UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: June 5, 2002
(Date of Earliest Event Reported: October 18, 2001)
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.)
El Paso Building
1001 Louisiana Street
Houston, Texas 77002
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, Including Area Code: (713) 420-2600
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
The audited Deepwater Holdings, L.L.C. consolidated financial
statements as of and for the period ended December 31, 2000, are included in our
Annual Report on Form 10-K which is incorporated herein by reference.
We are providing the unaudited Deepwater Holdings, L.L.C. condensed
consolidated financial statements at September 30, 2001 and for the nine months
ended September 30, 2001 and 2000.
1
Deepwater Holdings, L.L.C. and Subsidiaries
Condensed Consolidated Financial Statements
At September 30, 2001 and December 31, 2000 and
For the Nine Months Ended September 30, 2001 and 2000
2
' DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2001 2000
------------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 4,622 $ 11,481
Accounts receivable, net 1,521 23,650
Other current assets -- 10,997
-------- --------
Total current assets 6,143 46,128
Property, plant and equipment, net 154,765 233,235
Other noncurrent assets 2,589 4,181
-------- --------
Total assets $163,497 $283,544
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable, net $ 13,166 $ 13,496
Current obligation under capital lease -- 1,073
Other current liabilities 1,128 25,393
-------- --------
Total current liabilities 14,294 39,962
Long-term debt 110,500 157,000
Obligations under capital lease, less current portion -- 8,302
Other noncurrent liabilities -- 1,215
-------- --------
Total liabilities 124,794 206,479
Commitments and contingencies
Members' equity 38,703 77,065
-------- --------
Total liabilities and members' equity $163,497 $283,544
======== ========
See accompanying notes.
3
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Nine Months ended September 30,
2001 2000
---------- ------------
Revenues
Transportation services $ 37,964 $ 45,509
Liquid transportation services and other 936 1,911
Dehydration services 238 1,834
-------- --------
39,138 49,254
-------- --------
Expenses
Operations and maintenance 15,812 21,440
Depreciation and amortization 8,380 13,284
Taxes, other than income taxes -- 174
-------- --------
24,192 34,898
-------- --------
Operating income 14,946 14,356
Other income (expense)
Interest income 69 335
Interest expense and other financing costs (6,694) (7,031)
Net loss on sales of assets (21,044) --
-------- --------
Net income (loss) $(12,723) $ 7,660
======== ========
See accompanying notes.
4
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months ended September 30,
2001 2000
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(12,723) $ 7,660
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,380 13,284
Net loss on sales of assets 21,044 --
Working capital changes, net of effects
of dispositions 7,308 2,523
Other 908 128
-------- --------
Net cash provided by operating
activities 24,917 23,595
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (5,635) (33,209)
Proceeds from sales of assets, net
of cash sold 45,959 --
-------- --------
Net cash provided by (used in)
investing activities 40,324 (33,209)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit facility 4,500 34,000
Payments on long-term debt (51,000) --
Capital contributions from members 100 277
Distributions to members (25,700) (19,100)
-------- --------
Net cash provided by (used in)
financing activities (72,100) 15,177
-------- --------
Net change in cash and cash equivalents: (6,589) 5,563
Cash and cash equivalents:
Beginning of period 11,481 9,166
-------- --------
End of period $ 4,622 $ 14,729
======== ========
See accompanying notes.
5
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Our December 31, 2000, audited consolidated financial statements, as presented
in the El Paso Energy Partners, L.P. 2000 Annual Report on Form 10-K, include a
summary of our significant accounting policies and other disclosures. You should
read it in conjunction with these financial statements. The condensed
consolidated financial statements at September 30, 2001, and for the nine months
ended September 30, 2001 and 2000, are unaudited. The balance sheet at December
31, 2000, is derived from the audited balance sheet presented in the El Paso
Energy Partners 2000 Annual Report on Form 10-K. These financial statements have
been prepared pursuant to the rules and regulations of the United States
Securities and Exchange Commission and do not include all disclosures required
by accounting principles generally accepted in the United States. In our
opinion, we have made all adjustments, all of which are of a normal recurring
nature, to fairly present our interim period results. 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 members' equity.
In October 2001, El Paso Energy Partners, L.P. acquired the remaining percent in
us. As a result, we were dissolved, and our remaining assets were consolidated
into El Paso Energy Partners, L.P. on a going forward basis.
Our accounting policies are consistent with those discussed in our 2000 audited
financial statements, except as discussed below. You should refer to our 2000
audited financial statements for further discussion of those policies.
Adoption of SFAS No. 133
We adopted Statement of Financial Accounting Standards (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, on January 1,
2001. We did not enter into any derivative contracts on or subsequent to our
adoption date.
During the normal course of our business, we may enter into contracts that
qualify as derivatives according to SFAS No. 133's definition of a derivative.
Accordingly, we evaluate our contracts to determine whether derivative
accounting is necessary. Contracts that meet the criteria of a derivative are
then evaluated for the normal purchases and normal sales exception. Contracts
qualifying as normal purchases and normal sales are documented in order to be
excluded from accounting under SFAS No. 133.
For those instruments entered into to hedge risk, and which qualify as hedges
under the provisions of SFAS No. 133, the accounting treatment depends on each
instruments intended use and how it is designated. In addition to its
designation, a hedge must be effective. To be effective, changes in the value of
the derivative or its resulting cash flows must substantially offset changes in
the value or cash flows of the item being hedged.
NOTE 2 - DISPOSITIONS
In accordance with a Federal Trade Commission (FTC) order related to El Paso
Corporation's merger with The Coastal Corporation in January 2001, we agreed to
sell Stingray, UTOS, and our West Cameron dehydration facility to several third
parties. We sold Stingray and our West Cameron dehydration facility in
6
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - DISPOSITIONS (CONTINUED)
January 2001, and UTOS in April 2001. From these sales, we received cash of
approximately $54 million and used the net proceeds to pay down our credit
facility. We recognized losses of approximately $21 million as a result of these
sales.
The following selected unaudited pro forma information represents our
consolidated results of operations on a pro forma basis for the nine months
ended September 30, 2001 and 2000, as if we sold these assets on January 1,
2000. The pro forma information does not give effect to the losses we incurred
on the sales of our assets since these are non-recurring items.
September 30, September 30,
----------------- -----------------
2001 2000
----------------- -----------------
(In thousands)
Operating revenues $ 36,250 $ 28,454
Operating income $ 12,857 $ 8,492
Net income $ 6,301 $ 2,401
NOTE 3 - IMBALANCE RECEIVABLES
In August 2001, we wrote off approximately $2.7 million of natural gas
imbalances on HIOS due to uncollectibility, which are reflected in accounts
receivable, net in the accompanying condensed consolidated balance sheets. The
write off was recorded as an increase to operations and maintenance expense in
the accompanying condensed consolidated statement of operations for the nine
months ended September 30, 2001.
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
September 30, December 31,
----------------- -----------------
2001 2000
----------------- -----------------
(In thousands)
Property, plant, and equipment
at cost
Pipelines and equipment $ 536,813 $ 919,193
Pipelines under construction 3,944 240
Pipeline under capital lease - 9,778
--------- ---------
540,757 929,211
Less accumulated depreciation
and amortization (385,992) (695,976)
--------- ---------
Property, plant and equipment,
net $ 154,765 $ 233,235
========= =========
NOTE 5 - INDEBTEDNESS
We are a party to credit agreements under which we have outstanding obligations
that may restrict our ability to pay distributions to our respective owners.
We have a revolving credit facility with a syndicate of commercial banks to
provide up to $175 million of available credit, subject to incurrence
limitations. At our election, interest under our credit facility is determined
by reference to the reserve-adjusted London interbank offer rate, the prime rate
or the 90-day average certificate of deposit. As of September 30, 2001, we had
approximately $110.5 million outstanding under our credit facility
7
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INDEBTEDNESS (CONTINUED)
bearing interest at approximately 5.00% per year, and as of December 31, 2000,
we had $157 million outstanding under our credit facility bearing interest at
approximately 8.15% per year. A commitment fee is charged on the unused and
available to be borrowed portion of our credit facility. This fee was 0.5
percent and 0.475 percent per year at September 30, 2001 and December 31, 2000.
Amounts remaining under our credit facility are available to us for general
corporate purposes, including financing capital expenditures and for working
capital. Our credit facility can also be utilized to issue letters of credit as
may be required from time to time; however, no letters of credit are currently
outstanding. The Credit Facility matures in February 2004; is guaranteed by us
and is collateralized by substantially all of our assets.
Interest and other financing costs totaled approximately $6.7 million for the
nine months ended September 30, 2001 and $7.0 million for the nine months
ended September 30, 2000, net of capitalized interest of $2.6 million for the
nine months ended September 30, 2000. The unamortized portion of debt issue
costs totaled $0.5 million and $0.6 million for the nine months ended
September 30, 2001 and September 30, 2000, respectively.
NOTE 6 - RELATED PARTY TRANSACTIONS
Transportation and dehydration revenues derived from affiliated companies were
$3.7 million for the nine months ended September 30, 2001 and $0.9 million for
the nine months ended September 30, 2000. In addition, several of the operating
companies have entered into operations agreements with affiliates for various
operational, financial, accounting and administrative services. Total fees
billed to the operating companies under these agreements were approximately $9
million and $15 million for the nine months ended September 30, 2001 and 2000,
respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
We are party to a credit agreement under which we may be restricted from paying
distributions to our members.
We are involved from time to time in various claims, actions, lawsuits, and
regulatory matters that have arisen in the ordinary course of business,
including various rate cases and other proceedings before the Federal Energy
Regulatory Commission (FERC).
We, along with several subsidiaries of El Paso Corporation, have been 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. These matters have been consolidated for pretrial
purposes (In re: Natural Gas Royalties Qui Tam Litigation, U.S. District Court
for the District of Wyoming). In May 2001, the court denied the defendants'
motion to dismiss.
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DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
We have also been named defendants in Quinque Operating Company, et al v. Gas
Pipelines and Their Predecessors, et al, filed in 1999 in the District Court of
Stevens County, Kansas. This class action 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, and has now been sent back to
the Kansas State Court for further proceedings. A motion to dismiss this case is
pending.
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.
In September 2001, FERC issued a NOPR that proposes to apply the standards of
conduct governing the relationship between interstate pipelines and marketing
affiliates to all energy affiliates. Since HIOS is an interstate facility as
defined by the Natural Gas Act, the proposed regulations, if adopted by FERC,
would dictate how HIOS conducts business and interacts with all energy
affiliates of El Paso Corporation and us. In May 2002, the FERC held a public
conference to provide interested parties an opportunity to comment further on
the NOPR. We cannot predict the outcome of the NOPR, but adoption of the
regulations in substantially the form proposed would, at a minimum, place
administrative and operational burdens on us. Further, more fundamental changes
could be required such as a complete organizational separation or sale of HIOS.
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.
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Business Combinations
In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141, Business Combinations. This statement requires that all transactions that
fit the definition of a business combination be accounted for using the purchase
method and prohibits the use of the pooling of interests method for all business
combinations initiated after June 30, 2001. This statement also established
specific criteria for the recognition of intangible assets separately from
goodwill and requires unallocated negative goodwill to be written off
immediately as an extraordinary item. The accounting for any business
combination we undertake in the future will be impacted by this standard. Our
adoption of SFAS No. 141 did not have a material effect on our financial
statements.
Goodwill and Other Intangible Assets
In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This statement requires that goodwill no longer be amortized but should
be intermittently tested for impairment at least on an annual basis. Other
intangible assets are to be amortized over their useful life and reviewed for
impairment in accordance with the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of. An
intangible asset with an indefinite useful life can no longer be amortized until
its useful life becomes determinable. This statement has various effective
dates. The most significant of which is January 1, 2002. Our adoption of SFAS
No. 142 on January 1, 2001, did not have a material effect on our financial
statements.
Accounting for Asset Retirement Obligations
In July 2001, the FASB approved for issuance SFAS No. 143, Accounting for Asset
Retirement Obligations. This statement requires companies to record a liability
relating
9
DEEPWATER HOLDINGS, L.L.C. AND SUBSIDIARIES
(A LIMITED LIABILITY COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED (CONTINUED)
to the retirement and removal of assets used in their business. The liability is
discounted to its present value, and the related asset value is increased by the
amount of the resulting liability. Over the life of the asset, the liability
will be accreted to its future value and eventually extinguished when the asset
is taken out of service. The provisions of this statement are effective for
fiscal years beginning after June 15, 2002. We are currently evaluating the
effects of this pronouncement.
Accounting for the Impairment or Disposal of Long-Lived Assets
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. This statement requires that long-lived assets
that are to be disposed of by sale be measured at the lower of book value or
fair value less cost to sell. The standard also expanded the scope of
discontinued operations that can be distinguished from the rest of the entity
and will be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. The provisions of this pronouncement will
impact any asset dispositions we make after January 1, 2002.
NOTE 9 - SUBSEQUENT EVENTS
El Paso Energy Partners, L.P. Acquisition of Deepwater Holdings, L.L.C.
In October 2001, El Paso Energy Partners, L.P. acquired the remaining 50% in us
which it did not already own for approximately $81 million, consisting of $26
million cash and $55 million of assumed indebtedness. In conjunction with this
transaction, El Paso Energy Partners repaid and terminated our revolving credit
facility, which had a balance outstanding of $110 million at the acquisition
date.
10
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
Senior Vice President and Controller
(Principal Accounting Officer)
Date: June 5, 2002
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