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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: December 2, 1999
(Date of earliest event reported: October 25, 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.) (IRS 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
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ITEM 5. OTHER EVENTS.
On October 25, 1999, Sonat Inc. ("Sonat") merged with and into El Paso
Energy Corporation ("El Paso Energy"), with El Paso Energy continuing as the
surviving corporation. The merger was effected in accordance with the Second
Amended and Restated Agreement and Plan of Merger dated as of March 13, 1999
(the "Merger Agreement"), by and between El Paso Energy and Sonat.
This Current Report on Form 8-K is being filed to update the pro forma
balance sheet as of September 30, 1999, and income statement for the nine months
ended September 30, 1999.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information.
Presented below are unaudited pro forma condensed combined financial
statements reflecting the merger using the pooling of interests method of
accounting in accordance with United States generally accepted accounting
principles. 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. 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 reflects that (1) each outstanding share of
Sonat common stock was converted into one share of El Paso Energy common stock
and (2) El Paso Energy issued a total of approximately 110 million shares in the
merger. In addition, outstanding options issued to Sonat employees to purchase
approximately 5 million shares of Sonat common stock were converted, one for
one, into stock options for El Paso Energy common stock at the merger date.
The unaudited pro forma condensed combined balance sheet as of September
30, 1999, assumes the merger had been completed on September 30, 1999. The
unaudited pro forma condensed combined income statements for the nine months
ended September 30, 1999, and each of the three years in the period ended
December 31, 1998, assume the merger had been completed on January 1, 1996, the
beginning of the earliest period presented. 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 financial
statements have not been adjusted for these differences. 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 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 employee separation or asset impairment
charges that may be incurred as a result of the merger or any operating
efficiencies or cost savings that may result from the integration of El Paso
Energy's and Sonat's operations.
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, and Quarterly Reports on Form
10-Q for the nine months ended September 30, 1999, and the six months ended June
30, 1999, for El Paso Energy and Sonat, respectively. The information presented
for Sonat includes certain reclassifications to conform to El Paso Energy's
presentation. These reclassifications have no impact on results of operations or
total stockholders' equity.
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN MILLIONS)
ASSETS
<TABLE>
<CAPTION>
EL PASO SONAT COMBINED COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Total current assets............................... $ 2,161 $ 828 $ 2,989 $ -- $ 2,989
Property, plant and equipment, net................. 7,305 2,630 9,935 -- 9,935
Other.............................................. 2,477 938 3,415 -- 3,415
------- ------ ------- ----- -------
Total assets............................. $11,943 $4,396 $16,339 $ -- $16,339
======= ====== ======= ===== =======
</TABLE>
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C>
Total current liabilities.......................... $ 2,123 $1,237 $ 3,360 $ 64 (a) $ 3,400
(24)(c)
------- ------ ------- ----- -------
Long-term debt, less current maturities............ 3,720 1,687 5,407 -- 5,407
------- ------ ------- ----- -------
Deferred income taxes.............................. 1,654 187 1,841 -- 1,841
------- ------ ------- ----- -------
Other.............................................. 1,162 227 1,389 -- 1,389
------- ------ ------- ----- -------
Company-obligated mandatorily redeemable
convertible preferred securities of El Paso
Energy Capital Trust I........................... 325 -- 325 -- 325
------- ------ ------- ----- -------
Minority interest.................................. 865 -- 865 -- 865
------- ------ ------- ----- -------
Stockholders' equity
Common stock..................................... 381 111 492 219 (b) 711
Additional paid-in capital....................... 1,506 74 1,580 (278)(b) 1,302
Retained earnings................................ 501 939 1,440 (64)(a) 1,400
24 (c)
Other............................................ (294) (66) (360) 59 (b) (301)
------- ------ ------- ----- -------
Total stockholders' equity............... 2,094 1,058 3,152 (40) 3,112
------- ------ ------- ----- -------
Total liabilities and stockholders'
equity................................. $11,943 $4,396 $16,339 $ -- $16,339
======= ====== ======= ===== =======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Balance
Sheet.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
(a) Estimated costs associated with the merger of El Paso Energy and Sonat are
$200 million. These costs consist of (1) $138 million of costs for
compensation related programs under which certain benefits of El Paso
Energy and Sonat personnel accelerated and vested as a result of the change
in control associated with the merger and (2) $62 million of transaction
costs, which include legal, accounting, and financial advisory services. As
of September 30, 1999, $136 million in merger-related costs were incurred
and estimated costs totaling $64 million remain.
(b) Reflects the exchange of one share of El Paso Energy common stock for each
outstanding share of Sonat common stock, as provided in the merger
agreement and the cancellation of $59 million of Sonat treasury stock.
(c) Reflects the income tax consequences of the remaining $64 million of costs
associated with the merger assuming an effective income tax rate of 38%.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO SONAT COMBINED COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues................................. $5,567 $2,611 $8,178 $-- $8,178
------ ------ ------ --- ------
Operating expenses
Cost of gas and other products................... 4,316 1,946 6,262 -- 6,262
Operation and maintenance........................ 522 245 767 -- 767
Depreciation, depletion and amortization......... 218 251 469 -- 469
Ceiling test charges............................. -- 352 352 -- 352
Merger-related costs............................. 126 10 136 -- 136
Other............................................ 71 36 107 -- 107
------ ------ ------ --- ------
5,253 2,840 8,093 -- 8,093
------ ------ ------ --- ------
Operating income (loss)............................ 314 (229) 85 -- 85
Interest and debt expense.......................... 230 112 342 -- 342
Other income, net.................................. (154) (56) (210) -- (210)
------ ------ ------ --- ------
Income (loss) before income taxes, minority
interest, and cumulative effect of accounting
change........................................... 238 (285) (47) -- (47)
Income tax expense (benefit)....................... 73 (104) (31) -- (31)
Minority interest.................................. 39 1 40 -- 40
------ ------ ------ --- ------
Income (loss) before cumulative effect of
accounting change................................ 126 (182) (56) -- (56)
Cumulative effect of accounting change, net of
income tax....................................... (13) -- (13) -- (13)
------ ------ ------ --- ------
Net income (loss).................................. $ 113 $ (182) $ (69) $-- $ (69)
====== ====== ====== === ======
Basic earnings per common share
Income (loss) before cumulative effect of
accounting change.............................. $ 1.08 $(0.24)
Cumulative effect of accounting change, net of
income tax..................................... (0.11) (0.06)
------ ------
Net income (loss)................................ $ 0.97 $(0.30)
====== ======
Diluted earnings per common share
Income (loss) before cumulative effect of
accounting change.............................. $ 1.06 $(0.24)(a)
Cumulative effect of accounting change, net of
income tax..................................... (0.11) (0.06)(a)
------ ------
Net income (loss)................................ $ 0.95 $(0.30)(a)
====== ======
Basic average common shares outstanding............ 117 110(b) 227
====== === ======
Diluted average common shares outstanding.......... 119 111(b) 230
====== === ======
</TABLE>
See accompanying Notes to the Unaudited Pro Forma Condensed Combined Statements
of Income.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO SONAT COMBINED COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues................................. $5,782 $3,710 $9,492 $-- $9,492
------ ------ ------ --- ------
Operating expenses
Cost of gas and other products................... 4,212 2,745 6,957 -- 6,957
Operation and maintenance........................ 707 281 988 -- 988
Depreciation, depletion and amortization......... 269 349 618 -- 618
Ceiling test charges............................. -- 1,035 1,035 -- 1,035
Other............................................ 88 63 151 -- 151
------ ------ ------ --- ------
5,276 4,473 9,749 -- 9,749
------ ------ ------ --- ------
Operating income (loss)............................ 506 (763) (257) -- (257)
Interest and debt expense.......................... 267 137 404 -- 404
Other income, net.................................. (138) (67) (205) -- (205)
------ ------ ------ --- ------
Income (loss) before income taxes and minority
interest......................................... 377 (833) (456) -- (456)
Income tax expense (benefit)....................... 127 (299) (172) -- (172)
------ ------ ------ --- ------
Income (loss) before minority interest............. 250 (534) (284) -- (284)
Minority interest.................................. 25 (3) 22 -- 22
------ ------ ------ --- ------
Net income (loss).................................. $ 225 $ (531) $ (306) $-- $ (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 Statements
of Income.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO SONAT COMBINED COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues................................. $5,638 $4,372 $10,010 $-- $10,010
------ ------ ------- --- -------
Operating expenses
Cost of gas and other products................... 4,125 3,174 7,299 -- 7,299
Operation and maintenance........................ 664 385 1,049 -- 1,049
Depreciation, depletion and amortization......... 236 398 634 -- 634
Other............................................ 92 43 135 -- 135
------ ------ ------- --- -------
5,117 4,000 9,117 -- 9,117
------ ------ ------- --- -------
Operating income................................... 521 372 893 -- 893
Interest and debt expense.......................... 238 110 348 -- 348
Other income, net.................................. (57) (66) (123) -- (123)
------ ------ ------- --- -------
Income before income taxes and minority interest... 340 328 668 -- 668
Income tax expense................................. 129 107 236 -- 236
------ ------ ------- --- -------
Income before minority interest.................... 211 221 432 -- 432
Minority interest.................................. 25 3 28 -- 28
------ ------ ------- --- -------
Net income......................................... $ 186 $ 218 $ 404 $-- $ 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 Statements
of Income.
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UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER COMMON SHARE DATA)
<TABLE>
<CAPTION>
EL PASO SONAT COMBINED COMBINED
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues................................. $3,012 $3,204 $6,216 $-- $6,216
------ ------ ------ --- ------
Operating expenses
Cost of gas and other products................... 2,277 2,039 4,316 -- 4,316
Operation and maintenance........................ 322 301 623 -- 623
Depreciation, depletion and amortization......... 101 384 485 -- 485
Employee separation and asset impairment
charge........................................ 99 -- 99 -- 99
Other............................................ 43 48 91 -- 91
------ ------ ------ --- ------
2,842 2,772 5,614 -- 5,614
------ ------ ------ --- ------
Operating income................................... 170 432 602 -- 602
Interest and debt expense.......................... 110 101 211 -- 211
Other income, net.................................. (5) (53) (58) -- (58)
------ ------ ------ --- ------
Income before income taxes and minority interest... 65 384 449 -- 449
Income tax expense................................. 25 125 150 -- 150
------ ------ ------ --- ------
Income before minority interest.................... 40 259 299 -- 299
Minority interest.................................. 2 3 5 -- 5
------ ------ ------ --- ------
Net income......................................... $ 38 $ 256 $ 294 $-- $ 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 Statements
of Income.
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NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(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 less
of a loss per common share.
(b) The basic and diluted common shares adjustments reflect the exchange of one
share of El Paso Energy common stock for each outstanding share of Sonat
common stock as provided for in the Merger Agreement.
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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 hereunto duly authorized.
EL PASO ENERGY CORPORATION
By: /s/ JEFFREY I. BEASON
------------------------------------
Jeffrey I. Beason
Senior Vice President and Controller
(Chief Accounting Officer)
Date: December 2, 1999
