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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: October 9, 2002
(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 (I.R.S. Employer
of incorporation) File Number) 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 to update our previous
Form 8-K filed on June 14, 2002, reporting the announced sale of a series of
midstream assets to El Paso Energy Partners, L.P. (collectively, the "San Juan
Assets") for an estimated $782 million. These assets include:
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 over 500 miles of natural gas liquids pipelines and a related
fractionation facility in Texas.
This proposed sale was approved by both our and El Paso Energy
Partners' Boards of Directors, which included the approval of the transaction by
El Paso Energy Partners' special conflicts committee. Both our Board and El Paso
Energy Partners' Board also received fairness opinions on the transaction which
concluded that the terms of sale were fair to both us and El Paso Energy
Partners. This transaction is subject to customary regulatory reviews and
approvals. The closing of this sale is anticipated by the end of 2002.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
b. Unaudited Pro Forma Financial Statements
The accompanying pro forma financial statements are based on our
historical consolidated financial statements as of and for the six months ended
June 30, 2002, and for the year ended December 31, 2001, adjusted for the
effects of the proposed sale of our San Juan Assets. These statements are
unaudited. We also adjusted our consolidated statements of income for the six
months ended June 30, 2002, and for the year ended December 31, 2001, to exclude
income from the Texas and New Mexico midstream assets that we sold to El Paso
Energy Partners in April 2002. We included the pro forma effects of both of
these sales, so you could see the overall impact of these sales to the
partnership on our historical income statements. The unaudited pro forma balance
sheet as of June 30, 2002, assumes the San Juan Assets disposition occurred on
the balance sheet date. The unaudited pro forma statements of income for the six
months ended June 30, 2002 and for the year ended December 31, 2001, assume the
disposition of San Juan and Texas and New Mexico midstream assets occurred on
January 1, 2001. These pro forma financial statements should not be construed to
be indicative of future results or results that actually would have occurred had
the transactions occurred at the dates presented. In addition, these pro forma
financial statements were prepared in accordance with rules set forth by the
Securities and Exchange Commission in Article 11 of Regulation S-X. Accordingly,
we have not reflected the estimated gain on our sale of the San Juan Assets in
income, made any assumptions or adjustments for possible increases in
distributions by El Paso Energy Partners or assumed cost savings or synergies
that might occur following these transactions.
The accompanying financial statements should be read in conjunction
with our historical consolidated financial statements included in our Annual
Report on Form 10-K for the year ended December 31, 2001, and our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2002. The pro forma
adjustments require us to use estimates and assumptions based on currently
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available information, which include assumptions about the terms of the San Juan
transaction, 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 rates. We believe that these estimates and assumptions are
reasonable, and that the significant effects of the transactions discussed above
have been properly reflected in these pro forma financial statements. However,
actual results may differ from the estimates and assumptions used. In addition,
the customary regulatory reviews and approvals of this transaction may affect
these pro forma financial statements.
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EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2002
(In millions)
El Paso Pro Forma As
Historical Adjustments Adjusted
---------- ----------- --------
ASSETS
Current assets
Cash and cash equivalents $ 2,663 $ 782 (a) $ 2,663
(782)(b)
Accounts and notes receivable, net 7,418 -- 7,418
Other current assets 4,608 (5)(a) 4,603
-------- -------- --------
Total current assets 14,689 (5) 14,684
-------- -------- --------
Property, plant and equipment, net 23,418 (420)(a) 22,998
-------- -------- --------
Other assets
Investments in unconsolidated affiliates 4,998 (1)(a) 4,997
Other 6,898 (19)(a) 6,923
44 (c)
-------- -------- --------
11,896 24 11,920
-------- -------- --------
Total assets $ 50,003 $ (401) $ 49,602
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,295 $ -- $ 6,295
Short-term borrowings and other financing obligations 1,545 (782)(b) 763
Other 3,367 (20)(a) 3,614
267 (c)
-------- -------- --------
Total current liabilities 11,207 (535) 10,672
-------- -------- --------
Long-term debt and other financing obligations 16,575 -- 16,575
-------- -------- --------
Other liabilities
Deferred income taxes 4,523 (101)(c) 4,422
Other 3,526 9 (a) 3,535
-------- -------- --------
8,049 (92) 7,957
-------- -------- --------
Commitments and contingencies
Preferred stock of consolidated subsidiaries 4,154 -- 4,154
-------- -------- --------
Stockholders' equity
Common stock 1,777 -- 1,777
Additional paid-in capital 3,973 -- 3,973
Retained earnings 5,007 348 (a) 5,233
(122)(c)
Other, net (739) -- (739)
-------- -------- --------
Total stockholders' equity 10,018 226 10,244
-------- -------- --------
Total liabilities and stockholders' equity $ 50,003 $ (401) $ 49,602
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See accompanying notes.
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EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(In millions)
El Paso Pro Forma
Historical Adjustments As Adjusted
---------- ----------- -----------
Operating revenues $ 6,742 $ (303)(d) $ 6,446
7 (e)
------- ------- -------
Operating expenses
Cost of products and services 3,085 (186)(d) 2,899
Operation and maintenance 1,246 (39)(d) 1,208
1 (e)
Restructuring and merger-related costs and asset
impairments 405 -- 405
Ceiling test charges 267 -- 267
Depreciation, depletion and amortization 717 (19)(d) 699
1 (e)
Taxes, other than income taxes 148 (4)(d) 144
------- ------- -------
5,868 (246) 5,622
------- ------- -------
Operating income 874 (50) 824
------- ------- -------
Other income, net 250 (1) 249
------- ------- -------
Interest and debt expense 666 (15)(f) 651
Return on preferred stock of consolidated subsidiaries 83 -- 83
Income taxes 119 (14)(d) 107
2 (e)
------- ------- -------
Income from continuing operations $ 256 $ (24) $ 232
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Basic earnings per common share
Income from continuing operations $ 0.48 $ 0.44
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Diluted earnings per common share
Income from continuing operations $ 0.48 $ 0.44
======= =======
Basic average common shares outstanding 529 529
======= =======
Diluted average common shares outstanding 531 531
======= =======
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)
El Paso Pro Forma As
Historical Adjustments Adjusted
---------- ----------- --------
Operating revenues $13,699 $ (670)(d) $13,038
9 (e)
------- ------- -------
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 charge 135 -- 135
Depreciation, depletion and amortization 1,327 (55)(d) 1,275
3 (e)
Taxes, other than income taxes 334 (10)(d) 324
------- ------- -------
12,856 (508) 12,348
------- ------- -------
Operating income 843 (153) 690
------- ------- -------
Other income, net 786 3 (d) 789
------- ------- -------
Interest and debt expense 1,156 (36)(f) 1,120
Return on preferred stock of consolidated subsidiaries 217 -- 217
Income taxes 184 (41)(d) 144
1 (e)
------- ------- -------
Income from continuing operations $ 72 $ (74) $ (2)
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Basic and diluted earnings per common share
Income from continuing operations $ 0.14 $ --
======= =======
Basic average common shares outstanding 505 505
======= =======
Diluted average common shares outstanding 516 505
======= =======
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 as of and for the six months ended June 30, 2002, represent
our condensed historical consolidated balance sheet and income statements as
presented in our Form 10-Q for the period ended June 30, 2002.
The amounts in the 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 June 30, 2002 Form 10-Q. These reclassification adjustments consisted of
the following:
(1) In June 2002, we adopted several provisions of Emerging Issues Task
Force (EITF) Issue No. 02-3, 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.
(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.
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 June 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. Each of these pro forma
adjustments is discussed below.
PRO FORMA ADJUSTING ENTRIES
(a) To record the sale of the San Juan Assets for an estimated $782 million in
cash. Based on the net book values of the assets sold, we have reflected an
estimated pretax gain on the sale of these assets of $348 million, net of
our ownership interest in El Paso Energy Partners in retained earnings.
(b) To record the use of cash proceeds from the San Juan Assets 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 an estimated effective tax rate of 35 percent.
(d) To exclude the historical income results 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 an
estimated effective income tax rate of 35 percent.
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(e) To record the impact of income 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 were adjusted at an estimated effective income tax rate of 35
percent.
(f) To record a reduction in interest expense associated with our use of the
sales proceeds to reduce short-term borrowings. The rate used to determine
these amounts is based on a weighted average interest rate as of June 30,
2002 of 2.7 percent. If this interest rate increased or decreased by 0.25
percent, the impact on interest expense would have been higher or lower by
approximately $1 million for the six months ended June 30, 2002, and by
approximately $3 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: October 9, 2002