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: October 16, 2001
(Date of earliest event reported)
Consolidated Natural Gas Company
(Exact name of registrant as specified in its charter)
Delaware 1-3196 54-1966737
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
120 Tredegar Street
Richmond, Virginia 23219-3932
(804) 819-2000
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
(Former name or former address, if changed since last report.)
ITEM 5. OTHER EVENTS
On October 16, 2001, Consolidated Natural Gas Company (the Company) and Dominion
CNG Capital Trust I (the Trust) entered into an underwriting agreement (the
Underwriting Agreement) with Salomon Smith Barney Inc. and First Union
Securities, Inc., as Representatives of the Underwriters named in the
Underwriting Agreement, for the sale of 8,000,000 7.8% Trust Preferred
Securities (Liquidation Amount $25 per Trust Preferred Security) of the Trust.
Such Trust Preferred Securities are a portion of the $1.5 billion aggregate
principal amount of securities that were registered by the Company and the Trust
pursuant to a registration statement on Form S-3 under Rule 415 under the
Securities Act of 1933, which registration statement was declared effective on
January 4, 2001 (File No. 333-52602) (the Registration Statement). A copy of the
Underwriting Agreement including exhibits thereto, is filed as Exhibit 1.1 to
this Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro forma financial information.
The following pro forma financial information relates to the proposed merger
with Louis Dreyfus Natural Gas Corp. and replaces and supersedes in its entirety
such pro forma financial information included in the Current Report on Form 8-K,
filed October 11, 2001.
The Unaudited Pro Forma Combined Condensed Consolidated Financial Data
(Pro Forma Financial Data) reflects the historical combined condensed
consolidated financial data of CNG and Louis Dreyfus after accounting
for the proposed acquisition of Louis Dreyfus by a wholly owned
subsidiary of Dominion and the transfer of such investment in Louis
Dreyfus to CNG. The acquisition of Louis Dreyfus will be accounted for
as a purchase business combination. The Unaudited Pro Forma Combined
Condensed Consolidated Balance Sheet has been prepared as if such
transactions occurred on June 30, 2001; the Unaudited Pro Forma
Combined Condensed Consolidated Statements of Income from Continuing
Operations have been prepared as if such transactions occurred as of
January 1, 2000. The Unaudited Pro Forma Combined Condensed Financial
Data assumes total consideration for the acquisition of 100% of the
outstanding common shares of Louis Dreyfus to be $1.8 billion,
excluding $523 million of assumed Louis Dreyfus debt.
A final determination of required purchase accounting adjustments has
not been completed; accordingly, the purchase accounting adjustments
made in connection with the development of the Pro Forma Financial
Data are preliminary and have been made solely for purposes of
developing the pro forma combined financial information. The
significant adjustments to the pro forma financial position reflect
(i) the debt incurred to finance the transaction, (ii) valuation of
oil and gas exploration and production properties and (iii) Dominion's
transfer of its wholly owned subsidiary, into which Louis Dreyfus was
merged, to CNG as a capital contribution.
Management believes that the pro forma adjustments and the underlying
assumptions reasonably present the significant pro forma effects of
the proposed merger. Actual financial position and results of
operations of the combined entity will differ, perhaps significantly,
from the pro forma amounts reflected because of changes in operating
results between the dates of the pro forma financial information and
the date on which the purchase accounting adjustments are finalized.
The Pro Forma Financial Data are not necessarily indicative of actual
operating results or financial position had the transactions occurred
as of the dates indicated above, nor do they purport to indicate
operating results or financial position which may be attained in the
future.
CONSOLIDATED NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME FROM CONTINUING OPERATIONS
Year Ended December 31, 2000
---------------------------------------------
Louis Pro
CNG (As Dreyfus (As Pro Forma Forma
Reported) Reported)(A) Adjustments Combined
--------- ------------ ----------- --------
(Millions)
Operating Revenue................. $4,012 $474 $4,486
Operating Expenses:
Purchased gas, net.............. 1,705 1,705
Liquids, pipeline capacity and
other purchases................ 328 328
Restructuring and other
acquisition-related costs...... 270 270
Other operations and
maintenance.................... 586 117 $(36)(G) 667
Depreciation, depletion and
amortization................... 443 129 20(E) 592
Other taxes..................... 203 31 234
------ ---- ---- ------
Total operating expenses.......... 3,535 277 (16) 3,796
------ ---- ---- ------
Income from operations............ 477 197 16 690
Other income...................... 45 3 48
Interest and related charges...... 162 41 60(B) 263
------ ---- ---- ------
Income before income taxes........ 360 159 (44) 475
Income taxes...................... 147 61 (17)(D3) 191
------ ---- ---- ------
Income from continuing
operations....................... $ 213 $ 98 $(27) $ 284
====== ==== ==== ======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial
Data.
Six Months Ended June 30, 2001
---------------------------------------------
Louis Pro
CNG (As Dreyfus (As Pro Forma Forma
Reported) Reported)(A) Adjustments Combined
--------- ------------ ----------- --------
(Millions)
Operating Revenue................. $2,480 $368 $2,848
Operating Expenses:
Purchased gas, net.............. 1,326 1,326
Liquids, pipeline capacity and
other purchases................ 134 134
Other operations and
maintenance.................... 282 68 $(21)(G) 329
Depreciation, depletion and
amortization................... 189 65 12(E) 266
Other taxes..................... 91 23 114
------ ---- ---- ------
Total operating expenses.......... 2,022 156 (9) 2,169
------ ---- ---- ------
Income from operations............ 458 212 9 679
Other income...................... 21 1 22
Interest and related charges...... 96 17 31(B) 144
------ ---- ---- ------
Income before income taxes........ 383 196 (22) 557
Income taxes...................... 131 75 (8)(D3) 198
------ ---- ---- ------
Income from continuing
operations....................... $ 252 $121 $(14) $ 359
====== ==== ==== ======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Data.
CONSOLIDATED NATURAL GAS COMPANY
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
At June 30, 2001
----------------------------------------------
Louis Pro
CNG (As Dreyfus (As Pro Forma Forma
Reported) Reported)(A) Adjustments Combined
--------- ------------ ----------- --------
(Millions)
ASSETS
Current Assets:
Cash and cash equivalents...... $ 77 $ 2 $ 79
Accounts receivable, net....... 734 103 837
Inventories.................... 79 79
Commodity contract assets...... 410 68 478
Unrecovered gas costs.......... 63 63
Broker margin deposits......... 51 51
Prepayments.................... 107 107
Other.......................... 123 4 127
Net assets held for sale....... 64 64
------- ------ -------
Total current assets........... 1,708 177 1,885
------- ------ -------
Investments..................... 226 226
------- ------ -------
Property, Plant and Equipment:
Property, plant and equipment.. 9,716 2,097 $ 585(D1) 12,398
Accumulated depreciation,
depletion, and amortization... (5,023) (642) 642(D1) (5,023)
------- ------ ------ -------
Total property, plant and
equipment..................... 4,693 1,455 1,227 7,375
------- ------ ------ -------
Deferred Charges and Other
Assets:
Goodwill, net.................. 242(D2) 242
Regulatory assets, net......... 181 181
Prepaid pension costs.......... 486 486
Commodity contract assets...... 216 60 276
Other.......................... 31 4 35
------- ------ ------ -------
Total deferred charges and
other assets.................. 914 64 242 1,220
------- ------ ------ -------
Total assets.................... $ 7,541 $1,696 $1,469 $10,706
======= ====== ====== =======
LIABILITIES AND SHAREHOLDER'S
EQUITY
Current Liabilities:
Short-term debt................ $ 527 $ 527
Accounts payable, trade........ 491 $ 81 $ 19(F) 591
Payables to affiliated
companies..................... 142 142
Commodity contract
liabilities................... 259 26 285
Broker margin liabilities...... 151 151
Other.......................... 501 35 536
------- ------ ------ -------
Total current liabilities...... 2,071 142 19 2,232
------- ------ ------ -------
Long-term debt.................. 2,165 523 675(B) 3,363
------- ------ ------ -------
Deferred Credits and Other
Liabilities:
Deferred taxes................. 929 146 449(D3) 1,524
Commodity contract
liabilities................... 132 65 197
Other.......................... 148 30 178
------- ------ ------ -------
Total deferred credits and
other liabilities............. 1,209 241 449 1,899
------- ------ ------ -------
Total liabilities.............. 5,445 906 1,143 7,494
------- ------ ------ -------
Obligated manditorily redeemable
preferred securities of
subsidiary trusts.............. 200(B) 200
------ -------
Common Shareholder's Equity:
Common stock................... 1,816 1,816
Other paid-in capital.......... 40 509 407(C,H) 956
Accumulated other comprehensive
income........................ 69 35 (35)(H) 69
Retaining earnings............. 171 248 (248)(H) 171
Treasury stock................. (2) 2(H)
------- ------ ------ -------
Total common shareholder's
equity........................ 2,096 790 126 3,012
------- ------ ------ -------
Total liabilities and
shareholder's equity........... $ 7,541 $1,696 $1,469 $10,706
======= ====== ====== =======
See Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Data.
CONSOLIDATED NATURAL GAS COMPANY
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
CONSOLIDATED FINANCIAL DATA
The Unaudited Pro Forma Combined Condensed Consolidated Financial Data are
based on the following assumptions:
A. Certain revenues, expenses, assets and liabilities of Louis Dreyfus have
been reclassified to conform with CNG's presentation.
B. The issuance of $675 million of long-term debt and $200 million of trust
preferred securities by CNG at an average rate of 6.75% to fund the cash
consideration distributed in exchange for the outstanding shares of Louis
Dreyfus at the closing of the merger. Also, CNG anticipates retiring
an estimated $225 million of Louis Dreyfus bank debt with proceeds from the
issuance of additional long-term debt.
C. Dominion's transfer of its wholly owned subsidiary, into which Louis
Dreyfus was merged, to CNG as a capital contribution. The net assets of
this subsidiary total $916 million and include 1) $884 million, the
estimated value of the 14.1 million shares of Dominion common stock
distributed at the closing of the merger based on the exchange ratio of
0.3226 share of Dominion common stock for each share of Louis Dreyfus
common stock; and 2) the conversion of Louis Dreyfus employee stock options
into Dominion common stock options with an estimated fair value of $32
million.
D. Purchase adjustments which have been made to the assets and liabilities of
Louis Dreyfus to reflect the effect of the merger accounted for as a
purchase business combination are as follows (in millions):
Purchase Adjustments
Total oil and gas exploration and production properties(1)........... $1,227
Goodwill(2).......................................................... 242
Deferred taxes(3).................................................... 449
1. Oil and gas exploration and production properties are adjusted to
reflect the Louis Dreyfus exploration and production properties at
estimated fair value. The fair value of proved reserves were estimated
to be $1.8 billion and unproved properties were estimated to be $842
million.
2. Goodwill is recognized, representing the portion of the purchase price
in excess of the estimated fair value of identified assets and
liabilities. No amortization of goodwill is included in the Unaudited
Pro Forma Combined Condensed Consolidated Financial Data, as provided
in Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, for business combinations completed after
June 30, 2001. The allocation of the purchase price will be based on
the fair value of identified assets and liabilities as of the date the
business combination is completed. Accordingly, goodwill will be
adjusted as a result of the determination of such fair values and thus
will differ from the amount reported in the Unaudited Pro Forma Combined
Condensed Consolidated Balance Sheet.
3. Deferred taxes are adjusted to record the additional deferred taxes,
resulting primarily from the recognition of the estimated fair value
of the Louis Dreyfus exploration and production properties. The
estimated provision for income taxes related to the pro forma
adjustments are based on an assumed combined federal and state income
tax rate of 38%.
E. Pro forma adjustments reflect the additional depletion related to the
adjustment of the Louis Dreyfus exploration and production properties to
estimated fair value under the full cost method of accounting. See Note G.
F. The companies expect to record direct costs of the merger (including fees
of financial advisors, legal counsel, independent auditors and payments
under certain employment contracts). The direct costs of the merger are
estimated to be $19 million. The estimated charges and nature of costs
included therein are subject to change, as more accurate estimates become
available. The Unaudited Pro Forma Combined Condensed Consolidated
Financial Data do not reflect the nonrecurring costs and expenses
associated with integrating the operations of the two companies, nor any
of the anticipated recurring expense savings arising from the integration.
G. CNG uses the full cost method to account for its oil and gas operations.
Louis Dreyfus utilizes the successful efforts method of accounting for its
oil and gas operations. The pro forma data reflect an estimate of the
change from the successful efforts method to the full cost method for the
Louis Dreyfus oil and gas operations. This change resulted in a $10
million and $6 million increase in after-tax earnings in the Unaudited Pro
Forma Combined Condensed Consolidated Statements of Income from Continuing
Operations for the year ended December 31, 2000 and the six months ended
June 30, 2001, respectively.
H. The application of the purchase method of accounting eliminates the
preexisting balances of Louis Dreyfus' other paid-in capital, accumulated
other comprehensive income, retained earnings and treasury stock.
(b) Exhibits
1.1 Underwriting Agreement, dated October 16, 2001, between the Company and Salomon Smith Barney Inc. and
First Union Securities, Inc. as Representatives of the Underwriters named in the Underwriting
Agreement (filed herewith).
4.1 Certificate of Trust of CNG Capital Trust I (incorporated herein by reference to Exhibit 4.5 of the
Registration Statement).
4.2 Amended and Restated Certificate of Trust of CNG Capital Trust I, amending the name of the trust to
Dominion CNG Capital Trust I (filed herewith).
4.3 Trust Agreement of CNG Capital Trust I (incorporated herein by reference to Exhibit 4.6 of the
Registration Statement).
4.4 Form of Amended and Restated Trust Agreement of the Trust (incorporated herein by reference to Exhibit
4.7 of the Registration Statement).
4.5 Form of Certificate Evidencing the 7.8% Trust Preferred Securities (contained in Exhibit A to the Amended
and Restated Trust Agreement of the Trust, the form of which is filed as Exhibit 4.4 hereto).
4.6 Form of Junior Subordinated Indenture between the Company and Bank One Trust Company, National
Association (incorporated by reference to Exhibit 4.2 to the Registration Statement).
4.7 Form of First Supplemental Indenture to Junior Subordinated Indenture (filed herewith)
4.8 Form of 7.8% Junior Subordinated Debenture (contained in Exhibit A to the First Supplemental
Indenture, the form of which is filed as Exhibit 4.7 hereto)
4.9 Form of Guarantee Agreement to be delivered by Consolidated Natural Gas Company (incorporated herein
by reference to Exhibit 4.4 of the Registration Statement).
8.1 Tax opinion of McGuireWoods LLP with respect to the Preferred Securities (filed herewith).
12 Computation of Ratio of Earnings to Fixed Charges (filed herewith).
23.1 Consent of McGuireWoods LLP is included in the tax opinion filed as Exhibit 8.1.
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 thereunto duly authorized.
CONSOLIDATED NATURAL GAS COMPANY
Registrant
/s/ G. Scott Hetzer
---------------------------------------
G. Scott Hetzer
Senior Vice President
Date: October 16, 2001
EXHIBIT INDEX
1.1 Underwriting Agreement, dated October 16, 2001, between the Company and Salomon Smith Barney Inc. and
First Union Securities, Inc. as Representatives of the Underwriters named in the Underwriting
Agreement (filed herewith).
4.1 Certificate of Trust of CNG Capital Trust I (incorporated herein by reference to Exhibit 4.5 of the
Registration Statement).
4.2 Amended and Restated Certificate of Trust of CNG Capital Trust I, amending the name of the trust to
Dominion CNG Capital Trust I (filed herewith).
4.3 Trust Agreement of CNG Capital Trust I (incorporated herein by reference to Exhibit 4.6 of the
Registration Statement).
4.4 Form of Amended and Restated Trust Agreement of the Trust (incorporated herein by reference to Exhibit
4.7 of the Registration Statement).
4.5 Form of Certificate Evidencing the 7.8% Trust Preferred Securities (contained in Exhibit A to the Amended
and Restated Trust Agreement of the Trust, the form of which is filed as Exhibit 4.4 hereto).
4.6 Form of Junior Subordinated Indenture between the Company and Bank One Trust Company, National
Association (incorporated by reference to Exhibit 4.2 to the Registration Statement).
4.7 Form of First Supplemental Indenture to Junior Subordinated Indenture (filed herewith)
4.8 Form of 7.8% Junior Subordinated Debenture (contained in Exhibit A to the First Supplemental
Indenture, the form of which is filed as Exhibit 4.7 hereto)
4.9 Form of Trust Preferred Securities Guarantee Agreement to be delivered by Consolidated Natural Gas
Company (incorporated herein by reference to Exhibit 4.4 of the Registration Statement)
8.1 Tax opinion of McGuireWoods LLP with respect to the Preferred Securities (filed herewith).
12 Computation of Ratio of Earnings to Fixed Charges (filed herewith).
23.1 Consent of McGuireWoods LLP is included in the tax opinion filed as Exhibit 8.1.