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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: January 9, 2003
(Date of Earliest Event Reported: May 29, 2002)
EL PASO CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 1-14365 76-0568816
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
El Paso Building
1001 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 420-2600
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Item 5. OTHER EVENTS
We are filing this Current Report on Form 8-K (i) to update our
previous Form 8-Ks filed on June 14, 2002 and October 9, 2002, reporting the
announced sale of a series of midstream assets (collectively, the San Juan
assets) to El Paso Energy Partners, L.P. and (ii) to provide the estimated
impact on our historical financial statements of the San Juan asset sale as well
as other asset sales we completed during 2002 with El Paso Energy Partners.
On November 27, 2002, we completed the sale of our San Juan assets to
El Paso Energy Partners, an affiliate for which one of our subsidiaries serves
as the general partner, for a price of approximately $776 million (net of
capital expenditures and working capital adjustments of $6 million). The San
Juan assets sold consist of the following:
o substantially all of our natural gas gathering, processing and treating
assets in the San Juan basin of New Mexico;
o a 35-mile, 20-inch natural gas pipeline and a 16-mile, 12-inch oil
pipeline originating on the Chevron/BHP "Typhoon" platform in the Green
Canyon area of the Gulf of Mexico; and
o more than 500 miles of natural gas liquids pipelines and a related
fractionation facility in Houston, Texas.
The net proceeds we received consist of approximately $426 million in
cash and $350 million of Series C units, a new non-voting class of the limited
partner interest in El Paso Energy Partners. Prior to the completion of the
transaction, we received a fairness opinion from Deutsche Bank stating that the
proceeds we would receive from the partnership for these assets were fair in
relation to their market value of the assets.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
b. Pro Forma Financial Information
The accompanying pro forma financial statements reflect the impact on
our historical financial statements of the San Juan asset sale, as well as the
sale of the Texas and New Mexico midstream assets that we sold to the
partnership in April 2002. We have prepared these pro forma financial statements
to allow you to evaluate the impact on our historical financial statements of
the sales we have completed to the partnership during 2002. The historical
financial statements and periods for which these pro forma statements have been
prepared include the balance sheet as of September 30, 2002, and the income
statements for the nine months ended September 30, 2002, and for the year ended
December 31, 2001. These pro forma statements are unaudited. The pro forma
balance sheet as of September 30, 2002, is derived from the balance sheet
presented in our Quarterly Report on Form 10-Q for the quarter ended September
30, 2002, and reflects only the San Juan asset sale as though the transaction
occurred on that date (the sale of our Texas and New Mexico midstream assets
have already been reflected in this historical balance sheet). We derived the
income statements for the nine months ended September 30, 2002, from our
Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, and for
the year ended December 31, 2001, from our 2001 Annual Report on Form 10-K.
These income statements exclude both the San Juan and Texas and New Mexico asset
sales as though these transactions occurred on January 1, 2001. You should not
assume that these pro forma statements are indicative of future results or the
results we would have achieved had the transactions occurred at the dates
presented. Additionally, these pro forma financial statements were prepared
under rules established by the Securities and Exchange Commission in Article 11
of Regulation S-X. Accordingly, we did not reflect the estimated gain on our
sale of the San Juan assets in income, make any assumptions or adjustments for
possible increases in common unit distributions by El Paso Energy Partners or
assume that any cost savings or synergies occurred following these transactions.
You should read these pro forma financial statements in conjunction
with the historical financial statements included in our 2001 Annual Report on
Form 10-K and our Quarterly Report on Form 10-Q for the quarter ended September
30, 2002. The pro forma adjustments we have made in this Current Report
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on Form 8-K require us to use estimates and assumptions based on currently
available information, which include the costs directly attributable to the San
Juan assets (since these assets have been historically managed and operated as
part of our overall portfolio of midstream assets in our Field Services segment)
and estimates of income tax and interest rates. We believe that our estimates
and assumptions are reasonable, and that the significant effects of these asset
sales have been properly reflected in our pro forma financial statements.
However, actual results may differ from the estimates and assumptions used.
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EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2002
(In millions)
El Paso Pro Forma As
Historical Adjustments Adjusted
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ASSETS
Current assets
Cash and cash equivalents $ 1,693 $ 426 (a) $ 1,693
(426)(b)
Accounts and notes receivable, net 7,446 -- 7,446
Other current assets 4,280 (458)(a) 3,822
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Total current assets 13,419 (458) 12,961
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Property, plant and equipment, net 23,641 -- 23,641
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Other assets
Investments in unconsolidated affiliates 4,967 (2)(a) 5,315
350 (a)
Other 7,079 (19)(a) 7,094
34 (c)
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12,046 363 12,409
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Total assets $ 49,106 $ (95) $ 49,011
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,309 $ -- $ 6,309
Short-term borrowings and other financing obligations 938 (426)(b) 512
Other 3,240 (29)(a) 3,448
237 (c)
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Total current liabilities 10,487 (218) 10,269
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Debt 16,449 -- 16,449
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Other liabilities
Deferred income taxes 4,497 (108)(c) 4,389
Other 3,709 89 (a) 3,798
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8,206 (19) 8,187
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Commitments and contingencies
Securities of subsidiaries 3,728 -- 3,728
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Stockholders' equity
Common stock 1,815 -- 1,815
Additional paid-in capital 4,387 -- 4,387
Retained earnings 4,811 237 (a) 4,953
(95)(c)
Other, net (777) -- (777)
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Total stockholders' equity 10,236 142 10,378
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Total liabilities and stockholders' equity $ 49,106 $ (95) $ 49,011
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See accompanying notes.
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EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(In millions, except per common share amounts)
El Paso Pro Forma As
Historical Adjustments Adjusted
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Operating revenues $ 9,398 $ (414)(d) $ 8,991
7 (e)
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Operating expenses
Cost of products and services 4,481 (258)(d) 4,223
Operation and maintenance 1,891 (52)(d) 1,840
1 (e)
Restructuring and merger-related costs and
asset impairments 405 -- 405
Ceiling test charges 267 -- 267
Depreciation, depletion and amortization 1,057 (22)(d) 1,036
1 (e)
Taxes, other than income taxes 212 (5)(d) 207
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8,313 (335) 7,978
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Operating income 1,085 (72) 1,013
Other income, net 372 (1)(d) 371
Interest and debt expense (1,008) 11 (f) (997)
Returns on preferred interests of consolidated
subsidiaries (121) -- (121)
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Income before income taxes 328 (62) 266
Income taxes 105 (26)(d) 81
2 (e)
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Income from continuing operations $ 223 $ (38) $ 185
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Basic and diluted earnings per common share
from continuing operations $ 0.41 $ 0.34
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Basic average common shares outstanding 548 548
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Diluted average common shares outstanding 549 549
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See accompanying notes.
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EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions, except per common share amounts)
El Paso Pro Forma As
Historical Adjustments Adjusted
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Operating revenues $ 13,699 $ (670)(d) $ 13,038
9 (e)
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Operating expenses
Cost of products and services 6,343 (330)(d) 6,013
Operation and maintenance 2,876 (118)(d) 2,760
2 (e)
Merger-related costs and asset impairments 1,841 -- 1,841
Ceiling test charges 135 -- 135
Depreciation, depletion and amortization 1,327 (55)(d) 1,275
3 (e)
Taxes, other than income taxes 334 (10)(d) 324
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12,856 (508) 12,348
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Operating income 843 (153) 690
Other income, net 786 3 (d) 789
Interest and debt expense (1,156) 23 (f) (1,133)
Returns on preferred interests of consolidated
subsidiaries (217) -- (217)
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Income (loss) before income taxes 256 (127) 129
Income taxes 184 (51)(d) 135
2 (e)
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Income (loss) from continuing operations $ 72 $ (78) $ (6)
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Basic and diluted earnings (loss) per common share
from continuing operations $ 0.14 $ (0.01)
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Basic average common shares outstanding 505 505
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Diluted average common shares outstanding 516 505
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See accompanying notes.
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EL PASO CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
EL PASO HISTORICAL
The amounts in the unaudited pro forma balance sheet and income
statement as of and for the nine months ended September 30, 2002, represent our
condensed historical consolidated balance sheet and income statement as
presented in our Form 10-Q for the period ended September 30, 2002.
The amounts in the unaudited pro forma income statement for the year
ended December 31, 2001, were derived from our 2001 Annual Report on Form 10-K,
but include reclassifications to conform the information to the way in which we
reported it in our September 30, 2002, Form 10-Q. These reclassification
adjustments consisted of the following:
(1) In June 2002, we adopted a consensus decision reached by the
Emerging Issues Task Force (EITF) in EITF Issue No. 02-3,
Issues Related to Accounting for Contracts Involved in Energy
Trading and Risk Management Activities. EITF Issue No. 02-3
requires that we report all physical sales of energy
commodities in our energy trading operations, net of the cost
of those products. Previously, these items were reported
separately. We included these net sales as a component of
revenues. For the twelve months ended December 31, 2001, we
reclassified costs of $43.5 billion to operating revenues.
(2) In June 2002, we announced the discontinuance of our coal
mining operations and reclassified those activities in our
historical financial statements as discontinued operations.
During 2001, our net loss from coal mining operations was $5
million.
PRO FORMA ADJUSTMENTS
These amounts represent the estimated historical results and balances
of the San Juan assets as of and for the periods presented. For the periods
ended September 30, 2002 and December 31, 2001, these adjustments also include
the historical results of the Texas and New Mexico midstream assets we sold to
the partnership in April 2002. In addition to these historical results, we have
included a number of pro forma adjusting entries, which are discussed below:
PRO FORMA ADJUSTING ENTRIES
(a) To record the net proceeds we received from the sale of the San Juan
assets of $426 million in cash and $350 million of El Paso Energy
Partners' Series C units. Based on the net book values of the assets
sold, we have reflected an estimated pretax gain on the sale of these
assets of $323 million, of which $86 million of the pretax gain was
deferred since we own a 26.5 percent ownership interest in El Paso
Energy Partners.
(b) To record the use of cash proceeds of $426 million from the San Juan
asset sale to repay short-term borrowings.
(c) To record the income tax impact of the gain on the sale of the San Juan
assets using a statutory income tax rate of 40 percent.
(d) To exclude the historical operating results and related income tax
effect of the San Juan assets and the Texas and New Mexico midstream
assets for the periods they were included in our historical income
statements. Income tax expenses were adjusted at statutory income tax
rates of 40 percent for the San Juan assets and 35 percent for the
Texas and New Mexico midstream assets.
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(e) To record the impact on income resulting from the Prince Production
platform and the overriding royalty interest in the Prince field. These
were assets we received in exchange for our Texas and New Mexico
midstream assets. Income tax expenses on this income were adjusted at a
statutory tax rate of 35 percent.
(f) To record a reduction in interest expense associated with our use of the
cash proceeds of $426 million from the San Juan asset sale and $539
million from the Texas and New Mexico midstream asset sale to reduce
short-term borrowings. The rate used to determine these amounts is based
on a weighted average interest rate as of September 30, 2002 of 2.4
percent. If this interest rate increased or decreased by 0.125 percent,
the impact on interest expense would have been higher or lower by
approximately $0.6 million for the nine months ended September 30, 2002,
and by approximately $1.2 million for the year ended December 31, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO CORPORATION
By: /s/ JEFFREY I. BEASON
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Jeffrey I. Beason
Senior Vice President and Controller
(Principal Accounting Officer)
Date: January 9, 2003