EXH. 99.3
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
TO REFLECT THE PURCHASE OF DALEN CORPORATION
(Unaudited)
The condensed pro forma consolidated financial statements give effect as
of March 31, 1995 to the probable acquisition in early June 1995 by Enserch
Exploration, Inc. (EEX), 99.2% owned by ENSERCH, of 100% of the capital stock
of DALEN Corporation (DALEN) for $340 million cash and the refinancing of
DALEN's $115 million of bank debt. DALEN is a wholly-owned subsidiary of PG&E
Enterprises, which is 100% owned by Pacific Gas & Electric Company. The
condensed pro forma consolidated financial statements for the year ended
December 31, 1994 and for the three months ended March 31, 1995 have been
prepared from the historical financial statements of ENSERCH and DALEN after
adjustments as described below.
ENSERCH and EEX will account for the acquisition of DALEN as a purchase.
All acquired assets, consisting principally of gas and oil properties, will
be evaluated following the acquisition for purposes of assigning the excess
of the purchase price over DALEN's book value. It is anticipated that
essentially all of the valuation adjustment will be assigned to gas and oil
properties, and the pro forma financial statements of the combined entities
have been prepared on that basis.
EEX will initially fund the purchase through borrowings of $340 million
under existing bank lines. EEX intends to issue common stock in a public
offering later this year with proceeds used to repay all or a portion of the
EEX bank line financing used to make the acquisition. The common stock issue
is expected to increase the public ownership in EEX from less than 1% to
approximately 20%. A $150 million bridge loan will be used to refinance
DALEN's $115 million bank debt and reduce advances from ENSERCH. The bridge
loan is expected to be paid later in the year with the proceeds of a
$150 million long-term financing. For purposes of presenting pro forma
financial statements of the combined entities, DALEN's interest income
and interest expense have been eliminated and interest expense, based on
the initial funding through EEX bank lines and the bridge loan, has been
added. The current interest rate on such debt of approximately 6.5% has
been assumed.
DALEN follows the successful efforts method of accounting for gas and oil
properties, whereby exploratory costs, excluding the costs of successful
exploratory wells, are charged to expense as incurred. Costs applicable to
productive wells and development dry holes are capitalized and amortized on
the units-of-production method based on estimated proved reserve quantities.
ENSERCH and EEX follow the full-cost method of accounting for gas and oil
properties, whereby all exploratory costs, including costs of both successful
and unsuccessful exploratory wells, are capitalized and amortized on the
units-of-production method based on estimated proved reserve quantities. For
purposes of presenting pro forma financial statements of the combined
entities, DALEN's statements of operations have been converted to the full-
cost method of accounting.
In the third quarter of 1994, DALEN sold certain gas and oil properties.
The properties, which had a net book value of $131.7 million, were sold to
unrelated third parties for $134.0 million in cash, resulting in a pre-tax
gain of $2.3 million, which is included in other income in DALEN's historical
consolidated statement of operations. For purposes of the pro forma statement
of income of the combined entities, the gain on the sale, as well as revenues
and expenses attributable to the sold properties during the periods presented,
have been eliminated.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
TO REFLECT THE PURCHASE OF DALEN CORPORATION AS OF
March 31, 1995
(in thousands)
ENSERCH DALEN
Corporation Corporation Adjustments(a) Proforma
------------ ----------- ----------- --------
ASSETS
Current Assets
Cash and equivalents $ 3,446 $ 5,653 $ $ 9,099
Accounts receivable 155,944 33,381 189,325
Gas stored underground 85,475 85,475
Advances and prepayments for gas 22,433 22,433
Gas-purchase settlements recoverable
from customers 15,349 15,349
Other 71,774 4,313 76,087
---------- --------- --------- ----------
Total current assets 354,421 43,347 397,768
---------- --------- --------- ----------
Investments 55,119 55,119
---------- --------- --------- ----------
Net Property, Plant and Equipment
(full-cost method for gas and
oil properties) 2,282,913 427,283 15,003 2,725,199
---------- --------- -------- ----------
Other Assets 44,586 540 45,126
---------- --------- -------- ----------
Total $2,737,039 $ 471,170 $ 15,003 $3,223,212
========== ========= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper $ 112,600 $ $(35,000) $ 77,600
Current maturities of senior 10,600 10,600
long-term debt
Accounts payable and other 309,564 22,209 331,773
accrued liabilities
Accrued interest 12,439 12,439
Other 39,636 39,636
---------- --------- -------- ----------
Total current liabilities 484,839 22,209 (35,000) 472,048
---------- --------- -------- ----------
Senior Long-term Debt 714,376 115,000 375,000 1,204,376
---------- --------- -------- ----------
Convertible Subordinated Debentures 90,750 90,750
---------- --------- -------- ----------
Deferred Income Taxes 299,922 73,845 (73,845) 299,922
---------- --------- -------- ----------
Other Liabilities 221,580 8,964 230,544
---------- --------- -------- ----------
Shareholders' Equity
Adjustable rate preferred stock 175,000 175,000
Common shareholders' equity 750,572 251,152 (251,152) 750,572
---------- --------- -------- ----------
Shareholders' equity 925,572 251,152 (251,152) 925,572
---------- --------- -------- ----------
Total $2,737,039 $ 471,170 $ 15,003 $3,223,212
========== ========= ======== ==========
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
TO REFLECT THE PURCHASE OF DALEN CORPORATION FOR THE
Year Ended December 31, 1994
(In thousands)
ENSERCH DALEN Property December 31
Corporation Corporation Divested Pro Forma 1994
As Reported As Reported in 1994 (d) Adjustments Pro Forma
----------- ----------- -------- ----------- -----------
Revenues
Natural gas transmission and distribution $1,689,024 $1,689,024
Natural gas and oil exploration
and production 179,140 $168,988 $ (25,592) $ 322,536
Natural gas liquids processing 87,446 87,446
Power 45,499 45,499
Less intercompany revenues (143,678) (143,678)
---------- -------- --------- -------- ----------
1,857,431 168,988 (25,592) 2,000,827
---------- -------- --------- -------- ----------
Cost and Expenses
Gas purchase 1,208,147 1,208,147
Operating expenses 435,102 86,476 (12,193) (24,864)(c) 484,521
Depreciation and amortization 126,733 101,151 (14,826) (9,511)(c) 203,547
---------- -------- --------- -------- ----------
Total 1,769,982 187,627 (27,019) (34,375) 1,896,215
---------- -------- --------- -------- ----------
Operating Income (Loss) 87,449 (18,639) 1,427 34,375 104,612
Other Income (Expense) - Net (6,506) 6,501 (2,280) (3,656)(b) (5,941)
Interest Expense (68,242) (6,002) (23,573)(b) (97,817)
---------- -------- --------- -------- ----------
Income (Loss) Before Income Taxes 12,701 (18,140) (853) 7,146 854
Income Tax Expense (Benefit) (68,974) (15,206) (298) 2,501(e) (81,977)
---------- -------- --------- -------- ----------
Income (Loss) from Continuing Operations 81,675 (2,934) (555) 4,645 82,831
Income from Discontinued Operations 20,642 20,642
---------- -------- --------- --------- ----------
Net Income (Loss) 102,317 (2,934) (555) 4,645 103,473
Provision for Dividends on Preferred Stock 11,619 11,619
---------- -------- --------- --------- ----------
Earnings (Loss) Applicable to Common Stock $ 90,698 $ (2,934) $ (555) $ 4,645 $ 91,854
========== ======== ========= ========= ==========
Earnings per Share:
Income from Continuing Operations
after provision for dividends on
preferred stock $ 1.05 $ 1.07
Average Common and Dilutive Common ========== ==========
Equivalent Shares Outstanding 66,845 66,845
========== ==========
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
TO REFLECT THE PURCHASE OF DALEN CORPORATION FOR THE
Three Months Ended March 31, 1995
ENSERCH DALEN March 31
Corporation Corporation Pro Forma 1995
As Reported As Reported Adjustments Pro Forma
----------- ----------- ----------- ---------
Revenues
Natural gas transmission and distribution $504,805 $ $ $504,805
Natural gas and oil exploration
and production 41,661 28,867 70,528
Natural gas liquids processing 21,679 21,679
Power 8,591 8,591
Less intercompany revenues (28,835) (28,835)
-------- ------- ------- --------
547,901 28,867 576,768
-------- ------- ------- --------
Costs and Expenses
Gas purchase 336,946 336,946
Operating costs and expenses 113,255 15,511 (2,695)(c) 126,071
Depreciation and amortization 31,158 19,603 (2,195)(c) 48,566
-------- ------- ------- --------
Total 481,359 35,114 (4,890) 511,583
-------- ------- ------- --------
Operating Income (Loss) 66,542 (6,247) 4,890 65,185
Other Income (Expense) - Net (1,003) 299 (155)(b) (859)
Interest Expense (17,315) (2,119) (5,275)(b) (24,709)
-------- ------- ------- --------
Income Before Income Taxes 48,224 (8,067) (540) 39,617
Income Tax Expense (Benefit) 17,838 (4,411) (189)(e) 13,238
-------- ------- ------- --------
Income from Continuing Operations 30,386 (3,656) (351) 26,379
Provision for Dividends on Preferred Stock 3,036 3,036
-------- ------- ------- --------
Earnings Applicable to Common Stock $27,350 $(3,656) $ (351) $23,343
======== ======= ======= ========
Earnings per Share $0.41 $0.35
======== ========
Average Common and Dilutive Common
Equivalent Shares Outstanding 66,936 66,936
======== ========
NOTES TO CONDENSED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Adjustments to the combined historical financial statements of ENSERCH and
DALEN consist of the following:
(a) Adjust the DALEN balance sheet to include in gas and oil properties the
purchase price in excess of book value, eliminate shareholders' equity
and include the borrowings to finance the transaction.
Borrowing under bank line $ 340,000
Bridge loan 150,000
Repay DALEN bank debt (115,000)
---------
375,000
Required for acquisition (340,000)
---------
Excess used to reduce
commercial paper $ 35,000
=========
The acquisition will be recorded based on the balance sheet as of the
closing date. It is anticipated that essentially all of the valuation
adjustment will be assigned to gas and oil properties, and the pro forma
financial statements have been prepared on that basis.
(b) Adjust interest income and interest expense to reflect EEX's financing of
purchase cost and refinancing of debt assumed in purchase transaction.
(c) Adjust the DALEN statements of operations from the successful efforts to
the full-cost method of accounting for gas and oil properties by
eliminating DALEN's exploration costs from Operating Expenses and
adjusting depreciation and amortization as follows:
Twelve Months Three Months
Ended Ended
12/31/94 3/31/95
Eliminate successful effort
depreciation and
amortization $(86,325) $(19,603)
Add full-cost amortization 76,814 17,408
-------- --------
Net $ (9,511) $ (2,195)
======== ========
(d) Eliminate revenues, expenses and a gain of $2.3 million in other income,
attributable to properties sold by DALEN in the third quarter of 1994.
(e) Provide income taxes on pro forma adjustments to income before income
taxes at the applicable statutory federal rate of 35%.