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: 9/8/98
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.
Item 7. Financial Statements
Page No.
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El Paso Field Services - Anadarko Pipeline System.
Independent Auditor's Report.
Historical Summary of Revenue and Direct Operating Expenses
for the year ended July 31, 1998.
Notes to Historical Summary of Revenue and Direct Operating
Expenses.
Midcoast Energy Resources, Inc.
Unaudited Pro Forma Statement of Operations for the six
months ended June 30, 1998 and for the year ended December 31,1997.
Unaudited Pro Forma Balance Sheet as of June 30, 1998.
Notes to Unaudited Pro Forma Financial Information.
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Midcoast Energy Resources, Inc.
Houston, Texas
We have audited the accompanying historical summary of revenues
and direct operating expenses of the Anadarko Gas Gathering
System of El Paso Field Services Company, a business unit of El
Paso Energy Corporation, acquired September 8, 1998, for the year
ended July 31, 1998. 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\A of Midcoast
Energy Resources, Inc.) as described in Note 1 and are not
intended to be a complete presentation of the Anadarko Gas
Gathering System revenues and direct operating expenses.
In our opinion, the historical summary referred to above presents
fairly, in all material respects, the revenue and direct
operating expenses of the Anadarko Gas Gathering System acquired
September 8, 1998 for the year ended July 31, 1998, in conformity
with generally accepted accounting principles.
Hein + Associates llp
Houston, Texas
October 20, 1998
Anadarko Gas Gathering System
El Paso Field Services Company, a business unit of El Paso Energy Corporation
<TABLE>
<CAPTION>
ACQUIRED SEPTEMBER 8, 1998
Historical Summary of Revenues and Direct Operating Expenses
for the year ended July 31, 1998
<S> <C>
Revenues:
Transmission revenues $6,522,000
Liquid sales 2,257,000
8,779,000
Direct operating expenses 6,088,000
$2,691,000
</TABLE>
Anadarko Gas Gathering System
El Paso Field Services Company,
a business unit of El Paso Energy Corporation
ACQUIRED SEPTEMBER 8, 1998
NOTES TO HISTORICAL SUMMARY OF REVENUES AND
DIRECT OPERATING EXPENSES
For the Year Ended July 31, 1998
1. Basis of Presentation
The accompanying Historical Summary of Revenues and Direct
Operating Expenses relates to the operations of the Anadarko Gas
Gathering System acquired by Midcoast Energy Resources, Inc.
("Midcoast") on September 8, 1998 from El Paso Field Services
Company, a business unit of El Paso Energy Corporation ("El
Paso") for cash consideration of $35,000,000, subject to certain
purchase price adjustments. 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 has been excluded from direct operating expenses in
the accompanying historical summary because the amounts would
not be comparable to those resulting from Midcoast's 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 pipeline.
Historical revenues and direct operating expenses in the
accompanying financial statement exclude amounts identified in
the accounts of the Anadarko Gas Gathering System as imbalance
accounts. The activity in the imbalance accounts for the year
ended July 31, 1998 represented $568,000 in net expense.
The Historical Summary presented herein was prepared for the
purpose of complying with the financial statement requirements
of a business acquisition as promulgated by Regulation S-X Rule
3-05 and Rule 1-02(v) of the Securities Exchange Act of 1934.
Use of Estimates - The preparation of the historical summary in
conformity with generally accepted accounting principals
requires management to make estimates and assumptions that
affect the amounts reported in this historical summary and
accompanying notes. Actual results could differ from these
estimates.
<TABLE>
MIDCOAST ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<CAPTION>
(In thousands, except per share data)
Historical Pro Forma
Company Anadarko Anadarko Combined
Pipeline Pipeline Operations
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sale of natural gas $114,454 $ 3,234 $ $ 117,688
and transportation fees
Natural gas processing revenue 2,106 1,454 3,560
Other revenue 324 324
Total operating revenues 116,884 4,688 121,572
OPERATING EXPENSES:
Cost of natural gas 104,402 1,326 105,728
and transportation fees
Natural gas processing costs 1,465 1,294 2,759
Depreciation, depletion and amortization 1,388 704 (b) 2,092
General and administrative 2,916 568 (184)(c) 3,300
Other expenses 29 29
Total operating expenses 110,200 3,188 520 113,908
OPERATING INCOME 6,684 1,500 (520) 7,664
NON-OPERATING ITEMS:
Interest expense, net (1,236) (1,199)(d) (2,435)
Minority interest in
consolidated subsidiaries (42) (42)
Other income (expense), net 127 127
INCOME BEFORE INCOME TAXES 5,533 1,500 (1,719) 5,314
PROVISION FOR INCOME TAXES (1,044) 41(e) (1,003)
NET INCOME $ 4,489 $ 1,500 $(1,678) $ 4,311
EARNINGS PER COMMON SHARE:
BASIC $ .79 $ .76
DILUTED $ .76 $ .73
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 5,691,836 5,691,836
DILUTED 5,891,581 5,891,581
See notes to unaudited pro forma consolidated financial statements.
MIDCOAST ENERGY RESOURCES, INC.
</TABLE>
<TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<CAPTION>
(In thousands, except per share data)
Historical Pro Forma
Company Anadarko Anadarko Combined
Pipeline Pipeline Operations
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Sale of natural gas $107,426 $ 6,522 $ $ 113,948
and transportation fees
Natural gas processing revenue 4,956 2,257 451(a) 7,664
Other revenue 362 362
Total operating revenues 112,744 8,779 451 121,974
OPERATING EXPENSES:
Cost of natural gas
and transportation fees 96,768 2,653 99,421
Natural gas processing costs 3,566 2,220 444(a) 6,230
Depreciation,depletion and amortization 1,592 1,408(b) 3,000
General and administrative 3,456 1,215 (447)(c) 4,224
Other expenses 71 71
Total operating expenses 105,453 6,088 1,405 112,946
OPERATING INCOME 7,291 2,691 (954) 9,028
NON-OPERATING ITEMS:
Interest expense, net (1,067) (2,417)(d) (3,484)
Minority interest in consolidated
subsidiaries (222) (222)
Other income (expense), net (88) (88)
INCOME BEFORE INCOME TAXES 5,914 2,691 (3,371) 5,234
PROVISION FOR INCOME TAXES (150) 17(e) (133)
NET INCOME $ 5,764 $ 2,691 $(3,354) $ 5,101
EARNINGS PER COMMON SHARE:
BASIC $ 1.41 $ 1.25
DILUTED $ 1.37 $ 1.21
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
BASIC 4,092,135 4,092,135
DILUTED 4,201,165 4,201,165
See notes to unaudited pro forma consolidated financial statements.
</TABLE>
<TABLE>
MIDCOAST ENERGY RESOURCES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
<CAPTION>
AS OF JUNE 30, 1998
Historical Pro Forma
Company Anadarko Combined
Pipeline Operations
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 1,815 $ (175) (g) $ 1,640
Accounts receivable, no allowance for
for doubtful accounts $ 18,079 18,079
Other current assets 1,688 1,688
Total current assets 21,582 (175) 21,407
Property, Plant, & Equipment
Natural gas transmission facilities 96,581 33,298(f) 129,879
Investment in transmission facilities 1,342 1,342
Natural gas processing facilities 4,741 1,752(f) 6,493
Oil and gas properties, using
the full cost method of accounting 1,357 1,357
Other property and equipment 2,541 2,541
Total PP&E 106,562 35,050 141,612
Accumulated Depreciation,
Depletion, & Ammortization (4,399) (4,399)
Net PP&E 102,163 35,050 137,213
Other Assets, net of amortization 2,336 225(g) 2,561
TOTAL ASSETS $126,081 $ 35,100 $ 161,181
LIABILITIES & STOCKHOLDERS'
EQUITY
Current Liabilities
Accounts payable and accrued liabilities $ 14,377 $ 100(g) $ 14,477
Short-term borrowing from bank 176 176
Current portion of long-term
debt payable to banks 1,704 1,704
Other current liabilites 233 233
Total current liabilities 16,490 100 16,590
Total long-term liabilities 32,234 35,000(f) 67,234
Other liabilities 379 379
Deferred Income Tax
Expense/(Benefit), net 10,370 10,370
Minority interest in
consolidated subsidiaries 1,265 1,265
Stockholders' Equity
Common stock, $.01 par value,
25 million shares authorized,
5,719,665 shares issued and
outstanding at June 30, 1998 57 57
Paid-in capital 80,969 80,969
Retained earnings (15,665) (15,665)
Unearned compensation (18) (18)
Total stockholders' equity 65,343 65,343
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $126,081 $ 35,100 161,181
See notes to unaudited pro forma consolidated financial statements
</TABLE>
MIDCOAST ENERGY RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The following unaudited pro forma consolidated statements of
operations of the Company for the year ended December 31, 1997 and
the six months ended June 30, 1998 and the unaudited pro forma
consolidated balance sheet of the Company as of June 30, 1998 (the
"Unaudited Pro Forma Consolidated Financial Statements") give effect
to (i) the acquisition of the Anadarko Gas Gathering System
("AGGS") under the purchase method of accounting along with the
associated bank debt financing.
The unaudited pro forma consolidated balance sheet as of June 30,
1998 includes the purchase accounting entries made for AGGS and was
prepared assuming that the acquisition was consummated as of June
30, 1998.
The unaudited Pro Forma Consolidated Financial Statements are based
upon the historical consolidated and combined financial statements
of the Company and the AGGS. The unaudited pro forma consolidated
balance sheet is presented assuming the AGGS acquisition occurred on
June 30, 1998. The unaudited pro forma consolidated statement of
operations for the year ended December 31, 1997 and the six months
ended June 30, 1998 are presented as if the AGGS acquisition
occurred at the beginning of each period presented. Because of the
seasonal nature of the AGGS, among other factors, the results of the
interim periods presented are not necessarily indicative of the
results to be expected of an entire year.
The pro forma adjustments and the resulting Unaudited Pro Forma
Consolidated Financial Statements have been prepared based upon
available information and certain assumptions and estimates deemed
appropriate by the Company. A final determination of required
purchase accounting adjustments and the allocation of the purchase
price to the assets acquired and liabilities assumed based on their
respective fair values, has not yet been made for the AGGS.
Accordingly, the purchase accounting adjustments for the AGGS
reflected in the pro forma information are preliminary and have been
made solely for purposes of developing such information. The
Company's management believes that the pro forma adjustments and
underlying assumptions and estimates reasonably present the
significant effects of the transactions reflected thereby and that
any subsequent changes in the underlying assumptions and estimates
will not materially affect the Unaudited Pro Forma Consolidated
Financial Statements presented herein. The Unaudited Pro Forma
Consolidated Financial Statements do not purport to represent what
the Company's financial position or results of operations actually
would have been had the Anadarko Gas Gathering System Acquisition
occurred on the dates indicated or to project the Company's
financial position or results of operations for any future date or
period.
MIDCOAST ENERGY RESOURCES, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
2. PRO FORMA ADJUSTMENTS - STATEMENT OF OPERATIONS
The pro forma adjustments to the unaudited pro forma consolidated
statements of operations reflect the following:
(a) Processing revenue and Processing cost - The adjustment
represents the pro forma inclusion of two months of processing
activity on the Hobart Processing Plant.
(b) Depreciation - The adjustment reflects the pro forma
depreciation expense based on the allocation of the purchase price
and deferred financing costs to the depreciable assets of the AGGS
and the use of the Company's historical depreciation methods for all
assets.
(c) General and Administrative - The adjustment reflects the pro
forma general and administrative expenses based on existing staffing
levels and the Company's actual payroll burden.
(d) Interest Expense - The adjustment reflects interest computed
using 6.81% (the Company's current borrowing rate).
(e) Income Taxes - The acquisition adjustment for income taxes
represents the tax effect of the foregoing acquisition pro forma
adjustments computed at the Company's effective income tax rate during
the period presented.
3. PRO FORMA ADJUSTMENTS - BALANCE SHEET
The pro forma adjustments to the unaudited pro forma balance sheet
reflect the following:
(f) Bank Debt \ Property - The adjustment represents internal
acquisition costs and additional borrowings under the Company's
existing credit facilities associated with the purchase of the AGGS,
as well as the allocation of the purchase to the transmission and
processing facilities.
(g) Financing Costs - The adjustment represents the bank financing
cost related to borrowings for the acquisition as well as expected
legal and auditing fees.
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 20, 1998 By: /s/ Richard A. Robert
Treasurer
Principal Financial Officer
Principal Accounting Officer
