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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
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Rule14a-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-12
EL PASO CORPORATION
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(Name of Registrant as Specified in its Charter)
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Q1 2003 EARNINGS CONFERENCE CALL SLIDE PRESENTATION
EL PASO
FIRST QUARTER 2003
EARNINGS REVIEW
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MAY 13, 2003
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
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This presentation includes forward-looking statements and projections, made
in reliance on the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The company has made every reasonable effort
to ensure that the information and assumptions on which these statements
and projections are based are current, reasonable, and complete. However, a
variety of factors could cause actual results to differ materially from the
projections, anticipated results or other expectations expressed in this
presentation, including, without limitation, the successful implementation
of the 2003 business plan; the successful implementation of the settlement
related to the western energy crisis; actions by credit rating agencies;
our ability to attract and retain qualified members of the Board of
Directors and senior management; our ability to divest of certain non-core
assets; material and adverse impacts from our proxy contest with Selim
Zilkha/Oscar Wyatt; changes in commodity prices for oil, natural gas, and
power; general economic and weather conditions in geographic regions or
markets served by El Paso Corporation and its affiliates, or where
operations of the company and its affiliates are located; the uncertainties
associated with governmental regulation; competition; and other factors
described in the company's (and its affiliates') Securities and Exchange
Commission filings. While the company makes these statements and
projections in good faith, neither the company nor its management can
guarantee that anticipated future results will be achieved. Reference must
be made to those filings for additional important factors that may affect
actual results. The company assumes no obligation to publicly update or
revise any forward-looking statements made herein or any other
forward-looking statements made by the Company, whether as a result of new
information, future events, or otherwise.
2
ADDITIONAL IMPORTANT INFORMATION
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In this presentation we include certain financial information that is
calculated and presented on the basis of methodologies other than in
accordance with generally accepted accounting principles (GAAP). A
presentation of the most directly comparable financial measure calculated
and presented in accordance with GAAP, and a reconciliation of the
differences between each non-GAAP financial measure used in this
presentation with the most directly comparable financial measure calculated
and presented in accordance with GAAP, is provided on our website,
www.elpaso.com. This information may be accessed in the For Investors
section by clicking on the "First Quarter 2003 Operating Statistics" or by
clicking the "First Quarter 2003 Earnings Review" presentation in the
Presentations section of the For Investors section.
On May 12, 2003, El Paso Corporation began the process of mailing its
definitive proxy statement, together with a WHITE proxy card. Shareholders
are strongly advised to read El Paso's proxy statement as it contains
important information.
Shareholders may obtain an additional copy of El Paso's definitive proxy
statement and any other documents filed by El Paso with the Securities and
Exchange Commission for free at the Internet Web site maintained by the
Securities and Exchange Commission at www.sec.gov. Copies of the definitive
proxy statement are available for free at El Paso's Internet Web site at
www.elpaso.com or by writing to El Paso Corporation, Investor Relations,
P.O. Box 2511, Houston, TX 77252. In addition, copies of El Paso's proxy
materials may be requested by contacting El Paso's proxy solicitor,
MacKenzie Partners, Inc. at (800) 322-2885 Toll-Free or by email at
proxy@mackenziepartners.com.
Information regarding the names, affiliation and interests of individuals
who may be deemed participants in the solicitation of proxies of El Paso's
shareholders is contained in El Paso's definitive proxy statement.
3
RECONCILIATION OF EBIT TO
GAAP OPERATING INCOME
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FIRST QUARTER 2003
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $ 384 $ 235 $ - $(514) $ (44) $ 61
Equity and other
income 45 9 27 (242) (24) (185)
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Reported EBIT 429 244 27 (756) (68) (124)
Non-recurring items - 12 1 663 22 698
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PRO FORMA EBIT $ 429 $ 256 $ 28 $ (93) $ (46) $ 574
=======================================================================
4
RECONCILIATION OF EBIT TO
GAAP OPERATING INCOME
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FIRST QUARTER 2002
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $ 357 $ 175 $ 38 $ 455 $ (13) $1,012
Equity and other
income 42 1 13 (362) 7 (299)
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Reported EBIT 399 176 51 93 (6) 713
Non-recurring items - 33 - 342 - 375
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PRO FORMA EBIT $ 399 $ 209 $ 51 $ 435 $ (6) $1,088
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5
RECONCILIATION OF EBIT TO
GAAP OPERATING INCOME
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FOURTH QUARTER 2002
PIPELINE FIELD MERCHANT CORPORATE CONSOLIDATED
GROUP PRODUCTION SERVICES ENERGY AND OTHER TOTAL
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GAAP operating
income $(103) $ 170 $ 177 $(1,525) $(238) $(1,519)
Equity and other
income (103) 2 16 (95) (33) (213)
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Reported EBIT (206) 172 193 (1,620) (271) (1,732)
Non-recurring items 561 6 (166) 972 169 1,542
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PRO FORMA EBIT $ 355 $ 178 $ 27 $ (648) $(102) $ (190)
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6
1ST QUARTER SUMMARY
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$ MILLIONS, EXCEPT EPS
QUARTER ENDED
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MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
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Reported diluted earnings per share $ (.66) $ (2.92) $ .72
Non-recurring items .90 2.23 .21
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Pro forma diluted earnings per share $ .24 $ (.69) $ .93
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Funds from operations $ 585 $ 446 $ 739
Working capital and other $ (674) $ (1,169) $ (653)
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Cash provided (used)
from operations $ (89) $ (723) $ 86
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7
CORE BUSINESS
POSTED STRONG RESULTS
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$ MILLIONS
QUARTER ENDED
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MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
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Pipelines $ 429 $ 355 $ 399
Production 256 178 209
Field Services 28 27 51
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PRO FORMA EBIT $ 713 $ 560 $ 659
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8
PROGRESS AND
NEW INITIATIVES
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PROGRESS AGAINST 2003 OPERATIONAL
AND FINANCIAL PLAN
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o $2.3 billion (67%) of $3.4 billion asset sales program announced or
completed
o Significant improvement in liquidity
o Simplification of balance sheet
o Proposed Western energy settlement
o Extension of $3 billion bank facility
o $1.9 billion of financings
o Sale of European natural gas trading book
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NEXT STEPS
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o The Board of Directors has formed a long-range planning committee to
ensure that El Paso maximizes all opportunities inherent in its core
businesses
o Undertaking top-to-bottom analysis to achieve substantial further cost
reductions and design most cost-efficient structure possible for our
businesses
o Targeting at least $250 MM of additional pre-tax cost savings and
business efficiencies beyond $150 MM previously announced by the end
of 2004
- Expected from corporate expense reductions and budgeted cost savings
and revenue enhancements at business unit level
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LONG RANGE PLANNING PROCESS
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o Initial review of appropriate leverage capability of core assets
- Self-sustaining leverage to allow for maintenance and growth capital
- Investment grade ratio comparison
o Evaluating options to achieve additional debt reduction
o Process will streamline and optimize core businesses
- Reduce costs
- Minimize capital
- Generate free cash flow
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WE WILL PROVIDE DETAILED UPDATE TO THE INVESTMENT
COMMUNITY UPON COMPLETION OF THIS PROCESS
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12
BUSINESS UNIT RESULTS
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PIPELINE GROUP
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$ MILLIONS
QUARTER ENDED
MARCH 31,
2003 2002
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Reported EBIT $ 429 $ 399
Total throughput (BBtu/d) 23,609 21,727
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o Expansions and 9% increase in throughput led to stronger results
o TGP, SNG, ANR, and FGT established peak-day throughput records during
the quarter
o Continuing improvement in capacity values
- Return to normal or slightly colder-than-normal winter weather
- Record low storage inventories at the end of 1st quarter
- Recognition by LDCs and state utility commissions of increased value
of long-term capacity
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14
EL PASO PRODUCTION
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$ MILLIONS
QUARTER ENDED
MARCH 31,
2003 2002
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Reported EBIT $ 244 $ 176
Non-recurring items 12 33
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Pro forma EBIT $ 256 $ 209
Production (Bcfe) 124 163
Natural gas price ($/Mcf) $ 4.60 $ 3.46
Oil and liquids price ($/Bbl) $ 27.33 $ 15.68
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o Strong natural gas and oil prices fueled 2003 results
o Lower production volumes due to asset sales
o Approximately 375 MMcfe/d expected to come on during remainder of 2003
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15
FIELD SERVICES
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$ MILLIONS
QUARTER ENDED
MARCH 31,
2003 2002
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Reported EBIT $ 27 $ 51
Non-recurring items 1 -
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Pro forma EBIT $ 28 $ 51
Equity earnings from EPN $ 29 $ 15
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o EBIT decline reflects significant asset sales in 2002
o Equity earnings and cash distributions from EPN both doubled from
last year
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16
MERCHANT ENERGY GROUP RESULTS
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$ MILLIONS
QUARTER ENDED
MARCH 31,
2003 2002
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Reported EBIT $ (756) $ 93
Non-recurring items 663 342
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Pro forma EBIT $ (93) $ 435
Power 46 303
Petroleum and LNG 47 87
Trading (186) 45
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Total pro forma $ (93) $ 435
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o Power assets performed as planned
o Petroleum refining margins strong
o 1Q 2003 Trading results impacted by cost to exit business and 1Q liquidity
o 1Q 2002 results benefited from power contract restructurings
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17
KEY COMPONENTS OF
1Q 2003 TRADING LOSS
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o Costs to sell or early terminate positions to conserve working capital
and liquidate portfolio (estimated $34 MM)
o Losses on gas transportation and storage positions and related hedges
not offset through physical shipments (estimated $66 MM)
o Net change in forward mark-to-market value of gas and power positions
still accounted for as derivatives (estimated $33 MM)
o G&A/depreciation expense ($35 MM, including $10 MM Europe)
18
CONTINUED PROGRESS ON LIQUIDATION
OF TRADING BUSINESS IN 1Q 2003
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o Reduced active deal count from roughly 40,000 positions to 27,000 in
quarter (33% reduction)
o On track for positions to fall below 12,000 by year-end 2003
o Reduced transportation capacity portfolio from 4.4 Bcf/d to 2.2 Bcf/d
(50% reduction)
o Reduced storage portfolio from 125 Bcf to 55 Bcf (56% reduction)
o Sold European natural gas trading book
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FINANCIAL REVIEW
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QUARTERLY EARNINGS SUMMARY
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$ MILLIONS
QUARTER ENDED
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MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
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Operating income $ 61 $(1,519) $1,012
Reported EBIT (124) (1,732) 713
Non-recurring items 698 1,542 375
Pro forma EBIT:
Pipelines 429 355 399
Production 256 178 209
Field Services 28 27 51
Merchant (93) (648) 435
Corporate and other (46) (102) (6)
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Total pro forma EBIT 574 (190) 1,088
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Interest and debt expense 345 342 307
Preferred and minority interest 39 38 40
Income taxes 50 (163) 239
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Pro forma net income $ 140 $ (407) $ 502
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1ST QUARTER SUMMARY OF
NON-RECURRING ITEMS
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$ MILLIONS
PRE-TAX IMPACT
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Asset impairments
Eagle Point $252
Electron 207
Other 202
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Total impairments $661
(Gain)/loss on asset sales (38)
LNG ship charters 44
Workforce reduction 31
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TOTAL $698
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22
1ST QUARTER CONSOLIDATED RESULTS
OPERATING CASH FLOW
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$ MILLIONS
2003 2002
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Net income (loss) $(394) $ 383
Non-cash adjustments to net income 979 356
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Subtotal 585 739
Working capital changes and other (674) (653)
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Cash flow from operating activities (89) 86
Cash flow from investing activities (477) (346)
Cash flow from financing activities 757 380
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CHANGE IN CASH $ 191 $ 120
======================
23
1ST QUARTER WORKING CAPITAL USE
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$ MILLIONS
APPROXIMATE
CATEGORY TARGET PROJECTED USE ACTUAL USE
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Trade book and Production
hedges (gas price exposure) $40 for $.10/Mcf(1) $216 $350
Stress demand $2,200(2) 400 275
Normal 1st quarter - 50 50
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TOTAL $666 $675
===========================
(1) Movement of approximately $.54/Mcf for 12-month strip during the period
(2) $1.8 billion of working capital and other uses through December 31, 2002
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WORKING CAPITAL OUTLOOK FOR
APRIL-DECEMBER 2003
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EXPECT WORKING CAPITAL RECOVERY OF
$1.2 BILLION FOR REMAINDER OF 2003
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o $500 MM from letters of credit backed by $3 billion facility
o $225 MM roll off of production hedges
o $300 MM impact of higher prices on production or production hedges
o $(60) MM settlements from trading book
o $200 MM related to petroleum asset sales
25
LIQUIDITY UPDATE
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$ BILLIONS
DECEMBER 31, MARCH 31, APRIL 30,
2002 2003 2003
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BALANCE SHEET CASH $1.6 $1.8 N/A
Available cash $1.1 $1.5 $1.9
Availability under $3 billion
bank facility 1.5 1.5 1.0
Available under $1 billion
bank facility .5 - .1
---------------------------------------------
NET AVAILABLE LIQUIDITY $3.1 $3.0 $3.0
=============================================
Note: $3 billion bank facility matures in June 2005 and $1 billion bank
facility matures in August 2003
26
REDUCTION OF NET OBLIGATIONS SENIOR TO
COMMON OF APPROXIMATELY $350 MM
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$ BILLIONS
MARCH 31, DECEMBER 31,
2003 2002
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Cash $ 1.8 $ 1.6
Financing obligations and notes payable 20.7 18.6
Minority and preferred interests 2.2 3.4
Common equity 8.0 8.4
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TOTAL BOOK CAPITALIZATION $30.9 $30.4
=============================
Guarantees per bank agreement $ 1.8 $ 2.9
Debt to total capitalization ratio(1) 67% 63%
(1) Per bank agreement, debt includes guarantees and equity is adjusted for
some non-cash charges. In this calculation $.5 billion was added back
to book equity, and debt was reduced by $.9 billion for non-recourse
project finance debt
27
PRO FORMA BALANCE SHEET
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$ BILLIONS
FINANCING MINORITY AND GUARANTEES
OBLIGATIONS AND PREFERRED PER BANK
NOTES PAYABLE INTERESTS(1) FACILITY PRO FORMA
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Balance at March 31, 2003 $ 20.7 $ 2.2 $ 1.80 $ 24.7
ELECTRON AND GEMSTONE:
Gemstone notes due 2004 1.0 - (1.0) -
Gemstone project debt 0.1 - - 0.1
Electron project and
restructuring debt 1.6 - - 1.6
Intercompany eliminations (0.4) (0.4) - (0.8)
Linden sale (0.6) - - (0.6)
BANK FINANCING ACTIVITIES:
Clydesdale refinancing 0.8 (0.8) - -
Operating leases 0.6 - (0.6) -
Coastal Securities Company, Ltd. 0.1 (0.1) - -
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PRO FORMA BALANCE AT MARCH 31, 2003 $ 23.9 $ 0.9 $ 0.2 $ 25.0
(1) FAS 150 may require reclassification of $625 MM of trust preferred
securities to debt
28
DEBT REDUCTION PLAN
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$ BILLIONS
Pro forma obligations senior to common at March 31, 2003 $ 25.0
Less:
Cash in excess of $500 MM (1.0)
Remaining 2003 asset sales (1.9)
Other asset sales identified for debt reduction (2.5)
Return of trading and hedge margin (1.3)
Conversion of equity security units
(mandatory August 2005) (.6)
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Target obligations senior to common $ 17.7
Less non-recourse obligations:
Utility Contract Funding (.8)
Mohawk River Funding (.1)
Cedar Brakes I and II (.7)
Other project debt (.3)
------------
Target recourse obligations senior to common $ 15.8
============
29
2003 EPS OUTLOOK
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o Expect 2003 pro forma EPS in-line with current First Call consensus
of $.87
o Changes from original assumptions used in setting $1.00 per share
pro forma earnings expectation:
- Pipelines slightly above top end of expected range
- Production at or above top end of expected range
o Production rate currently below target
o Prices at $5.50 MMBtu for remainder of 2003
- Midstream at low end of expected range
- Trading losses of SG&A for remainder of 2003 (approximately $100 MM)
- Petroleum/LNG positive margins through 2nd quarter
- Power at mid-point of previous expected range
o Potential changes from original assumptions used in setting breakeven
reported earnings expectation:
- Decision to divest Aruba and Telecom and the charges associated with
cost reduction activities will result in additional losses in 2003
- Aruba book value of approximately $1.3 billion; Telecom book value
of approximately $365 MM
30
SUMMARY
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o El Paso's core businesses performing very well
o Continued solid execution of operational and financial plan
o Aggressively pursuing $400 MM cost reduction target
o Asset sales and working capital recovery will yield significant debt
reduction
o Long range planning committee will deliver final part of restructuring
process
- Deliver solid earnings power of core business
- Reduce debt to appropriate level
- Generate free cash flow while investing prudently in core businesses
o We WILL deliver shareholder value
31
APPENDIX
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1ST QUARTER 2002 SUMMARY OF
NON-RECURRING ITEMS AFFECTING EBIT
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$ MILLIONS
PRE-TAX IMPACT
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Asset impairments
Argentina equity investments $342
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Total impairments $342
Ceiling test charges 33
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TOTAL $375
=================
33
4TH QUARTER 2002 SUMMARY OF
NON-RECURRING ITEMS AFFECTING EBIT
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$ MILLIONS
PRE-TAX IMPACT
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Asset impairments
Dark fiber inventory $ 168
Turbine inventory 162
Australian pipelines 153
MTBE plant 91
CE Generation Power Investment 74
North Louisiana gathering system 66
Other impairments and losses 146
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Total impairments $ 860
Western Energy settlement $ 899
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(Gain)/loss on asset sales (217)
TOTAL $1,542
34
[LOGO - EL PASO]
FIRST QUARTER 2003
EARNINGS REVIEW
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MAY 13, 2003