Bonneville Pacific Corporation
(Chapter 11 Debtor) and Subsidiaries
Consolidated Financial Statements
For the Years Ended
December 31, 1997 and 1996
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheets - December 31, 1997 and 1996 . . . . . . . . F-3
Consolidated Statements of Operations - For the Years Ended
December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Stockholders' Deficiency -
For the Years Ended December 31, 1997 and 1996 . . . . . . . . . . . . . F-7
Consolidated Statements of Cash Flows - For the Years
Ended December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . F-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . F-9
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Chapter 11
Trustee of Bonneville Pacific Corporation
Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Bonneville
Pacific Corporation (Chapter 11 Debtor) and subsidiaries as of
December 31, 1997 and 1996, and the related statements of operations,
stockholders' deficiency and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Bonneville Pacific Corporation (Chapter 11 Debtor) and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Hein + Associates llp
Denver, Colorado
April 3, 1998, except for the second paragraph of Note 1
and Note 14, as to which the date is November 2, 1998
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
December 31,
1997 1996
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $154,065 $ 24,899
Restricted cash 63 215
Marketable securities - 104,741
Receivables 9,127 14,770
Other current assets 237 280
--- ---
Total current assets 163,492 144,905
------- -------
Property, Plant and Equipment:
Oil and gas properties, at cost, under the
successful efforts method 28,591 24,549
Other property, plant and equipment 10,643 9,863
Accumulated depreciation, depletion,
amortization and impairment (22,287) (20,550)
------ ------
16,947 13,862
------ ------
Investments and Other Assets:
Investments in and advances to affiliated
companies, at cost plus equity in
undistributed earnings 6,804 6,431
Other assets 383 402
--- ---
Total other assets 7,187 6,833
----- -----
Total Assets $187,626 $165,600
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-3
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($In Thousands, Except Per Share Information)
(continued)
<TABLE>
<CAPTION>
December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
<S> <C> <C>
Liabilities Not Subject to Compromise:
Current liabilities:
Post-petition accounts payable $ 1,611 $ 1,721
Accrued professional fees 2,132 4,326
Other current liabilities 2,721 2,589
----- -----
Total current liabilities 6,464 8,636
Bank debt 2,400 1,700
----- -----
Total Liabilities Not Subject to Compromise 8,864 10,336
Senior Liabilities Subject to Compromise:
Pre-petition accounts payable 3,665 3,665
Convertible debentures and pre-petition
accrued interest 64,750 64,750
Bank debt and pre-petition accrued interest 31,512 31,512
Accrued interest 45,431 -
Priority claims 61 -
-- --
Total senior liabilities subject to compromise 145,419 99,927
Subordinated Liabilities Subject to Compromise:
Pre-petition selling debentures claims (Class 5) 5,332 5,332
Post-petition selling debentures claims (Class 6) 6,901 6,901
Limited partner claims (Class 7) 721 721
Deeply subordinated claims (Class 8) 8,945 8,945
Selling stockholders 510(b) claims (Class 9) 31,122 31,122
Cigna claim (Class 10) 11,000 11,000
------ ------
Total subordinated liabilities subject to
compromise 64,021 64,021
Total Liabilities Subject to Compromise 209,440 163,948
------- -------
Total liabilities 218,304 174,284
</TABLE>
See accompanying notes to these consolidated financial statements.
F-4
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ In Thousands, Except Per Share Information)
(continue)
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Minority Interest in Consolidated Subsidiary Company 1,618 925
Commitments and Contingencies (Notes 4, 6, and 8)
Stockholders' Deficiency:
Preferred stock - $.01 par value; cumulative;
5,000,000 shares authorized; no shares issued
and outstanding - -
Preferred stock - $.01 par value; cumulative;
5,000,000 shares authorized with $.01 per share
liquidation value; no shares issued and
outstanding - -
Common stock - $.01 par value; 50,000,000 shares
authorized; 21,375,000 shares issued 214 214
Additional paid-in capital 127,602 127,602
Accumulated deficit (152,406) (129,786)
Cumulative translation adjustment (67) -
-- --
(24,657) (1,970)
Treasury stock - 9,688,000 and 9,763,000 shares,
respectively, at cost (7,639) (7,639)
----- -----
Total stockholders' deficiency (32,296) (9,609)
------ -----
Total Liabilities and Stockholders' Deficiency $187,626 $165,600
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-5
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($ In Thousands, Except Per Share Information)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
<S> <C> <C>
Revenues:
Oil and gas sales $ 6,429 $ 5,262
Gas marketing revenues 9,135 9,550
Facilities operations and maintenance revenues 4,127 4,150
Electric cogeneration and electricity sales 2,265 1,732
----- -----
Total revenues 21,956 20,694
------ ------
Operating Expenses:
Oil and gas production 2,952 2,285
Gas marketing costs 8,553 6,910
Facilities, operations and maintenance costs 2,957 3,059
Electric cogeneration and cost of electricity 2,108 1,445
Depreciation, depletion, amortization and
impairment 2,387 1,314
Exploration and other oil and gas expense 599 299
Selling, general and administrative expense 2,434 1,705
----- -----
Total operating expenses 21,990 16,947
------ ------
Operating Profit (Loss) (34) 3,747
Other Income (Expense):
Interest expense (45,471) (555)
Other income (expense), net 995 1,072
--- -----
Total other income (expense) (44,476) 517
Income (Loss) From Consolidated Companies (44,510) 4,264
Equity in net earnings of affiliated company 3,902 3,380
----- -----
Income (Loss) Before Reorganization Items and Taxes (40,608) 7,644
Reorganization items (Note 3) 17,988 108,491
------ -------
Income (Loss) Before Taxes (22,620) 116,135
Provision for Income Taxes - 3,308
-- -----
Net Income (Loss) $(22,620) $112,827
======== ========
Basic earnings per share $ (1.94) $ 6.22
======== ========
Diluted earnings per share $ (1.94) $ 4.14
======== ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-6
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
($ In Thousands)
<TABLE>
<CAPTION>
Addtional Cumulative
Common Stock Paid-in Accumulated Translation Treasury
Shares Amount Capital Deficit Adjustment Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 21,375,000 $214 $ 91,835 $(242,613) $ - $(2,308) $(152,872)
Forgiveness of debt payable
to stockholder - - 30,621 - - - 30,621
Forfeiture of stock by
stockholder - - 5,146 - - (5,146) -
Forfeiture of stock by
officers and directors - - - - - (185) (185)
Net income - - - 112,827 - - 112,827
-- -- -- ------- -- -- -------
Balances, December 31, 1996 21,375,000 214 127,602 (129,786) - (7,639) (9,609)
Foreign currency translation - - - - (67) - (67)
Net loss - - - (22,620) - - (22,620)
-- -- -- ------ -- -- ------
Balances, December 31, 1997 21,375,000 $214 $127,602 $(152,406) $(67) $(7,639) $(32,296)
========== ==== ======== ========= ==== ======= ========
</TABLE>
See accompanying notes to these consolidated financial statements.
F-7
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
<S> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)(1) $(22,620) $112,827
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation, depletion and amortization 2,075 1,314
Impairment of property, plant and equipment 324 -
Equity in investee earnings (3,902) (3,380)
Gain on acquisition of treasury stock - (185)
Changes in assets and liabilities net of
effects from acquisitions:
Accounts receivable 5,638 (11,909)
Other current assets 118 (33)
Accounts payable and accrued
liabilities 43,168 2,374
------ -----
Net cash provided by operating activities 24,801 101,008
------ -------
Cash Flows from Investing Activities:
Proceeds from sale of marketable securities 104,740 -
Purchase of marketable securities - (86,371)
Decrease in restricted cash 152 (61)
Purchase of property, plant and equipment (5,771) (2,310)
Proceeds from sale of property, plant and equipment 319 346
Distributions received from equity investment 3,516 6,880
(Increase) decrease in other assets (40) 836
-- ---
Net cash provided by (used for) investing
activities 102,916 (80,680)
------- ------
Cash Flows from Financing Activities:
Payments of long-term debt - (6,071)
Proceeds from long-term debt 756 -
Increase in minority interest 693 593
--- ---
Net cash provided by (used for) financing
activities 1,449 (5,478)
----- -----
Increase in Cash 129,166 14,850
Cash and Equivalents at beginning of year 24,899 10,049
------ ------
Cash and Equivalents at end of year $154,065 $ 24,899
======== ========
Cash Paid for Income Taxes $ 541 $ 2,767
======== ========
Cash Paid for Interest $ 83 $ 303
======== ========
</TABLE>
________________________
(1) Included in net income are non-recurring net gains from reorganization
items of $17,988,000 and $108,491,000 in 1997 and 1996, respectively.
See accompanying notes to these financial statements.
F-8
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Reorganization and Legal Matters:
Bonneville Pacific Corporation ("BPC"), but none of its partially- or
wholly-owned subsidiaries, filed a voluntary petition for relief under
Chapter 11 of Title 11 of the Federal Bankruptcy Code (the "Code") on
December 5, 1991 (the "petition date"). From the petition date to
June 12, 1992, BPC operated as a Chapter 11 Debtor in Possession subject
to the jurisdiction of the United States Bankruptcy Court for the
District of Utah, Central Division (the "Court"). On June 12, 1992, the
Court ordered the appointment of a Chapter 11 Trustee (the "Trustee").
Certain executory contracts and leases existing at the petition date have
been rejected or assumed with the approval of the Court.
On June 19, 1998, the Trustee filed with the Court the "Trustee's Amended
Chapter 11 Plan for the Estate of Bonneville Pacific Corporation dated
April 22, 1998" (the "Plan"). This Plan was confirmed on August 27, 1998
and was effective on November 2, 1998. See Note 14 for further
discussion of the Plan.
As described in Note 14, confirmation of the Plan will materially change
the amounts reported in the consolidated financial statements. The
accompanying consolidated financial statements do not reflect adjustments
to the carrying values of assets and adjustments to liabilities which
will be necessary as a consequence of the Plan.
2. Organization and Summary of Significant Accounting Policies:
Principles of Consolidation - The consolidated financial statements
include the accounts of BPC and its majority-owned subsidiaries
(collectively referred to as "the Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation. The following majority-owned subsidiaries had activities
during 1996 and 1997: Bonneville Fuels Corporation ("BFC"), Bonneville
Pacific Services Company, Inc. ("BPSC"), and Bonneville Nevada
Corporation ("BNC").
Organization and Nature of Operations - The entity which ultimately
became BPC was initially incorporated in the State of Utah in March 1980,
and changed its state of incorporation to the State of Delaware in
June 1986. Principal operations of BPC and its subsidiaries previously
included the development and operation or sale of cogeneration,
hydroelectric and geothermal electrical generation projects. Subsequent
to the bankruptcy filing, BPC disposed of a substantial portion of its
assets. Consequently, the Company's operations are limited to ownership
of one operational cogeneration facility, a 50% interest in another
cogeneration facility, a cogeneration operations and management company
and an oil and gas company engaged in the gathering and marketing of
natural gas and the exploration and production of oil and natural gas.
At December 31, 1997, BPSC had an interest in an additional cogeneration
facility under construction in Mexico.
Bankruptcy Reporting - The accompanying financial statements have been
prepared in accordance with the American Institute of Certified Public
Accountants Statement of Position 90-7 (SOP 90-7) for reporting
bankruptcy related items. SOP 90-7 requires BPC to record claims
at the amount allowed or the amount estimated to be
F-9
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
allowed as opposed to the amount for which the liabilities are expected
to be settled. SOP 90-7 also requires separate balance sheet
classification for liabilities subject to compromise, and requires
disclosure of certain bankruptcy related items.
Cash and Cash Equivalents - The Company considers all highly-liquid
investments with an original maturity of three months or less to be cash
equivalents. From time to time, BPC has had cash and cash equivalents
which exceeded the Federal Deposit Insurance Corporation's insurance
limit of $100,000, however, the banks have pledged United States
Treasury notes to the US Bankruptcy Trustee, or have obtained a
performance bond to guarantee the liquidity of the deposits.
Marketable Securities - Marketable securities, which include United
States Treasury Bills, are classified as held to maturity and are stated
at cost, which approximated market value at December 31, 1996 due to the
short-term nature of the securities.
Investment in Partnership - BPC through a wholly-owned subsidiary, BNC,
is a 50% general partner in Nevada Cogeneration Associates #1 ("NCA #1").
The investment in NCA #1, accounted for under the equity method, is
recorded at cost, as adjusted for BNC's share of earnings and
distributions received.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
Oil and Gas Properties - BFC follows the "successful efforts" method of
accounting for its oil and gas properties, all of which are located in
the continental United States. Under this method of accounting, all
property acquisition costs and costs of exploratory and development wells
are capitalized when incurred, pending determination of whether the well
has found proved reserves. If an exploratory well has not found proved
reserves, the costs of drilling the well are charged to expense. The
costs of development wells are capitalized whether productive or
nonproductive.
Geological and geophysical costs and the costs of carrying and retaining
undeveloped properties are expensed as incurred. Depreciation and
depletion of capitalized costs for producing oil and gas properties is
provided for using the units-of-production method based upon proved
reserves for each field.
In 1997, BFC began to accrue for future plugging, abandonment, and
remediation using the negative salvage value method whereby costs are
expensed through additional depletion expense over the remaining economic
lives of the wells. Management's estimate of the total future costs to
plug, abandon, and remediate BFC's share of all existing wells, including
those currently shut-in, is approximately $3,800,000, net of salvage
values. The total accrued and expensed amount was $200,000 for the year
ended December 31, 1997.
F-10
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gains and losses are generally recognized upon the sale of interests in
proved oil and gas properties based on the portion of the property sold.
For sales of partial interests in unproved properties, BFC reflects the
proceeds as a recovery of costs with no gain recognized until all costs
have been recovered.
Other Property and Equipment - Depreciation of other property and
equipment is calculated using the straight-line method over the estimated
useful lives (ranging from 3 to 25 years) of the respective assets. The
cost of normal maintenance and repairs is charged to operating expenses
as incurred. Material expenditures which increase the life of an asset
are capitalized and depreciated over the estimated remaining useful life
of the asset. When properties are sold, or otherwise disposed of, the
cost of the property and the related accumulated depreciation or
amortization are removed from the accounts, and any gains or losses are
reflected in current operations.
Impairment of Assets - The Company follows Statement of Financial
Accounting Standards No. 121, Accounting for Impairment of Long-Lived
Assets. When facts and circumstances indicate that the carrying value
of an asset is impaired, the Company estimates the future undiscounted
cash flows from that asset and compares that amount to the carrying
value. If it is determined that an impairment is required, the asset is
written down to its fair market value. Net capitalized costs of oil and
gas properties are limited to the aggregate undiscounted future net
revenues related to each field. If the net capitalized costs exceed the
limitation, impairment is provided to reduce the carrying value of the
oil and gas properties to fair market value. In 1997 and 1996, BFC
recognized impairments of $312,000 and $-0-, respectively.
Income Taxes - The Company accounts for income taxes under the liability
method of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (SFAS 109). SFAS 109 requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse.
Accounting for Hedged Transactions - In order to mitigate the risk of
market price fluctuations, BFC enters into futures and swap contracts
as hedges of commodity prices associated with its oil and gas production
and the purchase and sale of natural gas. Changes in the market value of
futures and swap contracts are deferred until the gain or loss is
recognized on the hedged production or transactions. Payments received
or made under these contracts are included in gas marketing costs in the
accompanying statements of operations.
Segment Reporting - The Company has adopted FAS 131 Disclosures About
Segments of an Enterprise and Related Information. FAS 131 replaces
FAS 14 and utilizes the "management approach" whereby external financial
reporting is aligned with internal reporting. FAS 131 defines an
operating segment as a component of an enterprise that engages in
business activity for which it may earn revenues and incur expenses,
whose operating results are regularly reviewed by the entity's chief
operating decision maker to allocate resources and assess
performance, and for which discrete financial information is
F-11
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
available. The Company has identified the following reportable
operating segments: Bonneville Fuels Corporation, Bonneville Pacific
Services Company, and Bonneville Nevada Corporation.
Earnings Per Share - BPC follows statement of Financial Accounts
Standards No. 128 when calculating earnings per share. Basic earnings
per share is computed using only the weighted average number of shares
outstanding. Diluted earnings per share includes potential common stock
from the assumed conversion of the convertible debentures. Potential
common stock is not included in the calculation of diluted earnings per
share in 1997 as it is anti-dilutive. The Plan requires the issuance of
additional shares of common stock which would further dilute earnings per
share. All outstanding convertible debentures are retired pursuant to
the Plan.
Impact of Recently Issued Accounting Standards - In 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards 130, Reporting Comprehensive Income. Statement 130
establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners.
Statements 130 is effective for financial statements for fiscal years
beginning after December 15, 1997 and requires comparative information
for earlier years to be restated. Management is still evaluating the
impact, if any, the standard may have on the future financial statement
disclosures. Results of operations and financial position, however,
will be unaffected by implementation of this standard.
3. Reorganization Items:
The effects of transactions and adjustments related to reorganization
activities were as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
($ in 000's)
<S> <C> <C>
Gains from settlements $15,686 $156,939
Professional fees (5,278) (52,587)
Interest earned on accumulated cash resulting
from Chapter 11 proceedings 7,580 4,139
----- -----
Total reorganization items $17,988 $108,491
======= ========
</TABLE>
F-12
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in NCA #1 Partnership:
BPC, through BNC, is a 50% general partner in the NCA #1 partnership.
The remaining 50% is owned by Texaco Clark County Cogeneration Company
("TCCCC"). The NCA #1 partnership owns and operates an 85 megawatt
electric generating facility (the "Facility") in Clark County, Nevada.
BNC receives a 50% allocation of income (loss), depreciation expense and
other tax benefits from the operations of NCA #1. In accordance with the
partnership agreement, BNC initially received a 662/3% share of net cash
distributions until such net cash distributions equaled approximately
$18,800,000 (September 1997) at which time BNC's share of net cash
distributions changed to 50%. The NCA #1 partnership will terminate,
unless terminated earlier by partner agreement, on the latter of
April 30, 2023, or the date that NCA #1 elects to cease operations.
The financial statements of NCA #1 were audited by other auditors.
Summary condensed financial statement data and significant accounting
disclosures for NCA #1 as of December 31, 1997 and 1996 and for the
years then ended are as follows:
<TABLE>
<CAPTION>
1997 1996
($ in 000's)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 5,416 $ 5,822
Other current assets 5,998 5,646
Operating facility and equipment, net 82,652 86,053
Other assets 10,087 9,810
------ -----
$104,153 $107,331
======== ========
Liabilities and partners' equity:
Project financing loan payable and $ 78,264 $ 81,842
bonds payable
Notes and other payables to affiliates 1,513 1,447
Other liabilities 4,945 5,713
Partners' equity:
Bonneville Nevada 6,804 6,419
TCCCC 12,627 11,910
------ ------
$104,153 $107,331
======== ========
</TABLE>
F-13
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
($ in 000'S)
<S> <C> <C>
Revenues $45,684 $45,593
Costs and expenses:
Plant and other operating 26,194 26,356
Depreciation and amortization 3,482 3,601
General and administrative 1,677 2,176
Interest 6,187 6,702
Impairment expense 340 -
--- --
Total costs and expenses 37,880 38,835
------ ------
Net income $ 7,804 $ 6,758
======= =======
</TABLE>
The Facility was completed during 1992 and commercial operation began on
June 18, 1992. All costs, including interest and field overhead
expenses, incurred prior to commercial operations were capitalized as
part of the Facility. The Facility is being depreciated on a straight-
line basis over 30 years. Expenditures for maintenance, repairs and
minor renewals are charged to expense as incurred, and expenditures for
additions and improvements are capitalized. The facility requires
significant maintenance every 25,000 and 50,000 operating hours. The
expected cost of this maintenance is accrued using a straight-line
method over the respective periods. Due to fluctuations in the extent
of repairs, prices and changes in the timing of the scheduled events,
the estimated costs of these events can differ from actual costs
incurred. All legal and financing fees associated with NCA #1's project
financing loan and bonds payable including the cost of subsequent
amendments were deferred and are being amortized over the terms of the
financing.
In July 1991, NCA #1 entered into a Construction Loan, Term Loan and
Reimbursement Agreement (the "Agreement") with several banks to finance
the majority of the construction costs of the Facility. In April 1993,
the loan was converted to a term loan of $63,938,000. The debt is
scheduled to be reduced on dates and by amounts as specified in the
Agreement through October 2007, unless terminated earlier as provided
for in the Agreement. The Agreement places certain restrictions on cash
accounts, capital distributions and permitted investments. The Agreement
is collateralized by substantially all of the assets of NCA #1, as well
as BNC's interest in the NCA #1 partnership.
The amount outstanding under the Agreement bears interest at a market
rate plus a margin. NCA #1 has entered into interest rate swap
agreements with commercial banks to reduce the exposure to higher
interest rates. If the variable interest exceeds the fixed rate
established by the swap agreements, NCA #1 could be exposed to the risk
of higher interest costs in the event of nonperformance by the commercial
banks. The weighted average interest rate, inclusive of the effect of
the swap agreements, on the outstanding loan balance was 7.74% and 7.58%
at December 31, 1997 and 1996, respectively.
F-14
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The bankruptcy of BPC was an event of default, prior to 1996, under a
covenant in the Agreement. This event of default gave the lenders the
right to call the loan and to require redemption of the tax-exempt bonds
at any time. During 1996, the Partnership amended the Loan and
Reimbursement Agreement which became effective October 30, 1996, therein
waiving the event of default regarding BPC's bankrupt status. The
amendment also reduced the lender's margin by 1/4%, reduced the
restricted cash accounts required, and changed the reporting
requirements for the project.
NCA #1 also obtained $27,400,000 of long-term project financing in the
form of variable rate industrial development revenue bonds. BPC and the
parent of TCCCC have guaranteed repayment of these bonds. The bonds are
due and payable on November 1, 2020 and November 1, 2021. The interest
rate on the bonds was 6.26% and 6.16% at December 31, 1997 and 1996,
respectively. As set forth in the Plan, BPC will continue to guarantee
repayment of the industrial revenue bonds after its emergence from
bankruptcy.
The future minimum payments on the debt outstanding and the letters of
credit supporting the tax-exempt bonds at December 31, 1997, are as
follows: 1998 - $4,496,000; 1999 - $5,138,000; 2000 - $5,689,000;
2001 - $6,239,000; 2002 - $6,881,000 and for the years thereafter a
total of - $22,421,000.
NCA #1 has an agreement for long-term power purchases of energy and
capacity by Nevada Power Company (NPC) that terminates on April 30, 2023.
NCA #1 is paid for energy delivered based upon fixed rates, as defined in
the agreement, adjusted annually at 120% of the change in the CPI. NPC
also pays NCA #1 for firm capacity based upon fixed rates, as defined,
increased annually by 2%. During 1997, NCA #1 negotiated an amendment
to the agreement severely limiting NPC's curtailment rights in exchange
for a price discount of $.25 per megawatt hour. The amendment was
signed on October 3, 1997 and was approved by Nevada Public Utility
Commission subsequent to December 31, 1997. Pursuant to the amended
agreement, NCA #1 has the right to release NPC from its purchase
obligation for an agreed upon payment per released megawatt.
NCA #1 also has a long-term process heat sales agreement with Georgia-
Pacific Corporation which terminates on April 30, 2023, or earlier, as
defined in the agreement. NCA #1 has a number of long-term fuel-gas
purchase contracts with various parties including affiliates of TCCCC.
NCA #1 also has an equipment lease agreement which requires monthly
payments of $24,000 plus sales tax over a 10-year term ending
December 31, 2002.
The Facility is operated and maintained by BPSC. BPSC is paid for all
costs incurred in connection with the operation and maintenance of the
Facility including an annual operating fee of $260,000, adjusted
annually by the Consumer Price Index. BPSC also may earn a performance
bonus upon meeting specified operating goals, as defined in the
agreement.
NCA #1, under agreements, pays for certain engineering and administrative
expenses and other costs to TCCCC and its subsidiaries. TCCCC may earn a
performance bonus based upon the plant achieving certain operational
goals, as defined in the agreement.
F-15
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 1997, the Nevada Legislature passed legislation to restructure the
Nevada electric utility industry. The legislation (AB366) calls for
competition to commence by January 1, 2000. The eventual outcome of
these activities and their potential impact, if any, upon NCA #1 is not
known.
Income taxes are not recorded by NCA #1 since the net income or loss
allocated to the partners is included in each partner's respective
income tax return.
Under the terms of the NCA #1 Partnership Agreement, at TCCCC's option,
BNC will be required to purchase or cause to be purchased, TCCCC's
ownership interest in NCA #1 at fair market value as determined by an
independent appraisal. TCCCC's option becomes effective on
June 18, 2012.
5. Long-Term Debt:
BFC has an accounts receivable-based credit facility which includes a
revolving line-of-credit with a bank which provides for borrowings up to
$1,000,000. There were no outstanding borrowings under this facility at
December 31, 1997 or 1996. This facility bears interest at prime (8.5%
at December 31, 1997). This facility is collateralized by certain trade
receivables of BFC and had a maturity date of July 1, 1998.
In addition to the line-of-credit discussed above, the bank has also
provided to BFC an asset-based line-of-credit which provides for
borrowing up to the borrowing base (as defined). The borrowing base was
$10,000,000 and $4,500,000 at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, outstanding borrowings amounted to
$2,400,000 and $1,700,000, respectively, with interest at a variable
rate that approximated 7.6% at December 31, 1997. This facility is
collateralized by certain oil and gas properties of BFC and was
scheduled to convert to a term note on July 1, 1998. This term loan was
scheduled to have a maturity of either the economic half life of BFC's
remaining reserves on the date of conversion, or July 1, 2003, whichever
was earlier. The amount available to be drawn by BFC under this credit
facility is subject to a borrowing base, which is based upon the lender's
evaluation of BFC's proved oil and gas reserves. The borrowing base is
generally determined semi-annually and the future minimum principal
payments under the term note will be dependent upon the bank's
evaluation of BFC's reserves at that time.
Subsequent to December 31, 1997, BFC amended its loan agreement with the
bank which extended the maturity date of the accounts receivable-based
line-of-credit to July 1, 1999, and increased the amount available under
the line to $1,500,000. The bank extended the conversion to a term loan
of the asset-based line-of-credit to July 1, 2001 with a new scheduled
maturity of the economic half life of BFC's reserves or July 1, 2006
whichever is earlier. The bank also increased the borrowing base on the
asset-based line-of-credit to $11,500,000.
F-16
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The credit agreement contains various covenants which prohibit or limit
the subsidiary's ability to pay dividends, purchase treasury shares,
incur indebtedness, repay debt to BPC, sell properties or merge with
another entity. Additionally, BFC is required to maintain certain
financial ratios.
The portion of BPC debt subject to compromise contractually due within
one year following each respective balance sheet date is not classified
in current liabilities because such amounts will be settled under the
Plan.
BPC's pre-petition debt agreements contain various financial and
operational covenants. While covenants in substantially all of these
agreements have been breached, the related debt will be settled as part
of the Plan.
As of the petition date, in accordance with current accounting
pronouncements, BPC discontinued accruing interest on its pre-petition
debt obligations except to the extent that the obligations are secured
by collateral believed to have value in excess of the amounts of the
related obligations. If such interest had continued to be accrued,
based on contractual terms without increase for default provisions,
interest expense for 1996 would have been increased by approximately
$8,300,000. During 1996, BPC received approximately $104 million in
litigation settlement proceeds (net of related costs). In 1997, the
Trustee entered into a conditional settlement agreement with the holders
of certain senior claims with respect to the calculation and payment of
post-petition interest and with the holders of certain subordinated and
equity claims who agreed to not oppose the Plan. Therefore, in 1997,
BPC resumed accrual of interest expense at the amount expected to be
paid pursuant to the Plan (ranging from 5.5% to 8.10%). Accrued
interest from the petition date, or date of the claim, if later, through
1997, amounting to $45,430,000 was charged to operations in 1997.
See Note 4 for a discussion of long-term debt of NCA #1.
6. Commitments:
Office Lease - The Company leases office space under noncancellable
operating leases. Total rental expense was immaterial in the years
ended December 1997 and 1996. The total minimum rental commitments at
December 31, 1997 are as follows:
$ (in 000's)
------------
1998 $243
1999 161
2000 124
2001 129
2002 88
---
$745
====
F-17
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Income Taxes:
Pretax accounting income from continuing operations for the years ended
December 31, 1997 and 1996 was taxed solely under domestic jurisdictions.
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
1997 1996
($ in 000's)
<S> <C> <C>
Current tax expense:
U.S. Federal $- $ 3,917
State - 991
-- ---
Total current tax expense - 4,908
Deferred tax benefit - (1,600)
-- -----
$- $ 3,308
== =======
</TABLE>
The difference between the provision for income taxes and the amounts
which would have been reported by applying the statutory Federal income
tax rate to income before provision for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996
($ in 000's)
<S> <C> <C>
Tax expense (benefit) by applying the
statutory Federal income tax rate to
pretax income (loss) $(7,917) $ 39,489
Net operating losses 873 (32,582)
State taxes, net of Federal benefit - 689
Effect of alternative minimum tax - (4,288)
-- -----
(7,044) 3,308
Change in valuation allowance 7,044 -
----- --
$ - $ 3,308
======= =======
</TABLE>
F-18
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Long-term deferred tax assets and liabilities are comprised of the
following as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
($ in 000's)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 8,337 $ 1,221
Depreciation, depletion, amortization and
impairment 900 953
Liabilities recognized for book purposes prior
to realization for tax purposes 14,839 14,489
------ ------
Gross deferred tax assets 24,076 16,663
Deferred tax liabilities:
Investment in NCA #1, primarily depreciation,
depletion and amortization (1,401) (1,032)
----- -----
Net deferred tax asset 22,675 15,631
Valuation allowance (22,675) (15,631)
------ ------
$ - $ -
======== ========
</TABLE>
At December 31, 1997, the Company had Federal income tax net operating
loss carryforwards of $23,819,000 which expire from 2010 through 2012.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if
certain significant ownership changes occur, there could be an annual
limitation on the amount of net operating loss carryforwards which may
be utilized. The Company has experienced a change in ownership under
these rules prior to December 31, 1997. Consequently, certain net
operating loss carryforwards will likely be limited. There may be
additional limitations due to the confirmation of the Plan.
8. Employee Benefits:
Stock Options - Prior to declaring bankruptcy, BPC had 228,800 incentive
stock options outstanding and 140,000 directors stock options
outstanding. BPC believes that substantially all of these options have
expired, or were canceled as part of BPC's settlements with former
employees and directors. Any remaining options will be canceled
pursuant to the Plan.
F-19
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Ownership Plan - On April 28, 1989, BPC adopted the
Bonneville Pacific Corporation Employee Stock Ownership Plan (the
"ESOP"). Upon adoption, the ESOP acquired 383,144 shares of BPC's
common stock from certain of BPC's original managing directors at a
weighted average price of $7.83 per share, or $3 million. The loan from
a financial institution to acquire the shares was paid off in part,
settled in part, and the financial institution foreclosed and sold
227,655 shares of BPC stock, therefore, leaving the ESOP with 155,489
shares. The ESOP has an allowed claim against BPC of $984,000. The ESOP
was terminated in 1997.
Employee Qualified 401(k) Retirement Plan - Effective January 1, 1990,
BPC adopted a qualified retirement plan under Sections 401(a) and 401(k)
of the Internal Revenue Code. To participate, employees must be at least
21 years of age, have worked at least one year for BPC or one of its
participating subsidiaries and performed a minimum of 1,000 hours of
service during a 12-month period. The Company may match employees'
contributions at the Company's discretion. No company contributions
were made in 1997 or 1996.
Management Retention Program - In 1997, the Court approved a management
retention program in order to retain certain key employees of the
subsidiary companies. The retention program provides for the payment of
certain cash severance benefits upon (a) an employee's termination
without cause absent a change in control, or (b) termination from a
change in control. Additionally, the retention programs provide
benefits upon (a) the death of the employee or (b) the successful
confirmation of the Plan. BFC and BPSC accrued $600,000 for the
retention program in 1997.
9. Stockholders' Equity:
Treasury Stock - In 1996, 9,156,000 shares of common stock were returned
to BPC as the result of litigation settlements. 7,842,000 shares were
received from a significant stockholder, and recorded as additional paid-
in capital at a fair market value of $5,146,000. The remaining
settlements were not with significant stockholders and therefore, BPC
recognized a gain of $185,000 from these transactions.
Earnings Per Share - The following is a reconciliation of basic and
diluted earnings per share:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
Income Shares Per Share
(Numerator) (Denominator) Amount
(In 000's)
<S> <C> <C> <C>
Basic EPS -
Income available to common
stockholders $(22,620) 11,687 $(1.94)
Diluted EPS -
Income available to common
stockholders $(22,620) 11,687 $(1.94)
</TABLE>
F-20
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
Income Shares Per Share
(Numerator) (Denominator) Amount
(In 000's)
<S> <C> <C> <C>
Basic EPS -
Income available to common
stockholders $112,827 18,130 $6.22
Diluted EPS -
Income available to common
stockholders $112,827 18,130
Effect of convertible
debentures - 9,143
-- -----
$112,827 27,273 $4.14
======== ====== =====
</TABLE>
10. Concentrations of Credit Risk:
Approximately 31% of the Company's accounts receivable at
December 31, 1997 result from BFC's crude and natural gas sales and/or
joint interest billings to companies in the oil and gas industry. This
concentration of customers and joint interest owners may impact the
Company's overall credit risk, either positively or negatively, since
these entities may be similarly affected by changes in economic or other
conditions. In determining whether or not to require collateral from a
customer or joint interest owner, the Company analyzes the entity's net
worth, cash flows, earnings, and credit ratings. Receivables are
generally not collateralized. Historical credit losses incurred on
trade receivables by the Company have been insignificant.
The nature of the power generation business is such that each facility
generally relies on one power or steam sales agreement with a single
electric customer for substantially all, if not all, of such facility's
revenue over the life of the project. The power and steam sales
agreements are generally long-term agreements, covering the sale of
electricity or steam for initial terms of 20 or 30 years. However, the
loss of any one power or steam sales agreement with any of these
customers could have a material adverse effect on cash flow and, as a
result, on results of operations.
Furthermore, each power generation facility may depend on a single or
limited number of entities to purchase thermal energy, or to supply or
transport natural gas to such facility. The failure of any one customer,
thermal host, gas supplier or gas transporter to fulfill its contractual
obligations could have a material adverse effect on a power project's
qualifying status under regulations and on the Company's business and
results of operations.
F-21
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Financial Instruments:
Statement of Financial Accounting Standards No. 107 and 127 requires
certain entities to disclose the fair value of certain financial
instruments in their financial statements. Accordingly, management's
best estimate is that the carrying amount of cash, receivables, notes
payable, accounts payable, undistributed revenue, and accrued expenses
approximates fair value of these instruments, other than liabilities
subject to compromise, for which the estimated fair value is discussed
in Note 14.
Energy Financial Instruments - BFC uses energy financial instruments and
long-term user contracts to minimize its risk of price changes in the
spot and fixed price natural gas and crude oil markets. Energy risk
management products used include commodity futures and options contracts,
fixed-price swaps, and basis swaps. Pursuant to company guidelines BFC
is to engage in these activities only as a hedging mechanism against
price volatility associated with pre-existing or anticipated gas or crude
oil sales in order to protect profit margins. As of December 31, 1997,
BFC has hedged 3,500 MMbtu's of natural gas per day through October 2001.
The difference between the current market value of the hedging contracts
and the original market value of the hedging contracts was an unfavorable
$60,000 and $146,000, as of December 31, 1997 and 1996, respectively.
These amounts are not reflected in the accompanying financial statements.
In the event energy financial instruments do not qualify for hedge
accounting, the difference between the current market value and the
original contract value would be currently recognized in the statement of
operations. In the event that the energy financial instruments are
terminated prior to the delivery of the item being hedged, the gains and
losses at the time of the termination are deferred until the period of
physical delivery. Such deferrals were immaterial in all periods
presented.
12. Segment Information:
The Company has identified the following segments: BFC, BNC, and BPSC.
BFC is primarily engaged in oil and gas production and gas marketing.
BNC owns a 50% interest in a company engaged in cogeneration activities.
BPSC is primarily engaged in providing operational and maintenance
services to cogeneration plants.
F-22
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before
reorganization items and income taxes.
<TABLE>
<CAPTION>
BFC BNC BPSC Corporate Total
($ in 000's)
<S> <C> <C> <C> <C> <C>
1997
Revenues from external
customers $16,071 $ - $4,127 $ 1,758 $ 21,956
Interest income from non-
reorganization items 62 179 329 - 570
Interest expense 83 - - 45,388 45,471
Operating expenses 14,855 - 2,973 1,728 19,556
Selling, general and
administrative 990 22 546 876 2,434
Equity in investee earnings - 3,902 - - 3,902
Segment profit (loss) before
reorganization items and
taxes 611 4,059 941 (46,219) (40,608)
Segment assets 16,054 7,397 6,702 157,473 187,626
1996
Revenues from external
customers 15,026 - 4,155 1,513 20,694
Interest income from non-
reorganization items 41 30 282 51 404
Interest expense 272 - - 283 555
Operating expenses 10,629 - 3,070 1,543 15,242
Selling, general and
administrative 472 30 207 996 1,705
Equity in investee earnings - 3,380 - - 3,380
Segment profit (loss) before
reorganization items and
taxes 3,694 3,378 1,760 (1,188) 7,644
Segment assets 14,524 10,438 7,973 132,665 165,600
</TABLE>
13. Oil and Gas Producing Activities (Unaudited):
BFC's oil and gas producing activities are all located in the United
States. The following is certain information with respect to the
activities.
<TABLE>
<CAPTION>
December 31,
1997 1996
($ in 000's)
<S> <C> <C>
Capitalized Costs Relating to Oil and Gas Properties
Unproved oil and gas properties $ 1,900 $ 1,251
Proved oil and gas properties 26,533 23,140
Gas gathering system 158 158
--- ---
28,591 24,549
Accumulated depreciation, depletion, amortization
and impairment (16,709) (14,823)
------ ------
Net capitalized costs $ 11,882 $ 9,726
======== ========
</TABLE>
F-23
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
1997 1996
($ in 000's)
<S> <C> <C>
Costs Incurred in Oil and Gas Property Acquisition,
Exploration and Development Activities
Acquisition of properties:
Proved $2,230 $ 63
Unproved - -
-- --
2,230 63
----- --
Exploration costs 599 299
Development costs 1,812 959
----- ---
$4,641 $1,321
====== ======
Results of Operations from Producing Activities
Oil and gas sales $6,429 $5,262
Expenses:
Production costs 2,952 2,285
Exploration costs 599 299
Depreciation, depletion, amortization and
impairment 2,199 1,143
----- -----
Total expenses 5,750 3,727
----- -----
Results of operations from producing activities
(excluding corporate overhead and interest
costs) $ 679 $1,535
====== ======
</TABLE>
Oil and Gas Reserves - The following quantity and value information is
based on prices as of the end of each respective reporting period. No
price escalations were assumed except for gas sales made under terms of
contracts which include fixed and determinable escalations. Operating
costs and production taxes were deducted in determining the quantity and
value information. Such costs were estimated based on current costs and
were not adjusted to anticipate increases due to inflation or other
factors. No deductions were made for general overhead, depreciation and
interest.
The determination of oil and gas reserves is based on estimates and is
highly complex and interpretive. The estimates are subject to continuing
change as additional information becomes available and an accurate
determination of the reserves may not be possible for several years
after discovery. Reserve information presented herein is based on
reports prepared by an independent petroleum engineer.
F-24
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Estimated Quantities of Proved Oil and Gas Reserves - The following is
a reconciliation of BFC's interest in net quantities of proved oil and
gas reserves. Proved reserves are the estimated quantities of crude oil
and natural gas which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions. Estimated
reserves of oil (barrels) and natural gas (thousands of cubic feet) as
of December 31, 1997 and 1996, and the changes thereto for the years
then ended are as follows:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996
Gas Oil Gas Oil
<S> <C> <C> <C> <C>
Proved developed and undeveloped
reserves:
Beginning of year 26,512 227 19,807 207
Extensions and discoveries 427 32 935 44
Purchases of minerals in place 916 99 506 -
Production (3,135) (63) (2,719) (58)
Revisions of previous estimates (1,580) 3 7,983 34
----- -- ----- --
End of year 23,140 298 26,512 227
====== === ====== ===
Proved developed reserves:
Beginning of year 25,483 188 19,290 168
====== === ====== ===
End of year 22,623 298 25,483 188
====== === ====== ===
</TABLE>
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Oil and Gas Reserves
Estimated discounted future net cash flows and changes therein were
determined in accordance with Statement of Financial Accounting
Standards No. 69. Certain information concerning the assumptions used
in computing the valuation of proved reserves and their inherent
limitations are discussed below. The Company believes such information
is essential for a proper understanding and assessment of the data
presented.
Future cash inflows are computed by applying year-end prices of oil and
gas relating to BFC's proved reserves to the year-end quantities of
those reserves.
The assumptions used to compute the proved reserve valuation do not
necessarily reflect BFC's expectations of actual revenues to be derived
from those reserves nor their present worth. Assigning monetary values
to the reserve quantity estimation process does not reduce the subjective
and ever-changing nature of such reserve estimates.
F-25
<PAGE>
Additional subjectivity occurs when determining present values because
the rate of producing the reserves must be estimated. In addition to
subjectivity inherent in predicting the future, variations from the
expected production rate also could result directly or indirectly from
factors outside BFC's control, such as unintentional delays in
development, environmental concerns and changes in prices or regulatory
controls.
The reserve valuation assumes that all reserves will be disposed of by
production. However, if reserves are sold in place, additional economic
considerations also could affect the amount of cash eventually realized.
Future development and production costs are computed by estimating the
expenditures to be incurred in developing and producing the proved oil
and gas reserves at the end of the year, based on year-end costs and
assuming continuation of existing economic conditions.
Future income tax expense has not been provided based on the availability
of net operating loss carryforwards and other deductions. The usage of
these carryforwards may be limited based upon a past change in ownership
of BPC. There may be additional limitations on the availability of net
operating loss carryforwards due to the confirmation of the Plan.
A discount rate of 10% per year was used to reflect the timing of the
future net cash flows.
<TABLE>
<CAPTION>
At December 31,
1997 1996
($ in 000's)
<S> <C> <C>
Future cash inflows $46,859 $89,985
Future production and development costs 18,155 26,608
------ ------
28,704 63,377
10% annual discount for estimated timing of
cash flows (9,075) (23,366)
----- ------
Standardized measure of discounted future
net cash flows $19,629 $40,011
======= =======
</TABLE>
F-26
<PAGE>
BONNEVILLE PACIFIC CORPORATION (CHAPTER 11 DEBTOR)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following are principal sources of changes in the standardized
measure of discounted net cash flows:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
1997 1996
($ in 000's)
<S> <C> <C>
Standardized measure of discounted future net
cash flows, beginning of year $40,011 $10,233
Sales and transfers of oil and gas produced,
net of production costs (3,477) (2,977)
Net changes in prices and production costs (19,872) 19,260
Extensions, discoveries, and improved recovery,
less related costs 756 3,226
Purchases of reserves in-place 1,610 436
Revisions of future development costs 1,059 (1,202)
Revisions of previous quantity estimates (1,107) 12,475
Accretion of discount 4,001 1,023
Other (3,352) (2,463)
----- -----
Standardized measure of discounted future net
cash flows, end of year $19,629 $40,011
======= =======
</TABLE>
Oil and gas prices at December 31, 1997 and 1996 of $16.91 and $25.60,
respectively, per barrel of oil and $1.81 and $3.17, respectively, per
thousand cubic feet of gas were used in the estimation of BFC's reserves
and future net cash flows.
14. Subsequent Event - Chapter 11 Plan:
On June 19, 1998, the Trustee filed with the Court the Trustee's Amended
Chapter 11 Plan for the Estate of Bonneville Pacific Corporation dated
April 22, 1998. The Plan was confirmed on August 27, 1998 and was
F-28
<PAGE>
effective on November 2, 1998. The Plan classifies all claims into 11
classes plus administrative claims and standardizes the way certain
claims are calculated. The classes and treatments, in general are as
follows:
<TABLE>
<CAPTION>
Allowed
Amount Amount
of of
Class Type of Claim Claim Settlement Treatment
(in 000's)
<S> <C> <C> <C> <C>
1 Priority Claims $ 61 $ 61 Allowed claim paid in full in
cash at distribution date;
post-petition simple interest
at 5.5% per annum.
2 Bank Debt Claims 31,512 31,512 Allowed claim paid in full in
cash at distribution date;
post-petition simple interest
at 8.03% per annum through
December 5, 1997 and 8.10%
thereafter.
3 Trade and Other General
Unsecured Claims 3,665 3,665 Allowed claim paid in full in
cash at distribution date; post-
petition simple interest at 5.5%
per annum.
4 Current Debentures Claims 64,750 64,750 Allowed claim paid in full
in cash at distribution date; post-
petition simple interest at 7.32%
per annum.
5 Pre-petition Selling
Debenture Claims 5,334 5,334 Allowed claim amount as uniformly
calculated by the Trustee paid in
full with Plan Common Stock.
6 Post-petition Selling
Debenture Claims 6,901 6,901 Claim amount as uniformly calculated
by the Trustee allowed and paid in
Plan common stock.
7 Limited Partner Claims 721 721 Claim amount as uniformly calculated
by the Trustee allowed
and paid in Plan common stock.
8 Deeply Subordinated Claims 8,945 895 10% of allowed claim paid in Plan
common stock.
9 Equity Claims (For Loss of
Value on Equity, also
known as Section 510(b)
equity claims) 31,122 20,385 Allowed claim as uniformly
calculated by the Trustee paid in
Plan Common Stock with a value
estimated to be approximately 65%
of the allowed claim.
10 CIGNA Claim 11,000 7,205 Allowed as an $11 million Section 510(b)
equity claim; claimant to receive
Plan common stock with a value
estimated to be approximately 65%
of such claim.
11 Equity Interests (Existing
Common Stock) All existing common stock will be
retained by the interestholders
and their rights in the
reorganized debtor will be
unaltered.
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The Plan also provides for a one for four reverse stock split as soon as
practicable after the Plan is effective. The above amounts do not
include administrative claims incurred subsequent to December 31, 1997
estimated to be between $4 million and $13 million. BPC will pay cash
and issue stock in satisfaction of the above claims and management
currently intends to continue to operate BPC and its subsidiaries in
their current form as a going concern.
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