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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 14, 1999
(DATE OF EARLIEST EVENT REPORTED: DECEMBER 31, 1998)
EL PASO NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1-2700 74-0608280
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
</TABLE>
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EL PASO ENERGY BUILDING
1001 LOUISIANA STREET
HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip Code)
(713) 420-2131
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 31, 1998, El Paso Energy Corporation ("EPEC"), the corporate
parent of El Paso Natural Gas Company (the "Company"), initiated and completed a
tax-free internal reorganization of its assets and operations and those of its
subsidiaries (the "Reorganization"), in accordance with a ruling received from
the Internal Revenue Service. In the Reorganization, the Company transferred a
substantial number of its subsidiaries (and their assets, liabilities, and
operations) to EPEC or other entities owned by EPEC. After giving effect to the
Reorganization, the Company's only assets are its interstate pipeline systems
known as the EPG System and the MPC System, which connect natural gas supply
regions in New Mexico, Texas, Oklahoma and Colorado to markets in California,
Nevada, Arizona, New Mexico, Texas and northern Mexico. In the Reorganization,
the Company or its subsidiaries transferred the following assets, liabilities,
and operations to EPEC or other EPEC subsidiaries, and eliminated them from its
consolidated financial statements: (i) its trading and marketing operations;
(ii) its international operations; (iii) its field services operations; (iv) the
interstate pipeline systems known as the TGP System, Midwestern System, and East
Tennessee System; and (v) all subsidiaries with corporate or discontinued
operations.
The Company accomplished the Reorganization primarily through a series of
intercompany transactions, including a dividend of its interests in those
subsidiaries transferred in the Reorganization to EPEC or other entities owned
by EPEC. The Company will report the effect of the transfers as if it were
discontinued operations as of December 31, 1998, and accordingly will reflect
the Reorganization in all reporting periods required in its Annual Report on
Form 10-K for the year ended December 31, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Pro forma financial information:
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Financial
Statements of the Company (the "Pro Forma Financial Statements") illustrate the
effect of the Reorganization, particularly the transfer by the Company to EPEC
or other entities owned by EPEC of the following: (i) its trading and marketing
operations; (ii) its international operations; (iii) its field services
operations; (iv) the interstate pipeline systems known as the TGP System,
Midwestern System, and East Tennessee System; and (v) all subsidiaries with
corporate or discontinued operations. The transfer for the majority of
subsidiaries was accomplished through dividends by the Company to EPEC or other
entities owned by EPEC with the remaining subsidiaries transferred by sale to
EPEC or other entities owned by EPEC (the "Subsidiary Transfer Adjustments"). In
addition to the Reorganization, the Company sold preferred stock to EPEC, the
proceeds of which were used by the Company to reduce short-term debt. The Pro
Forma Financial Statements have been prepared to give effect to the
Reorganization as of and for the nine months ended September 30, 1998, and for
each of the three years ended December 31, 1997, 1996, and 1995. The Pro Forma
Financial Statements are not necessarily indicative of the actual operating
results or financial position had the Reorganization occurred as of such dates,
nor do they purport to indicate operating results or financial position which
may be attained in the future. Historical financial statements for previous
periods include certain reclassifications which were made to conform to the
current presentation. Such reclassifications have no effect on reported net
income or total stockholder's equity.
The Consolidated Company Historical column represents the unaudited
financial position and results of operations derived from the Company's
Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1998,
and the audited results of operations derived from the Company's Annual Report
on Form 10-K for the year ended December 31, 1997. The Subsidiary Transfer
Adjustments column includes the effect of deconsolidating the subsidiaries to be
transferred and the transactions to reflect the transfer in the form of a
dividend or sale to EPEC or other entities owned by EPEC. The Other Adjustments
column reflects the restoration of intercompany accounts previously eliminated
in consolidation, as well as the sale of preferred stock to EPEC and the use of
the resulting proceeds to reduce the Company's short-term debt.
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARY CONSOLIDATED
COMPANY TRANSFER OTHER COMPANY
HISTORICAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and temporary investments.............. $ 49 $ (35)(a) $ $ 14
Accounts and notes receivable, net
Customer................................. 770 (705)(a) 65
Affiliated companies..................... 423 946(a)
(143)(b) 179(c) 1,405
Inventories................................. 46 (20)(a) 26
Deferred income tax benefit................. 68 (68)(a) --
Other....................................... 322 (312)(a) 10
------ ------- ----- ------
Total current assets................ 1,678 (337) 179 1,520
Property, plant, and equipment, net........... 7,221 (5,677)(a) 1,544
Investments in unconsolidated affiliates...... 692 (688)(a) 4
Investment in consolidated affiliates......... -- 1,601(a)
(1,601)(b) --
Other......................................... 405 (317)(a) 88
------ ------- ----- ------
Total assets........................ $9,996 $(7,019) $ 179 $3,156
====== ======= ===== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Trade and other.......................... $ 726 $ (694)(a) $ $ 32
Affiliated companies..................... 27 (58)(a) 42(c) 11
Short-term borrowings (including current
maturities of long-term debt)............ 924 (2)(a) (350)(d) 572
Other....................................... 688 (667)(a) 137(c) 158
------ ------- ----- ------
Total current liabilities........... 2,365 (1,421) (171) 773
------ ------- ----- ------
Long-term debt, less current maturities....... 2,360 (1,380)(a) 980
------ ------- ----- ------
Deferred income taxes......................... 1,487 (1,344)(a) 143
------ ------- ----- ------
Other......................................... 954 (780)(a) 174
------ ------- ----- ------
Minority interest
Preferred stock of subsidiary............... 300 (300)(a) --
------ ------- ----- ------
Other minority interest..................... 65 (65)(a) --
------ ------- ----- ------
Stockholder's equity
Preferred stock............................. -- -- 350(d) 350
Common stock................................ -- -- --
Additional paid-in capital.................. 2,027 (1,291)(b) 736
Retained earnings........................... 453 (453)(b) --
Accumulated other comprehensive income...... (15) 15(a) --
------ ------- ----- ------
Total stockholder's equity.......... 2,465 (1,729) 350 1,086
------ ------- ----- ------
Total liabilities and stockholder's
equity............................ $9,996 $(7,019) $ 179 $3,156
====== ======= ===== ======
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet
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EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SUBSIDIARY TRANSFER ADJUSTMENTS
(a) Deconsolidation of the assets and liabilities of the subsidiaries to be
transferred in the Reorganization and the corresponding establishment of an
investment in consolidated affiliates
(b) Transfer by the Company of its investments in consolidated affiliates,
primarily through a dividend to EPEC or other entities owned by EPEC with
the remaining subsidiaries transferred by sale to EPEC or other entities
owned by EPEC
OTHER ADJUSTMENTS
(c) Reinstatement of affiliated company transactions that were previously
eliminated in consolidation
(d) Sale of preferred stock to EPEC, the Company's parent, for $350 million, the
proceeds of which were used to reduce the Company's short-term debt
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARY CONSOLIDATED
COMPANY TRANSFER OTHER COMPANY
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS(b) PRO FORMA
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Operating revenues....................... $4,530 $(4,173) $ $357
------ ------- ---- ----
Operating expenses
Cost of gas and other products......... 3,372 (3,372) --
Operation and maintenance.............. 523 (397) 126
Depreciation, depletion, and
amortization........................ 198 (153) 45
Taxes, other than income taxes......... 70 (47) 23
------ ------- ---- ----
4,163 (3,969) 194
------ ------- ---- ----
Operating income......................... 367 (204) 163
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Other (income) and expense
Interest and debt expense.............. 191 (133) 37 95
Other -- net........................... (113) 96 (37) (54)
------ ------- ---- ----
78 (37) 41
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Income before income taxes and minority
interest............................... 289 (167) 122
Income tax expense....................... 97 (50) 47
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Income before minority interest.......... 192 (117) 75
Minority interest
Preferred stock dividend requirement of
subsidiary.......................... 19 (19) --
------ ------- ---- ----
Net income............................... $ 173 $ (98) $ $ 75
====== ======= ==== ====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARY CONSOLIDATED
COMPANY TRANSFER OTHER COMPANY
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS(b) PRO FORMA
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Operating revenue............................ $5,638 $(5,119) $ 2 $521
------ ------- ---- ----
Operating expenses
Cost of gas and other products............. 4,125 (4,127) 2 --
Operation and maintenance.................. 664 (468) 196
Depreciation, depletion, and
amortization............................ 236 (179) 57
Taxes, other than income taxes............. 92 (64) 28
------ ------- ---- ----
5,117 (4,838) 2 281
------ ------- ---- ----
Operating income............................. 521 (281) 240
------ ------- ---- ----
Other (income) and expense
Interest and debt expense.................. 238 (151) 26 113
Other, net................................. (57) 61 (26) (22)
------ ------- ---- ----
181 (90) 91
------ ------- ---- ----
Income before income taxes and minority
interest................................... 340 (191) 149
Income tax expense........................... 129 (70) 59
------ ------- ---- ----
Income before minority interest.............. 211 (121) 90
Minority interest
Preferred stock dividend of subsidiary..... 25 (25) --
------ ------- ---- ----
Net income................................... $ 186 $ (96) $ $ 90
====== ======= ==== ====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARY CONSOLIDATED
COMPANY TRANSFER OTHER COMPANY
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS(b) PRO FORMA
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Operating revenue............................ $3,012 $(2,501) $ $511
------ ------- ---- ----
Operating expenses
Cost of gas and other products............. 2,277 (2,277) --
Operation and maintenance.................. 322 (106) 216
Depreciation, depletion, and
amortization............................ 101 (42) 59
Employee separation and asset impairment
charge.................................. 99 -- 99
Taxes, other than income taxes............. 43 (9) 34
------ ------- ---- ----
2,842 (2,434) 408
------ ------- ---- ----
Operating income............................. 170 (67) 103
------ ------- ---- ----
Other (income) and expense
Interest and debt expense.................. 110 (11) 3 102
Other, net................................. (5) 3 (3) (5)
------ ------- ---- ----
105 (8) 97
------ ------- ---- ----
Income before income taxes and minority
interest................................... 65 (59) 6
Income tax expense........................... 25 (23) 2
------ ------- ---- ----
Income before minority interest.............. 40 (36) 4
Minority interest
Preferred stock dividend of subsidiary..... 2 (2) --
------ ------- ---- ----
Net income................................... $ 38 $ (34) $ $ 4
====== ======= ==== ====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
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EL PASO NATURAL GAS COMPANY
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN MILLIONS)
<TABLE>
<CAPTION>
CONSOLIDATED SUBSIDIARY CONSOLIDATED
COMPANY TRANSFER OTHER COMPANY
HISTORICAL ADJUSTMENTS(a) ADJUSTMENTS(b) PRO FORMA
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
Operating revenues.................. $1,038 $(497) $ $541
------ ----- ---- ----
Operating expenses
Cost of gas and other products.... 402 (396) 6
Operation and maintenance......... 312 (53) 259
Depreciation, depletion, and
amortization................... 72 (19) 53
Taxes, other than income taxes.... 40 (6) 34
------ ----- ---- ----
826 (474) 352
------ ----- ---- ----
Operating income.................... 212 (23) 189
------ ----- ---- ----
Other (income) and expense
Interest and debt expense......... 86 (4) 7 89
Other, net........................ (7) 3 (7) (11)
------ ----- ---- ----
79 (1) -- 78
------ ----- ---- ----
Income before income taxes.......... 133 (22) 111
Income tax expense.................. 48 (5) 43
------ ----- ---- ----
Net income.......................... $ 85 $ (17) $ $ 68
====== ===== ==== ====
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Income
Statements
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EL PASO NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENTS
SUBSIDIARY TRANSFER ADJUSTMENTS
(a) Income and expenses associated with subsidiaries transferred to EPEC or
other entities owned by EPEC as a part of the Reorganization
OTHER ADJUSTMENTS
(b) Reinstatement of affiliated company transactions that were previously
eliminated in consolidation
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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 NATURAL GAS COMPANY
By: /s/ JEFFREY I. BEASON
----------------------------------
Jeffrey I. Beason
Vice President and Controller
(Chief Accounting Officer)
Date: January 14, 1999
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