SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
Date of Event Reported: 10/07/96
MIDCOAST ENERGY RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Nevada 0-8898 76-0378638
(State or other Commission (I.R.S. Employer
jurisdiction of File Number Identification No.)
incorporation)
Suite 2950, 1100 Louisiana Street, Houston, Texas 77002
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 713/650-8900
MIDCOAST ENERGY RESOURCES, INC., and Subsidiaries
Item 7. Financial Statements
Koch Hydrocarbons Company - Harmony Gas Processing Plant
Historical Summary of Revenue and Direct Operating Expenses for
the six months ended June 30, 1996 and 1995 and for the year ended
December 31, 1995.
Notes to Historical Summary
Midcoast Energy Resources, Inc.
Pro Forma Balance Sheet as of June 30, 1996.
Pro Forma Statement of Operations as of June 30, 1996.
Pro Forma Statement of Operations for the year ended
December 31,1995.
Notes to Unaudited Pro Forma Financial Information<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Midcoast Energy Resources, Inc.
We have audited the accompanying historical summary of revenue and direct
operating expenses of the KOCH Hydrocarbon Company - Harmony Gas Processing
Plant acquired October 7, 1996 for the year ended December 31, 1995. The
historical summary is the responsibility of the Company's management. Our
responsibility is to express an opinion on the historical summary based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the historical summary is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the historical summary. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall historical summary
presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying historical summary was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission
(for inclusion in the Form 8-K of Midcoast Energy Resources, Inc.) as
described in Note 2 and are not intended to be a complete presentation
of the Harmony Gas Processing Plant revenues and expenses.
In our opinion, the historical summary referred to above presents fairly, in
all material respects, the revenue and direct operating expenses of the
Harmony Gas Processing Plant acquired October 7, 1996 for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
Hein + Associates LLP
Certified Public Accountants
November 8, 1996
Houston, Texas<PAGE>
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MIDCOAST ENERGY RESOURCES, INC.
KOCH HYDROCARBONS COMPANY-HARMONY GAS PROCESSING PLANT
ACQUIRED OCTOBER 7, 1996
Historical Summary of Revenue and Direct Operating Expenses for the six months
ended June 30, 1996 and 1995 and for the year ended December 31, 1995.
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995 Year Ended
(Unaudited) (Unaudited) December 31, 1995
---------------- ----------------- ------------------
<S> <C> <C> <c)
Revenues $ 3,052,699 $ 2,284,029 $ 5,223,506
Direct Operating Expenses (2,492,780) (1,919,523) (4,618,326)
---------------- ----------------- -----------------
Net Revenue $ 559,919 $ 364,506 $ 605,180
---------------- ----------------- -----------------
See accompanying Notes to Historical Summary
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MIDCOAST ENERGY RESOURCES, INC.
Acquisition of KOCH Hydrocarbons Company
Harmony Gas Processing Plant
NOTES TO HISTORICAL SUMMARY OF REVENUE AND DIRECT OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995 AND THE YEAR ENDED
DECEMBER 31, 1995.
1. Basis of Presentation
The accompanying Historical Summary of Revenue and Direct Operating
Expenses relates to the operations of the Harmony Gas Processing Plant acquired
by Midcoast Energy Resources, Inc. ("Midcoast") on October 7, 1996 ("Harmony")
from KOCH Hydrocarbons Company ("KOCH") for cash consideration of $3,638,884,
subject to certain purchase price adjustments. All revenues were derived
from sales to KOCH affiliates with pricing established by prevailing market
rates and various contractual agreements. Revenues are recorded when the natural
gas products are delivered to the customer and direct operating expenses are
recorded when the liability is incurred. Depreciation of the plant has been
excluded from direct operating expenses in the accompanying historical summary
because the amounts would not be comparable to those resulting from Midcoasts
cost basis in the plant. Income taxes have not been included in the accompanying
historical summary because income taxes are not considered direct operating
expense of the properties.
2. The Historical Summary presented herein was prepared for the purpose of
complying with the financial statement requirements of a business acquisition
to be filed on Form 8-K as promulgated by Regulation S-X Rule 3-05 and
Rule 1-02 (v) of the Securities Exchange Act of 1934.
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MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
Pro Forma
ASSETS June 30, Pro Forma June 30,
1996 Adjustments (a) 1996
-------------- ---------------- --------------
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CURRENT ASSETS: <S> <S> <S>
Cash and cash equivalents $ 723,910 $ $ 723,910
Accounts receivable, no allowance for doubtful accounts 2,197,854 2,197,854
Asset held for resale 210,447 210,447
-------------- ---------------- --------------
Total current assets 3,132,211 0 3,132,211
-------------- ---------------- --------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Natural gas transmission facilities 7,943,479 7 ,943,479
Natural gas processing plant - 3,638,884 3,638,884
Investment in transmission facilities 1,284,609 1,284,609
Oil and gas properties, using the full-cost method of accounting 309,556 309,556
Other property and equipment 148,969 148,969
-------------- ---------------- --------------
9,686,613 3,638,884 13,325,497
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION (1,078,432) (1,078,432)
-------------- ---------------- --------------
8,608,181 3,638,884 12,247,065
DEFERRED CONTRACT COSTS AND OTHER ASSETS, net of amortization 632,154 632,154
-------------- ---------------- -------------
Total assets $12,372,546 $ 3,638,884 $16,011,430
-------------- --------------- --------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 2,988,730 $ $ 2,988,730
Current portion of deferred income 83,000 83,000
Current portion of long-term debt payable to:
Banks 1,015,520 519,841 1,535,361
Shareholders and affiliates 20,000 20,000
-------------- ---------------- --------------
Total current liabilities 4,107,250 519,841 4,627,091
-------------- ---------------- --------------
LONG-TERM DEBT PAYABLE TO:
Bank 3,031,278 3,119,043 6,150,321
Shareholders and affiliates 448,822 448,822
-------------- ---------------- --------------
Total long-term debt 3,480,100 3,119,043 6,599,143
-------------- ---------------- --------------
DEFERRED INCOME 193,667 - 193,667
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 10 million shares authorized,
2,499,999 and 1,465,680 shares issued and outstanding at
September 30, 1996 and December 31, 1995, respectively 14,961 14,961
Paid-in capital 18,946,997 18,946,997
Accumulated deficit (14,271,129) (14,271,129)
Unearned compensation (99,300) (99,300)
-------------- ---------------- --------------
Total shareholders' equity 4,591,529 0 4,591,529
-------------- ---------------- --------------
Total liabilities and shareholders' equity $ 12,372,546 $ 3,638,884 $16,011,430
-------------- ---------------- --------------
See accompanying Notes to Pro Forma Consolidated Financial Statements
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MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For The Six Months Ended
------------------------------------------------------
June 30, Pro Forma Pro Forma
1996 Adjustments(b) June 30, 1996
--------------- -------------- ---------------
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OPERATING REVENUES:
Sale of natural gas and transportation fees $ 10,108,722 $ $ 10,108,722
Sale of pipeline 22,500 22,500
Processing plant revenues - 3,052,699 3,052,699
Oil and gas revenue 99,790 99,790
--------------- -------------- ---------------
Total operating revenues 10,231,012 3,052,699 13,283,711
--------------- -------------- ---------------
OPERATING EXPENSES:
Cost of natural gas and transportation charges 8,654,277 8,654,277
Cost of pipeline sold - 2,492,780 2,492,780
Processing plant costs 2,153 2,153
Production of oil and gas 39,856 39,856
Depreciation, depletion, and amortization 277,353 60,648 338,001
General and administrative 493,049 493,049
--------------- -------------- ---------------
Total operating expenses 9,466,688 2,553,428 12,020,116
--------------- -------------- ---------------
Operating income 764,324 499,271 1,263,595
NON-OPERATING ITEMS:
Interest expense (210,131) (162,455) (372,586)
Other income(expense), net (27,357) (27,357)
--------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 526,836 336,816 863,652
PROVISION FOR INCOME TAXES - - -
--------------- -------------- ---------------
Net income 526,836 336,816 863,652
5% CUMULATIVE PREFERRED STOCK DIVIDENDS (22,863) (22,863)
--------------- -------------- ---------------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 503,973 $ 336,816 $ 840,789
--------------- -------------- ---------------
NET INCOME PER COMMON SHARE $ 0.34 $ 0.57
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,479,411 1,479,411
See accompanying Notes to Pro Forma Consolidated Financial Statements
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MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
For The Year Ended
------------------------------------------------------
Pro Forma
December 31, Pro Forma December 31,
1995 Adjustments(c) 1995
--------------- -------------- ---------------
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OPERATING REVENUES:
Sale of natural gas and transportation fees $ 11,469,394 $ $ 11,469,394
Sale of pipeline 4,092,850 4,092,850
Processing plant revenues - 5,223,506 5,223,506
Oil and gas revenue 60,046 60,046
--------------- -------------- ---------------
Total operating revenues 15,622,290 5,223,506 20,845,796
--------------- -------------- ---------------
OPERATING EXPENSES:
Cost of natural gas and transportation charges 9,895,793 9,895,793
Cost of pipeline sold 1,909,624 1,909,624
Processing plant costs - 4,618,326 4,618,326
Production of oil and gas 11,544 11,544
Depreciation, depletion, and amortization 451,551 121,296 572,847
General and administrative 784,653 784,653
--------------- -------------- ---------------
Total operating expenses 13,053,165 4,739,622 17,792,787
--------------- -------------- ---------------
Operating income 2,569,125 483,884 3,053,009
NON-OPERATING ITEMS:
Interest expense (339,324) (308,937) (648,261)
Other income(expense), net (36,400) (36,400)
--------------- -------------- ---------------
INCOME BEFORE INCOME TAXES 2,193,401 174,947 2,368,348
PROVISION FOR INCOME TAXES - - -
--------------- -------------- ---------------
Net income 2,193,401 174,947 2,368,348
5% CUMULATIVE PREFERRED STOCK DIVIDENDS (59,183) (59,183)
--------------- -------------- ---------------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS $ 2,134,218 $ 174,947 $ 2,309,165
--------------- -------------- ---------------
NET INCOME PER COMMON SHARE $ 1.48 $ 1.60
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 1,439,606 1,439,606
See accompanying Notes to Pro Forma Consolidated Financial Statements
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MIDCOAST ENERGY RESOURCES, INC., AND SUBSIDIARIES
Notes to Unaudited Pro Forma Financial Information
In preparing the pro forma consolidated financial information, the Company
made the following adjustments:
(a) To give effect as of June 30, 1996 for the acquisition of the Harmony
Processing Plant and related Gathering System ("Harmony"). It was assumed
that the entire purchase price of $3,638,884 was financed with bank debt to
be repaid on a seven year amortization schedule.
(b) To give effect as of January 1, 1996 for the acquisition of Harmony based
on actual direct operating revenues and expenses, as well as, adjustments for
depreciation and interest. Depreciation expense is calculated based on an
estimated useful life of 30 years using the straight-line method. Interest
expense is calculated based on a 9.25% interest rate with a seven year repayment
schedule.
(c) To give effect as of January 1, 1995 for the acquisition of Harmony based
on actual direct operating revenues and expenses, as well as, adjustments for
depreciation and interest. Depreciation expense is calculated based on an
estimated useful life of 30 years using the straight-line method. Interest
expense is calculated based on a 9.25% interest rate with a seven year
repayment schedule.
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 hereto duly authorized.
MIDCOAST ENERGY RESOURCES, INC.
Date: November 13, 1996 By: /s/ Richard A. Robert
Treasurer
Principal Financial Officer
Principal Accounting Officer
