UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
COMMISSION FILE NUMBER 1-13108
VASTAR RESOURCES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4446177
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15375 MEMORIAL DRIVE
HOUSTON, TEXAS 77079
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
__________________
(281) 584-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
__________________
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
--- ---
NUMBER OF SHARES OF COMMON STOCK, $.01 PAR VALUE, OUTSTANDING AS OF
JUNE 30, 2000: 97,774,687
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its Quarterly Report on Form 10-Q for the six
months ended June 30, 2000 as set forth in the pages attached hereto:
Part I, Item 1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF INCOME
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
--------------- --------------
2000 1999 2000 1999
------ ------ ------ ------
(Millions of dollars, except
per share amounts)
REVENUES
Sales and other operating
revenues............................ $754.9 $459.6 $1,351.8 $813.4
Earnings from equity affiliate....... 4.3 4.4 10.8 9.4
Other revenues....................... 13.7 19.7 20.8 32.9
------ ------ -------- ------
Total revenues.................... 772.9 483.7 1,383.4 855.7
------ ------ -------- ------
EXPENSES
Purchases............................ 315.8 194.0 561.9 324.3
Operating expenses................... 47.0 47.0 90.0 97.5
Exploration expenses................. 48.5 46.3 117.1 85.3
Selling, general and administrative
expenses............................ 18.1 12.4 31.6 25.1
Delivery Expenses.................... 14.9 8.0 27.3 10.3
Taxes other than income taxes........ 17.9 11.9 33.0 20.7
Depreciation, depletion and
amortization........................ 115.7 103.6 230.4 216.9
Interest............................. 16.9 20.5 31.6 41.0
------ ------ -------- ------
Total expenses.................... 594.8 443.7 1,122.9 821.1
------ ------ -------- ------
Income before income taxes........... 178.1 40.0 260.5 34.6
Income tax provision (benefit)....... 42.3 (8.3) 47.3 (32.7)
------ ------ -------- ------
Net income........................ $135.8 $ 48.3 $ 213.2 $ 67.3
====== ====== ======== ======
Basic earnings per share............. $ 1.39 $ 0.49 $ 2.18 $ 0.69
====== ====== ======== ======
Diluted earnings per share........... $ 1.37 $ 0.49 $ 2.15 $ 0.68
====== ====== ======== ======
Cash dividends paid per share
of common stock...................... $0.075 $0.075 $ 0.150 $0.150
====== ====== ======== ======
The accompanying notes are an integral part of
these consolidated financial statements.
-1-
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2000 1999
-------- -----------
(Millions of dollars)
ASSETS
Current assets:
Cash and cash equivalents..................... $ 9.9 $ 40.6
Accounts receivable:
Trade........................................ 171.6 130.5
Related parties.............................. 126.9 86.9
Inventories................................... 9.2 7.0
Prepaid expenses and other assets............. 49.8 42.1
-------- --------
Total current assets......................... 367.4 307.1
Oil and gas properties and equipment, net...... 2,520.8 2,320.2
Other long-term assets......................... 83.9 82.7
-------- --------
Total assets................................. $2,972.1 $2,710.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade........................................ $ 291.6 $ 258.8
Related parties.............................. 15.6 6.3
Accrued liabilities........................... 109.1 77.8
-------- --------
Total current liabilities................... 416.3 342.9
Long-term debt................................. 963.8 975.0
Deferred liabilities and credits............... 318.3 313.2
Deferred income taxes.......................... 262.0 272.9
-------- --------
Total liabilities............................ 1,960.4 1,904.0
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized,
110,000,000 shares; issued and outstanding,
97,774,687 shares as of June 30, 2000 and
97,644,950 shares as of December 31, 1999..... 1.0 1.0
Capital in excess of par value of stock........ 471.5 464.3
Accumulated earnings........................... 539.2 340.7
-------- --------
Total stockholders' equity................... 1,011.7 806.0
-------- --------
Total liabilities and stockholders' equity..... $2,972.1 $2,710.0
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
-2-
VASTAR RESOURCES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended
June 30,
------------------------
2000 1999
---------- -----------
(Millions of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 213.2 $ 67.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization.......... 230.4 216.9
Deferred income taxes............................. (10.9) (10.7)
Dry hole expense and undeveloped leasehold
amortization.................................... 77.0 44.4
Gain on asset sales............................... (3.3) (23.4)
Earnings from equity affiliate.................... (10.8) ( 9.4)
Cash dividends from equity affiliate.............. 13.4 ---
Net change in accounts receivable, inventories
and accounts payable............................ (41.2) 8.3
Other............................................. 6.5 (18.4)
------- -------
Net cash provided by operating activities........... 474.3 275.0
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties and equipment,
including dry hole costs......................... (492.3) (251.5)
Proceeds from asset sales........................... 7.5 48.7
Other............................................... (1.3) (3.0)
------- -------
Net cash used by investing activities............... (486.1) (205.8)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................ 7.1 2.3
Proceeds from long-term debt issuance............... 88.8 604.7
Repayments of long-term debt........................ (100.0) (645.3)
Dividends paid...................................... (14.8) (14.6)
------- -------
Net cash used by financing activities............... (18.9) (52.9)
------- -------
Net change in cash and cash equivalents............. (30.7) 16.3
Cash and cash equivalents at beginning of period.... 40.6 4.3
------- -------
Cash and cash equivalents at end of period.......... $ 9.9 $ 20.6
======= =======
The accompanying notes are an integral part of
these consolidated financial statements.
-3-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. INTRODUCTION.
The accompanying financial statements are unaudited and have been prepared
from our records. In the opinion of our management, these financial statements
reflect all adjustments (consisting only of items of a normal recurring nature)
necessary for a fair presentation of our financial position and results of
operations in conformity with generally accepted accounting principles. These
statements are presented in accordance with the requirements of Regulation S-X,
which does not require all disclosures normally required by generally accepted
accounting principles or those normally required in annual reports on Form 10-K.
You should read these interim financial statements together with the following:
(1) the annual financial statements for the year ended December 31, 1999 and the
related notes contained in our annual report on Form 10-K and 10-K/A (Amendment
Numbers 1 and 2) for the year ended December 31, 1999 and (2) the quarterly
financial statement and the related notes in our quarterly report on Form 10-Q
for the quarter ended March 31, 2000. Certain previously reported amounts have
been reclassified to conform to current year presentation.
NOTE 2. NET SALES AND OTHER OPERATING REVENUES.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- -------- -------
(Millions of dollars)
Sales and other operating revenues:
Unrelated parties................... $ 416.1 $ 267.5 $ 785.7 $ 456.1
Related parties (1)(B).............. 338.8 192.1 566.1 357.3
------- ------- -------- -------
Total.............................. 754.9 459.6 1,351.8 813.4
Less:
Purchases (2)....................... (315.8) (194.0) (561.9) (324.3)
Delivery expense.................... (14.9) (8.0) (27.3) (10.3)
------- ------- -------- -------
Net sales and
other operating revenues............ $ 424.2 $ 257.6 $ 762.6 $ 478.8
======= ======= ======== =======
- --------------------
(1) Average costs of related-party
sales (A)(B)..................... $ 275.7 $ 171.8 $ 491.7 $ 340.0
(2) Related-party purchase cost (B).. $ 31.6 $ 17.3 $ 53.7 $ 33.6
(A) Determined by the weighted average lifting cost per equivalent of production
and the cost of purchased volumes multiplied by the volumes we sold to related
parties.
(B) Transactions with BP Amoco p.l.c. are reported as related party beginning
April 18.
-4-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
NOTE 3. RELATIONSHIP WITH ATLANTIC RICHFIELD COMPANY (ARCO).
On April 18, 2000, the combination of BP Amoco p.l.c. and ARCO was
completed. As a result of the combination, BP Amoco indirectly owned, through a
subsidiary, as of April 18, 2000, 80,000,001 (81.9 percent) of the Common Stock,
par value $0.01 per share, of Vastar and a change of control of the Company
occurred.
As of June 30, 2000, BP Amoco owned 80,000,001 shares (81.8 percent) of our
outstanding common stock.
On March 16, 2000, BP Amoco p.l.c. advised our board of directors of its
intention to acquire, for $71.00 per share, the shares of Vastar's common stock
that are publicly traded. The proposal was conditional on the completion of BP
Amoco's acquisition of ARCO. We formed a special committee of independent
directors to evaluate the proposal.
On May 24, 2000, we announced that our board of directors had unanimously
recommended approval of an $83.00 per share cash merger offer from BP Amoco to
acquire the approximately 18.2 percent, or approximately 17.8 million shares, of
our common stock that is currently held by the public. We and subsidiaries of
BP Amoco have entered into a merger agreement. Closing is contingent on
approval by the holders of at least two-thirds of our shares not held by BP
Amoco. The record date for the meeting has been set for July 28, 2000. We
expect to announce the date of the shareholder meeting within the next thirty
days. A preliminary proxy statement has been filed with the Securities and
Exchange Commission.
The tax sharing agreement between Vastar and ARCO is applicable to Vastar
for the period that ARCO is the common parent of the affiliated group of which
Vastar is a member (the "Affiliated Group"). ARCO remained the common parent of
the Affiliated Group immediately after the above-described closing of the
combination between BP Amoco and ARCO. Immediately after the closing and on the
same date, ARCO became a subsidiary of BP America Inc. and thus was no longer
the common parent of the Affiliated Group. Vastar has signed a replacement tax
sharing agreement with BP America Inc. that contains all of the material
provisions that were in the tax sharing agreement between Vastar and ARCO and
has an effective date of April 18, 2000. Refer to Note 9, Taxes, contained
within this Form 10-Q for further discussions.
Vastar receives various services from its parent ARCO on a continuing basis
and at times has been party to various marketing arrangements for the sale of
crude oil, natural gas and natural gas liquids with ARCO. All intercompany
arrangements with ARCO, with the exception of the tax sharing agreement, settle
in cash on 30 day term (or less). The tax sharing agreement settles on the same
schedule as estimated tax payments due to the IRS. ARCO does not provide any
ongoing source of financing for Vastar. All services provided by ARCO to Vastar
are billed at ARCO's cost. Although the cost of these services are not regularly
tested against third party data, it is management's belief that they approximate
the same cost that would be available in the market place.
NOTE 4. SOUTHERN COMPANY ENERGY MARKETING L.P.
Southern Company Energy Marketing is a strategic marketing alliance between
Southern Energy, Inc. and Vastar. Through subsidiaries, we currently hold a 40
percent interest in Southern Company Energy Marketing and Southern Energy holds
a 60 percent interest.
We follow the equity method of accounting for our interest in Southern
Company Energy Marketing and recognize into income the greater of our interest
in Southern Company Energy Marketing's earnings or our minimum cash
distribution. In the first six months of 2000 and 1999, we recognized our
accrued share of the minimum distributions, net of any applicable exceptions. In
the first quarter 2000 we received a cash distribution of $12.0 million relating
to the 1999 minimum distribution amount. In the second quarter 2000, we received
an additional cash distribution of $1.4 million relating to the 1999 minimum
distribution amount. Our equity investment in Southern Company Energy Marketing
was $44.3 million as of June 30, 2000, and $46.9 million as of December 31,
1999. Vastar and Southern Energy, Inc. are negotiating the sale of Vastar's 40
percent interest in Southern Company Energy Marketing L.P. to Southern Energy.
As of the date hereof, no letter of intent or agreement has been signed. For
additional details regarding Southern Company Energy Marketing, refer to our
annual report on Form 10-K and 10-K/A (Amendment Numbers 1 and 2) for the year
ended December 31, 1999.
-5-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
NOTE 5. EXPLORATION EXPENSES.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
(Millions of dollars)
Dry hole costs........................... $ 21.8 $ 21.5 $ 59.5 $26.9
Geological and geophysical............... 5.2 4.1 15.8 18.2
Undeveloped leasehold amortization....... 8.7 8.8 17.5 17.5
Staff.................................... 10.2 10.0 20.8 19.4
Lease rentals............................ 2.6 1.9 3.5 3.3
------ ------ ------ -----
Total................................... $ 48.5 $ 46.3 $117.1 $85.3
====== ====== ====== =====
NOTE 6. EARNINGS PER SHARE.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
-------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
(Millions, except per share amounts)
Basic earnings per share:
Income available to common shareholders... $135.8 $ 48.3 $213.2 $67.3
Average shares of stock outstanding....... 97.7 97.5 97.7 97.4
Basic earnings per share................... $ 1.39 $ 0.49 $ 2.18 $0.69
Diluted earnings per share:
Income available to common shareholders... $135.8 $ 48.3 $213.2 $ 67.3
Incremental shares assuming the exercise
of stock options......................... 1.4 0.9 1.2 0.9
Average shares of stock outstanding plus
effect of dilutive securities............ 99.1 98.4 98.9 98.3
Diluted earnings per share................. $ 1.37 $ 0.49 $ 2.15 $0.68
NOTE 7. STOCK OPTIONS.
Our board of directors previously adopted various arrangements that become
operative upon a change of control of Vastar. One of these arrangements, our
Amended and Restated Executive Long-Term Incentive Plan, provides that, if a
change of control occurs, all stock options granted under the plan will become
immediately exercisable.
On April 18, 2000, the combination of BP Amoco p.l.c. and ARCO was
completed. As a result of the combination, BP Amoco indirectly owned, through a
subsidiary, approximately 81.9 percent of the Common Stock, par value $0.01 per
share, of Vastar and a change of control of the Company occurred. As a result,
all stock options became exercisable.
-6-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
NOTE 7. STOCK OPTIONS - continued.
Vastar, ARCO and ARCO's subsidiary, Kernel Holdings, Inc. have entered into
a merger agreement, dated as of May 24, 2000. Under the agreement, Vastar and
ARCO have agreed to take all actions that are necessary so that immediately
prior to the completion of the merger, each stock option granted by Vastar to
buy shares of its common stock, whether or not then exercisable, will be
cancelled and only entitle the holder thereof to receive an amount in cash equal
to the total number of shares subject to the option multiplied by the excess of
$83 over the exercise price per share of the option. For the merger to occur,
the merger agreement and the merger must be approved at a special meeting of
Shareholders. For additional information refer to Note 3, contained within this
Form 10-Q.
NOTE 8. COMMITMENTS AND CONTINGENCIES.
Vastar and its subsidiaries are involved in a number of lawsuits, all of
which have arisen in the ordinary course of our business. We believe that any
ultimate liability resulting from these suits will not have a material adverse
effect on our financial position, results of operations or cash flows.
In connection with the BP Amoco p.l.c. tender offer, six lawsuits
purporting to be class actions have been filed in the Delaware Chancery Court
against Vastar, its directors, ARCO and BP Amoco. On May 23, 2000, the parties
to the stockholder litigation agreed in principle on a settlement of the
litigation, and executed a memorandum of understanding to reflect the terms of
the settlement. The parties agreed that the $83 per share price approved by
Vastar's Board of Directors on May 23, 2000 is fair, adequate and reasonable
consideration for the shares of Vastar's common stock held by the public. The
parties also agreed to enter into a settlement agreement, cooperate in public
disclosures related to the settlement, and use best efforts to gain approval of
the settlement from the Delaware courts. Without any admission of fault by any
defendant, the memorandum of understanding provides for a dismissal of all
claims with prejudice and a release in favor of all defendants of any and all
claims that have been or could have been asserted by the plaintiffs or any
members of the purported class. The memorandum of understanding also provides
that the defendants will not oppose an application by the plaintiffs' counsel to
the Delaware court for an aggregate award of fees and expenses in an amount not
to exceed $2.1 million, which will be paid by Vastar. The settlement is subject
to, among other things, completion of confirmatory discovery by the plaintiffs
(which has occurred), execution of a settlement agreement, final approval of the
settlement by the Delaware court, and completion of the merger. See Item 1 of
Part II of this Form 10-Q for further information.
Our operations and financial position continue to be affected from time to
time in varying degrees by domestic and foreign political developments as well
as legislation and regulations pertaining to restrictions on oil and natural gas
production, imports and exports, natural gas regulation, taxes, environmental
regulations and cancellation of contract rights. Both the likelihood of such
occurrences and their overall effect on us could vary greatly and are not
predictable. These uncertainties are part of a number of items that we have
taken and will continue to take into account in periodically assessing our
estimates of liabilities.
Vastar and ARCO have agreements whereby we have agreed to indemnify ARCO
against certain claims or liabilities. Our indemnity obligations cover claims
and liabilities that could be made against ARCO relating to ARCO's historical
ownership and operation of the properties transferred by ARCO to us upon the
formation of Vastar. They also included liabilities under laws relating to the
protection of the environment and the workplace and liabilities arising out of
certain litigation described in the agreements. ARCO has agreed to indemnify
Vastar with respect to other claims and liabilities and other litigation matters
not related to our business or properties as reflected in our consolidated
financial statements.
In September 1996, we entered into a contract with Diamond Offshore
Drilling Company for the major upgrade and operation of a semisubmersible
drilling rig, Ocean Victory, for a three-year deepwater drilling program in the
Gulf of Mexico, which began in November 1997. Since November 1997, scheduled
-7-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
NOTE 8. COMMITMENTS AND CONTINGENCIES - continued.
increases in the day rates and our request of Diamond to make improvements to
the rig have resulted in higher costs during the remaining contract term. As of
June 30, 2000, this contract has a remaining life of slightly more than one-half
of a year and remaining costs of $40.1 million. This amount does not take into
consideration any reimbursements that we might receive from partners or
potential partners. We have three one-year options to renew the term of the
contract, subject to renegotiating the day rates.
In December 1998, we entered into an agreement with R&B Falcon Drilling Co.
for the operation of a semisubmersible, ultra-deepwater drilling rig, for a
three-year deepwater-drilling program in the Gulf of Mexico. The drilling
program is scheduled to commence in 2001. This contract is for three years and
has an anticipated cost of approximately $220.0 million, before any
reimbursement from partners or potential partners and operating cost
escalations. We have several options relating to the term and pricing of the
contract, including the option to extend the term of the contract for up to five
additional years.
Vastar has significant credit risk exposure to Southern Company Energy
Marketing and Southern Energy. The credit risk exposure consists of three
principal items. First, Southern Company Energy Marketing has promised to make
certain minimum cash distributions to Vastar. Southern Energy has guaranteed
this obligation as well as the amounts due to Vastar upon the exercise of
Vastar's option to sell its remaining interest on January 1, 2003. Second,
Southern Company Energy Marketing is obligated to pay, and Southern Energy has
guaranteed payment, for natural gas purchased under the Gas Purchase and Sale
Agreement between Vastar and Southern Company Energy Marketing, pursuant to
which Vastar has agreed to sell substantially all of its production to Southern
Company Energy Marketing. Third, Vastar has been indemnified by Southern
Energy, with certain limitations, with respect to amounts which Vastar may be
required to pay under guarantees which Vastar has issued to secure certain
obligations of Southern Company Energy Marketing. If Southern Energy does not
maintain in effect an investment grade rating from Moody's or Standard and
Poors, Southern Energy has agreed to provide credit enhancement(s) to secure the
payment of these guaranteed obligations. As of June 30, 2000, Southern Energy
has maintained the required investment grade rating.
Pursuant to a working capital loan arrangement, we have agreed to loan
Southern Company Energy Marketing up to $20.0 million. At June 30, 2000, no
loans were outstanding under this arrangement.
Vastar and Southern Energy have agreed to guarantee certain obligations of
Southern Company Energy Marketing. Refer to our annual report on Form 10-K for
the year ended December 31, 1999 for a description of these obligations.
Vastar and Southern Energy, Inc. are negotiating the sale of Vastar's 40
percent interest in Southern Company Energy Marketing L.P. to Southern Energy.
We have performed and continue to perform ongoing credit evaluations of our
other customers and generally do not require collateral on our credit sales.
Any amounts anticipated as uncollectible are charged to income and credited to a
valuation account. The amounts included in the allowance for uncollectible
accounts receivable at June 30, 2000 and December 31, 1999 were insignificant.
-8-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
NOTE 9. TAXES.
In the determination of the income tax provision, the fact that Vastar is
the only member of the ARCO consolidated tax group generating Section 29 tax
credits provides a rational basis for the inclusion of these tax credits in our
income tax provision. Under the terms of the tax sharing agreement, ARCO pays us
in cash for these Section 29 tax credits as they are generated and utilized.
After the tax consolidation of BP America Inc. and ARCO on April 18, 2000, the
ARCO consolidated tax group became a sub-group of the BP America Inc.
consolidated tax group. However, Vastar projects that it will use or carry
forward all of its Section 29 credits generated in 2000 on a separate return
basis.
The provision (benefit) for taxes on income is comprised of the following:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
--------------- ---------------
2000 1999 2000 1999
------ ----- ------ ------
(Millions of dollars)
Federal:
Current............................... $ 57.7 $(15.4) $ 56.9 $(22.1)
Deferred.............................. (19.8) 6.1 (16.1) (11.5)
------ ----- ------ ------
Total federal....................... 37.9 (9.3) 40.8 (33.6)
------ ----- ------ ------
State:
Current............................... 0.9 0.1 1.3 0.1
Deferred.............................. 3.5 0.9 5.2 0.8
------ ----- ------ ------
Total state......................... 4.4 1.0 6.5 0.9
------ ----- ------ ------
Total income tax provision (benefit)....... $ 42.3 $(8.3) $ 47.3 $(32.7)
====== ===== ====== ======
The following is a reconciliation of our income tax provision (benefit) with tax
at the federal statutory rate for the specified periods:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
--------------- ---------------
2000 1999 2000 1999
------ ------ ------ ------
(Millions of dollars)
Income before taxes............. $178.1 $ 40.0 $260.5 $ 34.6
====== ====== ====== ======
Tax at the statutory rate....... $ 62.3 $ 14.0 $ 91.1 $ 12.1
Increase (reduction) in taxes
resulting from:
State income taxes (net
of federal effect)........... 2.9 0.7 4.2 0.6
Tax credits................... (23.6) (23.0) (49.6) (45.4)
Other......................... 0.7 -- 1.6 --
------ ------ ------ ------
Income tax provision (benefit).. $ 42.3 $ (8.3) $ 47.3 $(32.7)
====== ====== ====== ======
-9-
VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS -(Continued)
(Unaudited)
9. TAXES - continued.
Vastar and its subsidiaries are parties to a tax sharing agreement with
ARCO that applies generally to all business activity prior to April 18, 2000.
Vastar entered into a new tax sharing agreement with BP America, Inc.
effective April 18, 2000. That agreement contains all of the material provisions
included in the tax sharing agreement with ARCO with the following
modifications. The agreement allows Vastar, in certain circumstances, the option
of receiving a cash payment equal to the discounted value of certain of its
Section 29 tax credits, notwithstanding the fact that such credits have not
reduced the BP America consolidated tax group's liability. Vastar may exercise
this option with respect to all or any portion of its Section 29 tax credits
that are being carried forward by the BP America consolidated tax group for the
taxable years 2000, 2001 and 2002, provided however, that the option is not
applicable to Section 29 tax credits generated from properties acquired by
Vastar after 1999. The discounted value that applies if the option is exercised
varies with each taxable year and is the only compensation that will be paid to
Vastar. The discounted value for the taxable years 2000, 2001 and 2002 is 85
percent, 88 percent and 90 percent, respectively. The option is not applicable
for any taxable year beginning after 2002. In exchange for the option, Vastar
agreed that its Section 29 tax credit carry forwards will not have a priority
over other BP America group members' Section 29 tax credit carry forwards that
are attributable to credits generated on or after April 18, 2000.
The BP America tax sharing agreement increases the maximum annual refund for
Section 29 tax credits from properties acquired on or after June 1, 1995 to
$20 million.
NOTE 10. LONG-TERM DEBT.
Long-term debt is comprised of the following:
June 30, December 31,
2000 1999
---- ----
(Millions of dollars)
8.75% Notes, issued February 1995, due in 2005......... $149.7 $149.6
6.95% Notes, issued November 1996, due 2006*........... 75.0 75.0
6.96% Notes, issued February 1997, due 2007*........... 75.0 75.0
6.39% Notes, issued January 1998, due 2008*............ 50.0 50.0
6.50% Notes, issued March 1999, due 2009............... 299.2 299.1
6.00% Putable/Callable Notes, due 2000/2010............ --- 100.0
Commercial Paper....................................... 314.9 226.3
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Total.................................................. $963.8 $975.0
====== ======
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* Issuances pursuant to the Medium Term Note Program.
The putable/callable notes were put to us in April 2000. We funded the
payment of the notes with proceeds obtained from our Commercial Paper Program.
Our commercial paper is classified as long-term debt in accordance with
Statement of Financial Accounting Standards Number 6, "Classification of Short-
Term Obligations Expected to Be Refinanced."
Interest capitalized was $1.1 million for the second quarter of 2000 and
$2.9 million for the first six months of 2000. Interest capitalized during the
first and second quarters of 1999 was immaterial.
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VASTAR RESOURCES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
NOTE 11. NEW ACCOUNTING STANDARDS.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This standard requires us to recognize all
of our derivative and hedging instruments in our statements of financial
position as either assets or liabilities and measured at fair value. In
addition, all hedging relationships must be designated, documented and
reassessed periodically. On July 7, 1999, the Financial Accounting Standards
Board delayed the effective date of SFAS No. 133 for one year. The delay,
published as SFAS No. 137, applies to quarterly and annual financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities" which modified FAS No. 133. SFAS No. 133, as revised
by SFAS No. 137 and SFAS No. 138 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000. We are continuing to evaluate the
impact the provisions of these standards will have on us.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements".
SAB 101 provides guidance on the recognition, presentation and disclosure of
revenue in financial statements filed with the SEC. The SEC has since issued SAB
101A and SAB 101B to extend the date for the required disclosure. SAB 101, as
amended by SAB 101A and SAB 101B is to be implemented no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. We are
currently evaluating the impact that the provisions of this bulletin will have
on us.
NOTE 12. SUBSEQUENT EVENTS.
On July 20, 2000, Vastar declared a quarterly dividend of $0.075 per share
of common stock, payable on September 1, 2000 to stockholders of record on
August 4, 2000.
On July 20, our board of directors set a record date of July 28, 2000 for a
planned special meeting of shareholders to vote on the company's proposed merger
with BP Amoco. Only shareholders of record, those who own shares at the close of
business on July 28, 2000, will be eligible to vote at the special meeting. The
date of the special meeting is expected to be announced within the next thirty
days.
Vastar and BP Amoco are in negotiations relating to Vastar's Ocean Victory
deepwater drilling rig. In connection with the anticipated closing of the
recently announced merger between a subsidiary of BP Amoco and Vastar, BP Amoco
desires to enter into an agreement with Vastar which would allow BP Amoco to use
Vastar's Ocean Victory deepwater drilling rig to begin drilling a BP Amoco
project prior to the closing of the merger assuming Vastar's current well
operations have been completed. Under the agreement under discussion, BP Amoco
would pay, for the period when the rig is in BP Amoco's possession, (i) all
costs of the rig which Vastar would otherwise incur and (ii) a daily fee which
would compensate Vastar for its opportunity costs and additional operating
costs. BP would also indemnify Vastar for any and all liability which Vastar
might incur as a result of the agreement. In the event the merger does not
occur, the Ocean Victory would be returned to Vastar's control after BP Amoco's
drilling project was completed.
Vastar and Southern Energy, Inc. have signed a non-binding letter of intent
relating to the purchase by Southern Energy of Vastar's 40 percent interest in
Southern company Energy Marketing L.P. Under the terms of the letter of intent
Southern Energy would purchase Vastar's interest for $250 million. Closing of
the transaction is subject to, among other things, approval by the boards of
directors of both parties, certain regulatory approvals and the completion of a
definitive agreement which is satisfactory to both parties.
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SIGNATURE
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.
VASTAR RESOURCES, INC.
(Registrant)
Dated: August 17, 2000 /s/ Joseph P. McCoy
------------------------------
Joseph P. McCoy
Vice President and Controller
(Duly Authorized Officer and
Principal Accounting Officer)
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