<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 12, 1999
PLAINS ALL AMERICAN PIPELINE, L.P.
(Exact name of registrant as specified in charter)
DELAWARE 1-14569 76-0582150
(State of Incorporation (Commission File No.) (I.R.S. Employer
OR ORGANIZATION) Identification No.)
500 Dallas Street, Suite 700
Houston, Texas 77002
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (713) 654-1414
================================================================================
<PAGE>
All information required by Item 7-Financial Statements of Business
Acquired is included in this Form 8-K/A for completeness. The following
information included in Item 7 is hereby amended:
<TABLE>
<CAPTION>
<S> <C>
(a) Financial Statements of Business Acquired
SCURLOCK PERMIAN BUSINESSES
INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1999 and December 31, 1998 F-1
Statements of Operations for the three months ended March 31, 1999 and 1998 F-2
Statements of Cash Flows for the three months ended March 31, 1999 and 1998 F-3
Notes to Interim Financial Statements F-4
(b) Pro Forma Financial Information (unaudited)
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Introduction F-20
Pro Forma Consolidated Balance Sheet as of March 31, 1999 F-21
Pro Forma Consolidated Statement of Income for the three months ended March 31, 1999 F-22
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998 F-23
Notes to Pro Forma Consolidated Financial Statements F-24
ITEM 7. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED AND EXHIBITS
(a) Financial Statements of Business Acquired
SCURLOCK PERMIAN BUSINESSES
INTERIM FINANCIAL STATEMENTS:
Balance Sheets as of March 31, 1999 and December 31, 1998 F-1
Statements of Operations for the three months ended March 31, 1999 and 1998 F-2
Statements of Cash Flows for the three months ended March 31, 1999 and 1998 F-3
Notes to Interim Financial Statements F-4
SCURLOCK PERMIAN BUSINESSES
FINANCIAL STATEMENTS
Report of Independent Accountants F-6
Report of Independent Accountants F-7
Statement of Operations for the years ended December 31, 1998, 1997 and 1996 F-8
Balance Sheet as of December 31, 1998 and 1997 F-9
Statement of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-10
Statement of Changes in Parent Company Investment for the years ended
December 31, 1998, 1997 and 1996 F-11
Notes to Financial Statements F-12
(b) Pro Forma Financial Information (unaudited)
PLAINS ALL AMERICAN PIPELINE, L.P.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Introduction F-20
Pro Forma Consolidated Balance Sheet as of March 31, 1999 F-21
Pro Forma Consolidated Statement of Income for the three months ended March 31, 1999 F-22
Pro Forma Consolidated Statement of Operations for the year ended December 31, 1998 F-23
Notes to Pro Forma Consolidated Financial Statements F-24
</TABLE>
2
<PAGE>
SIGNATURES
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.
Dated: June 28, 1999
PLAINS ALL AMERICAN PIPELINE, L.P.
By: PLAINS ALL AMERICAN INC.,
Its General Partner
By: /s/ Cynthia A. Feeback
-------------------------------
Name: Cynthia A. Feeback
Title: Treasurer
(Principal Accounting Officer
of the General Partner)
3
<PAGE>
SCURLOCK PERMIAN BUSINESSES
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36 $346
Accounts receivable, net 243,998 259,368
Inventory 37,208 18,258
Other current assets 2,988 445
------------- -------------
Total current assets 284,230 278,417
------------- -------------
PROPERTY AND EQUIPMENT 143,425 145,436
Less allowance for depreciation and amortization (15,215) (13,621)
------------- -------------
128,210 131,815
------------- -------------
OTHER ASSETS
Investments and long-term receivables 2,512 2,487
Other 1,706 1,892
------------- -------------
$416,658 $414,611
============= =============
LIABILITIES AND PARENT COMPANY INVESTMENT
CURRENT LIABILITIES
Accounts payable $301,440 $294,870
Payroll and benefits payable 2,539 4,865
Other current liabilities 6,498 9,731
------------- -------------
Total current liabilities 310,477 309,466
PARENT COMPANY INVESTMENT 106,181 105,145
------------- -------------
$416,658 $414,611
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-1
<PAGE>
SCURLOCK PERMIAN BUSINESSES
STATEMENTS OF OPERATIONS
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1999 1998
---------- ---------
<S> <C> <C>
REVENUES $775,331 $816,526
COSTS AND EXPENSES
Cost of sales (excludes items shown below) 763,511 805,224
Selling, general and administrative expenses 7,956 6,941
Depreciation and amortization 2,952 2,847
Taxes other than income taxes 757 1,393
Inventory market valuation charge (credit) (10,014) 4,530
---------- ---------
Total costs and expenses 765,162 820,935
---------- ---------
NET INCOME (LOSS) $10,169 ($4,409)
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
SCURLOCK PERMIAN BUSINESSES
STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss) $10,169 ($4,409)
Items not affecting cash flows
from operating activities:
Depreciation and amortization 2,952 2,847
Inventory market valuation charge (credit) (10,014) 4,530
Gain on disposal of assets (909) -
Change in assets and liabilities
Accounts receivable 14,886 20,059
Inventory (8,936) (4,747)
Accounts payable and other current liabilities (1,342) (5,951)
Other, net (524) (467)
--------- ---------
Net cash provided by (used in)
operating activities 6,282 11,862
--------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Disposal of assets 3,112 -
Capital expenditures (546) (82)
Affiliates - distributions from (investments in) (25) 21
--------- ---------
Net cash provided by (used in) investing activities 2,541 (61)
--------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Net change in Parent Company advances (9,133) (11,554)
--------- ---------
Net cash provided by (used in) financing activities (9,133) (11,554)
--------- ---------
Net increase (decrease) in cash
and cash equivalents (310) 247
Cash and cash equivalents, beginning of period 346 34
--------- ---------
Cash and cash equivalents, end of period $36 $281
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
SCURLOCK PERMIAN BUSINESSES
NOTES TO INTERIM FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
1. Scurlock Permian LLC (SPLLC) was a wholly owned subsidiary of Marathon
Ashland Petroleum LLC (MAP). MAP was formed effective January 1, 1998, and
is owned 62% by Marathon Oil Company (Marathon) and 38% by Ashland Inc.
(Ashland).
On March 17, 1999, MAP entered into an agreement with Plains Marketing,
L.P. (Plains) providing for the sale of MAP's membership interest in SPLLC
and certain other pipeline assets (collectively, the Scurlock Permian
Businesses or the Company) to Plains. This transaction was consummated on
May 12, 1999. The accompanying financial statements do not include any
adjustments that might result from the sale.
The accompanying financial statements pertain to the businesses that were
sold to Plains and represent a carve-out financial statement presentation
of a MAP operating unit as of March 31, 1999, and for the three months
ended March 31, 1999 and 1998. The unaudited interim financial statements
reflect all adjustments, consisting of normal recurring adjustments, which
in the opinion of MAP's management are necessary for a fair statement of
the results for the interim periods presented. The financial statements
include allocations and estimates of direct and indirect MAP corporate
administrative costs attributable to the Company. The methods by which such
amounts are attributed or allocated are deemed reasonable by MAP's
management. The financial information herein is not necessarily indicative
of the financial position, results of operations and cash flows that would
have been reported if the Company had operated as an unaffiliated
enterprise, nor is it indicative of future results.
In connection with the formation of MAP, Marathon acquired certain
refining, marketing and transportation net assets, including the operations
comprising SPLLC, from Ashland in exchange for a 38% interest in MAP. The
acquisition of Ashland's net assets was accounted for under the purchase
method of accounting.
The Company is an independent gatherer and marketer of crude oil in the
United States, operating in 14 states. Major operations consist of
pipeline, barge and truck operations. The pipeline component owns and
operates more than 2,400 miles of active pipelines that transport crude oil
from leases and unloading stations to major pipeline connections and
terminals. The barge facilities consist of eight owned barge terminals
located in Louisiana and Texas. The truck operations consist of a fleet of
more than 225 units transporting crude to various locations.
2. For the quarters ended March 31, 1999 and 1998, the Company was treated as
a partnership for federal and most state income tax purposes, and the tax
effect of its activities accrued to Marathon and Ashland. As a result, no
provision for federal or state income taxes has been made in the
accompanying financial statements.
3. For purposes of these separate financial statements, payables and
receivables related to transactions between the Company and MAP are
included as a component of the Parent Company investment. Transactions
during the first quarter of 1999 and 1998 between the Scurlock Permian
Businesses and Marathon and Ashland are considered to be related party
transactions.
4. At December 31, 1998, the Company recorded a charge to costs and expenses
of approximately $10 million to reflect an inventory market valuation
reserve. Such amount represented the amount by which the recorded LIFO cost
basis of crude oil inventory exceeded net realizable value as of such date.
At March 31, 1999, the inventory market valuation reserve was released due
to increased crude oil prices and inventory turnover and the Company
recognized a non cash credit to costs and expenses of approximately
$10 million.
F-4
<PAGE>
Inventories consist of the following:
March 31, 1999 December 31, 1998
--------------- ------------------
(Thousands) (Thousands)
Crude oil $30,349 $21,294
Pipeline line fill 4,400 4,638
Materials and supplies 2,182 2,004
Bulk fuel 277 336
------- -------
Total (at cost) 37,208 28,272
Less inventory market valuation reserve - 10,014
------- -------
Net inventory carrying value $37,208 $18,258
======= =======
5. The Company is the subject of, or party to, a number of pending or
threatened legal actions, contingencies and commitments involving a variety
of matters, including laws and regulations relating to the environment.
Under the agreement for the sale of the Company by MAP to Plains, MAP has
agreed to indemnify and hold harmless the Company and Plains for claims,
liabilities and losses (collectively "Losses") resulting from any act or
omission attributable to the Company's business or properties occurring
prior to the date of the closing of such sale to the extent the aggregate
amount of such Losses exceed $1 million; provided however, that claims for
such Losses must be asserted by the Company against MAP on or before May
15, 2003. Certain identified Losses and the first $25,000 of any individual
claim are not included in the calculation of the foregoing $1 million
indemnification threshold.
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Marathon Ashland Petroleum LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in parent company investment present
fairly, in all material respects, the financial position of the Scurlock Permian
Businesses (a division of Marathon Ashland Petroleum LLC, hereinafter referred
to as MAP) at December 31, 1998, and the results of their operations and their
cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
MAP's management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 30, 1999
F-6
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers of
Marathon Ashland Petroleum LLC
In our opinion, the accompanying balance sheet and the related statements of
operations, of cash flows and of changes in parent company investment present
fairly, in all material respects, the financial position of Scurlock Permian
Corporation, the predecessor entity of the Scurlock Permian Businesses, at
December 31, 1997, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Marathon Ashland Petroleum LLC's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Pittsburgh, Pennsylvania
April 30, 1999
F-7
<PAGE>
STATEMENT OF OPERATIONS (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended ----------------------------------
December 31, 1998 December 31, 1997 December 31,1996
----------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES - Note E $3,773,536 $4,267,720 $4,246,245
Costs and expenses:
Cost of sales (excludes items shown below) - Note E 3,742,276 4,214,952 4,189,303
Selling, general and administrative expenses 31,033 31,800 32,501
Depreciation and amortization 11,136 16,337 16,576
Taxes other than income taxes 2,653 2,689 2,846
Inventory market valuation charges (credit) - Note H 10,014 6,485 (2,650)
---------- ---------- ----------
Total costs and expenses 3,797,112 4,272,263 4,238,576
---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (23,576) (4,543) 7,669
Provision (benefit) for estimated income taxes - Note G - (1,176) 3,148
---------- ---------- ----------
NET INCOME (LOSS) $ (23,576) $ (3,367) $ 4,521
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
BALANCE SHEET (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Company) (Predecessor)
December 31, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 346 $ 34
Receivables (net of allowance of $180 and $153) 259,368 262,722
Inventories - Note H 18,258 26,861
Deferred income taxes - Note G - 2,270
Other current assets 445 3,422
-------- --------
Total current assets 278,417 295,309
Investments and long-term receivables - Note I 2,487 1,614
Property, plant and equipment - net - Note J 131,815 109,618
Other noncurrent assets - net 1,892 17,234
-------- --------
Total assets $414,611 $423,775
======== ========
LIABILITIES
Current liabilities:
Accounts payable $294,870 $319,111
Payroll and benefits payable 4,865 5,039
Other current liabilities 9,731 7,621
-------- --------
Total current liabilities 309,466 331,771
Long-term deferred income taxes - Note G - 2,473
Other long-term liabilities - 6,279
-------- --------
Total liabilities 309,466 340,523
PARENT COMPANY INVESTMENT - Note D 105,145 83,252
-------- --------
Total liabilities and Parent Company investment $414,611 $423,775
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
STATEMENT OF CASH FLOWS (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended --------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net income (loss) $(23,576) $ (3,367) $ 4,521
Adjustments to reconcile to net cash provided
from (used in) operating activities:
Depreciation and amortization 11,136 16,337 16,576
Inventory market valuation charges (credits) 10,014 6,485 (2,650)
Deferred income taxes - (2,057) 1,657
Gain on disposal of assets 82 18 234
Changes in current assets and liabilities:
Receivables 3,563 49,190 (51,438)
Inventories (1,946) 4,828 9,386
Accounts payable and accrued expenses (10,754) (109,103) 49,621
All other - net 190 (1,830) 3,064
-------- --------- --------
Net cash provided from (used in) operating activities (11,291) (39,499) 30,971
-------- --------- --------
INVESTING ACTIVITIES:
Disposal of assets 117 443 1,760
Capital expenditures (4,293) (8,269) (5,627)
Affiliates - distributions from (investments in) 81 95 (546)
-------- --------- --------
Net cash used in investing activities (4,095) (7,731) (4,413)
-------- --------- --------
FINANCING ACTIVITIES:
Net change in Parent Company advances 15,698 46,827 (27,017)
-------- --------- --------
Net cash provided from (used in) financing activities 15,698 46,827 (27,017)
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 312 (403) (459)
Cash and cash equivalents at beginning of year 34 437 896
-------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 346 $ 34 $ 437
======== ========= ========
</TABLE>
See Note K for supplemental cash flow information.
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
STATEMENT OF CHANGES IN PARENT COMPANY INVESTMENT (Dollars in thousands)
SCURLOCK PERMIAN BUSINESSES
(Predecessor)
Parent Company investment at December 31, 1995 $ 62,288
Net income for the year ended December 31, 1996 4,521
Net advances from (to) Parent Company (27,017)
--------
Parent Company investment at December 31, 1996 39,792
Net loss for the year ended December 31, 1997 (3,367)
Net advances from (to) Parent Company 46,827
--------
Parent Company investment at December 31, 1997 $ 83,252
========
- --------------------------------------------------------------------------------
(Company)
Parent Company investment at January 1, 1998 - Note A $113,023
Net loss for the year ended December 31, 1998 (23,576)
Net advances from (to) Parent Company 15,698
--------
Parent Company investment at December 31, 1998 $105,145
========
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SCURLOCK PERMIAN BUSINESSES
NOTE A - BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
Scurlock Permian LLC (SPLLC) is a wholly owned subsidiary of Marathon Ashland
Petroleum LLC (MAP). MAP was formed effective January 1, 1998, and is owned 62%
by Marathon Oil Company (Marathon) and 38% by Ashland Inc. (Ashland). Prior to
January 1, 1998, SPLLC was organized as a stock corporation named Scurlock
Permian Corporation and was a wholly owned subsidiary of Ashland. Throughout
these financial statements, the term, Parent Company, relates to MAP for 1998
and Ashland for 1997 and 1996.
On March 17, 1999, MAP entered into an agreement with Plains Marketing, L.P.
(Plains) providing for the sale of MAP's membership interest in SPLLC and
certain other pipeline assets (collectively, the Scurlock Permian Businesses or
the Company) to Plains. This transaction is anticipated to be consummated in the
second quarter of 1999. The accompanying financial statements do not include any
adjustments that might result from the proposed sale.
The accompanying financial statements pertain to the business that is being sold
to Plains and represent a carve-out financial statement presentation of a MAP
operating unit as of and for the year ended December 31, 1998, and of Scurlock
Permian Corporation (the Predecessor) as of December 31, 1997 and 1996 and for
the years then ended. The financial statements include allocations and estimates
of direct and indirect Parent Company corporate administrative costs
attributable to the Company or the Predecessor as described in Note D. The
methods by which such amounts are attributed or allocated are deemed reasonable
by the Parent Company's management. The financial information herein is not
necessarily indicative of the financial position, results of operations and cash
flows that would have been reported if the Company or the Predecessor had
operated as an unaffiliated enterprise, nor is it indicative of future results.
In connection with the formation of MAP, Marathon acquired certain refining,
marketing and transportation net assets, including the operations comprising
SPLLC, from Ashland in exchange for a 38% interest in MAP. The acquisition of
Ashland's net assets was accounted for under the purchase method of accounting.
As a result, the financial statements of the Scurlock Permian Businesses for the
year ended December 31, 1998, were prepared on a different basis than the
financial statements of the Predecessor for the years ended December 31, 1997
and 1996. Due to this lack of comparability, a "black line" has been used to
separate the reporting periods.
The Company and the Predecessor are independent gatherers and marketers of crude
oil in the United States, operating in 14 states. Major operations consist of
pipeline, barge and truck operations. The pipeline component owns and operates
more than 2,400 miles of active pipelines that transport crude oil from leases
and unloading stations to major pipeline connections and terminals. The barge
facilities consist of eight owned barge terminals located in Louisiana and
Texas. The truck operations consist of a fleet of more than 250 units
transporting crude to various locations.
NOTE B - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES
PRINCIPLES APPLIED IN CONSOLIDATION - The investment in the entity over which
the Company or the Predecessor has significant influence is accounted for using
the equity method. The proportionate share of income from this equity method
investment is included in revenues. The investment in the other entity over
which the Company or the Predecessor does not have significant influence and
whose stock does not have a readily determinable fair value is carried at cost.
USE OF ESTIMATES - Generally accepted accounting principles require management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at year end and
the reported amounts of revenues and expenses during the year. Significant items
subject to such estimates and assumptions include the carrying value of long-
lived assets, valuation allowances for receivables and inventories,
environmental liabilities and liabilities for potential claims and settlements.
Actual results could differ from the estimates and assumptions used.
REVENUE RECOGNITION - Revenues principally include sales, equity income and
gains or losses on the disposal of assets. Sales are recognized when products
are shipped or services are provided to customers. Matching crude oil buy/sell
transactions settled in cash are included in both revenues and costs and
expenses, with no effect on income. As of December 31, 1998 and 1997,
receivables from two customers comprised 11 percent and 12 percent,
respectively, of total receivables.
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE B - SUMMARY OF PRINCIPAL ACCOUNTING POLICIES - Continued
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and
on deposit. The Company and the Predecessor participate in the Parent Company's
centralized funding and cash management system (non-interest bearing) (see
Note D).
Inventories - Inventories are carried at lower of cost or market. Cost of
inventories is determined primarily under the last-in, first-out (LIFO) method.
DERIVATIVE INSTRUMENTS - The Company and the Predecessor engage in commodity
risk management activities within the normal course of its business as an end-
user of derivative instruments (see Note M). Management is authorized to manage
exposure to price fluctuations related to the purchase and sale of crude oil
through the use of derivative non-financial instruments. Derivative non-
financial instruments require or permit settlement by delivery of commodities
and include exchange-traded commodity futures contracts. The Company's and the
Predecessor's practices do not permit derivative positions to remain open if the
underlying physical market risk has been removed. Changes in the market value of
derivative instruments are deferred, including both closed and open positions,
and are subsequently recognized in income, as sales or cost of sales, in the
same period as the underlying transaction. The margin receivable accounts
required for open commodity contracts reflect changes in the market prices of
the underlying commodity and are settled on a daily basis.
Recorded deferred gains or losses are reflected within other current assets or
accounts payable. Cash flows from the use of derivative instruments are reported
in the same category as the hedged item in the Statement of Cash Flows.
LONG-LIVED ASSETS - Property, plant and equipment are stated at cost and are
depreciated principally by the straight-line method based on estimated useful
lives of: a) 15 years for right of way, b) 5 to 15 years for building and
furniture, and c) 3 to 15 years for transportation and terminal equipment.
Impairment of assets is evaluated on an individual asset basis or by logical
groupings of assets. Assets deemed to be impaired are written down to their fair
value, including any related goodwill, using discounted future cash flows and,
if available, comparable market values.
ENVIRONMENTAL LIABILITIES - Provision is made for remediation costs and
penalties when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. Generally, the timing of
remediation accruals coincides with completion of a feasibility study or the
commitment to a formal plan of action. Remediation liabilities are accrued based
on estimates of known environmental exposure (see Note N).
INSURANCE - The Company and the Predecessor maintain insurance for catastrophic
casualty and certain property and business interruption exposures, as well as
those risks required to be insured by law or contract. Costs resulting from
noninsured losses are charged against income upon occurrence.
INCOME TAXES - For the year ended December 31, 1998, the Company was treated as
a partnership for federal and most state income tax purposes, and the tax effect
of its activities accrued to Marathon and Ashland. As a result, no provision for
federal or state income taxes has been made in the accompanying financial
statements for 1998 activity.
Prior to January 1, 1998, when the Predecessor was wholly owned by Ashland, it
operated as a corporation. Accordingly, these financial statements include a
provision for income taxes for the periods ended December 31, 1997 and 1996.
Income taxes pertaining to the years 1997 and 1996 are computed on a separate
return basis using the liability method as prescribed by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Because the
Predecessor was included in the federal and state income tax returns filed by
Ashland, the calculation of the related tax provisions and deferred taxes
necessarily requires certain assumptions, allocations and estimates which
management believes are reasonable to reflect the tax reporting for the
Predecessor as a stand-alone taxpayer.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of most financial
instruments are based on historical costs. The carrying values of cash and cash
equivalents, receivables and payables approximate their fair value due to the
short-term maturity of these instruments.
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE C - NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS No. 133). This new standard requires recognition
of all derivatives as either assets or liabilities at fair value. SFAS No. 133
may result in additional volatility in both current period earnings and other
comprehensive income as a result of recording recognized and unrecognized gains
and losses resulting from changes in the fair value of derivative instruments.
SFAS 133 requires a comprehensive review of all outstanding derivative
instruments to determine whether or not their use meets the hedge accounting
criteria. It is possible that there will be derivative instruments employed in
the Company's businesses that do not meet all of the designated hedge criteria,
and they will be reflected in income on a mark-to-market basis. Based upon the
strategies currently employed by the Company, the relatively short-term duration
of most of the Company's derivative strategies, and the level of activity
related to commodity-based derivative instruments in recent periods, the Company
does not anticipate the effect of adoption to have a material impact on either
financial position or results of operations. The Company plans to adopt SFAS No.
133 effective January 1, 2000, as required.
NOTE D - PARENT COMPANY INVESTMENT, ALLOCATIONS AND RELATED PARTY TRANSACTIONS
For purposes of these separate financial statements, payables and receivables
related to transactions between the Company and MAP and the Predecessor and
Ashland, as well as payables and refunds related to income taxes, are included
as a component of the Parent Company investment. Transactions in 1998 between
the Scurlock Permian Businesses and Marathon and Ashland are considered to be
related party transactions.
The Company's sales in 1998 to Ashland were $580 thousand; sales to MAP were
$732,832 thousand; and sales to Marathon were $2,195 thousand. The Predecessor's
sales in 1997 and 1996 to Ashland were $793,920 thousand and $942,299 thousand,
respectively. The Company's purchases in 1998 from MAP totaled $106,317 thousand
and purchases from Marathon were $9,531 thousand. The Predecessor's purchases in
1997 and 1996 from Ashland totaled $129,816 thousand and $121,837 thousand,
respectively. Such transactions were in the ordinary course of business and
include the purchase, sale and transportation of crude oil.
MAP, Ashland and Marathon provided computer, treasury, accounting, internal
auditing and legal services to the Company in 1998 and Ashland provided such
services to the Predecessor in 1997 and 1996. Charges for these services were
allocated based on usage or other methods, such as headcount and square footage,
that management believed to be reasonable. Charges to the Company for these
services for the year ended December 31, 1998 totaled $7,722 thousand. Ashland
charges for these services in 1997 and 1996 were $7,787 thousand and $6,423
thousand, respectively. The Parent Company uses a centralized cash management
system (non-interest bearing) under which cash receipts of the Company and the
Predecessor were remitted to the Parent Company and cash disbursements of the
Company and the Predecessor were funded by the Parent Company.
As of December 31, 1998, receivables included $832 thousand due from Ashland.
The Company's accounts payable as of December 31, 1998, included $1,601 thousand
due to Marathon.
NOTE E - REVENUES
The items below are included in revenues and costs and expenses, with no effect
on income.
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended ------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
<S> <C> <C> <C>
Matching crude oil buy/sell
transactions settled in cash $2,179,843 $2,851,069 $2,665,054
</TABLE>
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE F - EMPLOYEE BENEFITS
For the purposes of these financial statements, the Company and the Predecessor
are considered to participate in multi-employer benefit plans.
The Company's employees were included in the various employee benefit plans of
MAP in 1998 and the Predecessor's employees were included in the various
employee benefit plans of Ashland for the years ended December 31, 1997 and
1996. These plans included retirement plans, employee and retiree medical,
dental and life insurance plans, 401(k) and profit-sharing plans and other such
benefits.
MAP has noncontributory defined benefit pension plans covering substantially all
employees of the Scurlock Permian Businesses. Benefits under these plans are
based primarily upon years of service and career earnings. The funding policy
for all plans provides that payments to the pension trusts shall be equal to the
minimum funding requirements of the Employee Retirement and Income Security Act,
plus such additional amounts as may be approved. No charges have been allocated
to the Scurlock Permian Businesses for the MAP defined benefit pension plans for
the year ended December 31, 1998, as the plans are in an overfunded position.
MAP also has defined benefit retiree health insurance plans covering most
employees of the Scurlock Permian Businesses upon their retirement. Health
benefits are primarily provided through comprehensive hospital, surgical and
major medical benefit provisions subject to various cost-sharing features.
The Company's and the Predecessor's share of employee benefit expenses were
$3,121 thousand, $4,815 thousand and $4,117 thousand for the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE G - INCOME TAXES
Provision (benefit) for estimated income taxes:
(Predecessor) Year Ended
---------------------------------------
December 31, 1997 December 31, 1996
------------------ ------------------
(Thousands) (Thousands)
FEDERAL TAXES:
Current $ 821 $1,389
Deferred (2,057) 1,657
------- ------
Total federal taxes (1,236) 3,046
STATE AND LOCAL TAXES: 60 102
------- ------
Total provision (benefit) $(1,176) $3,148
======= ======
For the year ended December 31, 1998, the Company was treated as a partnership
for federal and most state income tax purposes and the tax effect of its
activities accrued to Marathon and Ashland. As a result, no provision for income
taxes has been made in the accompanying financial statements for 1998 activity.
Prior to January 1, 1998, the Predecessor was wholly owned by Ashland and
operated as a corporation. Accordingly, these financial statements include a
provision for income taxes for the periods ended December 31, 1997 and 1996.
Income taxes pertaining to the years 1997 and 1996 are computed on a separate
return basis using the liability method as prescribed by Statement of Financial
Accounting Standards No. 109.
The deferred tax asset and liability at December 31, 1997 principally arise from
differences between the book and tax basis of inventory and property, plant and
equipment, respectively.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE G - INCOME TAXES - Continued
A reconciliation of the federal statutory tax rate (35%) to the total income tax
provision (benefit) follows:
<TABLE>
<CAPTION>
(Predecessor)
1997 1996
------------- -----------
(Thousands) (Thousands)
<S> <C> <C>
Statutory rate applied to income before income taxes $(1,590) $2,684
Nondeductible goodwill and business expenses 375 398
State and local income taxes after federal income tax
benefit 39 66
------- ------
Total provision (benefit) $(1,176) $3,148
======= ======
</TABLE>
NOTE H - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(Company) (Predecessor)
December 31, 1998 December 31, 1997
------------------ ------------------
(Thousands) (Thousands)
<S> <C> <C>
Crude oil $21,294 $24,417
Pipeline line fill 4,638 6,273
Materials and supplies 2,004 2,248
Bulk fuel 336 408
------- -------
Total (at cost) 28,272 33,346
Less inventory market valuation reserve 10,014 6,485
------- -------
Net inventory carrying value $18,258 $26,861
======= =======
</TABLE>
Inventories of crude oil and pipeline line fill are valued by the LIFO method.
At December 31, 1998 and 1997, the LIFO method accounted for approximately 92%
of the total inventory value. During 1997, inventory quantities were reduced.
This reduction resulted in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of 1997
purchases, the effect of which decreased cost of goods sold by approximately
$1,382 thousand and increased net income by approximately $898 thousand.
The inventory market valuation reserve reflects the extent that the recorded
LIFO cost basis of crude oil inventories exceeds net realizable value. The
reserve is decreased to reflect increases in market prices and inventory
turnover and increased to reflect decreases in market prices. Changes in the
inventory market valuation reserve result in noncash charges or credits to costs
and expenses.
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE I - INVESTMENTS AND LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
(Company) (Predecessor)
December 31, 1998 December 31, 1997
------------------ ------------------
(Thousands) (Thousands)
<S> <C> <C>
Equity method investment $2,466 $ 981
Cost method investment - 633
Other 21 -
------ -------
$2,487 $ 1,614
====== =======
</TABLE>
The following represents summarized financial information of the affiliate
accounted for by the equity method of accounting:
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended --------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
<S> <C> <C> <C>
Income data:
Revenues $2,110 $2,474 $3,039
Operating income 66 135 252
Net income 66 135 252
December 31, 1998 December 31, 1997
----------------- -----------------
(Thousands) (Thousands)
Balance sheet data:
Current assets $ 44 $ 28
Non-current assets 1,835 1,961
Current liabilities 44 28
</TABLE>
Dividends and partnership distributions received from equity affiliates in 1998,
1997 and 1996 were $81 thousand, $95 thousand and $86 thousand, respectively.
Purchases from equity affiliates in 1998, 1997 and 1996 totaled $2,110 thousand,
$2,474 thousand and $3,039 thousand, respectively. Sales to equity affiliates in
1998, 1997 and 1996 totaled $1,552 thousand, $1,825 thousand and $2,233
thousand, respectively.
NOTE J - PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
(Company) (Predecessor)
December 31, 1998 December 31, 1997
------------------ ------------------
(Thousands) (Thousands)
<S> <C> <C>
Land $ 1,270 $ 2,190
Construction in progress 3,025 385
Right of way 17,928 39,604
Building and furniture 3,323 20,402
Transportation and terminal equipment 119,890 210,958
-------- --------
Total 145,436 273,539
Less accumulated depreciation 13,621 163,921
-------- --------
Net $131,815 $109,618
======== ========
</TABLE>
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE K - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(Predecessor)
(Company) Year Ended
Year Ended -------------------------------------
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
(Thousands) (Thousands)
<S> <C> <C> <C>
Income taxes paid to Parent Company $ - $5,517 $5,836
Non-cash investing and financing activities:
Like-kind exchanges of transportation equipment $4,540 $ - $5,102
</TABLE>
NOTE L - LEASES
The Company and the Predecessor lease a wide variety of facilities and equipment
under operating leases, including land and building space, office equipment, and
transportation equipment.
Future minimum commitments of the Company for operating leases having remaining,
noncancelable lease terms in excess of one year are as follows:
Operating Leases
-----------------
(Thousands)
1999 $ 2,073
2000 2,071
2001 2,073
2002 524
2003 384
Later Years 4,811
-------
Total minimum lease payments $11,936
=======
Operating lease costs, which consisted principally of minimum rentals, were
$9,396 thousand, $9,430 thousand and $10,922 thousand for the years ended
December 31, 1998, 1997 and 1996, respectively.
F-18
<PAGE>
NOTES TO FINANCIAL STATEMENTS - Continued
NOTE M - DERIVATIVE INSTRUMENTS
The Company and the Predecessor use exchange-traded future contracts to manage
exposure to price fluctuations related to the anticipated purchase and sale of
crude oil. The exchange-traded futures contracts do not have a corresponding
fair value since changes in market prices are settled on a daily basis. The
Company remains at risk for possible changes in the market value of the
derivative instrument; however, such risk should be mitigated by price changes
in the underlying hedged item.
The following table sets forth quantitative information for exchange-traded
commodity futures:
Recorded
Deferred Aggregate
Gain or Contract
(Loss) Values (a)
------------ ----------------
(Thousands) (Thousands)
(Company)
DECEMBER 31, 1998:
Exchange-traded commodity futures $ 191 $ 8,964
(Predecessor)
DECEMBER 31, 1997:
Exchange-traded commodity futures $ (2,817) $ 29,157
(a) Contract or notional amounts do not quantify risk exposure, but are used in
the calculation of cash settlements under the contracts. The contract or
notional amounts do not reflect the extent to which positions may offset
one another.
NOTE N - CONTINGENCIES AND COMMITMENTS
The Company and the Predecessor are the subject of, or party to, a number of
pending or threatened legal actions, contingencies and commitments involving a
variety of matters, including laws and regulations relating to the environment.
Certain of these matters are discussed below. The ultimate resolution of these
contingencies could, individually or in the aggregate, be material to the
Company's financial statements. However, the Company's management believes that
the Company will remain a viable and competitive enterprise even though it is
possible that these contingencies could be resolved unfavorably.
ENVIRONMENTAL MATTERS - The Company and the Predecessor are subject to federal,
state, and local laws and regulations relating to the environment. These laws
generally provide for control of pollutants released into the environment and
require responsible parties to undertake remediation of hazardous waste disposal
sites. Penalties may be imposed for noncompliance. At December 31, 1997, the
Predecessor had $4,228 thousand accrued for remediation costs on existing
properties. In connection with the formation of MAP (see Note A), Marathon and
Ashland retained the liability, subject to certain thresholds, for costs
associated with remediating conditions existing prior to January 1, 1998. No
amounts were accrued by the Company at December 31, 1998 for environmental
matters. It is not presently possible to estimate the ultimate amount of all
remediation costs that might be incurred or the penalties that may be imposed.
COMMITMENTS - The Company has a contract for use of an oil terminal in Louisiana
with an initial three-year term that began on July 1, 1998. At the end of three
years, the agreement will automatically extend from year to year unless either
party cancels it. The Company is committed to a "minimum receipt throughput
volume" of 4,500 barrels per day at $.25 per barrel.
F-19
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
INTRODUCTION
The accompanying unaudited pro forma consolidated financial statements are
presented to reflect the acquisition of Scurlock Permian LLC and certain other
pipeline assets (the "Scurlock Acquisition") from Marathon Ashland Petroleum LLC
("MAP") by Plains Scurlock Permian, L.P. ("Plains Scurlock"), a newly formed
operating limited partnership of Plains All American Pipeline, L.P. ("PAA"). The
Scurlock Acquisition was consummated on May 12, 1999, and has been accounted for
using the purchase method of accounting. The pro forma consolidated balance
sheet as of March 31, 1999 and the pro forma consolidated statement of income
for the three months ended March 31, 1999 are based upon the historical
financial statements of PAA, and the Scurlock Permian Businesses ("Scurlock").
The Scurlock financial statements pertain to the business sold to PAA by MAP and
represent a carve-out financial statement presentation of a MAP operating unit.
PAA is a limited partnership formed in the third quarter of 1998, to acquire and
operate the midstream crude oil business and assets of Plains Resources Inc. and
its wholly owned subsidiaries (the "Plains Midstream Subsidiaries" or the
"Predecessor"). On November 23, 1998, PAA completed the initial public offering
and the transactions whereby PAA became the successor to the business of the
Predecessor. The pro forma consolidated statement of operations for the year
ended December 31, 1998, is based on the historical consolidated income
statement of PAA (for the period from November 23, 1998 to December 31, 1998),
the historical combined income statement of the Predecessor (for the period from
January 1, 1998 to November 22, 1998), and the historical statement of
operations of Scurlock for the year ended December 31, 1998. Certain
reclassifications have been made to the historical Scurlock financial statements
to conform to PAA's presentation (see pro forma note K).
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results of the future operations of PAA. The
unaudited pro forma consolidated financial statements should be read in
conjunction with the notes thereto and the historical financial statements of
Scurlock, included in Item 7 (a) of this Form 8-K/A. In addition, reference
should be made to the historical financial statements of PAA included in Form
10-K for the year ended December 31, 1998, and included in Form 10-Q for the
three months ended March 31, 1999, filed with the Securities and Exchange
Commission.
The following unaudited pro forma consolidated financial statements have
been prepared as if the Scurlock Acquisition and related transactions had taken
place on March 31, 1999, in the case of the pro forma consolidated balance sheet
or as of January 1, 1998, in the case of the pro forma consolidated statement of
income for the three months ended March 31, 1999, and the pro forma consolidated
statement of operations for the year ended December 31, 1998.
F-20
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (unaudited)
MARCH 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical
-----------------------------
Plains All Scurlock
American Permian Pro Forma
Pipeline, L.P. Businesses Adjustments Note Pro Forma
-------------- ------------- ------------- ------- --------------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 683 $ 36 $ 142,365 A $ 719
(142,365) B
Accounts receivable 156,159 243,998 42,743 C 433,732
(9,168) J
Due from affiliates 4,757 - - 4,757
Inventory 24,564 37,208 (16,057) B 43,256
(2,459) B
Prepaid expenses and other 852 2,988 - 3,840
-------------- ------------- ------------- --------------
Total current assets 187,015 284,230 15,059 486,304
-------------- ------------- ------------- --------------
PROPERTY AND EQUIPMENT
Crude oil pipeline, gathering and terminal assets 380,956 143,425 124,725 B 505,681
(138,287) B
(5,138) D
Other property and equipment 671 - 1,503 B 2,174
-------------- ------------- ------------- --------------
381,627 143,425 (17,197) 507,855
Less allowance for depreciation and amortization (3,177) (15,215) 14,646 B (3,177)
569 D
-------------- ------------- ------------- --------------
378,450 128,210 (1,982) 504,678
-------------- ------------- ------------- --------------
OTHER ASSETS
Pipeline linefill 57,001 - 16,057 B 73,058
Other 10,846 4,218 (2,514) B 13,946
(1,704) B
3,100 B
-------------- ------------- ------------- --------------
$ 633,312 $ 416,658 $ 28,016 $1,077,986
============== ============= ============= ==============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and other current liabilities $ 151,385 $ 310,477 $ 1,000 B $ 453,694
(9,168) J
Interest payable 1,356 - - 1,356
Due to affiliates 12,285 - - 12,285
Notes payable 4,100 - - 4,100
-------------- ------------- ------------- --------------
Total current liabilities 169,126 310,477 (8,168) 471,435
LONG-TERM LIABILITIES
Bank debt 181,000 - 117,112 A 298,112
Other 155 - - 155
-------------- ------------- ------------- --------------
Total liabilities 350,281 310,477 108,944 769,702
-------------- ------------- ------------- --------------
PARENT COMPANY INVESTMENT - 106,181 (144,355) B -
42,743 C
(4,569) D
PARTNERS' CAPITAL
Common unitholders
(20,059,239 units outstanding,
21,366,429 pro forma) 260,518 - 25,000 A 285,518
Subordinated unitholders
(10,026,619 units outstanding) 21,214 - - 21,214
General partner 1,299 - 253 A 1,552
-------------- ------------- ------------- --------------
283,031 106,181 (80,928) 308,284
-------------- ------------- ------------- --------------
$ 633,312 $ 416,658 $ 28,016 $1,077,986
============== ============= ============= ==============
</TABLE>
See notes to pro forma consolidated financial statements.
F-21
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (unaudited)
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(in thousands, except unit and per unit data)
<TABLE>
<CAPTION>
Historical
----------------------------------
Plains All Scurlock
American Permian Pro Forma
Pipeline, L.P. Businesses Adjustments Note Pro Forma
---------------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES $455,760 $775,331 $ (493) D $ 1,206,482
(23,119) J
(997) K
COST OF SALES
AND OPERATIONS 435,932 763,511 (94) D 1,171,757
(569) H
(372) I
(23,119) J
757 K
(498) L
(3,791) M
TAXES OTHER THAN
INCOME TAXES - 757 (757) K -
INVENTORY MARKET
VALUATION CREDIT - (10,014) 10,014 N -
--------------- --------------- --------------- ---------------
Gross Margin 19,828 21,077 (6,180) 34,725
--------------- --------------- --------------- ---------------
EXPENSES
General and administrative 2,178 7,956 (443) D 9,200
(256) H
(235) L
Depreciation and amortization 2,831 2,952 (59) D 4,339
1,507 F
(2,892) G
--------------- --------------- --------------- ---------------
Total expenses 5,009 10,908 (2,378) 13,539
--------------- --------------- --------------- ---------------
Operating income 14,819 10,169 (3,802) 21,186
Interest expense 3,193 - 2,248 E 5,441
Other expense 410 - - 410
Interest and other income (97) - 547 D (547)
(997) K
--------------- --------------- --------------- ---------------
NET INCOME $ 11,313 $ 10,169 $ (5,600) $ 15,882
=============== =============== =============== ===============
BASIC AND DILUTED
NET INCOME PER
LIMITED PARTNER UNIT $ 0.37 $ 0.50
=============== ===============
WEIGHTED AVERAGE NUMBER
OF UNITS OUTSTANDING 30,088,858 31,396,048
=============== ===============
</TABLE>
See notes to pro forma consolidated financial statements
F-22
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands, except unit and per unit data)
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Plains All American Pipeline, L.P.
------------------------------------
November 23, January 1,
1998 To 1998 To Scurlock
December 31, November 22, Permian Pro Forma
1998 1998 Businesses Adjustments Note Pro Forma
--------------- --------------- --------------- -------------- ------ --------------
(Predecessor)
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 176,445 $ 953,244 $ 3,773,536 $ (2,502) D $4,796,695
(103,242) J
(786) K
COST OF SALES
AND OPERATIONS 168,946 922,263 3,742,276 (1,451) D 4,735,137
(2,277) H
(1,460) I
(103,242) J
2,653 K
(2,781) L
10,210 M
TAXES OTHER THAN
INCOME TAXES - - 2,653 (2,653) K -
INVENTORY MARKET
VALUATION CHARGE - - 10,014 (10,014) N -
--------------- --------------- --------------- -------------- --------------
Gross Margin 7,499 30,981 18,593 4,485 61,558
--------------- --------------- --------------- -------------- --------------
EXPENSES
General and administrative 771 4,526 31,033 (585) D 32,979
(1,023) H
(1,743) L
Depreciation and
amortization 1,192 4,179 11,136 (248) D 11,397
6,026 F
(10,888) G
--------------- --------------- --------------- -------------- --------------
Total expenses 1,963 8,705 42,169 (8,461) 44,376
--------------- --------------- --------------- -------------- --------------
Operating income (loss) 5,536 22,276 (23,576) 12,946 17,182
Interest expense 1,371 8,492 - 9,118 E 18,981
Related party interest
expense - 2,768 - - 2,768
Interest and other income (12) (572) - (65) D (1,435)
(786) K
--------------- --------------- --------------- -------------- --------------
Net income (loss) before
provision in lieu
of income taxes 4,177 11,588 (23,576) 4,679 (3,132)
Provision in lieu of
income taxes - 4,563 - - 4,563
--------------- --------------- --------------- -------------- --------------
NET INCOME (LOSS) $ 4,177 $ 7,025 $ (23,576) $ 4,679 $ (7,695)
=============== =============== =============== ============== ==============
BASIC AND DILUTED
NET INCOME (LOSS)
PER LIMITED
PARTNER UNIT $ 0.14 $ 0.40 $ (0.24)
=============== =============== ==============
WEIGHTED AVERAGE
NUMBER OF UNITS
OUTSTANDING 30,088,858 17,003,858 31,396,048
=============== =============== ==============
</TABLE>
See notes to pro forma consolidated financial statements
F-23
<PAGE>
PLAINS ALL AMERICAN PIPELINE, L.P. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
INTRODUCTION
The accompanying unaudited pro forma consolidated financial statements are
presented to reflect the acquisition of Scurlock Permian LLC and certain other
pipeline assets (the "Scurlock Acquisition") from Marathon Ashland Petroleum LLC
("MAP") by Plains Scurlock Permian, L.P. ("Plains Scurlock"), a newly formed
operating limited partnership of Plains All American Pipeline, L.P. ("PAA"). The
Scurlock Acquisition was consummated on May 12, 1999, and has been accounted for
using the purchase method of accounting. The pro forma consolidated balance
sheet as of March 31, 1999 and the pro forma consolidated statement of income
for the three months ended March 31, 1999 are based upon the historical
financial statements of PAA, and the Scurlock Permian Businesses ("Scurlock").
The Scurlock financial statements pertain to the business sold to PAA by MAP and
represent a carve-out financial statement presentation of a MAP operating unit.
PAA is a limited partnership formed in the third quarter of 1998, to acquire and
operate the midstream crude oil business and assets of Plains Resources Inc. and
its wholly owned subsidiaries (the "Plains Midstream Subsidiaries" or the
"Predecessor"). On November 23, 1998, PAA completed the initial public offering
and the transactions whereby PAA became the successor to the business of the
Predecessor. The pro forma consolidated statement of operations for the year
ended December 31, 1998, is based on the historical consolidated income
statement of PAA (for the period from November 23, 1998 to December 31, 1998),
the historical combined income statement of the Predecessor (for the period from
January 1, 1998 to November 22, 1998), and the historical statement of
operations of Scurlock for the year ended December 31, 1998. Certain
reclassifications have been made to the historical Scurlock financial statements
to conform to PAA's presentation (see pro forma note K.)
The unaudited pro forma consolidated financial statements are not
necessarily indicative of the results of the future operations of PAA. The
unaudited pro forma consolidated financial statements should be read in
conjunction with the notes thereto and the historical financial statements of
Scurlock, included in Item 7 (a) of this Form 8-K/A. In addition, reference
should be made to the historical financial statements of PAA included in Form
10-K for the year ended December 31, 1998, and included in Form 10-Q for the
three months ended March 31, 1999, filed with the Securities and Exchange
Commission.
The following unaudited pro forma consolidated financial statements have
been prepared as if the Scurlock Acquisition and related transactions had taken
place on March 31, 1999, in the case of the pro forma consolidated balance sheet
or as of January 1, 1998 in the case of the pro forma consolidated statement of
income for the three months ended March 31, 1999, and the pro forma consolidated
statement of operations for the year ended December 31, 1998.
In addition to the pro forma adjustments below, PAA estimates that certain
costs which are included in the historical financial statements of Scurlock will
not be incurred by PAA in its operations of Scurlock. Such amounts include (i)
approximately $1.4 million of severance costs included in the Scurlock
historical statement of operations for the year ended December 31, 1998 related
to staff reductions implemented by Scurlock in the fourth quarter of 1998 for
employees that PAA does not plan to replace, (ii) approximately $2.5 million of
compensation and benefits expense related to the staff reductions discussed in
item (i) which are included in the Scurlock historical statement of operations
for the year ended December 31 1998, and (iii) approximately $1.1 million and
$3.5 million which are reflected in the Scurlock historical statement of
operations for the three months ended March 31, 1999 and the year ended December
31, 1998, respectively, for amounts of corporate overhead allocated by MAP to
Scurlock.
PRO FORMA ADJUSTMENTS
A. Reflects the financing for the Scurlock Acquisition which was provided
through (i) a borrowing of approximately $92 million under a limited recourse
bank facility with BankBoston, N.A. (the "Plains Scurlock Credit Facility"),
(ii) the sale to PAA's general partner ("General Partner") of 1.3 million Class
B Common Units of PAA ("Class B Units") at $19.125 per unit, the price equal to
the market value of PAA's common units, for a total cash consideration of $25
million and (iii) a $25 million draw under PAA's existing revolving credit
agreement. In addition, the General Partner's $0.3 million capital contribution
resulting from the sale of the Class B Units is reflected.
The Class B Units are initially pari passu with Common Units with respect
to distributions, and after six months are convertible into Common Units upon
approval of a majority of Common Unitholders. After such six month period, the
Class B Unitholder may request that PAA call a meeting of Common Unitholders to
consider approval of the conversion of Class B Units into Common Units. If the
approval of such conversion by the Common Unitholders is not obtained within 120
days of such request (the "Initial Approval Period"), the Class B Unitholders
will be entitled to receive distributions, on a per unit basis, equal
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to 110% of the amount of distributions paid on a Common Unit, with such
distribution right increasing to 115% if such approval is not secured within 90
days after the end of the Initial Approval Period. Except for the vote to
approve the conversion, Class B Units have the same voting rights as the Common
Units.
B. Reflects the consummation of the Scurlock Acquisition and the related
purchase accounting entries. The purchase price was allocated in accordance with
APB 16 as follows (in thousands):
Crude oil pipeline, gathering and terminal assets $124,725
Other property and equipment 1,503
Pipeline linefill 16,057
Debt issue costs 3,100
Net working capital items (3,020)
--------
Cash paid $142,365
========
The purchase price allocation was based on preliminary estimates of fair
value and is subject to adjustment as additional information becomes available
and is evaluated. Approximately $16.0 million representing minimum amounts of
crude oil which are required to operate Scurlock's pipeline and gathering assets
have been classified as pipeline linefill, a long-term asset. Pipeline linefill
was classified as a current asset and included in inventory by Scurlock.
Approximately $1.7 million of intangible assets and $2.5 million of materials
and supplies inventory reflected in Scurlock's historical balance sheet has been
eliminated in the purchase accounting entries. In addition, approximately $2.5
million representing Scurlock's 50% investment in a crude oil tank has been
reclassified as property and equipment from other assets and included in the
purchase price allocation based on PAA's valuation of from other assets such
asset.
The purchase accounting entries include a $1.0 million accrual for
estimated environmental remediation costs. Under the agreement for the sale of
Scurlock by MAP to Plains Scurlock, MAP has agreed to indemnify and hold
harmless Scurlock and Plains Scurlock for claims, liabilities and losses
(collectively "Losses") resulting from any act or omission attributable to
Scurlock's business or properties occurring prior to the date of the closing of
such sale to the extent the aggregate amount of such Losses exceed $1 million;
provided however, that claims for such Losses must be asserted by Scurlock
against MAP on or before May 15, 2003.
C. Reflects the reclassification of Scurlock's net receivables from MAP
for crude oil purchases. Such amounts, which were paid by MAP in cash subsequent
to March 31, 1999, were reflected in the Scurlock historical financial
statements as a component of Parent Company Investment.
D. Reflects the elimination of certain assets that were not purchased by
PAA, including associated revenues and expenses.
E. Reflects pro forma interest expense on (i) borrowings of approximately
$92 million under the Plains Scurlock Credit Facility and (ii) borrowings of $25
million under PAA's existing credit facility. PAA has entered into a series of
21 month interest rate collars, which provide for a floor of 5.04% and a ceiling
of 6.5% on a notional principal amount of $90 million of the LIBOR portion
outstanding under the Plains Scurlock Credit Facility. Pro forma interest
expense was calculated based on a composite annual interest rate of 7.8%. The
effect of a 1/8% change in the pro forma interest rate would be approximately
$37,000 for the three months ended March 31, 1999 and approximately $150,000 for
the year ended December 31, 1998.
F. Reflects pro forma depreciation and amortization expense based on the
purchase price of the Scurlock assets by PAA. The pro forma composite useful
depreciable life of the fixed assets acquired is 23 years. Debt issue costs
incurred in connection with the Scurlock Acquisition are amortized using the
straight-line method over five years, the term of the Plains Scurlock Credit
Facility.
G. Reflects the elimination of historical Scurlock depreciation and
amortization expense.
H. Reflects the reduction in compensation and benefits expense due to
staff terminations implemented by PAA at May 12, 1999. PAA has no plans to
replace these personnel. Such amounts reflect the historical compensation
expenses incurred by Scurlock. The termination of personnel is not expected to
adversely impact PAA's revenues or costs.
I. Reflects the cost reduction for services provided to Scurlock by MAP
related to the operation of certain pipeline assets. The Scurlock Acquisition
agreement provides for a reduced cost for such services subsequent to the
acquisition date.
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J. Reflects the elimination of historical sales and purchases and
associated receivables and payables between Scurlock and PAA.
K. Reflects the reclassification of certain items to conform to the
classification of such items in PAA's historical financial statements.
L. Reflects the elimination of expenses associated with MAP's profit
sharing and post retirement pension, health and benefit plans in which
Scurlock's employees are no longer entitled to participate so that cost of sales
and operations and general and administrative expense reflect the ongoing cost
of employee benefits to PAA.
M. Reflects the restatement of Scurlock's inventory at average cost, which
is the inventory costing method utilized by PAA. Scurlock utilized the LIFO
method to determine inventory cost.
N. Reflects the reversal of the adjustment made to Scurlock's historical
financial statements to value inventory at lower of cost or market as Scurlock's
inventory stated at average cost is lower than market, and no such adjustment is
necessary.
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