<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 17, 1997
Date of Report (Date of earliest event reported)____________________
MAGNUM HUNTER RESOURCES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 1-12508 87-0462881
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission IRS Employer
of incorporation) File Number) Identification No.)
600 East Las Colinas Boulevard, Suite 1200, Irving, Texas 75039
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 401-0752
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired
Financial Statements of NGTS
Independent Auditors' Report-Grace, Pulliam & Patterson Company, PC . . F-1
NGTS Balance Sheets for the year ended December 31, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
NGTS Statements of Income for the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . .. . . . .F-3
Retained Earnings for Years Ended
December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . . F-4
NGTS Statements of Cash Flow for the Years Ended
December 31, 1996 and 1995. . . . . . . . . . . . . . . . . . . . . .F-5
Notes to Financial Statements for the Years Ended
December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-6
NGTS Unaudited Balance Sheet for the period ended
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . .F-12
NGTS Unaudited Statement of Income for the period ended
September 30, 1997. . . . . . . . . . . . . . . . . . . . . . . . . .F-13
(b) Pro forma financial information
Unaudited Pro Forma Financial Data
Introduction............................................................F-14
Unaudited Pro Forma Balance Sheet as of September 30, 1997.. . . . .. . F-15
Unaudited Pro Forma Statement of Operations for the Nine months
ended September 30, 1997..............................................F-16
Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1996 ....................................................F-17
Notes To Unaudited Pro Forma Financial Statements. . . . . . . . . . . F-18
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Natural Gas Transmission Services, Inc.
Dallas, Texas
We have audited the accompanying balance sheets of Natural Gas
Transmissions Services, Inc. (an S Corporation) as of December 31, 1996 and
1995 and the related statements of income, retained earnings 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
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material aspects, the financial position of Natural Gas Transmissions
Services, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
GRACE, PULLIAM & PATTERSON COMPANY, PC
Dallas, Texas
March 27, 1997
F-1
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
1996 1995
--------- ----------
CURRENT ASSETS
Cash (Notes 1 and 3) $ 4,247,213 $ 127,078
Accounts receivable - gas sales (Notes 1,2,3,&5) 31,407,555 3,915,022
Accounts receivable - shareholders 1,000 1,000
Accounts receivable - other 0 37,447
Accounts receivable - related party (Note 2) 88,340 0
Inventory 248,429 0
------------- -----------
Total current assets 35,992,537 4,080,547
EQUIPMENT, AT COST (NOTES 1 AND 3)
Office and computer equipment 99,577 38,722
Less: accumulated depreciation 24,744 9,826
------------ -----------
Total equipment - net 74,833 28,896
OTHER ASSETS
Other assets - net 11,352 11,726
------------ -----------
Total other assets 11,352 11,726
------------ -----------
Total assets $ 36,078,722 $ 4,121,169
============= ============
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade/gas purchased
(Notes 2 and 3) $ 33,254,294 $ 3,715,034
Accrued officers' salaries and accrued
employee bonuses 368,045 0
Note payable - related party (Note 2) 237,104 237,104
Payroll taxes payable 10,031 4,557
Accrued state franchise tax payable 42,000 0
Accrued interest payable (Note 2) 28,259 6,920
------------ -----------
Total current liabilities 33,939,733 3,963,615
SHAREHOLDERS' EQUITY
Common stock, no par value, 1,000 shares 1,000 1,000
authorized, 1,000 shares issued
Paid in capital 100,000 100,000
Retained earnings 2,037,989 56,554
----------- -----------
Total shareholders' equity (Notes 3 and 5) 2,138,989 157,554
----------- -----------
Total liabilities & shareholders' equity $ 36,078,722 $ 4,121,169
=========== ===========
The Accompanying Notes are an Integral Part of These Statements
F-2
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
REVENUE FROM OPERATIONS (NOTES 1 AND 2)
Natural gas sales $ 154,715,973 $ 16,479,277
Services fees 226,914 153,772
------------ -------------
Total revenues 154,942,887 16,633,049
COST OF OPERATIONS (NOTE 1)
Cost of gas sold 150,417,928 15,889,793
------------ -------------
Total cost of gas sold 150,417,928 15,889,793
------------ -------------
INCOME BEFORE EXPENSES 4,524,959 743,256
EXPENSES (NOTES 1 AND 2)
Depreciation 14,918 5,167
General and administrative 2,266,482 723,009
------------ -------------
Total expenses 2,281,400 728,176
------------ -------------
OPERATING INCOME 2,243,559 15,080
OTHER INCOME (EXPENSE)
Interest income 104,925 14,914
Interest expense (Note 2) (43,924) (7,033)
Other (1,718) 1,718
------------ ------------
Total other income (expense) 59,283 9,599
------------ ------------
NET INCOME (NOTES 3 AND 5) $ 2,302,842 $ 24,679
============ ============
The Accompanying Notes are an Integral Part of These Statements
F-3
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
STATEMENTS OF RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
--------- ----------
Retained earnings, beginning of year $ 56,554 $ 31,875
Add net income (Notes 3 and 5) 2,302,842 24,679
Dividends (321,407) 0
----------- ----------
Retained earnings, end of period $2,037,989 $ 56,554
=========== ==========
The Accompanying Notes are an Integral Part of These Statements
F-4
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,302,842 $ 24,679
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 14,918 5,167
(Increase) Decrease in accounts receivable - gas sales (27,492,533) (2,416,844)
(Increase) Decrease in accounts receivable - service fees 0 36,500
(Increase) Decrease in accounts receivable - other 37,447 (37,447)
(Increase) Decrease in accounts receivable - related party (88,340) 0
(Increase) Decrease in prepaid loan fees 0 (11,556)
(Increase) Decrease in prepaid expenses 0 500
(Increase) Decrease in inventory (248,429) 0
Increase (Decrease) in accounts payable - trade/gas purchased 29,539,260 1,976,543
Increase (Decrease) in accrued officers' salaries and employee 368,045 0
Increase (Decrease) in taxes payable 47,474 2,257
Increase (Decrease) in accrued interest payable 21,339 6,920
-------------- -------------
Net cash provided (used) by operating activities 4,502,023 (413,281)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office and computer equipment (60,855) (13,930)
-------------- -------------
Net cash provided (used) by investing activities (60,855) (13,930)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - related party 0 237,104
Payment of loan fees 374 0
Dividends paid to shareholders (321,407) 0
-------------- ------------
Net cash provided (used) by financing activities (321,033) 237,104
INCREASE (DECREASE) IN CASH 4,120,135 (190,107)
CASH AT BEGINNING OF PERIOD 127,078 317,185
-------------- ------------
CASH AT END OF PERIOD $ 4,247,213 $ 127,078
============== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
INTEREST PAID $ 22,585 $ 113
============== ============
</TABLE>
For purposes of the statement of cash flows, the corporation considers
cash equivalents to include all highly liquid debt instruments
purchased with a maturity of three months or less and certificates of
deposit paying interest monthly.
The Accompanying Notes are an Integral Part of These Statements
F-5
<PAGE>
Natural Gas Transmissions Services, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Natural Gas
Transmissions Services, Inc. ("The Company") is presented to assist in
understanding the Company's financial statements. The financial statements and
notes are representations of the Company's management. These accounting policies
conform to generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
BUSINESS ACTIVITIES
The Company, located in Dallas, Texas, is engaged in the
purchase and sale of natural gas and natural gas
administrative services to its customers in various states.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company
considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. All
cash is restricted per the terms of the credit facility.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company considers accounts receivable to be fully
collectible; accordingly, no allowance for doubtful accounts
is required. However, see Note 5 regarding a contingent
write-off.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Management has
elected to depreciate property using the straight-line method
over the estimated useful lives of the assets, which is five
years.
Maintenance and repairs are charged to operations when
incurred. Betterments and renewals are capitalized. When
property and equipment are sold or otherwise disposed of, the
asset account and related accumulated depreciation account are
reduced, and any gain or loss are included in operations.
Depreciation expense for the periods ended December 31,
1996 and 1995 was $14,918 and $5,167 respectively.
F-6
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
REVENUE RECOGNITION
Revenue consists of sales to natural gas buyers and end users.
The Company also generates revenue from natural gas
administrative services.
Natural Gas Sales - Revenue from natural gas sales is
recognized upon receiving confirmation from the buyer
detailing the transaction as to the buyer, seller, volume,
price and commitment period. The gas, if necessary, is
nominated and is recorded as revenue based on the actual
volume delivered per the pipeline company. Approximately 90%
of the gas volumes delivered are recorded based on actual
versus nominated volumes. The revenue is recorded in the month
in which the gas is delivered to the buyer.
Administrative Services - Services income is derived by
providing services to producers to nominate, confirm, deliver
and sale. The Company charges a percentage of the gross
revenue received by the producer from the sale.
The Company performs credit evaluations of its customers. A
letter of credit or guaranty from a customer may be required
based upon the customer's credit worthiness.
INVENTORY
Differences between the volumes of gas purchased and nominated
to customers and volumes actually delivered by the pipelines
(imbalances) are included in inventory at a weighted average
cost. As of December 31, 1996, the Company has an inventory
balance of $248,429.
CONSIDERATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts at
high credit financial institutions. The balances, at times,
may exceed federally insured limits. At December 31, 1996 and
1995, the Company exceeded the limit by $0 and $27,078
respectively. Included in cash is $4,187,449 of interest
bearing government backed securities that are convertible to
cash on a daily basis.
EMPLOYEE BENEFIT PLANS
The Company maintains a qualified cash or deferred
compensation plan under section 401(k) of the Internal Revenue
Code. Under the Plan, domestic employees
F-7
<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
may elect to defer up to fifteen percent (15%) of their
salary, subject to the Internal Revenue Service limits. The
Company, on an elective basis, contributes a matching fifty
percent (50%) of the first six percent (6%) of employee
contributions. Company contributions to the plan amounted to
$11,090 and $5,964 for the periods ended December 31, 1996 and
1995, respectively.
USE OF ESTIMATES
The preparation of financial statements based upon generally
accepted accounting principles requires management to use
various estimates and assumptions that could impact the
various assets, liabilities and revenue recognition for the
reported periods. The actual results could differ from the
estimates.
INCOME TAX
The shareholders of Natural Gas Transmissions Services, Inc.
have elected to be treated under Subchapter S of the Internal
Revenue Code. Therefore, there is no provision for federal
income tax presented in the financial statements due to the
tax responsibility being at the shareholders' level. However,
due to the distributions made in 1996 in relationship to the
net income, on or before April 15, 1997, a distribution to the
shareholders will be required to pay their individual tax
liability.
NOTE 2: RELATED PARTY TRANSACTIONS
The majority shareholders of the Company are also the major
shareholders of another corporation in which the following significant
transactions occurred:
The Company has a balance due from the related party as of
December 31, 1996 and 1995 of $45,038 and $478, respectively,
in connection with services rendered to the related party.
The Company has accounts payable as of December 31, 1996 and
1995 of $0 and $132,061, respectively, in connection with the
purchase of gas and other activities.
The Company has an outstanding note payable to the related
party of $237,104 as of December 31, 1996, which bears
interest at 9% and is due on December 31, 1997. The note is
unsecured. The note payable to the related party is
subordinated to the debt arising from the credit facility as
described in Note 3. As of December 31, 1996 and 1995,
respectively, the Company owed accrued interest on the note in
the amount of $21,339 and $6,920.
F-8
<PAGE>
NOTE 2: RELATED PARTY TRANSACTIONS - CONTINUED
For the years ended December 31, 1996 and 1995, the Company rented
office space and some equipment from the related party, which is accounted for
as an operating lease. In addition, the Company paid the related party for
certain administrative fees. The rental agreements and fees are on a 30 day
basis and can be canceled by either party. The aggregated amounts paid for the
operating lease payments and administrative fees for 1996 and 1995, were $66,476
and $47,400, respectively.
During 1996 and 1995, the Company provided certain administrative
services to the related party mentioned above. Administrative services fees of
$226,914 and $153,772, respectively, are included in income for the periods.
As of December 31, 1996, there is an outstanding accounts receivable,
non-interest bearing, from an owner in the amount of $88,340. The receivable is
being paid down out of distributions and/or salary from The Company.
A related limited partnership has guaranteed the Company's credit
facility. The related corporation referred to above is the general partner and,
along with the majority shareholders of Natural Gas Transmissions Services,
Inc., owns the controlling interest of the limited partnership.
The guarantor has also provided direct term guaranties to creditors
which supply gas to the Company. In turn the guarantor charges a fee for the
direct guaranties and the guarantee of the credit facility, which amounted to
$12,000 and $5,990 for the periods ended December 31, 1996 and 1995. The details
and amounts of the guarantees are disclosed in Note 3.
NOTE 3: CREDIT FACILITY
On November 30, 1996 the Company executed an agreement with Bank One,
Texas N.A. to provide letters of credit and short-term working capital
arrangements. The face of the revolving note is fifteen million ($15,000,000).
This agreement allows the Company to borrow or extend letters of credit up to a
limit determined by a borrowing base calculation. The borrowing base as of any
determination date is equal to the lessor of:
A. The sum of 100% of collected funds in collateral
accounts of Borrower plus 60% of Eligible Accounts
from Unrated Account Debtors as determined by Lenders
in their sole discretion plus 80% of Eligible
Accounts from Rated Account Debtors as determined by
Lenders in their sole discretion; or
F-9
<PAGE>
NOTE 3: CREDIT FACILITY - CONTINUED
B. The sum of the Revolving Loan Commitment ($8.0
million as of the balance sheet date) less the
aggregate obligations of Borrower to Persons other
than Lenders, as calculated by Lenders in their sole
discretion, that have been guaranteed by Guarantor.
As of the date of the balance sheet, the Company's borrowing base was
$20,239,650. Outstanding letters of credit were as follows:
Amounts Expiration Dates
------------- ----------------
$ 515,020 January 1997
3,835,000 February 1997
40,000 January 1997
-------------
$ 4,390,020
The Company had no working capital loan advances as of the balance
sheet date.
As referred to in Note 2, the credit facility is guaranteed by a
related party. The guarantor also provides guaranties to creditors of the
Company in order for the Company to purchase gas and services from those
creditors. As of the balance sheet date, the guarantor provided guaranties for
open accounts payable aggregating $13,693,794. All accounts were paid in full by
the Company subsequent to the balance sheet date. The credit facility is also
guaranteed by the shareholders of the Company, limited to the product of 150% of
the shareholder's ownership times all amounts due arising from the credit
facility.
Borrowing Base and outstanding indebtedness recap, as of December 31,
1996:
Cash $ 4,086,514
Accounts Receivable - Rated x 80% 11,066,237
- Unrated x 60% 5,086,899
-----------
Total Borrowing Base 20,239,650
Less: Guaranties 13,693,794
Less: Outstanding Letters of Credit 4,390,020
-----------
Balance Available $ 2,155,836
============
In accordance with the loan agreement all present and future cash, cash
equivalents, accounts receivable, equipment and all other tangible property of
the Company secure the loan. The interest rate to be applied to any short term
borrowing is prime plus one percent (1%) and is
F-10
<PAGE>
NOTE 3: CREDIT FACILITY - CONTINUED
due monthly. Letter of credit fees are charged on a percentage basis as issued.
In addition, the credit facility requires the Company to maintain a ratio of
total liabilities to tangible net worth of 15.0 to 1.0 at such times when the
sum of the letters of credit issued and the outstanding revolving loans is less
than $4,000,000. If the total is greater than $4,000,000, the ratio cannot
exceed 10.0 to 1.0. General and administrative expenses cannot be more than 65%
of gross profits. A tangible net worth covenant is applied which requires the
Company to maintain $250,000 in net worth, which includes the subordinated
indebtedness of $237,104 as described in Note 2, plus 35% of net profits after
December 31, 1995. The maturity of the note is June 30, 1997.
NOTE 4: FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company has entered into a certain master commodity price swap
agreement with a financial counterpart to manage all of the market risk
associated with fluctuations in the prices of natural gas commitments to a
certain specific customer for a certain time period. The Company entered into an
arrangement with this customer to supply gas at a certain price for a defined
period of time. The commodity swap agreement was put in place to offset any risk
associated with fluctuating prices. The swap agreement requires the Company to
make payments to (or receive payments from) the financial counterpart based upon
the differential between a fixed and a variable price, as specified by the
contract. The Company accounts for these transactions as hedging activities and,
accordingly, gains and losses are included in income for the term of the swap
transaction.
The Company has no open or uncovered hedging activities that expose the
Company to market risk.
NOTE 5: CONTINGENCIES
As of December 31, 1996, The Company has an outstanding receivable from
a customer that is in excess of $350,000 which arose in the normal course of
business during the early part of 1996. The receivable is subject to a possible
accounts payable offset of approximately $140,000; thereby, reflecting a net
receivable in excess of $200,000. A dispute has arisen between the parties and
currently there are lawsuits and counter suits regarding payment of the amount
with the case set for trial in 1997. Consequently, as of December 31, 1996, the
ultimate collectibility or non-collectibility is not determinable.
F-11
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
ASSETS
September 30,
1997
-------------
CURRENT ASSETS
Cash $ 1,664,067
Accounts receivable - gas sales 20,509,020
Accounts receivable - shareholders 1,000
Accounts receivable - other 155,525
Inventory 509,501
------------
Total current assets 22,839,113
EQUIPMENT, AT COST
Office and computer equipment 131,199
Less: accumulated depreciation 38,976
Total equipment - net 92,223
OTHER ASSETS
Other assets - net 8,558
Total other assets 8,558
------------
Total assets $ 22,939,894
------------
LIABILITIES & SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade/gas purchased $ 21,205,823
Deferred income (66,149)
Payroll taxes payable (5,465)
Total current liabilities 21,134,209
SHAREHOLDERS' EQUITY
Common stock, no par value, 1,000 shares 1,000
authorized, 1,000 shares issued
Paid in capital 100,000
Retained earnings 1,704,685
Total shareholders' equity 1,805,685
------------
Total liabilities & shareholders' equity $ 22,939,894
------------
F-12
<PAGE>
NATURAL GAS TRANSMISSIONS SERVICES, INC.
STATEMENT OF INCOME
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(UNAUDITED)
September 30,
1997
----------------
REVENUE FROM OPERATIONS
Natural gas sales $ 131,159,573
Services fees 208,100
---------------
Total revenues 131,367,673
---------------
COST OF OPERATIONS
Cost of gas sold 127,684,082
---------------
Total cost of gas sold 127,684,082
---------------
INCOME BEFORE EXPENSES 3,683,591
EXPENSES
Depreciation 14,232
General and administrative 1,569,578
--------------
Total expenses 1,583,810
--------------
OPERATING INCOME (LOSS) 2,099,781
OTHER INCOME (EXPENSE)
Interest income 84,073
Interest expense (11,158)
Other 0
--------------
Total other income (expense) 72,915
--------------
NET INCOME (LOSS) $ 2,172,696
==============
F-13
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements are derived from
the consolidated financial statements of the Company, the financial statements
of Natural Gas Transmission Services, Inc. (NGTS) and certain historical
financial data in respect of various assets acquired by the Company in 1996 and
1997. The pro forma adjustments set forth on the attached unaudited pro forma
financial statements reflect the acquisition of NGTS in December 1997 and the
following transactions that occurred earlier in 1997 or 1996:
(1) The Panoma Acquisition completed in June 1996;
(2) The conversion or redemption of the Company's Series B and Series C
Preferred Stock in 1996;
(3) The issuance of the TCW Preferred Stock in December 1996;
(4) The McLean Plant Acquisition in January 1997;
(5) The Permian Basin Acquisition completed in April 1997 (including the
incurrence of indebtedness under the Company's current Credit Facility (the
"Credit Facility") and the Company's previously existing term loan facility
(the"Term Loan Facility") to finance the Permian Basin Acquisition and repay
the indebtedness under the Company's previous credit facility (the "Previous
Credit Facility"));
(6) The debt offering completed in May 1997 (the "Debt Offering") and the
application of the net proceeds therefrom;
(7) The 6,500,000 share common stock offering completed in November 1997
and the exercise of 896,256 warrants, resulting in approximately $41 million
in cash proceeds.
The equity offering, warrant exercise and the acquisition of NGTS, all
of which occurred in the final quarter of 1997 are reflected on the September
30, 1997 unaudited pro forma balance sheet as if the transactions had occurred
on September 30, 1997. The transactions that occurred in 1997 are reflected in
the unaudited pro forma statement of operations for the nine months ended
September 30, 1997 as if they had occurred on January 1, 1997, and on the
unaudited pro forma statement of operations for the year ended December 31, 1996
as if they had occurred in January 1, 1996. The transactions that occurred in
1996 and in January 1997 are reflected in the unaudited statement of operations
for the year ended December 31, 1996 as if they had occurred on January 1, 1996.
The unaudited pro forma financial statements should be read in
conjunction with the notes thereto and with the consolidated financial
statements of the Company and NGTS and the notes thereto.
The unaudited pro forma financial statements are not indicative of the
financial position or results of operations of the Company which would actually
have occurred if the transactions described above had occurred at the dates
presented or which may be obtained in the future. In addition, future results
may vary significantly from the results reflected in such statements due to
normal oil and gas production declines, changes in prices paid for oil and gas,
future acquisitions, drilling activity and other factors.
F-14
<PAGE>
MAGNUM HUNTER RESOURCES,INC.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Magnum Pro Forma Pro Forma
Hunter Adjustments Balance
---------- ----------- ----------
ASSETS
CURRENT ASSETS $ 19,466 $ $ 19,466
NET PROPERTY, PLANT AND EQUIPMENT 213,000 213,000
INVESTMENT IN GAS MARKETING COMPANY 4,350 (2) 4,350
OTHER ASSETS 7,692 7,692
--------- ---------- ----------
TOTAL ASSETS $ 240,158 $ 4,350 $ 244,508
========= ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES $ 17,539 $ $ 17,539
LONG TERM LIABILITIES
Long-term debt, current maturities 188,027 (41,000) (1) 151,377
4,350 (2)
Minority interest 40 40
Other 2,648 2,648
STOCKHOLDERS' EQUITY:
Preferred stock 1 1
Common stock 29 15 (1) 44
Additional paid-in capital 40,291 40,985 (1) 81,276
Accumulated deficit (8,416) (8,416)
Treasury stock (1) (1)
---------- ---------- -----------
Total stockholders' equity 31,904 41,000 72,904
---------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 240,158 $ 4,350 $ 244,508
========= =========== ===========
See accompanying notes to unaudited pro forma financial statements
</TABLE>
F-15
<PAGE>
Magnum Hunter Resources, Inc.
Unaudited Pro Forma Statement of Operations
Nine Months Ended September 30, 1997
(in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Magnum Pro Forma Pro Forma
Hunter Adjustments Balance
-------- ----------- ----------
Operating Revenues:
Oil and gas sales $ 22,793 $ 12,627 (3) $ 35,420
Gas gathering, marketing and processing 7,721 7,721
Oil field services and international
sales 3,792 3,792
----------- ----------- ---------
Total Operating Revenues 34,306 12,627 46,933
Operating Costs and Expenses:
Oil and gas production 8,521 3,039 (3) 11,560
Gas gathering, marketing and processing 5,803 5,803
Oil field services and international sales 3,482 3,482
Depreciation and depletion 8,607 3,629 (4) 12,236
General and administrative 1,128 50 (5) 1,178
----------- ----------- ---------
Total Operating Costs and Expenses 27,541 6,718 34,259
----------- ----------- ---------
Operating Profit (Loss) 6,765 5,909 12,674
Equity in income of gas marketing
subsidiary 508 (6) 508
Other income 568 568
Interest expense (9,298) (4,587)(7) (11,730)
87 (8)
2,068 (9)
----------- ---------- --------
Income (Loss) Before Income Tax (1,965) 3,985 2,020
Benefit (Provision) for income taxes 731 (1,514) (10) (783)
----------- ---------- ---------
Income (Loss) Before Extraordinary Item (1,234) 2,471 1,237
Dividends Applicable to Preferred Stock (657) (657)
----------- ---------- ---------
Income (Loss)Applicable to Common Shares
Before Extraodinary Item $ (1,891) $ 2,471 $ 580
=========== ========== =========
Income (Loss) Per Share Before
Extraordinary Item $ (0.14) $ 0.18 $ 0.04
========== ========== =========
Common shares used in Per Share
Calculation 13,659 13,659 13,659
========== ========== =========
See accompanying notes to unaudited pro forma financial statements
</TABLE>
F-16
<PAGE>
Magnum Hunter Resources, Inc.
Unaudited Pro Forma Statement of Operations
Year Ended December 31, 1996
(in thousands)
Magnum Pro Forma Pro Forma
Hunter Adjustments Balance
--------- ----------- ----------
Operating Revenues:
Oil and gas sales $ 10,248 $ 3,267 (1) $ 52,948
39,433 (3)
Gas gathering, marketing and processing 5,768 3,562 (12) 10,304
974 (11)
Oil field services and international
sales 396 396
---------- ------------ ----------
Total Operating Revenues 16,412 47,236 63,648
Operating Costs and Expenses:
Oil and gas production 4,390 1,049 (11) 17,085
11,646 (3)
Gas gathering, marketing and processing 4,708 695 (11) 6,879
1,476 (12)
Oil field services and international
sales 267 267
Depreciation and depletion 2,951 1,370 (13) 17,282
12,961 (4)
General and administrative 1,225 250 (5) 1,475
---------- ------------ ---------
Total Operating Costs and Expenses 13,541 29,447 42,988
Operating Profit (Loss) 2,871 17,789 20,660
Equity in income of gas marketing
subsidiary 501 (6) 501
Other income 344 344
Interest expense (2,394) (1,555)(14) (14,989)
(14,059) (7)
262 (8)
2,757 (9)
---------- ------------- ----------
Income (Loss) Before Income Tax 821 5,695 6,516
Benefit (Provision) for income taxes (312) (2,164)(10) (2,476)
---------- ------------- ----------
Income (Loss) Before Extraordinary Item 509 3,531 4,040
Dividends Applicable to Preferred Stock (406) (469)(15) (875)
---------- ------------- ----------
Income (Loss) Applicable to Common Shares
Before Extraordinary Item $ 103 $ 3,062 $ 3,165
========== ============ ==========
Income (Loss) Per Share Before
Extraordinary Item $ 0.01 $ 0.24 $ 0.25
=-======== ============= ==========
Common shares used in Per Share
Calculation 12,486 12,486 12,486
========== ============= ==========
See accompanying notes to unaudited pro forma financial statements
F-17
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(in thousands)
(1) To record the net proceeds from the Company's November 1997 equity
offering and exercise of warrants of approximately $41,000, which were
used to reduce long-term debt.
(2) To record the acquisition of 30% of NGTS for a total of $4,350. The
purchase price was financed by $2,350 drawn under the Company's credit
facility and $2,000 of notes payable to the sellers.
(3) To record the Permian Basin Properties operating revenues and oil and
gas production expenses as if the Permian Basin Acquisition had
occurred on January 1, 1996 for the December 31, 1996 pro forma
statement of operations and on January 1, 1997 for the September 30,
1997 pro forma statement of operations.
(4) To record the pro forma depletion adjustment to reflect the Company's
depletion expense as if the Permian Basin Properties had been acquired
on January 1, 1996 for the December 31, 1996 pro forma statement of
operations and on January 1, 1997 for the September 30, 1997 pro forma
statement of operations.
(5) To record estimated additional general and administrative expenses that
would have been incurred if the Panoma Properties that were acquired
effective July 1, 1996 had been acquired on January 1, 1996, and to
record the Company's estimates of general and administrative expenses
that would have been incurred if the Permian Basin Properties had been
acquired on January 1, 1996 for the December 31, 1996 pro forma
statement of operations and on January 1, 1997 for the September 30,
1997 statement of operations, net of estimated fees that would have
been earned by the Company from third parties on the acquired
properties it operates, as follows:
1996 1997
---- ----
Panoma $ 100 $ -
Permian:
Additional general and
administrative expenses 702 235
Operating fees earned from third
parties (552) (185)
-------- --------
$ 250 $ 50
========= ========
(6) To record the Company's 30% equity interest in the earnings of NGTS
less amortization of the excess of the amount paid for NGTS over the
share of the identifiable net assets acquired ("goodwill"). The
goodwill is assumed to be amortized over a 20 year period. The amounts,
as if the acquisition of NGTS had occurred at the beginning of the
respective periods, are as follows:
1997 1996
---- ----
30% of NGTS net income $ 651 $ 691
Less amortization of goodwill (143) (190)
---------- ----------
$ 508 $ 501
========= ==========
F-18
<PAGE>
(7) To record the interest expense associated with the borrowing of
$119,500 under the Credit Facility and $60,000 under the Term Loan
Facility to complete the Permian Basin Acquisition and to refinance the
Previous Credit Facility as if the acquisition and refinancing had
closed at the beginning of the respective periods.
The Credit Facility and the Term Loan Facility are assumed to have
interest rates of 9.0% and 11.5%, respectively. The debt issuance costs
associated with the facilities are as follows:
Credit Facility debt issuance costs $ 700
Term Loan Facility debt issuance costs 1,800
--------------
$ 2,500
The components of this interest expense adjustment are as follows:
1997 1996
---- ----
Elimination of pro forma interest adjustments
for McLean Plant Acquisition and Panoma
Acquisition and amortization of associated
debt issuance costs $ - $ (1,555)
Elimination of historical interest expense
on Previous Credit Facility (1,415) (2,394)
Interest on Credit Facility 3,585 10,755
Amortization of debt issuance costs
on Credit Facility 44 133
Interest on Term Loan Facility 2,300 6,900
Amortization of debt issuance costs
on Term Loan Facility 73 220
--------- -----------
$ 4,587 $ 14,059
=========== ===========
(8) To adjust interest expense to reflect the repayment of the Term Loan
Facility and repayment of $75,500 of indebtedness under the Credit
Facility with the net proceeds of the Debt Offering. The interest rate
on the Debt Offering Notes is 10.0%. After repayment of the Term Loan
Facility, using the net proceeds of the Debt Offering, the Credit
Facility will bear interest on an assumed interest rate of 7.6% per
annum. The $4,500 of estimated debt issuance costs are amortized using
the effective yield method over the life of the Notes. This adjustment
excludes an extraordinary charge to expense of $1,800 debt issuance
costs associated with repayment of the Term Loan Facility. The
components of the interest expense adjustment are as follows:
1997 1996
---- ----
Interest on the Debt Offering Notes $ 4,667 $ 14,000
Amortization of debt issuance costs on Notes 90 270
Elimination of interest on $75,500 of debt
under Credit Facility and effect of
reduction of interest rate on Credit
Facility following repayment of Term
Loan Facility (2,471) (7,412)
Elimination of interest and amortization of
associated debt issuance costs
on Term Loan Facility (2,373) (7,120)
----------- ------------
$ (87) $ (262)
=========== ===========
F-19
<PAGE>
(9) To adjust interest expense to reflect (a) repayment of $41,000 of the
Credit Facility with the proceeds of the equity offering and warrant
exercise, (b) the incurrence of $2,350 of additional borrowing under
the Credit Facility to partially finance the purchase of the 30%
interest in NGTS and (c) $2,000 of convertible promissory notes to the
sellers of the 30% interest in NGTS. The loan from the sellers and the
Credit Facility are assumed to have 9.0% and 7.6% interest rates,
respectively. The components of this interest expense adjustment are as
follows:
1997 1996
---- ----
Reduction of interest on Credit Facility $ (2,203) $ (2,937)
Interest on notes to seller 135 180
--------- -----------
$ (2,068) $ (2,757)
========= ===========
(10) To record the effect of the pro forma adjustments on deferred and
current federal and state income taxes at an assumed tax rate of 38%
after consideration of available net operating losses and other
carryforwards.
(11) To record the operating revenues and oil and gas production expenses
and gas gathering and marketing expenses for the first six months of
1996 for the Panoma Properties that were acquired effective July 1,
1996 as if the Panoma Acquisition had occurred on January 1, 1996.
(12) To record operating revenues and gas gathering and marketing expenses
related to the Company's 50% interest in the McLean Gas Plant, which
was acquired for $2,500 in January 1997, for the year ended December
31, 1996 as if the McLean Gas Plant had been acquired on January 1,
1996. The Company will receive 100% of the net profits generated by the
facility until the $2,500 purchase price is recovered, after which it
will receive 50% of the net profits. If the Company had received 50% of
the net profits generated by the McLean Gas Plant during the pro forma
period presented, its gross margin would have been reduced by $1,403.
(13) To record the pro forma depletion adjustment of $1,203 to reflect the
Company's depletion expense as if the Panoma Properties that were
acquired effective July 1, 1996 had been acquired on January 1, 1996
and $167 to record one year of depreciation expense on the McLean Gas
Plant (depreciable life is 15 years) as if the McLean Gas Plant had
been acquired on January 1, 1996.
(14) To record interest as if the McLean Plant Acquisition and the Panoma
Acquisition had occurred on January 1, 1996 as set forth below. These
acquisitions were assumed to be financed by the Previous Credit
Facility with an average interest rate during 1996 of 7.625%.
McLean Gas Plant - interest $ 191
Panoma Properties - interest 1,321
Panoma Properties - amortization of
associated debt issuance costs 43
---------
$ 1,555
==========
(15) To remove the $389 of dividends applicable to Series B and Series C
Preferred Stock that was redeemed or converted to Common Stock in late
1996 as if the redemption or conversion had occurred on January 1,
1996, and to record $858 of dividends at a rate of 8.75% on the TCW
Preferred Stock issued in December 1996 as if it had been outstanding
since January 1, 1996.
F-20
<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.
Magnum Hunter Resources, Inc.
/s/ Gary C. Evans
BY:____________________________
Gary C. Evans
President and Chief Executive Officer
Dated: February 13, 1998
