
information we file with it, which means that we can disclose
important information to you by referring you to those
documents. The information incorporated by reference is
considered to be part of this prospectus supplement and the
accompanying prospectus, and later information that we file with
the Commission will automatically update and supersede this
information. We incorporate by reference the documents listed
below and any future filings we make with the Commission under
section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until our offering is completed
S-36
(other than information furnished under Items 2.02, 7.01, 9
or 12 of any Form 8-K that is listed below or is filed in
the future and which is not deemed filed under the Exchange Act):
|
|
|
|
|
Our Annual Report on Form 10-K for the year ended
December 31, 2004, Commission File No. 1-14323; |
|
|
|
Quarterly Report on Form 10-Q for the quarter ended
March 31, 2005, Commission File No. 1-14323; |
|
|
|
Current Reports on Form 8-K filed with the Commission on
April 16, 2004, April 20, 2004, August 11, 2004,
January 4, 2005, January 18, 2005, February 11,
2005, February 14, 2005, February 16, 2005,
March 3, 2005, March 23, 2005, March 31, 2005 and
April 12, 2005, Commission File Nos. 1-14323; and |
|
|
|
Current Report on Form 8-K filed with the Commission on
September 30, 2004, as amended by the Current Reports on
Form 8-K/ A filed with the Commission on October 5,
2004 (Amendment No. 1), October 18, 2004 (Amendment
No. 2), December 3, 2004 (Amendment No. 3),
December 6, 2004 (Amendment No. 4) and
December 27, 2004 (Amendment No. 5), Commission File
Nos. 1-14323. |
FORWARD-LOOKING STATEMENTS
This prospectus supplement, the related prospectus and some of
the documents we have incorporated herein and therein by
reference contain various forward-looking statements and
information that are based on our beliefs and those of our
general partner, as well as assumptions made by and information
currently available to us. These forward-looking statements are
identified as any statement that does not relate strictly to
historical or current facts. When used in this prospectus
supplement, the accompanying prospectus or the documents we have
incorporated herein or therein by reference, words such as
anticipate, project, expect,
plan, goal, forecast,
intend, could, believe,
may, and similar expressions and statements
regarding our plans and objectives for future operations, are
intended to identify forward-looking statements. Although we and
our general partner believe that such expectations reflected in
such forward-looking statements are reasonable, neither we nor
our general partner can give assurances that such expectations
will prove to be correct. Such statements are subject to a
variety of risks, uncertainties and assumptions. If one or more
of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, our actual results may vary
materially from those anticipated, estimated, projected or
expected. Among the key risk factors that may have a direct
bearing on our results of operations and financial condition are:
|
|
|
|
|
fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces; |
|
|
|
the effects of our debt level on our future financial and
operating flexibility; |
|
|
|
a reduction in demand for our products by the petrochemical,
refining or heating industries; |
|
|
|
a decline in the volumes of NGLs delivered by our facilities; |
|
|
|
the failure of our credit risk management efforts to adequately
protect us against customer non-payment; |
|
|
|
terrorist attacks aimed at our facilities; |
|
|
|
the failure to successfully integrate our and GulfTerras
respective business operations, or our failure to successfully
integrate any other future assets or companies we
acquire; and |
|
|
|
the failure to realize the anticipated cost savings, synergies
and other benefits associated with the GulfTerra merger. |
You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review the risk factors described under Risk Factors
in this prospectus supplement and the accompanying prospectus.
S-37
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
Enterprise Products Partners L.P. Unaudited Pro Forma Condensed
Consolidated Financial Statements:
|
|
|
|
|
Introduction
|
|
|
F-2 |
|
Unaudited Pro Forma Condensed Statement of Consolidated
Operations for the three months ended March 31, 2005
|
|
|
F-4 |
|
Unaudited Pro Forma Condensed Statement of Consolidated
Operations for the year ended December 31, 2004
|
|
|
F-5 |
|
Unaudited Pro Forma Condensed Consolidated Balance Sheet at
March 31, 2005
|
|
|
F-6 |
|
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
|
|
|
F-7 |
|
F-1
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Introduction
Unless the context requires otherwise, for purposes of this pro
forma presentation, references to we,
our, us, the Company or
Enterprise are intended to mean the consolidated
business and operations of Enterprise Products Partners L.P.
References to Operating Partnership are intended to
mean the consolidated business and operations of our primary
operating subsidiary, Enterprise Products Operating L.P.
References to GulfTerra are intended to mean the
consolidated business and operations of GulfTerra Energy
Partners, L.P. References to El Paso are
intended to mean El Paso Corporation, its subsidiaries and
affiliates. References to EPCO are intended to mean
EPCO, Inc., an affiliate of the Company and our ultimate parent
company.
The unaudited pro forma condensed consolidated financial
statements give effect to the following transactions:
|
|
|
|
|
The completion by Enterprise of its merger with GulfTerra and
related transactions on September 30, 2004 (the
GulfTerra Merger). The GulfTerra Merger transactions
took place in three steps as described beginning on
page F-7. In addition, this pro forma financial information
reflects the related sale of our 50% equity interest in Starfish
Pipeline Company, LLC (Starfish) on March 31,
2005. |
|
|
|
The issuance by our Operating Partnership of $2 billion of
senior unsecured notes on October 4, 2004. Net proceeds
from this offering were used to reduce debt amounts outstanding
under our $2.25 billion 364-Day Acquisition Credit
Facility, which was used to fund certain payment obligations
related to the GulfTerra Merger. |
|
|
|
The completion on October 5, 2004, of our Operating
Partnerships four cash tender offers for $915 million
in principal amount of GulfTerras senior and senior
subordinated notes. |
|
|
|
The sale of 17,250,000 common units in both May 2004 and August
2004 by Enterprise. In addition, Enterprise issued a total of
5,183,591 common units in connection with its distribution
reinvestment plan (DRIP) and related programs during
2004. |
|
|
|
The conversion of 80 Series F2 convertible units, which
were originally issued by GulfTerra, into 1,950,317 Enterprise
common units during the fourth quarter of 2004. |
|
|
|
The sale of 17,250,000 common units to the public in the first
quarter of 2005 (including the over-allotment of 2,250,000
common units issued in March 2005) at an offering price of
$27.05 per unit. The net proceeds from this offering were
used to reduce debt amounts outstanding under our 364-Day
Acquisition Credit Facility and Multi-Year Revolving Credit
Facility (collectively referred to as the Merger Credit
Facilities). |
|
|
|
The issuance of 1,926,810 common units by Enterprise during the
first five months of 2005 in connection with its DRIP and
related programs. |
|
|
|
The issuance by our Operating Partnership in February 2005 of
$250 million in principal amount of 5.00% senior notes
due March 2015 and $250 million in principal amount of
5.75% senior notes due March 2035 and related use of
proceeds. |
|
|
|
The issuance by our Operating Partnership in this offering of
$500 million in principal amount of 4.95% senior notes
due June 2010 and related use of proceeds. |
The unaudited pro forma condensed statement of consolidated
operations for the three months ended March 31, 2005 and
for the year ended December 31, 2004 assumes the pro forma
transactions noted herein occurred on January 1, 2004 (to
the extent not already reflected in the historical statement of
consolidated operations of each entity). The unaudited pro forma
condensed consolidated balance sheet shows the
F-2
financial effects of the pro forma transactions as if they had
occurred on March 31, 2005 (to the extent not already
recorded in the historical balance sheet of Enterprise).
Dollar amounts (except per unit amounts) presented in the
tabular data within these pro forma condensed consolidated
financial statements and footnotes are stated in millions of
dollars, unless otherwise indicated.
The unaudited pro forma condensed consolidated financial
statements and related pro forma information are based on
assumptions that Enterprise believes are reasonable under the
circumstances and are intended for informational purposes only.
They are not necessarily indicative of the financial results
that would have occurred if the transactions described herein
had taken place on the dates indicated, nor are they indicative
of the future consolidated results of the combined company.
The unaudited pro forma condensed consolidated financial
statements of Enterprise should be read in conjunction with and
are qualified in their entirety by reference to the notes
accompanying such unaudited pro forma condensed consolidated
financial statements and with the historical consolidated
financial statements and related notes of Enterprise included in
its annual report on Form 10-K for the year ended
December 31, 2004 and quarterly report on Form 10-Q
for the three months ended March 31, 2005, which have been
filed by Enterprise with the Securities and Exchange Commission
(the Commission, File No. 1-14323).
The condensed consolidated financial statements of GulfTerra
included herein are qualified in their entirety by reference to
the historical consolidated financial statements and related
notes of GulfTerra for the three and nine months ended
September 30, 2004, contained in Enterprises Current
Report on Form 8-K/ A (Amendment No. 5) filed with the
Commission on December 27, 2004.
The combined financial statements for the eight months ended
August 31, 2004 of El Paso Hydrocarbons, L.P. and
El Paso NGL Marketing Company, L.P. (collectively, the
South Texas midstream assets) included herein were
derived from the historical accounts and records of these
entities.
F-3
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED
OPERATIONS
For the Three Months Ended March 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments | |
|
Adjusted | |
|
|
Enterprise | |
|
Pro Forma | |
|
Enterprise | |
|
Due to this | |
|
Enterprise | |
|
|
Historical | |
|
Adjustments | |
|
Pro Forma | |
|
Offering | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
2,555.5 |
|
|
|
|
|
|
$ |
2,555.5 |
|
|
|
|
|
|
$ |
2,555.5 |
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
2,383.6 |
|
|
$ |
5.5 |
(s) |
|
|
2,389.1 |
|
|
|
|
|
|
|
2,389.1 |
|
General and administrative
|
|
|
14.7 |
|
|
|
|
|
|
|
14.7 |
|
|
|
|
|
|
|
14.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,398.3 |
|
|
|
5.5 |
|
|
|
2,403.8 |
|
|
|
|
|
|
|
2,403.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN INCOME OF UNCONSOLIDATED AFFILIATES
|
|
|
8.3 |
|
|
|
(0.3 |
)(s) |
|
|
8.0 |
|
|
|
|
|
|
|
8.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
165.5 |
|
|
|
(5.8 |
) |
|
|
159.7 |
|
|
|
|
|
|
|
159.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(53.4 |
) |
|
|
2.3 |
(o) |
|
|
(48.9 |
) |
|
$ |
(3.2 |
)(u) |
|
|
(52.3 |
) |
|
|
|
|
|
|
|
2.3 |
(q) |
|
|
|
|
|
|
(0.2 |
)(v) |
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
)(r) |
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
0.9 |
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(52.5 |
) |
|
|
4.5 |
|
|
|
(48.0 |
) |
|
|
(3.4 |
) |
|
|
(51.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
(1.8 |
) |
|
|
|
|
|
|
(1.8 |
) |
|
|
|
|
|
|
(1.8 |
) |
MINORITY INTEREST
|
|
|
(1.9 |
) |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
|
$ |
109.3 |
|
|
$ |
(1.3 |
) |
|
$ |
108.0 |
|
|
$ |
(3.4 |
) |
|
$ |
104.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME ALLOCATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
93.8 |
|
|
|
|
|
|
$ |
91.8 |
|
|
|
|
|
|
$ |
88.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner
|
|
$ |
15.5 |
|
|
|
|
|
|
$ |
16.2 |
|
|
|
|
|
|
$ |
16.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER UNIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units used in denominator
|
|
|
373.5 |
|
|
|
9.4 |
(o) |
|
|
384.0 |
|
|
|
|
|
|
|
384.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
(p) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
(t) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.25 |
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER UNIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units used in denominator
|
|
|
374.2 |
|
|
|
9.4 |
(o) |
|
|
384.7 |
|
|
|
|
|
|
|
384.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7 |
(p) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
(t) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.25 |
|
|
|
|
|
|
$ |
0.24 |
|
|
|
|
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
F-4
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED
OPERATIONS
For the Year Ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Midstream | |
|
|
|
Enterprise | |
|
Adjustments | |
|
Adjusted | |
|
|
Enterprise | |
|
GulfTerra | |
|
Assets | |
|
Pro Forma | |
|
Pro | |
|
Due to this | |
|
Enterprise | |
|
|
Historical | |
|
Historical | |
|
Historical | |
|
Adjustments | |
|
Forma | |
|
Offering | |
|
Pro Forma | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
REVENUES
|
|
$ |
8,321.2 |
|
|
$ |
676.7 |
|
|
$ |
1,103.2 |
|
|
$ |
(426.6 |
)(j) |
|
$ |
9,615.1 |
|
|
|
|
|
|
$ |
9,615.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59.4 |
)(n) |
|
|
|
|
|
|
|
|
|
|
|
|
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses
|
|
|
7,904.3 |
|
|
|
432.3 |
|
|
|
1,058.3 |
|
|
|
103.6 |
(h) |
|
|
8,951.1 |
|
|
|
|
|
|
|
8,951.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.0 |
)(i) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(421.5 |
)(j) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46.5 |
)(m) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(59.4 |
)(n) |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
46.7 |
|
|
|
|
|
|
|
|
|
|
|
46.5 |
(m) |
|
|
93.2 |
|
|
|
|
|
|
|
93.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,951.0 |
|
|
|
432.3 |
|
|
|
1,058.3 |
|
|
|
(397.3 |
) |
|
|
9,044.3 |
|
|
|
|
|
|
|
9,044.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY IN INCOME OF UNCONSOLIDATED AFFILIATES
|
|
|
52.8 |
|
|
|
|
|
|
|
|
|
|
|
(32.0 |
)(k) |
|
|
24.9 |
|
|
|
|
|
|
|
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.6 |
(m) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.5 |
)(s) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME
|
|
|
423.0 |
|
|
|
244.4 |
|
|
|
44.9 |
|
|
|
(116.6 |
) |
|
|
595.7 |
|
|
|
|
|
|
|
595.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
Interest expense
|
|
|
(155.7 |
) |
|
|
(82.7 |
) |
|
|
|
|
|
|
5.1 |
(a) |
|
|
(222.3 |
) |
|
$ |
(13.1 |
)(u) |
|
|
(236.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51.9 |
)(d) |
|
|
|
|
|
|
(0.9 |
)(v) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21.2 |
)(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
(f) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56.3 |
(g) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.8 |
(o) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.5 |
(q) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.5 |
)(r) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss due to early redemptions of debt
|
|
|
|
|
|
|
(16.3 |
) |
|
|
|
|
|
|
|
|
|
|
(16.3 |
) |
|
|
|
|
|
|
(16.3 |
) |
Earnings from unconsolidated affiliates
|
|
|
|
|
|
|
7.6 |
|
|
|
|
|
|
|
(7.6 |
)(m) |
|
|
|
|
|
|
|
|
|
|
|
|
Other, net
|
|
|
2.1 |
|
|
|
0.5 |
|
|
|
(0.1 |
) |
|
|
1.2 |
(l) |
|
|
3.7 |
|
|
|
|
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(153.6 |
) |
|
|
(90.9 |
) |
|
|
(0.1 |
) |
|
|
9.7 |
|
|
|
(234.9 |
) |
|
|
(14.0 |
) |
|
|
(248.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROVISION FOR INCOME TAXES
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.8 |
) |
|
|
|
|
|
|
(3.8 |
) |
MINORITY INTEREST
|
|
|
(8.1 |
) |
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
|
(6.3 |
) |
|
|
|
|
|
|
(6.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING OPERATIONS
|
|
$ |
257.5 |
|
|
$ |
155.3 |
|
|
$ |
44.8 |
|
|
$ |
(106.9 |
) |
|
$ |
350.7 |
|
|
$ |
(14.0 |
) |
|
$ |
336.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME ALLOCATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners
|
|
$ |
220.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
297.7 |
|
|
|
|
|
|
$ |
284.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partner
|
|
$ |
36.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
53.0 |
|
|
|
|
|
|
$ |
52.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC EARNINGS PER UNIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units used in denominator
|
|
|
265.5 |
|
|
|
|
|
|
|
|
|
|
|
19.2 |
(a) |
|
|
383.6 |
|
|
|
|
|
|
|
383.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78.0 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.3 |
(o) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
(p) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
(t) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.78 |
|
|
|
|
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED EARNINGS PER UNIT:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of units used in denominator
|
|
|
266.0 |
|
|
|
|
|
|
|
|
|
|
|
19.2 |
(a) |
|
|
384.1 |
|
|
|
|
|
|
|
384.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78.0 |
(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.3 |
(o) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
(p) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.4 |
(t) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$ |
0.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
0.78 |
|
|
|
|
|
|
$ |
0.74 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
F-5
ENTERPRISE PRODUCTS PARTNERS L.P.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2005
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Adjustments | |
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Adjusted | |
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|
Enterprise | |
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Pro Forma | |
|
Enterprise | |
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Due to this | |
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Enterprise | |
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Historical | |
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Adjustments | |
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Pro Forma | |
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Offering | |
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Pro Forma | |
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ASSETS |
Current Assets
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Cash and cash equivalents
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$ |
57.7 |
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|
$ |
10.4 |
(t) |
|
$ |
68.1 |
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$ |
495.7 |
(u) |
|
$ |
263.8 |
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(300.0 |
)(u) |
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Restricted cash
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10.4 |
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10.4 |
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10.4 |
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Accounts and notes receivable, net
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947.0 |
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947.0 |
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947.0 |
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Inventories
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309.6 |
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309.6 |
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309.6 |
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Other current assets
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|
89.0 |
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89.0 |
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|
0.7 |
(u) |
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|
89.7 |
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Total Current Assets
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1,413.7 |
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10.4 |
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|
1,424.1 |
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196.4 |
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1,620.5 |
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Property, Plant and Equipment, net
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|
8,059.2 |
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|
8,059.2 |
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8,059.2 |
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Investments in and Advances to Unconsolidated Affiliates
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|
558.0 |
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|
558.0 |
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558.0 |
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Intangible Assets, net
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|
960.1 |
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|
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|
960.1 |
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960.1 |
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Goodwill
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456.7 |
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456.7 |
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456.7 |
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Other Assets
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80.0 |
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80.0 |
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2.8 |
(u) |
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82.8 |
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Total Assets
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$ |
11,527.7 |
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$ |
10.4 |
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|
$ |
11,538.1 |
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$ |
199.2 |
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$ |
11,737.3 |
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LIABILITIES & PARTNERS EQUITY |
Current Liabilities
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Current maturities of debt
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$ |
29.0 |
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$ |
29.0 |
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$ |
29.0 |
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Accounts payable
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73.5 |
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73.5 |
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73.5 |
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Accrued gas payables
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1,138.3 |
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1,138.3 |
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1,138.3 |
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Other current liabilities
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224.6 |
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224.6 |
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224.6 |
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Total Current Liabilities
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|
1,465.4 |
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|
1,465.4 |
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1,465.4 |
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Long-Term Debt
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|
4,128.3 |
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|
4,128.3 |
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$ |
499.2 |
(u) |
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|
4,327.5 |
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(300.0 |
)(u) |
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Other Long-Term Liabilities
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|
78.2 |
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|
78.2 |
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|
78.2 |
|
Minority Interest
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82.5 |
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82.5 |
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82.5 |
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Commitments and Contingencies
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Partners Equity
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Limited Partners
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5,646.1 |
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$ |
10.2 |
(t) |
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|
5,656.3 |
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5,656.3 |
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|
General Partner
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115.4 |
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0.2 |
(t) |
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|
115.6 |
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115.6 |
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Accumulated other comprehensive income
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22.1 |
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22.1 |
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22.1 |
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Other
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(10.3 |
) |
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(10.3 |
) |
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(10.3 |
) |
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Total Partners Equity
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5,773.3 |
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10.4 |
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5,783.7 |
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5,783.7 |
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Total Liabilities & Partners Equity
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|
$ |
11,527.7 |
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|
$ |
10.4 |
|
|
$ |
11,538.1 |
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|
$ |
199.2 |
|
|
$ |
11,737.3 |
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|
See Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements.
F-6
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
These unaudited pro forma condensed consolidated financial
statements and underlying pro forma adjustments are based upon
information currently available to and certain estimates and
assumptions made by the management of Enterprise; therefore,
actual results could materially differ from the pro forma
information. However, Enterprise believes the assumptions
provide a reasonable basis for presenting the significant
effects of the transactions noted herein. Enterprise believes
the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the pro forma
information.
Completion of the GulfTerra Merger Transactions
On September 30, 2004, Enterprise and GulfTerra completed
the merger of GulfTerra with a wholly owned subsidiary of
Enterprise, with GulfTerra being the surviving entity thereof.
Additionally, Enterprise completed certain other transactions
related to the merger, including receipt of Enterprises
general partner (Enterprise GP) contribution of a
50% membership interest in GulfTerras general partner
(GulfTerra GP), which was acquired by Enterprise GP
from El Paso, and the purchase of certain midstream energy
assets located in South Texas from El Paso. The aggregate
value of the total consideration Enterprise paid or issued to
complete the GulfTerra Merger transactions was approximately
$4 billion. These transactions were accounted for using
purchase accounting.
Our historical March 31, 2005 Consolidated Balance Sheet
reflects the GulfTerra Merger. Since the GulfTerra Merger closed
during the day of September 30, 2004, our historical
Statement of Consolidated Operations and Comprehensive Income
for the year ended December 31, 2004, includes three months
of results of operations from the GulfTerra assets. The
effective closing date of our purchase of the South Texas
midstream assets was September 1, 2004. As a result, our
historical Statement of Consolidated Operations and
Comprehensive Income for the year ended December 31, 2004,
includes four months of results of operations from the South
Texas midstream assets. Our historical Statement of Consolidated
Operations and Comprehensive Income for the three months ended
March 31, 2005 includes three months of results of
operations from the GulfTerra assets and South Texas midstream
assets.
As a result of the GulfTerra Merger, GulfTerra and GulfTerra GP
became wholly owned subsidiaries of Enterprise on
September 30, 2004. On October 1, 2004, we contributed
our ownership interests in GulfTerra and GulfTerra GP to our
Operating Partnership, which resulted in GulfTerra and GulfTerra
GP becoming wholly owned subsidiaries of the Operating
Partnership.
GulfTerra manages a balanced, diversified portfolio of interests
and assets relating to the midstream energy sector, which
involves gathering, transporting, separating, processing,
fractionating and storing natural gas, oil and NGLs.
GulfTerras interests and assets included (i) offshore
oil and natural gas pipelines, platforms, processing facilities
and other energy infrastructure in the Gulf of Mexico, primarily
offshore Louisiana and Texas; (ii) onshore natural gas
pipelines and processing facilities in Alabama, Colorado,
Louisiana, Mississippi, New Mexico and Texas; (iii) onshore
NGL pipelines and fractionation facilities in Texas; and
(iv) onshore natural gas and NGL storage facilities in
Louisiana, Mississippi and Texas.
The South Texas midstream assets consisted of nine natural gas
processing plants with a combined capacity of 1.9 Bcf/d, a
294-mile natural gas gathering system, a natural gas treating
facility with a capacity of 150 MMcf/d and a small NGL
pipeline.
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The GulfTerra Merger transactions |
The GulfTerra Merger transactions occurred in several
interrelated steps as described below.
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Step One. On December 15, 2003, Enterprise purchased
a 50% membership interest in GulfTerra GP from El Paso for
$425 million in cash. GulfTerra GP owned a 1% general
partner interest in GulfTerra. Prior to completion of the
GulfTerra Merger, Enterprise accounted for its investment in |
F-7
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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|
GulfTerra GP using the equity method of accounting. The
$425 million in funds required to complete Step One were
borrowed under an Interim Term Loan and our pre-merger revolving
credit facilities. These borrowings were fully repaid with net
proceeds from equity offerings completed during 2004. |
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|
|
Step Two. On September 30, 2004, the GulfTerra
Merger was consummated and GulfTerra and GulfTerra GP became
wholly owned subsidiaries of Enterprise. Step Two of the
GulfTerra Merger transactions included the following: |
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|
Immediately prior to closing the GulfTerra Merger, Enterprise GP
acquired El Pasos remaining 50% membership interest
in GulfTerra GP for $370 million in cash paid to
El Paso and the issuance of a 9.9% membership interest in
Enterprise GP to El Paso. Subsequently, Enterprise GP
contributed this 50% membership interest in GulfTerra GP to us
without the receipt of additional general partner interest,
common units or other consideration. Enterprise GP borrowed the
foregoing $370 million from one of its members, Dan Duncan
LLC, which obtained the funds through a loan from EPCO. |
|
|
|
Immediately prior to closing the GulfTerra Merger, Enterprise
paid $500 million in cash to El Paso for 10,937,500
Series C units of GulfTerra and 2,876,620 common units of
GulfTerra. The remaining 57,762,369 GulfTerra common units
(7,433,425 of which were owned by El Paso) were converted
into 104,549,823 Enterprise common units (13,454,498 of which
are held by El Paso) at the time of the consummation of the
GulfTerra Merger. |
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|
|
Step Three. Immediately after Step Two was completed,
Enterprise acquired certain South Texas midstream assets from
El Paso for $155.3 million in cash. Pursuant to
written agreements, our purchase of the South Texas midstream
assets was effective September 1, 2004. |
In connection with the closing of the GulfTerra Merger on
September 30, 2004, our Operating Partnership borrowed an
aggregate of $2.6 billion under its Merger Credit
Facilities in order to fund its cash payment obligations under
Step Two and Step Three of the GulfTerra Merger Transactions,
including the tender offers for GulfTerras outstanding
senior and senior subordinated notes.
F-8
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total consideration paid or granted for the GulfTerra Merger
transactions is summarized below:
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Step One transaction:
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|
|
|
Cash payment by Enterprise to El Paso for initial 50%
membership interest in GulfTerra GP (a non-voting interest) made
in December 2003
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$ |
425.0 |
|
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|
|
|
|
|
Total Step One consideration
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|
425.0 |
|
|
|
|
|
Step Two transactions:
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|
|
Cash payment by Enterprise to El Paso for 10,937,500
GulfTerra Series C units and 2,876,620 GulfTerra common
units
|
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|
500.0 |
|
|
Fair value of equity interests granted to acquire remaining 50%
membership interest in GulfTerra GP (voting interest) and cash
payment of $370 million by Enterprise GP to El Paso(1)
|
|
|
461.3 |
|
|
Fair value of Enterprise common units issued in exchange for
remaining GulfTerra common units
|
|
|
2,445.4 |
|
|
Fair value of other Enterprise equity interests granted for unit
awards and Series F2 convertible units
|
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|
4.0 |
|
|
Fair value of receivable from El Paso for transition
support payments(2)
|
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|
(40.3 |
) |
|
Transaction fees and other direct costs incurred by Enterprise
as a result of the GulfTerra Merger transactions(3)
|
|
|
30.5 |
|
|
|
|
|
|
|
Total Step Two consideration
|
|
|
3,400.9 |
|
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Total Step One and Step Two consideration
|
|
|
3,825.9 |
|
|
|
|
|
Step Three transaction:
|
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|
|
|
Purchase of South Texas midstream assets from El Paso
|
|
|
155.3 |
|
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|
|
|
|
Total consideration for Steps One through Three
|
|
$ |
3,981.2 |
|
|
|
|
|
|
|
(1) |
This preliminary fair value is based on 50% of an implied
$922.7 million total value of GulfTerra GP, which assumes
that the $370 million cash payment made by Enterprise GP to
El Paso represented consideration for a 40.1% interest in
GulfTerra GP. The 40.1% interest was derived by deducting the
9.9% membership interest in Enterprise GP granted to
El Paso in this transaction from the 50% membership
interest in GulfTerra GP that Enterprise GP received. The
preliminary fair value of $461.3 million assigned to this
voting membership interest in GulfTerra GP compares favorably to
the $425 million paid to El Paso by Enterprise to
purchase its initial 50% non-voting membership interest in
GulfTerra GP in December 2003. |
|
(2) |
Reflects the present value of a contract-based receivable from
El Paso received as part of the negotiated net
consideration reached in Step One of the GulfTerra Merger. The
agreements between Enterprise and El Paso provide that for
a period of three years following the closing of the GulfTerra
merger, El Paso will make transition support payments to
Enterprise in annual amounts of $18 million,
$15 million and $12 million for the first, second and
third years of such period, respectively, payable in twelve
equal monthly installments for each such year. The
$45 million aggregate receivable from El Paso was
discounted to fair value at September 30, 2004 (which
yielded a fair value of $40.3 million) and was recorded as
a reduction in the purchase consideration for GulfTerra. |
|
(3) |
As a result of the GulfTerra Merger, Enterprise incurred
expenses of approximately $30.5 million for various
transaction fees and other direct costs. These direct costs
include fees for legal, accounting, printing, financial advisory
and other services rendered by third-parties to Enterprise over
the course of the GulfTerra Merger. This amount also includes
$3.4 million of involuntary severance costs. |
F-9
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Allocation of purchase price of GulfTerra Merger
transactions |
The GulfTerra Merger transactions were recorded using the
purchase method of accounting. Purchase accounting requires us
to allocate the cost of a business combination to the assets
acquired and liabilities assumed based on their estimated fair
values. Enterprise has engaged an independent third-party
business valuation expert to assess the fair value of
GulfTerras and the South Texas midstream assets
tangible and intangible assets. This information will assist
management in the development of a definitive allocation of the
overall purchase price of the GulfTerra Merger transactions.
The preliminary fair values shown in the following table are
estimates based on information available to management at
March 31, 2005. Our purchase price allocations related to
the GulfTerra Merger remain preliminary and could change due to
the refinement of our estimates.
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|
Merger-Related Transactions | |
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| |
|
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|
Purchase of | |
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|
|
Merger | |
|
South Texas | |
|
|
|
|
with | |
|
Midstream | |
|
|
|
|
GulfTerra | |
|
Assets | |
|
Total | |
|
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| |
|
| |
|
| |
Purchase price allocation:
|
|
|
|
|
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|
|
|
|
|
|
|
|
Assets acquired in business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets, including cash of $40,453
|
|
$ |
230.3 |
|
|
$ |
7.6 |
|
|
$ |
237.9 |
|
|
|
Property, plant and equipment, net
|
|
|
4,601.4 |
|
|
|
112.8 |
|
|
|
4,714.2 |
|
|
|
Investments in and advances to unconsolidated affiliates
|
|
|
202.7 |
|
|
|
|
|
|
|
202.7 |
|
|
|
Intangible assets
|
|
|
705.4 |
|
|
|
37.8 |
|
|
|
743.2 |
|
|
|
Other assets
|
|
|
3.8 |
|
|
|
|
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
5,743.6 |
|
|
|
158.2 |
|
|
|
5,901.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed in business combination:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(228.5 |
) |
|
|
(2.9 |
) |
|
|
(231.4 |
) |
|
|
Long-term debt, including current maturities(1)
|
|
|
(2,015.6 |
) |
|
|
|
|
|
|
(2,015.6 |
) |
|
|
Other long-term liabilities
|
|
|
(47.9 |
) |
|
|
|
|
|
|
(47.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(2,292.0 |
) |
|
|
(2.9 |
) |
|
|
(2,294.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets acquired less liabilities assumed
|
|
|
3,451.6 |
|
|
|
155.3 |
|
|
|
3,606.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration for Steps One through Three
|
|
|
3,825.9 |
|
|
|
155.3 |
|
|
|
3,981.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining Goodwill
|
|
$ |
374.3 |
|
|
$ |
|
|
|
$ |
374.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Represents GulfTerras outstanding senior and senior
secured note obligations prior to the completion of
Enterprises tender offers on October 5, 2004. This
amount also includes GulfTerras outstanding obligations
under its revolving credit facility and secured term loans prior
to Enterprises repayment of these debt obligations, which
occurred on the GulfTerra Merger closing date. |
As a result of the preliminary purchase price allocation for
Steps Two and Three of the GulfTerra Merger, we recorded
$743.2 million of amortizable intangible assets, primarily
those related to customer relationships and contracts. The
remaining preliminary amount represents goodwill of
$374.3 million associated with our view of the future
results from GulfTerras operations, based on the strategic
location of GulfTerras assets as well as their industry
relationships.
F-10
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The pro forma adjustments made to the condensed consolidated
historical financial statements of Enterprise, GulfTerra and the
South Texas midstream assets are described as follows:
|
|
|
(a) During 2004, Enterprise sold 39,683,591 common units,
which generated aggregate net proceeds of approximately
$805.2 million. The issuance of these common units was as
follows: |
|
|
|
|
|
1,053,861 common units issued in February 2004 in connection
with Enterprises DRIP and related programs. Including
Enterprise GPs related 2% capital contribution, total net
proceeds from this offering were $23.1 million. Enterprise
used the net proceeds from this offering for general partnership
purposes. |
|
|
|
17,250,000 common units sold to the public and 1,757,347 common
units issued in connection with the DRIP and related programs in
May 2004. Including Enterprise GPs related 2% capital
contribution, total net proceeds from these offerings were
$388.4 million. Enterprise used $353.1 million of the
net proceeds from its May 2004 public offering to repay the
Operating Partnerships $225 million Interim Term Loan
and to temporarily reduce borrowings outstanding under the
Operating Partnerships then existing revolving credit
facilities by approximately $130 million. Enterprise used
the $35.3 million in net proceeds received in connection
with its DRIP for general partnership purposes. |
|
|
|
17,250,000 common units sold to the public and 173,033 common
units issued in connection with the DRIP and related programs in
August 2004. Including Enterprise GPs related 2% capital
contribution, total net proceeds from these offerings were
$344.4 million. Enterprise used $210 million of the
net proceeds from its August 2004 public offering to temporarily
reduce borrowings outstanding under the Operating
Partnerships then existing revolving credit facilities and
the remainder to fund its payment obligations to El Paso in
connection with Step Two of the GulfTerra Merger. |
|
|
|
2,199,350 common units issued in November 2004 in connection
with the DRIP and related programs. Including Enterprise
GPs related 2% capital contribution, total net proceeds
from this offering were $49.3 million. Enterprise used the
net proceeds for general partnership purposes. |
|
|
|
As a result of the February, May, August and November 2004
offerings described above, the weighted-average number of
Enterprise common units outstanding increased 19.2 million
for the year ended December 31, 2004. Since the receipt of
proceeds from these offerings and the related increases in
partners equity are already reflected in Enterprises
historical condensed consolidated balance sheet at
March 31, 2005, no pro forma adjustments to the balance
sheet are necessary. |
|
|
As a result of the use of proceeds from these offerings, pro
forma interest expense decreased $5.1 million for the year
ended December 31, 2004. In calculating the pro forma
adjustment to interest expense for the year ended
December 31, 2004, we used an average historical variable
interest rate of 1.8%, which was determined by reference to the
debt obligations that were either completely repaid or
temporarily reduced using proceeds from such offerings of common
units. If the variable interest rates used to determine the pro
forma adjustments to interest expense were 1/8% higher, the pro
forma reduction in interest expense would have been
$5.5 million for the year ended December 31, 2004. |
|
|
(b) In May 2003, GulfTerra issued 80 Series F
convertible units in a registered offering to an institutional
investor. Each Series F convertible unit was comprised of
two separate detachable units a Series F1
convertible unit and Series F2 convertible unit
that had identical terms except for vesting and termination
dates and the number of common units into which they could be
converted upon payment of the calculated purchase price per
common unit. Prior to the GulfTerra Merger, all the |
F-11
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Series F1 convertible units were converted to GulfTerra
common units by the holder. As a result of the GulfTerra Merger,
Enterprise assumed GulfTerras obligation associated with
the Series F2 convertible units. All Series F2
convertible units outstanding at the merger date were converted
into rights to purchase Enterprise common units. The
Series F2 units were convertible into up to
$40 million of Enterprise common units. |
|
|
On October 29, 2004, 60 of the 80 outstanding
Series F2 convertible units were converted into 1,458,434
Enterprise common units. On November 8, 2004, the remaining
20 outstanding Series F2 convertible units were converted
into 491,883 Enterprise common units. As a result of these
conversions, Enterprise received net proceeds of approximately
$39.6 million, which includes the related 2% capital
contributions made by Enterprise GP. Enterprise used the net
proceeds from these conversions for general partnership
purposes. As a result of these transactions, the
weighted-average number of common units outstanding increased
1.6 million for the year ended December 31, 2004. |
|
|
(c) Reflects the pro forma adjustment to common units
outstanding resulting from the issuance of 104,549,823
Enterprise common units in the exchange with GulfTerras
common unitholders on September 30, 2004 under Step Two of
the GulfTerra Merger. The pro forma effect of these new common
units on the weighted-average number of Enterprise units
outstanding is an increase of 78.0 million common units for
the year ended December 31, 2004. |
|
|
(d) On September 30, 2004, our Operating Partnership
borrowed approximately $2.6 billion under its Merger Credit
Facilities to (i) fund cash payment obligations to
El Paso under Step Two and Step Three of the GulfTerra
Merger transactions, (ii) escrow $1.1 billion in cash
to finance its tender offers for GulfTerras senior and
senior subordinated notes and (iii) repay $962 million
outstanding under GulfTerras revolving credit facility and
secured term loans on the merger closing date. |
|
|
The pro forma adjustment to interest expense resulting from
these borrowings is $51.9 million for the year ended
December 31, 2004. In calculating the pro forma adjustment
to interest expense, we used an estimated variable interest rate
of 3.9%, which approximates the interest rate we are currently
being charged on amounts borrowed under our Operating
Partnerships Multi-Year Revolving Credit Facility. If this
estimated interest rate were 1/8% higher, the pro forma
adjustment to interest expense would be $54.4 million for
the year ended December 31, 2004. The pro forma adjustment
to interest expense also reflects the removal of historical
interest expense amounts recorded by GulfTerra on its revolving
credit facility and secured term loans of $22.5 million for
the year ended December 31, 2004. Enterprises
March 31, 2005 condensed consolidated historical balance
sheet already reflects these borrowings; therefore, no pro forma
adjustment is required. |
|
|
(e) On October 4, 2004, our Operating Partnership
issued $2 billion of senior unsecured notes in a private
offering. The net proceeds from this offering were used to
reduce debt outstanding under the Merger Credit Facilities. The
fixed-interest rate, principal amount issued and net proceeds
(before offering expenses) of each senior note in this offering
were as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
|
|
|
|
Proceeds to | |
|
|
Interest | |
|
Principal | |
|
Bond | |
|
Us, Before | |
Senior Note Issued |
|
Rate | |
|
Amount | |
|
Discount | |
|
Expenses | |
|
|
| |
|
| |
|
| |
|
| |
Senior Notes E, due October 2007
|
|
|
4.000 |
% |
|
$ |
500.0 |
|
|
$ |
2.1 |
|
|
$ |
497.9 |
|
Senior Notes F, due October 2009
|
|
|
4.625 |
% |
|
|
500.0 |
|
|
|
4.4 |
|
|
|
495.6 |
|
Senior Notes G, due October 2014
|
|
|
5.600 |
% |
|
|
650.0 |
|
|
|
4.8 |
|
|
|
645.2 |
|
Senior Notes H, due October 2034
|
|
|
6.650 |
% |
|
|
350.0 |
|
|
|
4.2 |
|
|
|
345.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
$ |
2,000.0 |
|
|
$ |
15.5 |
|
|
$ |
1,984.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-12
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
After giving effect to the application of proceeds to reduce
principal amounts outstanding under our Operating
Partnerships variable-interest rate Merger Credit
Facilities, the pro forma adjustment to interest expense
resulting from the issuance of these senior notes is
$21.2 million for the year ended December 31, 2004. If
the variable-rates used to calculate the reduction in interest
expense associated with the repayment of amounts outstanding
under the Merger Credit Facilities were 1/8% higher, the pro
forma adjustment to interest expense would have been
$19.3 million for the year ended December 31, 2004.
Enterprises March 31, 2005 condensed consolidated
historical balance sheet already reflects this transaction;
therefore, no pro forma adjustment is required. |
|
|
(f) Our Operating Partnership entered into eight
forward-starting interest rate swap transactions during 2004
having an aggregate notional amount of $2 billion in
anticipation of financing activities associated with closing the
GulfTerra Merger. The Operating Partnerships purpose in
entering into these transactions was to effectively hedge the
underlying U.S. treasury rate related to its expected
issuance of $2 billion of fixed-rate debt. On
October 4, 2004, the Operating Partnership issued
$2 billion of senior unsecured notes in a private offering
(see Note (e)). Each of the forward starting swaps was
designated as a cash flow hedge in accordance with applicable
accounting guidance. |
|
|
In April 2004, the Operating Partnership elected to terminate
the initial four forward-starting swaps in order to manage and
maximize the value of the swaps and to reduce future debt
service costs. As a result, we received $104.5 million in
cash from the counterparties. In September 2004, the Operating
Partnership settled the remaining four swaps resulting in an
$85.1 million payment to the counterparties. The net gain
of $19.4 million from these settlements was recorded in
Accumulated Other Comprehensive Income and will be amortized
over the life of the associated debt as a reduction in interest
expense and Accumulated Other Comprehensive Income. The pro
forma amortization of this gain reduced interest expense by
$3 million for the year ended December 31, 2004. No
pro forma adjustment to the condensed consolidated balance sheet
is required. |
F-13
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(g) On October 4, 2004, all of the cash tender offers
made by the Operating Partnership for GulfTerras
outstanding senior and senior subordinated notes expired. As of
the expiration time, the Operating Partnership had received
tenders of such notes aggregating $915 million, or 99.3% of
the notes outstanding. On October 5, 2004, the Operating
Partnership purchased the notes for a total price of
approximately $1.1 billion using funds borrowed on
September 30, 2004 under the Merger Credit Facilities. The
following table shows the four GulfTerra senior debt obligations
affected, including the principal amount of each series of notes
tendered, as well as the payment made by Enterprise to complete
the tender offers. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Made by Enterprise | |
|
|
Principal | |
|
| |
|
|
Amount | |
|
Accrued | |
|
Tender | |
|
Total | |
Description |
|
Tendered | |
|
Interest | |
|
Price | |
|
Price | |
|
|
| |
|
| |
|
| |
|
| |
8.50% Senior Subordinated Notes due 2010 (Represented 98.2%
of principal amount outstanding)
|
|
$ |
212.1 |
|
|
$ |
6.2 |
|
|
$ |
246.4 |
|
|
$ |
252.6 |
|
10.625% Senior Subordinated Notes due 2012 (Represented
99.9% of principal amount outstanding)
|
|
|
133.9 |
|
|
|
4.9 |
|
|
|
167.6 |
|
|
|
172.5 |
|
8.50% Senior Subordinated Notes due 2011 (Represented 99.5%
of principal amount outstanding)
|
|
|
319.8 |
|
|
|
9.4 |
|
|
|
359.4 |
|
|
|
368.8 |
|
6.25% Senior Notes due 2010 (Represented 99.7% of principal
amount outstanding)
|
|
|
249.3 |
|
|
|
5.4 |
|
|
|
274.0 |
|
|
|
279.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$ |
915.1 |
|
|
$ |
25.9 |
|
|
$ |
1,047.4 |
|
|
$ |
1,073.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The pro forma adjustments to interest expense reflect the
removal of historical interest expense amounts recorded by
GulfTerra associated with such senior note obligations. These
adjustments decreased pro forma fixed-rate interest expense by
$56.3 million for the year ended December 31, 2004.
Enterprises March 31, 2005 condensed consolidated
historical balance sheet already reflects this transaction;
therefore, no pro forma adjustment is required. |
|
|
(h) Reflects the pro forma depreciation and amortization
adjustment for GulfTerras and the South Texas midstream
assets property, plant and equipment and intangible assets
based on the preliminary purchase price allocation for the
GulfTerra Merger transactions (see page F-10). |
|
|
For purposes of calculating pro forma depreciation expense, we
applied the straight-line method using estimated remaining
useful lives ranging from 10 years to 33 years
(depending on the type of asset) to Enterprises new basis
in such assets of approximately $4.7 billion. |
|
|
In addition, Enterprise recorded $743.2 million of
amortizable intangible assets, which are primarily comprised of
the fair value of certain customer relationships and storage
contracts. For purposes of calculating pro forma amortization
expense attributable to the customer relationship intangible
assets, we based such expense primarily on the patterns in which
the economic benefits of each intangible asset are expected to
be consumed by referencing the forecasted production rates of
the underlying resource bases (i.e., the oil and gas reserves
associated with the customer relationship intangible assets)
from which the customers produce. For purposes of calculating
pro forma amortization expense attributable to the storage
contract intangible assets, we applied the straight-line method
to the remainder of the respective contract terms, which we
estimate could range from 2 to 18 years. |
F-14
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
Overall, the pro forma depreciation and amortization expense
adjustment was $103.6 million for the year ended
December 31, 2004, after taking into account the historical
expense amounts recorded by GulfTerra and the South Texas
midstream assets. |
|
|
(i) Reflects the pro forma adjustment to remove
$20 million in nonrecurring merger-related expenses
recorded by GulfTerra during the year ended December 31,
2004. |
|
|
(j) In accordance with the purchase and sale agreement
between Enterprise and El Paso for the South Texas
midstream assets, El Paso retained a number of natural gas
liquids marketing contracts. Enterprises pro forma
condensed statement of consolidated operations for the year
ended December 31, 2004 includes adjustments to remove
$426.6 million of revenues and $421.5 million of
operating costs and expenses associated with these retained
contracts. |
|
|
(k) After Step Two of the GulfTerra Merger was completed on
September 30, 2004, the general partner of GulfTerra became
a wholly owned subsidiary of Enterprise. This pro forma
adjustment reflects the replacement of equity earnings from the
general partner of GulfTerra that Enterprise recorded under Step
One of the merger with consolidated earnings from GulfTerra, as
if Step Two had occurred on January 1, 2003. This
adjustment required the removal of $32 million of equity
earnings from the general partner of GulfTerra that Enterprise
recorded during the first nine months of 2004. Enterprise
acquired its initial 50% membership interest in the general
partner of GulfTerra on December 15, 2003 under Step One of
the GulfTerra Merger. |
|
|
(l) In connection with the GulfTerra Merger transactions,
Enterprise recorded the present value of a contract-based
receivable from El Paso totaling $40.3 million, which
was part of the negotiated net consideration reached in Step Two
of the GulfTerra Merger transactions. Our pro forma condensed
statement of consolidated operations reflect $1.2 million
of imputed interest income that would have been recognized from
this agreement during the year ended December 31, 2004. |
|
|
(m) Reflects pro forma classification adjustments necessary
to conform GulfTerras and the South Texas midstream
assets historical condensed statements of consolidated
operations to Enterprises method of presentation. The
reclassifications were as follows: |
|
|
|
|
|
GulfTerras and the South Texas midstream assets
general and administrative costs were reclassified to a separate
line item within operating expenses to conform to
Enterprises method of presentation. GulfTerras and
the South Texas midstream assets general and
administrative costs were $46.5 million for the year ended
December 31, 2004. |
|
|
|
GulfTerras operating income increased as a result of
reclassifying its equity earnings from unconsolidated affiliates
to a separate component of operating income to conform with
Enterprises presentation of such earnings. As a result of
this reclassification, GulfTerras operating income
increased by $7.6 million for the year ended
December 31, 2004. Enterprises equity investments
with industry partners are a vital component of its business
strategy. Such investments are a means by which Enterprise
conducts its operations to align its interests with those of its
customers, which may be a supplier of raw materials or a
consumer of finished products. This method of operation also
enables Enterprise to achieve favorable economies of scale
relative to the level of investment and business risk assumed
versus what Enterprise could accomplish on a stand-alone basis.
Many of these equity investments perform supporting or
complementary roles to Enterprises other business
operations. GulfTerra has a similar relationship with its equity
investees. |
|
|
|
(n) Reflects the pro forma elimination of significant
revenues and expenses between Enterprise, GulfTerra and the
South Texas midstream assets as appropriate in consolidation.
Upon completion of the |
F-15
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
GulfTerra Merger, GulfTerra and the South Texas midstream assets
became wholly owned subsidiaries of Enterprise. |
|
|
(o) Reflects the sale of 17,250,000 Enterprise common units
at an offering price of $27.05 per unit in the first
quarter of 2005 (including the over-allotment amount of
2,250,000 common units issued in March 2005). Total net proceeds
from this sale were approximately $456.9 million after
deducting applicable underwriting discounts, commissions and
estimated offering expenses of approximately $19 million.
Included in total net proceeds of $456.9 million is a net
capital contribution made by Enterprise GP of $9.1 million
to maintain its 2% general partner interest in Enterprise, after
deducting the general partners share of the underwriting
discounts, commissions and estimated offering expenses. For pro
forma purposes, the net proceeds from this equity offering,
including Enterprise GPs net capital contribution, were
used to reduce debt outstanding under the Merger Credit
Facilities. As a result of this offering, the weighted-average
number of common units outstanding increased 9.4 million
for the three months ended March 31, 2005 and
17.3 million for the year ended December 31, 2004. |
|
|
As a result of our pro forma application of proceeds from this
offering to reduce debt outstanding, pro forma interest expense
would decrease by $2.3 million for the three months ended
March 31, 2005 and $17.8 million for the year ended
December 31, 2004. If the variable rates used to calculate
the reduction in interest expense associated with the repayment
of amounts outstanding under the Merger Credit Facilities were
1/8% higher, the pro forma adjustment to interest expense would
have been $2.5 million for the three months ended
March 31, 2005 and $18.3 million for the year ended
December 31, 2004. |
|
|
(p) Reflects Enterprises February 2005 issuance of
1,516,561 common units in connection with its DRIP and related
programs. Including Enterprise GPs related 2% capital
contribution of approximately $0.8 million, total net
proceeds from this offering were approximately
$39.0 million. Enterprise used the net proceeds from this
offering for general partnership purposes. As a result of this
offering, the weighted-average number of common units
outstanding increased 0.7 million for the three months
ended March 31, 2005 and 1.6 million for the year
ended December 31, 2004. |
|
|
(q) Reflects the Operating Partnerships combined
issuance of $500 million in principal amount of senior
notes in February 2005 comprised of $250 million in
principal amount of 5.00% senior notes due March 2015
(Senior Notes I) and $250 million in
principal amount of 5.75% senior notes due March 2035
(Senior Notes J). The Operating Partnership
used the $490.6 million in net proceeds from the issuance
of these fixed-rate senior notes to retire its $350 million
in principal amount 8.25% Senior Notes A (due March
2005) and to temporarily reduce indebtedness outstanding under
its Multi-Year Revolving Credit Facility. |
|
|
After giving effect to the issuance of Senior Notes I and J
in February 2005 and the related application of net proceeds,
pro forma interest expense would decrease by $2.3 million
for the three months ended March 31, 2005 and by
$7.5 million for the year ended December 31, 2004. If
the variable interest rate underlying the Multi-Year Revolving
Credit Facility were 1/8% higher, the pro forma decrease in
interest expense would have been $2.4 million for the three
months ended March 31, 2005 and $7.6 million for the
year ended December 31, 2004. |
|
|
(r) The net proceeds from the senior notes offering
described in Note (q) reflect the payment of
$9.4 million in bond discounts and debt issuance costs. For
pro forma purposes, we have amortized these costs over the term
of the senior notes they are associated with using the
straight-line method. As a result, pro forma interest expense
increased $0.1 million for the three months ended
March 31, 2005 and $0.5 million for the year ended
December 31, 2004. |
F-16
ENTERPRISE PRODUCTS PARTNERS L.P.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(s) Reflects the sale by Enterprise of its 50% equity
investment in Starfish, which owns the Stingray natural gas
pipeline and related gathering pipelines and dehydration and
other facilities located in south Louisiana and the Gulf of
Mexico offshore Louisiana. In connection with obtaining
regulatory approval for the GulfTerra Merger, Enterprise was
required by the FTC to sell its 50% interest in Starfish by
March 31, 2005. On March 31, 2005, Enterprise sold
this asset to a third-party for approximately $42.1 million
in cash and realized a gain on the sale of $5.5 million. |
|
|
Enterprise recognized equity earnings from Starfish of
$0.3 million for the three months ended March 31, 2005
and $3.5 million for the year ended December 31, 2004,
respectively. Our pro forma adjustments reflect the removal of
these equity earnings since, for pro forma earnings purposes, we
have assumed that the sale of Starfish occurred immediately
prior to January 1, 2004. Likewise, we have removed the
$5.5 million gain on the sale of Starfish from our results
of operations for the three months ended March 31, 2005.
Our March 31, 2005 historical condensed balance sheet
already reflects the sale of Starfish; therefore, no pro forma
adjustments are required. |
|
|
(t) Reflects Enterprises May 2005 issuance of 410,249
common units in connection with its DRIP and related programs.
Including Enterprise GPs related 2% capital contribution
of approximately $0.2 million, total net proceeds from this
offering were approximately $10.4 million. Enterprise used
the net proceeds from this offering for general partnership
purposes. As a result of this offering, the weighted-average
number of common units outstanding increased 0.4 million
for the three months ended March 31, 2005 and the year
ended December 31, 2004. |
|
|
(u) Reflects the Operating Partnerships issuance in
this offering of $500 million in principal amount of
4.95% senior notes due June 2010. The $495.7 million
in estimated aggregate net proceeds from the issuance of these
fixed-rate senior notes (after deducting $3 million in
underwriting fees, $0.8 million in bond discounts and
$0.5 million of other estimated expenses) will be used to
temporarily reduce debt outstanding under the Multi-Year
Revolving Credit Facility and for general partnership purposes,
including capital expenditures and business combinations. After
giving effect to this senior notes offering and the related
application of net proceeds, pro forma interest expense
(excluding related amortizations) would increase by
$3.2 million for the three months ended March 31, 2005
and $13.1 million for the year ended December 31,
2004. If the variable interest rate used to compute interest
expense for the Multi-Year Revolving Credit Facility were 1/8%
higher, the pro forma increase in interest expense would have
been $3.1 million for the three months ended March 31,
2004 and $12.7 million for the year ended December 31,
2004. |
|
|
(v) The net proceeds from the senior notes offering
described in Note (u) reflect the payment of
$3.5 million in debt issuance costs consisting of
underwriting fees and other estimated expenses and
$0.8 million in bond discounts. For pro forma purposes, we
have amortized these costs over the five year term of the senior
notes using the straight-line method. As a result, pro forma
interest expense increased by $0.2 million for the three
months ended March 31, 2005 and $0.9 million for the
year ended December 31, 2004. |
F-17
PROSPECTUS
Enterprise Products Partners L.P.
Enterprise Products Operating L.P.
COMMON UNITS
DEBT SECURITIES
We may offer up to $4,000,000,000 of the following securities
under this prospectus:
|
|
|
|
|
common units representing limited partner interests in
Enterprise Products Partners L.P.; and |
|
|
|
debt securities of Enterprise Products Operating L.P., which
will be guaranteed by its parent company, Enterprise Products
Partners L.P. |
This prospectus provides you with a general description of the
securities we may offer. Each time we sell securities we will
provide a prospectus supplement that will contain specific
information about the terms of that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read carefully this prospectus
and any prospectus supplement before you invest. You should also
read the documents we have referred you to in the Where
You Can Find More Information section of this prospectus
for information about us, including our financial statements.
In addition, up to 41,000,000 common units may be offered from
time to time by the selling unitholders named herein. Specific
terms of certain offerings by such selling unitholders may be
specified in a prospectus supplement to this prospectus. We will
not receive proceeds of any sale of common units by any such
selling unitholders unless otherwise indicated in a prospectus
supplement. For a more detailed discussion of selling
unitholders, please read Selling Unitholders.
Our common units are listed on the New York Stock Exchange under
the trading symbol EPD.
Unless otherwise specified in a prospectus supplement, the
senior debt securities, when issued, will be unsecured and will
rank equally with our other unsecured and unsubordinated
indebtedness. The subordinated debt securities, when issued,
will be subordinated in right of payment to our senior debt.
Limited partnerships are inherently different from
corporations. You should review carefully Risk
Factors beginning on page 3 for a discussion of
important risks you should consider before investing on our
securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
This prospectus may not be used to consummate sales of
securities by the registrants unless accompanied by a prospectus
supplement.
The date of this prospectus is March 23, 2005.
TABLE OF CONTENTS
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TABLE OF CONTENTS (Continued)
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ii
TABLE OF CONTENTS (Continued)
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You should rely only on the information contained or
incorporated by reference in this prospectus or any prospectus
supplement. We have not authorized any other person to provide
you with different information. If anyone provides you with
different or inconsistent information, you should not rely on
it. You should not assume that the information incorporated by
reference or provided in this prospectus or any prospectus
supplement is accurate as of any date other than the date on the
front of each document.
Our, we, us and
Enterprise as used in this prospectus refer to
Enterprise Products Partners L.P. and Enterprise Products
Operating L.P. and their wholly owned subsidiaries.
GulfTerra as used in this prospectus supplement
refers to Enterprise GTM Holdings L.P. (formerly known as
GulfTerra Energy Partners, L.P.) and its wholly owned
subsidiaries.
iii
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we file
with the Securities and Exchange Commission (the
Commission) using a shelf registration
process. Under this shelf process, we may offer from time to
time up to $4,000,000,000 of our securities and the selling
unitholders may offer from time to time up to 41,000,000 of
their common units. Each time we offer securities, we will
provide you with a prospectus supplement that will describe,
among other things, the specific amounts and prices of the
securities being offered and the terms of the offering. The
selling unitholders may offer common units pursuant to this
prospectus or may provide you with a prospectus supplement that
will describe, among other things, the specific amounts and
prices of the securities being offered and the terms of the
offering. Any prospectus supplement may add, update or change
information contained in this prospectus. Any statement that we
make in this prospectus will be modified or superseded by any
inconsistent statement made by us in a prospectus supplement.
Therefore, you should read this prospectus and any attached
prospectus supplement before you invest in our securities.
iv
OUR COMPANY
We are a publicly traded limited partnership that was formed in
April 1998 to acquire, own, and operate all of the NGL
processing and distribution assets of EPCO, Inc., or EPCO,
formerly known as Enterprise Products Company. We conduct all of
our business through our 100% owned subsidiary, Enterprise
Products Operating L.P. (our Operating Partnership)
and its subsidiaries and joint ventures. Our general partner,
Enterprise Products GP, LLC, owns a 2% interest in us.
We are a leading North American midstream energy company that
provides a wide range of services to producers and consumers of
natural gas, natural gas liquids, or NGLs, and crude oil, and we
are an industry leader in the development of midstream
infrastructure in the deepwater trend of the Gulf of Mexico. We
have the only integrated North American midstream network, which
includes natural gas transportation, gathering, processing and
storage; NGL fractionation (or separation), transportation,
storage and import and export terminalling; and crude oil
transportation and offshore production platform services. Our
midstream network links producers of natural gas, NGLs and crude
oil from the largest supply basins in the United States, Canada
and the Gulf of Mexico with the largest consumers and
international markets. NGLs are used by the petrochemical and
refining industries to produce plastics, motor gasoline and
other industrial and consumer products and also are used as
residential, agricultural and industrial fuels. We provide
integrated services to our customers and generate fee-based cash
flow from multiple sources along our midstream energy
value chain.
Our midstream energy services include:
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gathering and transportation of raw natural gas from both
onshore and offshore Gulf of Mexico developments; |
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gathering and transportation of crude oil from offshore Gulf of
Mexico developments; |
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offshore production platform services; |
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processing of raw natural gas into a marketable product that
meets industry quality specifications by removing mixed NGLs and
impurities; |
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purchase of natural gas for resale to our industrial, utility
and municipal customers; |
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transportation of mixed NGLs to fractionation facilities by
pipeline; |
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fractionation (or separation) of mixed NGLs produced as
by-products of crude oil refining and natural gas production
into component NGL products: ethane, propane, isobutane, normal
butane and natural gasoline; |
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transportation of NGL products to end-users by pipeline, railcar
and truck; |
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import and export of NGL products and petrochemical products
through our dock facilities; |
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fractionation of refinery-sourced propane/propylene mix into
high-purity propylene, propane and mixed butane; |
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transportation of high-purity propylene to end-users by pipeline; |
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storage of natural gas, mixed NGLs, NGL products and
petrochemical products; |
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conversion of normal butane to isobutane through the process of
isomerization; |
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production of high-octane additives for motor gasoline from
isobutane; and |
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sale of NGLs and petrochemical products we produce and/or
purchase for resale. |
In addition to our current strategic position in the Gulf of
Mexico, we have access to major natural gas and NGL supply
basins throughout the United States and Canada, including the
Rocky Mountains, the San Juan and Permian basins, the
Mid-Continent region and, through third-party pipeline
connections, north into Canadas Western Sedimentary basin.
Our system of assets in the Gulf Coast region of the
1
United States, combined with our Mid-America and Seminole
pipeline systems, create the only integrated North American
midstream network.
Certain of our facilities are owned jointly by us and other
industry partners, either through co-ownership arrangements or
joint ventures. Some of our jointly owned facilities are
operated by other owners.
We do not have any employees. All of our management,
administrative and operating functions are performed by
employees of EPCO, our ultimate parent company, pursuant to the
Administrative Services Agreement. For a discussion of the
Administrative Services Agreement, please read Item 13 of
our latest Annual Report on Form 10-K.
Our principal executive offices are located at 2727 North Loop
West, Houston, Texas 77008-1038, and our telephone number is
(713) 880-6500.
2
RISK FACTORS
An investment in our securities involves risks. You should
consider carefully the following risk factors, together with all
of the other information included in, or incorporated by
reference into, this prospectus and any prospectus supplement in
evaluating an investment in our securities. This prospectus also
contains forward-looking statements that involve risks and
uncertainties. Please read Forward-Looking
Statements. Our actual results could differ materially
from those anticipated in the forward-looking statements as a
result of certain factors, including the risks described below
and the other information included in, or incorporated by
reference into, this prospectus. If any of these risks occur,
our business, financial condition or results of operations could
be adversely affected.
Risks Related to Our Business
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Changes in the prices of hydrocarbon products may
materially adversely affect our results of operations, cash
flows and financial condition. |
We operate predominantly in the midstream energy sector which
includes gathering, transporting, processing, fractionating and
storing natural gas, NGLs and crude oil. As such, our results of
operations, cash flows and financial condition may be materially
adversely affected by changes in the prices of these hydrocarbon
products and by changes in the relative price levels among these
hydrocarbon products. In general terms, the prices of natural
gas, NGLs, crude oil and other hydrocarbon products are subject
to fluctuations in response to changes in supply, market
uncertainty and a variety of additional factors that are
impossible to control. These factors include:
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the level of domestic production; |
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the availability of imported oil and natural gas; |
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actions taken by foreign oil and natural gas producing nations; |
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the availability of transportation systems with adequate
capacity; |
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the availability of competitive fuels; |
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fluctuating and seasonal demand for oil, natural gas and
NGLs; and |
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conservation and the extent of governmental regulation of
production and the overall economic environment. |
We are also exposed to natural gas and NGL commodity price risk
under natural gas processing and gathering and NGL fractionation
contracts that provide for our fee to be calculated based on a
regional natural gas or NGL price index or to be paid in-kind by
taking title to natural gas or NGLs. A decrease in natural gas
and NGL prices can result in lower margins from these contracts,
which may materially adversely affect our results of operations,
cash flows and financial position.
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A decline in the volume of natural gas, NGLs and crude oil
delivered to our facilities could adversely affect our results
of operations, cash flows and financial condition. |
Our profitability could be materially impacted by a decline in
the volume of natural gas, NGLs and crude oil transported,
gathered or processed at our facilities. A material decrease in
natural gas or crude oil production or crude oil refining, as a
result of depressed commodity prices, a decrease in exploration
and development activities or otherwise, could result in a
decline in the volume of natural gas, NGLs and crude oil handled
by our facilities.
The crude oil, natural gas and NGLs available to our facilities
will be derived from reserves produced from existing wells,
which reserves naturally decline over time. To offset this
natural decline, our facilities will need access to additional
reserves. Additionally, some of our facilities will be dependent
on reserves that are expected to be produced from newly
discovered properties that are currently being developed.
3
Exploration and development of new oil and natural gas reserves
is capital intensive, particularly offshore in the Gulf of
Mexico. Many economic and business factors are out of our
control and can adversely affect the decision by producers to
explore for and develop new reserves. These factors could
include relatively low oil and natural gas prices, cost and
availability of equipment, regulatory changes, capital budget
limitations or the lack of available capital. For example, a
sustained decline in the price of natural gas and crude oil
could result in a decrease in natural gas and crude oil
exploration and development activities in the regions where our
facilities are located. This could result in a decrease in
volumes to our offshore platforms, natural gas processing
plants, natural gas, crude oil and NGL pipelines, and NGL
fractionators which would have a material adverse affect on our
results of operations, cash flows and financial position.
Additional reserves, if discovered, may not be developed in the
near future or at all.
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A reduction in demand for NGL products by the
petrochemical, refining or heating industries could materially
adversely affect our results of operations, cash flows and
financial position. |
A reduction in demand for NGL products by the petrochemical,
refining or heating industries, whether because of general
economic conditions, reduced demand by consumers for the end
products made with NGL products, increased competition from
petroleum-based products due to pricing differences, adverse
weather conditions, government regulations affecting prices and
production levels of natural gas or the content of motor
gasoline or other reasons, could materially adversely affect our
results of operations, cash flows and financial position. For
example:
Ethane. If natural gas prices increase significantly in
relation to ethane prices, it may be more profitable for natural
gas producers to leave the ethane in the natural gas stream to
be burned as fuel than to extract the ethane from the mixed NGL
stream for sale.
Propane. The demand for propane as a heating fuel is
significantly affected by weather conditions. Unusually warm
winters could cause the demand for propane to decline
significantly and could cause a significant decline in the
volumes of propane that the combined company transports.
Isobutane. Any reduction in demand for motor gasoline
additives may reduce demand for isobutane. During periods in
which the difference in market prices between isobutane and
normal butane is low or inventory values are high relative to
current prices for normal butane or isobutane, our operating
margin from selling isobutane could be reduced.
Propylene. Any downturn in the domestic or international
economy could cause reduced demand for propylene, which could
cause a reduction in the volumes of propylene that we produce
and expose our investment in inventories of propane/ propylene
mix to pricing risk due to requirements for short-term price
discounts in the spot or short-term propylene markets.
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We face competition from third parties in our midstream
businesses. |
Even if reserves exist in the areas accessed by our facilities
and are ultimately produced, we may not be chosen by the
producers in these areas to gather, transport, process,
fractionate, store or otherwise handle the hydrocarbons that are
produced. We compete with others, including producers of oil and
natural gas, for any such production on the basis of many
factors, including:
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geographic proximity to the production; |
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costs of connection; |
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available capacity; |
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rates; and |
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access to markets. |
4
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Our debt level may limit our future financial and
operating flexibility. |
As of December 31, 2004, we had approximately
$4.3 billion of consolidated debt outstanding. The amount
of our debt could have significant effects on our future
operations, including, among other things:
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a significant portion of our cash flow from operations will be
dedicated to the payment of principal and interest on
outstanding debt and will not be available for other purposes,
including payment of distributions on our common units and
capital expenditures; |
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credit rating agencies may view our debt level negatively; |
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covenants contained in our existing debt arrangements will
require us to continue to meet financial tests that may
adversely affect our flexibility in planning for and reacting to
changes in our business; |
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our ability to obtain additional financing for working capital,
capital expenditures, acquisitions and general partnership
purposes may be limited; |
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we may be at a competitive disadvantage relative to similar
companies that have less debt; and |
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we may be more vulnerable to adverse economic and industry
conditions as a result of our significant debt level. |
Our public debt indentures currently do not limit the amount of
future indebtedness that we can create, incur, assume or
guarantee. Our revolving credit facilities, however, restrict
our ability to incur additional debt, though any debt we may
incur in compliance with these restrictions may still be
substantial.
Our multi-year revolving credit facility and the indentures
governing our public debt contain conventional financial
covenants and other restrictions. A breach of any of these
restrictions by us could permit the lenders to declare all
amounts outstanding under those debt agreements to be
immediately due and payable and, in the case of the credit
facility, to terminate all commitments to extend further credit.
Our ability to access the capital markets to raise capital on
favorable terms will be affected by our debt level, the amount
of our debt maturing in the next several years and current
maturities, and by adverse market conditions resulting from,
among other things, general economic conditions, contingencies
and uncertainties that are difficult to predict and impossible
to control. Moreover, if the rating agencies were to downgrade
our corporate credit, then we could experience an increase in
our borrowing costs, difficulty assessing capital markets or a
reduction in the market price of our common units. Such a
development could adversely affect our ability to obtain
financing for working capital, capital expenditures or
acquisitions or to refinance existing indebtedness. If we are
unable to access the capital markets on favorable terms in the
future, we might be forced to seek extensions for some of our
short-term securities or to refinance some of our debt
obligations through bank credit, as opposed to long-term public
debt securities or equity securities. The price and terms upon
which we might receive such extensions or additional bank
credit, if at all, could be more onerous than those contained in
existing debt agreements. Any such arrangements could, in turn,
increase the risk that our leverage may adversely affect our
future financial and operating flexibility and our ability to
pay cash distributions at expected rates.
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We may not be able to fully execute our growth strategy if
we encounter illiquid capital markets or increased competition
for qualified assets. |
Our strategy contemplates growth through the development and
acquisition of a wide range of midstream and other energy
infrastructure assets while maintaining a strong balance sheet.
This strategy includes constructing and acquiring additional
assets and businesses to enhance our ability to compete
effectively and diversify our asset portfolio, thereby providing
more stable cash flow. We regularly consider and enter into
discussions regarding, and are currently contemplating,
potential joint ventures, stand alone projects or other
transactions that we believe will present opportunities to
realize synergies, expand our role in the energy infrastructure
business and increase our market position.
5
We may require substantial new capital to finance the future
development and acquisition of assets and businesses.
Limitations on our access to capital will impair our ability to
execute this strategy. Expensive capital will limit our ability
to develop or acquire accretive assets. We may not be able to
raise the necessary funds on satisfactory terms, if at all.
In addition, we are experiencing increased competition for the
assets we purchase or contemplate purchasing. Increased
competition for a limited pool of assets could result in our
losing to other bidders more often or acquiring assets at higher
prices. Either occurrence would limit our ability to fully
execute our growth strategy. Our inability to execute our growth
strategy may materially adversely impact the market price of our
securities.
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Our growth strategy may adversely affect our results of
operations if we do not successfully integrate the businesses
that we acquire, including GulfTerra, or if we substantially
increase our indebtedness and contingent liabilities to make
acquisitions. |
Our growth strategy includes making accretive acquisitions. As a
result, from time to time, we will evaluate and acquire assets
and businesses that we believe complement our existing
operations. Similar to the risks associated with integrating our
operations with GulfTerras operations, we may be unable to
integrate successfully businesses we acquire in the future. We
may incur substantial expenses or encounter delays or other
problems in connection with our growth strategy that could
negatively impact our results of operations, cash flows and
financial condition. Moreover, acquisitions and business
expansions involve numerous risks, including:
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difficulties in the assimilation of the operations,
technologies, services and products of the acquired companies or
business segments; |
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establishing the internal controls and procedures that we are
required to maintain under the Sarbanes-Oxley Act of 2002; |
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managing relationships with new joint venture partners with whom
we have not previously partnered; |
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inefficiencies and complexities that can arise because of
unfamiliarity with new assets and the businesses associated with
them, including with their markets; and |
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diversion of the attention of management and other personnel
from day-to-day business to the development or acquisition of
new businesses and other business opportunities. |
If consummated, any acquisition or investment would also likely
result in the incurrence of indebtedness and contingent
liabilities and an increase in interest expense and
depreciation, depletion and amortization expenses. As a result,
our capitalization and results of operations may change
significantly following an acquisition. A substantial increase
in our indebtedness and contingent liabilities could have a
material adverse effect on our business. In addition, any
anticipated benefits of a material acquisition, such as expected
cost savings, may not be fully realized, if at all.
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Our operating cash flows from our capital projects may not
be immediate. |
We are engaged in several capital expansion projects and
greenfield projects for which significant capital
has been expended, and our operating cash flow from a particular
project may not increase immediately following its completion.
For instance, if we build a new pipeline or platform or expand
an existing facility, the design, construction, development and
installation may occur over an extended period of time, and we
may not receive any material increase in operating cash flow
from that project until after it is placed in service. If we
experience unanticipated or extended delays in generating
operating cash flow from these projects, we may be required to
reduce or reprioritize our capital budget, sell non-core assets,
access the capital markets or decrease distributions to
unitholders in order to meet our capital requirements.
6
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Our actual construction, development and acquisition costs
could exceed forecasted amounts. |
We will have significant expenditures for the development,
construction or other acquisition of energy infrastructure
assets, including some construction and development projects
with significant technological challenges. For example,
underwater operations, especially those in water depths in
excess of 600 feet, are very expensive and involve much
more uncertainty and risk, and if a problem occurs, the
solution, if one exists, may be very expensive and time
consuming. We may not be able to complete our projects, whether
in deepwater or otherwise, at the costs estimated at the time of
initiation.
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We may be unable to cause our joint ventures to take or
not to take certain actions unless some or all of our joint
venture participants agree. |
We participate in several joint ventures. Due to the nature of
some of these joint ventures, each participant in each of these
joint ventures has made substantial investments in the joint
venture and, accordingly, has required that the relevant
organizational documents contain certain features designed to
provide each participant with the opportunity to participate in
the management of the joint venture and to protect its
investment in that joint venture, as well as any other assets
which may be substantially dependent on or otherwise affected by
the activities of that joint venture. These participation and
protective features include a corporate governance structure
that requires at least a majority in interest vote to authorize
many basic activities and requires a greater voting interest
(sometimes up to 100%) to authorize more significant activities.
Examples of these more significant activities are large
expenditures or contractual commitments, the construction or
acquisition of assets, borrowing money or otherwise raising
capital, transactions with affiliates of a joint venture
participant, litigation and transactions not in the ordinary
course of business, among others. Thus, without the concurrence
of joint venture participants with enough voting interests, we
may be unable to cause any of our joint ventures to take or not
to take certain actions, even though those actions may be in the
best interest of us or the particular joint venture.
Moreover, any joint venture owner may sell, transfer or
otherwise modify its ownership interest in a joint venture,
whether in a transaction involving third parties or the other
joint venture owners. Any such transaction could result in our
partnering with different or additional parties.
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The interruption of distributions to us from our
subsidiaries and joint ventures may affect our ability to
satisfy our obligations and to make cash distributions to our
unitholders. |
We are a holding company with no business operations. Our only
significant assets are the equity interests we own in our
subsidiaries and joint ventures. As a result, we depend upon the
earnings and cash flow of our subsidiaries and joint ventures
and the distribution of that cash to us in order to meet our
obligations and to allow us to make distributions to our
unitholders.
In addition, the management committees of the joint ventures in
which we participate typically have sole discretion regarding
the occurrence and amount of distributions. Some of the joint
ventures in which we participate have separate credit
arrangements that contain various restrictive covenants. Among
other things, those covenants may limit or restrict the joint
ventures ability to make distributions to us under certain
circumstances. Accordingly, our joint ventures may be unable to
make distributions to us at current levels or at all.
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A natural disaster, catastrophe or other event could
result in severe personal injury, property damage and
environmental damage, which could curtail our operations and
otherwise materially adversely affect our cash flow. |
Some of our operations involve risks of personal injury,
property damage and environmental damage, which could curtail
our operations and otherwise materially adversely affect our
cash flow. For example, natural gas facilities operate at high
pressures, sometimes in excess of 1,100 pounds per square inch.
We also operate oil and natural gas facilities located
underwater in the Gulf of Mexico, which can involve
complexities, such as extreme water pressure. Virtually all of
our operations are exposed to potential natural disasters,
including hurricanes, tornadoes, storms, floods and/or
earthquakes.
7
If one or more facilities that are owned by us or that deliver
oil, natural gas or other products to us are damaged by severe
weather or any other disaster, accident, catastrophe or event,
our operations could be significantly interrupted. Similar
interruptions could result from damage to production or other
facilities that supply our facilities or other stoppages arising
from factors beyond our control. These interruptions might
involve significant damage to people, property or the
environment, and repairs might take from a week or less for a
minor incident to six months or more for a major interruption.
Additionally, some of the storage contracts that we are a party
to obligate us to indemnify our customers for any damage or
injury occurring during the period in which the customers
natural gas is in our possession. Any event that interrupts the
fees generated by our energy infrastructure assets, or which
causes us to make significant expenditures not covered by
insurance, could reduce our cash available for paying our
interest obligations as well as unitholder distributions and,
accordingly, adversely affect the market price of our securities.
We believe that we maintain adequate insurance coverage,
although insurance will not cover many types of interruptions
that might occur. As a result of market conditions, premiums and
deductibles for certain insurance policies can increase
substantially, and in some instances, certain insurance may
become unavailable or available only for reduced amounts of
coverage. As a result, we may not be able to renew our existing
insurance policies or procure other desirable insurance on
commercially reasonable terms, if at all. If we were to incur a
significant liability for which we were not fully insured, it
could have a material adverse effect on our financial position
and results of operations. In addition, the proceeds of any such
insurance may not be paid in a timely manner and may be
insufficient if such an event were to occur.
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An impairment of goodwill could reduce our
earnings. |
We had recorded $445.9 million of goodwill and
$961.9 million of intangible assets on our consolidated
balance sheet as of September 30, 2004. Goodwill is
recorded when the purchase price of a business exceeds the fair
market value of the tangible and separately measurable
intangible net assets. GAAP will require us to test goodwill for
impairment on an annual basis or when events or circumstances
occur indicating that goodwill might be impaired. Long-lived
assets such as intangible assets with finite useful lives are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be
recoverable. If we determine that any of our goodwill or
intangible assets were impaired, we would be required to take an
immediate charge to earnings with a correlative effect on
partners equity and balance sheet leverage as measured by
debt to total capitalization.
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Increases in interest rates could adversely affect our
business and may cause the market price of our common units to
decline. |
In addition to our exposure to commodity prices, we have
significant exposure to increases in interest rates. As of
December 31, 2004, we had approximately $4.3 billion
of consolidated debt, of which approximately $2.9 billion
was at fixed interest rates and approximately $1.4 billion
was at variable interest rates, after giving effect to existing
interest swap arrangements. We may from time to time enter into
additional interest rate swap arrangements, which could increase
our exposure to variable interest rates. As a result, our
results of operations, cash flows and financial condition, could
be materially adversely affected by significant increases in
interest rates.
An increase in interest rates may also cause a corresponding
decline in demand for equity investments in general, and in
particular for yield-based equity investments such as our common
units. Any such reduction in demand for our common units
resulting from other more attractive investment opportunities
may cause the trading price of our common units to decline.
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The use of derivative financial instruments could result
in material financial losses by us. |
We historically have sought to limit a portion of the adverse
effects resulting from changes in oil and natural gas commodity
prices and interest rates by using financial derivative
instruments and other hedging mechanisms from time to time. To
the extent that we hedge our commodity price and interest rate
exposures, we will forego the benefits we would otherwise
experience if commodity prices or interest rates
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were to change in our favor. In addition, even though monitored
by management, hedging activities can result in losses. Such
losses could occur under various circumstances, including if a
counterparty does not perform its obligations under the hedge
arrangement, the hedge is imperfect, or hedging policies and
procedures are not followed.
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Our pipeline integrity program may impose significant
costs and liabilities on us. |
In December 2003, the U.S. Department of Transportation
issued a final rule (effective as of February 14, 2004)
requiring pipeline operators to develop integrity management
programs to comprehensively evaluate their pipelines, and take
measures to protect pipeline segments located in what the rule
refers to as high consequence areas. The final rule
resulted from the enactment of the Pipeline Safety Improvement
Act of 2002. At this time, we cannot predict the outcome of this
rule on us. However, we will continue our pipeline integrity
testing programs, which are intended to assess and maintain the
integrity of our pipelines. While the costs associated with the
pipeline integrity testing itself are not large, the results of
these tests could cause us to incur significant and
unanticipated capital and operating expenditures for repairs or
upgrades deemed necessary to ensure the continued safe and
reliable operation of our pipelines.
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Environmental costs and liabilities and changing
environmental regulation could materially affect our cash
flow. |
Our operations are subject to extensive federal, state and local
regulatory requirements relating to environmental affairs,
health and safety, waste management and chemical and petroleum
products. Governmental authorities have the power to enforce
compliance with applicable regulations and permits and to
subject violators to civil and criminal penalties, including
substantial fines, injunctions or both. Third parties may also
have the right to pursue legal actions to enforce compliance.
We will make expenditures in connection with environmental
matters as part of normal capital expenditure programs. However,
future environmental law developments, such as stricter laws,
regulations, permits or enforcement policies, could
significantly increase some costs of our operations, including
the handling, manufacture, use, emission or disposal of
substances and wastes. Moreover, as with other companies engaged
in similar or related businesses, our operations have some risk
of environmental costs and liabilities because we handle
petroleum products.
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Federal, state or local regulatory measures could
materially adversely affect our business. |
The Federal Energy Regulatory Commission, or FERC, regulates our
interstate natural gas pipelines, interstate natural gas storage
facilities and interstate NGL and petrochemical pipelines, while
state regulatory agencies regulate our intrastate natural gas
and NGL pipelines, intrastate storage facilities and gathering
lines. This federal and state regulation extends to such matters
as:
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rate structures; |
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rates of return on equity; |
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recovery of costs; |
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the services that our regulated assets are permitted to perform; |
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the acquisition, construction and disposition of assets; and |
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to an extent, the level of competition in that regulated
industry. |
Our latest Annual Report on Form 10-K, which is
incorporated by reference into this prospectus, contains a
general overview of FERC and state regulation applicable to our
energy infrastructure assets. This regulatory oversight can
affect certain aspects of our business and the market for our
products and could materially adversely affect our cash flow.
Please read Business and Properties Regulation
and Environmental Matters in our latest Annual Report on
Form 10-K.
9
Under the Natural Gas Act, FERC has authority to regulate our
natural gas companies that provide natural gas pipeline
transportation services in interstate commerce. Its authority to
regulate those services includes the rates charged for the
services, terms and conditions of service, certification and
construction of new facilities, the acquisition, extension,
disposition or abandonment of facilities, the maintenance of
accounts and records, the initiation and discontinuation of
services, and various other matters. Pursuant to FERCs
jurisdiction over interstate gas pipeline rates, existing
pipeline rates may be challenged by customer complaint or by the
FERC and proposed rate increases may be challenged by protest.
For example, in December 2002, High Island Offshore System,
L.L.C., or HIOS, an interstate natural gas pipeline owned by us,
filed a rate case pursuant to Section 4 of the Natural Gas
Act before FERC to increase its transportation rates. FERC
accepted HIOS tariff sheets implementing the new rates,
subject to refund, and set certain issues for hearing before an
Administrative Law Judge, or ALJ. The ALJ issued an initial
decision on the issues set for hearing on April 22, 2004,
proposing rates lower than the rate initially proposed by HIOS.
In response to the ALJs initial decision, HIOS filed, on
August 5, 2004, a settlement agreement whereby HIOS
proposed to implement its rates in effect prior to this
proceeding for a prospective three-year period.
On January 24, 2005, FERC issued an order rejecting
HIOSs settlement offer and generally affirming the
ALJs initial decision, resulting in rates significantly
lower than the rate proposed in HIOS settlement offer.
FERCs January 24 order may be subject to requests for
rehearing and appeal to federal court. We are not able to
predict the outcome of the HIOS proceeding, but an adverse
outcome in this proceeding or any other rate case proceedings to
which we may be a party in the future could adversely affect our
results of operations, cash flows and financial position.
FERC also has authority under the Interstate Commerce Act, or
ICA, to regulate the rates, terms, and conditions applied to our
interstate pipelines engaged in the transportation of NGLs and
petrochemicals (commonly known as oil pipelines).
Pursuant to the ICA, oil pipeline rates can be challenged at
FERC either by protest, when they are initially filed or
increased, or by complaint at any time they remain on file with
the jurisdictional agency.
We have interests in natural gas pipeline facilities offshore
from Texas and Louisiana. These facilities are subject to
regulation by FERC and other federal agencies, including the
Department of Interior, under the Outer Continental Shelf Lands
Act, and by the Department of Transportations Office of
Pipeline Safety under the Natural Gas Pipeline Safety Act.
Our intrastate NGL and natural gas pipelines are subject to
regulation in Alabama, Colorado, Louisiana, Mississippi, New
Mexico and Texas. We also have natural gas underground storage
facilities in Louisiana, Mississippi and Texas. Some of our
intrastate natural gas pipelines and storage facilities are
subject to regulation by the FERC pursuant to Section 311
of the Natural Gas Policy Act, or NGPA. Although state
regulation is typically less onerous than at FERC, proposed and
existing rates subject to state regulation are also subject to
challenge by protest and complaint, respectively.
On July 20, 2004, the United States Court of Appeals for
the District of Columbia Circuit issued its opinion in BP West
Coast Products, LLC v. FERC, which upheld FERCs
determination that SFPPs rates were grandfathered rates
under the Energy Policy Act and that SFPPs shippers had
not demonstrated substantially changed circumstances that would
justify modification of those rates. The court also stated that
FERC had not provided reasonable decision-making in support of
its Lakehead policy. In Lakehead, the FERC allowed a regulated
entity organized as a master limited partnership to include in
its cost of service an income tax allowance to the extent that
its unitholders were corporations subject to income tax. The
court remanded the issue of the appropriate income tax allowance
for a pipeline owned by a master limited partnership and the
issue of whether SFPPs revised cost of service without the
tax allowance would qualify as a substantially changed
circumstance that would justify modification of SFPPs
rates. Because the court remanded to the FERC and because the
FERCs ruling will focus on the facts and record presented
to it, it is not clear what impact, if any, the opinion will
have on our rates or on the rates of other FERC-jurisdictional
pipelines organized as tax pass-through entities. On
December 2, 2004, the FERC issued a Notice of Inquiry in
Docket No. PL05-5 suggesting that BP West Coast may not be
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limited to the specific facts. Specifically, FERC requested
comments regarding whether the courts opinion should apply
only to the specific facts of that case, or whether it should
apply more broadly, and, if the latter, what effect that ruling
might have on energy infrastructure investments. It is not clear
what action the FERC will take in response to BP West Coast
after considering comments filed, to what extent such action
will be challenged and, if so, whether it will withstand further
FERC or judicial review.
Parties could challenge the rates of our common carrier
interstate liquid pipelines and our interstate natural gas
pipelines and argue that the rationale in the BP West Coast
decision, regarding tax allowances, should be applied. While it
is possible that party might challenge these rates, it is not
possible to predict the likelihood that such a challenge would
succeed at the FERC.
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Terrorist attacks aimed at our facilities could adversely
affect our business. |
Since the September 11, 2001 terrorist attacks on the
United States, the United States government has issued warnings
that energy assets, including our nations pipeline
infrastructure, may be the future target of terrorist
organizations. Any terrorist attack on our facilities, those of
our customers and, in some cases, those of other pipelines,
could have a material adverse effect on our business. An
escalation of political tensions in the Middle East and
elsewhere, such as the recent commencement of United States
military action in Iraq, could result in increased volatility in
the worlds energy markets and result in a material adverse
effect on our business.
Risks Related to Our Common Units as a Result of Our
Partnership Structure
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We may not have sufficient cash from operations to pay
distributions at the current level following establishment of
cash reserves and payments of fees and expenses, including
payments to our general partner. |
Because distributions on our common units are dependent on the
amount of cash we generate, distributions may fluctuate based on
our performance. We cannot guarantee that we will continue to
pay distributions at the current level each quarter. The actual
amount of cash that is available to be distributed each quarter
will depend upon numerous factors, some of which are beyond our
control and the control of our general partner. These factors
include but are not limited to the following:
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the level of our operating costs; |
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the level of competition in our business segments; |
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prevailing economic conditions; |
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the level of capital expenditures we make; |
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the restrictions contained in our debt agreements and our debt
service requirements; |
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fluctuations in our working capital needs; |
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the cost of acquisitions, if any; and |
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the amount, if any, of cash reserves established by our general
partner, in its discretion. |
In addition, you should be aware that our ability to pay the
minimum quarterly distribution each quarter depends primarily on
our cash flow, including cash flow from financial reserves and
working capital borrowings, and not solely on profitability,
which is affected by non-cash items. As a result, we may make
cash distributions during periods when we record losses and we
may not make distributions during periods when we record net
income.
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We do not have the same flexibility as other types of
organizations to accumulate cash and equity to protect against
illiquidity in the future. |
Unlike a corporation, our partnership agreement requires us to
make quarterly distributions to our unitholders of all available
cash reduced by any amounts of reserves for commitments and
contingencies,
11
including capital and operating costs and debt service
requirements. The value of our common units may decrease in
direct correlation with decreases in the amount we distribute
per common unit. Accordingly, if we experience a liquidity
problem in the future, we may not be able to issue more equity
to recapitalize.
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Cost reimbursements due our general partner may be
substantial and will reduce our cash available for distribution
to holders of common units. |
Prior to making any distribution on our common units, we will
reimburse our general partner and its affiliates, including
officers and directors of our general partner, for expenses they
incur on our behalf. The reimbursement of expenses could
adversely affect our ability to pay cash distributions to
holders of common units. Our general partner has sole discretion
to determine the amount of these expenses, subject to an annual
limit. In addition, our general partner and its affiliates may
provide us other services for which we will be charged fees as
determined by our general partner.
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Our general partner and its affiliates have limited
fiduciary responsibilities and conflicts of interest with
respect to our partnership. |
The directors and officers of our general partner and its
affiliates have duties to manage the general partner in a manner
that is beneficial to its members. At the same time, our general
partner has duties to manage our partnership in a manner that is
beneficial to us. Therefore, our general partners duties
to us may conflict with the duties of its officers and directors
to its members.
Such conflicts may include, among others, the following:
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decisions of our general partner regarding the amount and timing
of asset purchases and sales, cash expenditures, borrowings,
issuances of additional units and reserves in any quarter may
affect the level of cash available to pay quarterly
distributions to unitholders and the general partner; |
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under our partnership agreement, our general partner determines
which costs incurred by it and its affiliates are reimbursable
by us; |
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our general partner is allowed to take into account the
interests of parties other than us, such as EPCO, in resolving
conflicts of interest, which has the effect of limiting its
fiduciary duty to unitholders; |
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affiliates of our general partner may compete with us in certain
circumstances; |
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our general partner may limit its liability and reduce its
fiduciary duties, while also restricting the remedies available
to unitholders for actions that might, without the limitations,
constitute breaches of fiduciary duty. As a result of purchasing
units, you are deemed to consent to some actions and conflicts
of interest that might otherwise constitute a breach of
fiduciary or other duties under applicable law; |
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we do not have any employees and we rely solely on employees of
the general partner and its affiliates; and |
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in some instances, our general partner may cause us to borrow
funds in order to permit the payment of distributions, even if
the purpose or effect of the borrowing is to make incentive
distributions. |
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Even if unitholders are dissatisfied, they cannot easily
remove our general partner. |
Unlike the holders of common stock in a corporation, unitholders
have only limited voting rights on matters affecting our
business and, therefore, limited ability to influence
managements decisions regarding our business. Unitholders
did not elect our general partner or the directors of the
general partner and will have no right to elect our general
partner or the directors of our general partner on an annual or
other continuing basis.
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Furthermore, if unitholders are dissatisfied with the
performance of our general partner, they will have little
ability to remove our general partner without its consent. Our
general partner may not be removed except upon the vote of the
holders of at least 64% of the outstanding units voting together
as a single class. Because affiliates of our general partner own
more than 36% of our outstanding units, the general partner
currently cannot be removed without the consent of the general
partner and its affiliates.
Unitholders voting rights are further restricted by the
partnership agreement provision stating that any units held by a
person that owns 20% or more of any class of units then
outstanding, other than our general partner and its affiliates,
cannot be voted on any matter. In addition, the partnership
agreement contains provisions limiting the ability of
unitholders to call meetings or to acquire information about our
operations, as well as other provisions limiting the
unitholders ability to influence the manner or direction
of management.
As a result of these provisions, the price at which the common
units will trade may be lower because of the absence or
reduction of a takeover premium in the trading price.
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We may issue additional common units without the approval
of common unitholders, which would dilute their existing
ownership interests. |
The issuance of additional common units or other equity
securities of equal or senior rank will have the following
effects:
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the proportionate ownership interest of common unitholders in us
will decrease; |
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the amount of cash available for distribution on each unit may
decrease; |
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the relative voting strength of each previously outstanding unit
may be diminished; and |
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the market price of the common units may decline. |
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Our general partner has a limited call right that may
require common unitholders to sell their units at an undesirable
time or price. |
If at any time our general partner and its affiliates own 85%
more of the common units then outstanding, our general partner
will have the right, but not the obligation, which it may assign
to any of its affiliates or to us, to acquire all, but not less
than all, of the remaining common units held by unaffiliated
persons at a price not less than their then current market
price. As a result, common unitholders may be required to sell
their common units at an undesirable time or price and may
therefore not receive any return on their investment. They may
also incur a tax liability upon a sale of their units. Under our
partnership agreement, Shell is not deemed to be an affiliate of
our general partner for purposes of this limited call right.
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Common unitholders may not have limited liability if a
court finds that limited partner actions constitute control of
our business. |
Under Delaware law, common unitholders could be held liable for
our obligations to the same extent as a general partner if a
court determined that the right of limited partners to remove
our general partner or to take other action under the
partnership agreement constituted participation in the
control of our business.
Under Delaware law, the general partner generally has unlimited
liability for the obligations of the partnership, such as its
debts and environmental liabilities, except for those
contractual obligations of the partnership that are expressly
made without recourse to the general partner.
In addition, Section 17-607 of the Delaware Revised Uniform
Limited Partnership Act provides that, under some circumstances,
a limited partner may be liable to us for the amount of a
distribution for a period of three years from the date of the
distribution.
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A large number of our outstanding common units may be sold
in the market, which may depress the market price of our common
units. |
Sales of a substantial number of our common units in the public
market could cause the market price of our common units to
decline. As of March 1, 2005, a total of approximately
381.3 million of our common units were outstanding. Shell
owns 36,572,122 of our common units, representing approximately
9.6% of our outstanding common units at March 1, 2005, and
has publicly announced its intention to reduce its holdings of
our common units on an orderly schedule over a period of years,
taking into account market conditions. Under a registration
rights agreement, we are obligated, subject to certain
limitations and conditions, to register the common units held by
Shell for resale. All of the common units held by Shell are
registered for resale under the registration statement of which
this prospectus is a part. Please read Selling
Unitholders and Plan of Distribution
Distribution by Selling Unitholders.
Sales of a substantial number of these common units in the
trading markets, whether in a single transaction or series of
transactions, or the possibility that these sales may occur,
could reduce the market price of our outstanding common units.
In addition, these sales, or the possibility that these sales
may occur, could make it more difficult for us to sell our
common units in the future.
Tax Risks to Common Unitholders
You are urged to read Material Tax Consequences
beginning on page 41 for a more complete discussion of the
expected material federal income tax consequences of owning and
disposing of common units.
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The IRS could treat us as a corporation for tax purposes,
which would substantially reduce the cash available for
distribution to common unitholders. |
The anticipated after-tax economic benefit of an investment in
the common units depends largely on our being treated as a
partnership for federal income tax purposes. We have not
requested, and do not plan to request, a ruling from the IRS on
this matter.
If we were classified as a corporation for federal income tax
purposes, we would pay federal income tax on our income at the
corporate tax rate, which is currently a maximum of 35%, and we
likely would pay state taxes as well. Distributions to you would
generally be taxed again to you as corporate distributions, and
no income, gains, losses or deductions would flow through to
you. Because a tax would be imposed upon us as a corporation,
the cash available for distribution to you would be
substantially reduced. Therefore, treatment of us as a
corporation would result in a material reduction in the
after-tax return to you, likely causing a substantial reduction
in the value of the common units.
A change in current law or a change in our business could cause
us to be taxed as a corporation for federal income tax purposes
or otherwise subject us to entity-level taxation. Our
partnership agreement provides that, if a law is enacted or
existing law is modified or interpreted in a manner that
subjects us to taxation as a corporation or otherwise subjects
us to entity-level taxation for federal, state or local income
tax purposes, then the minimum quarterly distribution and the
target distribution levels will be decreased to reflect that
impact on us.
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A successful IRS contest of the federal income tax
positions we take may adversely impact the market for common
units, and the costs of any contests will be borne by our
unitholders and our general partner. |
We have not requested a ruling from the IRS with respect to any
matter affecting us. The IRS may adopt positions that differ
from the conclusions of our counsel expressed in the
accompanying prospectus or from the positions we take. It may be
necessary to resort to administrative or court proceedings to
sustain some or all of our counsels conclusions or the
positions we take. A court may not agree with some or all of our
counsels conclusions or the positions we take. Any contest
with the IRS may materially and adversely impact the market for
common units and the price at which they trade. In addition, the
costs of
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any contest with the IRS, principally legal, accounting and
related fees, will be borne indirectly by our unitholders and
our general partner.
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Common unitholders may be required to pay taxes even if
they do not receive any cash distributions. |
Common unitholders will be required to pay federal income taxes
and, in some cases, state, local and foreign income taxes on
their share of our taxable income even if they do not receive
any cash distributions from us. They may not receive cash
distributions from us equal to their share of our taxable income
or even equal to the actual tax liability that results from
their share of our taxable income.
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Tax gain or loss on the disposition of common units could
be different than expected. |
If you sell your common units, you will recognize gain or loss
equal to the difference between the amount realized and your tax
basis in those common units. Prior distributions to you in
excess of the total net taxable income you were allocated for a
common unit, which decreased your tax basis in that common unit,
will, in effect, become taxable income to you if the common unit
is sold at a price greater than your tax basis in that common
unit, even if the price you receive is less than your original
cost. A substantial portion of the amount realized, whether or
not representing gain, may be ordinary income to you.
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Tax-exempt entities, regulated investment companies and
foreign persons face unique tax issues from owning common units
that may result in adverse tax consequences to them. |
Investment in common units by tax-exempt entities, such as
individual retirement accounts (known as IRAs), regulated
investment companies (known as mutual funds) and foreign persons
raises issues unique to them. For example, virtually all of our
income allocated to unitholders who are organizations exempt
from federal income tax, including individual retirement
accounts and other retirement plans, will be unrelated business
taxable income and will be taxable to them. Recent legislation
treats net income derived from the ownership of certain publicly
traded partnerships (including us) as qualifying income to a
regulated investment company. However, this legislation is only
effective for taxable years beginning after October 22,
2004, the date of enactment. For taxable years beginning prior
to the date of enactment, very little of our income will be
qualifying income to a regulated investment company.
Distributions to non-U.S. persons will be reduced by
withholding taxes at the highest applicable effective tax rate,
and non-U.S. persons will be required to file United States
federal income tax returns and pay tax on their share of our
taxable income.
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We will treat each purchaser of common units as having the
same tax benefits without regard to the units purchased. The IRS
may challenge this treatment, which could adversely affect the
value of our common units. |
Because we cannot match transferors and transferees of common
units, we adopt depreciation and amortization positions that may
not conform with all aspects of applicable Treasury regulations.
A successful IRS challenge to those positions could adversely
affect the amount of tax benefits available to a common
unitholder. It also could affect the timing of these tax
benefits or the amount of gain from a sale of common units and
could have a negative impact on the value of the common units or
result in audit adjustments to the common unitholders tax
returns.
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Common unitholders will likely be subject to state and
local taxes and return filing requirements in states where they
do not live as a result of an investment in our common
units. |
In addition to federal income taxes, common unitholders will
likely be subject to other taxes, including state and local
income taxes, unincorporated business taxes and estate,
inheritance or intangible taxes that are imposed by the various
jurisdictions in which we do business or own property and in
which they do not reside. Common unitholders will likely be
required to file state and local income tax returns and pay
state and local income taxes in some or all of the various
jurisdictions in which we do business or own property. Further,
they may be subject to penalties for failure to comply with
those requirements. It is
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the responsibility of the common unitholder to file all United
States federal, state and local tax returns. Our counsel has not
rendered an opinion on the state or local tax consequences of an
investment in the common units.
USE OF PROCEEDS
We will use the net proceeds from any sale of securities
described in this prospectus for future business acquisitions
and other general corporate purposes, such as working capital,
investments in subsidiaries, the retirement of existing debt
and/or the repurchase of common units or other securities. The
prospectus supplement will describe the actual use of the net
proceeds from the sale of securities. The exact amounts to be
used and when the net proceeds will be applied to corporate
purposes will depend on a number of factors, including our
funding requirements and the availability of alternative funding
sources.
We will not receive any proceeds from any sale of common units
by any selling unitholders unless otherwise indicated in a
prospectus supplement.
RATIO OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges for Enterprise Products
Partners for each of the periods indicated are as follows:
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Year Ended December 31, |
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Nine Months Ended |
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September 30, |
1999 |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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5.8 |
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6.4 |
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5.1 |
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2.1 |
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2.0 |
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2.5 |
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For purposes of computing the ratio of earnings to fixed
charges, earnings is the aggregate of the following
items:
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pre-tax income or loss from continuing operations before
adjustment for minority interests in consolidated subsidiaries
or income or loss from equity investees; |
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plus fixed charges; |
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plus distributed income of equity investees; |
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less capitalized interest; and |
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less minority interest in pre-tax income of subsidiaries that
have not incurred fixed charges. |
The term fixed charges means the sum of the
following:
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interest expensed and capitalized, including amortized premiums,
discounts and capitalized expenses related to
indebtedness; and |
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an estimate of the interest within rental expenses. |
DESCRIPTION OF DEBT SECURITIES
In this Description of Debt Securities references to the
Issuer mean only Enterprise Products Operating L.P.
and not its subsidiaries. References to the
Guarantor mean only Enterprise Products Partners
L.P. and not its subsidiaries. References to we and
us mean the Issuer and the Guarantor collectively.
The debt securities will be issued under an Indenture dated as
of October 4, 2004 (the Indenture), among
the Issuer, the Guarantor, and Wells Fargo Bank, National
Association, as trustee (the Trustee). The terms of
the debt securities will include those expressly set forth in
the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act of 1939, as amended (the Trust
Indenture
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Act). Capitalized terms used in this Description of Debt
Securities have the meanings specified in the Indenture.
This Description of Debt Securities is intended to be a useful
overview of the material provisions of the debt securities and
the Indenture. Since this Description of Debt Securities is only
a summary, you should refer to the Indenture for a complete
description of our obligations and your rights.
General
The Indenture does not limit the amount of debt securities that
may be issued thereunder. Debt securities may be issued under
the Indenture from time to time in separate series, each up to
the aggregate amount authorized for such series. The debt
securities will be general obligations of the Issuer and the
Guarantor and may be subordinated to Senior Indebtedness of the
Issuer and the Guarantor. See
Subordination.
A prospectus supplement and a supplemental indenture (or a
resolution of our Board of Directors and accompanying
officers certificate) relating to any series of debt
securities being offered will include specific terms relating to
the offering. These terms will include some or all of the
following:
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the form and title of the debt securities; |
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the total principal amount of the debt securities; |
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the portion of the principal amount which will be payable if the
maturity of the debt securities is accelerated; |
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the currency or currency unit in which the debt securities will
be paid, if not U.S. dollars; |
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any right we may have to defer payments of interest by extending
the dates payments are due whether interest on those deferred
amounts will be payable as well; |
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the dates on which the principal of the debt securities will be
payable; |
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the interest rate which the debt securities will bear and the
interest payment dates for the debt securities; |
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any optional redemption provisions; |
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any sinking fund or other provisions that would obligate us to
repurchase or otherwise redeem the debt securities; |
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any changes to or additional Events of Default or covenants; |
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whether the debt securities are to be issued as Registered
Securities or Bearer Securities or both; and any special
provisions for Bearer Securities; |
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the subordination, if any, of the debt securities and any
changes to the subordination provisions of the
Indenture; and |
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any other terms of the debt securities. |
The prospectus supplement will also describe any material United
States federal income tax consequences or other special
considerations applicable to the applicable series of debt
securities, including those applicable to:
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Bearer Securities; |
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debt securities with respect to which payments of principal,
premium or interest are determined with reference to an index or
formula, including changes in prices of particular securities,
currencies or commodities; |
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debt securities with respect to which principal, premium or
interest is payable in a foreign or composite currency; |
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debt securities that are issued at a discount below their stated
principal amount, bearing no interest or interest at a rate that
at the time of issuance is below market rates; and |
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variable rate debt securities that are exchangeable for fixed
rate debt securities. |
At our option, we may make interest payments, by check mailed to
the registered holders thereof or, if so stated in the
applicable prospectus supplement, at the option of a holder by
wire transfer to an account designated by the holder. Except as
otherwise provided in the applicable prospectus supplement, no
payment on a Bearer Security will be made by mail to an address
in the United States or by wire transfer to an account in the
United States.
Registered Securities may be transferred or exchanged, and they
may be presented for payment, at the office of the Trustee or
the Trustees agent in New York City indicated in the
applicable prospectus supplement, subject to the limitations
provided in the Indenture, without the payment of any service
charge, other than any applicable tax or governmental charge.
Bearer Securities will be transferable only by delivery.
Provisions with respect to the exchange of Bearer Securities
will be described in the applicable prospectus supplement.
Any funds we pay to a paying agent for the payment of amounts
due on any debt securities that remain unclaimed for two years
will be returned to us, and the holders of the debt securities
must thereafter look only to us for payment thereof.
Guarantee
The Guarantor will unconditionally guarantee to each holder and
the Trustee the full and prompt payment of principal of,
premium, if any, and interest on the debt securities, when and
as the same become due and payable, whether at maturity, upon
redemption or repurchase, by declaration of acceleration or
otherwise.
Certain Covenants
Except as set forth below or as may be provided in a prospectus
supplement and supplemental indenture, neither the Issuer nor
the Guarantor is restricted by the Indenture from incurring any
type of indebtedness or other obligation, from paying dividends
or making distributions on its partnership interests or capital
stock or purchasing or redeeming its partnership interests or
capital stock. The Indenture does not require the maintenance of
any financial ratios or specified levels of net worth or
liquidity. In addition, the Indenture does not contain any
provisions that would require the Issuer to repurchase or redeem
or otherwise modify the terms of any of the debt securities upon
a change in control or other events involving the Issuer which
may adversely affect the creditworthiness of the debt securities.
Limitations on Liens. The Indenture provides that the
Guarantor will not, nor will it permit any Subsidiary to,
create, assume, incur or suffer to exist any mortgage, lien,
security interest, pledge, charge or other encumbrance
(liens) other than Permitted Liens (as defined
below) upon any Principal Property (as defined below) or upon
any shares of capital stock of any Subsidiary owning or leasing,
either directly or through ownership in another Subsidiary, any
Principal Property (a Restricted Subsidiary),
whether owned or leased on the date of the Indenture or
thereafter acquired, to secure any indebtedness for borrowed
money (debt) of the Guarantor or the Issuer or any
other person (other than the debt securities), without in any
such case making effective provision whereby all of the debt
securities outstanding shall be secured equally and ratably
with, or prior to, such debt so long as such debt shall be so
secured.
In the Indenture, the term Consolidated Net Tangible
Assets means, at any date of determination, the total
amount of assets of the Guarantor and its consolidated
subsidiaries after deducting therefrom:
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(1) all current liabilities (excluding (A) any current
liabilities that by their terms are extendable or renewable at
the option of the obligor thereon to a time more than
12 months after the time as of which the amount thereof is
being computed, and (B) current maturities of long-term
debt); and |
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(2) the value (net of any applicable reserves) of all
goodwill, trade names, trademarks, patents and other like
intangible assets, |
all as set forth, or on a pro forma basis would be set forth, on
the consolidated balance sheet of the Guarantor and its
consolidated subsidiaries for the Guarantors most recently
completed fiscal quarter, prepared in accordance with generally
accepted accounting principles.
Permitted Liens means:
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(1) liens upon rights-of-way for pipeline purposes; |
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(2) any statutory or governmental lien or lien arising by
operation of law, or any mechanics, repairmens,
materialmens, suppliers, carriers,
landlords, warehousemens or similar lien incurred in
the ordinary course of business which is not yet due or which is
being contested in good faith by appropriate proceedings and any
undetermined lien which is incidental to construction,
development, improvement or repair; or any right reserved to, or
vested in, any municipality or public authority by the terms of
any right, power, franchise, grant, license, permit or by any
provision of law, to purchase or recapture or to designate a
purchaser of, any property; |
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(3) liens for taxes and assessments which are (a) for
the then current year, (b) not at the time delinquent, or
(c) delinquent but the validity or amount of which is being
contested at the time by the Guarantor or any Subsidiary in good
faith by appropriate proceedings; |
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(4) liens of, or to secure performance of, leases, other
than capital leases; or any lien securing industrial
development, pollution control or similar revenue bonds; |
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(5) any lien upon property or assets acquired or sold by
the Guarantor or any Subsidiary resulting from the exercise of
any rights arising out of defaults on receivables; |
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(6) any lien in favor of the Guarantor or any Subsidiary;
or any lien upon any property or assets of the Guarantor or any
Subsidiary in existence on the date of the execution and
delivery of the Indenture; |
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(7) any lien in favor of the United States of America or
any state thereof, or any department, agency or instrumentality
or political subdivision of the United States of America or any
state thereof, to secure partial, progress, advance, or other
payments pursuant to any contract or statute, or any debt
incurred by the Guarantor or any Subsidiary for the purpose of
financing all or any part of the purchase price of, or the cost
of constructing, developing, repairing or improving, the
property or assets subject to such lien; |
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(8) any lien incurred in the ordinary course of business in
connection with workmens compensation, unemployment
insurance, temporary disability, social security, retiree health
or similar laws or regulations or to secure obligations imposed
by statute or governmental regulations; |
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(9) liens in favor of any person to secure obligations
under provisions of any letters of credit, bank guarantees,
bonds or surety obligations required or requested by any
governmental authority in connection with any contract or
statute; or any lien upon or deposits of any assets to secure
performance of bids, trade contracts, leases or statutory
obligations; |
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(10) any lien upon any property or assets created at the
time of acquisition of such property or assets by the Guarantor
or any Subsidiary or within one year after such time to secure
all or a portion of the purchase price for such property or
assets or debt incurred to finance such purchase price, whether
such debt was incurred prior to, at the time of or within one
year after the date of such acquisition; or any lien upon any
property or assets to secure all or part of the cost of
construction, development, repair or improvements thereon or to
secure debt incurred prior to, at the time of, or within one
year after completion of such construction, development, repair
or improvements or the commencement of full operations thereof
(whichever is later), to provide funds for any such purpose; |
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(11) any lien upon any property or assets existing thereon
at the time of the acquisition thereof by the Guarantor or any
Subsidiary and any lien upon any property or assets of a person
existing |
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thereon at the time such person becomes a Subsidiary by
acquisition, merger or otherwise; provided that, in each case,
such lien only encumbers the property or assets so acquired or
owned by such person at the time such person becomes a
Subsidiary; |
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(12) liens imposed by law or order as a result of any
proceeding before any court or regulatory body that is being
contested in good faith, and liens which secure a judgment or
other court-ordered award or settlement as to which the
Guarantor or the applicable Subsidiary has not exhausted its
appellate rights; |
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(13) any extension, renewal, refinancing, refunding or
replacement (or successive extensions, renewals, refinancing,
refunding or replacements) of liens, in whole or in part,
referred to in clauses (1) through (12) above;
provided, however, that any such extension, renewal,
refinancing, refunding or replacement lien shall be limited to
the property or assets covered by the lien extended, renewed,
refinanced, refunded or replaced and that the obligations
secured by any such extension, renewal, refinancing, refunding
or replacement lien shall be in an amount not greater than the
amount of the obligations secured by the lien extended, renewed,
refinanced, refunded or replaced and any expenses of the
Guarantor and its Subsidiaries (including any premium) incurred
in connection with such extension, renewal, refinancing,
refunding or replacement; or |
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(14) any lien resulting from the deposit of moneys or
evidence of indebtedness in trust for the purpose of defeasing
debt of the Guarantor or any Subsidiary. |
Principal Property means, whether owned or
leased on the date of the Indenture or thereafter acquired:
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(1) any pipeline assets of the Guarantor or any Subsidiary,
including any related facilities employed in the transportation,
distribution, storage or marketing of refined petroleum
products, natural gas liquids, and petrochemicals, that are
located in the United States of America or any territory or
political subdivision thereof; and |
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(2) any processing or manufacturing plant or terminal owned
or leased by the Guarantor or any Subsidiary that is located in
the United States or any territory or political subdivision
thereof, |
except, in the case of either of the foregoing clauses (1)
or (2):
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(a) any such assets consisting of inventories, furniture,
office fixtures and equipment (including data processing
equipment), vehicles and equipment used on, or useful with,
vehicles; and |
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(b) any such assets, plant or terminal which, in the
opinion of the board of directors of the general partner of the
Issuer, is not material in relation to the activities of the
Issuer or of the Guarantor and its Subsidiaries taken as a whole. |
Subsidiary means:
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(1) the Issuer; or |
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(2) any corporation, association or other business entity
of which more than 50% of the total voting power of the equity
interests entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or
trustees thereof or any partnership of which more than 50% of
the partners equity interests (considering all
partners equity interests as a single class) is, in each
case, at the time owned or controlled, directly or indirectly,
by the Guarantor, the Issuer or one or more of the other
Subsidiaries of the Guarantor or the Issuer or combination
thereof. |
Notwithstanding the preceding, under the Indenture, the
Guarantor may, and may permit any Subsidiary to, create, assume,
incur, or suffer to exist any lien (other than a Permitted Lien)
upon any Principal Property or capital stock of a Restricted
Subsidiary to secure debt of the Guarantor, the Issuer or any
other person (other than the debt securities), without securing
the debt securities, provided that the aggregate principal
amount of all debt then outstanding secured by such lien and all
similar liens, together with all Attributable Indebtedness from
Sale-Leaseback Transactions (excluding Sale-Leaseback Transac-
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tions permitted by clauses (1) through (4), inclusive, of
the first paragraph of the restriction on sale-leasebacks
covenant described below) does not exceed 10% of Consolidated
Net Tangible Assets.
Restriction on Sale-Leasebacks. The Indenture provides
that the Guarantor will not, and will not permit any Subsidiary
to, engage in the sale or transfer by the Guarantor or any
Subsidiary of any Principal Property to a person (other than the
Issuer or a Subsidiary) and the taking back by the Guarantor or
any Subsidiary, as the case may be, of a lease of such Principal
Property (a Sale-Leaseback Transaction), unless:
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(1) such Sale-Leaseback Transaction occurs within one year
from the date of completion of the acquisition of the Principal
Property subject thereto or the date of the completion of
construction, development or substantial repair or improvement,
or commencement of full operations on such Principal Property,
whichever is later; |
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(2) the Sale-Leaseback Transaction involves a lease for a
period, including renewals, of not more than three years; |
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(3) the Guarantor or such Subsidiary would be entitled to
incur debt secured by a lien on the Principal Property subject
thereto in a principal amount equal to or exceeding the
Attributable Indebtedness from such Sale-Leaseback Transaction
without equally and ratably securing the debt securities; or |
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(4) the Guarantor or such Subsidiary, within a one-year
period after such Sale-Leaseback Transaction, applies or causes
to be applied an amount not less than the Attributable
Indebtedness from such Sale-Leaseback Transaction to
(a) the prepayment, repayment, redemption, reduction or
retirement of any debt of the Guarantor or any Subsidiary that
is not subordinated to the debt securities, or (b) the
expenditure or expenditures for Principal Property used or to be
used in the ordinary course of business of the Guarantor or its
Subsidiaries. |
Attributable Indebtedness, when used with respect to
any Sale-Leaseback Transaction, means, as at the time of
determination, the present value (discounted at the rate set
forth or implicit in the terms of the lease included in such
transaction) of the total obligations of the lessee for rental
payments (other than amounts required to be paid on account of
property taxes, maintenance, repairs, insurance, assessments,
utilities, operating and labor costs and other items that do not
constitute payments for property rights) during the remaining
term of the lease included in such Sale-Leaseback Transaction
(including any period for which such lease has been extended).
In the case of any lease that is terminable by the lessee upon
the payment of a penalty or other termination payment, such
amount shall be the lesser of the amount determined assuming
termination upon the first date such lease may be terminated (in
which case the amount shall also include the amount of the
penalty or termination payment, but no rent shall be considered
as required to be paid under such lease subsequent to the first
date upon which it may be so terminated) or the amount
determined assuming no such termination.
Notwithstanding the preceding, under the Indenture the Guarantor
may, and may permit any Subsidiary to, effect any Sale-Leaseback
Transaction that is not excepted by clauses (1) through
(4), inclusive, of the first paragraph under
Restrictions on Sale-Leasebacks,
provided that the Attributable Indebtedness from such
Sale-Leaseback Transaction, together with the aggregate
principal amount of all other such Attributable Indebtedness
deemed to be outstanding in respect of all Sale-Leaseback
Transactions and all outstanding debt (other than the debt
securities) secured by liens (other than Permitted Liens) upon
Principal Properties or upon capital stock of any Restricted
Subsidiary, do not exceed 10% of Consolidated Net Tangible
Assets.
Merger, Consolidation or Sale of Assets. The Indenture
provides that each of the Guarantor and the Issuer may, without
the consent of the holders of any of the debt securities,
consolidate with or sell, lease,
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convey all or substantially all of its assets to, or merge with
or into, any partnership, limited liability company or
corporation if:
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(1) the entity surviving any such consolidation or merger
or to which such assets shall have been transferred (the
successor) is either the Guarantor or the Issuer, as
applicable, or the successor is a domestic partnership, limited
liability company or corporation and expressly assumes all the
Guarantors or the Issuers, as the case may be,
obligations and liabilities under the Indenture and the debt
securities (in the case of the Issuer) and the Guarantee (in the
case of the Guarantor); |
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(2) immediately after giving effect to the transaction no
Default or Event of Default has occurred and is
continuing; and |
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(3) the Issuer and the Guarantor have delivered to the
Trustee an officers certificate and an opinion of counsel,
each stating that such consolidation, merger or transfer
complies with the Indenture. |
The successor will be substituted for the Guarantor or the
Issuer, as the case may be, in the Indenture with the same
effect as if it had been an original party to the Indenture.
Thereafter, the successor may exercise the rights and powers of
the Guarantor or the Issuer, as the case may be, under the
Indenture, in its name or in its own name. If the Guarantor or
the Issuer sells or transfers all or substantially all of its
assets, it will be released from all liabilities and obligations
under the Indenture and under the debt securities (in the case
of the Issuer) and the Guarantee (in the case of the Guarantor)
except that no such release will occur in the case of a lease of
all or substantially all of its assets.
Events of Default
Each of the following will be an Event of Default under the
Indenture with respect to a series of debt securities:
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(1) default in any payment of interest on any debt
securities of that series when due, continued for 30 days; |
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(2) default in the payment of principal of or premium, if
any, on any debt securities of that series when due at its
stated maturity, upon optional redemption, upon declaration or
otherwise; |
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(3) failure by the Guarantor or the Issuer to comply for
60 days after notice with its other agreements contained in
the Indenture; |
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(4) certain events of bankruptcy, insolvency or
reorganization of the Issuer or the Guarantor (the
bankruptcy provisions); or |
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(5) the Guarantee ceases to be in full force and effect or
is declared null and void in a judicial proceeding or the
Guarantor denies or disaffirms its obligations under the
Indenture or the Guarantee. |
However, a default under clause (3) of this paragraph will
not constitute an Event of Default until the Trustee or the
holders of at least 25% in principal amount of the outstanding
debt securities of that series notify the Issuer and the
Guarantor of the default such default is not cured within the
time specified in clause (3) of this paragraph after
receipt of such notice.
An Event of Default for a particular series of debt securities
will not necessarily constitute an Event of Default for any
other series of debt securities that may be issued under the
Indenture. If an Event of Default (other than an Event of
Default described in clause (4) above) occurs and is
continuing, the Trustee by notice to the Issuer, or the holders
of at least 25% in principal amount of the outstanding debt
securities of that series by notice to the Issuer and the
Trustee, may, and the Trustee at the request of such holders
shall, declare the principal of, premium, if any, and accrued
and unpaid interest, if any, on all the debt securities of that
series to be due and payable. Upon such a declaration, such
principal, premium and accrued and unpaid interest will be due
and payable immediately. If an Event of Default described in
clause (4) above occurs and is continuing, the principal
of, premium, if any, and accrued and unpaid interest on all the
debt securities will become and be immediately due and payable
without any declaration
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or other act on the part of the Trustee or any holders. However,
the effect of such provision may be limited by applicable law.
The holders of a majority in principal amount of the outstanding
debt securities of a series may rescind any such acceleration
with respect to the debt securities of that series and its
consequences if rescission would not conflict with any judgment
or decree of a court of competent jurisdiction and all existing
Events of Default with respect to that series, other than the
nonpayment of the principal of, premium, if any, and interest on
the debt securities of that series that have become due solely
by such declaration of acceleration, have been cured or waived.
Subject to the provisions of the Indenture relating to the
duties of the Trustee, if an Event of Default with respect to a
series of debt securities occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of
the holders of debt securities of that series, unless such
holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to
enforce the right to receive payment of principal, premium, if
any, or interest when due, no holder of debt securities of any
series may pursue any remedy with respect to the Indenture or
the debt securities of that series unless:
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(1) such holder has previously given the Trustee notice
that an Event of Default with respect to the debt securities of
that series is continuing; |
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(2) holders of at least 25% in principal amount of the
outstanding debt securities of that series have requested the
Trustee to pursue the remedy; |
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(3) such holders have offered the Trustee reasonable
security or indemnity against any loss, liability or expense; |
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(4) the Trustee has not complied with such request within
60 days after the receipt of the request and the offer of
security or indemnity; and |
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(5) the holders of a majority in principal amount of the
outstanding debt securities of that series have not given the
Trustee a direction that, in the opinion of the Trustee, is
inconsistent with such request within such 60-day period. |
Subject to certain restrictions, the holders of a majority in
principal amount of the outstanding debt securities of each
series have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
Trustee or of exercising any trust or power conferred on the
Trustee with respect to that series of debt securities. The
Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other
holder of debt securities of that series or that would involve
the Trustee in personal liability.
The Indenture provides that if a Default (that is, an event that
is, or after notice or the passage of time would be, an Event of
Default) with respect to the debt securities of a particular
series occurs and is continuing and is known to the Trustee, the
Trustee must mail to each holder of debt securities of that
series notice of the Default within 90 days after it
occurs. Except in the case of a Default in the payment of
principal of, premium, if any, or interest on the debt
securities of that series, the Trustee may withhold notice, but
only if and so long as the Trustee in good faith determines that
withholding notice is in the interests of the holders of debt
securities of that series. In addition, the Issuer is required
to deliver to the Trustee, within 120 days after the end of
each fiscal year, an officers certificate as to compliance
with all covenants in the Indenture and indicating whether the
signers thereof know of any Default or Event of Default that
occurred during the previous year. The Issuer also is required
to deliver to the Trustee, within 30 days after the
occurrence thereof, an officers certificate specifying any
Default or Event of Default, its status and what action the
Issuer is taking or proposes to take in respect thereof.
Amendments and Waivers
Amendments of the Indenture may be made by the Issuer, the
Guarantor and the Trustee with the consent of the holders of a
majority in principal amount of all debt securities of each
series affected thereby then outstanding under the Indenture
(including consents obtained in connection with a tender
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offer or exchange offer for the debt securities). However,
without the consent of each holder of outstanding debt
securities affected thereby, no amendment may, among other
things:
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(1) reduce the percentage in principal amount of debt
securities whose holders must consent to an amendment; |
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(2) reduce the stated rate of or extend the stated time for
payment of interest on any debt securities; |
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(3) reduce the principal of or extend the stated maturity
of any debt securities; |
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(4) reduce the premium payable upon the redemption of any
debt securities or change the time at which any debt securities
may be redeemed; |
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(5) make any debt securities payable in money other than
that stated in the debt securities; |
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(6) impair the right of any holder to receive payment of,
premium, if any, principal of and interest on such holders
debt securities on or after the due dates therefor or to
institute suit for the enforcement of any payment on or with
respect to such holders debt securities; |
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(7) make any change in the amendment provisions which
require each holders consent or in the waiver provisions; |
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(8) release any security that may have been granted in
respect of the debt securities; or |
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(9) release the Guarantor or modify the Guarantee in any
manner adverse to the holders. |
The holders of a majority in aggregate principal amount of the
outstanding debt securities of each series affected thereby, may
waive compliance by the Issuer and the Guarantor with certain
restrictive covenants on behalf of all holders of debt
securities of such series, including those described under
Certain Covenants Limitations on
Liens and Certain Covenants
Restriction on Sale-Leasebacks. The holders of a majority
in principal amount of the outstanding debt securities of each
series affected thereby, on behalf of all such holders, may
waive any past Default or Event of Default with respect to that
series (including any such waiver obtained in connection with a
tender offer or exchange offer for the debt securities), except
a Default or Event of Default in the payment of principal,
premium or interest or in respect of a provision that under the
Indenture that cannot be amended without the consent of all
holders of the series of debt securities that is affected.
Without the consent of any holder, the Issuer, the Guarantor and
the Trustee may amend the Indenture to:
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(1) cure any ambiguity, omission, defect or inconsistency; |
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(2) provide for the assumption by a successor of the
obligations of the Guarantor or the Issuer under the Indenture; |
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(3) provide for uncertificated debt securities in addition
to or in place of certificated debt securities (provided that
the uncertificated debt securities are issued in registered form
for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated debt securities are described in
Section 163(f)(2)(B) of the Code); |
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(4) add or release guarantees by any Subsidiary with
respect to the debt securities, in either case as provided in
the Indenture; |
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(5) secure the debt securities or a guarantee; |
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(6) add to the covenants of the Guarantor or the Issuer for
the benefit of the holders or surrender any right or power
conferred upon the Guarantor or the Issuer; |
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(7) make any change that does not adversely affect the
rights of any holder; |
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(8) comply with any requirement of the Commission in
connection with the qualification of the Indenture under the
Trust Indenture Act; and |
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(9) issue any other series of debt securities under the
Indenture. |
The consent of the holders is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the
proposed amendment. After an amendment requiring consent of the
holders becomes effective, the Issuer is required to mail to the
holders of an affected series a notice briefly describing such
amendment. However, the failure to give such notice to all such
holders, or any defect therein, will not impair or affect the
validity of the amendment.
Defeasance and Discharge
The Issuer at any time may terminate all its obligations under
the Indenture as they relate to a series of debt securities
(legal defeasance), except for certain obligations,
including those respecting the defeasance trust and obligations
to register the transfer or exchange of the debt securities of
that series, to replace mutilated, destroyed, lost or stolen
debt securities of that series and to maintain a registrar and
paying agent in respect of such debt securities.
The Issuer at any time may terminate its obligations under
covenants described under Certain
Covenants (other than Merger, Consolidation or Sale
of Assets) and the bankruptcy provisions with respect to
the Guarantor, and the Guarantee provision, described under
Events of Default above with respect to
a series of debt securities (covenant defeasance).
The Issuer may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance
option. If the Issuer exercises its legal defeasance option,
payment of the defeased series of debt securities may not be
accelerated because of an Event of Default with respect thereto.
If the Issuer exercises its covenant defeasance option, payment
of the affected series of debt securities may not be accelerated
because of an Event of Default specified in clause (3),
(4), (with respect only to the Guarantor) or (5) under
Events of Default above. If the Issuer
exercises either its legal defeasance option or its covenant
defeasance option, each guarantee will terminate with respect to
the debt securities of the defeased series and any security that
may have been granted with respect to such debt securities will
be released.
In order to exercise either defeasance option, the Issuer must
irrevocably deposit in trust (the defeasance trust)
with the Trustee money, U.S. Government Obligations (as
defined in the Indenture) or a combination thereof for the
payment of principal, premium, if any, and interest on the
relevant series of debt securities to redemption or maturity, as
the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an opinion of counsel
(subject to customary exceptions and exclusions) to the effect
that holders of that series of debt securities will not
recognize income, gain or loss for federal income tax purposes
as a result of such deposit and defeasance and will be subject
to federal income tax on the same amounts and in the same manner
and at the same times as would have been the case if such
defeasance had not occurred. In the case of legal defeasance
only, such opinion of counsel must be based on a ruling of the
Internal Revenue Service or other change in applicable federal
income tax law.
In the event of any legal defeasance, holders of the debt
securities of the relevant series would be entitled to look only
to the trust fund for payment of principal of and any premium
and interest on their debt securities until maturity.
Although the amount of money and U.S. Government
Obligations on deposit with the Trustee would be intended to be
sufficient to pay amounts due on the debt securities of a
defeased series at the time of their stated maturity, if the
Issuer exercises its covenant defeasance option for the debt
securities of any series and the debt securities are declared
due and payable because of the occurrence of an Event of
Default, such amount may not be sufficient to pay amounts due on
the debt securities of that series at the
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time of the acceleration resulting from such Event of Default.
The Issuer would remain liable for such payments, however.
In addition, the Issuer may discharge all its obligations under
the Indenture with respect to debt securities of any series,
other than its obligation to register the transfer of and
exchange notes of that series, provided that it either:
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delivers all outstanding debt securities of that series to the
Trustee for cancellation; or |
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all such debt securities not so delivered for cancellation have
either become due and payable or will become due and payable at
their stated maturity within one year or are called for
redemption within one year, and in the case of this bullet point
the Issuer has deposited with the Trustee in trust an amount of
cash sufficient to pay the entire indebtedness of such debt
securities, including interest to the stated maturity or
applicable redemption date. |
Subordination
Debt securities of a series may be subordinated to our
Senior Indebtedness, which we define generally to
include all notes or other evidences of indebtedness for money
borrowed by the Issuer, including guarantees, that are not
expressly subordinate or junior in right of payment to any other
indebtedness of the Issuer. Subordinated debt securities and the
Guarantors guarantee thereof will be subordinate in right
of payment, to the extent and in the manner set forth in the
Indenture and the prospectus supplement relating to such series,
to the prior payment of all indebtedness of the Issuer and
Guarantor that is designated as Senior Indebtedness
with respect to the series.
The holders of Senior Indebtedness of the Issuer will receive
payment in full of the Senior Indebtedness before holders of
subordinated debt securities will receive any payment of
principal, premium or interest with respect to the subordinated
debt securities:
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upon any payment of distribution of our assets of the Issuer to
its creditors; |
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upon a total or partial liquidation or dissolution of the
Issuer; or |
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in a bankruptcy, receivership or similar proceeding relating to
the Issuer or its property. |
Until the Senior Indebtedness is paid in full, any distribution
to which holders of subordinated debt securities would otherwise
be entitled will be made to the holders of Senior Indebtedness,
except that such holders may receive units representing limited
partner interests and any debt securities that are subordinated
to Senior Indebtedness to at least the same extent as the
subordinated debt securities.
If the Issuer does not pay any principal, premium or interest
with respect to Senior Indebtedness within any applicable grace
period (including at maturity), or any other default on Senior
Indebtedness occurs and the maturity of the Senior Indebtedness
is accelerated in accordance with its terms, the Issuer may not:
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make any payments of principal, premium, if any, or interest
with respect to subordinated debt securities; |
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make any deposit for the purpose of defeasance of the
subordinated debt securities; or |
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repurchase, redeem or otherwise retire any subordinated debt
securities, except that in the case of subordinated debt
securities that provide for a mandatory sinking fund, we may
deliver subordinated debt securities to the Trustee in
satisfaction of our sinking fund obligation, |
unless, in either case,
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the default has been cured or waived and the declaration of
acceleration has been rescinded; |
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the Senior Indebtedness has been paid in full in cash; or |
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the Issuer and the Trustee receive written notice approving the
payment from the representatives of each issue of
Designated Senior Indebtedness. |
Generally, Designated Senior Indebtedness will
include any specified issue of Senior Indebtedness of at least
$100 million.
During the continuance of any default, other than a default
described in the immediately preceding paragraph, that may cause
the maturity of any Senior Indebtedness to be accelerated
immediately without further notice, other than any notice
required to effect such acceleration, or the expiration of any
applicable grace periods, the Issuer may not pay the
subordinated debt securities for a period called the
Payment Blockage Period. A Payment Blockage Period
will commence on the receipt by us and the Trustee of written
notice of the default, called a Blockage Notice,
from the representative of any Designated Senior Indebtedness
specifying an election to effect a Payment Blockage Period.
The Payment Blockage Period may be terminated before its
expiration:
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by written notice from the person or persons who gave the
Blockage Notice; |
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by repayment in full in cash of the Senior Indebtedness with
respect to which the Blockage Notice was given; or |
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if the default giving rise to the Payment Blockage Period is no
longer continuing. |
Unless the holders of Senior Indebtedness shall have accelerated
the maturity of the Senior Indebtedness, we may resume payments
on the subordinated debt securities after the expiration of the
Payment Blockage Period.
Generally, not more than one Blockage Notice may be given in any
period of 360 consecutive days. The total number of days during
which any one or more Payment Blockage Periods are in effect,
however, may not exceed an aggregate of 179 days during any
period of 360 consecutive days.
After all Senior Indebtedness is paid in full and until the
subordinated debt securities are paid in full, holders of the
subordinated debt securities shall be subrogated to the rights
of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness.
By reason of the subordination, in the event of insolvency, our
creditors who are holders of Senior Indebtedness, as well as
certain of our general creditors, may recover more, ratably,
than the holders of the subordinated debt securities.
Book-Entry System
We will issue the debt securities in the form of one or more
global securities in fully registered form initially in the name
of Cede & Co., as nominee of DTC, or such other name as
may be requested by an authorized representative of DTC. The
global securities will be deposited with the Trustee as
custodian for DTC and may not be transferred except as a whole
by DTC to a nominee of DTC or by a nominee of DTC to DTC or
another nominee of DTC or by DTC or any nominee to a successor
of DTC or a nominee of such successor.
DTC has advised us as follows:
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DTC is a limited-purpose trust company organized under the New
York Banking Law, a banking organization within the
meaning of the New York Banking Law, a member of the Federal
Reserve System, a clearing corporation within the
meaning of the New York Uniform Commercial Code, and a
clearing agency registered pursuant to the
provisions of Section 17A of the Exchange Act. |
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DTC holds securities that its participants deposit with DTC and
facilitates the settlement among direct participants of
securities transactions, such as transfers and pledges, in
deposited securities, through electronic computerized book-entry
changes in direct participants accounts, thereby
eliminating the need for physical movement of securities
certificates. |
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Direct participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other
organizations. |
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DTC is owned by a number of its direct participants and by the
New York Stock Exchange, Inc., the American Stock Exchange LLC
and the National Association of Securities Dealers, Inc. |
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Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that
clear through or maintain a custodial relationship with a direct
participant, either directly or indirectly. |
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The rules applicable to DTC and its direct and indirect
participants are on file with the Commission. |
Purchases of debt securities under the DTC system must be made
by or through direct participants, which will receive a credit
for the debt securities on DTCs records. The ownership
interest of each actual purchaser of debt securities is in turn
to be recorded on the direct and indirect participants
records. Beneficial owners of the debt securities will not
receive written confirmation from DTC of their purchase, but
beneficial owners are expected to receive written confirmations
providing details of the transaction, as well as periodic
statements of their holdings, from the direct or indirect
participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the debt
securities are to be accomplished by entries made on the books
of direct and indirect participants acting on behalf of
beneficial owners. Beneficial owners will not receive
certificates representing their ownership interests in the debt
securities, except in the event that use of the book-entry
system for the debt securities is discontinued.
To facilitate subsequent transfers, all debt securities
deposited by direct participants with DTC are registered in the
name of DTCs partnership nominee, Cede & Co., or
such other name as may be requested by an authorized
representative of DTC. The deposit of debt securities with DTC
and their registration in the name of Cede & Co. or
such other nominee do not effect any change in beneficial
ownership. DTC has no knowledge of the actual beneficial owners
of the debt securities; DTCs records reflect only the
identity of the direct participants to whose accounts such debt
securities are credited, which may or may not be the beneficial
owners. The direct and indirect participants will remain
responsible for keeping account of their holdings on behalf of
their customers.
Conveyance of notices and other communications by DTC to direct
participants, by, direct participants to indirect participants,
and by direct participants and indirect participants to
beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in
effect from time to time.
Neither DTC nor Cede & Co. (nor any other DTC nominee)
will consent or vote with respect to the global securities.
Under its usual procedures, DTC mails an omnibus proxy to the
issuer as soon as possible after the record date. The omnibus
proxy assigns Cede & Co.s consenting or voting
rights to those direct participants to whose accounts the debt
securities are credited on the record date (identified in the
listing attached to the omnibus proxy).
All payments on the global securities will be made to
Cede & Co., as holder of record, or such other nominee
as may be requested by an authorized representative of DTC.
DTCs practice is to credit direct participants
accounts upon DTCs receipt of funds and corresponding
detail information from us or the Trustee on payment dates in
accordance with their respective holdings shown on DTCs
records. Payments by participants to beneficial owners will be
governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in
bearer form or registered in street name, and will
be the responsibility of such participant and not of DTC, us or
the Trustee, subject to any
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statutory or regulatory requirements as may be in effect from
time to time. Payment of principal, premium, if any, and
interest to Cede & Co. (or such other nominee as may be
requested by an authorized representative of DTC) shall be the
responsibility of us or the Trustee. Disbursement of such
payments to direct participants shall be the responsibility of
DTC, and disbursement of such payments to the beneficial owners
shall be the responsibility of direct and indirect participants.
DTC may discontinue providing its service as securities
depositary with respect to the debt securities at any time by
giving reasonable notice to us or the Trustee. In addition, we
may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary).
Under such circumstances, in the event that a successor
securities depositary is not obtained, note certificates in
fully registered form are required to be printed and delivered
to beneficial owners of the global securities representing such
debt securities.
Neither we nor the Trustee will have any responsibility or
obligation to direct or indirect participants, or the persons
for whom they act as nominees, with respect to the accuracy of
the records of DTC, its nominee or any participant with respect
to any ownership interest in the debt securities, or payments
to, or the providing of notice to participants or beneficial
owners.
So long as the debt securities are in DTCs book-entry
system, secondary market trading activity in the debt securities
will settle in immediately available funds. All payments on the
debt securities issued as global securities will be made by us
in immediately available funds.
Limitations on Issuance of Bearer Securities
The debt securities of a series may be issued as Registered
Securities (which will be registered as to principal and
interest in the register maintained by the registrar for the
debt securities) or Bearer Securities (which will be
transferable only by delivery). If the debt securities are
issuable as Bearer Securities, certain special limitations and
conditions will apply.
In compliance with United States federal income tax laws and
regulations, we and any underwriter, agent or dealer
participating in an offering of Bearer Securities will agree
that, in connection with the original issuance of the Bearer
Securities and during the period ending 40 days after the
issue date, they will not offer, sell or deliver any such Bearer
Securities, directly or indirectly, to a United States Person
(as defined below) or to any person within the United States,
except to the extent permitted under United States Treasury
regulations.
Bearer Securities will bear a legend to the following effect:
Any United States person who holds this obligation will be
subject to limitations under the United States federal income
tax laws, including the limitations provided in
Sections 165(j) and 1287(a) of the Internal Revenue
Code. The sections referred to in the legend provide that,
with certain exceptions, a United States taxpayer who holds
Bearer Securities will not be allowed to deduct any loss with
respect to, and will not be eligible for capital gain treatment
with respect to any gain realized on the sale, exchange,
redemption or other disposition of, the Bearer Securities.
For this purpose, United States includes the United
States of America and its possessions, and United States
person means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in
or under the laws of the United States, or an estate or trust
the income of which is subject to United States federal income
taxation regardless of its source.
Pending the availability of a definitive global security or
individual Bearer Securities, as the case may be, debt
securities that are issuable as Bearer Securities may initially
be represented by a single temporary global security, without
interest coupons, to be deposited with a common depositary for
the Euroclear System as operated by Euroclear Bank S.A./ N.V.
(Euroclear) and Clearstream Banking S.A.
(Clearstream, formerly Cedelbank), for credit to the
accounts designated by or on behalf of the purchasers thereof.
Following the availability of a definitive global security in
bearer form, without coupons attached, or individual Bearer
Securities and subject to any further limitations described in
the applicable prospectus supplement, the temporary global
security will be exchangeable for interests in the definitive
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global security or for the individual Bearer Securities,
respectively, only upon receipt of a Certificate of
Non-U.S. Beneficial Ownership, which is a certificate
to the effect that a beneficial interest in a temporary global
security is owned by a person that is not a United States Person
or is owned by or through a financial institution in compliance
with applicable United States Treasury regulations. No Bearer
Security will be delivered in or to the United States. If so
specified in the applicable prospectus supplement, interest on a
temporary global security will be paid to each of Euroclear and
Clearstream with respect to that portion of the temporary global
security held for its account, but only upon receipt as of the
relevant interest payment date of a Certificate of
Non-U.S. Beneficial Ownership.
No Recourse Against General Partner
The Issuers general partner, the Guarantors general
partner and their respective directors, officers, employees and
members, as such, shall have no liability for any obligations of
the Issuer or the Guarantor under the debt securities, the
Indenture or the guarantee or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each
holder by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration
for issuance of the debt securities. Such waiver may not be
effective to waive liabilities under the federal securities
laws, and it is the view of the Commission that such a waiver is
against public policy.
Concerning the Trustee
The Indenture contains certain limitations on the right of the
Trustee, should it become our creditor, to obtain payment of
claims in certain cases, or to realize for its own account on
certain property received in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in
certain other transactions. However, if it acquires any
conflicting interest within the meaning of the Trust Indenture
Act, it must eliminate the conflict or resign as Trustee.
The holders of a majority in principal amount of all outstanding
debt securities (or if more than one series of debt securities
under the Indenture is affected thereby, all series so affected,
voting as a single class) will have the right to direct the
time, method and place of conducting any proceeding for
exercising any remedy or power available to the Trustee for the
debt securities or all such series so affected.
If an Event of Default occurs and is not cured under the
Indenture and is known to the Trustee, the Trustee shall
exercise such of the rights and powers vested in it by the
Indenture and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to such
provisions, the Trustee will not be under any obligation to
exercise any of its rights or powers under the Indenture at the
request of any of the holders of debt securities unless they
shall have offered to such Trustee reasonable security and
indemnity.
Wells Fargo Bank, National Association is the Trustee under the
Indenture and has been appointed by the Issuer as Registrar and
Paying Agent with regard to the debt securities. Wells Fargo
Bank, National Association is a lender under the Issuers
credit facilities.
Governing Law
The Indenture, the debt securities and the guarantee are
governed by, and will be construed in accordance with, the laws
of the State of New York.
DESCRIPTION OF OUR COMMON UNITS
Generally, our common units represent limited partner interests
that entitle the holders to participate in our cash
distributions and to exercise the rights and privileges
available to limited partners under our partnership agreement.
For a description of the relative rights and preferences of
holders of common units
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and our general partner in and to cash distributions, please
read Cash Distribution Policy elsewhere in this
prospectus:
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Our outstanding common units are listed on the NYSE under the
symbol EPD. Any additional common units we issue
will also be listed on the NYSE. |
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The transfer agent and registrar for our common units is Mellon
Investor Services LLC. |
Meetings/ Voting
Each holder of common units is entitled to one vote for each
common unit on all matters submitted to a vote of the
unitholders.
Status as Limited Partner or Assignee
Except as described below under Limited
Liability, the common units will be fully paid, and
unitholders will not be required to make additional capital
contributions to us.
Each purchaser of our common units must execute a transfer
application whereby the purchaser requests admission as a
substituted limited partner and makes representations and agrees
to provisions stated in the transfer application. If this action
is not taken, a purchaser will not be registered as a record
holder of common units on the books of our transfer agent or
issued a common unit certificate. Purchasers may hold common
units in nominee accounts.
An assignee, pending its admission as a substituted limited
partner, is entitled to an interest in us equivalent to that of
a limited partner with respect to the right to share in
allocations and distributions, including liquidating
distributions. Our general partner will vote and exercise other
powers attributable to common units owned by an assignee who has
not become a substituted limited partner at the written
direction of the assignee. Transferees who do not execute and
deliver transfer applications will be treated neither as
assignees nor as record holders of common units and will not
receive distributions, federal income tax allocations or reports
furnished to record holders of common units. The only right the
transferees will have is the right to admission as a substituted
limited partner in respect of the transferred common units upon
execution of a transfer application in respect of the common
units. A nominee or broker who has executed a transfer
application with respect to common units held in street name or
nominee accounts will receive distributions and reports
pertaining to its common units.
Limited Liability
Assuming that a limited partner does not participate in the
control of our business within the meaning of the Delaware
Revised Uniform Limited Partnership Act (the Delaware
Act) and that he otherwise acts in conformity with the
provisions of our partnership agreement, his liability under the
Delaware Act will be limited, subject to some possible
exceptions, generally to the amount of capital he is obligated
to contribute to us in respect of his units plus his share of
any undistributed profits and assets.
Under the Delaware Act, a limited partnership may not make a
distribution to a partner to the extent that at the time of the
distribution, after giving effect to the distribution, all
liabilities of the partnership, other than liabilities to
partners on account of their partnership interests and
liabilities for which the recourse of creditors is limited to
specific property of the partnership, exceed the fair value of
the assets of the limited partnership.
For the purposes of determining the fair value of the assets of
a limited partnership, the Delaware Act provides that the fair
value of the property subject to liability of which recourse of
creditors is limited shall be included in the assets of the
limited partnership only to the extent that the fair value of
that property exceeds the nonrecourse liability. The Delaware
Act provides that a limited partner who receives a distribution
and knew at the time of the distribution that the distribution
was in violation of the Delaware Act is liable to the limited
partnership for the amount of the distribution for three years
from the date of the distribution.
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Reports and Records
As soon as practicable, but in no event later than 120 days
after the close of each fiscal year, our general partner will
furnish or make available to each unitholder of record (as of a
record date selected by our general partner) an annual report
containing our audited financial statements for the past fiscal
year. These financial statements will be prepared in accordance
with generally accepted accounting principles. In addition, no
later than 45 days after the close of each quarter (except
the fourth quarter), our general partner will furnish or make
available to each unitholder of record (as of a record date
selected by our general partner) a report containing our
unaudited financial statements and any other information
required by law.
Our general partner will use all reasonable efforts to furnish
each unitholder of record information reasonably required for
tax reporting purposes within 90 days after the close of
each fiscal year. Our general partners ability to furnish
this summary tax information will depend on the cooperation of
unitholders in supplying information to our general partner.
Each unitholder will receive information to assist him in
determining his U.S. federal and state and Canadian federal
and provincial tax liability and filing his U.S. federal
and state and Canadian federal and provincial income tax returns.
A limited partner can, for a purpose reasonably related to the
limited partners interest as a limited partner, upon
reasonable demand and at his own expense, have furnished to him:
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a current list of the name and last known address of each
partner; |
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a copy of our tax returns; |
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information as to the amount of cash and a description and
statement of the agreed value of any other property or services,
contributed or to be contributed by each partner and the date on
which each became a partner; |
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copies of our partnership agreement, our certificate of limited
partnership, amendments to either of them and powers of attorney
which have been executed under our partnership agreement; |
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information regarding the status of our business and financial
condition; and |
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any other information regarding our affairs as is just and
reasonable. |
Our general partner may, and intends to, keep confidential from
the limited partners trade secrets and other information the
disclosure of which our general partner believes in good faith
is not in our best interest or which we are required by law or
by agreements with third parties to keep confidential.
CASH DISTRIBUTION POLICY
Distributions of Available Cash
General. Within approximately 45 days after the end
of each quarter, we will distribute all of our available cash to
unitholders of record on the applicable record date.
Definition of Available Cash. Available cash is defined
in our partnership agreement and generally means, with respect
to any calendar quarter, all cash on hand at the end of such
quarter:
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less the amount of cash reserves that is necessary or
appropriate in the reasonable discretion of the general partner
to: |
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provide for the proper conduct of our business; |
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comply with applicable law or any debt instrument or other
agreement (including reserves for future capital expenditures
and for our future credit needs); or |
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provide funds for distributions to unitholders and our general
partner in respect of any one or more of the next four quarters; |
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plus all cash on hand on the date of determination of available
cash for the quarter resulting from working capital borrowings
made after the end of the quarter. Working capital borrowings
are generally borrowings that are made under our credit
facilities and in all cases are used solely for working capital
purposes or to pay distributions to partners. |
Operating Surplus and Capital Surplus
General. Cash distributions are characterized as
distributions from either operating surplus or capital surplus.
We distribute available cash from operating surplus differently
than available cash from capital surplus.
Definition of Operating Surplus. Operating surplus is
defined in the partnership agreement and generally means:
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our cash balance on July 31, 1998, the closing date of our
initial public offering of common units (excluding
$46.5 million to fund certain capital commitments existing
at such closing date); plus |
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all of our cash receipts since the closing of our initial public
offering, excluding cash from interim capital transactions such
as borrowings that are not working capital borrowings, sales of
equity and debt securities and sales or other disposition of
assets for cash, other than inventory, accounts receivable and
other assets sold in the ordinary course of business or as part
of normal retirements or replacements of assets; plus |
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up to $60.0 million of cash from interim capital
transactions; plus |
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working capital borrowings made after the end of a quarter but
before the date of determination of operating surplus for the
quarter; less |
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all of our operating expenditures since the closing of our
initial public offering, including the repayment of working
capital borrowings, but not the repayment of other borrowings,
and including maintenance capital expenditures; less |
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the amount of cash reserved that we deem necessary or advisable
to provide funds for future operating expenditures. |
Definition of Capital Surplus. Capital surplus is
generally generated only by borrowings (other than borrowings
for working capital purposes), sales of debt and equity
securities and sales or other dispositions of assets for cash
(other than inventory, accounts receivable and other assets
disposed of in the ordinary course of business).
Characterization of Cash Distributions. To avoid the
difficulty of trying to determine whether available cash we
distribute is from operating surplus or from capital surplus,
all available cash we distribute from any source will be treated
as distributed from operating surplus until the sum of all
available cash distributed since July 31, 1998 equals the
operating surplus as of the end of the quarter prior to such
distribution. Any available cash in excess of such amount
(irrespective of its source) will be deemed to be from capital
surplus and distributed accordingly.
If available cash from capital surplus is distributed in respect
of each common unit in an aggregate amount per common unit equal
to the $11.00 initial public offering price of the common units,
the distinction between operating surplus and capital surplus
will cease, and all distributions of available cash will be
treated as if they were from operating surplus. We do not
anticipate that there will be significant distributions from
capital surplus.
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Distributions of Available Cash from Operating Surplus
Commencing with the quarter ending on September 30, 2003,
we will make distributions of available cash from operating
surplus with respect to any quarter in the following manner:
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first, 98% to all common unitholders, pro rata and 2% to
the general partner, until there has been distributed in respect
of each unit an amount equal to the minimum quarterly
distribution of $0.225; and |
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thereafter, in the manner described in Incentive
Distributions below. |
Incentive Distributions
Incentive distributions represent the right to receive an
increasing percentage of quarterly distributions of available
cash from operating surplus after the minimum quarterly
distribution and the target distribution levels have been
achieved. For any quarter for which available cash from
operating surplus is distributed to the common unitholders in an
amount equal to the minimum quarterly distribution of
$0.225 per unit on all units, then any additional available
cash from operating surplus in respect of such quarter will be
distributed among the common unitholders and the general partner
in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to
the general partner, until the common unitholders have received
a total of $0.253 for such quarter in respect of each
outstanding unit (the First Target Distribution); |
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second, 85% to all common unitholders, pro rata, and 15%
to the general partner, until the unitholders have received a
total of $0.3085 for such quarter in respect of each outstanding
unit (the Second Target Distribution); and |
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thereafter, 75% to all common unitholders, pro rata, and
25% to the general partner. |
Distributions from Capital Surplus
How Distributions from Capital Surplus Will Be Made. We
will make distributions of available cash from capital surplus
in the following manner:
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first, 98% to all common unitholders, pro rata, and 2% to
the general partner, until we have distributed, in respect of
each outstanding common unit issued in our initial public
offering, available cash from capital surplus in an aggregate
amount per common unit equal to the initial unit price of
$11.00; and |
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thereafter, all distributions of available cash from
capital surplus will be distributed as if they were from
operating surplus. |
Effect of a Distribution from Capital Surplus. Our
partnership agreement treats a distribution of capital surplus
on a common unit as the repayment of the common unit price from
its initial public offering, which is a return of capital. The
initial public offering price less any distributions of capital
surplus per common unit is referred to as the unrecovered
initial common unit price. Each time a distribution of capital
surplus is made on a common unit, the minimum quarterly
distribution and the target distribution levels for all units
will be reduced in the same proportion as the corresponding
reduction in the unrecovered initial common unit price. Because
distributions of capital surplus will reduce the minimum
quarterly distribution, after any of these distributions are
made, it may be easier for our general partner to receive
incentive distributions. However, any distribution by us of
capital surplus before the unrecovered initial common unit price
is reduced to zero cannot be applied to the payment of the
minimum quarterly distribution.
Once we distribute capital surplus on a common unit in any
amount equal to the unrecovered initial common unit price, it
will reduce the minimum quarterly distribution and the target
distribution levels to
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zero and it will make all future distributions of available cash
from operating surplus, with 25% being paid to the holders of
units, as applicable, and 75% to our general partner.
Adjustment to the Minimum Quarterly Distribution and Target
Distribution Levels
In addition to reductions of the minimum quarterly distribution
and target distribution levels made upon a distribution of
available cash from capital surplus, if we combine our units
into fewer units or subdivide our units into a greater number of
units, we will proportionately adjust:
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the minimum quarterly distribution; |
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the target distribution levels; and |
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the unrecovered initial common unit price. |
For example, in the event of a two-for-one split of the common
units (assuming no prior adjustments), the minimum quarterly
distribution, each of the target distribution levels and the
unrecovered capital of the common units would each be reduced to
50% of its initial level.
In addition, if legislation is enacted or if existing law is
modified or interpreted in a manner that causes us to become
taxable as a corporation or otherwise subject to taxation as an
entity for federal, state or local income tax purposes, then we
will reduce the minimum quarterly distribution and the target
distribution levels by multiplying the same by one minus the sum
of the highest effective federal corporate income tax rate that
could apply and any increase in the effective overall state and
local income tax rates. For example, if we became subject to a
maximum effective federal, state and local income tax rate of
35%, then the minimum quarterly distribution and the target
distribution levels would each be reduced to 65% of their
previous levels.
Distributions of Cash upon Liquidation
If we dissolve in accordance with the partnership agreement, we
will sell or otherwise dispose of our assets in a process called
a liquidation. We will first apply the proceeds of liquidation
to the payment of our creditors in the order of priority
provided in the partnership agreement and by law and,
thereafter, we will distribute any remaining proceeds to the
common unitholders and our general partner in accordance with
their respective capital account balances as so adjusted.
Manner of Adjustments for Gain. The manner of the
adjustment is set forth in the partnership agreement. Upon our
liquidation, we will allocate any net gain (or unrealized gain
attributable to assets distributed in kind to the partners) as
follows:
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first, to the general partner and the holders of common
units having negative balances in their capital accounts to the
extent of and in proportion to such negative balances: |
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second, 98% to the holders of common units, pro rata, and
2% to the general partner, until the capital account for each
common unit is equal to the sum of |
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the unrecovered capital in respect of such common unit; plus |
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the amount of the minimum quarterly distribution for the quarter
during which our liquidation occurs. |
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third, 98% to all common unitholders, pro rata, and 2% to
the general partner, until there has been allocated under this
paragraph third an amount per unit equal to: |
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the sum of the excess of the First Target Distribution per unit
over the minimum quarterly distribution per unit for each
quarter of our existence; less |
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the cumulative amount per unit of any distributions of available
cash from operating surplus in excess of the minimum quarterly
distribution per unit that were distributed 98% to the
unitholders, pro rata, and 2% to the general partner for each
quarter of our existence; |
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fourth, 85% to all common unitholders, pro rata, and 15%
to the general partner, until there has been allocated under
this paragraph fourth an amount per unit equal to: |
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the sum of the excess of the Second Target Distribution per unit
over the First Target Distribution per unit for each quarter of
our existence; less |
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the cumulative amount per unit of any distributions of available
cash from operating surplus in excess of the First Target
Distribution per unit that were distributed 85% to the
unitholders, pro rata, and 15% to the general partner for each
quarter of our existence; and |
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thereafter, 75% to all common unitholders, pro rata, and
25% to the general partner. |
Manner of Adjustments for Losses. Upon our liquidation,
any loss will generally be allocated to the general partner and
the unitholders as follows:
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first, 98% to the holders of common units in proportion
to the positive balances in their respective capital accounts
and 2% to the general partner, until the capital accounts of the
common unitholders have been reduced to zero; and |
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thereafter, 100% to the general partner. |
Adjustments to Capital Accounts. In addition, interim
adjustments to capital accounts will be made at the time we
issue additional partnership interests or make distributions of
property. Such adjustments will be based on the fair market
value of the partnership interests or the property distributed
and any gain or loss resulting therefrom will be allocated to
the common unitholders and the general partner in the same
manner as gain or loss is allocated upon liquidation. In the
event that positive interim adjustments are made to the capital
accounts, any subsequent negative adjustments to the capital
accounts resulting from the issuance of additional partnership
interests in us, distributions of property by us, or upon our
liquidation, will be allocated in a manner which results, to the
extent possible, in the capital account balances of the general
partner equaling the amount that would have been the general
partners capital account balances if no prior positive
adjustments to the capital accounts had been made.
DESCRIPTION OF OUR PARTNERSHIP AGREEMENT
The following is a summary of the material provisions of our
partnership agreement. Our amended and restated partnership
agreement has been filed with the Commission. The following
provisions of our partnership agreement are summarized elsewhere
in this prospectus:
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distributions of our available cash are described under
Cash Distribution Policy; |
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rights of holders of common units are described under
Description of Our Common Units; and |
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allocations of taxable income and other matters are described
under Tax Consequences. |
Purpose
Our purpose under our partnership agreement is to serve as a
partner of our operating partnership and to engage in any
business activities that may be engaged in by our operating
partnership or that are approved by our general partner. The
partnership agreement of our operating partnership provides that
it may engage in any activity that was engaged in by our
predecessors at the time of our initial public offering or
reasonably related thereto and any other activity approved by
our general partner.
Power of Attorney
Each limited partner, and each person who acquires a unit from a
unitholder and executes and delivers a transfer application,
grants to our general partner and, if appointed, a liquidator, a
power of attorney to, among other things, execute and file
documents required for our qualification, continuance or
dissolution. The power of attorney also grants the authority for
the amendment of, and to make consents and waivers under, our
partnership agreement.
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Voting Rights
Unitholders will not have voting rights except with respect to
the following matters, for which our partnership agreement
requires the approval of the holders of a majority of the units,
unless otherwise indicated:
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the merger of our partnership or a sale, exchange or other
disposition of all or substantially all of our assets; |
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the withdrawal of our general partner prior to December 31,
2008 (requires a majority of the units outstanding, excluding
units held by our general partner and its affiliates); |
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the removal of our general partner (requires 64% of the
outstanding units, including units held by our general partner
and its affiliates); |
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the election of a successor general partner; |
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the dissolution of our partnership or the reconstitution of our
partnership upon dissolution; |
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approval of certain actions of our general partner (including
the transfer by the general partner of its general partner
interest under certain circumstances); and |
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certain amendments to the partnership agreement, including any
amendment that would cause us to be treated as an association
taxable as a corporation. |
Under the partnership agreement, our general partner generally
will be permitted to effect, without the approval of
unitholders, amendments to the partnership agreement that do not
adversely affect unitholders.
Reimbursements of Our General Partner
Our general partner does not receive any compensation for its
services as our general partner. It is, however, entitled to be
reimbursed for all of its costs incurred in managing and
operating our business. Our partnership agreement provides that
our general partner will determine the expenses that are
allocable to us in any reasonable manner determined by our
general partner in its sole discretion.
Issuance of Additional Securities
Our partnership agreement authorizes us to issue an unlimited
number of additional limited partner interests and other equity
securities that are equal in rank with or junior to our common
units on terms and conditions established by our general partner
in its sole discretion without the approval of any limited
partners.
It is possible that we will fund acquisitions through the
issuance of additional common units or other equity securities.
Holders of any additional common units we issue will be entitled
to share equally with the then-existing holders of common units
in our cash distributions. In addition, the issuance of
additional partnership interests may dilute the value of the
interests of the then-existing holders of common units in our
net assets.
In accordance with Delaware law and the provisions of our
partnership agreement, we may also issue additional partnership
interests that, in the sole discretion of our general partner,
may have special voting rights to which common units are not
entitled.
Our general partner has the right, which it may from time to
time assign in whole or in part to any of its affiliates, to
purchase common units or other equity securities whenever, and
on the same terms that, we issue those securities to persons
other than our general partner and its affiliates, to the extent
necessary to maintain their percentage interests in us that
existed immediately prior to the issuance. The holders of common
units will not have preemptive rights to acquire additional
common units or other partnership interests in us.
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Amendments to Our Partnership Agreement
Amendments to our partnership agreement may be proposed only by
our general partner. Any amendment that materially and adversely
affects the rights or preferences of any type or class of
limited partner interests in relation to other types or classes
of limited partner interests or our general partner interest
will require the approval of at least a majority of the type or
class of limited partner interests or general partner interests
so affected. However, in some circumstances, more particularly
described in our partnership agreement, our general partner may
make amendments to our partnership agreement without the
approval of our limited partners or assignees to reflect:
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a change in our names, the location of our principal place of
business, our registered agent or our registered office; |
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the admission, substitution, withdrawal or removal of partners; |
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a change to qualify or continue our qualification as a limited
partnership or a partnership in which our limited partners have
limited liability under the laws of any state or to ensure that
neither we, our operating partnership, nor any of our
subsidiaries will be treated as an association taxable as a
corporation or otherwise taxed as an entity for federal income
tax purposes; |
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a change that does not adversely affect our limited partners in
any material respect; |
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a change to (i) satisfy any requirements, conditions or
guidelines contained in any opinion, directive, order, ruling or
regulation of any federal or state agency or judicial authority
or contained in any federal or state statute or
(ii) facilitate the trading of our limited partner
interests or comply with any rule, regulation, guideline or
requirement of any national securities exchange on which our
limited partner interests are or will be listed for trading; |
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a change in our fiscal year or taxable year and any changes that
are necessary or advisable as a result of a change in our fiscal
year or taxable year; |
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an amendment that is necessary to prevent us, or our general
partner or its directors, officers, trustees or agents from
being subjected to the provisions of the Investment Company Act
of 1940, as amended, the Investment Advisers Act of 1940, as
amended, or plan asset regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended; |
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an amendment that is necessary or advisable in connection with
the authorization or issuance of any class or series of our
securities; |
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any amendment expressly permitted in our partnership agreement
to be made by our general partner acting alone; |
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an amendment effected, necessitated or contemplated by a merger
agreement approved in accordance with our partnership agreement; |
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an amendment that is necessary or advisable to reflect, account
for and deal with appropriately our formation of, or investment
in, any corporation, partnership, joint venture, limited
liability company or other entity other than our operating
partnership, in connection with our conduct of activities
permitted by our partnership agreement; |
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a merger or conveyance to effect a change in our legal
form; or |
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any other amendments substantially similar to the foregoing. |
Withdrawal or Removal of Our General Partner
Our general partner has agreed not to withdraw voluntarily as
our general partner prior to December 31, 2008 without
obtaining the approval of the holders of a majority of our
outstanding common units, excluding those held by our general
partner and its affiliates, and furnishing an opinion of counsel
stating that such withdrawal (following the selection of the
successor general partner) would not result in
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the loss of the limited liability of any of our limited partners
or of a member of our operating partnership or cause us or our
operating partnership to be treated as an association taxable as
a corporation or otherwise to be taxed as an entity for federal
income tax purposes (to the extent not previously treated as
such).
On or after December 31, 2008, our general partner may
withdraw as general partner without first obtaining approval of
any unitholder by giving 90 days written notice, and
that withdrawal will not constitute a violation of our
partnership agreement. In addition, our general partner may
withdraw without unitholder approval upon 90 days
notice to our limited partners if at least 50% of our
outstanding common units are held or controlled by one person
and its affiliates other than our general partner and its
affiliates.
Upon the voluntary withdrawal of our general partner, the
holders of a majority of our outstanding common units, excluding
the common units held by the withdrawing general partner and its
affiliates, may elect a successor to the withdrawing general
partner. If a successor is not elected, or is elected but an
opinion of counsel regarding limited liability and tax matters
cannot be obtained, we will be dissolved, wound up and
liquidated, unless within 90 days after that withdrawal,
the holders of a majority of our outstanding units, excluding
the common units held by the withdrawing general partner and its
affiliates, agree to continue our business and to appoint a
successor general partner.
Our general partner may not be removed unless that removal is
approved by the vote of the holders of not less than two-thirds
of our outstanding units, including units held by our general
partner and its affiliates, and we receive an opinion of counsel
regarding limited liability and tax matters. In addition, if our
general partner is removed as our general partner under
circumstances where cause does not exist and units held by our
general partner and its affiliates are not voted in favor of
such removal, our general partner will have the right to convert
its general partner interest into common units or to receive
cash in exchange for such interests. Cause is narrowly defined
to mean that a court of competent jurisdiction has entered a
final, non-appealable judgment finding the general partner
liable for actual fraud, gross negligence or willful or wanton
misconduct in its capacity as our general partner. Any removal
of this kind is also subject to the approval of a successor
general partner by the vote of the holders of a majority of our
outstanding common units, including those held by our general
partner and its affiliates.
While our partnership agreement limits the ability of our
general partner to withdraw, it allows the general partner
interest to be transferred to an affiliate or to a third party
in conjunction with a merger or sale of all or substantially all
of the assets of our general partner. In addition, our
partnership agreement expressly permits the sale, in whole or in
part, of the ownership of our general partner. Our general
partner may also transfer, in whole or in part, the common units
it owns.
Liquidation and Distribution of Proceeds
Upon our dissolution, unless we are reconstituted and continued
as a new limited partnership, the person authorized to wind up
our affairs (the liquidator) will, acting with all the powers of
our general partner that the liquidator deems necessary or
desirable in its good faith judgment, liquidate our assets. The
proceeds of the liquidation will be applied as follows:
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first, towards the payment of all of our creditors and
the creation of a reserve for contingent liabilities; and |
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then, to all partners in accordance with the positive
balance in the respective capital accounts. |
Under some circumstances and subject to some limitations, the
liquidator may defer liquidation or distribution of our assets
for a reasonable period of time. If the liquidator determines
that a sale would be impractical or would cause a loss to our
partners, our general partner may distribute assets in kind to
our partners.
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Transfer of Ownership Interests in Our General
Partner
At any time, the owners of our general partner may sell or
transfer all or part of their ownership interests in the general
partner without the approval of the unitholders.
Change of Management Provisions
Our partnership agreement contains the following specific
provisions that are intended to discourage a person or group
from attempting to remove our general partner or otherwise
change management:
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any units held by a person that owns 20% or more of any class of
units then outstanding, other than our general partner and its
affiliates, cannot be voted on any matter; and |
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the partnership agreement contains provisions limiting the
ability of unitholders to call meetings or to acquire
information about our operations, as well as other provisions
limiting the unitholders ability to influence the manner
or direction of management. |
Limited Call Right
If at any time our general partner and its affiliates own 85% or
more of the issued and outstanding limited partner interests of
any class, our general partner will have the right to purchase
all, but not less than all, of the outstanding limited partner
interests of that class that are held by non-affiliated persons.
The record date for determining ownership of the limited partner
interests would be selected by our general partner on at least
10 but not more than 60 days notice. The purchase
price in the event of a purchase under these provisions would be
the greater of (1) the current market price (as defined in
our partnership agreement) of the limited partner interests of
the class as of the date three days prior to the date that
notice is mailed to the limited partners as provided in the
partnership agreement and (2) the highest cash price paid
by our general partner or any of its affiliates for any limited
partner interest of the class purchased within the 90 days
preceding the date our general partner mails notice of its
election to purchase the units.
As of February 15, 2005 our general partner and its
affiliates owned the 2% general partner interest in us and
143,373,314 common units, representing an aggregate 36.8%
limited partner interest in us.
Indemnification
Under our partnership agreement, in most circumstances, we will
indemnify our general partner, its affiliates and their officers
and directors to the fullest extent permitted by law, from and
against all losses, claims or damages any of them may suffer by
reason of their status as general partner, officer or director,
as long as the person seeking indemnity acted in good faith and
in a manner believed to be in or not opposed to our best
interest. Any indemnification under these provisions will only
be out of our assets. Our general partner shall not be
personally liable for, or have any obligation to contribute or
loan funds or assets to us to enable us to effectuate any
indemnification. We are authorized to purchase insurance against
liabilities asserted against and expenses incurred by persons
for our activities, regardless of whether we would have the
power to indemnify the person against liabilities under our
partnership agreement.
Registration Rights
Under our partnership agreement, we have agreed to register for
resale under the Securities Act and applicable state securities
laws any common units or other partnership securities proposed
to be sold by our general partner or any of its affiliates or
their assignees if an exemption from the registration
requirements is not otherwise available. We are obligated to pay
all expenses incidental to the registration, excluding
underwriting discounts and commissions.
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MATERIAL TAX CONSEQUENCES
This section is a summary of the material tax consequences that
may be relevant to prospective unitholders who are individual
citizens or residents of the United States and, unless otherwise
noted in the following discussion, represents the opinion of
Vinson & Elkins L.L.P., special counsel to the general
partner and us, insofar as it relates to matters of United
States federal income tax law matters. This section is based
upon current provisions of the Internal Revenue Code, existing
and proposed regulations and current administrative rulings and
court decisions, all of which are subject to change. Later
changes in these authorities may cause the tax consequences to
vary substantially from the consequences described below.
The following discussion does not comment on all federal income
tax matters affecting us or the unitholders. Moreover, the
discussion focuses on unitholders who are individual citizens or
residents of the United States and has only limited application
to corporations, estates, trusts, nonresident aliens or other
unitholders subject to specialized tax treatment, such as
tax-exempt institutions, foreign persons, individual retirement
accounts (IRAs), real estate investment trusts (REITs)or mutual
funds. Accordingly, we recommend that each prospective
unitholder consult, and depend on, his own tax advisor in
analyzing the federal, state, local and foreign tax consequences
particular to him of the ownership or disposition of common
units.
All statements as to matters of law and legal conclusions, but
not as to factual matters, contained in this section, unless
otherwise noted, are the opinion of Vinson & Elkins
L.L.P. and are based on the accuracy of the representations made
by us.
No ruling has been or will be requested from the IRS regarding
any matter affecting us or prospective unitholders. Instead, we
will rely on opinions and advice of Vinson & Elkins
L.L.P. Unlike a ruling, an opinion of counsel represents only
that counsels best legal judgment and does not bind the
IRS or the courts. Accordingly, the opinions and statements made
here may not be sustained by a court if contested by the IRS.
Any contest of this sort with the IRS may materially and
adversely impact the market for the common units and the prices
at which common units trade. In addition, the costs of any
contest with the IRS will be borne directly or indirectly by the
unitholders and the general partner. Furthermore, the tax
treatment of us, or of an investment in us, may be significantly
modified by future legislative or administrative changes or
court decisions. Any modifications may or may not be
retroactively applied.
For the reasons described below, Vinson & Elkins L.L.P.
has not rendered an opinion with respect to the following
specific federal income tax issues:
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(1) the treatment of a unitholder whose common units are
loaned to a short seller to cover a short sale of common units
(please read Tax Consequences of Unit
Ownership Treatment of Short Sales); |
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(2) whether our monthly convention for allocating taxable
income and losses is permitted by existing Treasury Regulations
(please read Disposition of Common
Units Allocations Between Transferors and
Transferees); and |
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(3) whether our method for depreciating Section 743
adjustments is sustainable (please read Tax
Consequences of Unit Ownership Section 754
Election). |
Partnership Status
A partnership is not a taxable entity and incurs no federal
income tax liability. Instead, each partner of a partnership is
required to take into account his share of items of income,
gain, loss and deduction of the partnership in computing his
federal income tax liability, regardless of whether cash
distributions are made to him by the partnership. Distributions
by a partnership to a partner are generally not taxable unless
the amount of cash distributed is in excess of the
partners adjusted basis in his partnership interest.
Section 7704 of the Internal Revenue Code provides that
publicly-traded partnerships will, as a general rule, be taxed
as corporations. However, an exception, referred to as the
Qualifying Income
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Exception, exists with respect to publicly-traded
partnerships of which 90% or more of the gross income for every
taxable year consists of qualifying income.
Qualifying income includes income and gains derived from the
exploration, development, mining or production, processing,
refining, transportation and marketing of any mineral or natural
resource. Other types of qualifying income include interest
other than from a financial business, dividends, gains from the
sale of real property and gains from the sale or other
disposition of assets held for the production of income that
otherwise constitutes qualifying income. We estimate that less
than 2% of our current gross income is not qualifying income;
however, this estimate could change from time to time. Based
upon and subject to this estimate, the factual representations
made by us and the general partner and a review of the
applicable legal authorities, Vinson & Elkins L.L.P. is
of the opinion that at least 90% of our current gross income
constitutes qualifying income.
No ruling has been or will be sought from the IRS and the IRS
has made no determination as to our status or the status of the
Operating Partnership as partnerships for federal income tax
purposes. Instead, we will rely on the opinion of
Vinson & Elkins L.L.P. that, based upon the Internal
Revenue Code, its regulations, published revenue rulings and
court decisions and the representations described below, we and
the Operating Partnership will be classified as a partnership
for federal income tax purposes.
In rendering its opinion, Vinson & Elkins L.L.P. has
relied on factual representations made by us and the general
partner. The representations made by us and our general partner
upon which Vinson & Elkins L.L.P. has relied are:
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(a) Neither we nor the Operating Partnership will elect to
be treated as a corporation; and |
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(b) For each taxable year, more than 90% of our gross
income will be income that Vinson & Elkins L.L.P. has
opined or will opine is qualifying income within the
meaning of Section 7704(d) of the Internal Revenue Code. |
If we fail to meet the Qualifying Income Exception, other than a
failure that is determined by the IRS to be inadvertent and that
is cured within a reasonable time after discovery, we will be
treated as if we had transferred all of our assets, subject to
liabilities, to a newly formed corporation, on the first day of
the year in which we fail to meet the Qualifying Income
Exception, in return for stock in that corporation, and then
distributed that stock to the unitholders in liquidation of
their interests in us. This contribution and liquidation should
be tax-free to unitholders and us so long as we, at that time,
do not have liabilities in excess of the tax basis of our
assets. Thereafter, we would be treated as a corporation for
federal income tax purposes.
If we were taxable as a corporation in any taxable year, either
as a result of a failure to meet the Qualifying Income Exception
or otherwise, our items of income, gain, loss and deduction
would be reflected only on our tax return rather than being
passed through to the unitholders, and our net income would be
taxed to us at corporate rates. In addition, any distribution
made to a unitholder would be treated as either taxable dividend
income, to the extent of our current or accumulated earnings and
profits, or, in the absence of earnings and profits, a
nontaxable return of capital, to the extent of the
unitholders tax basis in his common units, or taxable
capital gain, after the unitholders tax basis in his
common units is reduced to zero. Accordingly, taxation as a
corporation would result in a material reduction in a
unitholders cash flow and after-tax return and thus would
likely result in a substantial reduction of the value of the
units.
The discussion below is based on the conclusion that we will be
classified as a partnership for federal income tax purposes.
Limited Partner Status
Unitholders who have become limited partners of the Company will
be treated as partners of the Company for federal income tax
purposes. Also:
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(a) assignees who have executed and delivered transfer
applications, and are awaiting admission as limited
partners, and |
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(b) unitholders whose common units are held in street name
or by a nominee and who have the right to direct the nominee in
the exercise of all substantive rights attendant to the
ownership of their common units, will be treated as partners of
the Company for federal income tax purposes. As there is no
direct authority addressing assignees of common units who are
entitled to execute and deliver transfer applications and
thereby become entitled to direct the exercise of attendant
rights, but who fail to execute and deliver transfer
applications, Vinson & Elkins L.L.P.s opinion
does not extend to these persons. Furthermore, a purchaser or
other transferee of common units who does not execute and
deliver a transfer application may not receive some federal
income tax information or reports furnished to record holders of
common units unless the common units are held in a nominee or
street name account and the nominee or broker has executed and
delivered a transfer application for those common units. |
A beneficial owner of common units whose units have been
transferred to a short seller to complete a short sale would
appear to lose his status as a partner with respect to those
units for federal income tax purposes. Please read
Tax Consequences of Unit Ownership
Treatment of Short Sales.
Income, gains, deductions or losses would not appear to be
reportable by a unitholder who is not a partner for federal
income tax purposes, and any cash distributions received by a
unitholder who is not a partner for federal income tax purposes
would therefore be fully taxable as ordinary income. We strongly
recommend that prospective unitholders consult their own tax
advisors with respect to their status as partners in the Company
for federal income tax purposes.
Tax Consequences of Unit Ownership
Flow-through of Taxable Income. We will not pay any
federal income tax. Instead, each unitholder will be required to
report on his income tax return his share of our income, gains,
losses and deductions without regard to whether corresponding
cash distributions are received by him. Consequently, we may
allocate income to a unitholder even if he has not received a
cash distribution. Each unitholder will be required to include
in income his allocable share of our income, gains, losses and
deductions for our taxable year ending with or within his
taxable year. Our taxable year ends on December 31.
Treatment of Distributions. Distributions by us to a
unitholder generally will not be taxable to the unitholder for
federal income tax purposes to the extent of his tax basis in
his common units immediately before the distribution. Our cash
distributions in excess of a unitholders tax basis
generally will be considered to be gain from the sale or
exchange of the common units, taxable in accordance with the
rules described under Disposition of Common
Units below. Any reduction in a unitholders share of
our liabilities for which no partner, including the general
partner, bears the economic risk of loss, known as
nonrecourse liabilities, will be treated as a
distribution of cash to that unitholder. To the extent our
distributions cause a unitholders at risk
amount to be less than zero at the end of any taxable year, he
must recapture any losses deducted in previous years. Please
read Limitations on Deductibility of
Losses.
A decrease in a unitholders percentage interest in us
because of our issuance of additional common units will decrease
his share of our nonrecourse liabilities, and thus will result
in a corresponding deemed distribution of cash. A non-pro rata
distribution of money or property may result in ordinary income
to a unitholder, regardless of his tax basis in his common
units, if the distribution reduces the unitholders share
of our unrealized receivables, including
depreciation recapture, and/or substantially appreciated
inventory items, both as defined in the Internal
Revenue Code, and collectively, Section 751
Assets. To that extent, he will be treated as having been
distributed his proportionate share of the Section 751
Assets and having exchanged those assets with us in return for
the non-pro rata portion of the actual distribution made to him.
This latter deemed exchange will generally result in the
unitholders realization of ordinary income, which will
equal the excess of (1) the non-pro rata portion of that
distribution over (2) the unitholders tax basis for
the share of Section 751 Assets deemed relinquished in the
exchange.
Basis of Common Units. A unitholders initial tax
basis for his common units will be the amount he paid for the
common units plus his share of our nonrecourse liabilities. That
basis will be increased by his
43
share of our income and by any increases in his share of our
nonrecourse liabilities. That basis will be decreased, but not
below zero, by distributions from us, by the unitholders
share of our losses, by any decreases in his share of our
nonrecourse liabilities and by his share of our expenditures
that are not deductible in computing taxable income and are not
required to be capitalized. A unitholder will have no share of
our debt which is recourse to the general partner, but will have
a share, generally based on his share of profits, of our
nonrecourse liabilities. Please read
Disposition of Common Units
Recognition of Gain or Loss.
Limitations on Deductibility of Losses. The deduction by
a unitholder of his share of our losses will be limited to the
tax basis in his units and, in the case of an individual
unitholder or a corporate unitholder, if more than 50% of the
value of the corporate unitholders stock is owned directly
or indirectly by five or fewer individuals or some tax-exempt
organizations, to the amount for which the unitholder is
considered to be at risk with respect to our
activities, if that is less than his tax basis. A unitholder
must recapture losses deducted in previous years to the extent
that distributions cause his at risk amount to be less than zero
at the end of any taxable year. Losses disallowed to a
unitholder or recaptured as a result of these limitations will
carry forward and will be allowable to the extent that his tax
basis or at risk amount, whichever is the limiting factor, is
subsequently increased. Upon the taxable disposition of a unit,
any gain recognized by a unitholder can be offset by losses that
were previously suspended by the at risk limitation but may not
be offset by losses suspended by the basis limitation. Any
excess loss above that gain previously suspended by the at risk
or basis limitations is no longer utilizable.
In general, a unitholder will be at risk to the extent of the
tax basis of his units, excluding any portion of that basis
attributable to his share of our nonrecourse liabilities,
reduced by any amount of money he borrows to acquire or hold his
units, if the lender of those borrowed funds owns an interest in
us, is related to the unitholder or can look only to the units
for repayment. A unitholders at risk amount will increase
or decrease as the tax basis of the unitholders units
increases or decreases, other than tax basis increases or
decreases attributable to increases or decreases in his share of
our nonrecourse liabilities.
The passive loss limitations generally provide that individuals,
estates, trusts and some closely-held corporations and personal
service corporations can deduct losses from passive activities,
which are generally corporate or partnership activities in which
the taxpayer does not materially participate, only to the extent
of the taxpayers income from those passive activities. The
passive loss limitations are applied separately with respect to
each publicly-traded partnership. Consequently, any passive
losses we generate will be available to offset only our passive
income generated in the future and will not be available to
offset income from other passive activities or investments,
including our investments or investments in other
publicly-traded partnerships, or salary or active business
income. Passive losses that are not deductible because they
exceed a unitholders share of income we generate may be
deducted in full when he disposes of his entire investment in us
in a fully taxable transaction with an unrelated party. The
passive activity loss rules are applied after other applicable
limitations on deductions, including the at risk rules and the
basis limitation.
A unitholders share of our net income may be offset by any
suspended passive losses, but it may not be offset by any other
current or carryover losses from other passive activities,
including those attributable to other publicly-traded
partnerships.
Limitations on Interest Deductions. The deductibility of
a non-corporate taxpayers investment interest
expense is generally limited to the amount of that
taxpayers net investment income. Investment
interest expense includes:
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interest on indebtedness properly allocable to property held for
investment; |
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our interest expense attributed to portfolio income; and |
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the portion of interest expense incurred to purchase or carry an
interest in a passive activity to the extent attributable to
portfolio income. |
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The computation of a unitholders investment interest
expense will take into account interest on any margin account
borrowing or other loan incurred to purchase or carry a unit.
Net investment income includes gross income from property held
for investment and amounts treated as portfolio income under the
passive loss rules, less deductible expenses, other than
interest, directly connected with the production of investment
income, but generally does not include gains attributable to the
disposition of property held for investment. The IRS has
indicated that net passive income earned by a publicly-traded
partnership will be treated as investment income to its
unitholders. In addition, the unitholders share of our
portfolio income will be treated as investment income.
Entity-Level Collections. If we are required or
elect under applicable law to pay any federal, state, local or
foreign income tax on behalf of any unitholder or the general
partner or any former unitholder, we are authorized to pay those
taxes from our funds. That payment, if made, will be treated as
a distribution of cash to the partner on whose behalf the
payment was made. If the payment is made on behalf of a person
whose identity cannot be determined, we are authorized to treat
the payment as a distribution to all current unitholders. We are
authorized to amend the partnership agreement in the manner
necessary to maintain uniformity of intrinsic tax
characteristics of units and to adjust later distributions, so
that after giving effect to these distributions, the priority
and characterization of distributions otherwise applicable under
the partnership agreement is maintained as nearly as is
practicable. Payments by us as described above could give rise
to an overpayment of tax on behalf of an individual partner in
which event the partner would be required to file a claim in
order to obtain a credit or refund.
Allocation of Income, Gain, Loss and Deduction. In
general, if we have a net profit, our items of income, gain,
loss and deduction will be allocated among the general partner
and the unitholders in accordance with their percentage
interests in us. At any time that incentive distributions are
made to the general partner, gross income will be allocated to
the recipients to the extent of these distributions. If we have
a net loss for the entire year, that loss will be allocated
first to the general partner and the unitholders in accordance
with their percentage interests in us to the extent of their
positive capital accounts and, second, to the general partner.
Specified items of our income, gain, loss and deduction will be
allocated to account for the difference between the tax basis
and fair market value of property contributed to us by the
general partner and its affiliates, referred to in this
discussion as Contributed Property. The effect of
these allocations to a unitholder purchasing common units in
this offering will be essentially the same as if the tax basis
of our assets were equal to their fair market value at the time
of an offering. In addition, items of recapture income will be
allocated to the extent possible to the partner who was
allocated the deduction giving rise to the treatment of that
gain as recapture income in order to minimize the recognition of
ordinary income by some unitholders. Finally, although we do not
expect that our operations will result in the creation of
negative capital accounts, if negative capital accounts
nevertheless result, items of our income and gain will be
allocated in an amount and manner to eliminate the negative
balance as quickly as possible.
An allocation of items of our income, gain, loss or deduction,
other than an allocation required by the Internal Revenue Code
to eliminate the difference between a partners
book capital account, credited with the fair market
value of Contributed Property, and tax capital
account, credited with the tax basis of Contributed Property,
referred to in this discussion as the Book-Tax
Disparity, will generally be given effect for federal
income tax purposes in determining a partners share of an
item of income, gain, loss or deduction only if the allocation
has substantial economic effect. In any other case, a
partners share of an item will be determined on the basis
of his interest in us, which will be determined by taking into
account all the facts and circumstances, including:
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his relative contributions to us; |
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the interests of all the partners in profits and losses; |
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the interest of all the partners in cash flow and other
nonliquidating distributions; and |
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the rights of all the partners to distributions of capital upon
liquidation. |
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Vinson & Elkins L.L.P. is of the opinion that, with the
exception of the issues described in Tax
Consequences of Unit Ownership Section 754
Election and Disposition of Common
Units Allocations Between Transferors and
Transferees, allocations under our partnership agreement
will be given effect for federal income tax purposes in
determining a partners share of an item of income, gain,
loss or deduction.
Treatment of Short Sales. A unitholder whose units are
loaned to a short seller to cover a short sale of
units may be considered as having disposed of those units. If
so, he would no longer be a partner for those units during the
period of the loan and may recognize gain or loss from the
disposition. As a result, during this period:
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any of our income, gain, loss or deduction with respect to those
units would not be reportable by the unitholder; |
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any cash distributions received by the unitholder as to those
units would be fully taxable; and |
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all of these distributions would appear to be ordinary income. |
Vinson & Elkins L.L.P. has not rendered an opinion
regarding the treatment of a unitholder where common units are
loaned to a short seller to cover a short sale of common units;
therefore, unitholders desiring to assure their status as
partners and avoid the risk of gain recognition from a loan to a
short seller are urged to modify any applicable brokerage
account agreements to prohibit their brokers from borrowing
their units. The IRS has announced that it is actively studying
issues relating to the tax treatment of short sales of
partnership interests. Please also read
Disposition of Common Units
Recognition of Gain or Loss.
Alternative Minimum Tax. Each unitholder will be required
to take into account his distributive share of any items of our
income, gain, loss or deduction for purposes of the alternative
minimum tax. The current minimum tax rate for noncorporate
taxpayers is 26% on the first $175,000 of alternative minimum
taxable income in excess of the exemption amount and 28% on any
additional alternative minimum taxable income. We strongly
recommend that prospective unitholders consult with their tax
advisors as to the impact of an investment in units on their
liability for the alternative minimum tax.
Tax Rates. In general the highest effective United States
federal income tax rate for individuals currently is 35.0% and
the maximum United States federal income tax rate for net
capital gains of an individual is currently 15.0% if the asset
disposed of was held for more than 12 months at the time of
disposition.
Section 754 Election. We have made the election
permitted by Section 754 of the Internal Revenue Code. That
election is irrevocable without the consent of the IRS. The
election generally permits us to adjust a common unit
purchasers tax basis in our assets (inside
basis) under Section 743(b) of the Internal Revenue
Code to reflect his purchase price. This election does not apply
to a person who purchases common units directly from us. The
Section 743(b) adjustment belongs to the purchaser and not
to other unitholders. For purposes of this discussion, a
unitholders inside basis in our assets will be considered
to have two components: (1) his share of our tax basis in
our assets (common basis) and (2) his
Section 743(b) adjustment to that basis.
Treasury regulations under Section 743 of the Internal
Revenue Code require that, if the remedial allocation method is
adopted (which we have adopted), a portion of the
Section 743(b) adjustment attributable to recovery property
be depreciated over the remaining cost recovery period for the
Section 704(c) built-in gain. Under Treasury regulation
Section 1.167(c)-l(a)(6), a Section 743(b) adjustment
attributable to property subject to depreciation under
Section 167 of the Internal Revenue Code, rather than cost
recovery deductions under Section 168, is generally
required to be depreciated using either the straight-line method
or the 150% declining balance method. Under our partnership
agreement, our general partner is authorized to take a position
to preserve the uniformity of units even if that position is not
consistent with these Treasury Regulations. Please read
Tax Treatment of Operations
Uniformity of Units.
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Although Vinson & Elkins L.L.P. is unable to opine as
to the validity of this approach because there is no clear
authority on this issue, we intend to depreciate the portion of
a Section 743(b) adjustment attributable to unrealized
appreciation in the value of Contributed Property, to the extent
of any unamortized Book-Tax Disparity, using a rate of
depreciation or amortization derived from the depreciation or
amortization method and useful life applied to the common basis
of the property, or treat that portion as non-amortizable to the
extent attributable to property the common basis of which is not
amortizable. This method is consistent with the regulations
under Section 743 of the Internal Revenue Code but is
arguably inconsistent with Treasury regulation
Section 1.167(c)-1(a)(6). To the extent this
Section 743(b) adjustment is attributable to appreciation
in value in excess of the unamortized Book-Tax Disparity, we
will apply the rules described in the Treasury regulations and
legislative history. If we determine that this position cannot
reasonably be taken, we may take a depreciation or amortization
position under which all purchasers acquiring units in the same
month would receive depreciation or amortization, whether
attributable to common basis or a Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our assets. This kind of
aggregate approach may result in lower annual depreciation or
amortization deductions than would otherwise be allowable to
some unitholders. Please read Tax Treatment of
Operations Uniformity of Units.
A Section 754 election is advantageous if the
transferees tax basis in his units is higher than the
units share of the aggregate tax basis of our assets
immediately prior to the transfer. In that case, as a result of
the election, the transferee would have, among other items, a
greater amount of depreciation and depletion deductions and his
share of any gain or loss on a sale of our assets would be less.
Conversely, a Section 754 election is disadvantageous if
the transferees tax basis in his units is lower than those
units share of the aggregate tax basis of our assets
immediately prior to the transfer. Thus, the fair market value
of the units may be affected either favorably or unfavorably by
the election.
The calculations involved in the Section 754 election are
complex and will be made on the basis of assumptions as to the
value of our assets and other matters. For example, the
allocation of the Section 743(b) adjustment among our
assets must be made in accordance with the Internal Revenue
Code. The IRS could seek to reallocate some or all of any
Section 743(b) adjustment allocated by us to our tangible
assets to goodwill instead. Goodwill, as an intangible asset, is
generally amortizable over a longer period of time or under a
less accelerated method than our tangible assets. We cannot
assure you that the determinations we make will not be
successfully challenged by the IRS and that the deductions
resulting from them will not be reduced or disallowed
altogether. Should the IRS require a different basis adjustment
to be made, and should, in our opinion, the expense of
compliance exceed the benefit of the election, we may seek
permission from the IRS to revoke our Section 754 election.
If permission is granted, a subsequent purchaser of units may be
allocated more income than he would have been allocated had the
election not been revoked.
Tax Treatment of Operations
Accounting Method and Taxable Year. We use the year
ending December 31 as our taxable year and the accrual
method of accounting for federal income tax purposes. Each
unitholder will be required to include in income his share of
our income, gain, loss and deduction for our taxable year ending
within or with his taxable year. In addition, a unitholder who
has a taxable year ending on a date other than December 31
and who disposes of all of his units following the close of our
taxable year but before the close of his taxable year must
include his share of our income, gain, loss and deduction in
income for his taxable year, with the result that he will be
required to include in income for his taxable year his share of
more than one year of our income, gain, loss and deduction.
Please read Disposition of Common
Units Allocations Between Transferors and
Transferees.
Tax Basis, Depreciation and Amortization. The tax basis
of our assets will be used for purposes of computing
depreciation and cost recovery deductions and, ultimately, gain
or loss on the disposition of these assets. The federal income
tax burden associated with the difference between the fair
market value of our assets and their tax basis immediately prior
to an offering will be borne by our general partner, its
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affiliates and our unitholders immediately prior to that
offering. Please read Tax Consequences of Unit
Ownership Allocation of Income, Gain, Loss and
Deduction.
To the extent allowable, we may elect to use the depreciation
and cost recovery methods that will result in the largest
deductions being taken in the early years after assets are
placed in service. We are not entitled to any amortization
deductions with respect to any goodwill conveyed to us on
formation. Property we subsequently acquire or construct may be
depreciated using accelerated methods permitted by the Internal
Revenue Code.
If we dispose of depreciable property by sale, foreclosure, or
otherwise, all or a portion of any gain, determined by reference
to the amount of depreciation previously deducted and the nature
of the property, may be subject to the recapture rules and taxed
as ordinary income rather than capital gain. Similarly, a common
unitholder who has taken cost recovery or depreciation
deductions with respect to property we own will likely be
required to recapture some or all, of those deductions as
ordinary income upon a sale of his interest in us. Please read
Tax Consequences of Unit Ownership
Allocation of Income, Gain, Loss and Deduction and
Disposition of Common Units
Recognition of Gain or Loss.
The costs incurred in selling our units (called
syndication expenses) must be capitalized and cannot
be deducted currently, ratably or upon our termination. There
are uncertainties regarding the classification of costs as
organization expenses, which may be amortized by us, and as
syndication expenses, which may not be amortized by us. The
underwriting discounts and commissions we incur will be treated
as syndication expenses.
Valuation and Tax Basis of Our Properties. The federal
income tax consequences of the ownership and disposition of
units will depend in part on our estimates of the relative fair
market values, and the tax bases, of our assets. Although we may
from time to time consult with professional appraisers regarding
valuation matters, we will make many of the relative fair market
value estimates ourselves. These estimates and determinations of
basis are subject to challenge and will not be binding on the
IRS or the courts. If the estimates of fair market value or
basis are later found to be incorrect, the character and amount
of items of income, gain, loss or deductions previously reported
by unitholders might change, and unitholders might be required
to adjust their tax liability for prior years and incur interest
and penalties with respect to those adjustments.
Disposition of Common Units
Recognition of Gain or Loss. Gain or loss will be
recognized on a sale of units equal to the difference between
the amount realized and the unitholders tax basis for the
units sold. A unitholders amount realized will be measured
by the sum of the cash or the fair market value of other
property received by him plus his share of our nonrecourse
liabilities. Because the amount realized includes a
unitholders share of our nonrecourse liabilities, the gain
recognized on the sale of units could result in a tax liability
in excess of any cash received from the sale.
Prior distributions from us in excess of cumulative net taxable
income for a common unit that decreased a unitholders tax
basis in that common unit will, in effect, become taxable income
if the common unit is sold at a price greater than the
unitholders tax basis in that common unit, even if the
price received is less than his original cost.
Except as noted below, gain or loss recognized by a unitholder,
other than a dealer in units, on the sale or
exchange of a unit held for more than one year will generally be
taxable as capital gain or loss. Capital gain recognized by an
individual on the sale of units held more than 12 months
will generally be taxed at a maximum rate of 15%. A portion of
this gain or loss, which will likely be substantial, however,
will be separately computed and taxed as ordinary income or loss
under Section 751 of the Internal Revenue Code to the
extent attributable to assets giving rise to depreciation
recapture or other unrealized receivables or to
inventory items we own. The term unrealized
receivables includes potential recapture items, including
depreciation recapture. Ordinary income attributable to
unrealized receivables, inventory items and depreciation
recapture may exceed net taxable gain realized upon the sale of
a unit
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and may be recognized even if there is a net taxable loss
realized on the sale of a unit. Thus, a unitholder may recognize
both ordinary income and a capital loss upon a sale of units.
Net capital losses may offset capital gains and no more than
$3,000 of ordinary income, in the case of individuals, and may
only be used to offset capital gains in the case of corporations.
The IRS has ruled that a partner who acquires interests in a
partnership in separate transactions must combine those
interests and maintain a single adjusted tax basis for all those
interests. Upon a sale or other disposition of less than all of
those interests, a portion of that tax basis must be allocated
to the interests sold using an equitable
apportionment method. Treasury Regulations under
Section 1223 of the Internal Revenue Code allow a selling
unitholder who can identify common units transferred with an
ascertainable holding period to elect to use the actual holding
period of the common units transferred. Thus, according to the
ruling, a common unitholder will be unable to select high or low
basis common units to sell as would be the case with corporate
stock, but, according to the Treasury regulations, may designate
specific common units sold for purposes of determining the
holding period of units transferred. A unitholder electing to
use the actual holding period of common units transferred must
consistently use that identification method for all subsequent
sales or exchanges of common units. We strongly recommend that a
unitholder considering the purchase of additional units or a
sale of common units purchased in separate transactions consult
his tax advisor as to the possible consequences of this ruling
and application of the final regulations.
Specific provisions of the Internal Revenue Code affect the
taxation of some financial products and securities, including
partnership interests, by treating a taxpayer as having sold an
appreciated partnership interest, one in which gain
would be recognized if it were sold, assigned or terminated at
its fair market value, if the taxpayer or related persons
enter(s) into:
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a short sale; |
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an offsetting notional principal contract; or |
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a futures or forward contract with respect to the partnership
interest or substantially identical property. |
Moreover, if a taxpayer has previously entered into a short
sale, an offsetting notional principal contract or a futures or
forward contract with respect to the partnership interest, the
taxpayer will be treated as having sold that position if the
taxpayer or a related person then acquires the partnership
interest or substantially identical property. The Secretary of
the Treasury is also authorized to issue regulations that treat
a taxpayer that enters into transactions or positions that have
substantially the same effect as the preceding transactions as
having constructively sold the financial position.
Allocations Between Transferors and Transferees. In
general, our taxable income and losses will be determined
annually, will be prorated on a monthly basis and will be
subsequently apportioned among the unitholders in proportion to
the number of units owned by each of them as of the opening of
the applicable exchange on the first business day of the month
(the Allocation Date). However, gain or loss
realized on a sale or other disposition of our assets other than
in the ordinary course of business will be allocated among the
unitholders on the Allocation Date in the month in which that
gain or loss is recognized. As a result, a unitholder
transferring units may be allocated income, gain, loss and
deduction realized after the date of transfer.
The use of this method may not be permitted under existing
Treasury Regulations. Accordingly, Vinson & Elkins
L.L.P. is unable to opine on the validity of this method of
allocating income and deductions between unitholders. If this
method is not allowed under the Treasury Regulations, or only
applies to transfers of less than all of the unitholders
interest, our taxable income or losses might be reallocated
among the unitholders. We are authorized to revise our method of
allocation between unitholders, as well as among unitholders
whose interests vary during a taxable year, to conform to a
method permitted under future Treasury Regulations.
49
A unitholder who owns units at any time during a quarter and who
disposes of them prior to the record date set for a cash
distribution for that quarter will be allocated items of our
income, gain, loss and deductions attributable to that quarter
but will not be entitled to receive that cash distribution.
Notification Requirements. A unitholder who sells or
exchanges units is required to notify us in writing of that sale
or exchange within 30 days after the sale or exchange. We
are required to notify the IRS of that transaction and to
furnish specified information to the transferor and transferee.
However, these reporting requirements do not apply to a sale by
an individual who is a citizen of the United States and who
effects the sale or exchange through a broker. Failure to
satisfy these reporting obligations may lead to the imposition
of substantial penalties.
Constructive Termination. We will be considered to have
been terminated for tax purposes if there is a sale or exchange
of 50% or more of the total interests in our capital and profits
within a 12-month period. A constructive termination results in
the closing of our taxable year for all unitholders. In the case
of a unitholder reporting on a taxable year other than a fiscal
year ending December 31, the closing of our taxable year
may result in more than 12 months of our taxable income or
loss being includable in his taxable income for the year of
termination. We would be required to make new tax elections
after a termination, including a new election under
Section 754 of the Internal Revenue Code, and a termination
would result in a deferral of our deductions for depreciation. A
termination could also result in penalties if we were unable to
determine that the termination had occurred. Moreover, a
termination might either accelerate the application of, or
subject us to, any tax legislation enacted before the
termination.
Uniformity of Units
Because we cannot match transferors and transferees of units, we
must maintain uniformity of the economic and tax characteristics
of the units to a purchaser of these units. In the absence of
uniformity, we may be unable to completely comply with a number
of federal income tax requirements, both statutory and
regulatory. A lack of uniformity can result from a literal
application of Treasury
Regulation Section 1.167(c)-1(a)(6). Any
non-uniformity could have a negative impact on the value of the
units. Please read Tax Consequences of Unit
Ownership Section 754 Election.
We intend to depreciate the portion of a Section 743(b)
adjustment attributable to unrealized appreciation in the value
of Contributed Property, to the extent of any unamortized
Book-Tax Disparity, using a rate of depreciation or amortization
derived from the depreciation or amortization method and useful
life applied to the common basis of that property, or treat that
portion as nonamortizable, to the extent attributable to
property the common basis of which is not amortizable,
consistent with the regulations under Section 743 of the
Internal Revenue Code, even though that position may be
inconsistent with Treasury regulation
Section 1.167(c)-1(a)(6). Please read Tax
Consequences of Unit Ownership Section 754
Election. To the extent that the Section 743(b)
adjustment is attributable to appreciation in value in excess of
the unamortized Book-Tax Disparity, we will apply the rules
described in the Treasury Regulations and legislative history.
If we determine that this position cannot reasonably be taken,
we may adopt a depreciation and amortization position under
which all purchasers acquiring units in the same month would
receive depreciation and amortization deductions, whether
attributable to a common basis or Section 743(b)
adjustment, based upon the same applicable rate as if they had
purchased a direct interest in our property. If this position is
adopted, it may result in lower annual depreciation and
amortization deductions than would otherwise be allowable to
some unitholders and risk the loss of depreciation and
amortization deductions not taken in the year that these
deductions are otherwise allowable. This position will not be
adopted if we determine that the loss of depreciation and
amortization deductions will have a material adverse effect on
the unitholders. If we choose not to utilize this aggregate
method, we may use any other reasonable depreciation and
amortization method to preserve the uniformity of the intrinsic
tax characteristics of any units that would not have a material
adverse effect on the unitholders. The IRS may challenge any
method of depreciating the Section 743(b) adjustment
described in this paragraph. If this challenge were sustained,
the uniformity of units might be affected, and the gain from the
sale of units might be increased without the benefit of
additional deductions. Please read Disposition
of Common Units Recognition of Gain or Loss.
50
Tax-Exempt Organizations and Other Investors
Ownership of units by employee benefit plans, other tax-exempt
organizations, regulated investment companies, non-resident
aliens, foreign corporations, and other foreign persons raises
issues unique to those investors and, as described below, may
have substantially adverse tax consequences to them.
Employee benefit plans and most other organizations exempt from
federal income tax, including individual retirement accounts and
other retirement plans, are subject to federal income tax on
unrelated business taxable income. Virtually all of our income
allocated to a unitholder that is a tax-exempt organization will
be unrelated business taxable income and will be taxable to them.
A regulated investment company or mutual fund is
required to derive 90% or more of its gross income from
interest, dividends and gains from the sale of stocks or
securities or foreign currency or specified related sources.
Recent legislation treats net income derived from the ownership
of certain publicly traded partnerships (including us) as
qualifying income to a regulated investment company. However,
this legislation is only effective for taxable years beginning
after October 22, 2004, the date of enactment. For taxable
years beginning prior to the date of enactment, very little of
our income will be qualifying income to a regulated investment
company.
Non-resident aliens and foreign corporations, trusts or estates
that own units will be considered to be engaged in business in
the United States because of the ownership of units. As a
consequence they will be required to file federal tax returns to
report their share of our income, gain, loss or deduction and
pay federal income tax at regular rates on their share of our
net income or gain. Moreover, under rules applicable to publicly
traded partnerships, we will withhold at the highest applicable
effective rate on cash distributions made quarterly to foreign
unitholders. Each foreign unitholder must obtain a taxpayer
identification number from the IRS and submit that number to our
transfer agent on a Form W-8 BEN or applicable substitute
form in order to obtain credit for these withholding taxes.
In addition, because a foreign corporation that owns units will
be treated as engaged in a United States trade or business, that
corporation may be subject to the United States branch profits
tax at a rate of 30%, in addition to regular federal income tax,
on its share of our income and gain, as adjusted for changes in
the foreign corporations U.S. net equity,
which are effectively connected with the conduct of a United
States trade or business. That tax may be reduced or eliminated
by an income tax treaty between the United States and the
country in which the foreign corporate unitholder is a
qualified resident. In addition, this type of
unitholder is subject to special information reporting
requirements under Section 6038C of the Internal Revenue
Code.
Under a ruling of the IRS, a foreign unitholder who sells or
otherwise disposes of a unit will be subject to federal income
tax on gain realized on the sale or disposition of that unit to
the extent that this gain is effectively connected with a United
States trade or business of the foreign unitholder. Apart from
the ruling, a foreign unitholder will not be taxed or subject to
withholding upon the sale or disposition of a unit if he has
owned less than 5% in value of the units during the five-year
period ending on the date of the disposition and if the units
are regularly traded on an established securities market at the
time of the sale or disposition.
Administrative Matters
Information Returns and Audit Procedures. We intend to
furnish to each unitholder, within 90 days after the close
of each calendar year, specific tax information, including a
Schedule K-1, which describes his share of our income,
gain, loss and deduction for our preceding taxable year. In
preparing this information, which will not be reviewed by
Vinson & Elkins L.L.P., we will take various accounting
and reporting positions, some of which have been mentioned
earlier, to determine his share of income, gain, loss and
deduction. We cannot assure you that those positions will yield
a result that conforms to the requirements of the Internal
Revenue Code, Treasury Regulations or administrative
interpretations of the IRS. Neither we nor Vinson &
Elkins L.L.P. can assure prospective unitholders that the IRS
will not
51
successfully contend in court that those positions are
impermissible. Any challenge by the IRS could negatively affect
the value of the units.
The IRS may audit our federal income tax information returns.
Adjustments resulting from an IRS audit may require each
unitholder to adjust a prior years tax liability, and
possibly may result in an audit of his own return. Any audit of
a unitholders return could result in adjustments not
related to our returns as well as those related to our returns.
Partnerships generally are treated as separate entities for
purposes of federal tax audits, judicial review of
administrative adjustments by the IRS and tax settlement
proceedings. The tax treatment of partnership items of income,
gain, loss and deduction are determined in a partnership
proceeding rather than in separate proceedings with the
partners. The Internal Revenue Code requires that one partner be
designated as the Tax Matters Partner for these
purposes. The partnership agreement names our general partner as
our Tax Matters Partner.
The Tax Matters Partner will make some elections on our behalf
and on behalf of unitholders. In addition, the Tax Matters
Partner can extend the statute of limitations for assessment of
tax deficiencies against unitholders for items in our returns.
The Tax Matters Partner may bind a unitholder with less than a
1% profits interest in us to a settlement with the IRS unless
that unitholder elects, by filing a statement with the IRS, not
to give that authority to the Tax Matters Partner. The Tax
Matters Partner may seek judicial review, by which all the
unitholders are bound, of a final partnership administrative
adjustment and, if the Tax Matters Partner fails to seek
judicial review, judicial review may be sought by any unitholder
having at least a 1% interest in profits or by any group of
unitholders having in the aggregate at least a 5% interest in
profits. However, only one action for judicial review will go
forward, and each unitholder with an interest in the outcome may
participate.
A unitholder must file a statement with the IRS identifying the
treatment of any item on his federal income tax return that is
not consistent with the treatment of the item on our return.
Intentional or negligent disregard of this consistency
requirement may subject a unitholder to substantial penalties.
Nominee Reporting. Persons who hold an interest in us as a
nominee for another person are required to furnish to us:
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(a) the name, address and taxpayer identification number of
the beneficial owner and the nominee; |
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(b) whether the beneficial owner is |
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(1) a person that is not a United States person, |
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(2) a foreign government, an international organization or
any wholly owned agency or instrumentality of either of the
foregoing, or |
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(3) a tax-exempt entity; |
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(c) the amount and description of units held, acquired or
transferred for the beneficial owner; and |
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(d) specific information including the dates of
acquisitions and transfers, means of acquisitions and transfers,
and acquisition cost for purchases, as well as the amount of net
proceeds from sales. |
Brokers and financial institutions are required to furnish
additional information, including whether they are United States
persons and specific information on units they acquire, hold or
transfer for their own account. A penalty of $50 per
failure, up to a maximum of $100,000 per calendar year, is
imposed by the Internal Revenue Code for failure to report that
information to us. The nominee is required to supply the
beneficial owner of the units with the information furnished to
us.
Accuracy-related Penalties. An additional tax equal to
20% of the amount of any portion of an underpayment of tax that
is attributable to one or more specified causes, including
negligence or disregard of rules or regulations, substantial
understatements of income tax and substantial valuation
misstatements,
52
is imposed by the Internal Revenue Code. No penalty will be
imposed, however, for any portion of an underpayment if it is
shown that there was a reasonable cause for that portion and
that the taxpayer acted in good faith regarding that portion.
A substantial understatement of income tax in any taxable year
exists if the amount of the understatement exceeds the greater
of 10% of the tax required to be shown on the return for the
taxable year or $5,000 ($10,000 for most corporations). The
amount of any understatement subject to penalty generally is
reduced if any portion is attributable to a position adopted on
the return:
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(1) for which there is, or was, substantial
authority, or |
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(2) as to which there is a reasonable basis and the
pertinent facts of that position are disclosed on the return. |
More stringent rules, including additional penalties and
extended statutes of limitations, may apply as a result of our
participation in listed transactions or
reportable transactions with a significant tax-avoidance
purpose. While we do not anticipate participating in such
transactions, if any item of income, gain, loss or deduction
included in the distributive shares of unitholders for a given
year might result in an understatement of income
relating to such a transaction, we will disclose the pertinent
facts on our return. In addition, we will make a reasonable
effort to furnish such information for unitholders to make
adequate disclosure on their returns and to take other actions
as may be appropriate to permit unitholders to avoid liability
for penalties.
A substantial valuation misstatement exists if the value of any
property, or the adjusted basis of any property, claimed on a
tax return is 200% or more of the amount determined to be the
correct amount of the valuation or adjusted basis. No penalty is
imposed unless the portion of the underpayment attributable to a
substantial valuation misstatement exceeds $5,000 ($10,000 for
most corporations). If the valuation claimed on a return is 400%
or more than the correct valuation, the penalty imposed
increases to 40%.
State, Local, Foreign and Other Tax Considerations
In addition to federal income taxes, you will likely be subject
to other taxes, including state, local and foreign income taxes,
unincorporated business taxes, and estate, inheritance or
intangible taxes that may be imposed by the various
jurisdictions in which we do business or own property or in
which you are a resident. Although an analysis of those various
taxes is not presented here, each prospective unitholder should
consider their potential impact on his investment in us. You
will be required to file state income tax returns and to pay
state income taxes in some or all of the states in which we do
business or own property and may be subject to penalties for
failure to comply with those requirements. In some states, tax
losses may not produce a tax benefit in the year incurred and
also may not be available to offset income in subsequent taxable
years. Some of the states may require us, or we may elect, to
withhold a percentage of income from amounts to be distributed
to a unitholder who is not a resident of the state. Withholding,
the amount of which may be greater or less than a particular
unitholders income tax liability to the state, generally
does not relieve a nonresident unitholder from the obligation to
file an income tax return. Amounts withheld may be treated as if
distributed to unitholders for purposes of determining the
amounts distributed by us. Please read Tax
Consequences of Unit Ownership
Entity-Level Collections. Based on current law and
our estimate of our future operations, our general partner
anticipates that any amounts required to be withheld will not be
material. We may also own property or do business in other
states in the future.
It is the responsibility of each unitholder to investigate
the legal and tax consequences, under the laws of pertinent
jurisdictions, of his investment in us. Accordingly, we strongly
recommend that each prospective unitholder consult, and
depend upon, his own tax counsel or other advisor with regard
to those matters. Further, it is the responsibility of each
unitholder to file all state, local, and foreign as well as
United States federal tax returns, that may be required of him.
Vinson & Elkins L.L.P. has not rendered an opinion on
the state, local or foreign tax consequences of an investment in
us.
53
Tax Consequences of Ownership of Debt Securities
A description of the material federal income tax consequences of
the acquisition, ownership and disposition of debt securities
will be set forth in the prospectus supplement relating to the
offering of debt securities.
SELLING UNITHOLDERS
In addition to covering our offering of securities, this
prospectus covers the offering for resale of up to 41,000,000
common units by selling unitholders. As used in this prospectus,
selling unitholders includes donees, pledgees,
transferees or other successors-in-interest selling units
received after the date of this prospectus from a named selling
unitholder as a gift, pledge, partnership distribution or other
non-sale related transfer. The selling unitholders may sell all,
some or none of the common units covered by this prospectus. See
Plan of Distribution Distribution by Selling
Unitholders. We will bear all costs, expenses and fees in
connection with the registration of the units offered by this
prospectus. Brokerage commissions and similar selling expenses,
if any, attributable to the sale of the units will be borne by
the selling unitholders. The following table sets forth
information relating to the selling unitholders beneficial
ownership of our common units:
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Number and % |
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Number and % |
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of Outstanding |
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of Outstanding |
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Common Units |
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Common Units |
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Beneficially Owned |
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Number of |
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Owned after |
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Prior to Completion |
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Common Units |
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Completion of |
Name of Selling Unitholder |
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of Offering |
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Offered Hereunder |
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Offering |
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Shell US Gas & Power LLC
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36,572,122 |
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36,572,122 |
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-0- |
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9.6 |
% |
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Kayne Anderson MLP Investment Company
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5,228,093 |
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4,427,878 |
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800,215 |
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1.4 |
% |
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0.2 |
% |
Prior to December 29, 2004, Shell US Gas & Power
LLC, an affiliate of Shell Oil Company, owned 41,000,000 common
units that it had acquired from us in 1999 in connection with
its sale to us of its natural gas processing and related
businesses. In that transaction Shell also acquired a 30%
interest in our general partner, which it subsequently sold to a
subsidiary of EPCO on September 12, 2003. Prior to
Shells sale of its 30% interest in our general partner,
the board of directors of our general partner consisted of ten
members, three of which were designated by Shell, and certain
extraordinary transactions, such as mergers, large acquisitions
or dispositions and other transactions required the approval of
at least one of the Shell designees. The Shell designees
resigned from the board of directors of our general partner on
September 12, 2003.
Shell and its affiliates are one of our largest customers. For
the nine months ended September 30, 2004 and the years
ended December 31, 2003, 2002 and 2001, Shell accounted for
approximately 7.3%, 5.5%, 7.9% and 10.6%, respectively, of our
consolidated revenues. Our revenues from Shell primarily reflect
the sale of NGL and petrochemical products to Shell and the fees
we charge Shell for natural gas processing, pipeline
transportation and NGL fractionation services. Our operating
costs and expenses with Shell primarily reflect the payment of
energy-related expenses related to the Shell natural gas
processing agreement described below and the purchase of NGL
products from Shell. We also lease from Shell its 45.4% interest
in one of our propylene fractionation facilities located in Mont
Belvieu, Texas.
The most significant contract affecting our natural gas
processing business is the Shell margin-band/keepwhole
processing agreement, which grants us the right to process
Shells current and future production within state and
federal waters of the Gulf of Mexico. The Shell processing
agreement includes a life of lease dedication, which may extend
the agreement well beyond its initial 20-year term ending in
54
2019. This contract was amended effective April 1,
2004. In general, the amended contract includes the following
rights and obligations:
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the exclusive right, but not the obligation in all cases, to
process substantially all of Shells Gulf of Mexico natural
gas production; plus |
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the exclusive right, but not the obligation in all cases, to
process all natural gas production from leases dedicated by
Shell for the life of such leases; plus |
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the right to all title, interest and ownership in the mixed NGL
stream extracted by our gas processing plants from Shells
natural gas production from such leases; with |
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the obligation to re-deliver to Shell the natural gas stream
after any mixed NGLs are extracted. |
The amended contract contains a mechanism (termed
Consideration Adjustment Outside of Normal
Operations or CAONO) to adjust the value of
the compensation we pay to Shell for (i) the NGLs we
extract and (ii) the natural gas we consume as fuel. The
CAONO, in effect, protects us from processing Shells
natural gas at an economic loss when the value of the mixed NGLs
we extract is less than the sum of the cost of the compensation,
operating costs of the gas processing facility and other costs
such as NGL fractionation and pipeline fees.
The following table summarizes our various transactions with
Shell for the nine months ended September 30, 2004 and the
years ended December 31, 2003, 2002 and 2001 (dollars in
thousands):
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For the Nine Months |
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For the Year Ended December 31, |
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Ended September 30, |
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2004 |
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2003 |
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2002 |
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2001 |
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Revenues from consolidated operations from Shell
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$ |
397,805 |
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$ |
293,109 |
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$ |
282,820 |
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$ |
333,333 |
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Operating costs and expenses paid to Shell
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$ |
536,284 |
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$ |
607,277 |
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$ |
531,712 |
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$ |
705,440 |
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Kayne Anderson MLP Investment Company has had no material
relationship with us or our affiliates within the last three
years. The 4,427,878 common units that may be offered hereunder
by Kayne Anderson were acquired by Kayne Anderson from Shell on
December 29, 2004 pursuant to a Purchase Agreement dated
December 28, 2004. Under the terms of that Purchase
Agreement, Shell granted Kayne Anderson an option to purchase an
additional number of common units from Shell, which additional
units (if so purchased) may also be offered by Kayne Anderson
hereunder. If Kayne Anderson exercises that purchase option, we
will file a prospectus supplement to this prospectus that
reflects that change in ownership of those common units from
Shell to Kayne Anderson.
PLAN OF DISTRIBUTION
We may sell the common units or debt securities directly,
through agents, or to or through underwriters or dealers. Please
read the prospectus supplement to find the terms of the common
unit or debt securities offering including:
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the names of any underwriters, dealers or agents; |
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the offering price; |
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underwriting discounts; |
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sales agents commissions; |
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other forms of underwriter or agent compensation; |
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discounts, concessions or commissions that underwriters may pass
on to other dealers; and |
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any exchange on which the common units or debt securities are
listed. |
55
We may designate agents who agree to use their reasonable
efforts to solicit purchases for the period of their appointment
or to sell securities on a continuing basis. We may engage
Brinson Patrick Securities Corporation and/or Cantor
Fitzgerald & Co. to act as our agent for one or more
offerings, from time to time, of our common units. If we reach
agreement with Brinson Patrick and/or Cantor with respect to a
specific offering, including the number of common units and any
minimum price below which sales may not be made, then Brinson
Patrick and/or Cantor, as the case may be, would agree to use
its reasonable efforts, consistent with its normal trading and
sales practices, to sell such common units on the agreed terms.
Brinson Patrick and/or Cantor could make sales in privately
negotiated transactions and/or any other method permitted by
law, including sales deemed to be an at the market
offering as defined in Rule 415 promulgated under the
Securities Act of 1933, including sales made on or through the
facilities of the New York Stock Exchange or sales made to or
through a market maker other than on an exchange. Brinson
Patrick and/or Cantor, as the case may be, will be deemed to be
an underwriter within the meaning of the Securities
Act, with respect to any sales effected through an at the
market offering, and the compensation paid to Brinson
Patrick and/or Cantor, as the case may be, with respect to such
sales will be deemed to be underwriting commissions or
discounts. Any commissions so paid will be set forth in a
prospectus supplement relating thereto.
We may change the offering price, underwriter discounts or
concessions, or the price to dealers when necessary. Discounts
or commissions received by underwriters or agents and any
profits on the resale of common units or debt securities by them
may constitute underwriting discounts and commissions under the
Securities Act.
Unless we state otherwise in the prospectus supplement,
underwriters will need to meet certain requirements before
purchasing common units or debt securities. Agents will act on a
best efforts basis during their appointment. We will
also state the net proceeds from the sale in the prospectus
supplement.
Any brokers or dealers that participate in the distribution of
the common units or debt securities may be
underwriters within the meaning of the Securities
Act for such sales. Profits, commissions, discounts or
concessions received by such broker or dealer may be
underwriting discounts and commissions under the securities act.
When necessary, we may fix common unit or debt securities
distribution using changeable, fixed prices, market prices at
the time of sale, prices related to market prices, or negotiated
prices.
We may, through agreements, indemnify underwriters, dealers or
agents who participate in the distribution of the common units
or debt securities against certain liabilities including
liabilities under the Securities Act. We may also provide funds
for payments such underwriters, dealers or agents may be
required to make. Underwriters, dealers and agents, and their
affiliates may transact with us and our affiliates in the
ordinary course of their business.
Distribution by Selling Unitholders
Distributions of the common units by the selling unitholders, or
by their partners, pledgees, donees (including charitable
organizations), transferees or other successors in interest, may
from time to time be offered for sale either directly by such
person or entities, or through underwriters, dealers or agents
or on any exchange on which the common units may from time to
time be traded, in the over-the-counter market, or in
independently negotiated transactions or otherwise. The methods
by which the common units may be sold include:
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a block trade (which may involve crosses) in which the broker or
dealer so engaged will attempt to sell the securities as agent
but may position and resell a portion of the block as principal
to facilitate the transaction; |
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purchases by a broker or dealer as principal and resale by such
broker or dealer for its own account pursuant to this prospectus; |
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exchange distributions and/or secondary distributions; |
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underwritten transactions; |
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ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and |
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direct sales or privately negotiated transactions. |
Such transactions may be effected by the selling unitholder at
market prices prevailing at the time of sale or at negotiated
prices. The selling unitholders may effect such transactions by
selling the common units to underwriters or to or through
broker-dealers, and such underwriters or broker-dealers may
receive compensation in the form of discounts or commissions
from the selling unitholders and may receive commissions from
the purchasers of the common units for whom they may act as
agent.
In connection with sales of the common units under this
prospectus, the selling unitholders may enter into hedging
transactions with broker-dealers, who may in turn engage in
short sales of the common units in the course of hedging the
positions they assume. The selling unitholders also may engage
in short sales, short sales against the box, puts and calls and
other transactions in common units, or derivatives thereof, and
may sell and deliver their common units in connection therewith,
or loan or pledge the common units to broker-dealers that in
turn may sell them. In addition, the selling unitholders may
from time to time sell their common units in transactions
permitted by Rule 144 under the Securities Act.
The selling unitholders may agree to indemnify any underwriter,
broker-dealer or agent that participates in transactions
involving sales of the common units against certain liabilities,
including liabilities arising under the Securities Act. We have
agreed to register the common units for sale under the
Securities Act and to indemnify the selling unitholders against
certain civil liabilities, including certain liabilities under
the Securities Act.
As of the date of this prospectus, neither we nor any selling
unitholder has engaged any underwriter, broker, dealer or agent
in connection with the distribution of common units pursuant to
this prospectus by the selling unitholders. To the extent
required, the number of common units to be sold, the purchase
price, the name of any applicable agent, broker, dealer or
underwriter and any applicable commissions with respect to a
particular offer will be set forth in the applicable prospectus
supplement. The aggregate net proceeds to the selling
unitholders from the sale of their common units offered hereby
will be the sale price of those shares, less any commissions, if
any, and other expenses of issuance and distribution not borne
by us.
The selling unitholders and any brokers, dealers, agents or
underwriters that participate with the selling unitholders in
the distribution of shares may be deemed to be
underwriters within the meaning of the Securities
Act, in which event any discounts, concessions and commissions
received by such brokers, dealers, agents or underwriters and
any profit on the resale of the shares purchased by them may be
deemed to be underwriting discounts and commissions under the
Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, and other
information with the Commission under the Securities Exchange
Act of 1934, as amended (the Securities Exchange
Act). You may read and copy any document we file at the
Commissions public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the
Commission at 1-800-732-0330 for further information on the
public reference room. Our filings are also available to the
public at the Commissions web site at http://www.sec.gov.
In addition, documents filed by us can be inspected at the
offices of the New York Stock Exchange, Inc. 20 Broad
Street, New York, New York 10002.
The Commission allows us to incorporate by reference into this
prospectus the information we file with it, which means that we
can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information
that we file with the Commission will automatically update and
supersede this information. Therefore, before you decide to
invest in a particular offering under this shelf registration,
you should always check for reports we may have filed with the
Commission after the date of this prospectus. We
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incorporate by reference the documents listed below filed by us
and any future filings we make with the Commission under
sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act until our offering is completed (other than information
furnished under Item 9 or Item 12 of any
Form 8-K that is listed below, or under
Item 2.02 or Item 2.02 or Item 7.01 of any
Form 8-K filed after August 23, 2004 that is listed
below or that is filed in the future, which information is not
deemed filed under the Exchange Act).
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Our Annual Report on Form 10-K for the year ended
December 31, 2003 except for Items 1, 2, 7
and 8, which have been superseded by the Current Report on
Form 8-K filed with the Commission on December 6,
2004, Commission File No. 1-14323; |
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Our Annual Report on Form 10-K for the year ended
December 31, 2004, filed with the Commission on
March 15, 2005, Commission File No. 1-14323; |
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Quarterly Reports on Form 10-Q for the quarters ended
March 31, 2004, June 30, 2004 and September 30,
2004, Commission File Nos. 1-14323; |
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Current Reports on Form 8-K filed with the Commission on
December 15, 2003, January 6, 2004, February 10,
2004, March 22, 2004, April 16, 2004, April 20,
2004, April 21, 2004, April 26, 2004, April 27,
2004, May 3, 2004, July 29, 2004, August 2, 2004,
August 5, 2004, August 11, 2004, August 30, 2004,
September 1, 2004, September 7, 2004,
September 8, 2004, September 14, 2004,
September 17, 2004, September 21, 2004,
September 27, 2004, September 28, 2004,
October 1, 2004, October 6, 2004, October 27,
2004, December 6, 2004, December 15, 2004,
January 4, 2005, January 18, 2005, February 11,
2005, February 14, 2005, February 16, 2005,
March 3, 2005 and March 23, 2005, Commission File Nos.
1-14323; |
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Current Report on Form 8-K filed with the Commission on
June 16, 2004, as amended by the Current Report on
Form 8-K/A (Amendment No. 1) filed with the Commission
on August 4, 2004, Commission File Nos. 1-14323; |
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Current Report on Form 8-K filed with the Commission on
August 2, 2004, as amended by the Current Report on
Form 8-K/A (Amendment No. 1) filed with the Commission
on August 5, 2004, Commission File Nos. 1-14323; |
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Current Report on Form 8-K filed with the Commission on
September 30, 2004, as amended by the Current Reports on
Form 8-K/A filed with the Commission on October 5,
2004 (Amendment No. 1), October 18, 2004 (Amendment
No. 2), December 3, 2004 (Amendment No. 3),
December 6, 2004 (Amendment No. 4) and
December 27, 2004 (Amendment No. 5), Commission File
Nos. 1-14323; and |
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Current Report on Form 8-K (containing the description of
our common units, which description amends and restates the
description of our common units contained in the Registration
Statement on Form 8-A, initially filed with the Commission on
July 21, 1998) filed with the Commission on
February 10, 2004, Commission File No. 1-14323. |
We will provide without charge to each person, including any
beneficial owner, to whom this prospectus is delivered, upon
written or oral request, a copy of any document incorporated by
reference in this prospectus, other than exhibits to any such
document not specifically described above. Requests for such
documents should be directed to Investor Relations, Enterprise
Products Partners L.P., 2727 North Loop West, Suite 700,
Houston, Texas 77008-1038; telephone number: (713) 880-6812.
We intend to furnish or make available to our unitholders within
75 days (or such shorter period as the Commission may
prescribe) following the close of our fiscal year end annual
reports containing audited financial statements prepared in
accordance with generally accepted accounting principles and
furnish or make available within 40 days (or such shorter
period as the Commission may prescribe) following the close of
each fiscal quarter quarterly reports containing unaudited
interim financial information, including the information
required by Form 10-Q, for the first three fiscal quarters
of each of our fiscal years. Our annual report will include a
description of any transactions with our general partner or its
affiliates, and of fees, commissions, compensation and other
benefits paid, or accrued to our general partner or its
affiliates
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for the fiscal year completed, including the amount paid or
accrued to each recipient and the services performed.
FORWARD-LOOKING STATEMENTS
This prospectus and some of the documents we incorporate by
reference contain various forward-looking statements and
information that are based on our beliefs and those of our
general partner, as well as assumptions made by and information
currently available to us. These forward-looking statements are
identified as any statement that does not relate strictly to
historical or current facts. When used in this prospectus or the
documents we have incorporated herein or therein by reference,
words such as anticipate, project,
expect, plan, goal,
forecast, intend, could,
believe, may, and similar expressions
and statements regarding our plans and objectives for future
operations, are intended to identify forward-looking statements.
Although we and our general partner believe that such
expectations reflected in such forward-looking statements are
reasonable, neither we nor our general partner can give
assurances that such expectations will prove to be correct. Such
statements are subject to a variety of risks, uncertainties and
assumptions. If one or more of these risks or uncertainties
materialize, or if underlying assumptions prove incorrect, our
actual results may vary materially from those anticipated,
estimated, projected or expected. Among the key risk factors
that may have a direct bearing on our results of operations and
financial condition are:
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fluctuations in oil, natural gas and NGL prices and production
due to weather and other natural and economic forces; |
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a reduction in demand for our products by the petrochemical,
refining or heating industries; |
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the effects of our debt level on our future financial and
operating flexibility; |
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a decline in the volumes of NGLs delivered by our facilities; |
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the failure of our credit risk management efforts to adequately
protect us against customer non-payment; |
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terrorist attacks aimed at our facilities; |
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the failure to successfully integrate our operations with
GulfTerras or any other companies we acquire; and |
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the failure to realize the anticipated cost savings, synergies
and other benefits of our merger with GulfTerra. |
You should not put undue reliance on any forward-looking
statements. When considering forward-looking statements, please
review the risk factors described under Risk Factors
in this prospectus and any prospectus supplement.
LEGAL MATTERS
Vinson & Elkins L.L.P., our counsel, will issue an
opinion for us about the legality of the common units and debt
securities and the material federal income tax considerations
regarding the common units. Any underwriter will be advised
about other issues relating to any offering by their own legal
counsel. Attorneys at Vinson & Elkins L.L.P. who have
participated in the preparation of this prospectus and the
registration statement of which it is a part beneficially own
approximately 3,200 common units of Enterprise.
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EXPERTS
The (1) consolidated financial statements and the related
consolidated financial statement schedule of Enterprise Products
Partners L.P. and subsidiaries as incorporated in this
prospectus, by reference from Enterprise Products Partners
L.P.s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 6, 2004, and
(2) the balance sheet of Enterprise Products GP, LLC as of
December 31, 2003, incorporated in this prospectus
supplement by reference from Exhibit 99.1 to Enterprise
Products Partners L.P.s Current Report on Form 8-K
filed with the Securities and Exchange Commission on
March 22, 2004, have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as
stated in their reports, which are incorporated herein by
reference (each such report expresses an unqualified opinion and
the report for Enterprise Products Partners L.P. includes an
explanatory paragraph referring to a change in method of
accounting for goodwill in 2002 and derivative instruments in
2001 as discussed in Notes 8 and 1, respectively, to
Enterprise Products Partners L.P.s consolidated financial
statements), and have been so incorporated in reliance upon the
reports of such firm given upon their authority as experts in
accounting and auditing.
The (1) consolidated financial statements of GulfTerra
Energy Partners, L.P. (GulfTerra), (2) the
financial statements of Poseidon Oil Pipeline Company, L.L.C.
(Poseidon) and (3) the combined financial
statements of El Paso Hydrocarbons, L.P. and El Paso
NGL Marketing Company, L.P. (the Companies) all
incorporated in this prospectus by reference to Enterprise
Products Partners L.P.s Current Reports on Form 8-K
dated April 20, 2004 for (1) and (2) and
April 16, 2004 for (3), have been so incorporated in
reliance on the reports (which (i) report on the
consolidated financial statements of GulfTerra contains an
explanatory paragraph relating to GulfTerras agreement to
merge with Enterprise Products Partners L.P. as described in
Note 2 to the consolidated financial statements,
(ii) report on the financial statements of Poseidon
contains an explanatory paragraph relating to Poseidons
restatement of its prior year financial statements as described
in Note 1 to the financial statements, and
(iii) report on the combined financial statements of the
Companies contains an explanatory paragraph relating to the
Companies significant transactions and relationships with
affiliated entities as described in Note 5 to the combined
financial statements) of PricewaterhouseCoopers LLP, an
independent registered public accounting firm, given on the
authority of said firm as experts in auditing and accounting.
Information derived from the report of Netherland,
Sewell & Associates, Inc., independent petroleum
engineers and geologists, with respect to GulfTerras
estimated oil and natural gas reserves incorporated in this
prospectus by reference to our Current Report on Form 8-K
dated April 20, 2004 has been so incorporated in reliance
on the authority of said firm as experts with respect to such
matters contained in their report.
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$500,000,000 4.95% Senior Notes due 2010
Enterprise Products Operating L.P.
PROSPECTUS SUPPLEMENT
May 25, 2005
UBS Investment Bank
Barclays Capital
Wachovia Securities
BNP PARIBAS
HVB Capital Markets
Lazard Capital Markets
RBS Greenwich Capital
Scotia Capital