<PAGE> 1
================================================================================
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: August 18, 2000
(Date of earliest event reported: January 17, 2000)
EL PASO ENERGY CORPORATION
(Exact name of registrant as specified in the charter)
DELAWARE 1-14365 76-0568816
(State or other jurisdiction (Commission File Number) (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
In January 2000, we entered into a definitive agreement to merge with
The Coastal Corporation. In the merger, we will convert each share of Coastal's
common stock and Class A common stock on a tax-free basis into 1.23 shares of
our common stock. We will exchange Coastal's outstanding convertible preferred
stock for our common stock on the same basis as if we had converted the
preferred stock into Coastal common stock immediately prior to the merger. At
June 30, 2000, the total value of the transaction was approximately $18 billion,
including $6 billion of assumed debt and preferred equity. We will account for
the transaction as a pooling of interests, and expect it to close in the fourth
quarter of 2000. On May 5, 2000, Coastal stockholders approved and adopted the
merger agreement and our stockholders approved the issuance of shares of common
stock in connection with the merger. On July 26, 2000, the Federal Energy
Regulatory Commission (FERC) approved our proposed merger. The merger will be
completed only if a number of conditions are met or waived, including:
o no law or court order prohibits the transaction;
o all relevant 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 material adverse effect on the financial
condition, results of operations, or cash flows of the
post-merger combined businesses;
o the independent public accountants of both companies concur
that the merger will qualify for pooling of interests
accounting treatment; and
o attorneys for both companies issue opinions that the merger
is expected to be tax-free.
However, we cannot assure you that we will complete the merger even if
all those conditions are satisfied or waived.
This Current Report on Form 8-K is being filed to update the pro forma
condensed combined financial statements to include information in the El Paso
Energy and Coastal Quarterly Reports on Form 10-Q for the quarterly period ended
June 30, 2000, and to include Coastal's historical financial statements for the
quarterly period ended June 30, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of business acquired.
1
<PAGE> 3
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .............................................. $ 66.1 $ 44.4
Receivables, less allowance for doubtful accounts of $17.0 million
(2000) and $17.4 million (1999) ..................................... 1,732.3 1,932.5
Inventories ............................................................ 1,082.3 732.7
Prepaid expenses and other ............................................. 205.7 213.9
------------- -------------
Total Current Assets ................................................ 3,086.4 2,923.5
------------- -------------
Property, Plant and Equipment - at cost:
Natural gas systems .................................................... 6,421.5 6,328.7
Refining, crude oil and chemical facilities ............................ 2,592.7 2,555.0
Gas and oil properties - at full cost .................................. 4,614.0 3,832.0
Other .................................................................. 621.8 581.5
------------- -------------
14,250.0 13,297.2
Accumulated depreciation, depletion and amortization ................... 4,174.6 3,959.8
------------- -------------
10,075.4 9,337.4
------------- -------------
Other Assets:
Goodwill ............................................................... 442.3 451.8
Investments - equity method ............................................ 1,533.2 1,434.9
Other .................................................................. 1,016.7 975.4
------------- -------------
2,992.2 2,862.1
------------- -------------
$ 16,154.0 $ 15,123.0
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
THE COASTAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable ..................................................... $ 238.7 $ 105.9
Accounts payable .................................................. 1,968.3 2,350.1
Accrued expenses .................................................. 503.5 420.0
Current maturities on long-term debt .............................. 261.1 161.6
------------- -------------
Total Current Liabilities ...................................... 2,971.6 3,037.6
------------- -------------
Debt:
Long-term debt, excluding current maturities ...................... 5,645.1 4,798.2
------------- -------------
Deferred Credits and Other:
Deferred income taxes ............................................. 1,833.4 1,814.2
Other deferred credits ............................................ 729.4 785.2
------------- -------------
2,562.8 2,599.4
------------- -------------
Securities of Subsidiaries:
Company-obligated mandatory redemption
preferred securities of a consolidated trust ................... 300.0 300.0
Preferred stock issued by subsidiaries ............................ 165.0 165.0
Consolidated joint venture ........................................ 285.8 285.9
------------- -------------
750.8 750.9
------------- -------------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $7.1 million) ............................................... -- --
Class A common stock .............................................. .1 .1
Common stock ...................................................... 72.8 72.5
Additional paid-in capital ........................................ 1,043.9 1,031.7
Retained earnings ................................................. 3,239.5 2,965.1
------------- -------------
4,356.3 4,069.4
Less common stock in treasury - at cost ........................... 132.6 132.5
------------- -------------
4,223.7 3,936.9
------------- -------------
$ 16,154.0 $ 15,123.0
============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
(Millions of Dollars, Except Per Share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------
2000 1999 2000 1999
--------- ---------- --------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues ......................................... $ 3,071.1 $ 1,892.1 $ 5,998.7 $ 3,601.7
----------- ----------- ----------- -----------
Operating Costs and Expenses:
Purchases ............................................... 2,164.7 1,184.3 4,168.8 2,130.2
Operating and general expenses .......................... 502.8 413.1 976.8 824.5
Depreciation, depletion and amortization ................ 151.7 115.8 294.2 224.4
----------- ----------- ----------- -----------
2,819.2 1,713.2 5,439.8 3,179.1
----------- ----------- ----------- -----------
Other Income - net ......................................... 33.0 29.8 64.6 55.1
----------- ----------- ----------- -----------
Earnings Before Interest and Income Taxes .................. 284.9 208.7 623.5 477.7
----------- ----------- ----------- -----------
Interest and debt expense, less $14.0 million (2000)
and $8.4 million (1999) three months and $26.6
million (2000) and $15.8 million (1999)
six months capitalized .................................. 100.4 81.5 190.6 158.5
Taxes on income ............................................ 56.8 33.9 131.6 91.4
----------- ----------- ----------- -----------
Net Earnings ............................................... 127.7 93.3 301.3 227.8
Dividends on Preferred Stock ............................... .1 .1 .2 .2
----------- ----------- ----------- -----------
Net Earnings Available
to Common Stockholders .................................. $ 127.6 $ 93.2 $ 301.1 $ 227.6
=========== =========== =========== ===========
Basic Earnings Per Share ................................... $ .60 $ .44 $ 1.41 $ 1.07
=========== =========== =========== ===========
Diluted Earnings Per Share ................................. $ .58 $ .43 $ 1.38 $ 1.05
=========== =========== =========== ===========
Cash Dividends Per Common Share ............................ $ .0625 $ .0625 $ .125 $ .125
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 6
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousands of Shares and Millions of Dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Preferred stock, par value
33 1/3(cent)per share, authorized 50,000,000 shares:
Cumulative convertible preferred:
$1.19, Series A, redemption or liquidation
amount of $33 per share:
Beginning balance ................................ 53 $ -- 56 $ --
Converted to common .............................. (1) -- (2) --
------------ ------------ ------------ ------------
Ending balance ................................... 52 -- 54 --
============ ------------ ============ ------------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance ................................ 58 -- 61 --
Converted to common .............................. (2) -- (1) --
------------ ------------ ------------ ------------
Ending balance ................................... 56 -- 60 --
============ ------------ ============ ------------
$5.00, Series C, redemption or liquidation
amount of $100 per share:
Beginning balance ................................ 27 -- 28 --
Converted to common .............................. (1) -- (1) --
------------ ------------ ------------ ------------
Ending balance ................................... 26 -- 27 --
============ ------------ ============ ------------
Class A common stock, par value 33 1/3(cent) per share,
authorized 2,700,000 shares:
Beginning balance ..................................... 345 .1 354 .1
Converted to common ................................... (16) -- (8) --
Exercise of stock options ............................. -- -- 2 --
------------ ------------ ------------ ------------
Ending balance ........................................ 329 .1 348 .1
============ ------------ ============ ------------
Common stock, par value 33 1/3(cent) per share, authorized
500,000,000 shares:
Beginning balance ..................................... 217,705 72.5 216,765 72.2
Conversion of preferred stock ......................... 31 -- 42 --
Conversion of Class A common stock .................... 16 -- 8 --
Exercise of stock options ............................. 777 .3 638 .3
------------ ------------ ------------ ------------
Ending balance ........................................ 218,529 $ 72.8 217,453 $ 72.5
============ ------------ ============ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 7
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY
(Thousands of Shares and Millions of Dollars)
(Continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
2000 1999
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Additional paid-in capital:
Beginning balance................................... $ 1,031.7 $ 1,016.2
Exercise of stock options........................... 12.2 10.0
------------ ------------
Ending balance...................................... 1,043.9 1,026.2
------------ ------------
Retained earnings:
Beginning balance................................... 2,965.1 2,519.8
Net earnings for period............................. 301.3 227.8
Dividends on preferred stock........................ (.2) (.2)
Dividends on common stock........................... (26.7) (26.6)
------------ ------------
Ending balance...................................... 3,239.5 2,720.8
------------ ------------
Less treasury stock - at cost.......................... 4,400 132.6 4,397 132.5
=========== ------------ =========== ------------
Total.................................................. $ 4,223.7 $ 3,687.1
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 8
THE COASTAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
(Millions of Dollars)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings ................................................. $ 301.3 $ 227.8
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization .................. 296.1 226.2
Deferred income taxes ..................................... 99.1 69.3
Undistributed earnings from equity investments ............ (51.7) (23.6)
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable .................................... 200.9 (100.1)
Inventories ............................................ (275.6) (19.5)
Prepaid expenses and other ............................. (5.9) 5.1
Accounts payable ....................................... (444.4) (113.3)
Accrued expenses ....................................... 61.7 45.7
Other .................................................. (81.4) 138.9
------------ ------------
100.1 456.5
------------ ------------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment ................... (1,056.9) (663.4)
Proceeds from sale of property, plant and equipment .......... 3.8 4.9
Additions to investments ..................................... (125.2) (163.1)
Proceeds from investments .................................... 111.3 19.1
Net from discontinued operations ............................. 1.0 (15.6)
------------ ------------
(1,066.0) (818.1)
------------ ------------
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes ...................... 307.8 (57.0)
Proceeds from issuing common stock ........................... 12.4 10.3
Proceeds from long-term debt issues .......................... 968.8 618.1
Payments to retire long-term debt ............................ (274.5) (207.0)
Dividends paid ............................................... (26.9) (26.8)
------------ ------------
987.6 337.6
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents ............ 21.7 (24.0)
Cash and Cash Equivalents at Beginning of Period ................ 44.4 106.9
------------ ------------
Cash and Cash Equivalents at End of Period ...................... $ 66.1 $ 82.9
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE> 9
THE COASTAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
For additional information relative to operations and financial position,
reference is made to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999. Certain minor reclassifications of prior period
statements have been made to conform with current reporting practices. The
effect of the reclassifications was not material to the Company's consolidated
results of operations, financial position or cash flows.
Repair and maintenance costs incurred in connection with planned major
maintenance activities at certain refineries or plants are accrued as a
liability in a systematic and rational manner over the period of time until the
planned major maintenance activities occur. Any difference between the accrued
liability and the actual costs incurred in performing the accrual maintenance
activities are charged or credited to expense at the time the maintenance
occurs. At certain other refineries or plants, the cost of each major
maintenance activity is capitalized and amortized to expense in a systematic and
rational manner over the estimated period extending to the next planned major
maintenance activity.
The Financial Accounting Standards Board ("FASB") has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"), as amended by Statements of Financial
Accounting Standards No. 137 and No. 138, to be effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. FAS 133 requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
accounting for changes in the fair value of a derivative will depend on the
intended use of the derivative and the resulting designation. The Company is
currently evaluating the impact of FAS 133.
Supplemental information relative to the Statement of Consolidated Cash
Flows includes the following: The Company made cash payments for interest and
financing fees, net of amounts capitalized, of $175.5 million and $146.8 million
for the six months ended June 30, 2000 and 1999, respectively. Cash payments for
income taxes amounted to $14.4 million and $1.9 million for the six months ended
June 30, 2000 and 1999, respectively.
2. INVENTORIES
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
----------- ----------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals............................... $ 908.3 $ 576.2
Coal, materials and supplies............................................ 174.0 156.5
----------- ----------
$ 1,082.3 $ 732.7
=========== ==========
</TABLE>
Elements included in inventory cost are material, labor and manufacturing
expense.
3. DEBT
At June 30, 2000, the Company had $888.7 million of outstanding
indebtedness under the Company's commercial paper program and indebtedness to
banks under short-term lines of credit. The Company's financial statements at
June 30, 2000 reflect $650 million of short-term borrowings which have been
reclassified as long-term, based on the availability of committed credit lines
with maturities in excess of one year and the Company's intent to maintain such
amounts as long-term borrowings. There was a similar reclassification of $475
million as of December 31, 1999.
8
<PAGE> 10
In August 2000, the Company issued $300 million of 7 1/2% Notes due in
2006. The net proceeds from the sale of the Notes will be used for general
corporate purposes, including the repayment of floating rate indebtedness.
In July 2000, the Company issued $200 million of Floating Rate Notes due in
2003. The Notes bear interest at a rate equal to the three-month London
Interbank Offered Rate ("LIBOR") plus 0.60%. The net proceeds from the sale were
used for general corporate purposes, including the repayment of floating rate
indebtedness.
In June 2000, the Company issued $400 million of 7 3/4% Notes due in 2010.
The net proceeds from the sale of the Notes were used to repay floating rate
indebtedness, including indebtedness of a subsidiary under a revolving credit
facility, and for general corporate purposes.
4. COMMON STOCK
On June 30, 2000, 11,811,985 shares of Common Stock of the Company were
reserved for stock option plans, 1,168,164 shares were reserved for conversion
of the Series A, B, and C Preferred Stocks, 328,811 shares were reserved for
conversion of outstanding Class A Common Stock and 15,947 shares were reserved
for conversion of Class A Common Stock subject to future issuance. The Class A
Common Stock reserved for future issuance consists of shares reserved for
conversion of the Series A, B, and C Preferred Stocks.
5. SEGMENT INFORMATION
The Company's operating revenues from external customers, intersegment
revenues and earnings (loss) before interest and income taxes for the three and
six months ended June 30, 2000 and 1999 are shown as follows (millions of
dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues From External Customers:
Natural gas ................................... $ 351.8 $ 285.2 $ 747.2 $ 620.5
Refining, marketing and chemicals ............. 2,353.7 1,402.3 4,543.2 2,588.5
Exploration and production .................... 256.2 107.8 481.5 202.8
Power ......................................... 32.7 34.6 78.8 60.7
Coal .......................................... 75.0 61.1 144.5 125.9
Corporate and other ........................... 1.7 1.1 3.5 3.3
------------- ------------- ------------- -------------
$ 3,071.1 $ 1,892.1 $ 5,998.7 $ 3,601.7
============= ============= ============= =============
</TABLE>
Intersegment revenues for the three-month period were as follows: Natural
gas - $4.5 million (2000), $1.0 million (1999); Refining, marketing and
chemicals - $2.0 million (2000), $.4 million (1999); Exploration and production
- $15.4 million (2000), $5.6 million (1999); and Corporate and other - $2.2
million (2000), $2.0 million (1999).
9
<PAGE> 11
Intersegment revenues for the six-month period were as follows: Natural gas
- $8.0 million (2000), $1.6 million (1999); Refining, marketing and chemicals -
$3.8 million (2000), $.9 million (1999); Exploration and production - $28.0
million (2000), $11.1 million (1999); and Corporate and other - $4.2 million
(2000), $4.1 million (1999).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings (Loss) Before Interest and Income Taxes:
Natural gas ................................... $ 129.3 $ 115.5 $ 321.6 $ 302.4
Refining, marketing and chemicals ............. 51.8 63.7 91.1 133.3
Exploration and production .................... 119.0 24.1 220.1 35.5
Power ......................................... 25.4 24.8 67.9 43.7
Coal .......................................... 4.2 2.6 7.4 6.9
Corporate and other ........................... (44.8) (22.0) (84.6) (44.1)
------------- ------------- ------------- -------------
$ 284.9 $ 208.7 $ 623.5 $ 477.7
============= ============= ============= =============
</TABLE>
6. INCOME TAXES
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal ........................ $ (5.5) $ 7.3 $ 19.5 $ 16.0
Foreign ........................ 2.1 1.3 4.8 2.8
State .......................... 3.3 (.3) 8.2 3.3
------------ ------------ ------------ ------------
(.1) 8.3 32.5 22.1
------------ ------------ ------------ ------------
Deferred Income Taxes:
Federal ........................ 55.2 26.7 97.7 70.0
Foreign ........................ .7 .9 1.6 1.7
State .......................... 1.0 (2.0) (.2) (2.4)
------------ ------------ ------------ ------------
56.9 25.6 99.1 69.3
------------ ------------ ------------ ------------
$ 56.8 $ 33.9 $ 131.6 $ 91.4
============ ============ ============ ============
</TABLE>
Interim period provisions for federal income taxes are based on estimated
effective annual income tax rates.
10
<PAGE> 12
7. EARNINGS PER SHARE
Earnings per share are calculated following Statement of Financial
Accounting Standards No. 128. The following data shows the amounts used in
computing basic earnings per share and the effects on income and the weighted
average number of shares of dilutive securities.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 2000
------------------------------------- ------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) Per-Share (Numerator) (Denominator) Per-Share
(Millions) (Thousands) Amount (Millions) (Thousands) Amount
----------- ------------- --------- ----------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net earnings ................... $ 127.7 $ 301.3
Less preferred stock
dividends ..................... .1 .2
---------- ---------
Basic earnings per share
Income available to
common stockholders .......... 127.6 214,130 $ .60 301.1 213,903 $ 1.41
====== ======
Effect of dilutive securities
Options ...................... -- 3,457 -- 3,001
FELINE PRIDES(sm)............. -- 1,538 -- 769
Convertible preferred stock... .1 1,196 .2 1,203
---------- --------- ---------- --------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions..... $ 127.7 220,321 $ .58 $ 301.3 218,876 $ 1.38
========== ========= ====== ========== ======== ======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 SIX MONTHS ENDED JUNE 30, 1999
------------------------------------- ---------------------------------------
Income Shares Income Shares
(Numerator) (Denominator) Per-Share (Numerator) (Denominator) Per-Share
(Millions) (Thousands) Amount (Millions) (Thousands) Amount
----------- ------------- --------- ----------- ------------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net earnings ................... $ 93.3 $ 227.8
Less preferred stock
dividends ..................... .1 .2
------- ---------
Basic earnings per share
Income available to
common stockholders .......... 93.2 213,214 $ .44 227.6 212,998 $ 1.07
======== =======
Effect of dilutive securities
Options ....................... -- 2,693 -- 2,368
Convertible preferred stock.... .1 1,243 .2 1,258
------- -------- --------- --------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions ...... $ 93.3 217,150 $ .43 $ 227.8 216,624 $ 1.05
======= ======== ======== ========= ======== =======
</TABLE>
11
<PAGE> 13
8. LITIGATION, REGULATORY AND ENVIRONMENTAL MATTERS
Litigation Matters
In December 1992, certain of Colorado Interstate Gas Company's
("Colorado" or "CIG") natural gas lessors in the West Panhandle Field filed a
complaint in the U.S. District Court, Northern District of Texas, claiming
underpayment of royalties, breach of fiduciary duty, fraud and negligent
misrepresentation. Management believes that CIG has numerous defenses to the
lessors' claims, including (i) that the royalties were properly paid, (ii) that
the majority of the claims were released by written agreement and (iii) that the
majority of the claims are barred by the statute of limitations. In March of
1995, the trial court granted a partial summary judgment in favor of CIG,
holding that the four-year statute of limitations had not been tolled and the
releases are valid and dismissing all tort claims and claims for breach of any
duty of disclosure. The remaining claim for underpayment of royalties was tried
to a jury which, in May 1995, made findings favorable to CIG. On June 7, 1995,
the trial court entered a judgment that the lessors recover no monetary damages
from CIG and permanently estopping the lessors from asserting any claim based on
an interpretation of the contract different than that asserted by CIG in the
litigation. The lessors' motion for a new trial was denied on July 18, 1997, and
both parties filed appeals. On June 7, 1996, the same plaintiffs sued CIG in
state court in Amarillo, Texas, for underpayment of royalties. CIG removed the
second lawsuit to federal court which granted a stay of the second suit pending
the outcome of the first lawsuit. Oral arguments were heard before the Fifth
Circuit Court of Appeals on December 4, 1998, and the parties are awaiting the
Court's decision.
In October 1996, the Company, along with several subsidiaries, was
named as a defendant in a suit filed by several former and current African
American employees in the U.S. District Court, Southern District of Texas
("Texas suit"). The Texas suit alleges racially discriminatory employment
policies and practices. Coastal vigorously denies these allegations and has
filed responsive pleadings. Plaintiffs' counsel are seeking to have the Texas
suit certified as a class action of all former and current African American
employees and initially claimed compensatory and punitive damages of $400
million. In February 1999, in response to Coastal's motion to deny class
certification, plaintiffs' counsel obtained permission from the Court to delete
all claims for compensatory and punitive damages and to seek equitable relief
only.
In January 1998, the plaintiffs in the Texas suit amended their suit to
exclude ANR Pipeline Company ("ANR Pipeline") employees from the potential
class. A new suit was then filed in state court in Wayne County, Michigan,
seeking to have the Michigan suit certified as a class action of African
American employees of ANR Pipeline and seeking unspecified damages as well as
attorneys and expert fees. ANR Pipeline has filed responsive pleadings denying
these allegations. In August 1999, the court denied plaintiffs' motion to have
the Michigan suit certified as a class action. Plaintiffs filed with the
Michigan Court of Appeals an application for leave to appeal the denial of the
class certification. On November 5, 1999, the Michigan Court of Appeals denied
the application for leave to appeal. The matter has been settled at a cost to
ANR Pipeline of less than $1 million. The parties have agreed to the dismissal
of the case with prejudice.
Two legal proceedings, one in federal court and the other in state
court, have been instituted against a number of gas pipeline companies and their
affiliates, including Coastal and several of its subsidiaries. The plaintiffs in
each suit seek damages for the alleged undermeasurement of the heating value and
the volume of natural gas. In the federal proceeding, Jack Grynberg filed 77
separate False Claim Act suits in September 1997 against natural gas
transmission companies and producers, gatherers, and processors of natural gas,
seeking unspecified damages which could include treble damages for the maximum
period permitted by law (potentially as much as ten years) and penalties of up
to $10,000 per false claim. In addition to the measurement claims, these suits
also allege that the defendants undervalued the gas in paying royalties. The
Coastal defendants were sued in the U.S. District Courts of Colorado and the
Eastern District of Michigan. In April 1999, the U.S. Department of Justice
notified the Company that the United States would not intervene in these cases
at that time. The MultiDistrict Litigation Panel has consolidated the Grynberg
suits with several other Grynberg cases for pre-trial proceedings in Wyoming.
The defendants filed a motion to dismiss which was argued in March 2000, and the
parties are awaiting the Court's decision. The United States has filed a motion
to dismiss part of the Grynberg case.
In the state proceedings, the Quinque Operating Company, on behalf of
itself and subclasses of gas producers,
12
<PAGE> 14
royalty owners, overriding royalty owners, and state taxing authorities, in May
1999, instituted a legal proceeding in State Court in Stevens County, Kansas
against over 200 gas companies, including several Coastal subsidiaries. The
Quinque suit seeks unspecified actual, punitive and treble damages for the
alleged undermeasurement of all natural gas measured in the United States from
non-federal and non-Indian lands since 1974. The plaintiffs are seeking
certification of a national class of all similarly situated gas producers,
royalty owners, overriding royalty owners, and state taxing authorities. The
suit was removed to the U.S. District Court for the District of Kansas. The
plaintiffs filed a motion to remand the case back to the state court. The
MultiDistrict Litigation Panel has transferred the Quinque suit to Wyoming and
consolidated it with the Grynberg proceedings as a result of a motion filed by
several of the defendants in the Quinque suit.
Numerous other lawsuits and other proceedings which have arisen in the
ordinary course of business are pending or threatened against the Company or its
subsidiaries. Although no assurances can be given and no determination can be
made at this time as to the outcome of any particular lawsuit or proceeding, the
Company believes there are meritorious defenses to substantially all such claims
and that any liability which may finally be determined should not have a
material adverse effect on the Company's consolidated financial position or
results of operations.
Environmental Matters
The Company's operations are subject to extensive and evolving federal,
state and local environmental laws and regulations. Compliance with such laws
and regulations can be costly. Additionally, governmental authorities may
enforce the laws and regulations with a variety of civil and criminal
enforcement measures, including monetary penalties and remediation requirements.
The Comprehensive Environmental Response, Compensation and Liability
Act, also known as "Superfund," imposes liability for the release of a
"hazardous substance" into the environment. Superfund liability is imposed
without regard to fault and even if the waste disposal was in compliance with
the then current laws and regulations. With the joint and several liability
imposed under Superfund, a potentially responsible party ("PRP") may be required
to pay more than its proportional share of such costs. Certain subsidiaries of
the Company and a company in which Coastal owns a 50% interest have been named
as a PRP in various "Superfund" waste disposal sites. At the eight sites for
which there is sufficient information, total cleanup costs are estimated to be
approximately $605 million, and the Company estimates its pro-rata exposure, to
be paid over a period of years, is approximately $4 million and has made
appropriate provisions. At eleven other sites, the U.S. Environmental Protection
Agency ("EPA") is currently unable to provide the Company with an estimate of
total cleanup costs and, accordingly, the Company is unable to calculate its
share of those costs.
Additionally, certain subsidiaries of the Company have been named as
PRPs in four state sites. At one site, the North Carolina Department of Health,
Environmental and Natural Resources has estimated the total cleanup costs to be
approximately $50 million, but the Company believes the subsidiary's activities
at this site were de minimis. At a second state site, the Florida Department of
Environmental Protection has demanded reimbursement of its costs, which total
approximately $300,000, and suitable remediation, with approximately $100,000
potentially attributable to the Coastal subsidiary's activities. At the third
site, the Texas Natural Resource Conservation Commission has estimated the total
cleanup costs to be approximately $2 million, but the Company believes the
subsidiary's activities at this site were de minimis. At the fourth site, a
remediation plan has been submitted to the Utah Department of Environmental
Quality for approval, with current estimated cleanup costs of approximately $1.2
million attributable to the Coastal subsidiary's activities.
Future information and developments, including legislative and
enforcement developments, will require the Company to continually reassess the
expected impact of these environmental matters. However, the Company has
evaluated its total environmental exposure based on currently available data,
including its potential joint and several liability, and believes that
compliance with all applicable laws and regulations will not have a material
adverse impact on the Company's consolidated financial position or results of
operations.
13
<PAGE> 15
Regulatory Matters
In 1999, the Federal Energy Regulatory Commission ("FERC") approved a
settlement between Wyoming Interstate Company, Ltd. ("WIC") and its customers
which resolved WIC's 1997 general rate case ("1997 rate case"). Two parties who
objected to the settlement appealed the FERC's approval to the U.S. Court of
Appeals, District of Columbia. Those parties later sought rehearing of a FERC
order which clarified the scope of the settlement. On May 19, 2000, the Court of
Appeals dismissed that appeal on the grounds that a party may not seek agency
rehearing of an order and simultaneously seek judicial review of the same order.
WIC has made refunds as required by the settlement, but has authority to recoup
those refunds in the event that the settlement is overturned or modified.
On July 1, 1999, WIC filed with the FERC a new rate case to increase
its rates by approximately $8 million annually (based on the rates determined
under the 1997 rate case). On July 29, 1999, the FERC issued its order accepting
the rate filing and suspending it for five months to become effective on January
1, 2000. The order also set the case for hearing, which is currently scheduled
to commence in the fourth quarter of 2000. WIC has filed to place its new rates
into effect on January 1, 2000, and is collecting those rates subject to refund.
In April 2000, WIC filed an offer of settlement to resolve all issues in the
case for most, if not all, parties to the proceeding. Comments on the settlement
were filed by several parties and on June 28, 2000, the Administrative Law Judge
("ALJ") certified the settlement to the FERC as "uncontested" as to all but two
parties who have opposed the settlement. The ALJ severed those parties from the
settlement's provisions and has allowed them to litigate their issues with the
final outcome applying only to any direct interests those parties may have
(e.g., contracts in their own name to ship gas on WIC). The FERC has not yet
acted on the settlement. Hearing procedures are in place to address the issues
raised by the two parties severed from the settlement.
Certain other regulatory issues remain unresolved among CIG, ANR
Pipeline, ANR Storage Company and WIC, their customers, their suppliers and the
FERC. The Company has made provisions which represent management's assessment of
the ultimate resolution of these issues. As a result, the Company anticipates
that these regulatory matters will not have a material adverse effect on its
consolidated financial position or results of operations. While the Company
estimates the provisions to be adequate to cover potential adverse rulings on
these and other issues, it cannot estimate when each of these issues will be
resolved.
9. MERGER
Coastal and El Paso Energy Corporation ("El Paso Energy") announced, on
January 18, 2000, the execution of definitive agreements for the merger of
Coastal and a subsidiary of El Paso Energy. Each share of Coastal common stock
and Class A common stock will be converted on a tax-free basis (except for cash
paid in lieu of fractional shares) into 1.23 shares of El Paso Energy common
stock. The outstanding convertible preferred stock of Coastal will be exchanged
tax free (except for cash paid in lieu of fractional shares) for El Paso Energy
common stock on the same basis as if the preferred stock had been converted into
Coastal common stock immediately prior to the merger. On May 5, 2000, the merger
was approved by the shareholders of Coastal and El Paso Energy. It is expected
that the merger will be completed during the fourth quarter of 2000 and be
accounted for as a pooling of interests. The merger is subject to additional
conditions, particularly federal regulatory approval.
14
<PAGE> 16
(b) Pro forma financial information:
The following unaudited pro forma condensed combined financial information
gives effect to the merger using the pooling of interests method of accounting.
This information is presented to show the estimated impact of the merger as if
our companies had always been combined. This presentation assumes the issuance
of approximately 270 million shares of El Paso Energy common stock in connection
with the merger. The Unaudited Pro Forma Condensed Combined Statements of Income
are prepared as if we completed the merger as of January 1, 1997, and the
Unaudited Pro Forma Condensed Combined Balance Sheet was prepared as if we
completed the merger on June 30, 2000.
The accompanying Notes to Unaudited Pro Forma Condensed Combined Financial
Statements explain the assumptions used in preparing the financial information,
and do not reflect cost savings from operating efficiencies or other
improvements we may achieve by combining our companies. The historical financial
information for Coastal includes certain reclassifications to conform to El Paso
Energy's presentation. These reclassifications have no impact on income from
continuing operations or total stockholders' equity.
Accounting policy differences and intercompany balances between El Paso
Energy and Coastal are not expected to be material and, accordingly, adjustments
have not been included in these statements.
We are providing this financial information for illustrative purposes only.
It does not necessarily indicate what the operating results and financial
position of the combined company might have been had the merger been completed
at the beginning of the earliest period presented, nor does it necessarily
indicate what the combined company's operating results and financial position
will be following the merger.
The accompanying unaudited pro forma financial information should be read
in conjunction with:
- the audited consolidated financial statements and other financial
information included in El Paso Energy's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999, including the notes to
those financial statements;
- the unaudited condensed consolidated financial statements and other
financial information included in El Paso Energy's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2000, including the notes to
those financial statements;
- the audited consolidated financial statements and other financial
information included in Coastal's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999, including the notes to those
financial statements; and
- the unaudited condensed consolidated financial statements and other
financial information included in Coastal's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, including the notes to those
financial statements, included in Item 7(a) of this Form 8-K.
15
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
ASSETS
EL PASO
ENERGY COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Total current assets............................... $ 4,853 $ 3,086 $ $ 7,939
Property, plant and equipment, net................. 10,484 10,075 20,559
Other.............................................. 3,998 2,993 6,991
------- ------- ----- -------
Total assets............................. $19,335 $16,154 $ $35,489
======= ======= ===== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total current liabilities.......................... $ 5,207 $ 2,972 $ 70 (a) $ 8,222
(27)(b)
------- ------- ----- -------
Long-term debt, less current maturities............ 4,998 5,645 10,643
------- ------- ----- -------
Deferred income taxes.............................. 1,771 1,833 3,604
------- ------- ----- -------
Other.............................................. 1,860 729 2,589
------- ------- ----- -------
Company-obligated preferred securities of
consolidated trusts.............................. 625 300 925
------- ------- ----- -------
Minority interest.................................. 1,581 451 2,032
------- ------- ----- -------
Stockholders' equity
Cumulative preferred stock....................... -- -- (c)
Class A common stock............................. -- -- (c)
Common stock..................................... 722 73 737 (c) 1,532
Additional paid-in capital....................... 1,434 1,044 (870)(c) 1,608
Retained earnings................................ 1,500 3,240 (70)(a) 4,697
27 (b)
Other............................................ (363) (133) 133 (c) (363)
------- ------- ----- -------
Total stockholders' equity............... 3,293 4,224 (43) 7,474
------- ------- ----- -------
Total liabilities and stockholders'
equity................................. $19,335 $16,154 $ $35,489
======= ======= ===== =======
</TABLE>
See accompanying notes.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO
ENERGY COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $ 7,333 $5,999 $ $13,332
------- ------ ---- -------
Operating expenses
Cost of gas and other products.................. 5,829 4,169 9,998
Operation and maintenance....................... 436 911 1,347
Merger related cost and
impairment charges............................ 46 -- 46
Depreciation, depletion, and amortization....... 293 294 587
Taxes, other than income taxes.................. 77 66 143
------- ------ ---- -------
6,681 5,440 12,121
------- ------ ---- -------
Operating income ................................. 652 559 1,211
Other income, net................................. 100 94 194
------- ------ ---- -------
Income before interest, income taxes, and minority
interest........................................ 752 653 1,405
------- ------ ---- -------
Interest and debt expense......................... 250 190 440
Minority interest................................. 49 11 60
Income tax expense ............................... 142 132 274
------- ------ ---- -------
441 333 774
------- ------ ---- -------
Income from continuing operations before
preferred dividends of subsidiaries............. 311 320 631
Preferred stock dividends of subsidiaries......... 12 19 31
------- ------ ---- -------
Income from continuing operations................. 299 301 600
Dividends on preferred stock...................... --
------- ------ ---- -------
Income from continuing operations available to
common stockholders............................ $ 299 $ 301 $ $ 600
======= ====== ==== =======
Basic earnings per share from continuing
operations available to common stockholders..... $ 1.30 $ 1.20
======= =======
Diluted earnings per share from continuing
operations available to common stockholders.... $ 1.27 $ 1.19
======== =======
Basic average common shares outstanding........... 229 270(d) 499
======= ==== =======
Diluted average common shares outstanding......... 240 270(d) 510
======= ==== =======
</TABLE>
See accompanying notes.
17
<PAGE> 19
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO
ENERGY COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $10,581 $8,197 $ $18,778
------- ------ ---- -------
Operating expenses
Cost of gas and other products.................. 7,974 5,149 13,123
Operation and maintenance....................... 979 1,587 2,566
Merger-related and asset impairment charges..... 557 557
Ceiling test charges............................ 352 352
Depreciation, depletion, and amortization....... 609 479 1,088
Taxes, other than income taxes.................. 146 100 246
------- ------ ---- -------
10,617 7,315 17,932
------- ------ ---- -------
Operating income (loss)........................... (36) 882 846
Other income, net................................. 227 146 373
------- ------ ---- -------
Income before interest, income taxes, and minority
interest........................................ 191 1,028 1,219
------- ------ ---- -------
Interest and debt expense......................... 453 323 776
Minority interest................................. 36 25 61
Income tax expense (benefit)...................... (81) 174 93
------- ------ ---- -------
408 522 930
------- ------ ---- -------
Income (loss) from continuing operations before
preferred dividends of subsidiaries............. (217) 506 289
Preferred stock dividends of subsidiaries......... 25 7 32
------- ------ ---- -------
Income (loss) from continuing operations.......... (242) 499 257
Dividends on preferred stock...................... --
------- ------ ---- -------
Income (loss) from continuing operations available
to common stockholders.......................... $ (242) $ 499 $ $ 257
======= ====== ==== =======
Basic earnings (loss) per share from continuing
operations available to common stockholders..... $ (1.06) $ 0.52
======= =======
Diluted earnings (loss) per share from continuing
operations available to common stockholders..... $ (1.06)(e) $ 0.51(e)
======= =======
Basic average common shares outstanding........... 228 269(d) 497
======= ==== =======
Diluted average common shares outstanding......... 239 (e) 269(d) 508(e)
======= ==== =======
</TABLE>
See accompanying notes.
18
<PAGE> 20
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO
ENERGY COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $9,500 $7,368 $ $16,868
------ ------ --- -------
Operating expenses
Cost of gas and other products.................. 6,970 4,377 11,347
Operation and maintenance....................... 956 1,587 2,543
Merger-related and asset impairment charges..... 15 15
Ceiling test charges............................ 1,035 1,035
Depreciation, depletion and amortization........ 624 443 1,067
Taxes, other than income taxes.................. 138 88 226
------ ------ --- -------
9,738 6,495 16,233
------ ------ --- -------
Operating income (loss)........................... (238) 873 635
Other income, net................................. 186 94 280
------ ------ --- -------
Income (loss) before interest, income taxes, and
minority interest............................... (52) 967 915
------ ------ --- -------
Interest and debt expense......................... 387 295 682
Minority interest................................. 12 16 28
Income tax expense (benefit)...................... (170) 166 (4)
------ ------ --- -------
229 477 706
------ ------ --- -------
Income (loss) from continuing operations before
preferred dividends of subsidiaries............. (281) 490 209
Preferred stock dividends of subsidiaries......... 25 7 32
------ ------ --- -------
Income (loss) from continuing operations.......... (306) 483 177
Dividends on preferred stock...................... 6 6
------ ------ --- -------
Income (loss) from continuing operations available
to common stockholders.......................... $ (306) $ 477 $ $ 171
====== ====== === =======
Basic earnings (loss) per share from continuing
operations available to common stockholders..... $(1.35) $ 0.35
====== =======
Diluted earnings (loss) per share from continuing
operations available to common stockholders..... $(1.35)(e) $ 0.34(e)
====== =======
Basic average common shares outstanding........... 226 268(d) 494
====== === =======
Diluted average common shares outstanding......... 237 (e) 268(d) 505(e)
====== === =======
</TABLE>
See accompanying notes.
19
<PAGE> 21
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER COMMON SHARE AMOUNTS)
<TABLE>
<CAPTION>
EL PASO
ENERGY COASTAL COMBINED
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues................................ $10,015 $9,730 $ $19,745
------- ------ --- -------
Operating expenses
Cost of gas and other products.................. 7,308 6,864 14,172
Operation and maintenance....................... 966 1,610 2,576
Merger-related and asset impairment charges..... 50 50
Depreciation, depletion, and amortization....... 639 433 1,072
Taxes, other than income taxes.................. 138 90 228
------- ------ --- -------
9,101 8,997 18,098
------- ------ --- -------
Operating income.................................. 914 733 1,647
Other income, net................................. 94 119 213
------- ------ --- -------
Income before interest and income taxes........... 1,008 852 1,860
------- ------ --- -------
Interest and debt expense......................... 344 308 652
Income tax expense................................ 234 138 372
------- ------ --- -------
578 446 1,024
------- ------ --- -------
Income from continuing operations before preferred
dividends of subsidiaries....................... 430 406 836
Preferred stock dividends of subsidiaries......... 25 7 32
------- ------ --- -------
Income from continuing operations................. 405 399 804
Dividends on preferred stock...................... 17 17
------- ------ --- -------
Income from continuing operations available to
common stockholders............................. $ 405 $ 382 $ $ 787
======= ====== === =======
Basic earnings per share from continuing
operations available to common stockholders..... $ 1.81 $ 1.60
======= =======
Diluted earnings per share from continuing
operations available to common stockholders..... $ 1.77 $ 1.58
======= =======
Basic average common shares outstanding........... 224 268(d) 492
======= === =======
Diluted average common shares outstanding......... 229 268(d) 497
======= === =======
</TABLE>
See accompanying notes.
20
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) This amount reflects estimated transaction costs, including legal,
accounting, filing, printing and financial advisory services fees we
estimate we will incur in connection with the merger.
(b) This amount represents the income tax consequences of the estimated
transaction costs associated with the merger, and was calculated by
multiplying those costs by an assumed income tax rate of 38 percent.
(c) These numbers reflect the exchange in the merger of 1.23 shares of El Paso
Energy common stock for each outstanding share of Coastal's common stock and
each outstanding share of Coastal's Class A common stock, 9.133 shares of El
Paso Energy common stock for each outstanding share of Coastal's Series A
and Series B convertible preferred stock, 17.980 shares of El Paso Energy
common stock for each outstanding share of Coastal's Series C convertible
preferred stock, and the cancellation of approximately $133 million of
Coastal treasury stock. These numbers also include the issuance of an
estimated 4.7 million shares of El Paso Energy common stock in exchange for
Coastal stock options and restricted stock.
(d) We determined these adjustment amounts by multiplying the average
outstanding shares of Coastal's common stock, Class A common stock, and
convertible preferred stock for each period by the applicable exchange ratio
contemplated by the merger agreement. Each period also includes the issuance
of an estimated 4.7 million shares of El Paso Energy common stock for
Coastal's stock options and restricted stock.
(e) As required by the accounting rules, we calculated diluted earnings (loss)
per common share for 1999 and 1998 by excluding from the number of common
shares outstanding, those securities which, if included, would have caused
us to show greater earnings or a lower loss per common share.
21
<PAGE> 23
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
EL PASO ENERGY CORPORATION
By: /s/ JEFFREY I. BEASON
----------------------------------------
Jeffrey I. Beason
Senior Vice President and Controller
(Chief Accounting Officer)
Date: August 18, 2000
22
