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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: APRIL 8, 2003
(DATE OF EARLIEST EVENT REPORTED: APRIL 8, 2003)
COMMISSION FILE NUMBER 1-11680
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EL PASO ENERGY PARTNERS, L.P.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 76-0396023
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4 GREENWAY PLAZA 77046
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(832) 676-6152
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
OTHER FINANCIAL STATEMENTS
We are filing a one year audited balance sheet of El Paso Energy Partners
Company, the general partner of El Paso Energy Partners, L.P., as of December
31, 2002, and a two year audited balance sheet of El Paso Energy Partners
Finance Corporation, a subsidiary of El Paso Energy Partners, L.P. as of
December 31, 2002 and 2001, to be incorporated by reference into our
Registration Statement on Form S-3 (No. 333-81772, No. 333-85987 and No.
333-103544).
1
EL PASO ENERGY PARTNERS COMPANY
CONSOLIDATED BALANCE SHEET
WITH REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 2002
2
EL PASO ENERGY PARTNERS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARES AND PER SHARE DATA)
DECEMBER 31, 2002
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ASSETS
Current assets
Cash and cash equivalents................................. $ 38
Other receivable from affiliate........................... 17,981
Note receivable from affiliate............................ 21,809
Interest receivable from affiliate........................ 1,195
--------
Total current assets.............................. 41,023
Investment in unconsolidated affiliate...................... 389,026
Goodwill, net of accumulated amortization of $18,231........ 195,207
--------
Total assets...................................... $625,256
========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities......................................... $ 4
Deferred tax liabilities.................................... 163,825
Other noncurrent liabilities................................ 2,711
--------
Total liabilities................................. 166,540
--------
Commitments and contingencies
Stockholder's equity
Common stock, $0.10 par value, 1,000 shares authorized,
issued and outstanding................................. --
Additional paid-in capital................................ 240,348
Retained earnings......................................... 219,355
Accumulated other comprehensive loss...................... (987)
--------
Total stockholder's equity........................ 458,716
--------
Total liabilities and stockholder's equity........ $625,256
========
See accompanying notes.
3
EL PASO ENERGY PARTNERS COMPANY
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1 -- ORGANIZATION
We are a Delaware corporation formed in 1989 and are a wholly owned
indirect subsidiary of El Paso Corporation. We are the general partner with a
one percent general partner interest. In addition, we and our subsidiaries own
approximately 20 percent of the outstanding common units, of El Paso Energy
Partners, L.P. (the Partnership), a publicly held Delaware master limited
partnership. The Partnership provides gathering, transportation, separating,
handling, processing, fractionation and storage of natural gas, oil, and natural
gas liquids(NGL). The Partnership owns or has interests in the following:
offshore oil and natural gas pipelines, platforms, processing facilities and
other energy infrastructure in the Gulf of Mexico, primarily offshore Louisiana
and Texas; onshore natural gas pipelines and processing facilities in Alabama,
Colorado, Louisiana, Mississippi, New Mexico and Texas; onshore NGL pipelines
and fractionation facilities in Texas; and onshore natural gas and NGL storage
facilities in Mississippi, Louisiana and Texas.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Our consolidated financial statement is prepared on the accrual basis of
accounting in conformity with accounting principles generally accepted in the
United States and includes the accounts of our wholly owned subsidiary after the
elimination of all significant intercompany balances and transactions.
CASH AND CASH EQUIVALENTS
We consider short-term investments with little risk of change in value
because of changes in interest rates and purchased with an original maturity of
less than three months to be cash equivalents.
INVESTMENT IN UNCONSOLIDATED AFFILIATE
We account for our investment in companies where we have the ability to
exert significant influence over, but not control over operating and financial
policies, using the equity method. Effective January 1, 2002, with the adoption
of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets, we no longer amortize the difference between the
carrying amount of the investment and the underlying equity in net assets of the
investee, which represents goodwill. See our discussion of accounting for
goodwill below.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 2002, our carrying amounts of cash and cash equivalents,
receivables and payables approximate fair value because of the short-term nature
of these instruments.
GOODWILL
Our goodwill is a result of the application of push-down accounting as a
result of our acquisition by an affiliate of El Paso Corporation. Effective with
our adoption of SFAS No. 142 on January 1, 2002, we recognize goodwill
separately from other intangible assets. In addition, goodwill, including the
excess purchase price associated with our investment in unconsolidated affiliate
and pushed down from our parent, and indefinite-lived intangibles are no longer
amortized. Instead, goodwill is periodically tested for impairment, at least on
an annual basis, or whenever an event occurs that indicates that an impairment
may have occurred. We completed our periodic impairment test at year ended
December 31, 2002, and concluded that no adjustment was required.
At December 31, 2002 the carrying amount of our investment in
unconsolidated affiliate exceeded the underlying equity in net assets by
approximately $292 million. Prior to the adoption of SFAS No. 142, we amortized
our excess purchase price using the straight-line method over 40 years. As a
result of our adoption of this standard on January 1, 2002, we no longer
amortize this excess amount and will test for impairment if an event occurs that
indicates there may be a loss in value.
4
EL PASO ENERGY PARTNERS COMPANY
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires the use of estimates
and assumptions that affect the amounts we reported as assets and liabilities
and our disclosures in these financial statements. While we believe our
estimates are appropriate, actual results can, and often do, differ from those
estimates.
INCOME TAXES
Deferred income taxes reflect the estimated future tax consequences of
differences between the financial statement and tax bases of assets and
liabilities and carryovers at each year-end. We account for tax credits under
the flow-through method, which reduces the provision for income taxes in the
year the tax credits first become available. We reduce deferred tax assets by a
valuation allowance when, based upon our estimates, it is more likely than not
that a portion of those assets will not be realized in the future period. The
estimates utilized in the recognition of deferred tax assets are subject to
revision, either up or down, in future periods based on new facts or
circumstances.
Beginning August 14, 1998, as a result of El Paso Corporation's indirect
acquisition of us, our results are included in the consolidated federal income
tax return of El Paso Corporation.
El Paso Corporation maintains a tax sharing policy for companies included
in its consolidated federal income tax return 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
Corporation pays all federal income taxes directly to the Internal Revenue
Service and bills or refunds its subsidiaries for their portion of these income
tax payments.
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
During 2002, the Partnership entered into cash flow hedging activities and
our share of the unrealized gains (losses) of the hedging instruments are
reflected as an increase (decrease) in investment in unconsolidated affiliate
and accumulated other comprehensive income (loss) on our balance sheet.
NEW ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
Accounting for Guarantees. In November 2002, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation (FIN) No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. This interpretation requires that
companies record a liability for all guarantees issued after December 31, 2002,
including financial, performance, and fair value guarantees. This liability is
recorded at its fair value upon issuance, and does not affect any existing
guarantees issued before January 31, 2003. This standard also requires expanded
disclosures on all existing guarantees at December 31, 2002. We have included
the required disclosures in Note 6.
Consolidation of Variable Interest Entities. In January 2003, the FASB
issued FIN No. 46, Consolidation of Variable Interest Entities. This
interpretation defines a variable interest entity as a legal entity whose equity
owners do no have sufficient equity at risk and/or a controlling financial
interest in the entity. This standard requires that companies consolidate a
variable interest equity if it is allocated a majority of the entity's losses
and/or returns, including fees paid by the entity. This provisions of FIN No. 46
are immediately effective for all variable interest entities created after
January 31, 2003, and are effective on July 1, 2003 for all variable interest
entities created before January 31, 2003. We do not believe this statement will
have any effect on our financial statements.
5
EL PASO ENERGY PARTNERS COMPANY
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
NOTE 3 -- INVESTMENT IN UNCONSOLIDATED AFFILIATE
We hold an unconsolidated investment in the Partnership, which is accounted
for using the equity method of accounting. Additional income is allocated by the
Partnership to us as a result of the Partnership achieving certain target levels
of cash distributions to its unitholders. The Partnership distributes 100
percent of available cash, as defined in the Partnership Agreement, on a
quarterly basis to the unitholders of the Partnership and to us. During
distribution periods, these distributions are effectively made 99 percent to
unitholders and one percent to us, subject to the payment of incentive
distributions to us if certain target levels of cash distributions to
unitholders are achieved. Incentive distributions to us increase to 14 percent,
24 percent and 49 percent based on incremental distribution thresholds. Since
1998, quarterly distributions to common unitholders have been in excess of the
highest incentive threshold of $0.425 per unit, and as a result, we have
received 49 percent of the incremental amount. For the twelve months ended
December 31, 2002, we received $42.7 million related to incentive distributions
and our one percent of the Partnership's income distribution. In addition, we
received $22.7 million related to our ownership of common units.
As of December 31, 2002, the Partnership had 44,030,314 common units
outstanding. The public owns common units totaling 32,356,069, representing an
approximate 74 percent limited partner interest in the Partnership. We own
8,852,902 common units, representing an approximate 20 percent limited partner
interest, and our one percent general partner interest. In addition, El Paso
Corporation indirectly owns 2,821,343 common units representing an approximate 6
percent limited partner interest, all 125,392 Series B preference units with a
liquidation value of approximately $158 million and all 10,937,500 of the
outstanding Series C units issued in November 2002 with a value of $350 million,
which are non-voting.
We contributed approximately $0.6 million to the Partnership in order to
satisfy our one percent contribution requirement as a result of the
Partnership's common unit offering in April 2002 and purchased 1,083,938 common
units during that offering for approximately $41.0 million. In addition, we
contributed approximately $3.5 million to the Partnership in connection with its
November 2002 issuance of the Series C units, in order to satisfy our one
percent contribution requirement.
The summarized financial information for our investment in the Partnership
is as follows:
EL PASO ENERGY PARTNERS, L.P.
SUMMARIZED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
(IN THOUSANDS)
Current assets.............................................. $ 279,995
Noncurrent assets........................................... 2,850,901
Current liabilities......................................... 254,091
Long-term debt.............................................. 1,901,286
Other noncurrent liabilities................................ 23,725
Minority interest........................................... 1,942
Partners' capital........................................... 949,852
NOTE 4 -- INCOME TAXES
After August 14, 1998, we are included in the consolidated federal income
tax return filed by El Paso Corporation. El Paso Corporation's tax sharing
policy provides for the manner of determining payments with respect to federal
income tax liabilities (see Note 2).
6
EL PASO ENERGY PARTNERS COMPANY
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
Our deferred income tax liabilities (assets) at December 31, 2002 consisted
of the following (in thousands):
Deferred tax liabilities:
Investment in unconsolidated affiliate.................... $164,498
Other..................................................... 11
--------
Total deferred tax liabilities.................... 164,509
Deferred tax assets:
Net operating loss (NOL) carryforwards.................... (684)
--------
Net deferred tax liabilities................................ $163,825
========
As of December 31, 2002, approximately $2.0 million of NOL carryforwards,
which expire in 2017, were available to offset future tax liabilities.
Current amounts due from El Paso Corporation for the intercompany charge
(credit) for federal income taxes totaled approximately $17.9 million as of
December 31, 2002.
NOTE 5 -- RELATED PARTY TRANSACTIONS
Substantially all of the individuals who perform the day-to-day financial,
administrative, accounting and operational functions for us and the Partnership
as well as those who are responsible for directing and managing us and the
Partnership are currently employed by El Paso Corporation. In April 2002, in
connection with the Partnership's EPN Holding acquisition, we extended and
amended our general and administrative services agreement (G&A agreement)
between subsidiaries of El Paso Corporation and us to December 31, 2005, which
may thereafter be terminated on 90 days' notice by any party. Under the G&A
agreement, we pay a management fee to an affiliate of El Paso Corporation which
is intended to approximate the amount of resources allocated by El Paso
Corporation and its affiliates in providing various operational, financial,
accounting and administrative services on behalf of the Partnership and us. In
April 2002, as a result of the Partnership's EPN Holding acquisition, the
monthly fee under the G&A agreement was increased $0.8 million, to $1.6 million.
In November 2002, as a result of the Partnership's San Juan assets acquisition,
the monthly fee under the G&A agreement increased by $1.3 million, bringing our
total monthly fee to $2.9 million. We believe this fee approximates the actual
costs incurred. Prior to those acquisitions, the management fee was
approximately $0.8 million per month.
In addition, El Paso Corporation collects cash and makes disbursements on
our behalf as part of our operating activities. El Paso Corporation may make
advances to us for purposes of our capital investment.
Under the terms of the Partnership Agreement, we are entitled to
reimbursement by the Partnership of all reasonable general and administrative
expenses and other reasonable expenses incurred by us and our affiliates for, or
on our behalf, including, but not limited to, amounts payable by us to El Paso
Corporation under the G&A agreement. At December 31, 2002, there were no
affiliated receivables from the Partnership and no affiliated payables to El
Paso Corporation or its subsidiaries outstanding under this agreement.
From the distributions and fees we received from the Partnership for the
twelve months ended December 31, 2002, we invested $9.1 million in an on demand
note receivable from El Paso Corporation, collateralized by the general credit
of El Paso Corporation. This note has a balance of $21.8 million at an interest
rate of approximately 2.4% at December 31, 2002.
7
EL PASO ENERGY PARTNERS COMPANY
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, we are subject to various laws and
regulations. In our opinion, compliance with existing laws and regulations will
not materially affect our financial position, results of operations, or cash
flows. Various legal actions which have arisen in the ordinary course of
business are pending with respect to our assets. We believe that the ultimate
disposition of these actions, either individually or in the aggregate, will not
have a material adverse effect on our financial position.
Guarantees
Although we are liable for the repayment of the Partnership's indebtedness
by virtue of our general partner status, we executed a guarantee to the issuers
of the Partnership's various credit facilities collateralized by the G&A
agreement. The Partnership's indebtedness under such credit facilities as of
December 31, 2002 was approximately $1.0 billion.
The Partnership conducts its business through its wholly-owned
subsidiaries, joint ventures and other ownership arrangements to construct,
operate and finance the development of its onshore and offshore midstream energy
businesses. Third parties routinely require the Partnership to provide
performance and financial guarantees to support the obligations of its
subsidiaries under contracts entered into in connection with its business. The
events and circumstances that may require the Partnership, on behalf of its
subsidiaries, to perform under these guarantees include nonperformance by its
joint ventures and other affiliates of services, such as gathering,
transportation, processing and storage services, and nonpayment of contractual
obligations.
As of December 31, 2002, the Partnership had approximately $132.8 million
of performance guarantees in connection with the activities of its joint
ventures and other affiliates. Such contingent obligations are not recorded in
its consolidated financial statements unless they become payable. The most
significant of the Partnership's performance guarantee commitments is related to
the construction of the Marco Polo Tension Leg Platform, (TLP) facility.
Deepwater Gateway, L.L.C. is a 50/50 joint venture between the Partnership and
Cal Dive International, Inc. to construct and install the Marco Polo TLP. The
Partnership has guaranteed the payment of approximately $51 million as of
December 31, 2002, under the turnkey construction contract between Deepwater
Gateway and the construction contractor. The Partnership is obligated to perform
under this guarantee should Deepwater Gateway fail to satisfy its obligations by
drawing under its $155 million project finance loan or Deepwater Gateway's joint
venture partners fail to perform under their joint venture agreement. The
Partnership's commitment under this guarantee is scheduled to expire in 2003.
The Partnership is also obligated under an agreement with certain lenders
to make payments on behalf of Deepwater Gateway for all distributions the
Partnership or any of its subsidiaries receive up to $22.5 million, if Deepwater
Gateway defaults on its payment obligations under their project finance loan.
Neither the Partnership, nor any of its subsidiaries has received any
distributions from Deepwater Gateway as of December 31, 2002.
8
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
El Paso Energy Partners Company:
In our opinion, the accompanying consolidated balance sheet presents
fairly, in all material respects, the financial position of El Paso Energy
Partners Company (the "Company") and its subsidiary at December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America. This financial statement is the responsibility of the Company's
management; our responsibility is to express an opinion on this financial
statement based on our audit. We conducted our audit of this statement in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall balance
sheet presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
April 4, 2003
9
EL PASO ENERGY PARTNERS FINANCE CORPORATION
BALANCE SHEETS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 2002 AND 2001
10
EL PASO ENERGY PARTNERS FINANCE CORPORATION
BALANCE SHEETS
DECEMBER 31,
----------------------
2002 2001
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ASSETS
Total assets...................................... $ -- $ --
======= =======
STOCKHOLDER'S EQUITY
Common stock, $1.00 par value, 1,000 shares authorized,
issued and outstanding.................................... $ 1,000 $ 1,000
Contribution receivable from parent......................... (1,000) (1,000)
------- -------
Total stockholder's equity........................ $ -- $ --
======= =======
See accompanying note.
11
EL PASO ENERGY PARTNERS FINANCE CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF EL PASO ENERGY PARTNERS, L.P.)
NOTE TO BALANCE SHEETS
NOTE 1 -- ORGANIZATION
El Paso Energy Partners Finance Corporation, a Delaware corporation and
wholly owned subsidiary of El Paso Energy Partners, L.P., was formed on April
30, 1999 for the sole purpose of co-issuing debt securities with El Paso Energy
Partners, L.P. (the Partnership), a publicly held Delaware master limited
partnership. The Partnership provides gathering, transportation, separating,
handling, processing, fractionation and storage of natural gas, oil, and natural
gas liquids(NGL). The Partnership owns or has interests in the following:
offshore oil and natural gas pipelines, platforms, processing facilities and
other energy infrastructure in the Gulf of Mexico, primarily offshore Louisiana
and Texas; onshore natural gas pipelines and processing facilities in Alabama,
Colorado, Louisiana, Mississippi, New Mexico and Texas; onshore NGL pipelines
and fractionation facilities in Texas; and onshore natural gas and NGL storage
facilities in Mississippi, Louisiana and Texas.
Our contribution receivable was generated from the initial capitalization
of us. We have not conducted any operations and all of our activities have
related to the co-issuance of the Partnership's senior subordinated notes.
12
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
El Paso Energy Partners Finance Corporation:
In our opinion, the accompanying balance sheets present fairly, in all
material respects, the financial position of El Paso Energy Partners Finance
Corporation (the "Company") at December 31, 2002 and 2001 in conformity with
accounting principles generally accepted in the United States of America. 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 audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the balance sheets are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the balance sheets, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall balance sheet
presentation. We believe that our audits of the balance sheets provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
April 4, 2003
13
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 ENERGY PARTNERS, L.P.
By: EL PASO ENERGY PARTNERS COMPANY,
its General Partner
Date: April 8, 2003 By: /s/ KATHY A. WELCH
-------------------------------------------------
Kathy A. Welch
Vice President and Controller
(Principal Accounting Officer)
14
