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EX-12 - EX-12 - El Paso Pipeline Partners, L.P. | h81322exv12.htm |
EX-32.A - EX-32.A - El Paso Pipeline Partners, L.P. | h81322exv32wa.htm |
EX-31.B - EX-31.B - El Paso Pipeline Partners, L.P. | h81322exv31wb.htm |
EX-32.B - EX-32.B - El Paso Pipeline Partners, L.P. | h81322exv32wb.htm |
EX-31.A - EX-31.A - El Paso Pipeline Partners, L.P. | h81322exv31wa.htm |
EXCEL - IDEA: XBRL DOCUMENT - El Paso Pipeline Partners, L.P. | Financial_Report.xls |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
o | 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 1-33825
El Paso Pipeline Partners, L.P.
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) |
26-0789784 (I.R.S. Employer Identification No.) |
|
El Paso Building 1001 Louisiana Street Houston, Texas (Address of Principal Executive Offices) |
77002 (Zip Code) |
Telephone Number: (713) 420-2600
Internet Website: www.eppipelinepartners.com
Internet Website: www.eppipelinepartners.com
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 þ No o.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ.
There were
190,967,863 Common Units and 3,897,303 General Partner Units outstanding as of
May 2, 2011:
EL PASO PIPELINE PARTNERS, L.P.
TABLE OF CONTENTS
TABLE OF CONTENTS
Caption
Below is a list of terms that are common to our industry and used throughout this document:
/d = per day
|
FERC = Federal Energy Regulatory Commission | |
BBtu = billion British thermal units
|
GAAP = Generally Accepted Accounting Principles | |
LNG = liquefied natural gas |
When we refer to us, we, our, ours, or EPB we are describing El Paso Pipeline
Partners, L.P. and/or our subsidiaries.
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
EL PASO PIPELINE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per unit amounts)
(Unaudited)
(In millions, except per unit amounts)
(Unaudited)
Quarter Ended | ||||||||
March 31, | ||||||||
2011 | 2010(1) | |||||||
Operating revenues |
$ | 366 | $ | 333 | ||||
Operating expenses |
||||||||
Operation and maintenance |
92 | 83 | ||||||
Depreciation and amortization |
41 | 34 | ||||||
Taxes, other than income taxes |
17 | 15 | ||||||
150 | 132 | |||||||
Operating income |
216 | 201 | ||||||
Earnings from unconsolidated affiliates |
4 | 5 | ||||||
Other income, net |
2 | 15 | ||||||
Interest and debt expense, net |
(59 | ) | (35 | ) | ||||
Affiliated interest income, net |
| 1 | ||||||
Income before income taxes |
163 | 187 | ||||||
Income tax expense |
| 2 | ||||||
Net income |
163 | 185 | ||||||
Net income attributable to noncontrolling interests |
(48 | ) | (69 | ) | ||||
Net income attributable to El Paso Pipeline Partners, L.P. |
$ | 115 | $ | 116 | ||||
Net income attributable to El Paso Pipeline Partners,
L.P. per limited partner unit Basic and Diluted: |
||||||||
Common units |
$ | 0.57 | $ | 0.53 | ||||
Subordinated units(2) |
$ | | $ | 0.51 |
(1) | Retrospectively adjusted as discussed in Note 2. | |
(2) | All subordinated units were converted to common units on a one-for-one basis effective January 3, 2011. See Note 4 for further discussion. |
See accompanying notes.
1
Table of Contents
El PASO PIPELINE PARTNERS, L.P.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except units)
(Unaudited)
(In millions, except units)
(Unaudited)
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | 36 | $ | 69 | ||||
Accounts and notes receivable |
||||||||
Customer, net of allowance |
49 | 50 | ||||||
Affiliates |
2 | 6 | ||||||
Other |
40 | 42 | ||||||
Materials and supplies |
32 | 31 | ||||||
Other |
26 | 23 | ||||||
Total current assets |
185 | 221 | ||||||
Property, plant and equipment, at cost |
7,999 | 7,975 | ||||||
Less accumulated depreciation and amortization |
2,296 | 2,283 | ||||||
Total property, plant and equipment, net |
5,703 | 5,692 | ||||||
Other assets |
||||||||
Investments in unconsolidated affiliates |
74 | 71 | ||||||
Regulatory assets |
124 | 129 | ||||||
Other |
63 | 64 | ||||||
Total assets |
$ | 6,149 | $ | 6,177 | ||||
LIABILITIES AND PARTNERS CAPITAL |
||||||||
Current liabilities |
||||||||
Accounts payable |
||||||||
Trade |
$ | 41 | $ | 36 | ||||
Affiliates |
30 | 39 | ||||||
Other |
47 | 54 | ||||||
Short-term financing obligations, including current maturities |
42 | 42 | ||||||
Taxes payable |
28 | 33 | ||||||
Accrued interest |
63 | 42 | ||||||
Other |
32 | 35 | ||||||
Total current liabilities |
283 | 281 | ||||||
Other liabilities |
||||||||
Long-term debt and other financing obligations, less current maturities |
3,508 | 3,400 | ||||||
Other liabilities |
90 | 86 | ||||||
3,598 | 3,486 | |||||||
Commitments and contingencies (Note 7) |
||||||||
Partners capital |
||||||||
El Paso Pipeline Partners, L.P. partners capital |
||||||||
Common units (190,967,863 and 149,440,452 units issued and
outstanding at March 31, 2011 and December 31, 2010) |
3,475 | 2,686 | ||||||
Subordinated units (27,727,411 units issued and outstanding at
December 31, 2010) |
| 307 | ||||||
General partner units (3,897,303 and 3,615,578 units issued and
outstanding at March 31, 2011 and December 31, 2010) |
(1,800 | ) | (1,564 | ) | ||||
Total El Paso Pipeline Partners, L.P. partners capital |
1,675 | 1,429 | ||||||
Noncontrolling interests |
593 | 981 | ||||||
Total partners capital |
2,268 | 2,410 | ||||||
Total liabilities and partners capital |
$ | 6,149 | $ | 6,177 | ||||
See accompanying notes.
2
Table of Contents
El PASO PIPELINE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
(In millions)
(Unaudited)
Quarter Ended | ||||||||
March 31, | ||||||||
2011 | 2010(1) | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 163 | $ | 185 | ||||
Adjustments to reconcile net income to net cash from operating activities |
||||||||
Depreciation and amortization |
41 | 34 | ||||||
Deferred income tax expense |
| 1 | ||||||
Earnings from unconsolidated affiliates, adjusted for cash distributions |
(3 | ) | (1 | ) | ||||
Other non-cash income items |
4 | (12 | ) | |||||
Asset and liability changes |
||||||||
Income taxes payable |
| (12 | ) | |||||
Accumulated deferred taxes |
| (58 | ) | |||||
Other, net |
26 | (10 | ) | |||||
Net cash provided by operating activities |
231 | 127 | ||||||
Cash flows from investing activities |
||||||||
Capital expenditures |
(68 | ) | (88 | ) | ||||
Cash paid to acquire interests in SLNG and Elba Express |
| (468 | ) | |||||
Net change in notes receivable from affiliates |
| 101 | ||||||
Other |
2 | 1 | ||||||
Net cash used in investing activities |
(66 | ) | (454 | ) | ||||
Cash flows from financing activities |
||||||||
Net proceeds from issuance of common and general partner units |
467 | 236 | ||||||
Net proceeds from borrowings under credit facility |
108 | | ||||||
Net proceeds from issuance of long-term debt |
| 439 | ||||||
Payments to retire long-term debt, including capital lease obligations |
(1 | ) | (1 | ) | ||||
Cash distributions to unitholders and general partner |
(86 | ) | (50 | ) | ||||
Cash distributions to El Paso |
(37 | ) | (81 | ) | ||||
Cash contributions from El Paso |
18 | 13 | ||||||
Excess of cash paid for SLNG and Elba Express interests over contributed book value |
| (190 | ) | |||||
Cash paid to acquire additional interest in SNG |
(667 | ) | | |||||
Net cash (used in) provided by financing activities |
(198 | ) | 366 | |||||
Net change in cash and cash equivalents |
(33 | ) | 39 | |||||
Cash and cash equivalents |
||||||||
Beginning of period |
69 | 36 | ||||||
End of period |
$ | 36 | $ | 75 | ||||
(1) | Retrospectively adjusted as discussed in Note 2. |
See accompanying notes.
3
Table of Contents
El PASO PIPELINE PARTNERS, L.P.
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL (1)
(In millions)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF PARTNERS CAPITAL (1)
(In millions)
(Unaudited)
Limited Partners | Total | |||||||||||||||||||||||
General | Noncontrolling | Partners | ||||||||||||||||||||||
Common | Subordinated | Partner | Total | Interests | Capital | |||||||||||||||||||
Balance at December 31, 2009 |
$ | 1,305 | $ | 297 | $ | 194 | $ | 1,796 | $ | 1,386 | $ | 3,182 | ||||||||||||
Net income |
55 | 15 | 46 | 116 | 69 | 185 | ||||||||||||||||||
Issuance of common and general partner
units, net of issuance costs |
231 | | 5 | 236 | | 236 | ||||||||||||||||||
Cash distributions to unitholders and
general partner |
(38 | ) | (10 | ) | (2 | ) | (50 | ) | | (50 | ) | |||||||||||||
Cash distributions to El Paso |
| | (29 | ) | (29 | ) | (52 | ) | (81 | ) | ||||||||||||||
Cash contributions from El Paso |
| | 7 | 7 | 6 | 13 | ||||||||||||||||||
Non-cash contributions from El Paso |
| | 33 | 33 | 31 | 64 | ||||||||||||||||||
Cash paid to general partner to
acquire interests in Elba Express and
SLNG |
| | (658 | ) | (658 | ) | | (658 | ) | |||||||||||||||
Other |
(1 | ) | | | (1 | ) | | (1 | ) | |||||||||||||||
Balance at March 31, 2010(1) |
$ | 1,552 | $ | 302 | $ | (404 | ) | $ | 1,450 | $ | 1,440 | $ | 2,890 | |||||||||||
Balance at December 31, 2010 |
$ | 2,686 | $ | 307 | $ | (1,564 | ) | $ | 1,429 | $ | 981 | $ | 2,410 | |||||||||||
Net income |
103 | | 12 | 115 | 48 | 163 | ||||||||||||||||||
Conversion of subordinated
units to common units |
307 | (307 | ) | | | | | |||||||||||||||||
Issuance of common and general
partner units, net of issuance
costs |
457 | | 10 | 467 | | 467 | ||||||||||||||||||
Cash distributions to
unitholders and general
partner |
(78 | ) | | (8 | ) | (86 | ) | | (86 | ) | ||||||||||||||
Cash distributions to El Paso |
| | | | (37 | ) | (37 | ) | ||||||||||||||||
Cash contributions from El Paso |
| | | | 18 | 18 | ||||||||||||||||||
Cash paid to general partner
to acquire additional interest
in SNG |
| | (667 | ) | (667 | ) | | (667 | ) | |||||||||||||||
Acquisition of additional 25%
interest in SNG |
| | 416 | 416 | (416 | ) | | |||||||||||||||||
Other |
| | 1 | 1 | (1 | ) | | |||||||||||||||||
Balance at March 31, 2011 |
$ | 3,475 | $ | | $ | (1,800 | ) | $ | 1,675 | $ | 593 | $ | 2.268 | |||||||||||
(1) | Retrospectively adjusted as discussed in Note 2. |
See accompanying notes.
4
Table of Contents
El PASO PIPELINE PARTNERS, L.P.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Organization
We are a Delaware master limited partnership formed in 2007 to own and operate interstate
natural gas transportation and terminaling facilities. We conduct our operations through our 100
percent ownership of Wyoming Interstate Company, L.L.C. (WIC), an interstate natural gas system,
Southern LNG Company L.L.C. (SLNG), an LNG storage and regasification terminal and Elba Express Company, L.L.C.
(Elba Express), a natural gas pipeline. We have a 58 percent general partner interest in Colorado
Interstate Gas Company (CIG) and an 85 percent general partner interest in Southern Natural Gas
Company (SNG), which consist of interstate natural gas pipeline systems and related storage
facilities. We are controlled by our general partner, El Paso Pipeline GP Company, L.L.C.,
a wholly-owned subsidiary of El Paso Corporation (El Paso).
Basis of Presentation
We prepared this Quarterly Report on Form 10-Q under the rules and regulations of the United
States (U.S.) Securities and Exchange Commission (SEC). As an interim period filing presented using
a condensed format, it does not include all the disclosures required by U.S. GAAP, and should be
read along with our 2010 Annual Report on Form 10-K. The financial statements as of March 31, 2011,
and for the quarters ended March 31, 2011 and 2010 are unaudited. The condensed consolidated
balance sheet as of December 31, 2010, was derived from the audited balance sheet filed in our 2010
Annual Report on Form 10-K. In our opinion, we have made adjustments, all of which are of a normal,
recurring nature to fairly present our interim period results. Due to the seasonal nature of our
business, information for interim periods may not be indicative of our operating results for the
entire year. Our disclosures in this Form 10-Q are an update to those provided in our 2010 Annual
Report on Form 10-K.
Significant Accounting Policies
There were no changes in the significant accounting policies as described in our 2010 Annual
Report on Form 10-K and no significant accounting pronouncements issued but not yet adopted as of
March 31, 2011.
2. Acquisition
Acquisition of Additional Interest in SNG. In March 2011, we acquired an additional 25 percent
general partner interest in SNG from El Paso for $667 million in cash. We financed the acquisition
through (i) net proceeds of $467 million from our March 2011 public offering of common units
and related issuance of general partner units to El Paso (see Note 3) and (ii) $200 million
borrowings under our revolving credit facility (see Note 5). This transaction was for the
acquisition of an additional noncontrolling interest in an already consolidated entity, thus was
accounted for on a prospective basis. Accordingly, we have decreased our historical noncontrolling
interest by $416 million associated with SNG and reflected the amount as an increase to general
partners capital. We have reflected El Pasos 15 percent general partner interest in SNG as a
noncontrolling interest in our financial statements effective March 14, 2011. Subsequent to our
November 2010 acquisition of an additional 15 percent general partner interest in SNG, as disclosed
in our 2010 Annual Report on Form 10-K, we had the ability to control SNGs operating and financial
decisions and policies, thus consolidated SNG in our financial statements. We retrospectively
adjusted our historical financial statements to reflect the reorganization of entities under common
control and the change in reporting entity. As a result of the retrospective consolidation,
pre-acquisition earnings of the incremental interest in SNG in historical periods have been
allocated solely to our general partner. In addition, the retrospective consolidation of SNG
increased net income attributable to EPB by $27 million for the quarter ended March 31, 2010. We
reflected El Pasos 40 percent general partner interest in SNG as a noncontrolling interest in our
financial statements for the quarter ended March 31, 2010 and for the period of January 1, 2011 to
March 13, 2011.
5
Table of Contents
Acquisition of SLNG and Elba Express. In March 2010, we acquired a 51 percent member interest
in each of SLNG and Elba Express from El Paso for $810 million. The consideration paid to El Paso
consisted of $658 million in cash and the issuance of common units and general partner units (see
Note 3). We financed the $658 million cash payment through (i) net proceeds of $420 million from
the issuance of public debt in March 2010, (ii) $236 million cash on hand from the proceeds of our
January 2010 public offering of common units and related issuance of general partner units to El
Paso (see Note 3) and (iii) $2 million borrowings under our revolving credit facility. We recorded
the additional interests in SLNG and Elba Express at their historical cost of $468 million and the
excess cash paid to El Paso of $190 million over contributed book value as a decrease to general
partners capital. Subsequent to the acquisition, we had the ability to control SLNGs and Elba
Express operating and financial decisions and policies thus consolidated SLNG and Elba Express in
our financial statements. As a result of the retrospective consolidation, earnings prior to the
March 2010 acquisition have been allocated solely to our general partner. We reflected
El Pasos 49 percent member interest in each of SLNG and Elba Express as noncontrolling interests
in our financial statements until the acquisition of the remaining 49 percent member interest in
each of SLNG and Elba Express in November 2010.
Other. During the first quarter of 2010 and prior to our acquisition, Elba Express purchased
pipeline assets from SNG, its affiliate, for $8 million and sold pipeline assets to SNG for $18
million. We recorded both the purchase and sale at their historical cost and accordingly,
recognized no gain or loss on these transactions.
3. Partners Capital
In March 2011, we publicly issued 13,800,000 common units and issued 281,725 general partner
units to El Paso for net proceeds of $467 million. The net proceeds from this offering were used as
partial consideration to fund the acquisition of an additional 25 percent general partner interest
in SNG (see Note 2). Following the issuance of the additional units, El Paso owns a 45 percent
limited partner interest in us and retains its two percent general partner interest in us and all
of our incentive distribution rights (IDRs).
In January 2010, we publicly issued 9,862,500 common units and issued 201,404 general partner
units to El Paso for net proceeds of $236 million. The net proceeds from this offering were
subsequently used as partial consideration to acquire a 51 percent member interest in each of SLNG
and Elba Express (see Note 2). Additionally, in March 2010, we issued 5,346,251 common units and
109,107 general partner units to El Paso in conjunction with our acquisition of member interests in
SLNG and Elba Express.
4. Earnings Per Unit and Cash Distributions
Earnings per unit. Earnings per unit is calculated based on actual distributions made to our
unitholders, including the holders of IDRs, for the related reporting period. To the extent net
income attributable to EPB exceeds cash distributions, the excess is allocated to unitholders based
on their contractual participation rights to share in those earnings. If cash distributions exceed
net income attributable to EPB, the excess distributions are allocated proportionately to all
participating units outstanding based on their respective ownership percentages. Additionally, the
calculation of earnings per unit does not reflect an allocation of undistributed earnings to the
IDR holders beyond amounts distributable under the terms of the partnership agreement. Payments
made to our unitholders are determined in relation to actual declared distributions and are not
based on the net income allocations used in the calculation of earnings per unit.
We have retrospectively adjusted our historical financial statements as discussed in our 2010
Annual Report on Form 10-K for the consolidation of SLNG, Elba Express and SNG following the
acquisition of controlling interests in each entity. As a result of the retrospective
consolidations, earnings prior to the acquisition of controlling interests (pre-acquisition
earnings) in SLNG, Elba Express and SNG have been allocated solely to our general partner in all
periods presented.
Net income attributable to EPB per limited partner unit is computed by dividing the limited
partners interest in net income attributable to EPB by the weighted average number of limited
partner units outstanding. Diluted earnings per limited partner unit reflects the potential
dilution that could occur if securities or other agreements to issue common units were exercised,
settled or converted into common units. For the quarters ended March 31, 2011 and 2010, the
dilutive, restricted units outstanding were immaterial.
6
Table of Contents
The tables below show the (i) allocation of net income attributable to EPB and the (ii) net
income attributable to EPB per limited partner unit based on the number of basic and diluted
limited partner units outstanding for the quarters ended March 31, 2011 and 2010.
Allocation of Net Income Attributable to El Paso Pipeline Partners, L.P.
Quarter Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Net income attributable to El Paso Pipeline Partners, L.P. |
$ | 115 | $ | 116 | ||||
Less: Pre-acquisition earnings allocated to general partner |
| (43 | ) | |||||
Income subject to 2% allocation of general partner interest |
115 | 73 | ||||||
Less: General partners interest in net income attributable to
El Paso Pipeline Partners, L.P. |
(2 | ) | (1 | ) | ||||
General partners incentive distribution |
(10 | ) | (2 | ) | ||||
Limited partners interest in net income attributable to
El Paso Pipeline Partners, L.P. common and subordinated |
$ | 103 | $ | 70 | ||||
Net Income Attributable to El Paso Pipeline Partners, L.P. per Limited Partner Unit
2011 | 2010 | |||||||||||
Common | Common | Subordinated | ||||||||||
Quarter Ended March 31, | (In millions, except for per unit amounts) | |||||||||||
Distributions (1) |
$ | 88 | $ | 43 | $ | 11 | ||||||
Undistributed earnings |
15 | 13 | 3 | |||||||||
Limited partners interest
in net income attributable
to El Paso Pipeline
Partners, L.P. |
$ | 103 | $ | 56 | $ | 14 | ||||||
Weighted average limited
partner units outstanding
Basic and Diluted |
179.9 | 105.6 | 27.7 | |||||||||
Net income attributable to
El Paso Pipeline Partners,
L.P. per limited partner
unit Basic and Diluted |
$ | 0.57 | $ | 0.53 | $ | 0.51 |
(1) | Reflects distributions declared to our unitholders of $0.46 per unit and $0.38 per unit for the quarters ended March 31, 2011 and 2010. |
Cash Distributions to Unitholders. Our unitholders and general partner are entitled to receive
quarterly distributions of available cash as defined in our partnership agreement. The table below
shows the quarterly distributions to our unitholders and general partner (in millions, except for
per unit amounts):
Total Quarterly | ||||||||||||||||
Distribution Per | Total Cash | Date of | Date of | |||||||||||||
Quarter Ended March 31, | Unit | Distribution | Declaration | Distribution | ||||||||||||
2010 |
$ | 0.3800 | $ | 56 | April 2010 | May 2010 | ||||||||||
2011 |
$ | 0.4600 | $ | 100 | April 2011 | May 2011 |
Subordinated units and incentive distribution rights. As disclosed in our 2010 Annual Report
on Form 10-K, the 27,727,411 subordinated units held by affiliates of El Paso were converted on
February 15, 2011 on a one-for-one basis into common units effective January 3, 2011. The
conversion does not impact the amount of cash distribution paid or the total number of the
Partnerships outstanding units. All of our IDRs are held by a wholly owned subsidiary of El Paso.
Based on the quarterly distribution per unit declared for the quarter ended March 31, 2011, our
general partner will receive incentive distributions of $10 million in accordance with the
partnership agreement for the first quarter of 2011. For a further discussion of our subordinated
units and IDRs, see our 2010 Annual Report on Form 10-K.
7
Table of Contents
5. Long-Term Debt and Other Financing Obligations
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Current maturities on long term debt |
$ | 42 | $ | 42 | ||||
Long-term financing obligations |
3,508 | 3,400 | ||||||
Total |
$ | 3,550 | $ | 3,442 | ||||
Credit Facility. In March 2011, we borrowed from our revolving credit facility as partial
consideration to fund the additional 25 percent general partner interest in SNG (see Note 2). As of
March 31, 2011 and December 31, 2010, we had $378 million and $270 million outstanding under our
revolving credit facility. As of March 31, 2011, our remaining availability under this facility was
approximately $342 million. In determining our available capacity, we have assessed our lenders
ability to fund under our credit facility. Our all-in borrowing rate under this facility was 1
percent as of March 31, 2011 and December 31, 2010. As of March 31, 2011, we were in compliance
with all of our debt covenants. For a further discussion of our credit facility and other long-term
financing obligations, see our 2010 Annual Report on Form 10-K.
Other Debt Obligations. El Paso Pipeline Partners Operating Company, L.L.C.s (EPPOC) senior
notes are guaranteed fully and unconditionally by its parent, EPB. EPPOC is a wholly owned
subsidiary of EPB. EPBs only operating asset is its investment in EPPOC, and EPPOCs only
operating assets are its investments in CIG, WIC, SLNG, Elba Express and SNG (collectively, the
non-guarantor operating companies). EPBs and EPPOCs independent assets and operations, other than
those related to these investments and EPPOCs debt are less than 3 percent of total assets and
operations of EPB, and thus substantially all of the operations and assets exist within these
non-guarantor operating companies. Furthermore, there are no significant restrictions on EPPOCs or
our ability to access the net assets or cash flows related to its controlling interests in the
operating companies either through dividend or loan.
6. Fair Value of Financial Instruments
March 31, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In millions) | ||||||||||||||||
Long-term financing obligations, including current maturities |
$ | 3,550 | $ | 3,873 | $ | 3,442 | $ | 3,638 |
As of March 31, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents,
short-term borrowings, trade and other receivables and payables represent fair value because of the
short-term nature of these instruments. We estimate the fair value of our debt based on quoted
market prices for the same or similar issues. The estimated fair values of our other financing
obligations are based on observable inputs other than quoted prices in active markets, Level 2
measurements.
7. Commitments and Contingencies
Legal Proceedings
We and our subsidiaries and affiliates are named defendants in numerous lawsuits and
governmental proceedings and claims that arise in the ordinary course of our business. There are
also other regulatory rules and orders in various stages of adoption, review and/or implementation.
For each of these matters, we evaluate the merits of the case or claim, our exposure to the matter,
possible legal or settlement strategies and the likelihood of an unfavorable outcome. If we
determine that an unfavorable outcome is probable and can be estimated, we establish the necessary
accruals. While the outcome of these matters cannot be predicted with certainty, and there are
still uncertainties related to the costs we may incur, based upon our evaluation and experience to
date, we believe we have established appropriate reserves for these matters. It is possible,
however, that new information or future developments could require us to reassess our potential
exposure related to these matters and adjust our accruals accordingly, and these adjustments could
be material. As of March 31, 2011, we had approximately $2 million accrued for our outstanding
legal proceedings.
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Rates and Regulatory Matters
CIG Rate Case. In February 2011, FERC approved an amendment of CIGs 2006 rate case
settlement, allowing the effective date of a required new rate case to be moved to December 1,
2011. In April 2011, CIG filed a second petition to amend the effective date of a required new rate
case to be moved to February 1, 2012 to allow CIG and its shippers the opportunity to reach a
settlement of the rate proceeding before it is formally filed with the FERC. The FERC has not ruled
on that petition. At this time, the outcome of the pre-filing settlement negotiations and the
outcome of the upcoming general rate case, in the event pre-filing settlement cannot be reached,
are uncertain.
Environmental Matters
We are subject to 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
of the disposal or release of specified substances at current and former operating sites. At March
31, 2011, our accrual was approximately $10 million for environmental matters. Our accrual includes
amounts for expected remediation costs and associated onsite, offsite and groundwater technical
studies and related environmental legal costs.
Our estimates of potential liability range from approximately $10 million to approximately $33
million. Our recorded environmental liabilities reflect our current estimates of amounts we will
expend on remediation projects in various stages of completion. However, depending on the stage of
completion or assessment, the ultimate extent of contamination or remediation required may not be
known. As additional assessments occur or remediation efforts continue, we may incur additional
liabilities.
Superfund Matters. Included in our recorded environmental liabilities are projects where we
have received notice that we have been designated or could be designated, as a Potentially
Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), commonly known as Superfund, or state equivalents for one active site. Liability
under the federal CERCLA statute may be joint and several, meaning that we could be required to pay
in excess of our pro rata share of remediation costs. We consider the financial strength of other
PRPs in estimating our liabilities. Accruals for these issues are included in the previously
indicated estimates for Superfund sites.
For 2011, we estimate that our total remediation expenditures will be approximately $2
million, most of which will be expended under government directed clean-up plans. In addition, we
expect to make capital expenditures for environmental matters of approximately $9 million in the
aggregate for the remainder of 2011 through 2015, including capital expenditures associated with
the impact of the Environmental Protection Agency rule on emissions of hazardous air pollutants
from reciprocating internal combustion engines which are subject to regulations with which we have
to be in compliance by October 2013.
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, regulations and orders of regulatory
agencies, as well as claims for damages to property and the environment or injuries to employees
and other persons 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 related to the ultimate costs we may incur, based upon our evaluation and experience
to date, we believe our reserves are adequate.
Other Commitment
During 2009, SNG entered into a $57 million letter of credit associated with
estimated construction cost related to the Southeast Supply Header project. As invoices are paid
under the contract, the value of the letter of credit is reduced. At March 31, 2011, the letter of
credit has been reduced to approximately $18 million.
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8. Accounts Receivable Sales Program
We participate in accounts receivable sales programs where we sell receivables in their
entirety to a third party financial institution (through wholly-owned special purpose entities).
The sale of these accounts receivable (which are short-term assets that generally settle within 60
days) qualify for sale accounting. The third party financial institution involved in these accounts
receivable sales programs acquires interests in various financial assets and issues commercial
paper to fund those acquisitions. We do not consolidate the third party financial institution
because we do not have the power to control, direct, or exert significant influence over its
overall activities since our receivables do not comprise a significant portion of its operations.
In connection with our accounts receivable sales, we receive a portion of the sales proceeds
up front and receive an additional amount upon the collection of the underlying receivables (which
we refer to as a deferred purchase price). Our ability to recover the deferred purchase price is
based solely on the collection of the underlying receivables. The table below contains information
related to our accounts receivable sales programs.
Quarter Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Accounts receivable sold to the third-party financial institution(1) |
$ | 275 | $ | 260 | ||||
Cash received for accounts receivable sold under the program |
159 | 202 | ||||||
Deferred purchase price related to accounts receivable sold |
116 | 58 | ||||||
Cash received related to the deferred purchase price |
120 | 108 | ||||||
Amount paid in conjunction with terminated programs(2) |
| 50 |
(1) | During the quarters ended March 31, 2011 and 2010, losses recognized on the sale of accounts receivable were immaterial. | |
(2) | In January 2010, we terminated our previous accounts receivable sales program and paid $50 million to acquire the related senior interest in certain receivables under that program. See our 2010 Annual Report on Form 10-K for further information. |
March 31, | December 31, | |||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Accounts receivable sold and held by third-party financial institution |
$ | 87 | $ | 93 | ||||
Uncollected deferred purchase price related to accounts receivable sold (1) |
37 | 41 |
(1) | Initially recorded at an amount which approximates its fair value using observable inputs other than quoted prices in active markets. |
The deferred purchase price related to the accounts receivable sold is reflected as other
accounts receivable on our balance sheet. Because the cash received up front and the deferred
purchase price relate to the sale or ultimate collection of the underlying receivables, and are not
subject to significant other risks given their short term nature, we reflect all cash flows under
the new accounts receivable sales programs as operating cash flows on our statement of cash flows.
Under the accounts receivable sales programs, we service the underlying receivables for a fee. The
fair value of these servicing agreements, as well as the fees earned, were not material to our
financial statements for the quarters ended March 31, 2011 and 2010.
9. Investments in Unconsolidated Affiliates and Transactions with Affiliates
Investments in Unconsolidated Affiliates
WYCO and Bear Creek. CIG has a 50 percent investment in WYCO Development LLC (WYCO). CIG has
other financing obligations payable to WYCO totaling $178 million as of March 31, 2011 and December
31, 2010. SNG owns a 50 percent ownership in Bear Creek, a joint venture with Tennessee Gas
Pipeline Company, an affiliate. For the quarters ended March 31, 2011 and 2010, SNG received $1
million and $3 million in cash distributions from Bear Creek. We account for the investments in
WYCO and Bear Creek using the equity method of accounting. The information below related to our
unconsolidated affiliates reflects our net investment and earnings recorded from these investments.
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Net Investment and Earnings
Earnings from | ||||||||||||||||
Investments | Unconsolidated Affiliates | |||||||||||||||
March 31, | December 31, | Quarter Ended March 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | (In millions) | |||||||||||||||
WYCO |
$ | 15 | $ | 15 | $ | | $ | 1 | ||||||||
Bear Creek |
59 | 56 | 4 | 4 | ||||||||||||
Total |
$ | 74 | $ | 71 | $ | 4 | $ | 5 | ||||||||
Transactions with Affiliates
CIG Cash Distributions to El Paso. CIG is required to make quarterly distributions of
available cash, as defined in its partnership agreement, to its partners, including us. We have
reflected 42 percent of CIGs distributions paid to El Paso as distributions to its noncontrolling
interest holder. In April 2011, CIG paid a cash distribution of $22 million to El Paso, its
noncontrolling interest holder.
SNG Cash Distributions to El Paso. SNG is required to make quarterly distributions of
available cash, as defined in its partnership agreement, to its partners, including us. Due to the
retrospective consolidation of SNG, we have reflected 40 percent of SNGs historical distributions
paid to El Paso as distributions to its noncontrolling interest holder in our financial statements
in 2010. SNGs remaining historical distributions prior to consolidation in November 2010
(excluding distributions paid to its noncontrolling interest holder) are reflected as distributions
of pre-acquisition earnings and are allocated to our general partner. In April 2011, SNG paid the
first quarter 2011 cash distribution of $12 million to El Paso, its noncontrolling interest holder,
based on El Pasos 15 percent general partner interest.
The following table summarizes the cash distributions paid to El Paso for the quarter ended
March 31, 2011 and 2010.
Quarter Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
CIG Distributions to El Paso |
||||||||
Distributions to noncontrolling interest holder |
$ | 18 | $ | 19 | ||||
SNG Distributions to El Paso |
||||||||
Distributions to noncontrolling interest holder |
19 | 33 | ||||||
Distributions of pre-acquisition earnings |
| 29 | ||||||
Cash distributions to El Paso |
19 | 62 | ||||||
Total cash distributions to El Paso |
$ | 37 | $ | 81 | ||||
Other Contributions. In March 2010, in conjunction with our acquisition of SLNG and Elba
Express, El Paso made a non-cash contribution of $64 million to Elba Express to eliminate its
non-interest bearing advance from El Paso. Prior to our acquisition of a 51 percent member interest
in each of SLNG and Elba Express, El Paso made a cash contribution to Elba Express of $13 million.
In January 2011, El Paso made capital contributions of $8 million and $10 million to CIG and SNG,
respectively, to fund their share of expansion project expenditures for the fourth quarter of 2010.
In April 2011, El Paso made capital contributions of $5 million to CIG and SNG, respectively, to
fund their share of expansion project expenditures for the first quarter of 2011.
Affiliate Revenues and Expenses. We enter into transactions with our affiliates within the
ordinary course of business. For a further discussion of our affiliated transactions, see our 2010
Annual Report on Form 10-K. The following table shows revenues and charges from our affiliates:
Quarter Ended | ||||||||
March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Revenues |
$ | 6 | $ | 6 | ||||
Operation and maintenance expense |
55 | 55 | ||||||
Reimbursement of operating expenses |
1 | 1 |
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Note Payable with Affiliate. We have a note payable to El Paso recorded as long-term debt on
our balance sheet with $10 million outstanding at March 31, 2011 and December 31, 2010. For a
further discussion of our notes payable with affiliates, see our 2010 Annual Report on Form 10-K.
Income Taxes. In February 2010, SLNG converted to a limited liability company and,
prior to the conversion, settled its current and deferred tax balances of approximately $72
million. Settlement of the tax balances was made by the repayment of notes receivable from El
Pasos cash management program.
Other Affiliate Balances. As of March 31, 2011 and December 31, 2010, we had accounts
receivable with affiliates arising in the ordinary course of business of $2 million and $6 million.
In addition, as of March 31, 2011 and December 31, 2010, we had net contractual gas imbalance and
trade payables, as well as other liabilities with our affiliates arising in the ordinary course of
business of approximately $30 million and $39 million. We also had contractual deposits from
affiliates of $8 million included in other current liabilities on our balance sheets as of March
31, 2011 and December 31, 2010.
WIC leases a compressor station from CIGs unconsolidated affiliate, WYCO, and made lease
payments to WYCO of less than $1 million for the quarters ended March 31, 2011 and 2010.
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Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The information contained in Item 2 updates, and should be read in conjunction with
information disclosed in our 2010 Annual Report on Form 10-K, and our financial statements and
notes presented in Item 1 of this Quarterly Report on Form 10-Q.
Overview and Outlook
In March 2011, we acquired an additional 25 percent general partner interest in SNG from El
Paso and, as a result, currently own an aggregate 85 percent general partner interest in SNG. For a
further discussion of this acquisition, see Item 1, Financial Statements, Note 2.
During the quarter ended March 31, 2011, we generated significant earnings and continued to
focus on delivering on our remaining backlog of expansion projects. We intend to grow our business
through organic expansion opportunities and through strategic asset acquisitions from third
parties, El Paso or both. SNG has significant expansion projects in progress, including
the construction of Phase II of the South System III Expansion project, which began in February 2011. For
further discussion of our expansion projects, see our 2010 Annual Report on
Form 10-K.
Form 10-K.
Earnings before interest expense and income taxes (EBIT) for the first quarter 2011 were up 14
percent over the same period in 2010 primarily driven by the acquisition of the remaining 49
percent member interest in each of SLNG and Elba Express, the acquisition of incremental general
partner interests in SNG and the completion of organic growth projects in 2010. In 2011, we expect
that we will continue to generate strong earnings and operating cash flows. Approximately 92
percent of our revenues are collected in the form of demand or reservation charges, which are not
dependent upon commodity prices or throughput levels. This coupled with the diversity of our
systems, helps mitigate against risk of changes in throughput and ongoing shifts in supply and
demand.
As of March 31, 2011, we had approximately $378 million of liquidity, consisting of $342
million of available borrowing capacity under the credit facility and $36 million of cash on hand.
We expect our available liquidity and operating cash flows in 2011 to be sufficient to fund our
estimated 2011 capital program. As a result of our current available liquidity, we
believe we are well positioned to meet our obligations. We will continue to assess and take further
actions where prudent to meet our long-term objectives and capital requirements. For a further
discussion, see Liquidity and Capital Resources.
Results of Operations
Our management uses EBIT as a measure to assess the operating results and effectiveness of our
business, which consists of both consolidated operations and investments in unconsolidated
affiliates. We believe EBIT is useful to our investors to provide them with the same measure used
by management to evaluate our performance so that investors may evaluate our operating results
without regard to our financing methods or capital structure. We define EBIT as net income adjusted
for items such as (i) interest and debt expense, net, (ii) affiliated interest income and expense,
net, (iii) income tax expense and (iv) net income attributable to noncontrolling interest. EBIT may
not be comparable to measures used by other companies. Additionally, EBIT should be considered in
conjunction with net income, income before income taxes and other performance measures such as
operating income or operating cash flows.
Below is a reconciliation of our EBIT to net income, our throughput volumes and an analysis
and discussion of our operating results for the quarter ended March 31, 2011 compared to the same
period in 2010, which reflects the retrospective adjustment of our historical financial statements
discussed in Item 8, Financial Statements and Supplementary Data, Note 2 of our 2010 Annual Report
on Form 10-K.
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Operating Results:
Quarter Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In millions, except for volumes) | ||||||||
Operating revenues |
$ | 366 | $ | 333 | ||||
Operating expenses |
150 | 132 | ||||||
Operating income |
216 | 201 | ||||||
Earnings from unconsolidated affiliates |
4 | 5 | ||||||
Other income, net |
2 | 15 | ||||||
EBIT before adjustment for noncontrolling interests |
222 | 221 | ||||||
Net income attributable to noncontrolling interests |
(48 | ) | (69 | ) | ||||
EBIT |
174 | 152 | ||||||
Interest and debt expense, net |
(59 | ) | (35 | ) | ||||
Affiliated interest income, net |
| 1 | ||||||
Income tax expense |
| (2 | ) | |||||
Net income attributable to El Paso Pipeline Partners, L.P. |
115 | 116 | ||||||
Net income attributable to noncontrolling interests |
48 | 69 | ||||||
Net income |
$ | 163 | $ | 185 | ||||
Throughput volumes (BBtu/d)(1) |
7,170 | 7,559 | ||||||
(1) | Throughput volumes are presented for WIC, CIG and SNG only and exclude intrasegment volumes. Elba Express was placed in service in March 2010 and although capacity is under contract, the average volumes transported during the quarter ended March 31, 2011 were not material. |
Below is a discussion of factors impacting EBIT for the quarters ended March 31, 2011 and
2010.
Variance | ||||||||||||||||||
Operating | Operating | |||||||||||||||||
Revenue | Expense | Other | Total | |||||||||||||||
Favorable/(Unfavorable) | ||||||||||||||||||
(In millions) | ||||||||||||||||||
Expansions |
$ | 41 | $ | (7 | ) | $ | (14 | ) | $ | 20 | ||||||||
Transportation revenues and expenses |
(6 | ) | (4 | ) | | (10 | ) | |||||||||||
Operating and general and administrative expenses |
| (5 | ) | | (5 | ) | ||||||||||||
Other(1) |
(2 | ) | (2 | ) | | (4 | ) | |||||||||||
Total impact on EBIT before adjustment for noncontrolling interests |
33 | (18 | ) | (14 | ) | 1 | ||||||||||||
Net income attributable to noncontrolling interests |
| | 21 | 21 | ||||||||||||||
Total impact on EBIT |
$ | 33 | $ | (18 | ) | $ | 7 | $ | 22 | |||||||||
(1) | Consists of individually insignificant items. |
Expansions. Our EBIT increased during the quarter ended March 31, 2011 due to expansion
projects placed into service during 2010. This increase was driven by higher revenues partially
offset by an increase in operating expenses and lower non-cash allowance for equity funds used
during construction from expansion projects, as follows:
2011 to 2010 | ||||
(In millions) | ||||
WIC |
||||
WIC System Expansion |
$ | 3 | ||
CIG |
||||
Raton Expansion |
2 | |||
SLNG |
||||
Elba III Phase A Expansion |
9 | |||
SNG |
||||
South System III & SESH Phase II |
6 | |||
Total impact on EBIT |
$ | 20 | ||
Transportation Revenues and Expenses. For the quarter ended March 31, 2011, we experienced
lower revenues as a result of a $5 million decrease in
reservation revenue driven by lower Rockies production impacting WIC and nonrenewal of expiring contracts on SNG. We also experienced $3 million
lower usage and interruptible revenues when compared to 2010 due to extremely cold temperatures on our SNG
system in 2010.
Additionally,
WIC experienced a $3 million increase in reservation revenue which was offset by higher expenses as
a result of an
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increased third party capacity commitment. Throughput decreased primarily due to
lower demand for volumes on WIC and SNG partially offset by higher on-system demand on CIG.
However, this decrease in throughput did not have a significant impact on EBIT as a material
portion of our revenues are derived from firm reservation contracts.
Operating and General and Administrative Expenses. For the quarter ended March 31, 2011, our
operating and general and administrative expenses increased primarily due to higher field repair
and maintenance expenses and higher employee benefit costs.
Net Income Attributable to Noncontrolling Interests. During the quarter ended March 31, 2011,
our net income attributable to noncontrolling interests decreased as compared to the same period in
2010 primarily due to the acquisition of the remaining member interest in each of SLNG and Elba
Express in November 2010.
Other Regulatory Matters. Our pipeline systems periodically file for changes in their rates,
which are subject to approval by the FERC. Changes in rates and other tariff provisions resulting
from these regulatory proceedings have the potential to positively or negatively impact our
profitability. Currently, we have upcoming rate actions with anticipated effective dates from 2011
through 2013. For further discussion regarding our rate cases see our 2010 Annual Report on Form
10-K.
CIG Rate Case. In February 2011, FERC approved an amendment of CIGs 2006 rate case
settlement, allowing the effective date of a required new rate case to be moved to December 1,
2011. In April 2011, CIG filed a second petition to amend the effective date of a required new rate
case to be moved to February 1, 2012 to allow CIG and its shippers the opportunity to reach a
settlement of the rate proceeding before it is formally filed with the FERC. The FERC has not ruled
on that petition. At this time, the outcome of the pre-filing settlement negotiations and the
outcome of the upcoming general rate case, in the event pre-filing settlement cannot be reached,
are uncertain.
Interest and Debt Expense
Our interest and debt expense increased by $24 million during the quarter ended March 31, 2011
as compared to the same period in 2010 primarily due to higher average debt outstanding used to
fund acquisitions and organic expansion projects. The increase in our average debt outstanding was
attributable to the 2010 issuance of approximately $1 billion in debt by EPPOC as described in our
2010 Annual Report on Form 10-K. This increase was partially offset by a decrease in the average
balance outstanding under our credit facility from approximately $520 million for the quarter ended
March 31, 2010 to approximately $315 million for the same period in 2011. The average interest
rates under our credit facility were less than 1 percent for the quarters ended March 31, 2011 and
2010. For a further discussion of these debt obligations, see Item 1, Financial Statements, Note 5.
Income Taxes
SLNG converted into a non-taxpaying limited liability company in
February 2010 and is no
longer subject to income taxes. Prior to the conversion, SLNG incurred $2 million of income tax
expense for the quarter ended March 31, 2010.
Distributable Cash Flow
We use the non-GAAP financial measure Distributable Cash Flow as it provides important
information relating our financial operating performance to our cash distribution capability.
Additionally, we use Distributable Cash Flow in setting forward expectations and in communications
with the board of directors of our general partner. We define Distributable Cash Flow as Adjusted
EBITDA less cash interest expense, maintenance capital expenditures, pre-acquisition undistributed
earnings from consolidated subsidiaries and other income and expenses, net, which primarily
includes deferred revenue, a non-cash allowance for equity funds used during construction (AFUDC
equity) and other non-cash items. Adjusted EBITDA, which is also a non-GAAP financial measure, is
defined as net income adjusted for (i) income tax expense, (ii) interest and debt expense, net of
interest income, (iii) affiliated interest income, net of affiliated interest expense, (iv)
depreciation and amortization expense, (v) the partnerships share of distributions declared by
unconsolidated affiliates for the applicable period, (vi) earnings from
unconsolidated affiliates, and (vii) distributions declared by majority owned subsidiaries to
El Paso for the applicable period.
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We believe that the non-GAAP financial measures described above are useful to investors
because these measures are used by many companies in the industry as measures of operating and
financial performance and are commonly employed by financial analysts and others to evaluate the
operating and financial performance of the partnership and to compare it with the performance of
other publicly traded partnerships within the industry.
Neither Distributable Cash Flow nor Adjusted EBITDA should be considered an alternative to net
income, earnings per unit, operating income, cash flow from operating activities or any other
measure of financial performance presented in accordance with GAAP. These non-GAAP measures exclude
some, but not all, items that affect net income and operating income and these measures may vary
among other companies. Therefore, Distributable Cash Flow and Adjusted EBITDA may not be comparable
to similarly titled measures of other companies. Furthermore, these non-GAAP measures should not be
viewed as indicative of the actual amount of cash that we have available for distributions or that
we plan to distribute for a given period, nor do they equate to Available Cash as defined in our
partnership agreement.
Our Distributable Cash Flow was $152 million and $91 million for the quarters ended March 31,
2011 and 2010. The increase in Distributable Cash Flow in 2011 was primarily due to higher revenues
from expansions placed in service and our increased ownership interest in SLNG, Elba Express and
SNG. The tables below provide our reconciliations of Distributable Cash Flow and Adjusted EBITDA
for the quarters ended March 31, 2011 and 2010:
Reconciliation of Distributable Cash Flow to Net Income.
Quarter Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Net income |
$ | 163 | $ | 185 | ||||
Net income attributable to noncontrolling interests |
(48 | ) | (69 | ) | ||||
Net income attributable to El Paso Pipeline Partners, L.P. |
115 | 116 | ||||||
Add: Income tax expense |
| 2 | ||||||
Add: Interest and debt expense, net |
59 | 35 | ||||||
Less: Affiliated interest income, net |
| (1 | ) | |||||
EBIT (1) |
174 | 152 | ||||||
Add: |
||||||||
Depreciation and amortization |
41 | 34 | ||||||
Distributions declared by unconsolidated affiliates |
5 | 4 | ||||||
Net income attributable to noncontrolling interests |
48 | 69 | ||||||
Less: |
||||||||
Earnings from unconsolidated affiliates |
(4 | ) | (5 | ) | ||||
Declared distributions by majority owned subsidiaries to El Paso (2) |
(34 | ) | (83 | ) | ||||
Adjusted EBITDA |
230 | 171 | ||||||
Less: |
||||||||
Cash interest expense, net |
(57 | ) | (37 | ) | ||||
Maintenance capital expenditures |
(20 | ) | (11 | ) | ||||
Pre-acquisition undistributed earnings from consolidated subsidiaries(3) |
| (11 | ) | |||||
Other, net (4) |
(1 | ) | (21 | ) | ||||
Distributable Cash Flow |
$ | 152 | $ | 91 | ||||
(1) | For a further discussion of our use of EBIT, see Results of Operations. | |
(2) | In 2011, declared distributions include $22 million from CIG and $12 million from SNG. In 2010, declared distributions include $24 million from CIG, $8 million from SLNG and $51 million from SNG. | |
(3) | The 2010 amount represents SNGs undistributed earnings prior to the November 2010 acquisition by us. | |
(4) | Includes deferred revenue and certain non-cash items such as AFUDC equity, a $5 million reserve for Elba Express undistributed earnings in the first quarter of 2010 and other items. |
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Reconciliation of Distributable Cash Flow to Net Cash Provided by Operating Activities.
Quarter Ended March 31, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Net cash provided by operating activities |
$ | 231 | $ | 127 | ||||
Income tax expense |
| 2 | ||||||
Interest and debt expense, net |
59 | 35 | ||||||
Affiliated interest income, net |
| (1 | ) | |||||
Declared distributions by majority-owned subsidiaries to El Paso (1) |
(34 | ) | (83 | ) | ||||
SLNG pre-acquisition taxes payable |
| 12 | ||||||
SLNG pre-acquisition accumulated deferred taxes |
| 58 | ||||||
Changes in working capital and other |
(26 | ) | 21 | |||||
Adjusted EBITDA |
230 | 171 | ||||||
Less: |
||||||||
Cash interest expense, net |
(57 | ) | (37 | ) | ||||
Maintenance capital expenditures |
(20 | ) | (11 | ) | ||||
Pre-acquisition undistributed earnings from consolidated subsidiaries(2) |
| (11 | ) | |||||
Other, net (3) |
(1 | ) | (21 | ) | ||||
Distributable Cash Flow |
$ | 152 | $ | 91 | ||||
(1) | In 2011, declared distributions include $22 million from CIG and $12 million from SNG. In 2010, declared distributions include $24 million from CIG, $8 million from SLNG and $51 million from SNG. | |
(2) | The 2010 amount represents SNGs undistributed earnings prior to the November 2010 acquisition by us. | |
(3) | Includes deferred revenue and certain non-cash items such as AFUDC equity, a $5 million reserve for Elba Express undistributed earnings in the first quarter of 2010 and other items. |
Commitments and Contingencies
For a further discussion of our commitments and contingencies, see Item 1, Financial
Statements, Note 7, which is incorporated herein by reference and our 2010 Annual Report on Form
10-K.
Liquidity and Capital Resources
Our primary sources of cash include cash flow from operations and funds obtained through long
term financing activities and bank credit facilities. We do not typically rely on short-term borrowings to
fulfill our liquidity needs. Our primary uses of cash are funding capital expenditure programs,
meeting operating needs and paying distributions.
Available Liquidity and Liquidity Outlook for 2011. Our primary sources of cash and uses of
cash are consistent with those described in our 2010 Form 10-K. As of March 31, 2011, we had
approximately $378 million of liquidity consisting of $342 million of availability under our
revolving credit facility and $36 million of cash on hand. We may generate additional sources of
cash through future issuances of additional partnership units and/or future debt offerings. For a
further discussion of our revolving credit facility, see Item 1, Financial Statements, Note 5.
Our 2011 capital requirements will allow us to place a substantial portion of our remaining
backlog in service throughout 2011 and 2012. Our cash capital expenditures for the quarter ended
March 31, 2011, and the amount of cash we expect to spend for the remainder of 2011 to grow and
maintain our businesses are as follows:
Quarter Ended | 2011 | |||||||||||
March 31, 2011 | Remaining | Total | ||||||||||
(In millions) | ||||||||||||
Maintenance |
$ | 20 | $ | 91 | $ | 111 | ||||||
Growth |
48 | 114 | 162 | |||||||||
Total |
$ | 68 | $ | 205 | $ | 273 | ||||||
We continue construction on our SNG South System III expansion project. Phase II and Phase III
of the expansion are expected to be placed in-service in June 2011 and 2012, respectively.
We continue to evaluate additional expansion opportunities around our well-positioned assets.
While we expect to fund maintenance capital expenditures through internally generated funds, we intend to
fund our expansion capital
projects
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through borrowings under our credit facility and capital contributions from El Paso.
We have $42 million of current debt maturities which we anticipate refinancing the majority through revolver borrowings.
We expect our current liquidity sources and operating cash flow to be sufficient to fund our
estimated 2011 capital program. As a result of our current available liquidity, we believe we are
well positioned to meet our obligations. We will continue to assess and take further actions where
prudent to meet our long-term objectives and capital requirements.
Overview of Cash Flow Activities. Our cash flows for the quarter ended March 31, 2011 are
summarized as follows:
2011 | ||||
(In millions) | ||||
Cash Flow from Operations |
||||
Net income |
$ | 163 | ||
Non-cash income adjustments |
42 | |||
Change in assets and liabilities |
26 | |||
Total cash flow from operations |
$ | 231 | ||
Other Cash Inflows |
||||
Investing activities |
||||
Other |
2 | |||
2 | ||||
Financing activities |
||||
Net proceeds from issuance of common and general partner units |
467 | |||
Net proceeds from borrowings under credit facility |
108 | |||
Cash contributions from El Paso |
18 | |||
593 | ||||
Total other cash inflows |
$ | 595 | ||
Cash Outflows |
||||
Investing activities |
||||
Capital expenditures |
$ | (68 | ) | |
(68 | ) | |||
Financing activities |
||||
Payments to retire long-term debt, including capital lease obligations |
(1 | ) | ||
Cash distributions to unitholders and general partner |
(86 | ) | ||
Cash distributions to El Paso |
(37 | ) | ||
Cash paid to acquire additional interests in SNG |
(667 | ) | ||
(791 | ) | |||
Total cash outflows |
$ | (859 | ) | |
Net change in cash and cash equivalents |
$ | (33 | ) | |
For the quarter ended March 31, 2011, we generated cash flow from operations of $231 million
compared with $127 million in the same period in 2010. Our operating cash flow in 2011 increased as
compared to 2010 primarily due to higher revenue from our WIC System Expansion, Raton 2010
Expansion, Elba III Phase A Expansion and Elba Express pipeline which were placed in service in
2010. Our 2010 operating cash flows were burdened primarily due to SLNGs conversion into a limited
liability company and the related pre-acquisition settlement of its current and deferred tax
balances. In March 2011, we received $467 million in net proceeds from the issuance of additional
common and general partner units and $108 million in net borrowings from our revolving credit facility.
During 2011, we utilized our cash inflows to pay distributions, including the CIG and SNG
distributions to El Paso of its share of available cash (see Item 1, Financial Statements,
Note 9), to fund maintenance and growth projects and to acquire additional interest in SNG. We made
cash distributions to our unitholders of $86 million during the quarter ended March 31, 2011
compared with $50 million in the same period in 2010, reflecting a greater number of partnership
units outstanding and an increase in our cash distribution per unit.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
There are no material changes in our quantitative and qualitative disclosures about market
risks from those reported in our 2010 Annual Report on Form 10-K.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of March 31, 2011, we carried out an evaluation under the supervision and with the
participation of our management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO) of our general partner, as to the effectiveness, design and operation of our
disclosure controls and procedures. This evaluation considered the various processes carried out
under the direction of El Pasos disclosure committee in an effort to ensure that information
required to be disclosed in the SEC reports we file or submit under the Securities Exchange Act of
1934, as amended (Exchange Act) is accurate, complete and timely. Our management, including the CEO
and CFO of our general partner, does not expect that our disclosure controls and procedures or our
internal controls will prevent and/or detect all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of fraud, if any,
within our company have been detected. Our disclosure controls and procedures are designed to
provide reasonable assurance of achieving their objectives and the CEO and CFO of our general
partner have concluded that our disclosure controls and procedures (as defined in Exchange Act
Rules 13a 15(e) and 15d 15(e)) were effective as of March 31, 2011.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the first
quarter of 2011 that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
See Part I, Item 1, Financial Statements, Note 7, which is incorporated herein by reference.
Additional information about our legal proceedings can be found in Part I, Item 3 of our 2010
Annual Report on Form 10-K.
Item 1A. | Risk Factors |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements that are based on assumptions or beliefs that
we believe to be reasonable; however, assumed facts almost always vary from the actual results, and
differences between assumed facts and actual results can be material, depending upon the
circumstances. Where, based on assumptions, we or our management express an expectation or belief
as to future results, that expectation or belief is expressed in good faith and is believed to have
a reasonable basis. We cannot assure you, however, that the stated expectation or belief will
occur, be achieved or accomplished. The words believe, expect, estimate, anticipate and
similar expressions will generally identify forward-looking statements. All of our forward-looking
statements, whether written or oral, are expressly qualified by these cautionary statements and any
other cautionary statements that may accompany such forward-looking statements. In addition, we
disclaim any obligation to update any forward-looking statements to reflect events or circumstances
after the date of this report.
Important factors that could cause actual results to differ materially from estimates or
projections contained in forward-looking statements are described in our 2010 Annual Report on Form
10-K under Part I, Item 1A, Risk Factors. There have been no material changes in our risk factors
since that report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
Item 3. | Defaults Upon Senior Securities |
None.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None.
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Item 6. | Exhibits |
The Exhibit Index is incorporated herein by reference.
The agreements included as exhibits to this report are intended to provide information
regarding their terms and not to provide any other factual or disclosure information about us or
the other parties to the agreements. The agreements may contain representations and warranties by
the parties to the agreements, including us, solely for the benefit of the other parties to the
applicable agreement and:
| should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; | ||
| may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; | ||
| may apply standards of materiality in a way that is different from what may be viewed as material to certain investors; and | ||
| were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs
as of the date they were made or at any other time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, El Paso Pipeline
Partners, L.P. has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
EL PASO PIPELINE PARTNERS, L.P. | ||||||
By: | El Paso Pipeline GP Company, L.L.C., | |||||
its General Partner | ||||||
Date: May 6, 2011
|
By: | /s/ John R. Sult |
||||
Executive Vice President and Chief Financial Officer | ||||||
(Principal Financial Officer) | ||||||
Date: May 6, 2011
|
By: | /s/ Rosa P. Jackson
|
||||
Vice President and Controller | ||||||
(Principal Accounting Officer) |
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EL PASO PIPELINE PARTNERS, L.P.
EXHIBIT INDEX
EXHIBIT INDEX
Each exhibit identified below is filed as a part of this report. Exhibits filed with this
Report are designated by *. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
Exhibit | ||
Number | Description | |
3.A
|
Certificate of Limited Partnership of El Paso Pipeline Partners, L.P (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form S-1 (File No. 333-145835) filed with the SEC on August 31, 2007). | |
3.B
|
First Amended and Restated Agreement of Limited Partnership of El Paso Pipeline Partners, L.P., dated November 21, 2007 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K (File No. 001-33825) filed with the SEC on November 28, 2007); Amendment No. 1 to First Amended and Restated Agreement of Limited Partnership of El Paso Pipeline Partners, L.P., dated July 28, 2008 (incorporated by reference to Exhibit 4.A to our Current Report on Form 8-K (File No. 001-33825) filed with the SEC on July 28, 2008). | |
3.C
|
Certificate of Formation of El Paso Pipeline GP Company, L.L.C. (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form S-1 (File No. 333-145835) filed with the SEC on August 31. 2007). | |
3.D
|
Amended and Restated Limited Liability Company Agreement of El Paso Pipeline GP Company, L.L.C., dated November 21, 2007 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K (File No. 001-33825) filed with the SEC on November 28, 2007). | |
10.A
|
Contribution Agreement dated March 4, 2011 by and among El Paso Pipeline Partners, L.P., El Paso Pipeline Partners Operating Company, L.L.C., El Paso Corporation, Southern Natural Gas Company, El Paso SNG Holding Company, L.L.C. and EPPP SNG GP Holdings, L.L.C. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the SEC on March 17, 2011). | |
10.B
|
Contribution, Conveyance and Assumption Agreement by and among El Paso Pipeline Partners, L.P. El Paso Corporation, El Paso SNG Holding Company, L.L.C., EPPP SNG GP Holdings, L.L.C., Southern Natural Gas Company and El Paso Pipeline Partners Operating Company, L.L.C. (incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K filed with the SEC on March 17, 2011). | |
10.C
|
Fifth Amendment to General Partnership Agreement of Southern Natural Gas Company. (incorporated by reference to Exhibit 10.1 of our Current Report on Form 8-K filed with the SEC on March 17, 2011). | |
12*
|
Ratio of Earnings to Fixed Charges | |
31.A*
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.B*
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.A*
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.B*
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*101.INS
|
XBRL Instance Document | |
*101.SCH
|
XBRL Schema Document | |
*101.CAL
|
XBRL Calculation Linkbase Document | |
*101.DEF
|
XBRL Definition Linkbase Document | |
*101.LAB
|
XBRL Labels Linkbase Document | |
*101.PRE
|
XBRL Presentation Linkbase Document |