<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 5, 2000
(Date of earliest event reported: March 20, 2000)
EL PASO ENERGY PARTNERS, L.P.
(Exact name of registrant as specified in the charter)
Delaware 1-11680 76-0396023
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
El Paso Energy Building
1001 Louisiana Street
Houston, Texas 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 420-2131
<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On March 20, 2000, we purchased the El Paso Intrastate-Alabama pipeline
system, or EPIA, a 450 mile pipeline system that transports coal bed methane
production as well as conventional natural gas supplies for redelivery to
regional local distribution companies and municipalities in western Alabama and
to Tennessee Gas Pipeline and Southern Natural Gas, for total cash consideration
of $26.5 million from a subsidiary of El Paso Energy Corporation. We recorded
this transaction using the purchase method of accounting. El Paso Energy,
through its subsidiaries, owns an effective 34.5 percent economic interest in
us, including a one percent general partner interest and an approximate one
percent non-managing member interest in certain of our subsidiaries.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
El Paso Intrastate-Alabama, Inc.:
In our opinion, the accompanying balance sheet and the related statements of
income, of stockholder's equity and of cash flows present fairly, in all
material respects, the financial position of El Paso Intrastate-Alabama, Inc.
(the "Company") at December 31, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Houston, Texas
June 1, 2000
2
<PAGE> 4
EL PASO INTRASTATE-ALABAMA, INC.
BALANCE SHEET
DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3
Accounts and notes receivable, net
Trade 4,897
Affiliates 654
Gas imbalances 807
Materials and supplies 207
Deferred tax assets 238
Other 31
----------
Total current assets 6,837
Property, plant, and equipment, net 24,310
Other noncurrent assets 239
----------
Total assets $ 31,386
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable
Trade $ 4,067
Affiliates 3,491
Other 731
----------
Total current liabilities 8,289
Deferred tax liabilities 983
Deferred credits 197
----------
Total liabilities 9,469
----------
Commitments and contingencies
Stockholder's equity
Common stock, par value $1.00 per share; authorized
1,000 shares; issued 1,000 shares 1
Additional paid-in capital 12,109
Retained earnings 9,807
----------
Total stockholder's equity 21,917
----------
Total liabilities and stockholder's equity $ 31,386
==========
</TABLE>
See accompanying notes.
3
<PAGE> 5
EL PASO INTRASTATE-ALABAMA, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating revenues
Natural gas sales $ 21,737
Transportation 6,505
----------
28,242
----------
Operating expenses
Costs of gas sold 21,013
Operation and maintenance 2,845
Depreciation 3,335
Impairment charge 7,054
Taxes, other than income taxes 247
----------
34,494
----------
Operating loss (6,252)
Interest expense (202)
----------
Loss before income taxes (6,454)
Income tax benefit 2,612
----------
Net loss $ (3,842)
==========
</TABLE>
See accompanying notes.
4
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EL PASO INTRASTATE-ALABAMA, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss $ (3,842)
Adjustments to reconcile net loss to net cash
from operating activities
Depreciation 3,335
Impairment charge 7,054
Deferred income tax benefit (3,815)
Working capital changes, net of non-cash transactions
Accounts and notes receivable (1,797)
Accounts payable 2,884
Other working capital changes 946
Other 269
------------
Net cash provided by operating activities 5,034
------------
Cash flows from investing activities
Capital expenditures (3,090)
------------
Net cash used in investing activities (3,090)
------------
Cash flows from financing activities
Net change in advances from affiliates (1,944)
------------
Net cash used in financing activities (1,944)
------------
Net change in cash and cash equivalents --
Cash and cash equivalents
Beginning of period 3
------------
End of period $ 3
============
Supplemental disclosure of cash flow information
Cash paid for interest $ 209
============
Cash paid for income taxes $ 405
============
</TABLE>
See accompanying notes.
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<PAGE> 7
EL PASO INTRASTATE-ALABAMA, INC.
STATEMENT OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------------- paid-in Retained stockholder's
Shares Amount capital earnings equity
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
January 1, 1999 1 $ 1 $ 12,109 $ 13,649 $ 25,759
Net loss -- -- -- (3,842) (3,842)
------------- ------------- ------------ ------------- -------------
December 31, 1999 1 $ 1 $ 12,109 $ 9,807 $ 21,917
============= ============= ============ ============= =============
</TABLE>
See accompanying notes.
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<PAGE> 8
EL PASO INTRASTATE-ALABAMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY BUSINESS
El Paso Intrastate-Alabama, Inc., or the Company, is a wholly owned
subsidiary of El Paso Energy Corporation. Prior to the merger of El Paso Energy
and Sonat Inc. in October 1999, the Company was a wholly owned subsidiary of
Sonat. The Company owns and operates over 450 miles of pipelines and related
compression facilities. The pipeline system is strategically located to
transport coal bed methane production as well as conventional natural gas
supplies for redelivery to regional local distribution companies, municipalities
in western Alabama, Tennessee Gas Pipeline, which serves the northeast United
States, and Southern Natural Gas, which serves the southeastern United States.
The Company also buys natural gas from regional producers and others and sells
natural gas to local distributors and others.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company's financial statements are prepared on the accrual basis of
accounting in conformity with accounting principles generally accepted in the
United States.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities that exist at
the date of the financial statements. Actual results may differ from those
estimates.
Cash and Cash Equivalents
Short-term investments purchased with an original maturity of three
months or less are considered cash equivalents.
Allowance for Doubtful Accounts and Notes Receivable
The Company establishes a provision for losses on accounts and notes
receivable if determined to be uncollectible. Collectibility is reviewed
regularly and the allowance is adjusted as necessary primarily under the
specific identification method. At December 31, 1999, the allowance was $380
thousand.
Materials and Supplies
Materials and supplies are valued at the lower of cost or market with
cost determined using the average cost method.
Gas Imbalances
Gas imbalances represent the difference between actual gas receipts
from and gas deliveries to the Company's customers. Gas imbalances arise when
these customers deliver more or less gas into the pipeline system than they take
out. Natural gas imbalances are settled in cash or made up in-kind, subject to
the pipeline's various contractual terms. The Company values gas imbalances due
to or from shippers and operators at the appropriate index price.
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EL PASO INTRASTATE-ALABAMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property, Plant, and Equipment
The Company's property, plant, and equipment is based on the original
cost of construction or, on acquisition, the fair value of the assets acquired.
Construction costs include all direct costs of the project, as well as indirect
charges, including capitalized interest. Repairs and maintenance costs are
expensed as incurred, while additions, improvements and replacements are
capitalized. Depreciation on these properties is provided using the composite
method, which in the opinion of management, is adequate to allocate the cost of
properties over their estimated useful lives. Pipelines and related equipment
have an expected life of 20 years and other assets have expected lives of 5 to
15 years. When these properties are retired due to abandonment or replacement,
the remaining original cost, plus retirement cost, less salvage is charged as a
gain or loss in income.
The Company evaluates impairment of property, plant, and equipment in
accordance with Statement of Financial Accounting Standards, or SFAS, No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of. In 1999, the Company recorded an impairment charge of
approximately $7 million (see Note 3).
Revenue Recognition
The Company recognizes revenue from natural gas transportation in the
period the service is provided. Revenue from natural gas sales is recognized
upon delivery.
Income Taxes
Income taxes are based on income reported for tax return purposes along
with a provision for deferred income taxes. Deferred income taxes are provided
to reflect the tax consequences in future years of differences between the
financial statement and tax bases of assets and liabilities at each year-end.
Tax credits are accounted for under the flow-through method, which reduces the
provision for income taxes in the year the tax credits become available.
Deferred tax assets are reduced by a valuation allowance when, based upon
management's estimates, it is more likely than not that a portion of those
assets will not be realized in a future period. The estimates utilized in the
recognition of deferred tax assets are subject to revision in future periods
based on new facts or circumstances.
The Company is a member of El Paso Energy's consolidated tax group and
will be included in El Paso Energy's consolidated return. El Paso Energy
maintains a tax sharing policy which provides, among other things, that (i) each
company in a taxable income position will be currently charged with an amount
equivalent to its federal income tax computed on a separate return basis, and
(ii) each company in a tax loss position will be reimbursed currently to the
extent its deductions, including general business credits, were utilized in the
consolidated return. Under the policy, El Paso Energy pays all federal income
taxes directly to the IRS and will bill or refund, as applicable, its
subsidiaries for their applicable portion of such income tax payments. Prior to
the merger between El Paso Energy and Sonat Inc. in October 1999, the Company
had a similar tax sharing agreement with Sonat.
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<PAGE> 10
EL PASO INTRASTATE-ALABAMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements Not Yet Adopted
In June 1998, SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued by the Financial Accounting Standards Board to
establish accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This pronouncement requires that an entity classify all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset, liability or an unrecognized
firm commitment, (ii) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (iii) a hedge of 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. Under SFAS No. 133, accounting for the changes in the fair value of
a derivative depends on the intended use and its resulting designation. The
standard was amended by SFAS No. 137 issued in June 1999. The amendment defers
the effective date to fiscal years beginning after June 15, 2000. The Company is
currently evaluating the effects of this pronouncement.
3. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following at December 31,
1999 (in thousands):
<TABLE>
<S> <C>
Pipelines and equipment $ 59,224
Construction work-in-progress 5,206
Other 643
--------
65,073
Less accumulated depreciation 40,763
--------
Total property, plant, and equipment $ 24,310
========
</TABLE>
Upon El Paso Energy's decision to sell the Company, the Company
recorded an impairment charge of approximately $7 million under SFAS No. 121 on
its pipelines and related equipment to reflect their fair value less estimated
cost of disposal. The fair value was determined as the present value of the
discounted net cash flows over the remaining useful life of these assets.
4. INCOME TAXES
The following table reflects the components of income tax expense (benefit)
for the year ended December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Current
Federal $ 953
State 250
--------
1,203
--------
Deferred
Federal (3,069)
State (746)
--------
(3,815)
--------
Income tax benefit $ (2,612)
========
</TABLE>
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EL PASO INTRASTATE-ALABAMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax benefit of the Company differs from the amount computed by applying the
statutory federal income tax rate (35 percent) to income before taxes. The
following table outlines the reasons for the differences for the year ended
December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Income tax benefit at the statutory
federal rate of 35% $ (2,259)
State income tax, net of
federal income tax benefit (322)
Other (31)
---------
Income tax benefit $ (2,612)
=========
Effective tax rate 40.5%
=========
</TABLE>
The following table reflects the components of the net deferred tax
liability at December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities
Property, plant, and equipment $ 853
Prepaid pension costs 130
--------
Total deferred tax liabilities 983
--------
Deferred tax assets
Postretirement benefit obligation 155
Allowance for bad debts 57
Other 26
--------
Total deferred tax assets 238
--------
Net deferred tax liability $ 745
========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Natural gas sales and transportation services revenues received from
affiliated companies totaled $9.8 million and natural gas purchased from
affiliated companies totaled $9.6 million for the year ended December 31, 1999.
Accounts receivable and payable balances due from and to these affiliates were
$0.7 million and $3.5 million, respectively, as of December 31, 1999.
For the year ended December 31, 1999, the Company's parent allocated
$0.3 million of corporate overhead to cover expenses related to management,
legal, financial, tax, consultative, administrative and other services,
including employee benefits, annual incentive bonuses, rent, insurance, and
information technology provided to the Company. Included in the employee
benefits allocation were pension costs and postretirement costs for the
Company's employees.
10
<PAGE> 12
EL PASO INTRASTATE-ALABAMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company participates in a cash management arrangement with El Paso
Energy. Under the arrangement, excess cash balances are advanced periodically to
the Company. Cash requirements are funded as needed through advances of cash
from El Paso Energy. Net balances of amounts advanced bear interest at rates
approximating short-term market rates. The interest rate at December 31, 1999
was 5.6 percent. Interest expense recorded under the arrangement was
$0.2 million in 1999. Under its cash management arrangement, the Company had a
balance of $2.7 million due to El Paso Energy at December 31, 1999. Such amounts
are included in affiliate accounts payable on the accompanying balance sheet.
6. COMMITMENTS AND CONTINGENCIES
The Company is subject to various contractual agreements, laws, and
regulations that arise in the ordinary course of business. Management does not
believe that compliance with these contractual agreements, laws, and regulations
will have a material effect on our financial statements.
7. TRANSACTIONS WITH MAJOR CUSTOMERS AND SUPPLIERS
The following tables shows revenues from major customers and costs incurred
from major suppliers for the year ended December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Customers
Alagasco $ 12,037
El Paso Production Company 4,553
El Paso Merchant Energy Company 5,211
Suppliers
El Paso Production Company $ 9,576
Torch Energy Marketing, Inc. 2,782
</TABLE>
8. SALE TO EL PASO ENERGY PARTNERS, L.P. (unaudited)
On March 20, 2000, El Paso Energy sold the Company to El Paso Energy
Partners, L.P. for $26.5 million.
11
<PAGE> 13
(b) Pro forma financial information.
Presented below are the unaudited pro forma condensed combined
financial statements reflecting our purchase of EPIA. This information is
included to give you a better understanding of what the combined results of
operations and financial position may have looked like had the acquisition
occurred as of and for the year ended December 31, 1999.
These pro forma statements reflect the acquisition of EPIA using the
purchase method of accounting. In this pro forma transaction, we borrowed $24.9
million under our credit facility to fund the acquisition. The values we
assigned in these statements to the assets and liabilities acquired are based
upon our preliminary estimates of their fair value. As a result, these
preliminarily allocated values may change. However, we believe that the
unaudited pro forma adjustments and the underlying assumptions reasonably
present the significant effects of the transaction. In addition, we will
undertake a study of the fair value of EPIA's assets and liabilities and will
revise, if necessary, purchase accounting adjustments upon completion of that
study.
Accounting policy differences and intercompany balances between us and
EPIA have been determined to be immaterial and, accordingly, these financial
statements have not been adjusted for those differences.
The pro forma financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved had the purchase been
consummated as of and for the year ended December 31, 1999, nor are they
indicative of our future operating results or financial position. The unaudited
pro forma condensed combined financial statements do not give effect to any
operating efficiencies or cost savings that may result from our integration of
EPIA's operations.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
El Paso
El Paso Energy Intrastate-
Partners, L.P. Alabama Pro Forma
Historical Historical Adjustments Pro Forma
--------------- --------------- ---------------- ------------
<S> <C> <C> <C> <C>
Assets
Total current assets $ 12,957 $ 6,837 $ (654)(a) $ 19,140
24,944 (b)
(24,944)(c)
Property and equipment, net 373,759 24,310 190 (d) 398,259
Equity investments 185,766 -- -- 185,766
Other noncurrent assets 11,103 239 24,944 (c) 11,342
(24,944)(e)
-------- -------- -------- --------
Total assets $583,585 $ 31,386 $ (464) $614,507
======== ======== ======== ========
Liabilities and Partners' Capital
Total current liabilities $ 10,418 $ 8,289 $ (3,491)(a) $ 15,216
Notes payable 290,000 -- 24,944 (b) 314,944
Long-term debt 175,000 -- - 175,000
Other noncurrent liabilities 12,164 1,180 - 13,344
-------- -------- ------- --------
Total liabilities 487,582 9,469 21,453 518,504
Commitments and contingencies
Minority interest (486) -- -- (486)
Equity 96,489 21,917 2,837 (a) 96,489
190 (d)
(24,944)(e)
-------- ------- -------- --------
Total liabilities and partners' capital $583,585 $31,386 $ (464) $614,507
======== ======= ======== ========
</TABLE>
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UNAUDITED PRO FORMA CONDENSED COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
El Paso
El Paso Energy Intrastate-
Partners, L.P. Alabama Pro Forma
Historical Historical Adjustments Pro Forma
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues $ 96,473 $ 28,242 $ -- $ 124,715
--------------- --------------- --------------- ---------------
Operating expenses
Cost of gas sold -- 21,013 -- 21,013
Operation and maintenance 22,402 2,845 -- 25,247
Depreciation, depletion, and amortization 30,630 3,335 10 (f) 33,975
Impairment charges -- 7,054 -- 7,054
Taxes, other than income -- 247 -- 247
--------------- --------------- --------------- ---------------
53,032 34,494 10 87,536
--------------- --------------- --------------- ---------------
Operating income (loss) 43,441 (6,252) (10) 37,179
--------------- --------------- --------------- ---------------
Other income
Gain on sales of assets 10,103 -- -- 10,103
Other 358 -- -- 358
--------------- --------------- --------------- ---------------
10,461 -- -- 10,461
--------------- --------------- --------------- ---------------
Income before interest, income taxes and other charges 53,902 (6,252) (10) 47,640
Interest and debt expense 35,323 202 2,245 (g) 37,770
Income tax expense (benefit) (435) (2,612) (913)(h) (3,960)
Minority interest 197 -- -- 197
--------------- --------------- --------------- ---------------
35,085 (2,410) 1,332 34,007
--------------- --------------- --------------- ---------------
Net income (loss) 18,817 (3,842) (1,342) 13,633
Net income allocated to General Partner 12,129 -- (52)(i) 12,077
--------------- --------------- --------------- ---------------
Net income (loss) available to limited partners $ 6,688 $ (3,842) $ (1,290) $ 1,556
=============== =============== =============== ===============
Basic and diluted net income (loss) per unit $ 0.26 $ 0.06
=============== ===============
Basic and diluted average units outstanding 25,928 25,928
=============== ===============
</TABLE>
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<PAGE> 16
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) The purchase agreement provides for EPIA to settle all affiliate accounts
receivable and payable prior to the close date. This adjustment reflects
the settlement as if it had occurred on December 31, 1999, and was
accomplished by a contribution to equity by EPIA's parent.
(b) This entry represents the cash proceeds from borrowings to fund the
acquisition of EPIA.
(c) This entry represents the acquisition of EPIA in exchange for cash. The
purchase agreement provides for a purchase price of $24.5 million adjusted
principally for working capital and other non-plant assets and liabilities
at the closing date, and earnings from December 31, 1999 to the closing
date. These pro forma financial statements are presented as though the
purchase occurred on December 31, 1999, at which time working capital and
other non-plant assets and liabilities were $0.4 million.
(d) This entry represents the allocation of the excess purchase price over the
preliminarily allocated fair value of assets and liabilities acquired. This
excess has been reflected as an increase to property, plant, and equipment.
This allocation may change as we finalize our evaluation of the fair value
of the assets and liabilities we acquired.
(e) This entry represents the elimination of our investment in EPIA.
(f) This entry represents the amortization of excess purchase price recorded as
a result of the acquisition. The adjustment was calculated based on a 20
year estimated life.
(g) This entry represents the increase in interest expense related to the
additional borrowings. The amount was calculated based on El Paso Energy
Partners' interest rate at December 31, 1999, which was approximately
9 percent.
(h) This entry represents the income tax effect of the pro forma adjustments
assuming an effective income tax rate of 40.5 percent.
(i) This entry represents the adjustment for the income allocated to the
General Partner as a result of adding EPIA and pro forma adjustment to the
Company's results.
15
<PAGE> 17
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 ENERGY PARTNERS, L.P.
By: /s/ D. MARK LELAND
-----------------------------------
D. Mark Leland
Vice President and Controller
(Principal Accounting Officer)
Date: June 5, 2000
16
