1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): February 6, 1998
Commission File Number 1-12480
LOUIS DREYFUS NATURAL GAS CORP.
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-1098614
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
14000 QUAIL SRINGS PARKWAY, SUITE 600
OKLAHOMA CITY, OKLAHOMA 73134
(Address of principal executive office) (Zip code)
Registrant's telephone number, including area code: (405) 749-1300
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
2
LOUIS DREYFUS NATURAL GAS CORP.
FORM 8-K
FEBRUARY 6, 1998
ITEM 5 -- FINANCIAL STATEMENTS
On October 14, 1997, at special meetings (the "Special Meetings") of the
respective stockholders of Louis Dreyfus Natural Gas Corp., an Oklahoma
corporation ("LDNG"), and American Exploration Company, a Delaware corporation
("American"), the shareholders of each company approved the merger of American
with and into LDNG (the "Merger") pursuant to the Agreement and Plan of
Reorganization, dated as of June 24, 1997, as amended, between American and
LDNG (the "Merger Agreement"). Immediately following the Special Meetings, on
October 14, 1997, the Merger was consummated and American was merged with and
into LDNG, with LDNG surviving the Merger.
In connection with the filing of Registration Statement No. 333-34849 on
Form S-4, dated September 3, 1997, the required historical financial
information of American and pro forma financial information of LDNG were
presented or incorporated by reference therein. Provided supplementally in
this Form 8-K are certain historical financial statements of American and pro
forma financial information of LDNG as described in the following table of
contents.
TABLE OF CONTENTS
AMERICAN EXPLORATION COMPANY
PART I. HISTORICAL FINANCIAL STATEMENTS (unaudited) Page
Condensed Consolidated Balance Sheets:
December 31, 1996 and September 30, 1997 . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations:
Three months and nine months ended September 30, 1996 and 1997 . . . 5
Condensed Consolidated Statements of Cash Flows:
Nine months ended September 30, 1996 and 1997. . . . . . . . . . . . 6
Condensed Notes to Consolidated Financial Statements . . . . . . . . . 7
LOUIS DREYFUS NATURAL GAS CORP.
PART II. PRO FORMA FINANCIAL STATEMENTS (unaudited)
Pro Forma Balance Sheet as of September 30, 1997 . . . . . . . . . . . 11
Pro Forma Statement of Operations for the nine months ended
September 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 13
Notes to Pro Forma Financial Statements. . . . . . . . . . . . . . . . 14
3
AMERICAN EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
A S S E T S
December 31, September 30,
1996 1997
------------- -------------
(unaudited)
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . $ 8,358 $ 1,452
Accounts receivable. . . . . . . . . . . . . 18,449 16,233
Costs reimbursable by insurance. . . . . . . -- 14,469
Other. . . . . . . . . . . . . . . . . . . . 1,335 2,246
------------- -------------
Total current assets . . . . . . . . . . . 28,142 34,400
------------- -------------
PROPERTY AND EQUIPMENT, at cost, based on
successful efforts accounting . . . . . . . 370,046 395,288
Less accumulated depreciation, depletion
and amortization. . . . . . . . . . . . . . (159,507) (154,576)
------------- -------------
210,539 240,712
------------- -------------
OTHER ASSETS, net. . . . . . . . . . . . . . 1,947 1,290
------------- -------------
$ 240,628 $ 276,402
============= =============
4
AMERICAN EXPLORATION COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
L I A B I L I T I E S A N D S T O C K H O L D E R S ' E Q U I T Y
December 31, September 30,
1996 1997
------------- -------------
(unaudited)
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . $ 21,647 $ 13,299
Accrued liabilities. . . . . . . . . . . . . 25,657 22,592
Reserve for uninsured loss . . . . . . . . . -- 2,125
------------- -------------
Total current liabilities. . . . . . . . . 47,304 38,016
------------- -------------
LONG-TERM DEBT . . . . . . . . . . . . . . . 60,000 111,000
------------- -------------
OTHER LIABILITIES. . . . . . . . . . . . . . 2,945 5,516
------------- -------------
STOCKHOLDERS' EQUITY
Convertible preferred stock, par value
$1.00; 4,000 shares issued and outstanding. 4 4
Common stock, par value $.05; issued and
outstanding, 15,694,430 and 15,704,701
shares, respectively. . . . . . . . . . . . 785 785
Additional paid-in capital . . . . . . . . . 322,598 322,787
Accumulated deficit. . . . . . . . . . . . . (192,948) (201,706)
Unearned compensation. . . . . . . . . . . . (60) --
------------- -------------
130,379 121,870
------------- -------------
$ 240,628 $ 276,402
============= =============
See accompanying notes to consolidated financial statements.
/TABLE
5
AMERICAN EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1997 1996 1997
-------- -------- -------- --------
REVENUES
Oil and gas sales. . . . . . . . . . . $ 19,090 $ 22,221 $ 52,263 $ 66,707
Gain (loss) on sales of property
and equipment . . . . . . . . . . . . 145 (41) 801 (183)
Other income (loss), net . . . . . . . (33) 261 48 357
-------- -------- -------- --------
19,202 22,441 53,112 66,881
-------- -------- -------- --------
EXPENSES
Operating costs. . . . . . . . . . . . 6,701 6,954 19,089 18,851
General and administrative . . . . . . 1,429 2,942 5,036 6,982
Exploration costs. . . . . . . . . . . 3,842 5,315 10,993 13,508
Provision for uninsured loss on
well blowout. . . . . . . . . . . . . -- -- -- 2,770
Depreciation, depletion and
amortization. . . . . . . . . . . . . 7,398 11,273 20,871 28,402
Interest . . . . . . . . . . . . . . . 1,076 1,618 2,894 3,772
-------- -------- -------- --------
20,446 28,102 58,883 74,285
-------- -------- -------- --------
Net loss . . . . . . . . . . . . . . . (1,244) (5,661) (5,771) (7,404)
Preferred stock dividends. . . . . . . 450 450 1,350 1,350
-------- -------- -------- --------
NET LOSS TO COMMON STOCK . . . . . . . $ (1,694) $ (6,111) $ (7,121) $ (8,754)
======== ======== ======== ========
Net loss per common share. . . . . . . $ (.14) $ (.39) $ (.60) $ (.56)
======== ======== ======== ========
Weighted average common shares
outstanding . . . . . . . . . . . . . 11,808 15,705 11,811 15,699
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
6
AMERICAN EXPLORATION COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Nine Months Ended
September 30,
---------------------
1996 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . . . . $ (5,771) $ (7,404)
Items not affecting cash flows:
Depreciation, depletion and amortization. . . . . . 20,871 28,402
Exploration costs . . . . . . . . . . . . . . . . . 10,993 13,508
Provision for uninsured loss on well blowout. . . . -- 2,445
(Gain) loss on sales of property and equipment. . . (801) 183
Other . . . . . . . . . . . . . . . . . . . . . . . (560) 2,687
Net change in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . 5,216 2,451
Other current assets. . . . . . . . . . . . . . . . 214 (1,103)
Accounts payable and accrued liabilities. . . . . . (3,053) (12,620)
--------- ---------
27,109 28,549
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Oil and gas property expenditures. . . . . . . . . . (92,116) (79,398)
Proceeds from sale of property and equipment . . . . 1,194 4,568
Expenditures for recovery from well blowout. . . . . -- (9,667)
Other. . . . . . . . . . . . . . . . . . . . . . . . (415) (496)
--------- ---------
(91,337) (84,993)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank borrowings. . . . . . . . . . . . 74,000 79,000
Repayments of bank borrowings. . . . . . . . . . . . (9,000) (28,000)
Preferred stock dividends. . . . . . . . . . . . . . (1,350) (1,350)
Other. . . . . . . . . . . . . . . . . . . . . . . . (138) (112)
--------- ---------
63,512 49,538
--------- ---------
Change in cash and cash equivalents. . . . . . . . . (716) (6,906)
Cash and cash equivalents, beginning of period . . . 7,496 8,358
--------- ---------
Cash and cash equivalents, end of period . . . . . . $ 6,780 $ 1,452
========= =========
See accompanying notes to consolidated financial statements.
7
AMERICAN EXPLORATION COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by American Exploration Company ("American" or the "Company"),
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). The financial statements reflect
adjustments of a normal recurring nature which are, in the opinion of
management, necessary to present fairly such information. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996. Certain amounts in the prior year financial
statements have been reclassified to conform with current classifications.
(2) MERGER AGREEMENT
On June 24, 1997, the Company entered into an Agreement and Plan of
Reorganization (the "Merger Agreement") with Louis Dreyfus Natural Gas Corp.
("LDNG") that provides for the acquisition of the Company by LDNG (the
"Merger"). The Merger was subsequently approved by the stockholders of LDNG
and American on October 14, 1997 (the "Merger Date"). Pursuant to the terms
of the Merger Agreement, holders of the Company's common stock received 0.72
shares of LDNG common stock and $3.00 cash for each share of the Company's
common stock. An aggregate of approximately 11.3 million shares of LDNG
common stock was issued and approximately $47.2 million was paid in the Merger
for total consideration of approximately $308 million (based on the closing
price of LDNG common stock on the Merger Date). Holders of American's
convertible preferred stock received LDNG preferred shares. As of the Merger
Date, American ceased to exist as an independent company.
(3) EAST CAMERON BLOCK 328
On April 1, 1997, a blowout and fire occurred during the drilling of a
horizontal development well at East Cameron Block 328 located in federal
waters offshore Louisiana. No personnel were injured in the accident. The
upper structure of the platform, which was owned by the Company, was severely
damaged. In addition, the drilling rig operated by a third party contractor
and various other subcontractors' equipment were damaged or destroyed.
During the second quarter of 1997, the Company successfully capped the well
and secured the four remaining wells on the platform. The production deck was
removed and dismantled, and certain production equipment has been salvaged.
The Company is rebuilding the production deck and expects to restore
8
AMERICAN EXPLORATION COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
production from the platform in the second quarter of 1998.
The Company carries various types of insurance relating to the blowout
and estimates that total costs to control the blowout and return to production
will aggregate approximately $42 million. During the second quarter of 1997,
the Company recorded a provision of approximately $2.8 million to reserve for
losses that may result from certain costs that may not be recoverable through
insurance, including a $350,000 deductible amount. At this stage of the
Company's insurance claim, it is not possible to quantify what other amounts,
if any, will not be recoverable from insurance or legally responsible third
parties. If the Company is unable to recover a significant portion of its
costs from insurance or other third parties, the additional loss associated
with the blowout could be substantial and could have a material adverse effect
on the Company's financial condition and results of operations.
As of September 30, 1997, costs incurred for the recovery effort at East
Cameron Block 328 totaled approximately $31.0 million, approximately $16.5
million of which has been reimbursed by insurance companies as of September
30, 1997. The balance is reflected as a current asset on the accompanying
condensed consolidated balance sheet based on the expectation that such costs
will be collected through insurance within one year. See also Note 4.
The Minerals Management Service ("MMS"), which has jurisdiction over
operations in federal waters, is required by regulation to investigate this
type of incident and to make a public report. To date, the MMS has not issued
any report regarding the blowout.
(4) DEBT
As of September 30, 1997, outstanding bank debt totaled $76 million. The
Company borrowed a net amount of $15 million under its bank credit facility
during the third quarter of 1997 primarily to provide interim funding for the
costs of the recovery from the blowout at East Cameron Block 328, as discussed
in Note 3. The Company's borrowing base under the bank credit facility was
$86 million.
(5) LIQUIDATION OF NYLOG PROGRAMS
During May 1997, the Company completed the liquidation of certain limited
partnerships for which subsidiaries of the Company and of New York Life
Insurance Company ("New York Life") had served as managing general partners
(the "NYLOG Programs"). Under the terms of an indemnity agreement between the
Company and another subsidiary of New York Life, the Company received from
that subsidiary a cash payment of $2.5 million upon the liquidation of the
NYLOG Programs. Such payment was made in consideration of certain remaining
contingent liabilities of the NYLOG Programs being borne by the managing
9
AMERICAN EXPLORATION COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
general partners under the terms specified in the indemnity agreement, as
previously reported. Although no assurance can be given regarding the
ultimate outcome of the matters underlying such contingencies, the Company
anticipates that the costs, if any, to resolve these matters will not have a
material adverse effect upon the financial condition of the Company. The $2.5
million receipt was recorded as a deferred credit and was included in other
liabilities on the accompanying condensed consolidated balance sheet as of
September 30, 1997.
(6) DERIVATIVES
The Company periodically enters into commodity price swap agreements,
collar transactions and floor transactions that have been designated as hedge
transactions in order to reduce the Company's exposure to market price risk
related to the sale of oil and gas production. The oil and gas price
references upon which these transactions are based reflect various market
indices that provide a high degree of correlation with actual commodity prices
realized by the Company. Accordingly, these transactions are accounted for
using the hedge accounting method. Gains or losses on these transactions are
reported as a component of oil and gas sales in the period during which the
related production occurs. The cost to purchase put options in connection
with floor transactions is recognized ratably over the term of the agreement
as a reduction of oil and gas revenues. The Company typically enters into
hedging agreements with a contract term of one year or less. In the event of
a loss of correlation between changes in the oil and gas price references
under the hedge contract and the actual price realizations for the related oil
and gas production, a gain or loss would be recognized in the current period
to the extent that the hedge contract had not offset changes in actual oil and
gas prices.
(7) CASH FLOW INFORMATION
Net cash provided by operating activities included cash payments for
interest totaling $2.7 million and $1.9 million, net of capitalized interest
of $1.9 million and $1.5 million, for the first nine months of 1997 and 1996,
respectively. The Company paid state income taxes of $.2 million during the
first nine months of 1997. No income taxes were paid by the Company in the
first nine months of 1996.
(8) CONTINGENCIES
In February 1995, a lawsuit was filed in the United States District Court
in Denver, Colorado, by KN Gas Supply Services, Inc. ("KNGSS"), requesting
declaratory judgment that KNGSS had the right to reduce the contract price for
gas produced from the Bowdoin Field to market levels from October 1, 1993
forward. KNGSS also requested declaratory judgment that it has a right to
relief from the contract price due to regulatory changes, which it alleges
renders the contract commercially impracticable, and that Federal Energy
10
AMERICAN EXPLORATION COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Regulatory Commission Order No. 636 is a condition subsequent which excuses
performance under the contract. In April 1995, the Company filed
counterclaims against KNGSS relating to the failure of KNGSS to take and pay
for certain minimum volumes of gas, among other contractual matters. The
Company has dismissed all of its counterclaims, and KNGSS has dismissed its
commercially impracticable and condition subsequent claims. KNGSS alleges
that it has overpaid the Company and seeks a refund of approximately $7.7
million for the period through September 1996. KNGSS has not updated its
refund claim through the present date. A motion for summary judgment
was filed by the Company in July 1996 and was argued before the court on
February 14, 1997. The court has not yet ruled on the Company's motion.
Although the Company cannot predict the outcome of this proceeding, American
will vigorously defend its interests in this case and does not expect the
outcome of the case to have a material adverse impact on its financial
position or results of operations.
The Company has received certain preliminary and one final royalty
underpayment determinations from the Minerals Management Service ("MMS")
aggregating approximately $2.8 million plus interest in connection with
certain gas contract settlements made in prior years. The Company disagrees
with the MMS determinations and intends to vigorously defend its position in
each case. In certain cases, the Company's exposure to additional royalty
payment may be limited by indemnity provisions contained in the respective gas
contract settlement agreement. The amount of any royalty and interest which
ultimately may be paid by the Company attributable to such determinations is
unknown; however, the Company does not expect the outcome to have a material
adverse effect on its financial position or results of operations.
11
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
Historical
------------------------
Pro Forma
LDNG American Adjustments Pro Forma
----------- ----------- ----------- ----------
A S S E T S
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . $ 10,551 $ 1,452 $ -- $ 12,003
Receivables:
Oil and gas sales . . . . . . . . . . . . 29,737 9,924 -- 39,661
Joint interest and other, net . . . . . . 7,485 6,309 -- 13,794
Reimbursable costs for recovery from
well blowout . . . . . . . . . . . . . . -- 14,469 -- 14,469
Deposits . . . . . . . . . . . . . . . . . 2,986 -- -- 2,986
Inventory and other. . . . . . . . . . . . 4,855 2,246 -- 7,101
----------- ----------- ----------- -----------
Total current assets. . . . . . . . . . . 55,614 34,400 -- 90,014
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, at cost, based on
successful efforts accounting . . . . . . 987,345 395,288 48,234 (a)
(72,939)(b) 1,357,928
Less accumulated depreciation, depletion
and amortization. . . . . . . . . . . . . (276,174) (154,576) 154,576 (a) (276,174)
----------- ----------- ----------- -----------
711,171 240,712 129,871 1,081,754
----------- ----------- ----------- -----------
OTHER ASSETS, net. . . . . . . . . . . . . 4,985 1,290 (884)(a) 5,391
----------- ----------- ----------- -----------
$ 771,770 $ 276,402 $ 128,987 $ 1,177,159
=========== =========== =========== ===========
12
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA BALANCE SHEET (continued)
SEPTEMBER 30, 1997
(in thousands)
Historical
------------------------
Pro Forma
LDNG American Adjustments Pro Forma
----------- ----------- ----------- -----------
L I A B I L I T I E S A N D
S T O C K H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . $ 30,593 $ 4,781 $ -- $ 35,374
Accrued liabilities. . . . . . . . . . . 11,069 24,717 16,381 (a) 52,167
Revenues payable . . . . . . . . . . . . 6,981 8,518 -- 15,499
----------- ----------- ----------- -----------
Total current liabilities . . . . . . . 48,643 38,016 16,381 103,040
----------- ----------- ----------- -----------
LONG-TERM DEBT . . . . . . . . . . . . . 356,017 111,000 54,735 (a) 521,752
----------- ----------- ----------- -----------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred revenue . . . . . . . . . . . . 17,821 -- -- 17,821
Deferred gains from price-risk
management activities . . . . . . . . . 23,684 -- -- 23,684
Deferred income taxes. . . . . . . . . . 33,944 447 9,655 (a)
(27,717) (b) 16,329
Other. . . . . . . . . . . . . . . . . . 4,847 5,069 18,386 (a) 28,302
----------- ----------- ----------- -----------
80,296 5,516 324 86,136
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock. . . . . . . . . . . . . -- 4 21,076 (a) 21,080
Common stock . . . . . . . . . . . . . . 278 785 (672) (a) 391
Additional paid-in capital . . . . . . . 197,780 322,787 (119,341) (a) 401,226
Retained earnings. . . . . . . . . . . . 88,756 (201,706) 201,706 (a)
(45,222) (b) 43,534
----------- ----------- ----------- -----------
286,814 121,870 57,547 466,231
----------- ----------- ----------- -----------
$ 771,770 $ 276,402 $ 128,987 $ 1,177,159
=========== =========== =========== ===========
See accompanying notes to unaudited pro forma financial statements.
/TABLE
13
LOUIS DREYFUS NATURAL GAS CORP.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(in thousands, except per share data)
Historical
------------------------
Pro Forma
LDNG American Adjustments Pro Forma
----------- ----------- ----------- -----------
REVENUES
Oil and gas sales. . . . . . . . . . $ 142,193 $ 66,707 $ -- $ 208,900 (i)
Gain (loss) on sales of property
and equipment . . . . . . . . . . . 8,683 (183) -- 8,500 (i)
Other income . . . . . . . . . . . . 1,919 357 -- 2,276
----------- ----------- ----------- -----------
152,795 66,881 -- 219,676
----------- ----------- ----------- -----------
EXPENSES
Operating costs. . . . . . . . . . . 32,489 18,851 (1,846) (c) 49,494
General and administrative . . . . . 11,899 6,982 1,846 (c)
1,800 (d) 22,527 (i)
Exploration costs. . . . . . . . . . 5,300 13,508 (1,800) (d) 17,008 (i)
Provision for uninsured loss on
well blowout. . . . . . . . . . . . -- 2,770 -- 2,770
Depreciation, depletion and
amortization. . . . . . . . . . . . 49,241 28,402 6,626 (e) 84,269
Interest . . . . . . . . . . . . . . 19,031 3,772 2,065 (f) 24,868 (i)
----------- ----------- ----------- -----------
117,960 74,285 8,691 200,936
----------- ----------- ----------- -----------
Income (loss) before income taxes. . 34,835 (7,404) (8,691) 18,740
Income taxes . . . . . . . . . . . . 12,193 -- (5,072) (g) 7,121
----------- ----------- ----------- -----------
Net income (loss). . . . . . . . . . 22,642 (7,404) (3,619) 11,619
Preferred stock dividends. . . . . . -- 1,350 -- 1,350
----------- ----------- ----------- -----------
NET INCOME (LOSS) TO COMMON STOCK. . $ 22,642 $ (8,754) $ (3,619) $ 10,269
=========== =========== =========== ===========
Net income per common share. . . . . 0.81 .26
=========== ===========
Weighted average common shares
outstanding . . . . . . . . . . . . 27,805 11,307 (h) 39,112
=========== =========== ===========
See accompanying notes to unaudited pro forma financial statements.
14
LOUIS DREYFUS NATURAL GAS CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
On June 24, 1997, LDNG entered into a Merger Agreement pursuant to which
American was merged into LDNG on October 14, 1997. The Merger was accounted
for using the purchase method of accounting. In accordance with the Merger
Agreement, holders of American Common Stock received .72 shares of LDNG Common
Stock and $3.00 cash for each share of American Common Stock. Holders of
American Depositary Shares received one share of LDNG Depositary Shares of
each share of American Depositary Shares.
NOTE 2 -- PRO FORMA ENTRIES
PRO FORMA BALANCE SHEET -- SEPTEMBER 30, 1997
The accompanying unaudited pro forma balance sheet as of September 30,
1997 has been prepared as if the Merger had occurred on that date and includes
the following adjustments:
(a) To adjust assets and liabilities under the purchase method of
accounting based on the purchase price. Such purchase price has been
allocated to the consolidated assets and liabilities of American based
on preliminary estimates of fair values with the remainder allocated
between proved and unproved properties based on their relative fair
values. The purchase price allocated to proved properties was further
allocated based on the relative fair values of individual producing
fields. This allocation was then reviewed for indications of
impairment by comparing the allocated cost to the estimated
undiscounted future net cash flows on a field by field basis. Those
oil and gas properties having a carrying value in excess of the
estimated undiscounted future net cash flows were deemed impaired
pursuant to SFAS 121. The purchase price allocated to unproved oil and
gas properties was adjusted to the lower of cost (allocated purchase
price) or estimated market value. The combined impairment resulted in
a pretax charge of $72.9 million ($45.2 million after tax). No
goodwill was recorded in connection with this transaction. The
information presented herein is based on historical information as of
September 30, 1997 and as a result will differ from the actual purchase
price allocation recorded in the fourth quarter of 1997.
15
LOUIS DREYFUS NATURAL GAS CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS, CONTINUED
The purchase price is determined as follows (in thousands):
Cash consideration of $3.00 for each share of American
Common Stock . . . . . . . . . . . . . . . . . . . . . . . $ 47,114
Estimated fair value (at $17.15 per share)of 11.3
million shares of LDNG Common Stock issued at the
exchange rate of .72 shares of LDNG Common Stock for
each share of American Common Stock. . . . . . . . . . . . 193,922
Estimated fair value of warrants to purchase 1.6
million shares of LDNG Common Stock. . . . . . . . . . . . 9,637
Estimated transaction costs, including the estimated
Cash-Out Amount for the American stock options. . . . . . 14,229
----------
$ 264,902
==========
The preliminary allocation of the purchase price included in the pro
forma balance sheet is summarized as follows (in thousands):
Working capital assumed. . . . . . . . . . . . . . . . . $ (5,768)
Oil and gas properties:
Proved. . . . . . . . . . . . . . . . . . . . . . . . . 342,578
Unproved. . . . . . . . . . . . . . . . . . . . . . . . 98,000
Other property and equipment . . . . . . . . . . . . . . 2,944
Other assets . . . . . . . . . . . . . . . . . . . . . . 406
Bank debt . . . . . . . . . . . . . . . . . . . . . . . (76,000)
Subordinated debt . . . . . . . . . . . . . . . . . . . (42,621)
Deferred income taxes. . . . . . . . . . . . . . . . . . (10,102)
Other liabilities. . . . . . . . . . . . . . . . . . . . (23,455)
Preferred stock. . . . . . . . . . . . . . . . . . . . . (21,080)
----------
$ 264,902
==========
(b) To record the estimated impairment charge resulting from the allocation
of the purchase price to proved and unproved oil and gas properties and
as described in footnote (a) above.
PRO FORMA STATEMENTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1997
The accompanying unaudited pro forma statement of operations for the nine
months ended September 30, 1997 have been prepared as if the Merger had
occurred on January 1, 1996. Such statement includes the following
adjustments:
(c) To reclassify operator overhead charges attributable to American's net
property interests, conforming to LDNG's financial presentation of such
charges.
16
LOUIS DREYFUS NATURAL GAS CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS, CONTINUED
(d) To reclassify certain personnel costs to conform with LDNG's financial
presentation of such costs.
(e) To record the estimated adjustment to depreciation, depletion and
amortization expense attributable to the allocation of the purchase
price using the successful efforts method of accounting. Such
adjustment assumes the recognition at closing of an estimated
impairment charge totaling $72.9 million ($45.2 million after tax).
See notes (a) and (b) above. This one-time non-recurring charge is not
reflected in the unaudited pro forma statement of operations as
presented herein.
(f) To adjust interest expense for the incremental interest to be incurred
attributable to borrowings made to fund the Cash Consideration at
closing. The incremental borrowing rate assumed for LDNG for the nine
months ended September 30, 1997 was 5.9%.
(g) To record income taxes on pro forma pretax net income at an effective
income tax rate of 38%.
(h) To reflect the issuance of 11.3 million shares of LDNG Common Stock at
the exchange rate of .72 shares of LDNG Common Stock for each share of
American Common Stock.
(i) The accompanying unaudited pro forma financial statements have been
prepared pursuant to regulations prescribed by the Securities and
Exchange Commission. The unaudited pro forma statement of income does
not consider the effects of the cost reduction and financing plans of
management implemented after closing, nor do they include the effects
of certain purchase accounting adjustments which were recorded at
closing. Such plans and adjustments are identified as follows:
17
LOUIS DREYFUS NATURAL GAS CORP.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS, CONTINUED
Nine Months
Ended
September 30,
1997
-------------
MANAGEMENT PLANS
Increase (decrease) to pro forma pretax earnings:
Estimated reduction in general and administrative
costs from the elimination of duplicative personnel
and activities between LDNG and American(net of
reimbursements and recoveries). . . . . . . . . . . . . $ 4,789
Estimated interest savings to be achieved upon
refinancing the debt facilities of American (net of
capitalized interest) . . . . . . . . . . . . . . . . . 1,463
EFFECT OF PURCHASE ACCOUNTING ADJUSTMENTS
(The historical statement of operations of American
includes the following amounts which would have
been reflected as adjustments to the purchase price
had the merger occurred at the beginning of 1996):
Increase (decrease) to pro forma pretax earnings:
Hedging losses incurred by American. . . . . . . . . . 3,578
Gains and losses on asset sales incurred by American. . 183
Leasehold impairments incurred by American. . . . . . . 2,105
-------------
$ 12,118
=============
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LOUIS DREYFUS NATURAL GAS CORP.
By: /s/ Jeffrey A. Bonney
-----------------------------------
Date: February 6, 1998 Jeffrey A. Bonney
Executive Vice President and
Chief Financial Officer