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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
August 5, 1997
ENSERCH EXPLORATION, INC.
(formerly Lone Star Energy Plant Operations, Inc.)
(Exact name of Registrant as specified in its charter)
Texas 1-12108 75-2421863
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
4849 Greenville Avenue, Dallas, Texas 75206-4186
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code: 214-692-4300
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Item 2. MERGER WITH ENSERCH EXPLORATION, INC.
(a) On August 5, 1997, the merger of ENSERCH Corporation
("ENSERCH") and Texas Utilities Company and the related merger
of Enserch Exploration, Inc. ("EEX") and Lone Star Energy Plant
Operations, Inc. ("LSEPO") were completed. Under the terms of
the EEX/LSEPO merger, LSEPO changed its name to "Enserch
Exploration, Inc." ("New EEX"), shares of EEX were
automatically converted into shares of New EEX on a one-for-one
basis in a tax-free transaction, New EEX issued 691,631 shares
of common stock to ENSERCH in exchange for outstanding LSEPO
common stock and ENSERCH distributed to its shareholders, on a
pro rata basis, all of the shares of New EEX common stock it
owned. The EEX/LSEPO Merger Agreement was previously filed
with the Securities and Exchange Commission in LSEPO's
registration statement on Form S-4 dated October 2, 1996, and
is hereby incorporated by reference in this report on Form 8-K.
Under terms of the EEX/LSEPO merger, the number of
shares issued by New EEX in exchange for the
outstanding LSEPO common stock was determined by
dividing $7 million by the average of the closing
sales price of EEX common stock for the 15 days
preceding the fifth trading day prior to the
effective time of the merger, August 5, 1997. Thus,
691,631 shares of New EEX common stock were issued
based on $7 million divided by the calculated average
of $10.121. In addition, the merger contained a
provision fixing LSEPO's merger date working capital
at $3.5 million, and LSEPO was required to make a
distribution to ENSERCH to adjust working capital to
the specified amount.
EEX has been engaged in the exploration for and the
development, production and the sale of crude oil and
natural gas since 1918 with domestic activities
currently focused in East Texas, the Gulf of Mexico
Continental shelf and Deep-Water Gulf of Mexico.
(b) Not applicable.
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Item 7. Financial Statements and Exhibits
(a)Financial Statements of Business Acquired.
The following financial statements, together with the
independent accountants' report thereon, have
previously been filed by EEX (File No. 1-11413) or
New EEX (File No. 1-12108) with the Securities and
Exchange Commission pursuant to the Exchange Act and
are incorporated by reference herein:
1. Consolidated Balance Sheets as of December 31, 1996 and
1995, Statements of Consolidated Operations for the Years Ended
December 31, 1996, 1995 and 1994 and Statements of Consolidated
Cash Flows for the Years Ended December 31, 1996, 1995 and
1994, all filed in EEX Form 10-K for the year ended December
31, 1996.
2. Condensed Consolidated Balance Sheet as of June 30, 1997
(unaudited) and Condensed Statements of Consolidated Operations
(unaudited) for the six months ended June 30, 1997 and 1996,
both filed in New EEX Form 10-Q for the quarter ended June 30,
1997.
(b) Pro Forma Financial Information.
The following unaudited pro forma financial
statements give effect to the Merger. The unaudited
condensed pro forma balance sheet as of June 30, 1997
is presented as if the Merger had occurred on that
date. The unaudited pro forma statements of
operations for each of the three years in the period
ended December 31, 1996 and the six months ended June
30, 1997 assume that the Merger occurred at the
beginning of each period presented. For financial
reporting purposes, the Merger will be treated as a
combination of entities under common control.
Accordingly, the assets and liabilities of EEX and
LSEPO will be recorded at their historical amounts.
The unaudited pro forma financial statements should
be read in conjunction with the historical financial
statements of EEX and LSEPO and "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" of EEX, incorporated by
reference herein. The unaudited pro forma
statements of operations are not necessarily
indicative of the financial results that would have
occurred had the Merger been consummated on the
indicated dates, nor are they necessarily indicative
of future financial results.
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On June 8, 1995, EEX acquired all of the capital
stock of DALEN Corporation ("Dalen"). The
acquisition was accounted for as a purchase. See
Note (d) to the Unaudited Pro Forma Financial
Statements for a summary of pro forma results of
operations of New EEX reflecting the DALEN
acquisition.
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<TABLE>
<CAPTION>
NEW EEX
UNAUDITED CONDENSED PRO FORMA BALANCE SHEET
June 30, 1997
Historical Historical Pro Forma
EEX LSEPO Adjustments New EEX
------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash $ 2,985 $ 606 $ $ 3,591
Accounts receivable - trade 43,394 3,230 46,624
Accounts receivable - affiliated
companies 5,263 5,263
Temporary advances - affiliated
companies 1,095 (642)(a) 453
Other 6,917 131 7,048
------- ------ ----- -----
Total current assets 58,559 5,062 (642) 62,979
------- ------ ----- ------
Property, Plant and
Equipment (at cost)
Gas and oil properties
(full cost method) 2,497,768 2,497,768
Other 23,104 127 23,231
--------- ------ ------- --------
Total 2,520,872 127 2,520,999
Less accumulated
depreciation
and amortization 1,131,753 65 1,131,818
--------- ------ ------ ---------
Net property, plant
and equipment 1,389,119 62 1,389,181
---------- ------ ------- ---------
Other Assets 15,439 20 15,459
---------- ------ ------- ---------
Total $1,463,117 $5,144 $ (642) $1,467,619
========== ====== ======= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable - trade $ 64,355 $287 $ $ 64,642
Temporary advances -
affiliated companies 2,807 2,807
Short term borrowings 5,000 5,000
Advances under leasing
arrangements 4,760 4,760
Current portion of capital
lease obligations 9,608 9,608
Other 11,667 633 12,300
---------- ---- ------ ---------
Total current liabilities 98,197 920 99,117
---------- ---- ------ ---------
Bank Revolving Credit Agreement 90,000 90,000
---------- ----- ------ ---------
Capital Lease Obligations 232,826 232,826
---------- ----- ------ ---------
Deferred Income Taxes 148,852 148,852
---------- ----- ------ ---------
Other Liabilities 27,531 27,531
---------- ----- ------ ---------
Company-Obligated
Mandatorily Redeemable
Preferred Securities
of Subsidiary 150,000 150,000
---------- ----- ------ ---------
Common Shareholders' Equity
Common stock and
paid in capital 948,790 1 (642)(a) 948,149
Retained earnings (deficit) (230,482) 4,223 (226,259)
Unamortized restricted
stock compensation (2,385) (2,385)
Treasury stock (212) (212)
---------- ------ ------ ---------
Common shareholders' equity 715,711 4,224 (642) 719,293
---------- ------ ------ ---------
Total $1,463,117 $5,144 $ (642) $1,467,619
========== ====== ====== =========
Pro Forma shares of common
stock outstanding (b) 126,228 692 126,920
========== ====== ===== =========
See accompanying Notes.
</TABLE>
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<TABLE>
<CAPTION>
NEW EEX
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1997
Historical Historical Pro Forma
EEX LSEPO New EEX
---------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas $ 103,651 $ $ 103,651
Oil and condensate 49,364 49,364
Natural gas liquids 2,791 2,791
Cogeneration operations 5,475 5,475
Other 783 783
--------- ------- --------
Total 156,589 5,475 162,064
--------- ------- --------
Costs and Expenses
Production and operating 25,050 25,050
Exploration 3,758 3,758
Depreciation and amortization 55,838 55,838
Write down of gas and
oil properties 385,200 385,200
Unusual charges 2,183 2,183
Cogeneration operations 5,158 5,158
General, administrative
and other 14,471 14,471
Taxes, other than income 8,954 8,954
--------- ------- --------
Total 495,454 5,158 500,612
--------- ------- --------
Operating Income (Loss) (338,865) 317 (338,548)
Other Income (Expense) - Net (71) (5) (76)
Interest Income 86 86
Interest and Other
Financing Costs (13,085) (13,085)
--------- -------- -------
Income (Loss) Before Income Taxes (351,935) 312 (351,623)
Income Taxes (Benefit) (123,181) 109 (123,072)
--------- --------- --------
Net Income (Loss) $(228,754) $203 $(228,551)
========= ========= =========
Net Income (Loss) Per Share $ (1.82) $ 0.30 $ (1.80)
========= ========= =========
Pro Forma Weighted Average
Shares Outstanding (b) 125,974 692 126,666
========= ========== ==========
See accompanying Notes.
</TABLE>
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<TABLE>
<CAPTION>
NEW EEX
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1996
Historical Historical Pro Forma
EEX LSEPO New EEX
---------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas $221,239 $ $221,239
Oil and condensate 98,902 98,902
Natural gas liquids 8,150 8,150
Cogeneration operations 11,400 11,400
Other 2,150 2,150
-------- ------- --------
Total 330,441 11,400 341,841
-------- ------- --------
Costs and Expenses
Production and operating 74,020 74,020
Exploration 12,453 12,453
Depreciation and amortization 150,435 19 150,454
Cogeneration operations 9,500 9,500
General, administrative and other 34,995 34,995
Taxes, other than income 21,715 405 22,120
-------- ------- --------
Total 293,618 9,924 303,542
-------- ------- --------
Operating Income 36,823 1,476 38,299
Other Income (Expense) - Net 2,092 200 2,292
Interest Income 66 66
Interest and Other Financing Costs (22,667) (200) (22,867)
-------- ------- --------
Income Before Income Taxes 16,314 1,476 17,790
Income Taxes 5,540 543 6,083
-------- ------- --------
Net Income $ 10,774 $ 933 $ 11,707
======== ======= ========
Net Income Per Share $ 0.09 $ 1.35 $ 0.09
======== ======= ========
Pro Forma Weighted Average
Shares Outstanding (b) 125,917 692 126,609
======== ======= ========
See accompanying Notes.
</TABLE>
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<TABLE>
<CAPTION>
NEW EEX
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Historical Historical Pro Forma
EEX LSEPO New EEX
---------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas $157,308 $ $ 157,308
Oil and condensate 56,525 56,525
Natural gas liquids 4,859 4,859
Cogeneration operations 16,507 16,507
Other 2,159 2,159
-------- ------- --------
Total 220,851 16,507 237,358
-------- ------- --------
Costs and Expenses
Production and operating 49,792 49,792
Exploration 11,848 11,848
Depreciation and amortization 116,614 14 116,628
Cogeneration operations 13,877 13,877
General, administrative and other 29,937 29,937
Taxes, other than income 18,813 367 19,180
-------- ------- --------
Total 227,004 14,258 241,262
-------- ------- --------
Operating Income (Loss) (6,153) 2,249 (3,904)
Other Income (Expense) - Net 64 97 161
Interest Income 1,027 1,027
Interest and Other Financing Costs (14,617) (105) (14,722)
-------- ------- --------
Income (Loss) Before Income Taxes (19,679) 2,241 (17,438)
Income Taxes (Benefit) (7,177) 871 (6,306)
-------- ------- --------
Net Income (Loss) $(12,502) $ 1,370 $(11,132)
======== ======= ========
Net Income (Loss) Per Share $ (0.11) $ 1.98 $ (0.10)
======== ======= ========
Pro Forma Weighted Average
Shares Outstanding (b) 111,137 692 111,829
======== ======= ========
See accompanying Notes.
</TABLE>
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<CAPTION>
NEW EEX
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
Historical Historical Pro Forma
EEX LSEPO New EEX
---------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues
Natural gas $144,550 $ $144,550
Oil and condensate 30,880 30,880
Natural gas liquids 2,377 2,377
Cogeneration operations 12,726 12,726
Other 1,333 1,333
-------- ------- --------
Total 179,140 12,726 191,866
-------- ------- --------
Costs and Expenses
Production and operating 31,667 31,667
Exploration 9,136 9,136
Depreciation and amortization 80,819 12 80,831
Sale of inactive pipeline (7,551) (7,551)
Cogeneration operations 10,959 10,959
General, administrative and other 19,807 19,807
Taxes, other than income 13,233 352 13,585
-------- ------- --------
Total 147,111 11,323 158,434
-------- ------- --------
Operating Income 32,029 1,403 33,432
Other Income (Expense) - Net (314) (314)
Interest Income 671 671
Interest and Other Financing Costs (20,919) (20,919)
-------- ------- --------
Income Before Income Taxes 11,467 1,403 12,870
Income Taxes (Benefit) (334) 590 256
-------- ------- --------
Net Income (Loss) $ 11,801 $ 813 $ 12,614
======== ======= ========
Pro Forma Information -
Change in Tax Status (c)
Income before income taxes $ 11,467 $ 1,403 $ 12,870
Income taxes (including income
taxes on partnership
operations) 3,990 590 4,580
-------- ------- --------
Net Income $ 7,477 $ 813 $ 8,290
======== ======= ========
Net Income (Loss) Per Share $ 0.07 $ 1.17 $ 0.08
======== ======= ========
Pro Forma Weighted Average
Shares Outstanding (b) 105,821 692 106,513
======== ======= ========
See accompanying Notes.
</TABLE>
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NEW EEX
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(a) Immediately prior to the Effective Time of the Merger,
ENSERCH was required to make a capital contribution to Lone
Star Energy Plant Operations, Inc. ("LSEPO"), or LSEPO was
required to make a distribution to ENSERCH, in an amount
sufficient to cause LSEPO's working capital to be $3.5 million.
(b) In the Merger each outstanding share of EEX Common Stock
was converted into one share of New EEX Common Stock and the
outstanding shares of LSEPO were converted into a number of
shares of New EEX Common Stock determined by dividing $7.0
million by the average of the closing sales prices of EEX
Common Stock on the 15 trading days preceding the fifth trading
day prior to the effective time of the Merger, August 5, 1997.
Thus, 691,631 shares of New EEX Common Stock were issued based
on $7 million divided by the calculated average of $10.121.
(c) Except for international and SACROC operations, EEX
operated as a partnership for periods prior to 1995, and the
income or loss of the partnership was includable in the tax
returns of the individual partners. Accordingly, no
recognition was given to income taxes on partnership
operations. EEX, as a corporation, is a taxable entity. The
statements of operations for periods prior to 1995 include a
pro forma provision for income taxes on the partnership
operations based on the applicable corporate federal statutory
rate.
(d) On June 8, 1995, EEX acquired all the capital stock of
DALEN Corporation (DALEN) for cash of $340 million and assumed
DALEN's bank debt of $115 million. The acquisition was
accounted for as a purchase. The assets acquired and the
liabilities assumed were recorded at their estimated fair
value. Essentially all of the valuation adjustment was
assigned to oil and gas properties.
Following is a summary of pro forma results of operations of
New EEX assuming the DALEN acquisition had occurred at the
beginning of the periods presented:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1995 1994
------ -------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenues $285,682 $335,262
Operating Income (Loss) (3,497) 54,380
Net Income (Loss) (20,831) 24,493
Net Income (Loss) After Pro Forma
Income Taxes on Partnership Operations (20,831) 20,169
Net Income (Loss) Per Share $ (0.19) $ 0.19
</TABLE>
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(c) Exhibits.
EXHIBIT (23) -- Letter of Deloitte & Touche LLP
dated August 19, 1997 regarding financial statements
incorporated by reference.
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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 thereunto duly
authorized.
ENSERCH EXPLORATION, INC.
(Registrant)
Dated August 19, 1997 By /s/ R.E. Schmitz
-----------------------------
R. E. Schmitz
Vice President
and Controller
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EXHIBIT (23)
INDEPENDENT AUDITORS' CONSENT
Enserch Exploration, Inc.:
We consent to the incorporation by reference in this Form 8-K of Enserch
Exploration, Inc. of our report dated February 10, 1997 (March 7, 1997 as
to the third paragraph of Note 4), appearing in the Annual Report on Form
10-K of Enserch Exploration, Inc. for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 19, 1997
Enserch Exploration, Inc.:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial information of Enserch Exploration, Inc. and subsidiaries
for the periods ended June 30, 1997 and 1996, as indicated in our report dated
August 8, 1997; because we did not perform an audit, we expressed no opinion
on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997, is
incorporated by reference in this Form 8-K.
We are also aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act, is not considered a part of the Form 8-K prepared
or certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 19, 1997
