<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: December 6, 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's common stock immediately prior to the merger. At
September 30, 2000, the total value of the transaction was approximately $23
billion, including $7 billion of assumed debt and preferred equity. We will
account for the transaction as a pooling of interests. On May 5, 2000, Coastal's
stockholders approved and adopted the merger agreement and our stockholders
approved the issuance of the common shares in connection with the merger. On
July 26, 2000, the Federal Energy Regulatory Commission (FERC) approved the
merger. We expect the transaction to close in the fourth quarter of 2000 once we
have received all necessary approvals, including the approval by the Federal
Trade Commission.
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 nine month period
ended September 30, 2000, and to include Coastal's historical financial
statements for the quarter and nine months ended September 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>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents .............................................. $ 136.7 $ 44.4
Receivables, less allowance for doubtful accounts of $10.8 million
(2000) and $17.4 million (1999) ..................................... 2,059.1 1,932.5
Inventories ............................................................ 1,010.3 732.7
Prepaid expenses and other ............................................. 205.8 213.9
------------- -------------
Total Current Assets ................................................ 3,411.9 2,923.5
------------- -------------
Property, Plant and Equipment - at cost:
Natural gas systems .................................................... 6,422.9 6,328.7
Refining, crude oil and chemical facilities ............................ 2,618.6 2,555.0
Gas and oil properties - at full cost .................................. 4,740.5 3,832.0
Other .................................................................. 684.4 581.5
------------- -------------
14,466.4 13,297.2
Accumulated depreciation, depletion and amortization ................... 4,163.0 3,959.8
------------- -------------
10,303.4 9,337.4
------------- -------------
Other Assets:
Goodwill ............................................................... 437.5 451.8
Investments - equity method ............................................ 1,581.8 1,434.9
Other .................................................................. 1,049.8 975.4
------------- -------------
3,069.1 2,862.1
------------- -------------
$ 16,784.4 $ 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>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Notes payable ..................................................... $ 210.0 $ 105.9
Accounts payable .................................................. 2,414.1 2,350.1
Accrued expenses .................................................. 538.6 420.0
Current maturities on long-term debt .............................. 220.8 161.6
------------- -------------
Total Current Liabilities ...................................... 3,383.5 3,037.6
------------- -------------
Debt:
Long-term debt, excluding current maturities ...................... 5,584.3 4,798.2
------------- -------------
Deferred Credits and Other:
Deferred income taxes ............................................. 1,883.8 1,814.2
Other deferred credits ............................................ 813.8 785.2
------------- -------------
2,697.6 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 ........................................ 286.0 285.9
------------- -------------
751.0 750.9
------------- -------------
Common Stock and Other Stockholders' Equity:
Cumulative preferred stock (with aggregate liquidation preference
of $6.9 million) ............................................... -- --
Class A common stock .............................................. .1 .1
Common stock ...................................................... 73.1 72.5
Additional paid-in capital ........................................ 1,056.4 1,031.7
Retained earnings ................................................. 3,370.8 2,965.1
------------- -------------
4,500.4 4,069.4
Less common stock in treasury - at cost ........................... 132.4 132.5
------------- -------------
4,368.0 3,936.9
------------- -------------
$ 16,784.4 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
2000 1999 2000 1999
--------- ---------- --------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues ......................................... $ 3,156.3 $ 2,060.1 $ 9,155.0 $ 5,661.8
----------- ----------- ----------- -----------
Operating Costs and Expenses:
Purchases ............................................... 2,211.3 1,295.5 6,380.1 3,425.7
Operating and general expenses .......................... 500.6 442.2 1,477.4 1,266.7
Depreciation, depletion and amortization ................ 152.5 124.2 446.7 348.6
----------- ----------- ----------- -----------
2,864.4 1,861.9 8,304.2 5,041.0
----------- ----------- ----------- -----------
Other Income - net ......................................... 27.4 22.9 92.0 78.0
----------- ----------- ----------- -----------
Earnings Before Interest and Income Taxes .................. 319.3 221.1 942.8 698.8
----------- ----------- ----------- -----------
Interest and debt expense, less $14.0 million (2000)
and $8.6 million (1999) three months and $40.6
million (2000) and $24.4 million (1999)
nine months capitalized ................................. 111.1 81.5 301.7 240.0
Taxes on income ............................................ 63.4 37.5 195.0 128.9
----------- ----------- ----------- -----------
Net Earnings ............................................... 144.8 102.1 446.1 329.9
Dividends on Preferred Stock ............................... -- -- .2 .2
----------- ----------- ----------- -----------
Net Earnings Available
to Common Stockholders .................................. $ 144.8 $ 102.1 $ 445.9 $ 329.7
=========== =========== =========== ===========
Basic Earnings Per Share ................................... $ .67 $ .48 $ 2.08 $ 1.55
=========== =========== =========== ===========
Diluted Earnings Per Share ................................. $ .65 $ .47 $ 2.03 $ 1.52
=========== =========== =========== ===========
Cash Dividends Per Common Share ............................ $ .0625 $ .0625 $ .1875 $ .1875
=========== =========== =========== ===========
</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>
NINE MONTHS ENDED SEPTEMBER 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) -- (3) --
------------ ------------ ------------ ------------
Ending balance ................................... 52 -- 53 --
============ ------------ ============ ------------
$1.83, Series B, redemption or liquidation
amount of $50 per share:
Beginning balance ................................ 58 -- 61 --
Converted to common .............................. (5) -- (1) --
------------ ------------ ------------ ------------
Ending balance ................................... 53 -- 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 ................................... (30) -- (10) --
Conversion of preferred stock and exercise of stock
options.............................................. 1 -- 3 --
------------ ------------ ------------ ------------
Ending balance ........................................ 316 .1 347 .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 ......................... 59 -- 48 --
Conversion of Class A common stock .................... 30 -- 10 --
Exercise of stock options ............................. 1,463 .6 820 .3
------------ ------------ ------------ ------------
Ending balance ........................................ 219,257 $ 73.1 217,643 $ 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>
NINE MONTHS ENDED SEPTEMBER 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........................... 24.8 13.7
Issuance of FELINE PRIDES(SM)....................... (.1) 6.5
------------ ------------
Ending balance...................................... 1,056.4 1,036.4
------------ ------------
Retained earnings:
Beginning balance................................... 2,965.1 2,519.8
Net earnings for period............................. 446.1 329.9
Dividends on preferred stock........................ (.2) (.2)
Dividends on common stock........................... (40.2) (40.0)
------------ ------------
Ending balance...................................... 3,370.8 2,809.5
------------ ------------
Less treasury stock - at cost.......................... 4,393 132.4 4,396 132.5
=========== ------------ =========== ------------
Total.................................................. $ 4,368.0 $ 3,786.0
============ ============
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Net Cash Flow From Operating Activities:
Net earnings ................................................. $ 446.1 $ 329.9
Add (subtract) items not requiring (providing) cash:
Depreciation, depletion and amortization .................. 449.8 351.3
Deferred income taxes ..................................... 166.7 96.4
Undistributed earnings from equity investments ............ (5.3) (29.3)
Working capital and other changes, excluding changes
relating to cash and non-operating activities:
Accounts receivable .................................... (127.3) (397.6)
Inventories ............................................ (301.5) (155.7)
Prepaid expenses and other ............................. 1.2 13.6
Accounts payable ....................................... (89.2) 393.6
Accrued expenses ....................................... 96.8 101.6
Other .................................................. 36.0 119.5
------------ ------------
673.3 823.3
------------ ------------
Cash Flow From Investing Activities:
Purchases of property, plant and equipment ................... (1,461.8) (1,226.8)
Proceeds from sale of property, plant and equipment .......... 7.4 9.4
Additions to investments ..................................... (167.3) (359.5)
Proceeds from investments .................................... 79.5 15.1
Net from discontinued operations ............................. (.3) --
------------ ------------
(1,542.5) (1,561.8)
------------ ------------
Cash Flow From Financing Activities:
Increase (decrease) in short-term notes ...................... (45.9) 153.0
Proceeds from issuing common stock ........................... 25.5 14.0
Proceeds from long-term debt issues .......................... 1,615.4 1,065.2
Payments to retire long-term debt ............................ (593.1) (504.2)
Dividends paid ............................................... (40.4) (40.2)
------------ ------------
961.5 687.8
------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents ............ 92.3 (50.7)
Cash and Cash Equivalents at Beginning of Period ................ 44.4 106.9
------------ ------------
Cash and Cash Equivalents at End of Period ...................... $ 136.7 $ 56.2
============ ============
</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/A 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 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and derivative instruments
used for hedging activities. It 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 corresponding offset
for the change in fair value of the derivative instruments will be to income or
other comprehensive income, depending on their designation, their intended use,
or their ability to qualify as hedges under FAS 133. The Company will adopt FAS
133 beginning January 1, 2001, and will apply the standard to all derivative
instruments that exist on that date except for derivative instruments embedded
in other contracts. As provided for in FAS 133, the Company will apply the
provisions of the standard to derivative instruments embedded in other contracts
issued, acquired, or substantially modified after December 31, 1998. The Company
is continuing to study the impact of FAS 133 and has not yet quantified the
effects on its financial statements.
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 $264.2 million and $214.6 million
for the nine months ended September 30, 2000 and 1999, respectively. Cash
payments for income taxes amounted to $17.7 million and $8.1 million for the
nine months ended September 30, 2000 and 1999, respectively.
2. INVENTORIES
Inventories were as follows (millions of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(Unaudited)
<S> <C> <C>
Refined products, crude oil and chemicals .................. $ 836.3 $576.2
Coal, materials and supplies ............................... 174.0 156.5
-------- ------
$1,010.3 $732.7
======== ======
</TABLE>
Elements included in inventory cost are material, labor and manufacturing
expense.
8
<PAGE> 10
3. DEBT
At September 30, 2000, the Company had $535 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
September 30, 2000, reflect $325 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.
In September 2000, the Company issued $215 million of 7.625% Notes due in
2008. The net proceeds from the sale of the Notes were used for general
corporate purposes, including the repayment of short-term borrowings of the
Company and its subsidiaries.
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 were 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.
4. COMMON STOCK
On September 30, 2000, 11,120,654 shares of Common Stock of the Company were
reserved for employee stock option plans, 1,139,331 shares were reserved for
conversion of the Series A, B, and C Preferred Stocks, 315,916 shares were
reserved for conversion of outstanding Class A Common Stock and 15,554 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
nine-months ended September 30, 2000 and 1999 are shown as follows (millions of
dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating Revenues From External Customers:
Natural gas ................................. $ 472.1 $ 279.3 $1,219.3 $ 899.8
Refining, marketing and chemicals ........... 2,328.6 1,527.7 6,871.8 4,116.2
Exploration and production .................. 242.9 151.7 724.4 354.5
Power ....................................... 39.7 34.0 118.5 94.7
Coal ........................................ 71.2 66.1 215.7 192.0
Corporate and other ......................... 1.8 1.3 5.3 4.6
-------- -------- -------- --------
$3,156.3 $2,060.1 $9,155.0 $5,661.8
======== ======== ======== ========
</TABLE>
Intersegment revenues for the three-month period were as follows: Natural
gas -- $2.2 million (2000), $.8 million (1999); Refining, marketing and
chemicals -- $9.9 million (2000), $.1 million (1999); Exploration and production
-- $12.1 million (2000), $7.8 million (1999); and Corporate and other -- $2.1
million (2000), $2.5 million (1999).
9
<PAGE> 11
Intersegment revenues for the nine-month period were as follows: Natural gas
-- $10.2 million (2000), $2.4 million (1999); Refining, marketing and chemicals
-- $13.7 million (2000), $1.0 million (1999); Exploration and production --
$40.1 million (2000), $18.9 million (1999); and Corporate and other -- $6.3
million (2000), $6.6 million (1999).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Earnings (Loss) Before Interest and Income Taxes:
Natural gas ....................................... $114.4 $113.6 $ 436.0 $416.0
Refining, marketing and chemicals ................. 110.8 52.6 201.9 185.9
Exploration and production ........................ 98.2 53.4 318.3 88.9
Power ............................................. 32.9 21.3 100.8 65.0
Coal .............................................. 5.3 5.9 12.7 12.8
Corporate and other ............................... (42.3) (25.7) (126.9) (69.8)
------ ------ ------- ------
$319.3 $221.1 $ 942.8 $698.8
====== ====== ======= ======
</TABLE>
6. INCOME TAXES
Provisions for income taxes were as follows (millions of dollars):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
2000 1999 2000 1999
-------- -------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current Income Taxes:
Federal ................ $ (9.4) $ 4.0 $ 10.1 $ 20.0
Foreign ................ 2.3 2.6 7.1 5.4
State .................. 2.9 3.8 11.1 7.1
------ ------ ------ ------
(4.2) 10.4 28.3 32.5
------ ------ ------ ------
Deferred Income Taxes:
Federal ................ 65.7 29.0 163.4 99.0
Foreign ................ .9 .4 2.5 2.1
State .................. 1.0 (2.3) .8 (4.7)
------ ------ ------ ------
67.6 27.1 166.7 96.4
------ ------ ------ ------
$ 63.4 $ 37.5 $195.0 $128.9
====== ====== ====== ======
</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 September 30, 2000 Nine Months Ended September 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 ...................... $144.8 $446.1
Less preferred stock
dividends ......................... -- .2
------ ------
Basic earnings per share
Income available to
common stockholders ............. 144.8 214,801 $ .67 445.9 214,213 $ 2.08
===== ======
Effect of dilutive securities
Options ......................... -- 3,507 -- 3,170
FELINE PRIDES(SM) ............... -- 3,014 -- 1,517
Convertible preferred stock ..... -- 1,171 .2 1,192
------ ------- ------ -------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions ........ $144.8 222,493 $ .65 $446.1 220,092 $ 2.03
====== ======= ===== ====== ======= ======
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999 Nine Months Ended September 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 ..................... $102.1 $329.9
Less preferred stock
dividends ........................ -- .2
------ ------
Basic earnings per share
Income available to
common stockholders ............ 102.1 213,496 $ .48 329.7 213,166 $1.55
===== =====
Effect of dilutive securities
Options ........................ -- 2,835 -- 2,524
Convertible preferred stock..... -- 1,235 .2 1,251
------ ------- ------ -------
Diluted earnings per share
Income available to
common stockholders
plus assumed conversions........ $102.1 217,566 $ .47 $329.9 216,941 $1.52
====== ======= ===== ====== ======= =====
</TABLE>
11
<PAGE> 13
8. LITIGATIONS, 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. The Fifth Circuit Court of Appeals heard oral
arguments in December 1998 and affirmed the trial court judgment in September
2000. The plaintiffs have filed a motion for rehearing of the September 2000
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. The 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 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.
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, 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.
12
<PAGE> 14
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 twelve 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.
From March to October 2000, Coastal's Eagle Point Oil Company ("CEPOC")
received several Administrative Order Notices of Civil Administrative Penalty
Assessment ("AOs") from the New Jersey Department of Environmental Protection
("NJDEP"). All of the AOs are related to similar alleged noncompliance of the
New Jersey Air Pollution Control Act pertaining to occurrences of air pollution
from the first quarter 1999 through the second quarter 2000 by CEPOC's refinery
in Westville, New Jersey. The NJDEP has assessed penalties totaling $1,148,000
for these alleged noncompliances. CEPOC has requested an administrative hearing
on all issues raised by the AOs and concurrently, is negotiating with the NJDEP
to settle the AOs.
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.
Regulatory Matters
In 1999, the Federal Energy Regulatory Commission ("FERC") approved a
settlement between Wyoming
13
<PAGE> 15
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. While the FERC has now
denied the rehearing request, the time for seeking judicial review of that order
has not yet expired. 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. In April 2000, WIC filed an offer of
settlement that would resolve all issues in the case. All but two parties agreed
to the settlement, and the FERC has approved that settlement with respect to all
of the parties except the two who objected. The FERC has allowed those two
parties to continue to litigate their issues in the case, but has clarified that
the outcome of the litigation will apply only to those parties. 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 271 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 September 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. However, this analysis will not be
fully completed until after the merger.
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. In addition, these statements do not give effect
to any severance, transition, and asset impairment charges we may incur as a
result of the merger or any operating efficiencies or cost savings that may
result from the integration of our combined operations.
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 September 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 September 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 SEPTEMBER 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............................... $ 5,857 $ 3,412 $ $ 9,269
Property, plant, and equipment, net................ 10,448 10,303 20,751
Other.............................................. 5,441 3,069 8,510
------- ------- ----- -------
Total assets............................. $21,746 $16,784 $ $38,530
======= ======= ===== =======
LIABILITIES & STOCKHOLDERS' EQUITY
Total current liabilities.......................... $ 7,256 $ 3,383 $ 260 (a) $10,762
(99)(b)
(38)(c)
------- ------- ----- -------
Long-term debt, less current maturities............ 4,566 5,584 10,150
------- ------- ----- -------
Deferred income taxes.............................. 1,962 1,884 3,846
------- ------- ----- -------
Other.............................................. 2,325 814 3,139
------- ------- ----- -------
Company-obligated preferred securities of
consolidated trusts.............................. 625 300 925
------- ------- ----- -------
Minority interest.................................. 1,581 451 2,032
------- ------- ----- -------
Stockholders' equity
Cumulative preferred stock....................... -- -- (d)
Class A common stock............................. -- -- (d)
Common stock..................................... 727 73 739 (d) 1,539
Additional paid-in capital....................... 1,480 1,056 38 (c) 1,703
(871)(d)
Retained earnings................................ 1,590 3,371 (260)(a) 4,800
99 (b)
Other............................................ (366) (132) 132 (d) (366)
------- ------- ----- -------
Total stockholders' equity............... 3,431 4,368 (123) 7,676
------- ------- ----- -------
Total liabilities and stockholders'
equity................................. $21,746 $16,784 $ $38,530
======= ======= ===== =======
</TABLE>
See accompanying notes.
16
<PAGE> 18
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 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................................ $14,320 $9,155 $ $23,475
------- ------ ---- -------
Operating expenses
Cost of gas and other products.................. 12,122 6,380 18,502
Operation and maintenance....................... 650 1,381 2,031
Merger related cost and
impairment charges............................ 46 -- 46
Depreciation, depletion, and amortization....... 443 447 890
Taxes, other than income taxes.................. 111 96 207
------- ------ ---- -------
13,372 8,304 21,676
------- ------ ---- -------
Operating income ................................. 948 851 1,799
Other income, net................................. 191 137 328
------- ------ ---- -------
Income before interest, income taxes, and minority
interest........................................ 1,139 988 2,127
------- ------ ---- -------
Interest and debt expense......................... 390 302 692
Minority interest................................. 81 16 97
Income tax expense ............................... 213 195 408
------- ------ ---- -------
684 513 1,197
------- ------ ---- -------
Income from continuing operations before
preferred dividends of subsidiaries............. 455 475 930
Preferred stock dividends of subsidiaries......... 19 29 48
------- ------ ---- -------
Income from continuing operations................. 436 446 882
Dividends on preferred stock...................... -- --
------- ------ ---- -------
Income from continuing operations available to
common stockholders............................ $ 436 $ 446 $ $ 882
======= ====== ==== =======
Basic earnings per share from continuing
operations available to common stockholders..... $ 1.89 $ 1.76
======= =======
Diluted earnings per share from continuing
operations available to common stockholders.... $ 1.83 $ 1.72
======= =======
Basic average common shares outstanding........... 230 271(e) 501
======= ==== =======
Diluted average common shares outstanding......... 242 272(e) 514
======= ==== =======
</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(f)
======= =======
Basic average common shares outstanding........... 228 269(e) 497
======= ==== =======
Diluted average common shares outstanding......... 239 (e) 269(e) 508(f)
======= ==== =======
</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(f)
====== =======
Basic average common shares outstanding........... 226 268(e) 494
====== === =======
Diluted average common shares outstanding......... 237 (e) 268(e) 505(f)
====== === =======
</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(e) 492
======= === =======
Diluted average common shares outstanding......... 229 268(e) 497
======= === =======
</TABLE>
See accompanying notes.
20
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(a) This amount reflects an estimated $70 million in transaction costs
related to the merger and an estimated $190 million in additional
compensation expense we will incur when we issue common stock for the
unvested portion of Coastal's stock options and restricted stock.
(b) This amount represents the income tax consequences of the estimated
transaction costs and the additional compensation expense associated with
the merger, and was calculated by multiplying those costs by an assumed
income tax rate of 38 percent.
(c) This amount represents the income tax consequences we will incur when we
issue common stock for the vested portion of Coastal's stock options.
(d) 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 $132 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.
(e) 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 additional shares of El Paso Energy common stock for Coastal's stock
options.
(f) 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/ H. Brent Austin
-------------------------------------
H. Brent Austin
Executive Vice President and Chief
Financial Officer
Date: December 6, 2000
22
