<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 3, 1997
(November 1, 1996)
AQUILA GAS PIPELINE CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 1-12426 47-0731171
- --------------------------------- -------------- ---------------------
(State or other jurisdiction of Commission (I.R.S. Employer
incorporation or organization) File Number Identification Number)
100 N.E. LOOP 410, SUITE 1000, SAN ANTONIO, TEXAS 78216-4754
- ------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (210) 342-0685
Not applicable
------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) Unaudited Consolidated Financial Statements of Oasis Pipe Line
Company and Subsidiary:
Consolidated Balance Sheets as of September 30, 1996 and December
31, 1995
Consolidated Statements of Income for the nine-months ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the nine-months ended
September 30, 1996 and 1995
Note to Consolidated Financial Statements
(2) Audited Consolidated Financial Statements of Oasis Pipe Line Company
and Subsidiary:
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1995
Consolidated Statement of Income for the year ended December 31, 1995
Consolidated Statement of Cash Flows for the year ended December 31,
1995
Consolidated Statement of Changes in Shareholders' Equity for the
year ended December 31, 1995
Notes to Consolidated Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
Introduction
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996
Unaudited Pro Forma Combined Statements of Income for the nine-months
ended September 30, 1996 and the year ended December 31, 1995
Notes to Unaudited Pro Forma Combined Financial Statements
(c) EXHIBITS
Incorporated herein by reference to Index to Exhibit
<PAGE> 3
AQUILA GAS PIPELINE CORPORATION
S I G N A T U R E
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 thereunto duly authorized.
AQUILA GAS PIPELINE CORPORATION
/s/ Damon C. Button
---------------------------
Date: January 3, 1997 By: Damon C. Button
Vice President, Treasurer
and Chief Financial Officer
<PAGE> 4
ITEM 7(a). FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
(1) Unaudited Consolidated Financial Statements of Oasis Pipe Line
Company and Subsidiary:
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995
Consolidated Statements of Income for the nine months ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995
Note to Consolidated Financial Statements
(2) Audited Consolidated Financial Statements of Oasis Pipe Line
Company and Subsidiary as of and for the year ended December 31,
1995
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Shareholders' Equity
Notes to Consolidated Financial Statements
<PAGE> 5
OASIS PIPE LINE COMPANY AND SUBSIDIARY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996 AND FOR THE NINE-MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
<PAGE> 6
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS,
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER
ASSETS 1996 1995
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,734 $ 4,520
Accounts receivable:
Trade 3,094 4,229
Affiliates 1,257 1,772
Materials and supplies, at lower of cost or market 613 604
Other 209
--------- ---------
Total current assets 8,698 11,334
--------- ---------
PROPERTY, PLANT AND EQUIPMENT:
Pipeline facilities 164,424 166,962
Construction in progress 5,206 3,132
Less accumulated depreciation and amortization (123,694) (122,158)
--------- ---------
Property, plant and equipment, net 45,936 47,936
--------- ---------
OTHER ASSETS 546 733
--------- ---------
TOTAL $ 55,180 $ 60,003
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,425 $ 3,180
Accounts payable:
Trade 563 3,082
Affiliates 364 2,152
Accrued taxes 1,473 848
Environmental Reserve - current 641 785
Other 172 398
--------- ---------
Total current liabilities 6,638 10,445
--------- ---------
DEFERRED INCOME TAXES 11,414 11,876
LONG-TERM DEBT 5,818 8,419
OTHER DEFERRED CREDITS 1,483 1,778
CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value; 50,000 shares authorized and 6,667 shares outstanding 7 7
Preference stock, $.01 par value; 5,000 shares authorized and 300 shares outstanding
Additional paid-in capital 25,432 25,432
Retained earnings 4,388 2,046
--------- ---------
Total shareholders' equity 29,827 27,485
--------- ---------
TOTAL $ 55,180 $ 60,003
========= =========
</TABLE>
See note to consolidated financial statements.
<PAGE> 7
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
(UNAUDITED)
<S> <C> <C>
OPERATING REVENUES:
Gas transportation $ 19,352 $ 22,535
Gas sales 1,943 2,321
Other 873 305
---------- ----------
Total operating revenues 22,168 25,161
---------- ----------
OPERATING EXPENSES:
Operations and maintenance 4,970 7,009
Depreciation and amortization 2,150 2,195
Gas purchases 1,868 1,909
Taxes, other than income 882 974
Administrative and general 1,948 5,120
---------- ----------
Total operating expenses 11,818 17,207
---------- ----------
OPERATING INCOME 10,350 7,954
OTHER INCOME (EXPENSES):
Interest expense, net (638) (541)
Other, net 522 (159)
---------- ----------
INCOME BEFORE INCOME TAXES 10,234 7,254
INCOME TAX EXPENSE 3,737 2,631
---------- ----------
NET INCOME $ 6,497 $ 4,623
========== ==========
</TABLE>
See note to consolidated financial statements.
<PAGE> 8
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
(UNAUDITED)
<S> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income $ 6,497 $ 4,623
Reconciliation of net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,150 2,195
Deferred income taxes (462) (446)
Changes in components of working capital:
Accounts receivable 1,650 (728)
Accrued taxes 625 (5,399)
Accounts payable and accruals (4,307) (949)
Materials and supplies (9) (2)
Other, net (85) (1,049)
---------- ----------
Net cash provided by (used in) operating activities 6,059 (1,755)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Additions to property, plant and equipment (150) (1,986)
---------- ----------
Net cash used in investing activities (150) (1,986)
---------- ----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on long-term debt (2,356) (2,133)
Dividends paid (4,339) (1,637)
---------- ----------
Net cash used in financing activities (6,695) (3,770)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS (786) (7,511)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,520 16,121
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,734 $ 8,610
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for:
Income taxes $ 4,268 $ 8,475
========== ==========
Interest expense, net of interest capitalized $ 778 $ 1,008
========== ==========
</TABLE>
See note to consolidated financial statements.
<PAGE> 9
OASIS PIPE LINE COMPANY AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 (UNAUDITED)
- -------------------------------------------------------------------------------
1. GENERAL
In the opinion of management of Oasis Pipe Line Company, the accompanying
unaudited consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1996 and the results of
operations and cash flows for the nine months ended September 30, 1996
and 1995. The results of operations for the nine months ended September
30, 1996 and 1995 are not necessarily indicative of the results to be
expected for the full year.
******
<PAGE> 10
OASIS PIPE LINE COMPANY AND SUBSIDIARY
Consolidated Financial Statements for the Year Ended
December 31, 1995 and Independent Auditors' Report
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To Oasis Pipe Line Company:
We have audited the accompanying consolidated balance sheet of Oasis Pipe Line
Company and subsidiary (the "Company") as of December 31, 1995, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for the year 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 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 audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Oasis Pipe Line Company and
subsidiary as of December 31, 1995, and the results of their operations, cash
flows and changes in shareholders' equity for the year then ended in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
April 19, 1996
<PAGE> 12
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET,
DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,520
Accounts receivable:
Trade (net of allowance for doubtful accounts of $106) 4,229
Affiliates 1,772
Materials and supplies, at lower of cost or market 604
Other 209
---------
Total current assets 11,334
---------
PROPERTY, PLANT AND EQUIPMENT:
Pipeline facilities 166,962
Construction in progress 3,132
Less accumulated depreciation and amortization (122,158)
---------
Property, plant and equipment, net 47,936
---------
OTHER ASSETS 733
---------
TOTAL $ 60,003
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,180
Accounts payable:
Trade 3,082
Affiliates 2,152
Accrued taxes 848
Environmental Reserve - current 785
Other 398
---------
Total current liabilities 10,445
---------
DEFERRED INCOME TAXES (Note 3) 11,876
LONG-TERM DEBT (Note 5) 8,419
OTHER DEFERRED CREDITS (Note 6) 1,778
CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY (Note 4):
Common stock, $1 par value; 50,000 shares authorized and 6,667 shares
outstanding 7
Preference stock, $.01 par value; 5,000 shares authorized and
300 shares outstanding
Additional paid-in capital 25,432
Retained earnings 2,046
---------
Total shareholders' equity 27,485
---------
TOTAL $ 60,003
=========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 13
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
- ------------------------------------------------------------------------------
<TABLE>
<S> <C>
OPERATING REVENUES:
Gas transportation $ 28,257
Gas sales 3,095
Other 520
--------
Total operating revenues 31,872
--------
OPERATING EXPENSES:
Operations and maintenance 10,224
Depreciation and amortization 2,849
Gas purchases 2,666
Taxes, other than income 1,070
Administrative and general 6,158
--------
Total operating expenses 22,967
--------
OPERATING INCOME 8,905
OTHER INCOME (EXPENSES):
Interest expense, net (716)
Other, net 187
--------
INCOME BEFORE INCOME TAXES 8,376
INCOME TAX EXPENSE (Note 3) 3,472
--------
NET INCOME $ 4,904
========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 14
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 4,904
Reconciliation of net income to net cash used in operating activities:
Depreciation and amortization 2,849
Deferred income taxes (406)
Changes in components of working capital:
Accounts receivable (1,196)
Accrued taxes (5,561)
Accounts payable and accruals 987
Materials and supplies 93
Other, net (2,476)
--------
Net cash used in operating activities (806)
--------
CASH FLOWS USED IN INVESTING ACTIVITIES -
Additions to property, plant and equipment (4,912)
--------
Net cash used in investing activities (4,912)
--------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on long-term debt (2,880)
Dividends paid (3,003)
--------
Net cash used in financing activities (5,883)
--------
DECREASE IN CASH AND CASH EQUIVALENTS (11,601)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 16,121
--------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,520
========
SUPPLEMENTAL CASH FLOW INFORMATION -
Cash paid for income taxes and interest expense is as follows:
Income taxes $ 8,965
========
Interest expense, net of interest capitalized $ 1,240
========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 15
OASIS PIPE LINE COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PREFERENCE PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 7 $ $25,432 $
NET INCOME 4,904
DIVIDENDS DECLARED:
Common stock (1,171)
Preference stock (1,687)
------- --------- ------- -------
BALANCE AT DECEMBER 31, 1995 $ 7 $ $25,432 $ 2,046
======= ========= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 16
OASIS PIPE LINE COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
- ------------------------------------------------------------------------------
1. CONTROL AND OWNERSHIP OF THE COMPANY AND RELATED-PARTY TRANSACTIONS
Oasis Pipe Line Company ("Oasis"), a Delaware corporation, is currently
engaged in the operation of a gas transmission system in the state of
Texas. Until June of 1995, Dow Hydrocarbons & Resources, Inc. ("DHRI")
owned 45% of the voting stock and Channel Gas Supply Company ("Channel"),
a wholly owned subsidiary of Tenneco, owned 30% and Houston Pipe Line
Company ("HPL"), a wholly owned subsidiary of Enron, owned 25%. In June
1995 DHRI acquired HPL's shares and increased its ownership percentage to
70%.
Intratex Gas Company ("Intratex"), a wholly owned subsidiary of HPL, was
the operator of the Oasis pipeline system during 1995. Substantially all
operating expenses were initially paid by Intratex and then billed to
Oasis. Oasis had no field employees during 1995 and reimbursed the
operator for salary expense and employee benefits for services provided.
Amounts billed for these services during 1995 totaled approximately
$3,142,000. Oasis was also billed for overhead based on an operating
agreement with Intratex. Overhead billed during 1995 was approximately
$1,535,000.
In June 1995 Oasis entered into an agreement to settle a lawsuit by Oasis
against Intratex and affiliated companies regarding Intratex's operation
of Oasis and certain transactions entered into by Intratex on behalf of
or relating to Oasis. Under the agreement, Oasis stock owned by HPL was
acquired by DHRI and the lawsuit against HPL was dismissed. As a result
of the settlement, during June 1995, Oasis took over the accounting and
administrative functions which had been previously performed by Intratex.
In addition, Oasis began operating the pipeline on January 1, 1996.
During 1995 Oasis derived revenues from its shareholders and their
affiliates for the transmission of natural gas. The amount of such net
revenues totaled approximately $11,500,000 for the year ended December
31, 1995. Receivables are generally not collateralized. This
concentration of customers may impact Oasis' overall exposure to credit
risk, either positively or negatively, in that the customers may be
similarly affected by changes in economic or other conditions. However,
Oasis has not experienced significant credit losses on such receivables.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Oasis and its wholly owned subsidiary Oasis Pipe
Line Finance Company (collectively, the "Company"). All intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents - The Company considers all investments with
maturities of three months or less at acquisition to be cash equivalents.
<PAGE> 17
Property, Plant and Equipment, and Depreciation - Normal maintenance and
repairs of property, plant and equipment are charged to expense as
incurred. Renewals, betterments and major repairs that materially extend
the useful lives of the assets are capitalized, and the assets replaced,
if any, are retired. When capital assets are retired or replaced, the
balance of the assets and the accumulated depreciation are removed and
any gain or loss upon disposition is included in income.
Depreciation is computed using the straight-line method of accounting
over the estimated useful lives of the related assets. The annual
depreciation lives range from 10 to 40 years.
Interest expense capitalized as part of property, plant and equipment was
$60,240 for the year ended December 31, 1995.
In March 1995 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." SFAS No. 121 requires that long-lived assets to be held and
used by an entity be reviewed for impairment whenever circumstances
indicate that the carrying amount of an asset may not be recoverable. It
also requires that long-lived assets to be disposed of be reported at the
lower of the carrying amount or fair value less cost to sell. SFAS No.
121 will be effective for the fiscal year ending December 31, 1996. The
Company is presently evaluating the impact that SFAS No. 121 will have on
its financial position and results of operations.
Environmental Expenditures - Environmental related restoration and
remediation costs are recorded as liabilities and expensed when site
restoration and environmental remediation and cleanup obligations are
either known or considered probable and the related costs can be
reasonably estimated. Other environmental expenditures which are
principally for maintenance or preventative in nature are recorded when
expended and are expensed or capitalized as appropriate.
Income Taxes - The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between
the book carrying amounts and the tax bases of all balance sheet assets
and liabilities. The deferred tax effects of these temporary differences
are calculated using the tax rates currently in effect.
Financial Instruments - The Company's financial instruments consist of
cash and cash equivalents, accounts receivable, accounts payable, and
long-term debt. The carrying value of cash and cash equivalents, accounts
receivable, and accounts payable approximates fair value because of the
short-term nature of the instruments. The fair value of the Company's
long-term debt is based on current rates available for similar debt (see
Note 5).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from
these estimates.
<PAGE> 18
3. INCOME TAXES
Total income tax expense reflected in the consolidated statement of
income consists of the following components in thousands of dollars:
<TABLE>
<S> <C>
Current $ 3,878
Deferred (406)
--------
Total income tax expense $ 3,472
========
</TABLE>
The total income tax expense differs from the amounts computed by
applying the statutory federal income tax rates due to state income
taxes.
The components of the Company's net deferred income tax liability at
December 31, 1995 in thousands of dollars are as follows:
<TABLE>
<S> <C>
Deferred income tax assets $ 1,290
Deferred income tax liabilities (13,166)
-------
Net deferred income tax liabilities $(11,876)
========
</TABLE>
Deferred income tax assets consist primarily of the environmental
reserve; deferred income tax liabilities consist primarily of differences
in the basis of property for book and tax purposes.
4. CAPITAL STOCK
The bylaws of the Company provide for common stock, preference stock and
preferred stock. The common stock has a par value of $1 and receives
quarterly dividends of excess working capital as determined by the Board
of Directors.
The preference stock is nonvoting, has a par value of $.01 per share and
receives quarterly dividends based on the respective shareholder's
contribution to net transportation revenue. The preference dividends have
preference over common stock dividends.
Preferred stock ($.01 par value, 250,000 shares) is authorized but no
shares have been issued.
5. LONG-TERM DEBT
Long-term debt is comprised of a 9.95% senior secured note due March 15,
1999, payable by Oasis Pipe Line Finance Company (see Note 2). The senior
secured note is to be repaid from and secured solely by the minimum
transportation revenues from the owners or their affiliates who are
obligated under transportation contracts to pay monthly minimum charges
to Oasis of approximately $1.4 million through March 31, 1999, subject to
annual modification. The fair value of the Company's long-term debt,
based on current rates available for similar debt, was estimated to be
$11,680,000 at December 31, 1995.
The annual maturity requirements applicable to long-term debt outstanding
at December 31, 1995 are $3.2 million, $3.5 million, $3.9 million and
$1.0 million for 1996 through 1999, respectively.
<PAGE> 19
6. CONTINGENCIES
The Company is subject to extensive federal, state and local
environmental laws and regulations which generally require expenditures
for remediation at operating facilities and waste disposal sites as well
as expenditures in connection with the construction of new facilities.
Management believes that, after consideration of the reserve of
$2,273,000, the resolution of environmental contingencies will not have a
material impact on Oasis' financial position or results of operations.
******
<PAGE> 20
ITEM 7(b). PRO FORMA FINANCIAL INFORMATION AQUILA GAS PIPELINE CORPORATION
(UNAUDITED)
Introduction
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1996
Unaudited Pro Forma Combined Statements of Income for the nine
months ended September 30, 1996 and the year ended December
31, 1995
Notes to Unaudited Pro Forma Combined Financial Statements
<PAGE> 21
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS OF THE COMPANY
INTRODUCTION
The Unaudited Pro Forma Combined Financial Statements of Aquila Gas
Pipeline Corporation (the Company) have been prepared to give effect to
the 15% and 25%, respectively, acquisitions of the capital stock of Oasis
Pipe Line Company (Oasis) and related transportation rights on July 1,
1996 and November 1, 1996, respectively (in each case subject to certain
adjustments) ("Oasis Acquisition"). The Unaudited Pro Forma Combined
Financial Statements of the Company are not necessarily indicative of the
financial results for the periods presented had the Oasis Acquisition
taken place on January 1, 1995. In addition, future results may vary
significantly from the results reflected in the accompanying Unaudited Pro
Forma Combined Financial Statements because of normal production declines,
changes in product prices, availability of product, changes in market
conditions of the markets in which the Company operates and future
acquisitions, among other factors. This information should be read in
conjunction with the consolidated financial statements of the Company (and
the related notes) included in the Annual Report on Form 10-K for the year
ended December 31, 1995, the condensed consolidated financial statements
of the Company (and the related notes) included in the Quarterly Report on
Form 10-Q for the three and nine months ended September 30, 1996, the
information included in the Company's Current Report on Form 8-K dated
November 15, 1996 (November 1, 1996) and the consolidated financial
statements of Oasis (and related notes) included herewith.
The acquired transportation rights will be utilized by the Company to
conduct additional natural gas marketing activities not otherwise
available to the Company (hereinafter referred to as "Oasis Marketing").
The Unaudited Pro Forma Combined Statements of Income do not reflect any
Oasis Marketing activity related to the Oasis Acquisition, except for the
three months of Oasis Marketing activity included in the Unaudited
Combined Statement of Income for the nine months ended September 30, 1996
related to the 15% Oasis Acquisition on July 1, 1996.
<PAGE> 22
AQUILA GAS PIPELINE CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1996
(in thousands)
<TABLE>
<CAPTION>
ASSETS
The Pro Forma Pro Forma
Company Adjustments Combined
------- ----------- --------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 28,457 (14,868)(a) $ 13,589
Accounts receivable ...................................................... 81,543 81,543
Inventories and exchanges ................................................ 4,245 4,245
Materials and supplies ................................................... 5,328 5,328
--------- ---------
Total current assets ................................................... 119,573 104,705
--------- ---------
INVESTMENT IN AFFILIATE ................................................... 39,240 71,718 (a) 110,958
--------- ---------
PIPELINE, PROPERTY, PLANT AND EQUIPMENT, at cost:
Natural gas pipelines .................................................... 419,464 419,464
Plants and processing equipment .......................................... 67,746 67,746
--------- ---------
487,210 487,210
Less - Accumulated depreciation .......................................... (90,294) (90,294)
--------- ---------
396,916 396,916
--------- ---------
INTANGIBLE ASSETS, net .................................................... 25,467 12,650 (a) 38,117
--------- ---------
OTHER, net ................................................................ 1,177 1,177
--------- ---------
TOTAL ASSETS .............................................................. $ 582,373 $ 651,873
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt ..................................... $ 12,802 $ 12,802
Accounts payable ......................................................... 80,154 80,154
Accrued expenses ......................................................... 10,067 10,067
Accrued interest ......................................................... 3,097 3,097
Income taxes payable to UtiliCorp United Inc. ............................ 2,408 2,408
Intercompany payable due to Aquila Energy Corporation .................... 7,232 7,232
--------- ---------
Total current liabilities .............................................. 115,760 115,760
--------- ---------
LONG-TERM DEBT ............................................................ 209,578 69,500 (a) 279,078
--------- ---------
DEFERRED INCOME TAXES ..................................................... 66,072 66,072
--------- ---------
OTHER LONG-TERM LIABILITIES ............................................... 557 557
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock .......................................................... -- --
Common stock ............................................................. 294 294
Additional paid-in capital ............................................... 90,297 90,297
Retained earnings ........................................................ 99,815 99,815
--------- ---------
Total stockholders' equity ............................................. 190,406 190,406
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................................. $ 582,373 $ 651,873
========= =========
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 23
AQUILA GAS PIPELINE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Adjustments Combined
------- ----------- --------
<S> <C> <C> <C>
OPERATING REVENUES .......................... $ 534,587 $ 534,587
------------ ------------
COSTS AND EXPENSES:
Cost of sales .............................. 437,620 437,620
Operating .................................. 17,416 17,416
General and administrative ................. 13,889 13,889
Depreciation and amortization .............. 17,532 608 (c) 18,140
------------ ------------
Total costs and expenses .................. 486,457 487,065
------------ ------------
INCOME FROM OPERATIONS ...................... 48,130 47,522
INTEREST AND DEBT EXPENSES, net ............. 11,287 5,675 (d) 16,962
EQUITY IN LOSS (INCOME) OF AFFILIATE ........ 35 (1,257)(b) (1,222)
------------ ------------
INCOME BEFORE INCOME TAXES .................. 36,808 31,782
PROVISION IN LIEU OF INCOME TAX EXPENSE ..... 13,974 (2,264)(e) 11,710
------------ ------------
NET INCOME .................................. $ 22,834 $ 20,072
============ ============
EARNINGS PER SHARE .......................... $ .78 $ .68
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING .. 29,400,000 29,400,000
============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements.
<PAGE> 24
AQUILA GAS PIPELINE CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
The Pro Forma Pro Forma
Company Adjustments Combined
------- ----------- --------
<S> <C> <C> <C>
OPERATING REVENUES ......................... $ 485,828 $ 485,828
------------ ------------
COSTS AND EXPENSES:
Cost of sales ............................. 387,127 387,127
Operating ................................. 21,993 21,993
General and administrative ................ 15,602 15,602
Depreciation and amortization ............. 21,178 934 (c) 22,112
Provision for asset impairments ........... 13,163 13,163
------------ ------------
Total costs and expenses ................. 459,063 459,997
------------ ------------
INCOME FROM OPERATIONS ..................... 26,765 25,831
INTEREST AND DEBT EXPENSES, net ............ 12,168 8,609 (d) 20,777
EQUITY IN INCOME OF AFFILIATE .............. -- (320)(b) (320)
------------ ------------
INCOME BEFORE INCOME TAXES ................. 14,597 5,374
PROVISION IN LIEU OF INCOME TAX EXPENSE .... 5,532 (3,530)(e) 2,002
------------ ------------
NET INCOME ................................. $ 9,065 $ 3,372
============ ============
EARNINGS PER SHARE ......................... $ .31 $ .11
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING . 29,400,000 29,400,000
============ ============
</TABLE>
See accompanying notes to unaudited pro forma combined financial statements
<PAGE> 25
AQUILA GAS PIPELINE CORPORATION
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited pro forma combined financial information of
Aquila Gas Pipeline Corporation (the Company) is presented to reflect the 15%
and 25%, respectively, acquisitions of the capital stock of Oasis Pipe Line
Company (Oasis) and related transportation rights on July 1, 1996 and November
1, 1996, respectively (Oasis Acquisition). The unaudited pro forma combined
balance sheet is presented as if the 25% Oasis Acquisition occurred at the
balance sheet date and the unaudited pro forma combined statements of income
are presented as if the Oasis Acquisition occurred on January 1, 1995.
The Company column represents the consolidated balance sheet of Aquila
Gas Pipeline Corporation as of September 30, 1996 and the consolidated
statements of income of Aquila Gas Pipeline Corporation for the nine months
ended September 30, 1996 and the year ended December 31, 1995. The unaudited
pro forma combined statement of income for the nine months ended September 30,
1996 reflects the results of operations related to the 15% Oasis Acquisition
since July 1, 1996.
The acquired transportation rights will be utilized by the Company to
conduct additional natural gas marketing activities not otherwise available to
the Company (hereinafter referred to as "Oasis Marketing"). The Unaudited Pro
Forma Combined Statements of Income do not reflect any Oasis Marketing activity
related to the Oasis Acquisition, except for the three months of Oasis
Marketing activity included in the Unaudited Combined Statement of Income of
the nine months ended September 30, 1996 related to the 15% Oasis Acquisition
on July 1, 1996.
NOTE 2. PRO FORMA ADJUSTMENTS
(a) To record the purchase of the 25% Oasis Acquisition. The 15% Oasis
Acquisition is reflected in the consolidated balance sheet of the
Company as of September 30, 1996.
(b) To record the equity in income of Oasis and the amortization of the
cost over the underlying net assets of Oasis. The cost over the
underlying net assets will be amortized over approximately 35 years
based on the underlying assets depreciable lives.
(c) To record the amortization of the purchase price allocated to the
related transportation rights acquired in the Oasis Acquisition. The
transportation rights will be amortized over approximately 22 years.
(d) To adjust interest expense resulting from the additional borrowings
incurred to fund the Oasis Acquisition. The borrowings were made
under the Company's existing credit facilities.
(e) To adjust income tax expense.
NOTE 3. INCOME TAXES
The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Deferred income taxes have been provided on all significant differences
between the book and tax basis of the assets.
NOTE 4. OPTION ARRANGEMENT
In connection with the November 1, 1996 acquisition of 25% of the
capital stock of Oasis, the Company entered into certain option arrangements
with El Paso Natural Gas Company and a subsidiary of Tenneco Energy (Tenneco).
The option arrangements provide that, under certain circumstances, the Company
may be required to sell to a wholly-owned subsidiary of Tenneco one-fifth of
the Oasis capital stock acquired by the Company on November 1, 1996 (or 5% of
all Oasis capital stock), including one-fifth of the related transportation
rights. If the option is exercised, the closing of the sale to the subsidiary
of Tenneco will be on April 1, 1997. The purchase price would be approximately
$16,800,000 subject to certain adjustments. The Unaudited Pro Forma Combined
Financial Statements gives no effect for potential exercise of the option
arrangements.
<PAGE> 26
INDEX TO EXHIBIT
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit Description Page
------- ----------- ----
<S> <C> <C>
23 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 1
AQUILA GAS PIPELINE CORPORATION
FILE NUMBER 1-12426
EXHIBIT 23
CONSENT OF DELOITTE & TOUCHE LLP
<PAGE> 2
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report dated April 19, 1996, with respect to the
consolidated financial statements of Oasis Pipe Line Company and Subsidiary for
the year ended December 31, 1995 appearing in this Form 8-K/A of Aquila Gas
Pipeline Corporation.
Deloitte & Touche LLP
Houston, Texas
January 3, 1997
