<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
FORM 8-K/A
AMENDMENT NO. 1
to
CURRENT REPORT
DATED MAY 2, 1994
CABOT OIL & GAS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State of other jurisdiction of incorporation)
1-10447 04-3072771
(Commission File Number) (IRS Employer Identification Number)
15375 Memorial Drive, Houston, Texas 77079
(Address of principal executive offices)
(713) 589-4600
Registrant's telephone number, including area code)
<PAGE>
Page
----
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements and Business Acquired
Washington Energy Resources Company Financial Statements
Report of Independent Accountants . . . . . . . . . . . . . F-1
Consolidated Statement of Income for the years ended
September 30, 1993, 1992 and 1991 and for the six
months ended March 31, 1994 and 1993 (unaudited) . . . . . . F-2
Consolidated Balance Sheet as of September 30, 1993
and 1992 and as of March 31, 1994 (unaudited) . . . . . F-3, F-4
Consolidated Statement of Cash Flows for the years
ended September 30, 1993, 1992 and 1991 and for the
six months ended March 31, 1994 and 1993 (unaudited) . . F-5, F-6
Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended September 30, 1993,
1992 and 1991 and for the six months ended March
31, 1994 (unaudited) . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . F-8
(b) Pro Forma Financial Information
Cabot Oil & Gas Corporation Pro Forma Condensed
Consolidated Financial Statements . . . . . . . . . . . . . F-22
Pro Forma Condensed Consolidated Balance
Sheet as of March 31, 1994 . . . . . . . . . . . . . . . . . F-23
Pro Forma Condensed Consolidated Statement of Income
for the year ended December 31, 1993 . . . . . . . . . . . . F-24
Pro Forma Condensed Consolidated Statement of Income
for the three months ended March 31, 1994. . . . . . . . . . F-25
Notes to Pro Forma Condensed Consolidated Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-26
1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Washington Energy Resources Company:
We have audited the accompanying consolidated balance sheets of WASHINGTON
ENERGY RESOURCES COMPANY (a Washington corporation) and subsidiaries as of
September 30, 1993 and 1992, and the related consolidated statements of
operations, stockholder's equity (deficit) and cash flows for each of the
three years in the period ended September 30, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits 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 of
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 respects, the financial position of Washington Energy Resources
Company and subsidiaries as of September 30, 1993 and 1992 and the results of
their operations and their cash flows for each of the three years in the
period ended September 30, 1993 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN & CO.
Denver, Colorado,
March 31, 1994
F-1
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------ --------------------------
1991 1992 1993 1993 1994
------------ ------------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Oil, gas and plant product sales $ 26,086,704 $ 25,320,990 $ 33,671,590 $ 15,697,739 $19,121,515
Brokered income and other 382,342 748,087 930,380 305,953 (3,533,473)
------------ ------------- ------------ ------------ -----------
Total operating revenues 26,469,046 26,069,077 34,601,970 16,003,692 15,588,042
------------ ------------- ------------ ------------ -----------
OPERATING EXPENSES:
Lease operating expenses 1,938,038 2,664,697 3,725,584 1,814,611 1,871,702
Processing and transportation expenses 2,469,723 2,365,305 2,807,600 1,303,941 1,036,917
Production taxes 2,192,435 2,622,331 4,126,847 1,677,652 2,637,301
Depreciation, depletion and amortization 8,969,190 9,330,864 11,729,552 5,087,143 7,033,360
General and administrative expenses 2,986,774 2,473,804 3,137,151 1,302,214 2,021,155
------------ ------------- ------------ ------------ -----------
Total operating expenses 18,556,160 19,457,001 25,526,734 11,185,561 14,600,435
------------ ------------- ------------ ------------ -----------
Operating income 7,912,886 6,612,076 9,075,236 4,818,131 987,607
------------ ------------- ------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest--parent company (3,392,812) (3,370,730) (3,966,872) (1,692,635) (2,309,800)
Other interest, net (108,683) 1,123,794 247,386 97,624 (220,720)
Foreign currency gain (loss) 95,872 (45,344) (16,576) (1,532) (30,591)
Other 1,401 (2,574) 77,454 5,218 2,323
------------ ------------- ------------ ------------ -----------
Total other income (expense) (3,404,222) (2,294,854) (3,658,608) (1,591,325) (2,558,788)
------------ ------------- ------------ ------------ -----------
INCOME (LOSS) BEFORE
INCOME TAXES 4,508,664 4,317,222 5,416,628 3,226,806 (1,571,181)
PROVISION (BENEFIT) FOR
INCOME TAXES 1,388,471 1,077,496 723,904 461,486 (1,135,125)
------------ ------------- ------------ ------------ -----------
NET INCOME (LOSS) $ 3,120,193 $ 3,239,726 $ 4,692,724 $ 2,765,320 $ (436,056)
============ ============= ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------------- --------------
1992 1993 1994
------------ ------------ --------------
(unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 834,402 $ 1,382,405 $ 578,284
Accounts receivable-
Oil and gas sales 4,730,134 11,752,096 15,498,760
Joint interest billings 5,002,589 2,537,810 3,801,074
Other -- 96,784 146,518
Inventory 621,791 711,366 777,670
Prepayments and other 737,523 732,608 1,216,702
------------ ------------ --------------
Total current assets 11,926,439 17,213,069 22,019,008
------------ ------------ --------------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties (full-cost method of accounting) 173,346,273 207,959,202 237,275,073
Office furniture and equipment 1,670,097 2,511,507 2,656,631
------------ ------------ --------------
Total property, plant and equipment 175,016,370 210,470,709 239,931,704
Accumulated depreciation, depletion and amortization (60,492,347) (72,013,958) (78,947,100)
------------ ------------ --------------
Net property, plant and equipment 114,524,023 138,456,751 160,984,604
------------ ------------ --------------
OTHER ASSETS, net 131,493 453,072 884,812
TOTAL ASSETS $126,581,955 $156,122,892 $ 183,888,424
============ ============ ==============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
------------------------------- -------------
1992 1993 1994
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable and accrued expenses -
Revenue and royalties payable $ 5,231,654 $ 7,326,397 $ 13,895,205
Trade 14,217,355 8,621,445 8,341,745
Drilling advances 1,031,194 1,891,830 1,166,433
Payable to managed partnership -- 1,308,262 --
Payable for property acquisition 5,431,029 -- --
Other 243,865 495,785 329,872
Payable to parent-
Notes and accounts payable 51,386,681 72,287,585 98,877,102
Current deferred income taxes 1,966,331 968,777 968,777
Production and ad valorem taxes payable 2,390,259 3,534,365 3,773,503
Current portion of long-term debt 22,100 2,697,310 26,741
------------ ------------ -------------
Total current liabilities 81,920,468 99,131,756 127,379,378
------------ ------------ -------------
NON-CURRENT LIABILITIES:
Long-term debt 418,563 1,910,868 336,392
Deferred income taxes 10,133,951 16,607,693 18,333,787
------------ ------------ -------------
Total non-current liabilities 10,552,514 18,518,561 18,670,179
------------ ------------ -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDER'S EQUITY:
Common stock, $10 par value; 1,000,000 shares authorized;
1,000 shares outstanding 10,000 10,000 10,000
Paid-in capital 38,990,000 38,990,000 38,990,000
Retained earnings (deficit) (4,425,557) 267,167 (168,889)
Cumulative foreign currency translation adjustments (465,470) (794,592) (992,244)
------------ ------------ -------------
Total stockholder's equity 34,108,973 38,472,575 37,838,867
------------ ------------ -------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $126,581,955 $156,122,892 $ 183,888,424
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------- --------------------------
1991 1992 1993 1993 1994
------------ ------------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 3,120,193 $ 3,239,726 $ 4,692,723 $ 2,765,320 $ (436,056)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation, depletion and
amortization 8,969,190 9,330,864 11,729,552 5,087,143 7,033,360
Other assets amortization 1,593 4,381 116,006 73,821 148,315
Increase in accounts receivable (1,234,420) (4,650,311) (4,663,757) (5,942,322) (5,084,125)
Decrease (increase) in inventory (474,120) 16,446 (89,575) 444,405 (91,953)
Decrease (increase) in prepayments
and other (623,935) 192,298 4,915 (152,752) (493,471)
Decrease (increase) in other assets 57,610 (113,616) (437,585) (451,977) (580,055)
Increase (decrease) in accounts payable
and accrued expenses (2,146,132) 14,825,962 (1,921,781) (7,730,577) 7,107,993
Increase in production and ad valorem
taxes payable 104,485 482,664 1,144,931 386,064 844,197
Increase in deferred income
taxes 582,600 3,013,856 5,491,424 4,807,071 1,725,458
------------ ------------- ------------ ------------ -----------
Net cash provided by operating
activities 8,357,064 26,342,270 16,066,853 (713,804) 10,173,663
------------ ------------- ------------ ------------ -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property additions-
Oil and gas properties (25,284,785) (32,213,527) (36,138,039) (13,198,769) (29,538,534)
Office furniture and equipment (527,078) (931,503) (1,082,205) (354,887) (544,539)
Proceeds from property divestitures 127,510 342,925 1,338,964 853,314 403,072
Drilling advances -- 1,031,194 860,636 (45,415) (725,397)
Payable for property acquisition -- 5,431,029 (5,431,029) (5,431,029) --
------------ ------------- ------------ ------------ -----------
Net cash used in investing activities (25,684,353) (26,339,882) (40,451,673) (18,176,786) (30,405,398)
------------ ------------- ------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
----------------------------------------- --------------------------
1991 1992 1993 1993 1994
------------ ------------- ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings from parent, net $ 17,938,856 $ 343,766 $ 20,900,904 $ 15,090,889 $23,735,967
Borrowings on long-term debt -- -- 6,435,000 4,455,000 6,080,697
Payments on long-term debt (148,732) (173,439) (2,267,485) (1,304,546) (10,325,742)
------------ ------------- ------------ ------------ -----------
Net cash provided by financing
activities 17,790,124 170,327 25,068,419 18,241,343 19,490,922
------------ ------------- ------------ ------------ -----------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (84,135) (80,268) (135,596) (32,575) (63,307)
------------ ------------- ------------ ------------ -----------
NET INCREASE IN CASH 378,700 92,447 548,003 (681,822) (804,120)
BEGINNING CASH 363,255 741,955 834,402 834,402 1,382,405
------------ ------------- ------------ ------------ -----------
ENDING CASH $ 741,955 $ 834,402 $ 1,382,405 $ 152,580 $ 578,285
============ ============= ============ ============ ===========
</TABLE>
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest and income taxes are paid by the parent on the Company's behalf
and are reflected in payable to parent in the accompanying balance sheet.
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
---------------------------------------------------------
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Currency Retained Total
---------------------- Paid-In Translation Earnings Equity
Shares Amount Capital Adjustments (Deficit) (Deficit)
------- -------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, September 30, 1990 1,000 $ 10,000 $ 38,990,000 $ 3,595 $ (10,785,476) $ 28,218,119
Translation rate adjustments -- -- -- 20,400 -- 20,400
Net income -- -- -- -- 3,120,193 3,120,193
------- -------- ------------ ------------ ------------- ------------
BALANCE, September 30, 1991 1,000 10,000 38,990,000 23,995 (7,665,283) 31,358,712
Translation rate adjustments -- -- -- (489,465) -- (489,465)
Net income -- -- -- -- 3,239,726 3,239,726
------- -------- ------------ ------------ ------------- ------------
BALANCE, September 30, 1992 1,000 10,000 38,990,000 (465,470) (4,425,557) 34,108,973
Translation rate adjustments -- -- -- (329,122) -- (329,122)
Net income -- -- -- -- 4,692,724 4,692,724
------- -------- ------------ ------------ ------------- ------------
BALANCE, September 30, 1993 1,000 10,000 38,990,000 (794,592) 267,167 38,472,575
Translation rate adjustments -- -- -- (197,652) -- (197,652)
Net income -- -- -- -- (436,056) (436,056)
------- -------- ------------ ------------ ------------- ------------
BALANCE, March 31, 1994 (unaudited) 1,000 $ 10,000 $ 38,990,000 $ (992,244) $ (168,889) $ 37,838,867
======= ======== ============ ============ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
WASHINGTON ENERGY RESOURCES COMPANY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information pertaining to the six months ended March 31, 1993 and 1994 is
unaudited.)
(1) THE COMPANY
-----------
Washington Energy Resources Company (the "Company") was formed in 1991 as a
wholly-owned subsidiary of Washington Energy Company ("WECO" or the "Parent") in
connection with a corporate reorganization of several of the Company's wholly-
owned subsidiaries. The Company engages in the acquisition, exploration,
development, marketing and management of oil and gas assets in the United States
and Canada.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Principles of Consolidation
- - ---------------------------
The accompanying financial statements include the accounts of Washington Energy
Resources Company, its wholly-owned subsidiaries and its proportionately
consolidated 49.5% interest in a "Managed Partnership" (see Notes 6 and 9)
(collectively, the "Company"). All significant intercompany transactions have
been eliminated.
Cash and Cash Equivalents
- - -------------------------
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
Inventory
- - ---------
Inventory consists of lease and well equipment and is stated at the lower of
cost or market based on a weighted average method.
Oil and Gas Properties
- - ----------------------
The Company follows the full-cost method of accounting for oil and gas
properties. Under this method, all costs associated with the acquisition,
exploration and development of oil and gas properties, including directly
related overhead costs, are capitalized into two cost centers (the United States
and Canada). Capitalized overhead costs for 1991, 1992 and 1993 were $0,
$979,405 and $2,016,929, respectively.
Oil and gas properties, as well as costs to develop proved reserves, are
depleted using the unit-of-production method based on estimates of total proved
reserves. Costs associated with site restoration, dismantlement, and abandonment
approximate salvage values and are thus not accrued or depleted. Investments in
unproved properties are not amortized until proved reserves associated with the
properties can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is added to the capitalized costs to be amortized. As of September
30, 1991, 1992 and 1993, capitalized costs of properties not being amortized
totaled approximately $7,527,000, $7,789,000 and $6,464,000. The capitalized
costs of properties not being amortized at September 30, 1993, were incurred
primarily between 1991 and 1993.
F-8
<PAGE>
In addition, capitalized costs cannot exceed the "estimated present value,"
discounted at a ten percent interest rate, of future net revenues from proved
reserves, based on current economic and operating conditions, plus the lower of
cost or fair market value of unproved properties, as determined on a quarterly
basis. Proceeds from sales of oil and gas properties are credited to the full-
cost pool with no gain or loss recognized unless such transactions would
significantly alter the relationship between capitalized costs and proved
reserves of oil and gas.
Management Fees
---------------
The Company has entered into several arrangements to manage oil and gas leasing
and production activities (exclusive of any current drilling activities), firm
interstate transportation space, and municipal gas supplies. Under these
agreements, the Company either receives a fee based on production or a fixed
amount annually as reimbursement for the cost of providing these services.
Accordingly, these fees are offset against general and administrative expenses
and totaled $0, $160,417 and $623,820 in 1991, 1992 and 1993, respectively.
Incentive fees received under these agreements are included in brokered income
and other in the accompanying financial statements.
Gas Brokering
-------------
The Company's business activities include the buying and selling of natural gas.
The Company recognizes revenue and costs on these brokering transactions at the
time the gas is purchased or sold. The net income (loss) from this activity is
included in brokered income and other in the accompanying statements of
operations.
Other Property, Plant and Equipment
-----------------------------------
Capitalized costs of $1,432,787 and $3,339,696 associated with a gas processing
plant and pipeline assets, for 1992 and 1993 respectively, are included in oil
and gas properties and are being depreciated on a straight-line basis over their
estimated useful lives of 5 to 10 years.
Office furniture and fixtures are depreciated on a straight-line basis over
their related estimated useful lives ranging from 3 to 10 years.
Hedging
-------
The Company regularly hedges, through oil and gas futures contracts and price
swaps, including basis differential swaps to the Rocky Mountains, a significant
portion of both its own production and production committed to the Company under
gas supply contracts. Gains and losses on hedging transactions are recognized in
the period in which the related production is sold. Hedging transactions
associated with the Company's own production are reported as adjustments to
production revenues. Hedges related to production purchased by the Company are
reported as brokering and other income. WECO has guaranteed the Company's
obligations under all of its hedging agreements.
The price impact for hedges open for committed third party production is
contractually passed through to the third party producer. The Company also has
hedge positions associated with its Managed Partnership of which the price
effect of some hedges are contractually assigned to its Managed Partnership.
At March 31, 1994, the Company had a significant number of hedging contracts
outstanding which mature in fiscal 1994 through 1996. The Company has deferred
hedging losses totalling $619,957 as of March 31, 1994. In addition, the
Company had open loss positions of $3,294,174 at March 31, 1994 based on
futures prices as of that date. As discussed in note 9, substantially all
outstanding hedge agreements as of January 1, 1994 were assigned to WECO except
for those associated with the third party producer Managed Partnership.
F-9
<PAGE>
Income Taxes
------------
The Company is included in the consolidated tax return of its parent. The
provision for income taxes is computed as if the Company were a stand-alone
entity using the consolidated tax rate. Under an informal tax sharing
arrangement between members of the consolidated group, the Company pays or is
paid for the tax liability or benefit that it generates on a separate company
basis.
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 96, "Accounting for Income Taxes". Deferred income taxes are
provided for the tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end based on enacted tax laws and statutory tax rates. Such differences
result primarily from recognizing drilling costs and depreciation, depletion and
amortization in different periods for financial reporting and tax purposes and
utilization of tax credits.
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes", which allows for the recognition of deferred tax assets in certain
circumstances. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. The Company is
required to adopt SFAS 109 in fiscal 1994. Management of the Company does not
anticipate that adoption of this Statement will have a material impact on the
accompanying financial statements.
Foreign Currency Translation and Transactions
---------------------------------------------
The Company translates balance sheet accounts of Canadian operations using the
year-end exchange rate, and income statement items at the average exchange rate
for the year. Any resulting translation adjustments are reflected as a separate
component of stockholder's equity. Foreign currency transaction adjustments are
recognized in the statement of operations in the period incurred.
Gas Balancing
-------------
The Company uses the sales method of accounting for natural gas revenues whereby
revenues are recognized based on the amount of gas sold to purchasers. The
amount of gas sold may differ from the amounts to which the Company is entitled
based on its working interest in the properties. Properties which has
insufficient reserves to cover the imbalance will be recorded as a liability.
F-10
<PAGE>
(3) LONG-TERM DEBT
--------------
Long-term debt at September 30, 1992 and 1993 consists of the following:
<TABLE>
<CAPTION>
Current Long-term Total
------------ ------------ ------------
<S> <C> <C> <C>
1993
- - ----
Note payable to bank (a) $ 2,673,000 $ 1,547,735 $ 4,220,735
Other note payable (b) 24,310 363,133 387,443
------------ ------------ ------------
$ 2,697,310 $ 1,910,868 $ 4,608,178
============ ============ ============
1992
- - ----
Other note payable (b) $ 22,100 $ 418,563 $ 440,663
============ ============ ============
</TABLE>
(a) The Company's Managed Partnership (see Note 6) has an amended limited
recourse note payable to a bank with an unpaid principal balance of
$8,526,738 at September 30, 1993. The note bears interest at a floating
rate, elected periodically, based upon either the LIBOR rate plus 3% or
the bank's base rate plus 1.5%. Principal and interest are generally
payable monthly out of substantially all of the unconsolidated
subsidiary's net revenues from its oil and gas properties, as defined in
the agreement, with any outstanding principal and interest due in full
on October 23, 1996. The Company's liability on the note is limited to
its 49.5% interest in the Managed Partnership. The note is secured by
substantially all of the Managed Partnership's assets. The current
portion of long-term debt includes estimated repayments of net revenues
to be recognized in fiscal 1994 (see Note 9).
(b) In connection with an acquisition of certain oil and gas properties in
fiscal 1988, the Company executed an unsecured, non-interest bearing
note payable with an original principal balance of approximately
$850,000 due in monthly installments of $63,055 through 2002. The
Company has discounted the note based on an imputed interest rate of
10%. The total unamortized discount outstanding at September 30, 1992
and 1993 was $284,057 and $243,103, respectively.
(4) RELATED PARTY TRANSACTIONS
--------------------------
The Company participates in a consolidated banking arrangement with WECO and
other members of the affiliated group. Under the terms of the arrangement, WECO
borrows or lends money from or to each of its subsidiaries at current market
interest rates. The weighted average interest rate on short-term notes
outstanding at September 30, 1992 and 1993, payable to WECO was 6.6% and 5.9%,
respectively.
WECO has provided a portion of the Company's general and administrative services
and has charged the Company for such services at rates which, in management's
opinion, approximate what the company would have incurred on a separate company
basis. General and administrative expenses charged by WECO to the Company in
1991, 1992 and 1993 were $170,846, $125,249 and $108,574, respectively.
F-11
<PAGE>
Prior to 1993, the Company sold substantially all of its gas production to an
affiliate under a gas supply contract. Effective October 8, 1992, the gas supply
contract was terminated and the Company began negotiating new contracts with
third parties (see Note 7) and sells the remainder of its gas in the spot
market. Sales to this affiliate for the years ended September 30, 1991, 1992 and
1993 were $7,265,874, $7,517,294 and $264,237, representing approximately 28%,
30%, and .8% of total sales, respectively.
(5) INCOME TAXES
------------
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
For the Year Ended September 30
---------------------------------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Current $ 791,771 $ (1,889,856) $ (4,752,284)
Deferred 596,700 2,967,352 5,476,188
----------- ------------ ------------
Total $ 1,388,471 $ 1,077,496 $ 723,904
=========== ============ ============
</TABLE>
A reconciliation of the income tax provision at the federal statutory tax rate
to the income tax provision at the effective rate is as follows:
<TABLE>
<CAPTION>
For the Year Ended September 30
----------------------------------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Tax computed based on 34%
statutory rate $ 1,532,946 $ 1,467,856 $ 1,841,654
Effect of change in deferred taxes due
to change in statutory tax rate to 35% - - 435,702
Tax credits on tight sands production (138,313) (21,473) (1,622,154)
Excess percentage depletion (76,332) (112,017) (96,685)
Other 70,170 (256,870) 165,387
----------- ----------- -----------
Total provision for income taxes $ 1,388,471 $ 1,077,496 $ 723,904
=========== =========== ===========
</TABLE>
The provision for deferred income taxes results from the following:
<TABLE>
<CAPTION>
For the Year Ended September 30
----------------------------------------------
1991 1992 1993
---- ---- ----
<S> <C> <C> <C>
Temporary differences:
Depreciation, depletion
and amortization $(2,622,725) $(2,643,988) $(2,206,601)
Intangible drilling costs 3,365,179 1,432,699 3,429,895
Lease abandonment deductions - 4,454,426 3,562,392
Effect of change in tax rate to 35% - - 459,308
Other (145,754) (275,785) 231,194
----------- ----------- -----------
Deferred tax provision $ 596,700 $ 2,967,352 $ 5,476,188
=========== =========== ===========
</TABLE>
As of September 30, 1993, the Company had alternative minimum tax credit
carryforwards of approximately $1.2 million available to offset future regular
tax liabilities.
F-12
<PAGE>
For fiscal years ending September 30, 1991, 1992 and 1993, the Company
recognized interest income of $0, $1,171,120 and $511,748, respectively, related
primarily to tax refunds associated with abandoned lease deductions.
(6) INVESTMENT IN OIL AND GAS PARTNERSHIP
-------------------------------------
The Company is the managing general partner in a partnership (the "Managed
Partnership") formed with two other partners to acquire leasehold interests in
certain oil and gas properties for $13.4 million. Approximately 70% of the
purchase price was funded through limited recourse bank debt. The loan is
recourse to the Company only to the extent of its interest in the Managed
Partnership. The Company proportionately consolidates its 49.5% interest in the
partnership (see Note 9).
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company has entered into various noncancelable operating lease agreements,
primarily for office space, furniture, fixtures and equipment and vehicles.
Future minimum lease payments due under these agreements are as follows:
<TABLE>
<CAPTION>
Fiscal year
-----------
<S> <C>
1994 $ 571,270
1995 561,510
1996 688,943
1997 635,014
1998 627,101
1999 and thereafter 1,620,083
------------
$ 4,703,921
============
</TABLE>
Total rent expense under operating leases for the years ended September 30,
1991, 1992 and 1993, was $285,512, $479,945 and $571,851, respectively.
In addition, the Company has entered into a gas supply contract, guaranteed by
WECO, to provide 21,800 MMbtu per day to a co-generation facility in Bellingham,
Washington for a 15-year period beginning July 1, 1993. The price received under
the contract is initially fixed with an annual escalator. Gas supplied under the
contract is provided through the Company's own production and through committed
third party gas production.
The Company has entered into agreements with three natural gas pipeline
companies reserving capacity to transport gas on a pipeline expansion placed in
service on November 1, 1993. In addition, the Company has an agreement for gas
storage capacity effective July 1, 1993, in a storage field for purposes of
balancing gas volumes transported on the pipeline expansion. These contracts,
which vary in term from 10 to 30 years, call for fixed monthly demand charges
regardless of the volumes transported or stored. The fixed portion of these
commitments is as follows:
<TABLE>
<S> <C>
1994 $ 8,192,000
1995 9,006,000
1996 9,027,000
1997 9,049,000
1998 9,073,000
1999 and thereafter 179,349,000
-------------
$ 223,696,000
=============
</TABLE>
F-13
<PAGE>
The Company has incurred losses of $2.9 million for the six months ended March
31, 1994 related to these pipeline transportation and storage contracts. The
Company anticipates additional losses for the foreseeable future and its ability
to mitigate those losses over time is uncertain. As of March 31, 1994, the
Pipeline Transportation Agreements were supported by letters of credit totaling
$6,000,000 U.S. and $816,528 CDN, and guarantees by WECO. In connection with the
merger discussed in Note 9, these transportation agreements were transferred to
WECO effective January 1, 1994.
The Company is involved in various litigation matters in the normal course of
business both as plaintiff and as defendant. In management's opinion, the
ultimate outcome of these matters will not have a material impact on the
accompanying financial statements.
(8) PENSION AND RETIREMENT BENEFITS
-------------------------------
The Company participates in a defined benefit pension plan ("the Plan")
sponsored by WECO which benefits all employees who have attained 21 years of age
and have completed one year of service. Benefits are based on compensation and
length of service. WECO's policy is to fund the Plan annually at the level
necessary to provide benefits attributable to service to date and those expected
to be earned in the future. The Company's cost of participation was
approximately $47,900, $12,500, and $27,000, respectively, for the years ended
1991, 1992 and 1993. The estimated share of vested benefits attributed to the
Company's participation in the WECO plan is not readily determinable.
As a result of the Merger discussed in Note 9, the Company will no longer
participate in the WECO pension plan after the closing date. All employees who
are vested (five years of employment), will be eligible for a deferred vested
benefit from the plan at a later date or a lump sum benefit if the actuarially
determined benefit at time of termination is $3,500 or less.
(9) SUBSEQUENT EVENTS
-----------------
Effective October 1, 1993, the Company purchased an additional 12.625% interest
in the Managed Partnership for an adjusted purchase price of $2.6 million. This
purchase results in the Company having a majority interest and voting control
over substantially all of the Managed Partnership's activities. In March 1994,
the Company reached an agreement with the remaining general partner to dissolve
the partnership, pay off the remaining partnership bank debt and convert
ownership in the Managed Partnership's properties to direct working interests of
the partners.
On February 25, 1994, the Company and WECO entered into an Agreement of Merger
which was finalized on May 2, 1994. The merger essentially provided for the sale
of all of the stock of the Company to a third party in exchange of cash and
common and convertible preferred stock of the third party. In conjunction with
the merger, WECO retained certain of the Company's marketing, pipeline and gas
storage contractual arrangements with several natural gas pipeline companies as
further discussed in Note 7. Accordingly, the Company will no longer be required
to make the demand charge payments discussed in Note 7. The merger agreement
also provides that both the Company and WECO make certain representations,
warranties and indemnifications for the benefit of the third party for potential
liabilities, if any related to periods prior to the effective date of the sale.
Further, the Company has entered into an agreement with a third party to sell a
portion of its pipeline and storage contracts, at full-term and full-tariff
rates. Effective November 1, 1995, 51% of the largest pipeline capacity contract
will be acquired by the third party. On April 1, 1994, 43% of the Company's
storage capacity in Alberta, Canada will be acquired.
F-14
<PAGE>
Further, to facilitate the sale, substantially all outstanding hedge agreements
discussed in Note 2, and those entered into subsequent to the Company's fiscal
year-end were assigned to WECO effective January 1, 1994.
(10) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS ACTIVITIES
----------------------------------------------------
Major Purchasers
----------------
In addition to the sales to an affiliate discussed in Note 4, sales to two
purchasers were approximately $3,200,000 and $2,800,000 or approximately 13% and
11%, respectively for the year ended September 30, 1992. Sales to two other
purchasers were approximately $5,600,000 and $5,700,000 or approximately 11% and
11%, respectively for the year ended 1993. There were no other major purchasers
in 1991.
<TABLE>
<CAPTION>
Costs Incurred
--------------
1991 U.S. Canada Total
---- ------------ ------------ ------------
<S> <C> <C> <C>
Property Acquisitions (Divestitures), net:
Unproved $ 2,060,000 $ 31,000 $ 2,091,000
Proved 6,221,000 - 6,221,000
Exploration costs 3,801,000 671,000 4,472,000
Development costs 12,306,000 218,000 12,524,000
Sales of producing properties - - -
------------ ------------ ------------
Total $ 24,388,000 $ 920,000 $ 25,308,000
============ ============ ============
Depreciation, depletion and
amortization $ 7,577,000 $ 1,332,000 $ 8,909,000
============ ============ ============
Depreciation, depletion and
amortization per equivalent
unit-of-production $ 4.73 $ 3.76 $ 4.55
============ ============ ============
<CAPTION>
1992
----
<S> <C> <C> <C>
Property Acquisitions (Divestitures), net:
Unproved $ 2,219,000 $ 5,000 $ 2,224,000
Proved 9,429,000 - 9,429,000
Exploration costs 1,073,000 131,000 1,204,000
Development costs 18,402,000 - 18,402,000
Sales of producing properties - - -
------------ ------------ ------------
Total $ 31,123,000 $ 136,000 $ 31,259,000
============ ============ ============
Depreciation, depletion and
amortization $ 8,652,000 $ 551,000 $ 9,203,000
============ ============ ============
Depreciation, depletion and
amortization per equivalent
unit-of-production $ 4.24 $ 5.45 $ 4.30
============ ============ ============
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
1993
----
<S> <C> <C> <C>
Property Acquisitions (Divestitures), net:
Unproved $ 3,716,000 $ 102,000 $ 3,818,000
Proved (113,000) (853,000) (966,000)
Exploration costs 5,001,000 (411,000) 4,590,000
Development costs 27,126,000 45,000 27,171,000
Sales of producing properties - - -
------------ ------------ ------------
Total $ 35,730,000 $ (1,117,000) $ 34,613,000
============ ============ ============
Depreciation, depletion and
amortization $ 10,849,000 $ 519,000 $ 11,368,000
============ ============ ============
Depreciation, depletion and
amortization per equivalent
unit-of-production $ 3.95 $ 6.29 $ 4.02
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Capitalized Costs Relating to Oil and Gas Activities
----------------------------------------------------
1991 U.S. Canada Total
---- ------------ ------------ ------------
<S> <C> <C> <C>
Unproved properties $ 7,500,000 $ 27,000 $ 7,527,000
Proved properties 127,489,000 7,071,000 134,560,000
------------ ------------ ------------
Total capitalized costs 134,989,000 7,098,000 142,087,000
Accumulated depreciation,
depletion and amortization 49,466,000 1,746,000 51,212,000
------------ ------------ ------------
Net capitalized costs $ 85,523,000 $ 5,352,000 $ 90,875,000
============ ============ ============
<CAPTION>
1992 U.S. Canada Total
---- ------------ ------------ ------------
<S> <C> <C> <C>
Unproved properties $ 7,763,000 $ 26,000 $ 7,789,000
Proved properties 158,349,000 7,208,000 165,557,000
------------ ------------ ------------
Total capitalized costs 166,112,000 7,234,000 173,346,000
Accumulated depreciation,
depletion and amortization 58,139,000 2,115,000 60,254,000
------------ ------------ ------------
Net capitalized costs $107,973,000 $ 5,119,000 $113,092,000
============ ============ ============
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1993 U.S. Canada Total
---- ------------ ------------ ------------
<S> <C> <C> <C>
Unproved properties $ 6,408,000 $ 56,000 $ 6,464,000
Proved properties 195,434,000 6,061,000 201,495,000
------------ ------------ ------------
Total capitalized costs 201,842,000 6,117,000 207,959,000
Accumulated depreciation,
depletion and amortization 68,941,000 2,473,000 71,414,000
------------ ------------ ------------
Net capitalized costs $132,901,000 $ 3,644,000 $136,545,000
============ ============ ============
</TABLE>
F-17
<PAGE>
Estimated Proved Oil and Gas Reserves (Unaudited)
------------------------------------------------
The following estimates of proved reserve quantities represent reserves of crude
oil, natural gas, and natural gas liquids that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions. Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods. All reserve information is based on estimates
prepared by Ryder Scott Company Petroleum Engineers. Due to inherent
uncertainties and the limited nature of reservoir data, estimates of underground
reserves are subject to change over time as additional information becomes
available.
<TABLE>
<CAPTION>
Gas Oil and Natural Gas Liquids
(In millions of cubic feet) (In thousands of barrels)
-------------------------------------------------------------------
U.S. Canada Total U.S. Canada Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total proved reserves:
September 30, 1990 72,522 5,165 77,687 3,048 447 3,495
Revisions of previous
estimates (7,259) 2,093 (5,166) 1,118 (102) 1,016
Purchases of reserves
in place 5,210 - 5,210 836 - 836
Extensions and discoveries 26,928 1,876 28,804 660 80 740
Production (6,709) (1,511) (8,220) (485) (113) (598)
Sales of reserves in place - - - - - -
--------- --------- --------- --------- --------- ---------
September 30, 1991 90,692 7,623 98,315 5,177 312 5,489
Revisions of previous
estimates 5,297 (4,252) 1,045 320 (68) 252
Purchases of reserves
in place 13,273 - 13,273 890 - 890
Extensions and discoveries 23,582 1,946 25,528 326 59 385
Production (8,830) (307) (9,137) (567) (50) (617)
Sales of reserves in place (46) - (46) (68) - (68)
--------- --------- --------- --------- --------- ---------
September 30, 1992 123,968 5,010 128,978 6,078 253 6,331
Revisions of previous
estimates 125 (940) (815) 522 (12) 510
Purchase of reserves
in place 233 - 233 35 - 35
Extensions and discoveries 72,813 - 72,813 1,050 - 1,050
Production (12,712) (347) (13,059) (619) (22) (641)
Sales of reserves in place (276) - (276) (1) (118) (119)
--------- --------- --------- --------- --------- ---------
September 30, 1993 184,151 3,723 187,874 7,065 101 7,166
======= ===== ======= ===== === =====
Proved developed reserves:
September 30, 1990 52,019 5,165 57,184 2,011 453 2,464
September 30, 1991 68,527 7,623 76,150 2,874 313 3,187
September 30, 1992 83,416 3,065 86,481 3,428 194 3,622
September 30, 1993 136,172 1,411 137,583 5,527 26 5,553
</TABLE>
F-18
<PAGE>
Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
- - --------------------------------------------------------------------
The standardized measure of discounted future net cash flows is computed by
applying year-end prices, adjusted for existing contractual arrangements and
hedging agreements, to year-end quantities of proved reserves. Estimated future
development and production costs are based on year-end costs, assuming
continuation of existing economic conditions. Future income tax expenses are
based on year-end statutory tax rates and laws currently in effect. The
estimated future net cash flows are then discounted at 10 percent a year to
reflect the estimated timing of the future cash flows. Probable future changes
in demand for and prices of oil and gas, inflation and other factors make such
estimates inherently imprecise and subject to substantial revision.
<TABLE>
<CAPTION>
U.S. Canada Total
----------- ---------- -----------
<S> <C> <C> <C>
September 30, 1991
Future cash inflows $ 252,923,000 $ 14,941,000 $ 267,864,000
Future production and development costs (108,310,000) (2,620,000) (110,930,000)
Future income tax expense (21,669,000) (2,869,000) (24,538,000)
----------- ---------- -----------
Future net cash flows 122,944,000 9,452,000 132,396,000
10% annual discount for estimated timing
of cash flows (48,441,000) (1,988,000) (50,429,000)
----------- ---------- -----------
Standardized measure of discounted future
net cash flows $ 74,503,000 $ 7,464,000 $ 81,967,000
=========== ========== ===========
September 30, 1992
Future cash inflows $ 360,784,000 $ 11,291,000 $ 372,075,000
Future production and development costs (152,009,000) (4,415,000) (156,424,000)
Future income tax expense (30,321,000) (345,000) (30,666,000)
----------- ---------- -----------
Future net cash flows 178,454,000 6,531,000 184,985,000
10% annual discount for estimated timing
of cash flows (73,187,000) (1,066,000) (74,253,000)
----------- ---------- -----------
Standardized measure of discounted future
net cash flows $ 105,267,000 $ 5,465,000 $ 110,732,000
=========== ========== ===========
September 30, 1993
Future cash inflows $ 539,116,000 $ 8,702,000 $547,818,000
Future production and development costs (212,245,000) (1,306,000) (213,551,000)
Future income tax expense (76,306,000) (2,216,000) (78,522,000)
----------- ---------- -----------
Future net cash flows 250,565,000 5,180,000 255,745,000
10% annual discount for estimated timing
of cash flows (108,704,000) (1,184,000) (109,888,000)
----------- ---------- -----------
Standardized measure of discounted future
net cash flows $ 141,861,000 $ 3,996,000 $ 145,857,000
=========== ========== ===========
</TABLE>
F-19
<PAGE>
Principal Sources of Changes in Future Net Cash Flows (Unaudited)
----------------------------------------------------------------
<TABLE>
<CAPTION>
1991
---------------------------------------------
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
Principal sources of changes in future
net cash flows:
Balance, beginning of year $ 79,138,000 $ 9,842,000 $ 88,980,000
Sales and transfers of oil and gas
produced, net of production costs (17,042,000) (2,446,000) (19,488,000)
Net changes in prices and production costs (42,545,000) (4,199,000) (46,744,000)
Extensions, discoveries and improved recovery 17,011,000 1,736,000 18,747,000
Expenditures incurred that reduce
future development costs 4,631,000 - 4,631,000
Revisions to future development costs (2,756,000) - (2,756,000)
Revisions of quantity estimates (404,000) 1,563,000 1,159,000
Net change in income taxes 23,056,000 906,000 23,962,000
Purchases and sales of reserves in place, net 10,795,000 - 10,795,000
Accretion of discount 10,456,000 1,206,000 11,662,000
Changes in production rates, and other (7,837,000) (1,144,000) (8,981,000)
---------- --------- ----------
Balance, end of year $ 74,503,000 $ 7,464,000 $ 81,967,000
========== ========= ==========
<CAPTION>
1992
---------------------------------------------
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
Principal sources of changes in future
net cash flows:
Balance, beginning of year $ 74,503,000 $ 7,464,000 $ 81,967,000
Sales and transfers of oil and gas
produced, net of production costs (17,125,000) (542,000) (17,667,000)
Net changes in prices and production
costs 2,968,000 (1,904,000) 1,064,000
Extensions, discoveries and
improved recovery 11,633,000 2,039,000 13,672,000
Expenditures incurred that reduce
future development costs 11,893,000 - 11,893,000
Revisions to future development costs 6,014,000 - 6,014,000
Revisions of quantity estimates 3,592,000 (3,667,000) (75,000)
Net change in income taxes 2,632,000 1,510,000 4,142,000
Purchases and sales of reserves
in place, net 4,185,000 - 4,185,000
Accretion of discount 7,686,000 877,000 8,563,000
Changes in production rates, and other (2,714,000) (312,000) (3,026,000)
----------- --------- -----------
Balance, end of year $105,267,000 $ 5,465,000 $110,732,000
=========== ========= ===========
</TABLE>
F-20
<PAGE>
Principal Sources of Changes in Future Net Cash Flows (Unaudited) (cont'd)
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993
---------------------------------------------
U.S. Canada Total
---------- --------- ----------
<S> <C> <C> <C>
Principal sources of changes in future
net cash flows:
Balance, beginning of year $105,267,000 $ 5,465,000 $110,732,000
Sales and transfers of oil and gas
produced, net of production costs (22,796,000) (216,000) (23,012,000)
Net changes in prices and production costs 3,947,000 2,548,000 6,495,000
Extensions, discoveries and improved recovery 68,726,000 - 68,726,000
Expenditures incurred that reduce
future development costs 7,238,000 74,000 7,312,000
Revisions to future development costs 923,000 70,000 993,000
Revisions of quantity estimates 2,433,000 (1,485,000) 948,000
Net change in income taxes (23,966,000) (1,780,000) (25,746,000)
Purchases and sales of reserves in place, net (262,000) (658,000) (920,000)
Accretion of discount 10,835,000 526,000 11,361,000
Changes in production rates, and other (10,484,000) (548,000) (11,032,000)
----------- --------- -----------
Balance, end of year $141,861,000 $ 3,996,000 $145,857,000
=========== ========= ===========
</TABLE>
F-21
<PAGE>
CABOT OIL & GAS CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEC Requirements
The Pro Forma Combined Financial Statements have been prepared in
accordance with the requirements of Item 11 of Regulation S-X promulgated by
the Securities and Exchange Commission ("SEC). These required statements are
presented for informational purposes only and are not indicative of the
results of future operations or financial position, nor the results of
historical operations and financial position had the merger occurred as of the
assumed dates.
Explanatory Notes
The following Pro Forma Condensed Consolidated Financial Statements are
presented to show the pro forma effect of a merger between a Company
subsidiary and Washington Energy Resources Company ("WERCO"). The transaction
will be reported using the purchase method of accounting.
The Pro Forma Condensed Consolidated Balance Sheet has been prepared
assuming that the WERCO merger had occurred at March 31, 1994. The Pro Forma
Condensed Consolidated Statements of Income have been prepared assuming that
the WERCO merger had occurred at the beginning of the periods presented.
Pursuant to the SEC's regulations, permitted pro forma adjustments include
only the effects of events directly attributable to a transaction that are
factually supportable and, for income accounts, are expected to have a
continuing impact.
The Pro Forma Condensed Consolidated Financial Statements should be read
in conjunction with the historical consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31,
1993 and WERCO's historical consolidated financial statements included
elsewhere herein.
F-22
<PAGE>
CABOT OIL & GAS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of March 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------- --------------------------
COGC WERCO Adjustments Consolidated
--------- --------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $3,275 $578 ($430)(a) $3,423
Accounts Receivable 34,889 19,446 (3,772)(a) 50,563
Inventories 2,794 778 (373)(a) 3,199
Other 752 1,217 (620)(a) 1,349
--------- --------- ---------- -----------
Total Current Assets 41,710 22,019 (5,195) 58,534
PROPERTIES AND EQUIPMENT 404,084 160,984 28,225 (a) 593,293
OTHER ASSETS 77 885 962
--------- --------- ---------- -----------
TOTAL ASSETS $445,871 $183,888 $23,030 $652,789
========= ========= ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-Term Debt $2,570 2,570
Accounts Payable 31,583 23,760 (4,393)(a) 50,950
Accrued Liabilities 10,802 4,742 626 (a) 16,170
Notes and accounts payable to WECO 98,877 (98,877)(a)
--------- --------- ---------- -----------
Total Current Liabilities 44,955 127,379 (102,644) 69,690
LONG-TERM DEBT 156,000 336 63,661 (a) 219,997
DEFERRED INCOME TAXES 81,502 18,334 2,393 (a) 102,229
OTHER DEFERRED LIABILITIES 5,986 5,986
STOCKHOLDERS' EQUITY
Preferred Stock 69 113 (a) 182
Common Stock 2,058 10 204 (a) 2,272
Additional Paid-In Capital 143,304 38,990 58,142 (a) 240,436
Retained Earnings (Deficit) 11,997 (1,161) 1,161 (a) 11,997
--------- --------- ---------- -----------
Total Stockholders' Equity 157,428 37,839 59,620 254,887
--------- --------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $445,871 $183,888 $23,030 $652,789
========= ========= ========== ===========
</TABLE>
COGC follows the successful efforts method of accounting for oil and gas
producing activities.
F-23
<PAGE>
CABOT OIL & GAS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three Months Ended March 31, 1994
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------- -----------------------------
COGC WERCO Adjustments Consolidated
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $65,840 $7,922 $1,962 (b) $83,482
7,758 (c)
COSTS AND EXPENSES
Costs of Natural Gas 29,062 7,758 (c) 36,820
Direct Operations 7,459 1,508 26 (d) 8,993
Exploration 1,017 468 (d) 1,518
33 (e)
Depreciation, Depletion and Amortization 9,220 3,511 1,378 (f) 14,109
Impairment of Unproved Properties 720 250 (f) 970
General, Administrative and Other 4,180 1,221 (724)(d) 4,677
Taxes Other than Income 2,615 1,316 3,931
--------- --------- --------- ---------
54,273 7,556 9,189 71,018
Gain (Loss) on Sale of Assets 13 13
--------- --------- --------- ---------
INCOME FROM OPERATIONS 11,580 366 531 12,477
Other Income (Expense)
Interest Expense, Net (2,877) (1,321) 685 (i) (3,513)
Other, Net - (33) 0 (33)
--------- --------- --------- ---------
(2,877) (1,354) 685 (3,546)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes 8,703 (988) 1,216 8,931
Income Tax Expense (Benefit) 3,469 (619) 880 (g) 3,730
--------- --------- --------- ---------
NET INCOME 5,234 (369) 336 5,201
Dividend Requirement on Preferred Stock 552 851 (h) 1,403
--------- --------- --------- ---------
Net Income Available to Common Stockholders $4,682 ($369) ($515) $3,798
========= ========= ========= =========
EARNINGS PER COMMON SHARE $0.23 $0.17
AVERAGE COMMON SHARES OUTSTANDING 20,584 2,133 22,717
</TABLE>
F-24
<PAGE>
CABOT OIL & GAS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 1993
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------- --------------------------
COGC WERCO Adjustments Consolidated
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES $164,295 $34,400 $4,584 (b) $221,717
18,438 (c)
COSTS AND EXPENSES
Costs of Natural Gas 48,479 18,438 (c) 66,917
Direct Operations 28,681 6,568 182 (d) 35,431
Exploration 6,943 1,888 (d) 9,220
389 (e)
Depreciation, Depletion and Amortization 31,621 12,634 5,904 (f) 50,159
Impairment of Unproved Properties 2,834 1,000 (f) 3,834
General, Administrative and Other 17,539 3,280 (1,320)(d) 19,499
Taxes Other than Income 9,490 4,640 14,130
-------- --------- ----------- ------------
145,587 27,122 26,481 199,190
Gain (Loss) on Sale of Assets 1,299 1,299
-------- --------- ----------- ------------
INCOME FROM OPERATIONS 20,007 7,278 (3,459) 23,826
Other Income (Expense)
Interest Expense, Net (10,328) (4,126) 1,580 (i) (12,874)
Other, Net - 65 0 65
-------- --------- ----------- ------------
(10,328) (4,061) 1,580 (12,809)
-------- --------- ----------- ------------
Income (Loss) Before Income Taxes 9,679 3,217 (1,879) 11,017
Income Tax Expense (Benefit) 6,159 65 1,150 (g) 7,374
-------- --------- ----------- ------------
NET INCOME 3,520 3,152 (3,029) 3,643
Dividend Requirement on Preferred Stock 1,432 3,402 (h) 4,834
-------- --------- ----------- ------------
Net Income Available to Common Stockholders $2,088 $3,152 ($6,431) ($1,191)
======== ========= =========== ============
EARNINGS PER COMMON SHARE $0.10 ($0.05)
AVERAGE COMMON SHARES OUTSTANDING 20,507 2,133 22,640
</TABLE>
F-25
<PAGE>
CABOT OIL & GAS CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying pro forma condensed consolidated financial statements
of the Company for the year ended December 31, 1993 and the three months ended
March 31, 1994 have been prepared to reflect certain adjustments to the
historical consolidated financial statements of the Company, described as
follows:
(a) The merger of a Company subsidiary with Washington Energy
Resources Company ("WERCO") has been accounted for in the Pro
Forma Condensed Consolidated Financial Statement using the
purchase method of accounting. Accordingly, the Company's purchase
cost has been allocated to the assets and liabilities of the
merged company based upon the estimated fair market value.
(b) Reflects the elimination of losses attributable to certain
transportation and storage contracts and gas price swap agreements
that were assumed by Washington Energy Company, the parent company
of WERCO.
(c) Reflects the reclassification of purchased gas costs (netted in
brokerage revenue in WERCO's historical presentation) to "Cost of
Natural Gas".
(d) Adjusted to reflect the Company's estimated incremental operating
and administrative costs necessary to operate and manage the
business.
(e) Reflects an adjustment to conform the reporting presentation to be
consistent with the full cost method of accounting used by the
Company.
(f) Reflects additional levels of depreciation, depletion, and
amortization primarily attributable to the purchase price in
excess of the historical net book value.
(g) Records the income tax provision of the pro forma adjustments.
(h) Reflects the dividend obligation associated with the additional
preferred stock issued in connection with the merger.
(i) Reflects additional interest expense associated with the increased
long-term debt attributable to the merger.
F-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CABOT OIL & GAS CORPORATION
DATE: JULY 15, 1994
By: /S/ John U. Clarke
----------------------------------
John U. Clarke
Executive Vice President and Chief
Financial Officer
2
