<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 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): JULY 30, 1998
PLAINS RESOURCES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 0-9808 13-2898764
(STATE OF INCORPORATION) (COMMISSION FILE NO.) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
500 DALLAS STREET, SUITE 700
HOUSTON, TEXAS 77002 77002
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
Registrant's telephone number, including area code: (713) 654-1414
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<PAGE>
This Form 8-K/A amends the following items, financial statements, exhibits
or other portions of the Current Report on Form 8-K filed with the Securities
and Exchange Commission on August 11, 1998 by Plains Resources Inc. ("Plains
Resources") in connection with the acquisition by Plains All American Inc., a
wholly-owned subsidiary of Plains Resources, of three subsidiaries from
Wingfoot Ventures Seven, Inc.:
All information required by Item 7(a) Financial Statements of Business
Acquired is included in this Form 8K/A for completeness. The following pages
of Item 7(a) are hereby amended:
Page No. F-1
Page No. F-3
Page No. F-6
Page No. F-7
Page No. F-8
Page No. F-9--Note 2. Summary of Significant Accounting Policies
Page No. F-11--Note 3. Property, Plant and Equipment
All pages of Item 7(b) Pro Forma Financial Information are hereby amended.
ITEM 7. FINANCIAL STATEMENTS OF BUSINESS ACQUIRED AND EXHIBITS
(a) Financial Statements of Business Acquired
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1997 and June 30,
1998................................................................. F-1
Consolidated Statements of Income for the six months ended June 30,
1997 and 1998........................................................ F-2
Consolidated Statements of Cash Flows for the six months ended June
30, 1997 and 1998.................................................... F-3
Notes to Consolidated Financial Statements............................ F-4
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Accountants..................................... F-5
Consolidated Balance Sheets as of December 31, 1996 and 1997.......... F-6
Consolidated Statements of Operations and Accumulated Deficit for the
years ended December 31, 1995, 1996 and 1997......................... F-7
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997.................................................. F-8
Notes to Consolidated Financial Statements............................ F-9
(b) Pro Forma Financial Information (unaudited)
PLAINS RESOURCES INC.
PRO FORMA CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS:
Introduction.......................................................... F-19
Pro Forma Consolidated Balance Sheet as of June 30, 1998.............. F-20
Pro Forma Consolidated Statement of Income for the six months ended
June 30, 1998........................................................ F-21
Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997.................................................... F-22
Notes to Pro Forma Consolidated Financial Statements.................. F-23
</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: December 7, 1998
Plains Resources Inc.
By:_____________/s/ Phillip D. Kramer
----------------------------------
NAME: PHILLIP D. KRAMER
TITLE: EXECUTIVE VICE PRESIDENT
AND CHIEF FINANCIAL
OFFICER
3
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash................................................. $ 104 $ 150
Accounts receivable.................................. 64,077 53,367
Receivable from affiliate............................ -- 26,304
Working oil inventory................................ 2,240 5,714
Prepaid expenses and other current assets............ 5,179 6,577
----------- -----------
Total current assets................................. 71,600 92,112
----------- -----------
PROPERTY, PLANT AND EQUIPMENT........................ 1,550,391 1,551,241
Less allowance for depreciation and amortization..... (1,198,683) (1,205,491)
----------- -----------
351,708 345,750
OTHER ASSET
Pipeline linefill.................................... 49,218 49,986
----------- -----------
Total assets......................................... $ 472,526 $ 487,848
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable..................................... $ 53,065 $ 43,992
Benefits and compensation............................ 1,834 1,459
Accrued expenses..................................... 1,591 1,872
Accrued interest to related party.................... 34,121 --
Accrued taxes........................................ 6,670 7,102
Short-term debt to related party..................... 102,439 --
Other current liabilities............................ 1,071 1,080
----------- -----------
Total current liabilities............................ 200,791 55,505
LONG-TERM LIABILITIES
Long-term debt to related party...................... 705,243 --
Deferred income taxes................................ 7,130 6,830
Benefits and compensation............................ 7,971 7,749
----------- -----------
Total liabilities.................................... 921,135 70,084
----------- -----------
STOCKHOLDER'S EQUITY
Common stock, $100 par value, 1,000 shares
authorized; issued and outstanding 12 shares........ 1 1
Additional paid-in capital........................... 907,374 1,773,505
Accumulated deficit.................................. (1,355,984) (1,355,742)
----------- -----------
(448,609) 417,764
----------- -----------
Total liabilities and stockholder's equity........... $ 472,526 $ 487,848
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-1
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------
1997 1998
-------- --------
<S> <C> <C>
REVENUES..................................................... $541,698 $374,654
COST OF SALES AND OPERATIONS................................. 503,085 344,538
-------- --------
Gross margin................................................. 38,613 30,116
EXPENSES
Depreciation and amortization................................ 8,145 6,808
General and administrative................................... 1,603 1,053
-------- --------
Total expenses............................................... 9,748 7,861
-------- --------
Operating income............................................. 28,865 22,255
Related party interest expense............................... 25,112 21,929
-------- --------
Income before income taxes................................... 3,753 326
Provision in lieu of income taxes............................ 572 84
-------- --------
NET INCOME................................................... $ 3,181 $ 242
======== ========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 3,181 $ 242
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 8,145 6,808
Deferred income taxes................................... (103) (300)
Changes in assets and liabilities resulting from operating
activities:
Accounts receivable..................................... 5,064 10,710
Receivable from affiliate............................... -- (26,304)
Working oil inventory, prepaid expenses and other
current assets......................................... (15,650) (4,872)
Purchase of pipeline linefill........................... (3,236) (768)
Accounts payable........................................ (5,886) (9,073)
Accrued taxes........................................... 225 432
Accruals and other current liabilities.................. (26,903) (34,206)
Benefits and compensation............................... 40 (222)
-------- --------
Net cash used in operating activities..................... (35,123) (57,553)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (1,238) (850)
-------- --------
Net cash used in investing activities..................... (1,238) (850)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital contribution........................ -- 866,131
Net proceeds (repayments) of debt to related party........ 35,417 (807,682)
-------- --------
Net cash provided by financing activities................. 35,417 58,449
-------- --------
Net (decrease) increase in cash........................... (944) 46
Cash, beginning of period................................. 1,448 104
-------- --------
Cash, end of period....................................... $ 504 $ 150
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(IN THOUSANDS)
(UNAUDITED)
1. THE COMPANY
Wingfoot Ventures Seven, Inc. ("Wingfoot") is a wholly-owned subsidiary of
The Goodyear Tire & Rubber Company ("Goodyear"). Wingfoot operates in the mid-
stream segment of the energy transportation business and consists of four
operating subsidiaries: All American Pipeline Company ("AAPL") and its wholly-
owned subsidiary, Celeron Gathering Corporation ("CGC"), Celeron Trading and
Transportation ("CT&T") and Celeron Corporation ("CC"). AAPL is engaged in the
operation of a heated crude oil pipeline which extends approximately 1,233
miles from Las Flores and Gaviota on the California coast to West Texas. As a
common carrier, AAPL charges transportation tariffs which must be filed with
the Federal Energy Regulatory Commission ("FERC") and the Public Utilities
Commission of the State of California ("CPUC"). CGC operates a proprietary
crude oil gathering pipeline in the San Joaquin Valley area of California.
CT&T is engaged in purchasing, selling and exchanging crude oil, a substantial
portion of which is transported through AAPL's pipeline. CC provides
management services to AAPL, CGC and CT&T.
On March 21, 1998, a Stock Purchase Agreement ("the Agreement") was executed
between Wingfoot and Plains All American Inc. ("PAAI"), a wholly-owned
subsidiary of Plains Resources Inc., whereby all of the issued and outstanding
shares of the capital stock of AAPL and CT&T would be sold to PAAI contingent
upon, among other things, approval by the Federal Trade Commission and the
CPUC. The net assets to be sold are comprised of assets and liabilities of
AAPL, CGC and CT&T and include or exclude all assets and liabilities listed in
certain Bills of Sale and Assumption Agreements included in the Agreement. In
addition, the following items have been excluded from the net assets to be
sold: all of Wingfoot's intercompany transactions with Goodyear; certain other
liabilities; and debt and interest owed to Goodyear and its subsidiaries. On
July 30, 1998, the Agreement was consummated by PAAI for approximately $400
million, including transaction costs.
2. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions of interim financial reporting as
prescribed by the Securities and Exchange Commission. All material adjustments
consisting only of normal recurring adjustments which, in the opinion of
management, were necessary for a fair statement of the results for the interim
periods, have been reflected. These consolidated unaudited interim financial
statements should be read in conjunction with the annual consolidated
financial statements of Wingfoot included elsewhere in this Form 8-K.
3. RELATED PARTY DEBT
Pursuant to the Agreement, Wingfoot is obligated to repay the outstanding
related party debt and accrued interest of certain of its subsidiaries prior
to closing. On June 15, 1998, Goodyear made capital contributions of $866,131
and cash payments of $15,494 for repayments to Wingfoot. Upon receipt of the
$881,625, Wingfoot paid Goodyear $865,219 ($843,269 for repayment of certain
outstanding related party debt and accrued interest at December 31, 1997 and
$21,950 for repayment of related party accrued interest from January 1, 1998
to May 29, 1998) and remitted the remaining $16,406 to Goodyear for payment of
certain other liabilities to be assumed by Goodyear as a result of the
Agreement.
4. SUBSEQUENT EVENT
Pursuant to the Agreement, in July 1998, an affiliate of Goodyear repaid
$26.3 million to Wingfoot. Concurrently, Wingfoot distributed $25.1 million to
Goodyear.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Wingfoot Ventures Seven, Inc. (a wholly-owned subsidiary of
The Goodyear Tire and Rubber Company)
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and accumulated deficit and of cash
flows present fairly, in all material respects, the financial position of
Wingfoot Ventures Seven, Inc. (a wholly-owned subsidiary of The Goodyear Tire
& Rubber Company) and its subsidiaries at December 31, 1996 and 1997, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company'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
San Francisco, California
July 27, 1998
F-5
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
ASSETS
------
<S> <C> <C>
Cash................................................. $ 1,448 $ 104
Accounts receivable.................................. 66,433 64,077
Working oil inventory................................ 5,789 2,240
Prepaid expenses and other current assets............ 4,862 5,179
----------- -----------
Total current assets............................. 78,532 71,600
----------- -----------
Property, plant and equipment (Note 3)............... 1,549,178 1,550,391
Less--accumulated depreciation....................... (1,128,556) (1,198,683)
----------- -----------
420,622 351,708
Pipeline linefill.................................... 9,826 49,218
----------- -----------
Total assets..................................... $ 508,980 $ 472,526
=========== ===========
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
<S> <C> <C>
Accounts payable..................................... $ 67,097 $ 53,065
Benefits and compensation............................ 1,465 1,834
Accrued expenses..................................... 4,804 1,591
Accrued interest to related party (Note 4)........... 30,282 34,121
Accrued taxes........................................ 8,594 6,670
Short-term debt to related party (Note 4)............ 56,581 102,439
Other current liabilities............................ 368 1,071
----------- -----------
Total current liabilities........................ 169,191 200,791
Long-term debt to related party (Note 4)............. 705,243 705,243
Deferred income taxes................................ 7,833 7,130
Benefits and compensation............................ 8,237 7,971
----------- -----------
Total liabilities................................ 890,504 921,135
----------- -----------
Commitments and contingencies (Note 12)
Stockholder's equity:
Common stock, $100 par value--authorized 1,000
shares; issued and outstanding 12 shares.......... 1 1
Additional paid-in capital......................... 907,374 907,374
Accumulated deficit................................ (1,288,899) (1,355,984)
----------- -----------
Total equity..................................... (381,524) (448,609)
----------- -----------
Total liabilities and stockholders' equity......... $ 508,980 $ 472,526
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
--------- ----------- -----------
<S> <C> <C> <C>
Revenues (Note 11)........................ $ 619,277 $ 929,299 $ 992,318
--------- ----------- -----------
Expenses:
Purchases, transportation, and storage.. 482,130 791,729 892,618
Property taxes.......................... 7,100 8,500 7,450
Operations and maintenance.............. 28,573 25,812 23,084
Depreciation and amortization........... 39,276 42,760 16,290
Impairment of pipeline assets and
linefill (Note 3)...................... -- 851,878 64,173
Loss on sale of pipeline assets......... 5,000 -- --
Related party interest expense (Note
4)..................................... 50,869 49,000 52,745
General and administrative.............. 4,834 2,961 2,767
--------- ----------- -----------
Total expenses........................ 617,782 1,772,640 1,059,127
--------- ----------- -----------
(Loss) income before income taxes......... 1,495 (843,341) (66,809)
Charge/(benefit) in lieu of income taxes.. (324) 4,227 276
--------- ----------- -----------
Net income (loss)......................... 1,819 (847,568) (67,085)
Beginning accumulated deficit............. (443,150) (441,331) (1,288,899)
--------- ----------- -----------
Ending accumulated deficit................ $(441,331) $(1,288,899) $(1,355,984)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................. $ 1,819 $(847,568) $(67,085)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization............... 39,276 42,760 16,290
Impairment of pipeline assets and linefill.. -- 851,878 64,173
Loss on sale of pipeline assets............. 5,000 -- --
Deferred income taxes....................... 2,341 (933) (703)
Changes in assets and liabilities resulting
from operating activities:
Accounts receivable......................... (982) (28,183) 2,356
Working oil inventory....................... (971) 305 3,549
Prepaid expenses and other current assets... (855) (218) (317)
(Purchase) sale of pipeline linefill........ 31,187 (2,870) (49,727)
Accounts payable............................ 2,898 41,316 (14,032)
Benefits and compensation................... (2,580) -- 103
Accrued expenses............................ 526 (1,596) (3,213)
Accrued interest to related party........... 4,841 (3,906) 3,839
Accrued taxes............................... (1,051) 4,149 (1,924)
Other current liabilities................... (31) 368 703
-------- --------- --------
Net cash provided by (used in) operating
activities................................. 81,418 55,502 (45,988)
-------- --------- --------
Cash flows from investing activities:
Capital expenditures.......................... (4,319) (3,983) (2,463)
Proceeds from sale of pipeline assets......... 1,998 125 1,249
-------- --------- --------
Net cash used in investing activities....... (2,321) (3,858) (1,214)
-------- --------- --------
Cash flows from financing activities:
Net (repayments) proceeds of debt to related
party (Note 4)............................... (84,060) (51,024) 45,858
-------- --------- --------
Net cash (used in) provided by financing
activities................................. (84,060) (51,024) 45,858
-------- --------- --------
Net (decrease) increase in cash................. (4,963) 620 (1,344)
Cash, beginning of the year..................... 5,791 828 1,448
-------- --------- --------
Cash, end of the year........................... $ 828 $ 1,448 $ 104
======== ========= ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
1. THE COMPANY
Wingfoot Ventures Seven, Inc. ("Wingfoot") is a wholly-owned subsidiary of
The Goodyear Tire & Rubber Company ("Goodyear or the Parent"). The Company
operates in the mid-stream segment of the energy transportation business and
consists of four operating subsidiaries; All American Pipeline Company
("AAPL") and its wholly-owned subsidiary, Celeron Gathering Corporation
("CGC"), Celeron Trading and Transportation ("CT&T") and Celeron Corporation
("CC"). AAPL is engaged in the operation of a heated crude oil pipeline which
extends approximately 1,233 miles from Las Flores and Gaviota on the
California coast to West Texas. As a common carrier, AAPL charges
transportation tariffs which must be filed with the Federal Energy Regulatory
Commission ("FERC") and the Public Utilities Commission of the State of
California ("CPUC"). CGC operates a proprietary crude oil gathering pipeline
in the San Joaquin Valley area of California. CT&T is engaged in purchasing,
selling and exchanging crude oil, a substantial portion of which is
transported through AAPL's pipeline. CC provides management services to AAPL,
CGC and CT&T.
On March 21, 1998, a Stock Purchase Agreement ("the Agreement") was executed
between Wingfoot and Plains All American Inc. ("PAAI"), a wholly-owned
subsidiary of Plains Resources Inc., whereby all of the issued and outstanding
shares of the capital stock of AAPL and CT&T would be sold to PAAI contingent
upon, among other things, approval by the Federal Trade Commission and the
CPUC. The net assets to be sold are comprised of assets and liabilities of
AAPL, CGC and CT&T and include or exclude all assets and liabilities listed in
certain Bills of Sale and Assumption Agreements included in the Agreement. In
addition, the following items have been excluded from the net assets to be
sold: all of Wingfoot's intercompany transactions with Goodyear; certain other
liabilities; and debt and interest owed to Goodyear and its subsidiaries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial statements include the accounts of Wingfoot and
its wholly-owned subsidiaries. All significant intercompany transactions have
been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements
and reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of credit risk and major customers
Financial instruments which potentially expose Wingfoot to concentrations of
credit risk consist primarily of accounts receivable. Wingfoot's accounts
receivable are primarily from major oil companies and their affiliates, as
well as independent oil companies. Wingfoot generally requires its smaller
independent customers to provide letters of credit. Although Wingfoot is
directly affected by the financial well being of the oil and gas industry,
management does not believe significant credit risk exists. Historically,
credit losses have not been significant.
F-9
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Revenue recognition
As a regulated interstate pipeline, AAPL recognizes revenues for the
transportation of crude oil based upon FERC and CPUC filed tariff rates and
the related transported volume. AAPL recognizes tariff revenue at the time
such volume is delivered. CT&T and CGC recognize revenue from the sale of
crude oil to third parties at the time title to the product sold transfers to
the purchaser.
Statement of cash flows
There was no cash used to pay income taxes during the years ended December
31, 1995, 1996 and 1997. Interest of $46,028, $52,906 and $48,906 was paid for
the years ended December 31, 1995, 1996 and 1997, respectively.
Working oil inventory
Working oil inventory is carried at the lower of current market value or
cost and determined under the last-in, first-out method.
Property, plant and equipment and pipeline linefill
Property, plant and equipment (the "System") consists primarily of oil
pipeline facilities, which include the cost of land, rights-of-way, pipe, pump
station equipment, storage tanks, vehicles, material, labor, overhead and
interest incurred during the construction period. Depreciation on oil pipeline
facilities is computed using the straight-line method, principally over 37
years (see Note 3). Repairs and maintenance costs are charged to expense as
incurred.
Pipeline linefill consists of crude oil linefill used to pack a pipeline
such that when an incremental barrel enters a pipeline it forces a barrel out
at another location. Proceeds from the sale and repurchase of pipeline
linefill are reflected as cash flows from operating activities in the
accompanying consolidated statements of cash flows.
The System and pipeline linefill are assessed for possible impairment in
accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of" (SFAS 121). Under this standard, the
occurrence of certain events may trigger a review of affected assets for
possible impairment. An impairment is deemed to exist if the sum of
undiscounted before-tax expected future cash flows for the asset are less than
the asset's carrying value. If an impairment is indicated, the amount of the
impairment is measured as the difference between the asset's fair market value
and its carrying value. Where a market value is not available, it is
approximated by Wingfoot's best estimate of the sum of discounted before-tax
expected future cash flows. Impairment amounts are recorded as impairment of
pipeline assets and linefill in the period in which a specific event occurs
(see Note 3).
Income taxes
Wingfoot and its subsidiaries' results are included in the consolidated
federal income tax return of its parent, Goodyear. Tax losses and investment
tax credits have been generated by AAPL and have been utilized in the
consolidated federal income tax returns of Goodyear. In accordance with AAPL's
tax sharing agreement with Goodyear, the tax benefits from the cumulative tax
losses and investment tax credits are not payable by Goodyear to AAPL until
such time as these credits can be utilized on the basis of a separate company
tax computation. While Goodyear has realized tax benefits from losses and tax
credits of AAPL in its consolidated return, AAPL will not receive
reimbursement until a tax liability is incurred as calculated on a separate
company basis. To the extent that future taxable income is generated, AAPL has
a potential future net reimbursement from Goodyear for the benefit of prior
years' tax losses and investment tax credits generated in the amount of
approximately $573,000 and $569,000 at December 31, 1996 and 1997,
respectively. Utilizing the stand-alone calculation
F-10
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
required by the tax sharing agreement, this potential reimbursement results in
a net deferred tax asset on AAPL's balance sheet. Following the terms of the
tax sharing agreement, the net asset has been fully offset by a valuation
allowance.
In connection with the Agreement, PAAI and Goodyear will execute an IRS
Section 338(h)(10) election that provides for a step-up in basis of the
acquired assets, which will eliminate any deferred tax liability at the
acquisition date. In addition, any future net reimbursement from Goodyear for
the benefit of prior years' tax losses and investment tax credits will be
extinguished.
Wingfoot's provision for income taxes includes federal and state taxes
currently payable and deferred taxes arising from temporary differences.
Financial instruments
Wingfoot utilizes New York Mercantile Exchange crude oil futures contracts
to manage its exposure to price volatility for its crude trading activities.
Specifically, Wingfoot enters into these contracts to hedge its firm
commitments and anticipated transactions. All contracts permit settlement by
physical delivery of crude oil. Gains and losses related to these contracts
are deferred and recorded when the underlying hedged transaction occurs.
3. PROPERTY, PLANT AND EQUIPMENT
The System consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Oil pipeline facilities......................... $ 1,549,178 $ 1,550,391
Less: accumulated depreciation.................. (1,128,556) (1,198,683)
----------- -----------
$ 420,622 $ 351,708
=========== ===========
</TABLE>
During 1996, industry developments occurred indicating that the quantities
of California and Alaska North Slope crude oil expected to be tendered in the
future to the System for transportation would be below prior estimates and
that volumes of crude oil expected to be tendered to the System for
transportation to markets outside of California in the future would be
significantly lower than previously anticipated. As a result, management
determined that the future cash flows expected to be generated by the System
and pipeline linefill would be less than their carrying value. In accordance
with SFAS 121, Wingfoot reduced the carrying value of the System and pipeline
linefill to their fair value at December 31, 1996, and recorded a charge of
$851,878.
As a result of the Agreement, Wingfoot reviewed the System and pipeline
linefill, which was held for use at December 31, 1997, for impairment since it
was more likely than not that a sale would occur significantly before the end
of its previously estimated remaining useful life. Management determined that
the undiscounted before-tax future cash flows expected to be generated by the
System and pipeline linefill would be less than their carrying value. In
accordance with SFAS 121, Wingfoot reduced the carrying value of the System
and pipeline linefill to their fair value at December 31, 1997, determined
using discounted before-tax expected future cash flows from the System and
pipeline linefill, and recorded a charge of $64,173.
F-11
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
4. DEBT
Line of credit
At December 31, 1996 and 1997 to satisfy margin requirements associated with
its futures contracts, Wingfoot had a short-term uncommitted credit
arrangement totaling $1,500 and $3,000, respectively, of which $1,162 and
$2,973, respectively, was unused. This arrangement bears interest at London
Interbank Offered Rate (LIBOR) plus 0.75%. There are no commitment fees or
compensating balances associated with this arrangement.
Short-term debt to related party
Short-term debt at December 31, 1996 and 1997 represents advances from
Goodyear and its subsidiaries. These advances do not accrue interest and are
payable on demand (see Note 13).
Long-term debt to related party
On April 25, 1994, Wingfoot entered into a term loan with Goodyear and its
subsidiaries under which Wingfoot may borrow up to $825,000. The loan bears
interest annually, at a variable rate, generally tied to LIBOR and other
factors relating to the borrowing capacity of Goodyear and its subsidiaries.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
-------- --------
<S> <C> <C>
Term loan due to an affiliate, interest at 12-month LIBOR
plus 1 1/2%, 6.72% and 7.52% at December 31, 1996 and
1997, respectively....................................... $705,243 $705,243
Less amount due in one year............................... -- --
-------- --------
$705,243 $705,243
======== ========
</TABLE>
At December 31, 1996 and 1997, Wingfoot had an outstanding balance of
$705,243 under this loan. Wingfoot is required to make annual mandatory
principal repayments of $100,000 beginning April 30, 1999, $100,000 in 2000,
$125,000 in 2001, $150,000 in 2002, $150,000 in 2003 and $80,243 in 2004.
Interest costs incurred through the term loan totaled $50,869, $49,000 and
$52,745 for the years ended December 31, 1995, 1996, and 1997, respectively.
Substantially all amounts outstanding were repaid subsequent to December 31,
1997 (see Note 13).
Credit agreement
On April 25, 1994, Wingfoot entered into a credit agreement with an
affiliate under which Wingfoot may borrow up to $250,000. The agreement
provides for a .10% per annum commitment fee on the daily average unused
amount of the facility. The loan bears interest at a variable rate based on
LIBOR. There is no balance outstanding at December 31, 1996 and 1997.
5. FINANCIAL INSTRUMENTS
The carrying values of Wingfoot's accounts receivable, other current assets,
accounts payable, accrued expenses, and other current liabilities approximate
fair value due to the short-term maturities of these assets and liabilities.
The carrying value of Wingfoot's line of credit approximates fair value as
interest rates are variable,
F-12
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
based upon prevailing rates for similar agreements. Deferred gains associated
with Wingfoot's futures contracts at December 31, 1996 and 1997 totaled $13
and $1,071, respectively.
6. BOOK OVERDRAFTS
At December 31, 1996 and 1997, Wingfoot had $3,281 and $626, respectively,
in book overdrafts representing outstanding checks in excess of funds on
deposit. These amounts have been included in accounts payable.
7. APPLICABILITY OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS NO. 71)
SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation,"
provides guidance in preparing financial statements for entities with
operations subject to rate-making authorities. The tariff rates of Wingfoot's
pipeline are regulated by the FERC and the CPUC.
Prior to commencement of operations in 1989, as allowed by FERC, Wingfoot
had capitalized an Allowance for Funds Used During Construction (AFUDC) for
rate-making purposes. The recording of any AFUDC represents the implicit cost
of financing construction as if the construction was financed through a
combination of borrowings and equity contributions. SFAS No. 71 requires that
an AFUDC recorded for rate-making purposes should be recorded for financial
reporting purposes as well, as long as there is reasonable assurance that
costs incurred will be recoverable in the future.
At year end 1996, Wingfoot did not expect to recover the costs that had been
previously capitalized. Accordingly, Wingfoot has discontinued the application
of SFAS No. 71 and in December 1996 adopted the provisions of SFAS No. 101,
"Regulated Enterprise Accounting for the Discontinuation of Application of
FASB Statement No. 71." This statement requires Wingfoot to eliminate the
effects of any actions of regulators that had been recognized as an asset that
would not have normally been recognized by a non-regulated entity. As the only
cost capitalized under the provisions of SFAS No. 71 was AFUDC, no additional
impairment was recorded as the AFUDC balance was included in the FAS No. 121
impairment writedown (see Note 3).
8. RELATED PARTY TRANSACTIONS
During 1996, Wingfoot transferred long-term credits of $30,843 to Goodyear,
increasing Wingfoot's long-term debt payable to Goodyear. Wingfoot has no
further benefit or obligation related to these matters.
Wingfoot's related party financing arrangements are described in Note 4.
Affiliated companies provide personnel and support services to Wingfoot. For
the years ended December 31, 1995, 1996 and 1997, Wingfoot incurred
approximately $400, $361 and $477, respectively, for such services.
Goodyear has guaranteed Wingfoot's obligations with various counter parties
in connection with crude purchase agreements and crude exchanges made in the
ordinary course of business (see Note 12).
F-13
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
9. EMPLOYEE BENEFIT PLANS
Postretirement health care benefits
Wingfoot provides its associates with health care benefits upon retirement.
The healthcare benefits are provided by insurance companies through premiums
based on expected benefits to be paid during the year. Portions of the
healthcare benefits are not insured and are paid by the plan.
The net periodic postretirement benefit cost:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31,
----------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Service cost............................................ $ 63 $ 71 $ 86
Interest cost........................................... 185 183 186
Net amortization........................................ (23) (9) (10)
---- ---- ----
Net periodic postretirement benefit cost................ $225 $245 $262
==== ==== ====
</TABLE>
The following table sets forth the funded status and amounts recognized on
Wingfoot's Consolidated Balance Sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Retirees.................................................. $(1,838) $(1,759)
Vested active plan participants........................... (116) (194)
Other active plan participants............................ (480) (566)
------- -------
Accumulated benefit obligation in excess of plan assets..... (2,434) (2,519)
Unrecognized net (gain)..................................... (409) (243)
------- -------
Accrued postretirement benefit cost recognized on the
Consolidated Balance Sheet................................. $(2,843) $(2,762)
======= =======
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
The assumptions used were:
Discount rate......................................... 7.75% 7.75% 7.75%
Rate of increase in compensation levels............... 4.50 4.50 4.50
</TABLE>
An 8.00% annual rate of increase in the cost of health care benefits for
retirees under 65 years of age and a 5.75% annual rate of increase for
retirees 65 years or older are assumed in 1998. This rate gradually decreases
to 5.00% in 2010 and remains at that level thereafter. To illustrate the
significance of a 1.00% increase in the assumed healthcare cost trend, the
accumulated benefit obligation would increase by $30 at December 31, 1997 and
the aggregate service and interest cost by $3 for the year then ended.
The Agreement specifies that postretirement healthcare benefit obligations
for only non-vested employees will be assumed by PAAI. PAAI does not intend to
continue such benefits subsequent to the acquisition. After the close of the
sale, postretirement healthcare benefits for retirees and vested employees
will be funded by Goodyear.
F-14
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Pension plan
Substantially all of Wingfoot's associates participate in the pension plan
of CC. CC makes contributions to the pension plan equal to the amount accrued
for pension costs.
Net periodic pension (credit) follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1995 1996 1997
----- ------- -------
<S> <C> <C> <C>
Service cost.................................... $ 305 $ 315 $ 340
Interest cost................................... 544 578 616
Expected return on plan assets.................. (990) (1,292) (1,536)
Amortization.................................... (187) (222) (323)
----- ------- -------
Net periodic pension (credit)................... $(328) $ (621) $ (903)
===== ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized on
Wingfoot's Consolidated Balance Sheet dated December 31, 1996 and 1997. At the
end of 1996 and 1997, assets exceeded accumulated benefits. Plan assets are
invested primarily in common stocks and fixed income securities.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $(5,380) $(5,625)
------- -------
Accumulated benefit obligation........................ (6,796) (7,434)
------- -------
Projected benefit obligation.......................... (8,115) (9,073)
Plan assets........................................... 17,234 21,446
------- -------
Projected benefit obligation less than plan assets.... 9,119 12,373
Unrecognized net gain................................. (3,775) (6,313)
Unrecognized prior service cost....................... (55) (51)
Unrecognized net (assets) at transition............... (1,238) (1,054)
Adjustment required to recognize minimum liability.... -- --
------- -------
Pension asset recognized on the Consolidated Balance
Sheet................................................ $ 4,051 $ 4,955
======= =======
</TABLE>
In connection with the sale, CC has amended the Pension Plan document to
provide for an election to participants to request a lump-sum or annuity
distribution of vested benefits, for a six-month period after July 31, 1998,
the expected consummation date of the sale of Wingfoot. Further, on July 31,
1998, the accrued benefits under the Plan will be frozen and will become the
responsibility of Goodyear. This amendment has been approved by CC's Board of
Directors.
F-15
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
Management plans
AAPL and CC have two non-qualified, unfunded plans that cover certain past
management and designated current management. The net periodic pension cost
for these plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEAR END
DECEMBER 31,
-------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Interest cost........................................ $ 416 $ 409 $ 375
Amortization of gain................................. (28) (2) (11)
----- ----- -----
Net periodic pension cost............................ $ 388 $ 407 $ 364
===== ===== =====
</TABLE>
The funded status of these plans consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................. $(3,122) $(2,822)
------- -------
Accumulated benefit obligation........................ (3,122) (2,822)
------- -------
Projected benefit obligation.......................... (5,164) (4,838)
Plan assets........................................... -- --
------- -------
Projected benefit obligation less than plan assets.... (5,164) (4,838)
Unrecognized net gain................................. (332) (369)
Adjustment required to recognize minimum liability.... (42) --
------- -------
Pension liability recognized on the Consolidated
Balance Sheet........................................ $(5,538) $(5,207)
======= =======
</TABLE>
Under the Agreement, the liability associated with the management plans will
not be transferred to PAAI. The vested benefits under the management plans
will be paid by Goodyear.
Significant assumptions used in the calculation of pension expense and
obligations for the pension and management plans were:
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate.......................................... 7.75% 7.75% 7.50%
Rate of increase in compensation levels................ 5.00% 5.00% 5.00%
Expected long-term rate of return on plan assets....... 9.00% 9.00% 9.00%
</TABLE>
Employee savings plan
Substantially all of Wingfoot's associates are eligible to participate in a
savings plan administered by Goodyear. Under this plan associates elect to
contribute a percentage of their pay. In 1995, 1996 and 1997, the plan
provided for Wingfoot's matching of these contributions (up to a maximum of
6.00% of the associate's annual pay or, if less, $9,500) at a rate of 50.00%.
Wingfoot's contributions were $251, $229 and $172 for the years ended December
31, 1995, 1996 and 1997, respectively. In connection with the sale, Wingfoot's
associates can no longer contribute to the savings plan after the closing. All
vested Wingfoot contributions will be funded by Goodyear.
F-16
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
10. INCOME TAXES
Wingfoot's effective income tax rate varied from the statutory U.S. federal
income tax rate of 35% due to state taxes and the valuation allowance recorded
to offset net deferred tax assets.
Deferred tax liabilities at December 31, 1996 and 1997 result primarily from
temporary differences between book and tax treatments of depreciation, and
capitalized construction costs, including interest. Deferred tax assets at
December 31, 1996 and 1997 result primarily from AAPL's prior year tax losses
and investment tax credits. The resulting deferred tax assets have been fully
offset by a valuation allowance of $202,000 and $488,000 at December 31, 1996
and 1997, respectively.
Wingfoot records its deferred taxes on a tax jurisdiction basis and
classifies the net deferred tax amounts as current or non-current based on the
balance sheet classifications of the related assets or liabilities. Based on
this methodology, Wingfoot has recorded its net deferred tax liability as
long-term.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996 1997
------- ------ -----
<S> <C> <C> <C>
Federal:
Current......................................... $(3,505) $4,320 $ 139
Deferred........................................ 2,341 (933) (703)
State:
Current......................................... 840 840 840
------- ------ -----
Charge/(benefit) in lieu of income taxes.......... $ (324) $4,227 $ 276
======= ====== =====
</TABLE>
In connection with the Agreement, PAAI and Goodyear will execute an IRS
Section 338(h)(10) election (see Note 2).
11. REVENUES ATTRIBUTABLE TO MAJOR CUSTOMERS
During 1995, sales to three companies accounted for 64% (32% to Company B,
18% to Company A and 14% to Company D) of Wingfoot's total revenues. During
1996, sales to two companies accounted for 38% (21% to Company B and 17% to
Company A) of Wingfoot's total revenues. Sales to three companies accounted
for 46% (18% to Company A, 15% to Company B and 13% to Company C) of
Wingfoot's total revenue during 1997. No other single customer accounted for
as much as 10% of total sales during 1995, 1996 or 1997.
F-17
<PAGE>
WINGFOOT VENTURES SEVEN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF THE GOODYEAR TIRE & RUBBER COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
12. COMMITMENTS AND CONTINGENCIES
Wingfoot leases office space under leases accounted for as operating leases.
Rental expense amounted to $1,605, $1,195 and $981 for the years ended
December 31, 1995, 1996 and 1997, respectively. Minimum rental payments under
operating leases are as follows:
<TABLE>
<CAPTION>
OPERATING
YEAR ENDING DECEMBER 31, LEASES
------------------------ ---------
<S> <C>
1998.......................................................... $ 924
1999.......................................................... 893
2000.......................................................... 878
2001.......................................................... 874
2002.......................................................... 875
Thereafter.................................................... 3,273
------
$7,717
======
</TABLE>
Wingfoot incurred costs associated with leased land, rights-of-way, permits
and regulatory fees of $701, $590 and $479 for the years ended December 31,
1995, 1996 and 1997, respectively. At December 31, 1997, minimum future
payments, net of sublease income, associated with these contracts are
approximately $476 for the following year. Generally these contracts extend
beyond one year but can be canceled at any time should they not be required
for operations.
In connection with its crude oil marketing, Goodyear provides certain
parties with Parent Guaranties to secure Wingfoot's obligation for the
purchase of crude oil. Generally, these Guaranties are issued from one year to
unlimited periods. At December 31, 1997, Wingfoot had outstanding letters of
credit of approximately $2,860. Such letters of credit are secured by the
crude inventory and accounts receivable of Wingfoot and are guaranteed by
Goodyear.
In order to receive electrical power service at certain remote locations,
Wingfoot has entered into facilities contracts with several utility companies.
These facilities charges are calculated periodically based upon, among other
factors, actual electricity energy used. Minimum future payments for these
contracts at December 31, 1997 are approximately $760 annually for each of the
next five years.
At December 31, 1997, Wingfoot was not a subject of any significant
litigation, loss contingencies or other claims. Under the terms of the
Agreement, Wingfoot has agreed in certain circumstances to indemnify PAAI,
above a minimum aggregate amount and subject to a limitation, as defined in
the Agreement, for losses arising from future litigation, loss contingencies
and claims relating to events that occurred prior to the closing date.
13. SUBSEQUENT EVENTS
Pursuant to the Agreement, Wingfoot is obligated to repay the outstanding
related party debt and accrued interest of certain of its subsidiaries prior
to closing. On June 15, 1998, Goodyear made capital contributions of $866,131
and cash payments of $15,494 for repayments to Wingfoot. Upon receipt of the
$881,625, Wingfoot paid Goodyear $865,219 ($843,269 for repayment of certain
outstanding related party debt and accrued interest at December 31, 1997 and
$21,950 for repayment of related party accrued interest from January 1, 1998
to May 29, 1998) and remitted the remaining $16,406 to Goodyear for payment of
certain other liabilities to be assumed by Goodyear as a result of the
Agreement.
F-18
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF
PLAINS RESOURCES INC. AND SUBSIDIARIES
The following pro forma consolidated financial statements are based upon the
historical financial statements of Plains Resources Inc. and subsidiaries
("Plains Resources"), and Wingfoot Ventures Seven, Inc. ("Wingfoot"), a wholly
owned subsidiary of The Goodyear Tire & Rubber Company ("Goodyear"). The pro
forma financial statements reflect the July 30, 1998 acquisition (the
"Acquisition") by Plains All American Inc. ("PAAI"), a wholly owned subsidiary
of Plains Resources of all of the outstanding capital stock of the All
American Pipeline Company, Celeron Gathering Corporation and Celeron Trading &
Transportation Company (collectively, the "Celeron Companies", which comprise
substantially all of Wingfoot) from Wingfoot for approximately $400 million in
cash. The Acquisition was financed in part through a borrowing of $300 million
under PAAI's $325 million limited recourse bank facility (the "PAAI Credit
Facility") (a portion of which funded initial working capital) and a capital
contribution of $114 million from Plains Resources, $85 million of which
represents the proceeds from the issuance by Plains Resources of its Series E
Preferred Stock. The Acquisition was accounted for by PAAI using the purchase
method of accounting.
The unaudited pro forma consolidated financial statements are presented
based on adjustments to the historical financial statements of Plains
Resources and Wingfoot and are not necessarily indicative of future operations
of Plains Resources. The unaudited pro forma financial statements should be
read in conjunction with the notes thereto and the historical financial
statements of Wingfoot, included in Item 7(a) of this Form 8-K/A. In addition,
reference should by made to the historical financial statements of Plains
Resources included in Form 10-K for the year ended December 31, 1997, and
included in Form 10-Q for the six months ended June 30, 1998, filed with the
Securities and Exchange Commission.
The following pro forma adjustments have been prepared as if the
transactions described above had taken place on June 30, 1998, in the case of
the Pro Forma Consolidated Balance Sheet or as of January 1, 1997, in the case
of the Pro Forma Consolidated Statement of Operations for the year ended
December 31, 1997 and the Pro Forma Consolidated Income Statement for the six
months ended June 30, 1998.
F-19
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------- ----------------------------
PLAINS ACQUISITION
RESOURCES WINGFOOT ADJUSTMENTS NOTE COMBINED
--------- ---------- ----------- ---- ----------
ASSETS
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents... $ 31,584 $ 150 $ (405,500) A $ 11,147
385,000 B
(87) C
Accounts receivable......... 89,840 53,367 (1,608) C 141,599
Receivable from affiliate... -- 26,304 (25,104) D 1,200
Inventory................... 32,132 5,714 37,846
Prepaids and other.......... 470 6,577 (5,431) C 1,616
-------- ---------- ---------- ----------
Total current assets........ 154,026 92,112 (52,730) 193,408
-------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT
Oil and natural gas
properties--full cost
method:
Subject to amortization... 539,222 -- 4,922 A 544,144
Not subject to
amortization............. 54,715 -- 54,715
Crude oil pipeline,
gathering and terminal
assets..................... 35,691 1,551,241 341,786 A 377,477
(1,551,241) A
Other property and
equipment.................. 8,764 -- 8,764
-------- ---------- ---------- ----------
638,392 1,551,241 (1,204,533) 985,100
Less allowance for
depreciation, depletion and
amortization............... (193,328) (1,205,491) 1,205,491 A (193,328)
-------- ---------- ---------- ----------
445,064 345,750 958 791,772
-------- ---------- ---------- ----------
OTHER ASSETS
Pipeline linefill........... -- 49,986 621 A 50,607
Other....................... 16,728 -- 4,838 A 21,566
-------- ---------- ---------- ----------
$615,818 $ 487,848 $ (46,313) $1,057,353
======== ========== ========== ==========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
CURRENT LIABILITIES
Accounts payable and other
current liabilities........ $101,844 $ 55,505 $ (4,240) C $ 153,109
Interest payable............ 7,090 -- 7,090
Royalties payable........... 4,475 -- 4,475
Notes payable and other
current obligations........ 18,411 -- 18,411
-------- ---------- ---------- ----------
Total current liabilities... 131,820 55,505 (4,240) 183,085
BANK DEBT................... 136,000 -- 300,000 B 436,000
SUBORDINATED DEBT........... 202,546 -- 202,546
OTHER LONG-TERM DEBT........ 3,067 -- 3,067
OTHER LONG-TERM
LIABILITIES................ 4,937 14,579 4,922 A 10,207
(14,231) C
-------- ---------- ---------- ----------
478,370 70,084 286,451 834,905
-------- ---------- ---------- ----------
SERIES E CUMULATIVE
CONVERTIBLE PREFERRED
STOCK, STATED AT
LIQUIDATION PREFERENCE..... -- -- 85,000 B 85,000
-------- ---------- ---------- ----------
NON-REDEEMABLE PREFERRED
STOCK, COMMON STOCK AND
OTHER STOCKHOLDERS' EQUITY
Preferred Stock............. 21,299 -- 21,299
Common Stock................ 1,685 1 (1) A 1,685
Additional Paid in Capital.. 124,278 1,773,505 (1,773,505) A 124,278
Retained Earnings........... (9,814) (1,355,742) 1,369,501 A (9,814)
11,345 C
(25,104) D
-------- ---------- ---------- ----------
137,448 417,764 (417,764) 137,448
-------- ---------- ---------- ----------
$615,818 $ 487,848 $ (46,313) $1,057,353
======== ========== ========== ==========
</TABLE>
See notes to pro forma consolidated financial statements
F-20
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED INCOME STATEMENT (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------ -------------------------
PLAINS
RESOURCES WINGFOOT ADJUSTMENTS NOTE COMBINED
--------- -------- ----------- ---- --------
<S> <C> <C> <C> <C> <C>
REVENUE
Oil and natural gas sales........ $ 51,711 $ -- $ 51,711
Marketing, transportation,
storage and terminalling
revenues........................ 330,683 374,654 705,337
Interest and other income........ 619 -- 619
-------- -------- -------- --------
383,013 374,654 -- 757,667
-------- -------- -------- --------
EXPENSES
Oil and gas production expenses.. 25,673 -- 25,673
Marketing, transportation,
storage and terminalling
expenses........................ 321,483 344,538 (652) I 665,369
General and administrative....... 4,813 1,053 5,866
Depreciation, depletion and
amortization.................... 13,593 6,808 (6,808) E 18,068
4,475 F
Interest expense................. 12,866 21,929 (21,929) G 25,551
12,685 J
-------- -------- -------- --------
378,428 374,328 (12,229) 740,527
-------- -------- -------- --------
NET INCOME BEFORE INCOME TAXES... 4,585 326 12,229 17,140
Income tax expense............... 1,736 84 4,865 K 6,685
-------- -------- -------- --------
NET INCOME....................... $ 2,849 $ 242 $ 7,364 $ 10,455
======== ======== ======== ========
Preferred stock dividends........ 628 -- 4,038 L 4,666
-------- -------- -------- --------
NET INCOME AVAILABLE TO COMMON
STOCKHOLDERS.................... $ 2,221 $ 242 $ 3,326 $ 5,789
======== ======== ======== ========
Earnings per share:
Basic.......................... $ 0.13 M $ 0.35
======== ========
Diluted........................ $ 0.12 M $ 0.31
======== ========
Weighted Average Number of Common
and Common Equivalent Shares:
Basic.......................... 16,772 M 16,772
======== ========
Diluted........................ 18,411 M 18,411
======== ========
</TABLE>
See notes to pro forma consolidated financial statements
F-21
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- ---------------------------
PLAINS
RESOURCES WINGFOOT ADJUSTMENTS NOTE COMBINED
--------- ---------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C>
REVENUE
Oil and natural gas sales.. $109,403 $ -- $ 109,403
Marketing, transportation,
storage and terminalling
revenues.................. 752,522 992,318 1,744,840
Interest and other income.. 319 -- 319
-------- ---------- -------- ----------
862,244 992,318 -- 1,854,562
-------- ---------- -------- ----------
EXPENSES
Oil and gas production
expenses.................. 45,486 -- 45,486
Marketing, transportation,
storage and terminalling
expenses.................. 740,042 923,152 391 H 1,662,282
(1,303) I
General and
administrative............ 8,340 2,767 (114) H 10,993
Depreciation, depletion and
amortization.............. 23,778 16,290 (16,290) E 32,729
8,951 F
Impairment of pipeline
assets and linefill....... -- 64,173 64,173
Interest expense........... 22,012 52,745 (52,745) G 48,517
26,505 J
-------- ---------- -------- ----------
839,658 1,059,127 (34,605) 1,864,180
-------- ---------- -------- ----------
NET INCOME (LOSS) BEFORE
INCOME TAXES.............. 22,586 (66,809) 34,605 (9,618)
Income tax expense
(benefit)................. 8,327 276 (12,354) K (3,751)
-------- ---------- -------- ----------
NET INCOME (LOSS).......... $ 14,259 $ (67,085) $ 46,959 $ (5,867)
======== ========== ======== ==========
Preferred stock dividends.. 163 -- 8,075 L 8,238
-------- ---------- -------- ----------
NET INCOME (LOSS) AVAILABLE
TO COMMON STOCKHOLDERS.... $ 14,096 $ (67,085) $ 38,884 $ (14,105)
======== ========== ======== ==========
Earnings (loss) per share:
Basic.................... $ 0.85 M $ (0.85)
======== ==========
Diluted.................. $ 0.77 M $ (0.85)
======== ==========
Weighted Average Number of
Common and Common
Equivalent Shares
Basic.................... 16,603 M 16,603
======== ==========
Diluted.................. 18,204 M 16,603
======== ==========
</TABLE>
See notes to pro forma consolidated financial statements
F-22
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA ADJUSTMENTS
In addition to the adjustments below, Plains Resources estimates that
incremental expenses will be incurred due to the Acquisition. Such amounts
include estimated expenses for issuance of letters of credit in excess of such
amounts incurred by Plains Resources and Wingfoot due primarily to the
elimination of Goodyear as a guarantor of Wingfoot's crude oil purchase
obligations and additional estimated amounts included for insurance expenses
related to the assets and operations of Wingfoot. The additional insurance
expense reflects Goodyear's past practice of self insuring the assets and
operations of Wingfoot. The pro forma adjustments do not give effect to these
incremental expenses. Additionally, the pro forma consolidated statement of
operations for the year ended December 31, 1997 does not include a pro forma
adjustment to eliminate the non-cash impairment charge of $64.2 million
related to the writedown of pipeline assets and linefill by Wingfoot in
connection with the sale of Wingfoot by Goodyear to Plains Resources. However,
based on Plains Resources' purchase price allocation to property and
equipment, Plains Resources would not have incurred an impairment charge
during 1997 had it actually acquired Wingfoot as of January 1, 1997.
The unaudited Pro Forma Consolidated Balance Sheet reflects the following
adjustments:
A. Reflects the consummation of the Acquisition and the related purchase
accounting entries. The purchase price was allocated in accordance with APB 16
as follows (in thousands):
<TABLE>
<S> <C>
Crude oil pipeline, gathering and terminal assets............... $341,786
Oil and natural gas properties.................................. 4,922
Other assets:
Pipeline linefill............................................. 50,607
Debt issue costs.............................................. 6,138
Net working capital items....................................... 8,269
--------
$411,722
Deferred tax liability.......................................... 4,922
--------
Cash paid....................................................... $406,800
========
</TABLE>
Additionally, Wingfoot equity accounts were eliminated to reflect the
purchase. Approximately $1.3 million in transaction costs related to the
Acquisition which are included in the purchase price allocation are reflected
in Other Assets in the accompanying historical consolidated balance sheet of
Plains Resources at June 30, 1998. The increase in oil and natural gas
properties subject to amortization and other long-term liabilities of
approximately $4.9 million relates to increased state deferred taxes owed by
Plains Resources as a direct result of the Acquisition. Such increase was
allocated to oil and natural gas properties subject to amortization because it
primarily relates to the temporary differences between the book and tax bases
of the Plains Resources' oil and natural gas properties.
B. Reflects the financing for the Acquisition which was provided through (i)
a $300 million borrowing under the $325 million PAAI Credit Facility (a
portion of which funded initial working capital) and (ii) an approximate $114
million capital contribution by Plains Resources. Approximately $29 million of
such capital contribution was made in the first quarter of 1998 and the
remaining $85 million was provided by a privately placed issuance of Plains
Resources' Series E Cumulative Convertible Preferred Stock.
On July 30, 1998, Plains Resources sold in a private placement 170,000
shares of its Series E Preferred Stock for $85 million. Each share of the
Series E Preferred Stock has a stated value of $500 per share and bears a
dividend of 9.5% per annum. Dividends are payable semi-annually in either cash
or additional shares of Series E Preferred Stock at Plains Resources' option
and are cumulative from the date of issue. Each share of Series E Preferred
Stock is convertible into 27.78 shares of Common Stock (an initial effective
conversion price of $18.00 per share) and in certain circumstances may be
converted at Plains Resources' option into common stock if the
F-23
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
average trading price for any thirty-day trading period is equal to or greater
than $21.60 per share. The Series E Preferred Stock is redeemable at the
option of Plains Resources after March 31, 1999, at 110% of stated value and
at declining amounts thereafter. If not previously redeemed or converted, the
Series E Preferred Stock is required to be redeemed in 2012.
The PAAI Credit Facility is guaranteed by the Celeron Companies and is
secured by the assets of PAAI and the Celeron Companies, including all
pipelines, gathering lines, accounts receivable, pipeline, linefill, inventory
and the capital stock of the Celeron Companies. The PAAI Credit Facility
consists of (i) a $100 million reducing, revolving line of credit with a $30
million sub-limit for letters of credit ("Tranche A") and (ii) a $225 million
non-amortizing term loan ("Tranche B"). PAAI incurs a commitment fee of .5%
per annum on the unused portion of Tranche A. The commitment for Tranche A
reduces in twenty-four equal quarterly amounts commencing September 30, 1998,
with final maturity on June 30, 2004. Tranche B of the PAAI Credit Facility is
repayable at maturity on June 30, 2005. Prepayment of principal on Tranche B
is subject to a penalty of 1% on amounts prepaid prior to December 31, 1998,
and .5% thereafter through June 30, 1999. The PAAI Credit Facility bears
interest at PAAI's option at Base Rate (as defined therein) or (i) LIBOR plus
1.75% for Tranche A and (ii) LIBOR plus 3.00% prior to September 30, 1998 and
LIBOR plus 2.75% thereafter for Tranche B. PAAI has entered into 10 year
interest rate swaps with three of the lending banks to fix the LIBOR portion
of the interest rate on $200 million of indebtedness under Tranche B at 5.96%
plus the applicable margin.
C. Reflects the elimination of certain Wingfoot assets and liabilities which
were retained by Wingfoot at the date of the Acquisition (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents....................................... $ 87
Accounts receivable............................................. 1,608
Prepaids and other.............................................. 5,431
Accounts payable and accrued liabilities........................ 4,240
Other long-term liabilities..................................... 14,231
Retained earnings............................................... (11,345)
</TABLE>
D. Reflects the July 1998 collection by Wingfoot of a $25.1 million
receivable from an affiliate of Goodyear and the concurrent distribution of
$25.1 million to Goodyear. Such amounts were paid pursuant to the Agreement.
The unaudited Pro Forma Consolidated Income Statements reflect the following
adjustments:
E. Reflects the elimination of historical Wingfoot depreciation and
amortization expense.
F. Reflects pro forma depreciation and amortization expense based on the
purchase price of the Wingfoot assets by PAAI. The pro forma composite useful
depreciable life of the acquired fixed assets is 36 years.
G. Reflects the elimination of interest expense on loans from Goodyear to
Wingfoot. In connection with the Acquisition, Goodyear made a capital
contribution of $866.1 million to Wingfoot. Concurrently, the related party
debt and accrued interest of approximately $865.2 million was repaid in full
to Goodyear on June 15, 1998.
H. Reflects the elimination of expenses and credits associated with
Wingfoot's post retirement health and benefit plans in which Wingfoot's
employees are no longer entitled to participate so that operations and
maintenance and general and administrative expense reflects the ongoing cost
of employee benefits to Plains Resources.
I. Reflects the reduction in compensation and benefits expense due to the
recent termination of personnel. Such amounts are based on historical expenses
incurred by Wingfoot. The terminations occurred in August 1998 and Plains
Resources has no plans to replace these personnel. The reduction in personnel
is not expected to adversely impact future revenues or costs.
F-24
<PAGE>
PLAINS RESOURCES INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
J. Reflects pro forma interest expense on amounts borrowed to fund the
Acquisition. Pro forma interest expense was calculated using a weighted
average interest rate of approximately 8.5%. PAAI has entered 10 year interest
rate swaps to fix the LIBOR portion of the interest rate for $200 million of
Tranche B at 5.96%.
K. Reflects income tax expense on pro forma pre-tax income based on an
effective tax rate of 39% which is the estimated tax rate of Plains Resources.
L. Reflects dividends on the Series E Preferred Stock.
M. The following is a reconciliation of the numerators and the denominators
of the basic and diluted earnings per share ("EPS") computations for pro forma
income (loss) from continuing operations for the six months ended June 30,
1998 and the year ended December 31, 1997, respectively, as required by
Statement of Financial Accounting Standards No. 128 ("FAS 128"), Earnings Per
Share:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
--------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C> <C>
Net income.................................. $ 10,455
Less: preferred stock dividends............. (4,666)
--------
Income available to common stockholders..... 5,789 16,772 $ 0.35
======
Effect of dilutive securities:
Employee stock options.................... -- 1,090
Warrants.................................. -- 549
-------- ------
Income available to common stockholders
assuming dilution.......................... $ 5,789 18,411 $ 0.31
======== ====== ======
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
--------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
(UNAUDITED)
<S> <C> <C> <C>
Net loss.................................... $ (5,867)
Less: preferred stock dividends............. (8,238)
--------
Loss available to common stockholders....... (14,105) 16,603 $(0.85)
======
Effect of dilutive securities:
Employee stock options.................... -- --
Warrants.................................. -- --
-------- ------
Loss available to common stockholders
assuming dilution.......................... $(14,105) 16,603 $(0.85)
======== ====== ======
</TABLE>
Certain options and warrants to purchase shares of common stock were not
included in the computations of diluted EPS because the exercise prices were
greater than the average market price of the common stock during the periods
of the EPS calculations, resulting in antidilution. For the year ended
December 31, 1997, Plains Resources reported a pro forma net loss and
therefore, no options or warrants were assumed to be converted for the
calculation of diluted EPS because the effect was antidilutive. In addition,
the Plains Resources Series D Preferred Stock, which is convertible into .9
million shares of common stock and the Series E Preferred stock which is
convertible into 4.7 million shares of common stock were not assumed to be
converted in the computation of diluted EPS because the effect was
antidilutive.
F-25
