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: June 14, 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 or File Number) Identification No.)
organization)
El Paso Building
1001 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
(713) 420-2600
(Registrant's telephone number, including area code)
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On May 29, 2002, we announced our intent to sell
natural gas gathering assets in the San Juan Basin to El
Paso Energy Partners, L.P. for an estimated $800 million.
These assets include approximately 6,000 miles of gathering
lines that are connected to over 9,500 wells producing
natural gas from the San Juan Basin located in northwest New
Mexico as well as other midstream assets and investments in
that region. This sale is subject to the approval of both
our and El Paso Energy Partners' Boards of Directors,
clearance by El Paso Energy Partners' Special Conflicts
Committee and regulatory review and approvals. Closing of
this sale is anticipated no earlier than the fourth quarter
of 2002.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
b. Unaudited Pro Forma Financial Statements
The accompanying unaudited pro forma financial
statements are based on our historical consolidated
financial statements as of and for the quarter ended
March 31, 2002, and for the year ended December 31, 2001,
adjusted for the effects of the expected sale of our San
Juan Basin gathering assets, as well as the completed sale
of our Texas and New Mexico midstream assets to El Paso
Energy Partners in April 2002. The unaudited pro forma
balance sheet as of March 31, 2002, assumes these
dispositions occurred on the balance sheet date. The
unaudited pro forma statements of income for the quarter
ended March 31, 2002, and for the year ended
December 31, 2001, assume these dispositions occurred on
January 1, 2001. The unaudited pro forma financial
statements should not be construed to be indicative of
future results or results that actually would have occurred
if the transactions had occurred at the dates presented.
In addition, these pro forma financial statements were
prepared in accordance with Article 11 of Regulation S-X.
Accordingly, we have not reflected the estimated gain on
our sale of the San Juan Basin gathering assets in income,
made any assumptions or adjustments for possible increases
in distributions by El Paso Energy Partners or assumed
any additional cost savings or synergies that might occur
following these transactions.
The accompanying unaudited pro forma financial
statements should be read in conjunction with the 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
March 31, 2002. The pro forma adjustments require us to use
estimates and assumptions based on currently available
information, including assumptions about the specific assets
to be sold in the San Juan transaction, assumptions
regarding the terms of the San Juan transaction, estimates
of 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 estimated income tax rates. We
believe that these estimates and assumptions are reasonable,
and that the significant effects of the transactions
discussed above are properly reflected. However, actual
results may differ from the estimates and assumptions used.
Factors that may affect the pro forma financial statements
presented in this Current Report on Form 8-K include the
following:
* Final determination of the specific assets to be
included in the San Juan transaction and the final
negotiated terms of the transaction;
* Completion of due diligence procedures by El Paso
Energy Partners and a fairness evaluation by us;
* Approval and recommendation of the San Juan
transaction by El Paso Energy Partners' Special
Conflicts Committee;
* Approval of both our and El Paso Energy Partners'
Boards of Directors; and
* Review and approval of the San Juan transaction by
the Federal Trade Commission.
EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2002
(In millions)
El Paso Pro Forma Pro Forma
Historical Adjustments Adjusted
---------- ----------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 1,259 $ 800 (a) $ 1,259
539 (b)
(1,339)(c)
Accounts and notes receivable,net 7,163 (17)(a) 7,146
Other current assets 4,422 - 4,422
--------- -------- -------
Total current assets 12,844 (17) 12,827
--------- -------- -------
Property, plant and equipment, net 24,304 (323)(a) 23,397
190 (b)
(774)(b)
--------- -------- -------
Other assets
Investments in unconsolidated
affiliates 4,889 (2)(a) 4,893
6 (b)
Other 6,520 54 (d) 6,574
--------- -------- -------
11,409 58 11,467
--------- -------- -------
Total assets $ 48,557 $ (866) $ 47,691
========= ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,135 $ - $ 6,135
Short-term borrowings and
other financing obligations 2,674 (1,339)(c) 1,335
Other 3,517 (6)(a) 3,864
56 (b)
297 (d)
--------- -------- -------
Total current liabilities 12,326 (992) 11,334
--------- -------- -------
Long-term debt and other
financing obligations 14,698 - 14,698
--------- -------- -------
Other liabilities
Deferred income taxes 4,513 (71)(b) 4,347
(95)(d)
Other 3,482 40 (a) 3,498
(24)(b)
--------- -------- -------
7,995 (150) 7,845
--------- -------- -------
Commitments and contingencies
Securities of subsidiaries 4,184 - 4,184
--------- -------- -------
Stockholders' equity
Common stock 1,620 - 1,620
Additional paid-in capital 3,183 - 3,183
Retained earnings 5,169 424 (a) 5,445
(148)(d)
Other, net (618) - (618)
--------- -------- -------
Total stockholders' equity 9,354 276 9,630
--------- -------- -------
Total liabilities and
stockholders' equity $ 48,557 $ (866) $ 47,691
========= ======== =======
See accompanying notes.
EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE QUARTER ENDED MARCH 31, 2002
(In millions)
El Paso Pro Forma Pro Forma
Historical Adjustments Adjusted
---------- ----------- ---------
Operating revenues $ 13,188 $ (112)(e) $ 13,083
7 (f)
--------- -------- -------
Operating expenses
Cost of products and services 11,025 (32)(e) 10,993
Operation and maintenance 696 (23)(e) 674
1 (f)
Merger-related costs and
asset impairments 342 - 342
Ceiling test charge 33 - 33
Depreciation, depletion and
amortization 375 (5)(e) 371
1 (f)
Taxes, other than income taxes 92 (6)(e) 86
--------- -------- -------
12,563 (64) 12,499
--------- -------- -------
Operating income 625 (41) 584
--------- -------- -------
Other income, net 59 - 59
--------- -------- -------
Income before interest, income
taxes and other charges 684 (41) 643
--------- -------- -------
Interest and debt expense 307 (9)(g) 298
Minority interest 40 - 40
Income taxes 108 (17)(e)(f) 91
--------- -------- -------
455 (26) 429
--------- -------- -------
Income from continuing operations $ 229 $ (15) $ 214
========= ======== =======
Basic earnings per common share
Income from continuing operations $ 0.44 $ 0.41
========= =======
Diluted earnings per common share
Income from continuing operations $ 0.43 $ 0.40
========= =======
Basic average common shares
outstanding 527 527
========= =======
Diluted average common shares
outstanding 538 538
========= =======
See accompanying notes.
EL PASO CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(In millions)
El Paso Pro Forma Pro Forma
Historical Adjustments Adjusted
---------- ----------- ---------
Operating revenues $ 57,475 $ (566)(e) $ 56,918
9 (f)
--------- -------- -------
Operating expenses
Cost of products and services 50,043 (246)(e) 49,797
Operation and maintenance 2,906 (102)(e) 2,806
2 (f)
Merger-related costs and
asset impairments 1,843 - 1,843
Ceiling test charge 135 - 135
Depreciation, depletion and
amortization 1,359 (52)(e) 1,310
3 (f)
Taxes, other than income taxes 356 (11)(e) 345
--------- -------- -------
56,642 (406) 56,236
--------- -------- -------
Operating income 833 (151) 682
--------- -------- -------
Other income, net 788 3 (e) 791
--------- -------- -------
Income before interest, income
taxes and other charges 1,621 (148) 1,473
--------- -------- -------
Interest and debt expense 1,155 (37)(g) 1,118
Minority interest 217 - 217
Income taxes 182 (65)(e)(f) 117
--------- -------- -------
1,554 (102) 1,452
--------- -------- -------
Income from continuing operations $ 67 $ (46) $ 21
========= ======== =======
Basic and diluted earnings per
common share
Income from continuing operations $ 0.13 $ 0.04
========= =======
Basic average common shares
outstanding 505 505
Diluted average common shares ========= =======
outstanding 516 516
========= =======
See accompanying notes.
EL PASO CORPORATION
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
El Paso Historical
------------------
These amounts represent our condensed historical
consolidated balance sheet and income statements derived
from our Quarterly Report on Form 10-Q as of and for the
quarter ended March 31, 2002, and our Annual Report on
Form 10-K for the year ended December 31, 2001.
Pro Forma Adjustments
---------------------
These amounts represent the estimated historical results
and balances of the San Juan Basin gathering assets and the
Texas and New Mexico midstream assets as of and for the
periods presented, as well as pro forma adjusting entries to
reflect the sales of these assets, each of which is
discussed below.
Pro Forma Adjusting Entries
---------------------------
(a) To record the sale of the San Juan Basin gathering
assets, including other assets, investments and related
contracts for an estimated $800 million in cash. Based on
the net book values of the assets sold, an estimated
pretax gain on the sale of these assets of $424 million,
net of our ownership interest in El Paso Energy Partners,
is reflected in retained earnings.
(b) To record the sale of the Texas and New Mexico
midstream assets for approximately $735 million. Net
proceeds from this sale included:
* Cash totaling $539 million;
* Common units of the partnership with a fair value of
approximately $6 million; and
* An interest in the Prince Production platform and an
overriding royalty interest in the Prince field,
having a combined estimated fair value of $190 million.
The pro forma adjustment also reflects the assumption
of $24 million of environmental liabilities by El Paso
Energy Partners, the adjustment for working capital
changes through closing of the sale and income tax
related adjustments. Based on the net book values of
the assets sold, there was no book gain or loss on this
sale.
(c) To record the use of cash proceeds from these sales to
repay short-term borrowings.
(d) To record the income tax impact of the gain on the sale
of the San Juan Basin gathering assets using an estimated
effective tax rate of 35 percent.
(e) To exclude the historical results of the San Juan Basin
gathering assets and the Texas and New Mexico midstream
assets for the periods presented. Income tax expenses
were adjusted at an estimated effective income tax rate
of 35 percent.
(f) To record the impact of income from the Prince
Production platform and the overriding royalty interest in
the Prince field received in the sale of the Texas and New
Mexico midstream assets. Income tax expenses were adjusted
at an estimated effective income tax rate of 35 percent.
(g) To record the impact on 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
March 31, 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 quarter ended
March 31, 2002, and by approximately $3 million for the
year ended December 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
EL PASO CORPORATION
By: /s/ JEFFREY I. BEASON
-------------------------
Jeffrey I. Beason
Senior Vice President
and Controller
(Principal Accounting Officer)
Date: June 14, 2002