<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9864
---------------------
EL PASO TENNESSEE PIPELINE CO.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 76-0233548
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code: (713) 420-2131
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $0.01 per share. Shares outstanding on August 7,
2000: 1,971
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<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO TENNESSEE PIPELINE CO.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Operating revenues...................................... $3,969 $2,355 $6,826 $4,389
------ ------ ------ ------
Operating expenses
Cost of gas and other products........................ 3,530 2,040 6,015 3,752
Operation and maintenance............................. 129 129 262 273
Depreciation, depletion, and amortization............. 55 55 113 110
Taxes, other than income taxes........................ 16 16 35 34
------ ------ ------ ------
3,730 2,240 6,425 4,169
------ ------ ------ ------
Operating income........................................ 239 115 401 220
Other income
Equity investment earnings............................ 21 21 18 38
Interest income....................................... 7 7 16 16
Net gain on sale of assets............................ 1 19 23 20
Other, net............................................ 3 3 17 6
------ ------ ------ ------
32 50 74 80
------ ------ ------ ------
Income before interest, income taxes, and other
charges............................................... 271 165 475 300
------ ------ ------ ------
Non-affiliated interest and debt expense................ 33 36 72 71
Affiliated interest expense, net........................ 24 6 35 12
Income tax expense...................................... 74 34 120 64
------ ------ ------ ------
131 76 227 147
------ ------ ------ ------
Income before extraordinary gain and cumulative effect
of accounting change.................................. 140 89 248 153
Extraordinary gain, net of income taxes................. -- -- 77 --
Cumulative effect of accounting change, net of income
taxes................................................. -- -- -- (13)
------ ------ ------ ------
Net income.............................................. $ 140 $ 89 $ 325 $ 140
====== ====== ====== ======
Comprehensive income.................................... $ 136 $ 91 $ 322 $ 133
====== ====== ====== ======
</TABLE>
See accompanying notes.
1
<PAGE> 3
EL PASO TENNESSEE PIPELINE CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 36 $ 32
Accounts and notes receivable, net........................ 2,017 896
Materials and supplies.................................... 25 23
Assets from price risk management activities.............. 1,806 231
Other..................................................... 308 322
------- ------
Total current assets.............................. 4,192 1,504
Property, plant, and equipment, net......................... 5,870 6,004
Investment in unconsolidated affiliates..................... 1,833 1,509
Other....................................................... 1,050 737
------- ------
Total assets...................................... $12,945 $9,754
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and notes payable................................ $ 4,259 $2,535
Short-term borrowings (including current maturities of
long-term debt)........................................ 167 657
Liabilities from price risk management activities......... 1,060 234
Other..................................................... 768 266
------- ------
Total current liabilities......................... 6,254 3,692
Long-term debt, less current maturities..................... 1,434 1,459
Deferred income taxes....................................... 1,461 1,409
Other....................................................... 845 676
Commitments and contingencies
Minority interest........................................... 51 88
Stockholders' equity
Preferred stock, 20,000,000 shares authorized;
Series A, no par; 6,000,000 shares issued; stated at
liquidation value..................................... 300 300
Common stock, par value $0.01 per share; authorized
100,000 shares; issued 1,971 shares.................... -- --
Additional paid-in capital................................ 1,867 1,707
Retained earnings......................................... 764 451
Accumulated other comprehensive income.................... (31) (28)
------- ------
Total stockholders' equity........................ 2,900 2,430
------- ------
Total liabilities and stockholders' equity........ $12,945 $9,754
======= ======
</TABLE>
See accompanying notes.
2
<PAGE> 4
EL PASO TENNESSEE PIPELINE CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30,
----------------
2000 1999
----- -----
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 325 $ 140
Adjustments to reconcile net income to net cash from
operating activities
Depreciation, depletion, and amortization.............. 113 110
Deferred income tax expense............................ 45 70
Net gain on sale of assets............................. (23) (20)
Distributed (undistributed) earnings in equity
investees............................................. 3 (26)
Extraordinary gain on sale............................. (128) --
Cumulative effect of accounting change................. -- 13
Working capital changes, net of non-cash transactions..... (606) (194)
Other..................................................... 15 (34)
----- -----
Net cash provided by (used in) operating
activities....................................... (256) 59
----- -----
Cash flows from investing activities
Purchases of property, plant, and equipment............... (219) (140)
Net proceeds from sale of assets.......................... 418 28
Additions to investments.................................. (501) (594)
Proceeds from sale of investments......................... 89 --
Change in cash deposited in escrow related to equity
investee............................................... 24 (89)
Cash paid for acquisitions, net of cash received.......... -- (36)
Net change in other affiliated advances receivable........ -- 11
----- -----
Net cash used in investing activities............. (189) (820)
----- -----
Cash flows from financing activities
Net repayments of commercial paper........................ (514) (79)
Increase (decrease) in notes payable related to equity
investee............................................... (15) 89
Dividends paid............................................ (12) (12)
Capital contributions..................................... 160 --
Net change in other affiliated advances payable........... 831 765
Other..................................................... (1) (3)
----- -----
Net cash provided by financing activities......... 449 760
----- -----
Increase (decrease) in cash and cash equivalents............ 4 (1)
Cash and cash equivalents
Beginning of period............................... 32 28
----- -----
End of period..................................... $ 36 $ 27
===== =====
</TABLE>
See accompanying notes.
3
<PAGE> 5
EL PASO TENNESSEE PIPELINE CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Our 1999 Annual Report on Form 10-K includes a summary of our significant
accounting policies and other disclosures. You should read it in conjunction
with this Quarterly Report on Form 10-Q. The condensed consolidated financial
statements at June 30, 2000, and for the quarters and six months ended June 30,
2000 and 1999, are unaudited. The condensed consolidated balance sheet at
December 31, 1999, is derived from the audited financial statements. These
financial statements do not include all disclosures required by accounting
principles generally accepted in the United States, but have been prepared
pursuant to the rules and regulations of the U.S. Securities and Exchange
Commission. In our opinion, all material adjustments, all of which are of a
normal, recurring nature, have been made to fairly present our results of
operations. Information for any interim period may not necessarily indicate the
results of operations for the entire year due to the seasonal nature of our
businesses. The prior period information includes reclassifications which were
made to conform to the current presentation. These reclassifications have no
effect on our reported net income or stockholders' equity.
Change in Company Structure
On December 31, 1999, our parent company, El Paso Energy Corporation,
completed a tax-free internal reorganization in which the power operations of El
Paso Energy, along with the merchant operations acquired in the October 1999
merger with Sonat Inc., were transferred to us and became our subsidiaries. The
reorganization was treated as a transfer of ownership between entities under
common control and was accounted for in a manner similar to a pooling of
interests. Accordingly, the information for the quarter and six months ended
June 30, 1999, has been presented as though the transactions occurred on January
1, 1999.
Cumulative Effect of Accounting Change
In the first quarter of 1999, we adopted the American Institute of
Certified Public Accountants Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities. This statement defined start-up activities and required
companies to expense start-up and organization costs as incurred. It also
required that, upon adoption, companies expense any such costs that existed on
their balance sheet. We adopted the pronouncement effective January 1, 1999, and
reported a charge of $13 million, net of income taxes, as a cumulative effect of
an accounting change.
2. ACQUISITIONS
Texas Midstream Operations
In January 2000, El Paso Energy entered into an agreement to purchase the
natural gas and natural gas liquids businesses of PG&E Gas Transmission, Texas
Corporation, and PG&E Gas Transmission Teco, Inc. See Item 2, Management's
Discussion and Analysis of Financial Condition and Results of Operations, Recent
Developments for a discussion of this agreement.
Other
During 2000, we made smaller acquisitions and acquired interests in new
assets, including power generation facilities, natural gas transportation
systems, and energy management businesses for cash and notes.
4
<PAGE> 6
3. EXTRAORDINARY GAIN
During the first quarter of 2000, we sold East Tennessee Natural Gas
Company to comply with a Federal Trade Commission order related to El Paso
Energy's merger with Sonat. Net proceeds from the sale were $386 million and we
recognized an extraordinary gain of $77 million, net of income taxes of $51
million.
4. PROPERTY, PLANT, AND EQUIPMENT
Our property, plant, and equipment consisted of the following at June 30,
2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
------ ------
(IN MILLIONS)
<S> <C> <C>
Property, plant, and equipment, at cost
Natural Gas Transmission.................................. $2,490 $2,608
Merchant Energy........................................... 243 200
International............................................. 314 316
Field Services............................................ 1,241 1,219
Corporate and Other....................................... 81 79
------ ------
4,369 4,422
Less accumulated depreciation and amortization.............. 796 789
------ ------
3,573 3,633
Additional acquisition cost assigned to utility plant, net
of accumulated amortization............................... 2,297 2,371
------ ------
Total property, plant, and equipment, net................... $5,870 $6,004
====== ======
</TABLE>
5. DEBT AND OTHER CREDIT FACILITIES
In August 2000, El Paso Energy replaced its $1,250 million and $750 million
revolving credit facilities with a $2 billion 364-day renewable revolving credit
and competitive advance facility and a $1 billion 3-year revolving credit and
competitive advance facility. TGP is a designated borrower under these new
facilities. TGP's interest rate for these facilities varies and would have been
LIBOR plus 41 basis points on June 30, 2000. The available credit under these
facilities is expected to be used for El Paso Energy's general corporate
purposes including, but not limited to, supporting TGP's commercial paper
programs.
At June 30, 2000, our weighted average interest rate on short-term
borrowings was 7.2%, and at December 31, 1999, it was 6.6%. We had the following
short-term borrowings, including current maturities of long-term debt, at June
30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
2000 1999
----- -----
(IN MILLIONS)
<S> <C> <C>
Commercial paper............................................ $135 $649
Current maturities of other long-term debt.................. 32 8
---- ----
$167 $657
==== ====
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Rates and Regulatory Matters
Each of our pipeline systems have contracts covering a portion of their
firm transportation capacity with various terms of maturity, and each operates
in different markets and regions with different competitive and regulatory
pressures which can impact their ability to renegotiate and renew existing
contracts, or enter into new long-term firm transportation commitments. By
November 2000, contracts representing 20 percent of Tennessee Gas Pipeline
Company's (TGP) firm transportation capacity will expire. TGP is aggressively
pursuing the renegotiation and renewal of expiring contracts, and the sale of
excess capacity under firm transportation arrangements. However, we are
uncertain if future contracts will be on terms as favorable to us
5
<PAGE> 7
as those that currently exist. Also, customers and other groups may dispute new
and renewed contracts. As a result, we cannot be sure that regulators or other
jurisdictional bodies will not intercede in our re-contracting process and alter
the ultimate outcome of our efforts.
While we cannot predict with certainty the final outcome or timing of the
resolution of rates and regulatory matters, the outcome of our current
re-contracting and capacity subscription efforts, or the outcome of ongoing
industry trends and initiatives, we believe the ultimate resolution of these
issues will not have a material adverse effect on our financial position,
results of operations, or cash flows.
Legal Proceedings
In February 1998, the United States and the State of Texas filed in a U.S.
District Court a Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA) cost recovery action against fourteen companies,
including certain of our current and former affiliated companies and us,
relating to the Sikes Disposal Pits Superfund Site located in Harris County,
Texas. The suit claims that the United States and the State of Texas have spent
over $125 million in remediating Sikes, and seeks to recover that amount plus
interest from the defendants to the suit. Although an investigation relating to
Sikes is in the preliminary stages, we believe that the amount of material, if
any, disposed at Sikes by our former affiliates was small, possibly de minimis.
However, the plaintiffs have alleged that the defendants are each jointly and
severally liable for the entire remediation costs and have also sought a
declaration of liability for future response costs such as groundwater
monitoring.
TGP is a party in proceedings involving federal and state authorities
regarding the past use of a lubricant containing polychlorinated biphenyls
(PCBs) in its starting air systems. TGP has executed a consent order with the
EPA governing the remediation of some compressor stations and is working with
the EPA and the relevant states regarding those remediation activities. TGP is
also working with the Pennsylvania and New York environmental agencies regarding
remediation and post-remediation activities at the Pennsylvania and New York
stations.
In November 1988, the Kentucky environmental agency filed a complaint in a
Kentucky state court alleging that TGP discharged pollutants into the waters of
the state and disposed of PCBs without a permit. The agency sought an injunction
against future discharges, an order to remediate or remove PCBs, and a civil
penalty. TGP entered into agreed orders with the agency to resolve many of the
issues raised in the original allegations, has received water discharge permits
from the agency for its Kentucky compressor stations, and continues to work to
resolve the remaining issues. The relevant Kentucky compressor stations are
scheduled to be characterized and remediated under the consent order with the
EPA.
A number of our subsidiaries are named defendants in actions brought by
Jack Grynberg on behalf of the U.S. Government under the False Claims Act.
Generally, these complaints allege an industry-wide conspiracy to under report
the heating value as well as the volumes of the natural gas produced from
federal and Native American lands, which deprived the U.S. Government of
royalties. We have also been named defendants in a similar class action suit,
Quinque Operating Company v. Gas Pipelines. This complaint alleges that the
defendants mismeasured natural gas volumes and heating content of natural gas on
non-federal and non-Native American lands. The Quinque complaint was transferred
to the same court handling the Grynberg complaint. We believe both complaints
are without merit.
We are also a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of our
business.
While the outcome of the matters discussed above cannot be predicted with
certainty, we do not expect the ultimate resolution of these matters to have a
material adverse effect on our financial position, results of operations, or
cash flows.
Environmental
We are subject to extensive federal, state, and local laws and regulations
governing environmental quality and pollution control. These laws and
regulations require us to remove or remedy the effect on the
6
<PAGE> 8
environment of the disposal or release of specified substances at current and
former operating sites. As of June 30, 2000, we had reserved $124 million for
expected environmental costs.
In addition, we expect to make capital expenditures of approximately $3
million in 2000 and a total of $81 million for the years 2001 through 2007 for
environmental matters primarily relating to compliance with air regulations and
control of water discharges. Some of our subsidiaries have been designated, have
received notice that they could be designated, or have been asked for
information to determine whether they could be designated as a potentially
responsible party with respect to 8 active sites under CERCLA.
It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations, and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the recorded
reserves are adequate.
7. SEGMENT INFORMATION
We segregate our business activities into four distinct operating segments:
- Natural Gas Transmission;
- Merchant Energy;
- International; and
- Field Services.
These segments are strategic business units that provide a variety of
energy products and services. They are managed separately, as each business unit
requires different technology and marketing strategies. We measure segment
performance using earnings before interest and taxes (EBIT). At the beginning of
2000, we moved EnCap Investments L.L.C., from the Field Services segment to the
Merchant Energy segment. All periods presented have been restated for this
change.
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 2000
-----------------------------------------------------------------------
NATURAL GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES OTHER(A) TOTAL
------------ -------- ------------- -------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $ 160 $3,647 $ 26 $ 134 $ 2 $ 3,969
Intersegment revenue..... 18 2 -- 16 (36) --
Operating income
(loss)................. 80 141 (5) 24 (1) 239
EBIT..................... 85 152 12 25 (3) 271
Segment assets........... 4,864 5,161 1,521 1,116 283 12,945
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE QUARTER ENDED JUNE 30, 1999
-----------------------------------------------------------------------
NATURAL GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES OTHER(A) TOTAL
------------ -------- ------------- -------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $ 182 $2,076 $ 12 $ 84 $ 1 $ 2,355
Intersegment revenue..... 7 4 -- 20 (31) --
Operating income
(loss)................. 109 1 (4) 14 (5) 115
EBIT..................... 113 6 16 35 (5) 165
Segment assets........... 4,919 2,088 1,195 1,047 225 9,474
</TABLE>
---------------
(a) Includes corporate, eliminations, and other non-operating segment
activities.
7
<PAGE> 9
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------------------
NATURAL GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES OTHER(A) TOTAL
------------ -------- ------------- -------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers.............. $ 346 $6,176 $ 55 $ 246 $ 3 $ 6,826
Intersegment revenue..... 35 9 -- 31 (75) --
Operating income
(loss)................. 174 193 (7) 46 (5) 401
EBIT..................... 185 202 45 50 (7) 475
Segment assets........... 4,864 5,161 1,521 1,116 283 12,945
</TABLE>
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------------------------------------
NATURAL GAS MERCHANT FIELD
TRANSMISSION ENERGY INTERNATIONAL SERVICES OTHER(A) TOTAL
------------ -------- ------------- -------- -------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenues from external
customers............... $ 383 $3,825 $ 29 $ 151 $ 1 $4,389
Intersegment revenue...... 14 8 -- 38 (60) --
Operating income (loss)... 213 9 (19) 26 (9) 220
EBIT...................... 225 13 19 52 (9) 300
Segment assets............ 4,919 2,088 1,195 1,047 225 9,474
</TABLE>
---------------
(a) Includes corporate, eliminations, and other non-operating segment
activities.
8. INVESTMENT IN AFFILIATED COMPANIES
We hold investments in various affiliates which we account for using the
equity method of accounting. Summarized financial information for our
proportionate share of these investments is as follows:
<TABLE>
<CAPTION>
SIX MONTHS
QUARTER ENDED ENDED
JUNE 30, JUNE 30,
-------------- ------------
2000 1999 2000 1999
----- ----- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating results data
Revenues and other income........................... $199 $163 $345 $260
Costs and expenses.................................. 154 120 305 199
Income from continuing operations................... 45 43 40 61
Net income.......................................... 21 21 18 38
</TABLE>
East Asia Power
At December 31, 1999, we held a 92 percent ownership interest in East Asia
Power Resources Corporation. In March 2000, we converted our investment into a
50/50 joint venture with a third party. In the transaction, we received $85
million, net of transaction costs, and recognized a $20 million benefit. At the
time of the conversion, our investment in East Asia Power was $131 million. East
Asia Power owns and operates seven power generation facilities in the
Philippines and one plant in China, with a total generating capacity of 412
megawatts. Electric power generated by the facilities is supplied to a
diversified base of customers, including National Power Corporation, the
Philippine state-owned utility, private distribution companies and industrial
users.
Chaparral Investors
In the first quarter of 2000, El Paso Energy provided $160 million to us to
increase our investment in Chaparral. We recorded the contribution from El Paso
Energy as an increase in paid-in capital on our balance sheet.
8
<PAGE> 10
During the first quarter of 2000, Chaparral completed its acquisitions of
several domestic non-utility generation assets including equity interests in
eleven natural gas-fired combined generation facilities in California, two
natural gas-fired electric generation plants located in Dartmouth, Massachusetts
and Pawtucket, Rhode Island, and all the outstanding shares of Bonneville
Pacific Corporation, which owns a 50 percent interest in a power generation
facility. Chaparral also acquired several operating companies which provide the
services required to operate and maintain these newly acquired facilities and a
natural gas service company which provides fuel procurement services to eight of
Chaparral's natural gas-fired combined generation facilities in California.
Chaparral acquired these assets in exchange for notes payable to El Paso Energy
in the amount of $385 million. In March 2000, Chaparral's third-party investor
increased its overall investment in Chaparral by $1,027 million. The proceeds
were used by Chaparral to repay to El Paso Energy $647 million of notes, make a
$278 million contribution to an overfund trust as provided in the Chaparral
agreement, invest in a note with El Paso Energy, and fund transaction costs.
Also, in March 2000, El Paso Energy issued mandatorily convertible preferred
stock to a share trust it controls. Upon the occurrence of certain negative
events, the trustee of the trust may be required to remarket El Paso Energy's
preferred stock on terms that are designed to generate $1 billion to distribute
to the third party investor.
Under our management agreement with Chaparral, we earn a performance-based
management fee. We are also reimbursed for expenses we incur on behalf of
Chaparral. For 2000, our management fee related to Chaparral has been fixed at
$100 million. This fee includes an $80 million performance-based component and a
$20 million reimbursement for costs we will incur on behalf of Chaparral. We
will recognize this fee ratably throughout the year as we provide management
services.
9. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative
Instruments and Hedging Activities, to establish accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. This pronouncement requires us
to classify derivatives as either assets or liabilities on the balance sheet,
with a corresponding offset to income or other comprehensive income, and measure
those instruments at fair value. If certain conditions are met, we may
specifically designate a derivative as a hedge of:
- the exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment;
- the exposure to variable cash flows of a forecasted transaction; or
- the foreign currency exposure of a net investment in a foreign operation,
an unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transaction.
The accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation.
SFAS No. 137, Deferral of the Effective Date of SFAS 133, amended the
standard in June 1999 to defer the effective date. Consequently, SFAS No. 133
will be effective for us January 1, 2001.
9
<PAGE> 11
In June 2000, the Financial Accounting Standards Board issued SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities,
which also amended SFAS No. 133. The amendment:
- expands the normal purchases and sales exception;
- redefines specific risks that can be designated as hedges;
- allows recognition of foreign-currency-denominated assets and liabilities
as hedged items; and
- permits intercompany derivatives to be designated as hedging instruments
for foreign currency risk if the hedge is offset by an unrelated third
party on a net basis (netting risks is permitted only for foreign
currency transactions).
We are currently evaluating the effects these pronouncements will have on our
financial position, results of operations, or cash flows.
Staff Accounting Bulletin No. 101
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements,
to provide guidance for revenue recognition issues and disclosure requirements.
SAB No. 101 offers guidelines, examples, and explanations for uncertain matters
relating to the recognition of revenue and will be effective for us in the
fourth quarter of 2000. We do not believe the adoption of SAB No. 101 will have
a material impact on our financial position, results of operations, or cash
flows.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS(1)
The information contained in Item 2 updates, and you should read it in
conjunction with, information disclosed in Part II, Items 7, 7A, and 8, in our
Annual Report on Form 10-K for the year ended December 31, 1999, in addition to
the financial statements and notes presented in Item 1 of this Quarterly Report
on Form 10-Q.
RECENT DEVELOPMENTS
TAX FREE REORGANIZATION
On December 31, 1999, El Paso Energy completed a tax-free internal
reorganization in which the power operations of El Paso Energy, along with the
merchant operations acquired in the October 1999 merger with Sonat, were
transferred to us, and became our subsidiaries. The reorganization was treated
as a transfer of ownership between entities under common control and was
accounted for in a manner similar to a pooling of interests. Accordingly, the
information for the quarter and six months ended June 30, 1999, has been
presented as though the transactions occurred on January 1, 1999.
PURCHASE OF TEXAS MIDSTREAM OPERATIONS
In January 2000, El Paso Energy entered into an agreement to purchase the
natural gas and natural gas liquids businesses of PG&E Gas Transmission, Texas
Corporation, and PG&E Gas Transmission Teco, Inc. The value of the transaction
is approximately $840 million, including assumed debt of $561 million. The
acquisition is expected to close during the third quarter of 2000, and is
subject to the receipt of certain required governmental approvals and third
party consents. El Paso Energy will account for the transaction as a purchase
and will include the acquired operations in our Field Services segment upon
completion of the transaction. Some of these acquired operations are candidates
for acquisition by El Paso Energy Partners, a master-limited partnership of
which El Paso Energy is the general partner.
El Paso Energy will acquire assets consisting of 8,500 miles of intrastate
natural gas transmission pipelines that transport approximately 2.8 Bcf/d in the
South Texas area, nine natural gas processing plants that currently process 1.5
Bcf/d, and a 7.2 Bcf natural gas storage field. The transaction also includes
significant natural gas liquids pipelines and fractionation facilities.
RESULTS OF OPERATIONS
For the quarter ended June 30, 2000, our net income was $140 million versus
$89 million for 1999. Substantial growth in the earnings of our Merchant Energy
segment and continued strong performance in our other non-regulated segments
were the primary reason for the increase. Partially offsetting this increase
were higher interest and debt expense and income taxes in the second quarter of
2000. EBIT was $271 million for the second quarter of 2000, versus $165 million
for 1999, with our non-regulated business units comprising approximately 70
percent of the 2000 quarter total.
For the six months ended June 30, 2000, our net income was $325 million
versus $140 million for 1999. Stronger performance in 2000 in all of our
non-regulated business units and a gain on the sale of our East Tennessee
Pipeline system in compliance with the FTC order related to El Paso Energy's
1999 merger with Sonat contributed to the increase. These increases were offset
by higher interest and debt expense and income taxes during 2000. EBIT was $475
million for the six months ended June 30, 2000 versus $300 million for 1999,
with our non-regulated business units comprising approximately 63 percent of our
2000 total.
---------------
(1) As generally used in the energy industry and in this document, the following
terms have the following meanings:
BBtu/d = billion British thermal units per day
Bcf/d = billion cubic feet per day
MMBtu = million British thermal units
11
<PAGE> 13
During the third quarter of 2000, we anticipate El Paso Energy will
complete its acquisition of PG&E's Texas mid-stream operations. These operations
are expected to have a positive impact on our overall results for the remainder
of 2000. However, any delays in closing this acquisition will reduce its
potentially positive impact. A more detailed analysis of our segment results and
non-operating expenses is discussed below.
SEGMENT RESULTS
At the beginning of 2000, we transferred EnCap from the Field Services
segment to the Merchant Energy segment. All periods presented have been restated
for this change.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C> <C>
EARNINGS BEFORE INTEREST EXPENSE AND INCOME
TAXES
Natural Gas Transmission........................ $ 85 $113 $185 $225
Merchant Energy................................. 152 6 202 13
International................................... 12 16 45 19
Field Services.................................. 25 35 50 52
---- ---- ---- ----
Segment total................................. 274 170 482 309
Corporate expenses, net......................... (3) (5) (7) (9)
---- ---- ---- ----
Consolidated EBIT............................. $271 $165 $475 $300
==== ==== ==== ====
</TABLE>
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ----------------
2000 1999 2000 1999
------ ------ ------ ------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S> <C> <C> <C> <C>
Operating revenues.............................. $ 178 $ 189 $ 381 $ 397
Operating expenses.............................. (98) (80) (207) (184)
Other income.................................... 5 4 11 12
------ ------ ------ ------
EBIT.......................................... $ 85 $ 113 $ 185 $ 225
====== ====== ====== ======
Throughput volumes (BBtu/d)..................... 4,231 4,799 4,893 5,180
====== ====== ====== ======
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Operating revenues for the quarter ended June 30, 2000, were $11 million
lower than 1999. The decrease was due to the impact of the sale of our East
Tennessee Pipeline system in March 2000 as well as the favorable resolution of a
regulatory issue in 1999. The decrease was partially offset by higher revenues
from transportation and other services.
Operating expenses for the quarter ended June 30, 2000, were $18 million
higher than 1999. The increase was due to the favorable resolution of our
customer imbalance mechanism in 1999 partially offset by lower shared services
allocations following El Paso Energy's merger with Sonat as well as lower
depreciation expense due to the sale of our East Tennessee Pipeline system in
March 2000.
Six Months Ended 2000 Compared to Six Months Ended 1999
Operating revenues for the six months ended June 30, 2000, were $16 million
lower than 1999. The decrease was due to the impact of the sale of our East
Tennessee Pipeline system in March 2000 as well as the favorable resolution of
regulatory issues in 1999. The decrease was partially offset by higher revenues
from transportation and other services.
12
<PAGE> 14
Operating expenses for the six months ended June 30, 2000, were $23 million
higher than 1999. The increase was due to the favorable resolution of our
customer imbalance mechanism in 1999 and was partially offset by lower shared
services allocations following El Paso Energy's merger with Sonat as well as
lower depreciation expense due to the sale of our East Tennessee Pipeline system
in March 2000.
MERCHANT ENERGY
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- ----------------
2000 1999 2000 1999
---- ---- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Power margin..................................... $ 58 $ 2 $ 90 $ 16
Natural gas margin............................... 102 23 138 45
Petroleum margin and other revenue............... 4 4 9 3
---- ---- ---- ----
Total gross margin and other revenue... 164 29 237 64
Operating expenses............................... (23) (28) (44) (55)
Other income..................................... 11 5 9 4
---- ---- ---- ----
EBIT................................... $152 $ 6 $202 $ 13
==== ==== ==== ====
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Total gross margin and other revenue for the quarter ended June 30, 2000,
was $135 million higher than 1999. During the second quarter of 2000, record
natural gas prices, higher power prices, and extreme price volatility of power
and natural gas all contributed to higher power and natural gas margins. Our
power margins were also higher as a result of asset management fees earned from
our Chaparral project, which began operations during the latter part of 1999.
Offsetting these increases were lower margins from long-term natural gas
transactions closed during the second quarter of 2000.
Our margins during the second quarter of 2000 were significantly impacted
by price volatility in the energy markets. Such periods of higher price
volatility provide market opportunities that can enhance trading portfolio
values and improve operating results. For the remainder of 2000, we anticipate
that commodity prices will continue to be volatile, although not necessarily at
the same levels as we experienced in the second quarter. Our margins are also
impacted by asset management fees and cost reimbursements from our Chaparral
project. These fees should continue through the remainder of 2000. Chaparral
project asset management fees for 2001 will be established later this year.
Operating expenses for the quarter ended June 30, 2000, were $5 million
lower than 1999. The decrease was due to reimbursement in 2000 of general and
administrative costs relating to our Chaparral project.
Other income for the quarter ended June 30, 2000, was $6 million higher
than 1999 due to an increase in equity earnings from power projects.
Six Months Ended 2000 Compared to Six Months Ended 1999
Total gross margin and other revenue for the six months ended June 30,
2000, was $173 million higher than 1999. Our power margin increased due to
volatility in power prices as well as management fees from our Chaparral project
which began operations during the latter part of 1999. Our natural gas margin
increased due to extreme volatility in prices, partially offset by lower margins
from long-term natural gas transactions in 2000. Our petroleum margin increased
as a result of resuming our petroleum trading activity following the Sonat
merger. Our other revenue increased due to the acquisition of EnCap in March
1999.
Operating expenses for the six months ended June 30, 2000, were $11 million
lower than 1999. The decrease was due to the reimbursement in 2000 of general
and administrative costs relating to our Chaparral project.
13
<PAGE> 15
Other income for the six months ended June 30, 2000, was $5 million higher
than 1999 due to an increase in equity earnings from power projects.
INTERNATIONAL
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------- ----------------
2000 1999 2000 1999
---- ---- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Operating revenues............................... $ 26 $ 12 $ 55 $ 29
Operating expenses............................... (31) (16) (62) (48)
Other income..................................... 17 20 52 38
---- ---- ---- ----
EBIT................................... $ 12 $ 16 $ 45 $ 19
==== ==== ==== ====
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Operating revenues for the quarter ended June 30, 2000, were $14 million
higher than 1999. The increase was due to higher revenues from the Rio Negro
project consolidated in August 1999 coupled with higher revenues on the Manaus
power project. Both projects contributed positively to EBIT during the period.
Operating expenses for the quarter ended June 30, 2000, were $15 million
higher than 1999. The increase was primarily due to higher project development
and general and administrative costs and, to a lesser extent, costs from
consolidating the Rio Negro and Manaus projects during 1999.
Other income for the quarter ended June 30, 2000, was $3 million lower than
1999. The decrease was due to lower earnings relating to our investment in East
Asia Power partially offset by a partial settlement received from our Indonesian
project in 2000.
Six Months Ended 2000 Compared to Six Months Ended 1999
Operating revenues for the six months ended June 30, 2000, were $26 million
higher than 1999. The increase was due to higher revenues from the Rio Negro
project consolidated in August 1999 coupled with higher revenues on the Manaus
power project. Both projects contributed positively to EBIT during the period.
Operating expenses for the six months ended June 30, 2000, were $14 million
higher than 1999. The increase was primarily due to higher project development
and general and administrative costs and, to a lesser extent, costs from
consolidating the Rio Negro and Manaus projects during 1999.
Other income for the six months ended June 30, 2000, was $14 million higher
than 1999. The increase was due to the benefit realized on our East Asia Power
joint venture in March 2000, a partial settlement received from our Indonesian
project in May 2000, and equity swap gains recognized on our CAPSA project.
These increases were partially offset by lower equity earnings relating to our
investment in East Asia Power.
14
<PAGE> 16
FIELD SERVICES
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2000 1999 2000 1999
------ ------ ------ ------
(IN MILLIONS, EXCEPT VOLUME AMOUNTS)
<S> <C> <C> <C> <C>
Gathering and treating margin.............. $ 43 $ 39 $ 89 $ 79
Processing margin.......................... 18 12 32 21
------ ------ ------ ------
Total gross margin............... 61 51 121 100
Operating expenses......................... (38) (37) (75) (74)
Other income............................... 2 21 4 26
------ ------ ------ ------
EBIT............................. $ 25 $ 35 $ 50 $ 52
====== ====== ====== ======
Throughput volumes (BBtu/d)
Gathering and treating................... 2,946 3,327 2,994 3,176
====== ====== ====== ======
Processing............................... 1,118 1,131 1,055 1,032
====== ====== ====== ======
Throughput rates ($/MMBtu)
Gathering and treating................... $ 0.16 $ 0.13 $ 0.16 $ 0.14
====== ====== ====== ======
Processing margins....................... $ 0.18 $ 0.11 $ 0.17 $ 0.12
====== ====== ====== ======
</TABLE>
Second Quarter 2000 Compared to Second Quarter 1999
Total gross margin for the quarter ended June 30, 2000, was $10 million
higher than 1999. Our gathering and treating margin increased due to an increase
in average gathering rates, which are substantially indexed to natural gas
prices, and higher condensate prices, offset by lower gathering and treating
volumes. Our processing margin increased due to higher liquids prices in 2000
and the acquisition, in April 2000, of an interest in the Indian Basin
processing assets.
Operating expenses for the quarter ended June 30, 2000, were $1 million
higher than 1999. The increase was due to higher depreciation and amortization
from assets transferred from El Paso Natural Gas pursuant to a Federal Energy
Regulatory Commission order. This increase was partially offset by lower
operating expenses, including salaries and benefits.
Other income for the quarter ended June 30, 2000, was $19 million lower
than 1999. The decrease was due primarily to net gains from the sale of our
interest in Viosca Knoll in the second quarter of 1999 to El Paso Energy
Partners.
Six Months Ended 2000 Compared to Six Months Ended 1999
Total gross margin for the six months ended June 30, 2000, was $21 million
higher than 1999. Our gathering and treating margin increased due to an increase
in average gathering rates, which are substantially indexed to natural gas
prices, and higher condensate prices, offset by lower gathering and treating
volumes. Processing margin increased due to higher liquids prices in 2000 and
the acquisition of an interest in the Indian Basin processing assets.
Operating expenses for the six months ended June 30, 2000, were $1 million
higher than 1999. The increase was due to higher depreciation and amortization
from assets transferred from El Paso Natural Gas pursuant to a Federal Energy
Regulatory Commission order. This increase was partially offset by lower
operating expenses, including salaries and benefits.
Other income for the six months ended June 30, 2000, was $22 million lower
than 1999. The decrease was due primarily to net gains from the sale of our
interest in Viosca Knoll during the second quarter of 1999 to El Paso Energy
Partners and a decrease in equity earnings due to the sale of Viosca Knoll. The
decrease was partially offset by a gain from the sale of a gathering facility in
2000.
15
<PAGE> 17
NON-AFFILIATED INTEREST AND DEBT EXPENSE
Non-affiliated interest and debt expense for the quarter ended June 30,
2000, was $3 million lower than 1999 due to lower average commercial paper
borrowings during the second quarter of 2000.
Non-affiliated interest and debt expense for the six months ended June 30,
2000, was $1 million higher than 1999 due to higher international project
finance costs partially offset by lower capitalized interest.
AFFILIATED INTEREST EXPENSE, NET
Affiliated interest expense, net for the quarter and six months ended June
30, 2000, was $18 million and $23 million higher than 1999 due to an increase in
advances from El Paso Energy for ongoing capital projects, investment programs,
and operating requirements. The increase was also due to higher average interest
rates with El Paso Energy in 2000.
INCOME TAX EXPENSE
Income tax expense for the quarter and six months ended June 30, 2000, was
$74 million and $120 million resulting in an effective tax rate of 35% and 33%.
The effective tax rates were lower than the statutory rate of 35% due to foreign
income not subject to U.S. tax. This decrease was offset by foreign income
subject to foreign tax rates different than U.S. tax rates.
Income tax expense for the quarter and six months ended June 30, 1999, was
$34 million and $64 million resulting in an effective tax rate of 28% and 29%.
The effective tax rates were lower than the statutory rate of 35% due to foreign
income not subject to U.S. tax and exclusions for a portion of earnings from
unconsolidated equity investees for which a dividend received deduction is
anticipated.
LIQUIDITY AND CAPITAL RESOURCES
CASH FROM OPERATING ACTIVITIES
Net cash used in our operating activities was $256 million for the six
months ended June 30, 2000, compared to net cash provided of $59 million for
1999. The decrease was due to higher interest payments in 2000 and increases in
cash used for price risk management activities.
CASH FROM INVESTING ACTIVITIES
Net cash used in our investing activities was $189 million for the six
months ended June 30, 2000. Our investing activities included additions to joint
ventures and equity investments, including an increase in our Chaparral equity
investment and the purchase of an additional 18.5% interest in CAPSA. Other
additions consisted of an interest in the Indian Basin gas processing plant
assets and expenditures for expansion and construction projects. Investment
activities also included proceeds from the sales of our East Tennessee Pipeline
system and El Paso Intrastate-Alabama pipeline system and proceeds from the
conversion of our interest in East Asia Power.
We expect internally generated funds, commercial paper issuances, available
capacity under existing credit facilities, and contributions from El Paso Energy
to provide future funding for our capital expenditures, acquisitions, and other
investing expenditures.
CASH FROM FINANCING ACTIVITIES
Net cash provided by our financing activities was $449 million for the six
months ended June 30, 2000, which included proceeds from capital contributions
provided to us by El Paso Energy related to an increase in our Chaparral equity
investment and advances from El Paso Energy. Financing activities also included
the repayment of short-term borrowings, the issuance and repayment of notes
related to East Asia Power, and the payment of dividends.
16
<PAGE> 18
In August 2000, El Paso Energy replaced its $1,250 million and $750 million
revolving credit facilities with a $2 billion 364-day renewable revolving credit
and competitive advance facility and a $1 billion 3-year revolving credit and
competitive advance facility. TGP is a designated borrower under these new
facilities. TGP's interest rate for these facilities varies and would have been
LIBOR plus 41 basis points on June 30, 2000. The available credit under these
facilities is expected to be used for El Paso Energy's general corporate
purposes including, but not limited to, supporting TGP's commercial paper
programs.
We expect internally generated funds, commercial paper issuances, available
capacity under existing credit facilities, and contributions from El Paso Energy
to provide future funding for our long-term debt retirements, payments of
dividends, and other financing expenditures.
COMMITMENTS AND CONTINGENCIES
See Note 6, which is incorporated herein by reference.
OTHER
In May 2000, El Paso Energy formed Clydesdale Associates, L.P., a limited
partnership, and several other separate legal entities, for the purpose of
generating funds for El Paso Energy to invest in capital projects and other
assets. Certain assets of El Paso Energy, including proceeds we receive from
renting our office building in Houston, Texas, collateralize the funds generated
by the structure.
As part of our ongoing strategy, we may consider assets we acquire or
intend to acquire, as well as assets we own, as candidates for acquisition by El
Paso Energy Partners. Any of these transactions would be subject to the approval
of El Paso Energy Partners' unitholders or board of directors, and, as
necessary, appropriate regulatory bodies, as well as subject to a fairness
opinion of a third party on the price to be paid by the partnership.
Since the beginning of 2000, we sold our El Paso Intrastate-Alabama
pipeline system and announced our intent to sell the natural gas storage
businesses of Crystal Gas Storage, Inc. to El Paso Energy Partners. The total
sales price of these transactions is $197 million.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
See Note 9, which is incorporated herein by reference.
17
<PAGE> 19
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
We have made statements in this document that constitute forward-looking
statements, as that term is defined in the Private Securities Litigation Reform
Act of 1995. These statements are subject to risks and uncertainties.
Forward-looking statements include information concerning possible or assumed
future results of operations. These statements may relate to information or
assumptions about:
- capital and other expenditures;
- dividends;
- financing plans;
- capital structure;
- cash flow;
- pending legal proceedings and claims, including environmental matters;
- future economic performance;
- operating income;
- cost savings;
- management's plans; and
- goals and objectives for future operations.
Important factors that could cause actual results to differ materially from
estimates or projections contained in forward-looking statements include, among
others, the following:
- the ability to successfully integrate PG&E's Texas midstream operations;
- the increasing competition within our industry;
- the timing and extent of changes in commodity prices for natural gas and
power;
- the uncertainties associated with customer contract expirations on our
pipeline systems;
- the potential contingent liabilities and tax liabilities related to our
acquisitions;
- the political and economic risks associated with current and future
operations in foreign countries; and
- the conditions of equity and other capital markets.
These risk factors are more fully described in our other filings with the
Securities and Exchange Commission, including our Annual Report on Form 10-K for
the year ended December 31, 1999.
18
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Annual Report on Form 10-K for
the year ended December 31, 1999, in addition to the information presented in
Items 1 and 2 of this Quarterly Report on Form 10-Q.
Assuming a confidence level of 95 percent and a one-day holding period, our
estimated potential one-day unfavorable impact on EBIT, as measured by Value at
Risk (VAR) calculations, related to contracts held for trading purposes was
approximately $3 million at December 31, 1999, and approximately $15 million at
June 30, 2000. During the quarter ended June 30, 2000, our highest VAR was
approximately $15 million, our lowest VAR was approximately $3 million, and our
average VAR was approximately $8 million. During the six months ended June 30,
2000, our highest VAR was approximately $15 million, our lowest VAR was
approximately $2 million, and our average VAR was approximately $5 million. The
average value is calculated from the month end values for the first six months
during 2000. The high and low valuations represent the highest and lowest month
end values during 2000. Our VAR is directly impacted by higher volatility in
natural gas and power prices.
In May 2000, we exercised our right to terminate our CAPSA Equity Swap
Agreement prior to its maturity. We recorded an additional investment of
approximately $127 million for the counterparty's 18.5 percent interest in
CAPSA's common stock secured under the swap agreement.
19
<PAGE> 21
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Part I, Financial Information, Note 6, which is incorporated herein by
reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
We held our annual meeting of stockholders on April 28, 2000. Proposals
presented for a stockholders' vote included the election of one director by
holders of our 8 1/4% Cumulative Preferred Stock Series A and the election of
five Directors by El Paso Energy, the sole holder of our Common Stock.
The one director nominated to be elected by the holders of our 8 1/4%
Cumulative Preferred Stock Series A was elected with the following voting
results:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- --------
<S> <C> <C>
Kenneth L. Smalley.......................................... 4,171,197 100
</TABLE>
Each of the five directors nominated to be elected by the common
stockholder were elected with the following voting results:
<TABLE>
<CAPTION>
FOR WITHHELD
----- --------
<S> <C> <C>
William A. Wise............................................. 1,971 0
H. Brent Austin............................................. 1,971 0
Joel Richards III........................................... 1,971 0
Britton White Jr. .......................................... 1,971 0
Jeffrey I. Beason........................................... 1,971 0
</TABLE>
There were no broker non-votes for the election of directors.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Each exhibit identified below is filed as a part of this report.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 -- Financial Data Schedule.
</TABLE>
20
<PAGE> 22
Undertaking
The undersigned hereby undertakes, pursuant to Regulation S-K, Item
601(b), paragraph (4)(iii), to furnish to the U.S. Securities and Exchange
Commission, upon request, all constituent instruments defining the rights
of holders of long-term debt of El Paso Tennessee Pipeline Co. and its
consolidated subsidiaries not filed herewith for the reason that the total
amount of securities authorized under any of such instruments does not
exceed 10 percent of the total consolidated assets of El Paso Tennessee
Pipeline Co. and its consolidated subsidiaries.
b. Reports on Form 8-K
None.
21
<PAGE> 23
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 TENNESSEE PIPELINE CO.
Date: August 9, 2000 /s/ H. BRENT AUSTIN
------------------------------------
H. Brent Austin
Executive Vice President and
Chief Financial Officer
Date: August 9, 2000 /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Senior Vice President and Controller
(Chief Accounting Officer)
22
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27 -- Financial Data Schedule.
</TABLE>
