<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: April 23, 1999
(Date of earliest event reported: March 13, 1999)
EL PASO ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-14365 76-0568816
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 420-2131
================================================================================
<PAGE> 2
ITEM 5. OTHER EVENTS.
El Paso Energy Corporation entered into an Amended and Restated
Agreement and Plan of Merger dated as of March 13, 1999 (the "Merger Agreement")
with Sonat Inc. pursuant to which Sonat will merge into El Paso Energy, and El
Paso Energy will issue to Sonat stockholders one share of El Paso Energy common
stock for each share of Sonat common stock owned by them, and amend El Paso
Energy's certificate of incorporation will be amended to authorize El Paso
Energy to issue 750 million shares of common stock and 50 million shares of
preferred stock. El Paso Energy is planning to hold a special meeting of its
stockholders to consider and vote on a proposal to adopt the Merger Agreement.
If El Paso Energy stockholders do not approve the Merger Agreement but Sonat
stockholders do approve the Merger Agreement, Sonat will instead merge with a
subsidiary of El Paso Energy under an alternative merger structure, and El Paso
Energy will issue a combination of (1) a fraction of a share of El Paso Energy
common stock and (2) a fraction of a depositary share representing a fractional
interest in a new series of senior voting preferred stock of El Paso Energy for
each share of Sonat common stock. El Paso Energy and Sonat will complete the
merger only if a number of conditions are satisfied or waived including:
o Sonat stockholders adopt the merger agreement;
o no law or court order prohibits the transaction;
o all waiting periods under federal antitrust laws applicable to
the merger expire or terminate;
o all other regulatory approvals are received without conditions
that would have a materially adverse effect on the financial
condition, results of operations, or cash flows of El Paso
Energy's and Sonat's combined businesses; and
o attorneys for El Paso Energy and Sonat issue opinions that the
merger is expected to be tax free.
However, there can be no assurance that El Paso Energy and Sonat will complete
the merger even if such conditions are satisfied.
If the El Paso Energy and Sonat stockholders both approve the Merger
Agreement, El Paso Energy and Sonat will complete the merger on an all common
stock basis and expect to account for the merger using the pooling of interests
method of accounting in accordance with United States generally accepted
accounting principles. If the El Paso Energy stockholders do not approve the
Merger Agreement, El Paso Energy and Sonat will complete the merger under the
alternative merger structure and will account for the merger using the purchase
method of accounting in accordance with United States generally accepted
accounting principles. Therefore, the unaudited pro forma condensed combined
financial statements provided under Item 7 reflect the all common stock merger
using the pooling of interests method of accounting and the merger under the
alternative structure using the purchase method of accounting.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information.
<PAGE> 3
Presented below are unaudited pro forma condensed combined financial
statements reflecting the merger using the pooling of interests method of
accounting and unaudited pro forma condensed combined financial statements
reflecting the alternative merger using the purchase method of accounting. This
information is included to give you a better understanding of what the combined
results of operations and financial position of El Paso Energy and Sonat may
have looked like had the merger occurred on an earlier date.
The pro forma information reflecting the merger assumes (1) each share
of Sonat common stock will be converted into one share of El Paso Energy common
stock and (2) El Paso Energy will issue a total of 110 million shares in the
merger.
The pro forma information reflecting the alternative merger assumes (1)
each share of Sonat common stock will be converted into .17 of a share of El
Paso Energy common stock and .274 of a depositary share, (2) El Paso Energy will
issue in the alternative merger a total of 18.7 million shares of common stock
and 30.1 million depositary shares, which depositary shares would entitle the
holders thereof to receive up to $3.01 billion of value if El Paso Energy were
liquidated, (3) each share of El Paso Energy common stock issued will have a
$33.00 value, and (4) the annual dividend rate on the senior voting preferred
stock will be 8.75%. The actual dividend rate will be a rate that our respective
financial advisors believe will cause the depositary shares, when fully
distributed after completion of the alternative merger, to trade initially at
approximately $100 per share, considering the pro forma capitalization and
credit profile of the combined company after the completion of the alternative
merger.
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only and are not necessarily indicative of
the operating results or financial position that would have been achieved had
the merger of El Paso Energy and Sonat under either structure been consummated
as of the beginning of the periods presented, nor are they necessarily
indicative of the future operating results or financial position of El Paso
Energy. The unaudited pro forma condensed combined financial statements do not
give effect to any operating efficiencies or cost savings that may result from
the integration of El Paso Energy's and Sonat's operations.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(THE POOLING OF INTERESTS METHOD OF ACCOUNTING)
The following unaudited pro forma condensed combined financial
statements give effect to the merger using the pooling of interests method of
accounting. Under this accounting method, El Paso Energy's and Sonat's balance
sheets and income statements are treated as if they had always been combined for
accounting and financial reporting purposes. These unaudited pro forma condensed
combined financial statements should be read in conjunction with the historical
financial statements and related notes of El Paso Energy and Sonat included in
their respective Annual Reports on Form 10-K for the year ended December 31,
1998. The historical financial statements for Sonat include certain
reclassifications to conform to El Paso Energy's presentation. These
reclassifications have no impact on net income or total stockholders' equity.
The unaudited pro forma condensed combined balance sheet as of December
31, 1998 assumes the merger had been completed on December 31, 1998. The
unaudited pro forma condensed combined income statements for the three years
ended December 31, 1998 assume the merger had been completed on January 1, 1996,
the beginning of the earliest period presented.
<PAGE> 4
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
AS OF DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
ASSETS
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Total current assets............................... $ 1,209 $ 801 $ -- $ 2,010
Property, plant and equipment, net................. 7,341 2,696 -- 10,037
Other.............................................. 1,519 864 -- 2,383
------- ------ ----- -------
Total assets............................. $10,069 $4,361 $ -- $14,430
======= ====== ===== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total current liabilities.......................... $ 2,162 $1,577 $ 135(a) $ 3,823
(51)(c)
------- ------ ----- -------
Long-term debt, less current maturities............ 2,552 1,099 -- 3,651
------- ------ ----- -------
Deferred income taxes.............................. 1,564 164 (22)(c) 1,706
------- ------ ----- -------
Other.............................................. 993 183 -- 1,176
------- ------ ----- -------
Company-obligated mandatorily redeemable
convertible preferred securities of El Paso
Energy Capital Trust I........................... 325 -- -- 325
------- ------ ----- -------
Minority interest.................................. 365 9 -- 374
------- ------ ----- -------
Stockholders' equity
Common stock..................................... 373 111 219(b) 703
Additional paid-in capital....................... 1,436 77 (279)(b) 1,234
Retained earnings................................ 460 1,210 (192)(a) 1,551
73(c)
Other............................................ (161) (69) 60(b) (113)
57(a)
------- ------ ----- -------
Total stockholders' equity............... 2,108 1,329 (62) 3,375
------- ------ ----- -------
Total liabilities and stockholders'
equity................................. $10,069 $4,361 $ -- $14,430
======= ====== ===== =======
See accompanying notes to the unaudited pro forma condensed combined financial statements.
</TABLE>
<PAGE> 5
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
Accounting policy differences and intercompany balances between El Paso
Energy and Sonat have been determined to be immaterial and, accordingly, the pro
forma condensed combined balance sheet has not been adjusted for those
differences.
(a) Reflects the estimated costs associated with the merger of El Paso Energy
and Sonat, which approximate $192 million. These costs consist primarily of
approximately (1) $142 million for costs of compensation related programs
under which certain benefits of El Paso Energy and Sonat personnel
accelerate and vest as a result of the change in control associated with
the merger and (2) $50 million for estimated transaction costs, which
include legal, accounting, and financial advisory services.
(b) Reflects the exchange of one share of El Paso Energy common stock for each
share of outstanding Sonat common stock, as provided in the merger
agreement and the cancellation of $60 million of Sonat treasury stock.
(c) Reflects the income tax consequences of estimated costs associated with the
merger at an effective income tax rate of 38%.
<PAGE> 6
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................. $5,782 $3,710 $-- $9,492
------ ------ --- ------
Operating expenses
Cost of gas and other products................... 4,212 2,745 -- 6,957
Operation and maintenance........................ 707 281 -- 988
Depreciation, depletion and amortization......... 269 349 -- 618
Ceiling test charges............................. -- 1,035 -- 1,035
Other............................................ 88 63 -- 151
------ ------ --- ------
5,276 4,473 -- 9,749
------ ------ --- ------
Operating income (loss)............................ 506 (763) -- (257)
Interest and debt expense.......................... 267 137 -- 404
Other income, net.................................. (138) (67) -- (205)
------ ------ --- ------
Income (loss) before income taxes and minority
interest......................................... 377 (833) -- (456)
Income tax expense (benefit)....................... 127 (299) -- (172)
------ ------ --- ------
Income (loss) before minority interest............. 250 (534) -- (284)
Minority interest.................................. 25 (3) -- 22
------ ------ --- ------
Net income (loss).................................. $ 225 $ (531) $-- $ (306)
====== ====== === ======
Basic earnings (loss) per common share............. $ 1.94 $(1.35)
====== ======
Diluted earnings (loss) per common share........... $ 1.85 $(1.35)(a)
====== ======
Basic average common shares outstanding............ 116 110(b) 226
====== === ======
Diluted average common shares outstanding.......... 126 111(b) 237
====== === ======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE> 7
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
REFLECTING THE COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................. $5,638 $4,372 $-- $10,010
------ ------ --- -------
Operating expenses
Cost of gas and other products................... 4,125 3,174 -- 7,299
Operation and maintenance........................ 664 385 -- 1,049
Depreciation, depletion and amortization......... 236 398 -- 634
Other............................................ 92 43 -- 135
------ ------ --- -------
5,117 4,000 -- 9,117
------ ------ --- -------
Operating income................................... 521 372 -- 893
Interest and debt expense.......................... 238 110 -- 348
Other income, net.................................. (57) (66) -- (123)
------ ------ --- -------
Income before income taxes and minority interest... 340 328 -- 668
Income tax expense................................. 129 107 -- 236
------ ------ --- -------
Income before minority interest.................... 211 221 -- 432
Minority interest.................................. 25 3 -- 28
------ ------ --- -------
Net income......................................... $ 186 $ 218 $-- $ 404
====== ====== === =======
Basic earnings per common share.................... $ 1.64 $ 1.80
====== =======
Diluted earnings per common share.................. $ 1.59 $ 1.76
====== =======
Basic average common shares outstanding............ 114 110(b) 224
====== === =======
Diluted average common shares outstanding.......... 117 112(b) 229
====== === =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE> 8
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................. $3,012 $3,204 $-- $6,216
------ ------ --- ------
Operating expenses
Cost of gas and other products................... 2,277 2,039 -- 4,316
Operation and maintenance........................ 322 301 -- 623
Depreciation, depletion and amortization......... 101 384 -- 485
Employee separation and asset impairment
charge........................................ 99 -- -- 99
Other............................................ 43 48 -- 91
------ ------ --- ------
2,842 2,772 -- 5,614
------ ------ --- ------
Operating income................................... 170 432 -- 602
Interest and debt expense.......................... 110 101 -- 211
Other income, net.................................. (5) (53) -- (58)
------ ------ --- ------
Income before income taxes and minority interest... 65 384 -- 449
Income tax expense................................. 25 125 -- 150
------ ------ --- ------
Income before minority interest.................... 40 259 -- 299
Minority interest.................................. 2 3 -- 5
------ ------ --- ------
Net income......................................... $ 38 $ 256 $-- $ 294
====== ====== === ======
Basic earnings per common share.................... $ 0.53 $ 1.62
====== ======
Diluted earnings per common share.................. $ 0.52 $ 1.59
====== ======
Basic average common shares outstanding............ 72 110(b) 182
====== === ======
Diluted average common shares outstanding.......... 73 112(b) 185
====== === ======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE> 9
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
REFLECTING COMPLETION OF THE MERGER ON AN ALL COMMON STOCK BASIS
(POOLING OF INTERESTS METHOD OF ACCOUNTING)
Accounting policy differences and intercompany transactions between El Paso
Energy and Sonat have been determined to be immaterial and, accordingly, the
unaudited pro forma condensed combined statements of income have not been
adjusted for those differences.
(a) As required by the accounting rules, we have excluded additional dilutive
securities such as options in determining diluted earnings (loss) per
common share. If we had included those securities, we would have shown a
lower loss per common share.
(b) The basic and diluted average common share adjustments reflect the exchange
of one share of El Paso Energy common stock for each share of Sonat common
stock contemplated by the merger agreement.
<PAGE> 10
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
REFLECTING COMPLETION OF THE MERGER UNDER THE ALTERNATIVE MERGER STRUCTURE
(PURCHASE METHOD OF ACCOUNTING)
The following unaudited pro forma condensed combined financial statements
give effect to the merger under the alternative merger structure using the
purchase method of accounting. These unaudited pro forma condensed combined
financial statements should be read in conjunction with the historical financial
statements and related notes of El Paso Energy and Sonat included in their
respective Annual Reports on Form 10-K for the year ended December 31, 1998. The
historical financial statements for Sonat include certain reclassifications to
conform to El Paso Energy's presentation. These reclassifications have no impact
on net income or total stockholders' equity.
In accordance with the purchase method of accounting, we have reflected
Sonat's assets and liabilities on the following pro forma financial statements
based on their estimated fair value when the merger is completed. The total
value of the shares that would be issued to Sonat stockholders under the
alternative merger structure has been allocated to Sonat's assets and
liabilities on the following pro forma financial statements. These allocations
are preliminary and may require the completion of independent appraisals, which
have not yet been performed. These preliminary allocations will be revised when
we obtain additional information concerning the valuation of Sonat's assets and
liabilities. To the extent the total value of the shares issued in the merger
exceeds the fair value of Sonat's identified assets and liabilities, we will
record the excess as "goodwill" for accounting purposes.
The unaudited pro forma condensed combined balance sheet as of December 31,
1998 assumes the merger had been completed on December 31, 1998. The unaudited
pro forma condensed combined statement of income for the year ended December 31,
1998 assumes the merger had been completed on January 1, 1998.
<PAGE> 11
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING COMPLETION OF THE MERGER UNDER THE ALTERNATIVE MERGER STRUCTURE
(PURCHASE METHOD OF ACCOUNTING)
AS OF DECEMBER 31, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
ASSETS
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Total current assets................................ $ 1,209 $ 801 $ -- $ 2,010
Property, plant and equipment, net.................. 7,341 2,696 3,836(a) 13,431
(442)(b)
Other............................................... 1,519 864 -- 2,383
------- ------ ------- -------
Total assets.............................. $10,069 $4,361 $ 3,394 $17,824
======= ====== ======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total current liabilities........................... $ 2,162 $1,577 $ 72(c) $ 3,784
(27)(e)
------- ------ ------- -------
Long-term debt, less current maturities............. 2,552 1,099 49(a) 3,700
------- ------ ------- -------
Deferred income taxes............................... 1,564 164 1,271(e) 2,999
------- ------ ------- -------
Other............................................... 993 183 -- 1,176
------- ------ ------- -------
Company-obligated mandatorily redeemable convertible
preferred securities of El Paso Energy Capital
Trust I........................................... 325 -- -- 325
------- ------ ------- -------
Mandatorily redeemable preferred stock.............. -- -- 3,014(f) 3,014
------- ------ ------- -------
Minority interest................................... 365 9 -- 374
------- ------ ------- -------
Stockholders' equity
Common stock...................................... 373 111 (111)(d) 429
56(f)
Additional paid-in capital........................ 1,436 77 (77)(d) 1,998
562(f)
Retained earnings................................. 460 1,210 (1,210)(d) 186
(442)(b)
168(e)
Other............................................. (161) (69) 69(d) (161)
------- ------ ------- -------
Total stockholders' equity................ 2,108 1,329 (985) 2,452
------- ------ ------- -------
Total liabilities and stockholders'
equity.................................. $10,069 $4,361 $ 3,394 $17,824
======= ====== ======= =======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE> 12
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING COMPLETION OF THE MERGER UNDER THE ALTERNATIVE MERGER STRUCTURE
(PURCHASE METHOD OF ACCOUNTING)
Accounting policy differences and intercompany balances between El Paso
Energy and Sonat have been determined to be immaterial and, accordingly, the
unaudited pro forma condensed combined balance sheet has not been adjusted for
those differences.
(a) Reflects the preliminary allocation of the total value of the shares issued
to Sonat stockholders under the alternative merger structure to Sonat's
assets and liabilities.
(b) Reflects the writedown of the purchase price allocated to proven reserves
as a result of applying the full cost ceiling limitations. This writedown
has not been considered in the proforma condensed combined statement of
income because it reflects a nonrecurring charge which would result
directly from the merger and which would be included in the income
statement during the period in which the merger is completed.
(c) Reflects the estimated costs associated with the merger of El Paso Energy
and Sonat including approximately $22 million of compensation related costs
associated with certain benefits of Sonat personnel which accelerate and
vest as a result of the change in control associated with the merger and
$50 million for estimated transaction costs, which include legal,
accounting and financial advisory services.
(d) Reflects the elimination of the historical equity of Sonat.
(e) Reflects the income tax consequences of the pro forma adjustments at an
effective income tax rate of 38%.
(f) Reflects the issuance of approximately 18.7 million shares of El Paso
Energy common stock assuming each share of El Paso Energy common stock
issued will have a $33 value and the issuance of 30.1 million depositary
shares representing newly issued senior voting preferred stock having an
aggregate liquidation preference of $3.01 billion and an annual dividend
rate of 8.75%. The actual dividend rate will be set at a rate that our
financial advisors believe will cause the depositary shares, when fully
distributed after completion of the alternative merger, to trade initially
at approximately $100 per share, considering the pro forma capitalization
and credit profile of the combined company after completion of the
alternative merger.
<PAGE> 13
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
REFLECTING COMPLETION OF THE MERGER UNDER THE ALTERNATIVE MERGER STRUCTURE
(PURCHASE METHOD OF ACCOUNTING)
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO
ENERGY SONAT COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................. $5,782 $3,710 $ -- $9,492
------ ------ ----- ------
Operating expenses
Cost of gas and other products................... 4,212 2,745 -- 6,957
Operation and maintenance........................ 707 281 -- 988
Depreciation, depletion and amortization......... 269 349 75(a) 693
Ceiling test charges............................. -- 1,035 -- 1,035
Other............................................ 88 63 -- 151
------ ------ ----- ------
5,276 4,473 75 9,824
------ ------ ----- ------
Operating income (loss)............................ 506 (763) (75) (332)
Interest and debt expense.......................... 267 137 -- 404
Other income, net.................................. (138) (67) -- (205)
------ ------ ----- ------
Income (loss) before income taxes and minority
interest......................................... 377 (833) (75) (531)
Income tax expense (benefit)....................... 127 (299) (28)(b) (200)
------ ------ ----- ------
Income (loss) before minority interest............. 250 (534) (47) (331)
Minority interest.................................. 25 (3) -- 22
------ ------ ----- ------
Net income (loss) before preferred stock dividend
requirement...................................... 225 (531) (47) (353)
Preferred stock dividend requirement............... -- -- 264(c) 264
------ ------ ----- ------
Net income (loss) available to common
stockholders..................................... $ 225 $ (531) $(311) $ (617)
====== ====== ===== ======
Basic earnings (loss) per common share............. $ 1.94 $(4.57)
====== ======
Diluted earnings (loss) per common share........... $ 1.85 $(4.57)(d)
====== ======
Basic average common shares outstanding............ 116 19(d) 135
====== ===== ======
Diluted average common shares outstanding.......... 126 24(d) 150
====== ===== ======
</TABLE>
See accompanying notes to the unaudited pro forma condensed combined financial
statements.
<PAGE> 14
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
REFLECTING COMPLETION OF THE MERGER UNDER THE ALTERNATIVE MERGER STRUCTURE
(PURCHASE METHOD OF ACCOUNTING)
Accounting policy differences and intercompany transactions between El Paso
Energy and Sonat have been determined to be immaterial and, accordingly, the
unaudited pro forma condensed combined statement of income has not been adjusted
for those differences.
(a) Reflects depreciation expense related to the portion of the total value of
the shares issued to Sonat stockholders allocated to property, plant and
equipment based on an estimated life of 40 years, which approximates the
regulatory lives of Sonat's pipelines.
(b) Reflects the income tax consequences of the pro forma adjustment at an
effective income tax rate of 38%.
(c) Reflects an annual preferred stock dividend rate of 8.75% for senior voting
preferred stock which would be issued by El Paso Energy pursuant to the
alternative merger structure. The actual dividend rate will be set at a
rate that our financial advisors believe will cause the depositary shares,
when fully distributed after completion of the alternative merger, to trade
initially at approximately $100 per share, considering the pro forma
capitalization and credit profile of the combined company after completion
of the alternative merger. Each percentage point change in the assumed
annual dividend rate would impact the senior voting preferred stock
dividend by approximately $30 million.
(d) The basic and diluted common shares adjustments reflect the issuance of
approximately 18.7 million and 24 million shares, respectively, of El Paso
Energy common stock in connection with the alternative merger structure
based on an implied price for the El Paso Energy common stock of $33 per
share and the issuance of 30.1 million shares of senior voting preferred
stock having an aggregate liquidation preference of $3.01 billion and an
annual dividend rate of 8.75%. As required by the accounting rules, we have
excluded additional dilutive securities such as options in determining
diluted earnings (loss) per common share. If we had included those
securities, we would have shown a lower loss per common share.
<PAGE> 15
(c) Exhibits.
12.1 -- Ratio of earnings to combined fixed charges and preferred stock
dividends.
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
EL PASO ENERGY CORPORATION
By: /s/ JEFFREY I. BEASON
----------------------------------
Jeffrey I. Beason
Vice President and Controller
(Chief Accounting Officer)
Date: April 23, 1999
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
------- -----------
12.1 -- Ratio of earnings to combined fixed charges and preferred stock
dividends.
<PAGE> 1
EXHIBIT 12.1
EL PASO ENERGY CORPORATION
COMPUTATION OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED AND PREFERENCE STOCK DIVIDEND REQUIREMENTS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1998 1997 1996 1995 1994
------------ ----- ----- ----- ----- -----
(DOLLARS IN MILLIONS)
PRO FORMA
ASSUMING THE
ALTERNATIVE
MERGER
STRUCTURE HISTORICAL
------------ -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earnings
Income (loss) from continuing operations...... $(353) $ 225 $ 186 $ 38 $ 85 $ 90
Income tax expense (benefit).................. (200) 127 129 25 48 58
Minority interest............................. 22 25 25 2 0 0
----- ----- ----- ----- ----- -----
Income (loss) from continuing operations
before income taxes and minority
interest................................... (531) 377 340 65 133 148
Interest and debt expense..................... 404 262 218 100 85 76
Interest component of rentals................. 17 9 7 5 3 3
Distributions in excess of earnings on equity
investments (undistributed earnings on
equity investments)........................ (66) (28) -- -- -- --
----- ----- ----- ----- ----- -----
Total earnings (losses) available for
fixed charges....................... $(176) $ 620 $ 565 $ 170 $ 221 $ 227
===== ===== ===== ===== ===== =====
Fixed charges
Interest and debt expense..................... $ 404 $ 262 $ 218 $ 100 $ 85 $ 76
Interest components of rentals................ 17 9 7 5 3 3
----- ----- ----- ----- ----- -----
Fixed charges excluding preferred stock
dividend requirement....................... 421 271 225 105 88 79
Preferred stock dividend requirements......... 462 37 25 2 -- --
----- ----- ----- ----- ----- -----
Total fixed charges................... $ 883 $ 308 $ 250 $ 107 $ 88 $ 79
===== ===== ===== ===== ===== =====
Ratio of Earnings to Fixed Charges(1)........... --(2) 2.01 2.26 1.59 2.51 2.87
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</TABLE>
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(1) The ratio of earnings to combined fixed charges and preferred and
preference stock dividend requirements for the periods presented is the
same as the ratio of earnings to fixed charges since El Paso Energy has no
outstanding preferred stock or preference stock and, therefore, no dividend
requirements.
(2) Earnings were inadequate to cover fixed charges by $1,059 million.
For purposes of calculating these ratios: (i) "fixed charges" represent
interest cost (exclusive of interest on rate refunds), amortization of debt
costs, the estimated portion of rental expense representing the interest factor,
and pretax preferred stock dividend requirements of majority-owned subsidiaries;
and (ii) "earnings" represent the aggregate of income from continuing operations
before income taxes, interest expense (exclusive of interest on rate refunds),
amortization of debt costs, the portion of rental expense representing the
interest factor, and the actual amount of any preferred stock dividend
requirements of majority owned subsidiaries, adjusted to reflect actual
distributions from equity investments.
