1
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 17, 1995
APACHE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 1-4300 41-0747868
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
2000 POST OAK BOULEVARD
SUITE 100
HOUSTON, TEXAS 77056-4400
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (713) 296-6000
- --------------------------------------------------------------------------------
2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
In the fourth quarter of 1994, Apache Corporation ("Apache") entered
into the Amended and Restated Agreement and Plan of Merger (the "Merger
Agreement"), dated December 21, 1994, among Apache, XPX Acquisitions, Inc.
("XPX"), and DEKALB Energy Company ("DEKALB"), providing for the merger of XPX
into DEKALB (the "Merger") in a transaction by which DEKALB would be the
survivor and would become a wholly owned subsidiary of Apache. Apache issued a
press release, dated December 21, 1994, which is listed under Item 7 as Exhibit
99.1 and incorporated herein by reference. The Merger Agreement which is listed
under Item 7 as Exhibit 2.1 and incorporated herein by reference.
On May 17, 1995, the Merger was consummated shortly after the
transaction was approved by DEKALB's stockholders. At year end 1994, DEKALB's
reported oil and gas reserves, located almost entirely in western Canada, were
estimated to be approximately 300 billion cubic feet of natural gas and 10.7
million barrels of hydrocarbon liquids. DEKALB also has approximately 150,000
net undeveloped mineral acres and has ownership interests in 14 gas processing
plants, six of which it operates. The Merger provides Apache with (i) a
substantial presence in North America's largest natural gas basin and the
infrastructure, including skilled professionals, to conduct Canadian operations,
and (ii) properties with significant potential for further development. Apache
issued a press release, dated May 17, 1995, which is listed under Item 7 as
Exhibit 99.2 and incorporated herein by reference.
Upon consummation of the Merger and pursuant to the Merger Agreement,
each share of DEKALB Class A Stock, no par value, and each share of DEKALB Class
B (nonvoting) Stock, no par value, then outstanding was converted into the right
to receive .8764 share of Apache common stock, $1.25 par value, with any
fractional shares paid in cash, without interest, based on $27.8875 per share of
Apache common stock.
Other than Apache's negotiations and discussions with representatives
of DEKALB concerning the transaction described above, there are no material
relationships between DEKALB and Apache or any of Apache's affiliates, officers
or directors, or any associate of any officer or director of Apache.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
For DEKALB, attached hereto as Schedule A are the audited Consolidated
Statements of Operations for each of the three years in the period ended
December 31, 1994, Consolidated Balance Sheets as of December 31, 1994 and
1993, Consolidated Statements of Cash Flows and Consolidated Statements of
Shareholders' Equity for each of the three years in the period ended December
31, 1994, the related Notes to Consolidated Financial Statements, and the
Auditors' Report of Coopers & Lybrand concerning the above-referenced
Statements, Balance Sheets and Notes, together with unaudited Supplementary
Financial Information.
1
3
For DEKALB, attached hereto as Schedule B are the unaudited
Consolidated Statements of Operations for each of the three-month periods ended
March 31, 1994 and 1993, Consolidated Balance Sheets as of March 31, 1994 and
1993, Consolidated Statements of Cash Flows for each of the three-month periods
ended March 31, 1994 and 1993, and the related Notes to Consolidated Financial
Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
For Apache and Subsidiaries, attached hereto as Schedule C are the
Unaudited Pro Forma Consolidated Condensed Statements of Operations for
the years ended December 31, 1992, 1993 and 1994 and for the three-month period
ended March 31, 1995, the Unaudited Pro Forma Consolidated Condensed Balance
Sheet as of March 31, 1995, and Unaudited Pro Forma Supplemental Oil and Gas
Disclosure.
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Amended and Restated Plan of Merger among Apache, XPX
and DEKALB, dated December 21, 1994 (incorporated
by reference to Exhibit 2.1 to Amendment No. 3 to
Apache's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
23.1* Consent of Coopers & Lybrand
99.1 Press Release, dated December 21, 1994, "Apache and
DEKALB to Merge" (incorporated by reference to
Exhibit 99.2 to Registrant's Current Report on Form
8-K, dated December 21, 1994, SEC File No. 1-4300,
filed December 29, 1994).
99.2 Press Release, dated May 17, 1995, "Apache and DEKALB
Complete Merger" (incorporated by reference to
Exhibit 99.2 to Registrant's Current Report on Form
8-K, dated May 17, 1995, SEC File No. 1-4300, filed
June 1, 1995).
- ---------------------
*filed herewith
2
4
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 thereunto duly authorized.
APACHE CORPORATION
Date: July 17, 1995 /s/ Z. S. Kobiashvili
---------------------------------
Z. S. Kobiashvili
Vice President and General Counsel
3
5
SCHEDULE A
AUDITORS' REPORT
To the Shareholders and Board of Directors of DEKALB Energy
Company:
We have audited the consolidated balance sheets of DEKALB Energy
Company as at December 31, 1994 and 1993, and the consolidated
statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present
fairly, in all material respects, the consolidated financial
position of DEKALB Energy Company as at December 31, 1994 and
1993, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended December
31, 1994, in accordance with United States generally accepted
accounting principles.
COOPERS & LYBRAND
-----------------
Calgary, Alberta Coopers & Lybrand
February 13, 1995
A-1
6
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share amounts)
For the years ended December 31,
1994 1993 1992
--------- -------- ---------
OPERATING REVENUES (Note H)
Oil and liquids sales $ 13,398 $ 14,291 $ 28,605
Natural gas sales 31,491 30,215 30,678
Other 1,401 1,397 1,450
--------- --------- ---------
Total operating revenues 46,290 45,903 60,733
OPERATING EXPENSES
Lease operations and other direct charges 11,654 12,467 18,833
Depreciation, depletion and amortization 14,603 15,142 22,522
Provision for impairment of oil and gas properties - - 53,320
General and administrative 3,179 3,468 6,441
(Gain) loss on disposal of U.S. assets (Note C) - (513) 34,942
--------- --------- ---------
Operating income (loss) 16,854 15,339 (75,325)
Interest expense, net (Note D) 4,047 3,795 6,938
Other income, net (Note D) (35) (123) (3,222)
--------- --------- ---------
Earnings (loss) from continuing operations before income
and other taxes 12,842 11,667 (79,041)
Income and other taxes (Note E) 6,029 5,995 (9,788)
--------- --------- ---------
Earnings (loss) from continuing operations 6,813 5,672 (69,253)
Loss from discontinued operations (net of applicable income
taxes) (Note M) - - (1,050)
Cumulative effect of change in accounting principle (Note E) - 5,334 -
--------- --------- ---------
NET EARNINGS (LOSS) $ 6,813 $ 11,006 $(70,303)
========= ========= =========
Earnings (loss) per share:
Earnings (loss) from continuing operations $ 0.71 $ 0.59 (7.19)
Loss from discontinued operations - - (0.11)
Cumulative effect of change in accounting principle - 0.55 -
--------- --------- ---------
NET EARNINGS (LOSS) PER SHARE $ 0.71 $ 1.14 $ (7.30)
========= ========= =========
Weighted average shares outstanding (in thousands) 9,583 9,675 9,630
The accompanying notes are an integral part of the financial
statements.
A-2
7
DEKALB Energy Company
CONSOLIDATED BALANCE SHEETS
($ in thousands)
ASSETS
As of December 31,
1994 1993
------------ -----------
Current assets:
Cash and cash equivalents (Note O) $ 14,980 $ 22,664
Accounts receivable 9,509 7,874
Other current assets 928 866
------------ -----------
Total current assets 25,417 31,404
Other assets 790 855
Property, plant, and equipment:
Oil and gas assets, full cost method
Proved properties, being amortized 312,649 298,235
Unproved properties and properties under development,
not being amortized (Note N) 11,454 9,048
Other property and equipment 2,791 2,817
Less accumulated depreciation, depletion and amortization (141,512) (132,185)
------------ -----------
Net property, plant and equipment 185,382 177,915
------------ -----------
TOTAL ASSETS $ 211,589 $ 210,174
============ ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings (Note G) $ - $ 5,663
Accounts payable 11,820 13,868
Other current liabilities (Note F) 3,909 4,961
------------ -----------
Total current liabilities 15,729 24,492
Other liabilities 10,386 10,913
Deferred income taxes (Note E) 27,096 22,845
Long-term debt (Notes G and O) 61,547 51,325
------------ -----------
TOTAL LIABILITIES 114,758 109,575
------------ -----------
Commitments and contingencies (Note H)
Shareholders' equity (Note I):
Capital stock:
Class A; $.625 stated value; 6,000,000 shares
authorized; 2,381,106 shares issued at December 31, 1994;
2,418,000 shares issued at December 31, 1993 1,488 1,511
Class B (nonvoting); $.625 stated value; 13,000,000 shares
authorized; 11,297,377 shares issued at December 31, 1994;
11,260,483 shares issued at December 31, 1993 7,061 7,038
Capital in excess of stated value 51,657 51,657
Retained earnings 149,367 142,554
Currency translation adjustments (19,337) (12,141)
------------ -----------
190,236 190,619
Treasury shares, at cost (4,292,258 shares in 1994 and
4,072,258 shares in 1993) (93,405) (90,020)
------------ -----------
TOTAL SHAREHOLDERS' EQUITY 96,831 100,599
------------ -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 211,589 $ 210,174
============ ===========
The accompanying notes are an integral part of the financial
statements
A-3
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DEKALB Energy Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
CASH FLOWS from OPERATING ACTIVITIES For the years ended December 31,
1994 1993 1992
---------- ---------- ----------
Net earnings (loss) $ 6,813 $ 11,006 $ (69,253)
Adjustments to reconcile net earnings (loss) to net
cash flows from operating activities:
Depreciation, depletion and amortization 14,603 15,142 22,522
Provision for impairment of oil and gas properties - - 53,320
Provision (benefit) for deferred income taxes 5,554 5,226 (8,342)
Cumulative effect of change in accounting principle - (5,334) -
(Gain) loss on disposal of U.S. assets - (513) 34,942
Other 300 (86) (1,176)
---------- ---------- ----------
27,270 25,441 32,013
Changes in assets and liabilities:
Accounts receivable and other current assets (2,167) 949 12,017
Other assets 65 6,024 (4,553)
Accounts payable and other current liabilities (2,383) (1,311) (17,330)
Other liabilities (430) (1,251) 3,427
Current taxes payable - - 2,635
---------- ---------- ----------
Cash flows from continuing operations 22,355 29,852 28,209
---------- ---------- ----------
Cash flows from discontinued operations 70 840 480
---------- ---------- ----------
NET CASH FLOWS from OPERATING ACTIVITIES 22,425 30,692 28,689
---------- ---------- ----------
CASH FLOWS from INVESTING ACTIVITIES
Purchases of property, plant and equipment (43,027) (22,875) (25,106)
Proceeds from sale of property, plant and equipment 13,671 912 7,750
Proceeds from sale of U.S. assets - 6,175 97,181
Increase (decrease) in short-term payables for
purchases of property, plant and equipment (2,115) 1,685 443
Proceeds from sale of investments - - 7,500
---------- ---------- ----------
NET CASH FLOWS from INVESTING ACTIVITIES (31,471) (14,103) 87,768
---------- ---------- ----------
CASH FLOWS from FINANCING ACTIVITIES
Purchases of stock (3,385) (79) (328)
Proceeds from exercise of stock options - 1 79
Increase in long-term debt 10,479 - 35,000
Net increase (decrease) in short-term borrowings (5,478) 5,455 (1,631)
Payments made on long-term debt and net capital
lease changes - (18,400) (132,688)
NET CASH FLOWS from FINANCING ACTIVITIES 1,616 (13,023) (99,568)
---------- ---------- ----------
NET EFFECT of EXCHANGE RATES on CASH (254) 226 (134)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (7,684) 3,792 16,755
Cash and cash equivalents, prior year 22,664 18,872 2,117
---------- ---------- ----------
CASH and CASH EQUIVALENTS, CURRENT YEAR $ 14,980 $ 22,664 $ 18,872
========== ========== ==========
Note: Cash paid during the period for:
Income and other taxes $ 614 $ 694 $ 713
Interest $ 5,764 $ 6,472 $ 9,708
Capitalized interest $ 1,146 $ 1,515 $ 2,961
The accompanying notes are an integral part of the financial statements.
A-4
9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
Issued
------------------------------------
Class A Class B
(nonvoting) Capital
Stock Stock in Excess Currency Treasury Stock
----------------- ----------------- of Stated Retained Translation --------------------
Shares Amount Shares Amount Value Earnings Adjustments Shares Amount
-------- -------- -------- -------- --------- --------- ----------- -------- ---------
DECEMBER 31, 1991 2,649 $1,655 11,027 $6,892 $52,377 $201,851 $12,016 (4,067) $(90,434)
Net Loss (70,303)
Exchange Class A for Class B (107) (67) 107 67
Exercise of Stock Options (665) 31 712
Treasury Shares Purchased (31) (328)
Translation Adjustment (18,241)
Other 2 2 53
-------- -------- -------- -------- --------- --------- ----------- -------- ---------
DECEMBER 31, 1992 2,544 $1,590 11,134 $6,959 $51,765 $131,548 $(6,225) (4,067) $(90,050)
Net Income 11,006
Exchange Class A for Class B (126) (79) 126 79
Exercise of Stock Options (108) 2 109
Treasury Shares Purchased (7) (79)
Translation Adjustment (5,916)
-------- -------- -------- -------- --------- --------- ----------- -------- ---------
DECEMBER 31, 1993 2,418 $1,511 11,260 $7,038 $51,657 $142,554 $(12,141) (4,072) $(90,020)
Net Income 6,813
Exchange Class A for Class B (37) (23) 37 23
Treasury Shares Purchased (220) (3,385)
Translation Adjustment (7,196)
-------- -------- -------- -------- --------- --------- ----------- -------- ---------
DECEMBER 31, 1994 2,381 $1,488 11,297 $7,061 $51,657 $149,367 $(19,337) (4,292) $(93,405)
======== ======== ======== ======== ========= ========= =========== ======== =========
The accompanying notes are an integral part of the financial statements.
A-5
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DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Accounting Policies and Procedures
(1) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
transactions between consolidated companies have been eliminated.
(2) Statement of Cash Flows
The Company classifies highly liquid investments with original
maturities of three months or less as cash and cash equivalents.
Cash equivalents are stated at cost which approximates market.
The cash flows from contracts that have been accounted for as
hedges have been classified as cash flows from operating activities.
(3) Oil and Gas Properties
The Company uses the full cost method of accounting, under which
the cost of all exploration and development activities (both
successful and unsuccessful) is capitalized and subsequently
amortized to expense using the unit-of-production method based
upon production and estimates of proved reserve quantities.
Unevaluated costs and related capitalized interest costs are
excluded from the amortization base until the properties
associated with these costs are evaluated and determined to be
productive or impaired. Should the net evaluated capitalized
costs (net of deferred income taxes) exceed the estimated after-
tax present value of oil and gas reserves and unimpaired value of
unevaluated properties on a country-by-country basis, the excess
would be charged to expense. Included in the estimated present
value are Canadian provincial tax credits expected to be realized
beyond the date at which the legislation, under its provisions,
could be repealed. To date, the Canadian provincial government has
given no intention to repeal this legislation (see Supplementary
Financial Information). Proceeds from disposals of oil and gas
properties are applied as reductions of capitalized costs. Gains
or losses are only recognized on the sale of oil and gas
properties involving significant amounts of reserves.
(4) Future Removal and Site Restoration Costs
Estimated dismantlement, abandonment and clean-up costs, net of
estimated salvage values, if any, are expensed on the unit-of-
production basis using proved oil and gas reserves.
(5) Other Property, Plant and Equipment
It is the policy of the Company to capitalize expenditures for
major renewals and betterments at cost and to charge to operating
expenses the cost of current maintenance and repairs. Provisions
for depreciation have been computed principally on the straight-
line method based on expected useful lives. Rates used for
depreciation are based principally on the following expected
lives: Equipment - 2 to 10 years; Other - 20 years; and
Leasehold improvements - term of lease.
A-6
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DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A. Accounting Policies and Procedures (Continued)
The cost and accumulated allowances for depreciation and
amortization relating to assets retired or otherwise disposed of
are eliminated from the respective accounts at the time of
disposition. The resultant gain or loss is included in current
operating results.
(6) Income Taxes
Effective January 1, 1993, the Company adopted the liability
method of accounting for income taxes under Statement of
Financial Accounting Standard (SFAS) No. 109. The adoption of
SFAS No. 109 resulted in a one time benefit adjustment of $5.3
million in the first quarter of 1993. No taxes have been accrued
on the unremitted earnings of the Canadian subsidiary as these
are intended to be permanently invested in Canada. The amount of
the unrecognized deferred tax liability has not been calculated
as its determination is not practicable.
Prior to 1993, income taxes were calculated in accordance with
Accounting Principles Board Opinion No. 11. Investment tax
credits were recognized using the flow through method whereby
current income tax expense was reduced by investment tax credits
utilized.
(7) Foreign Currency Translation
The Company's reporting currency is U.S. dollars. The functional
currency for the Canadian subsidiary is Canadian dollars.
Translation adjustments resulting from translating foreign
currency financial statements into U.S. dollar equivalents are
reported separately and accumulated in a separate component of
shareholders' equity. Aggregate exchange gains and losses arising
from the translation of foreign currency transactions, excluding
long-term intercompany debt, are included in income.
(8) Earnings Per Share Calculation
Earnings (loss) per share is calculated by dividing the earnings
(loss) by the weighted average shares outstanding during each
year. The 1992 computation of weighted average shares
outstanding excludes anti-dilutive shares.
(9) Gas Balancing
The Company uses the sales method to account for gas imbalances.
The Company did not have any significant gas imbalances
outstanding at December 31, 1993 or 1994.
A-7
12
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A. Accounting Policies and Procedures (Continued)
(10) Concentration of Credit Risk
Substantially all of the Company's receivables are within the oil
and gas industry. Although diversified within many companies,
collectibility is dependent upon the general economic conditions
of the industry. Beginning in December 1992, the Company has
invested excess cash in high-grade securities through a U.S.
investment firm in New York City, and in term deposits with a
Canadian chartered bank.
(11) Hedge Contracts
The Company enters into various contracts to hedge a portion of
its oil and gas production against fluctuating prices. The
results of these contracts are included in revenues as the oil or
gas is produced.
(12) Financial Statement Presentation
Certain prior year figures have been reclassified to conform to
the 1994 financial statement presentation.
B. Plan of Merger
On December 21, 1994, the Company announced it had entered into a
merger agreement with Houston-based Apache Corporation
("Apache"), whereby the outstanding shares of DEKALB Class A
Stock and Class B (nonvoting) Stock will be converted into Apache
Common Stock at a conversion rate as specified in the agreement.
The Board of Directors is recommending approval and adoption of
the merger, which is expected to be considered at a Special
Meeting of the shareholders in the second quarter of 1995.
Apache has filed a Form S-4 Registration Statement with the
Securities and Exchange Commission on January 17, 1995
(Registration No. 33-57321).
For the year ended December 31, 1994, $0.5 million of merger
costs incurred to year end were expensed in the Consolidated
Financial Statements. If the merger proceeds, various additional
restructuring costs associated with the merger will be expensed
as incurred.
C. Disposition of Assets
In November 1994, the Company announced the sale of its interest
in a gas plant, leasehold and other tangible property in the
Claresholm area in the Province of Alberta, Canada. The sale was
effective November 1, 1994 for proceeds of $9.0 million. During
the third quarter of 1994, the Company sold its interest in
leasehold and tangible property in the Buick Creek area of the
Province of British Columbia, Canada for proceeds of $0.4
million. In March 1994, the Company disposed of its interest in
leasehold and tangible property in the Rigel area of the Province
of British Columbia, Canada for proceeds of $3.6 million. In
accordance with the full cost method of accounting, the proceeds
received for the 1994 dispositions were credited to the full cost
pool; therefore, no gains or losses were recorded on the sales.
On August 5, 1993, the Company announced the sale of all its
California gas wells to Samedan Oil Corporation for $5.1 million,
effective July 1, 1993. Consistent with the full cost method of
accounting on a cost center basis, the Company recorded a $0.5
million pre-tax and after-tax gain on the disposition of the
California gas wells in the third quarter of 1993. The Company
also closed down its exploration office in Bakersfield. The only
U.S. assets retained by the Company after this sale are a working
interest in a single non-operated oil well in California and
acreage adjacent thereto.
A-8
13
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
C. Disposition of Assets (Continued)
Sales revenues and volumes, lease operating expenses, and
depreciation, depletion and amortization (DD&A) for the 1993
divested California properties were as follows:
Six Months Ended
($ in millions) June 30, 1993
----------------
Revenue $1.6
Lease Operating Expense $0.3
DD&A $0.9
Sales Volumes
-------------
Natural Gas (MMCF) 850
On July 9, 1992, the Company announced that it had entered into a
definitive agreement to sell substantially all of its U.S. oil
and gas properties to Louis Dreyfus Gas Holdings Inc.
("Dreyfus"). On October 16, 1992, the Dreyfus transaction was
approved by the shareholders at a special shareholders' meeting
and the closing of the transaction was completed on the same day.
The Company did not sell its California properties. The Company
received $104 million of gross proceeds from the sale, which
included approximately $6.0 million of cash flow from the
properties from the effective date (July 1, 1992). In addition,
Dreyfus assumed certain liabilities. A pre-tax loss of $34.9
million ($32.3 million after-tax) was recorded on the sale in
1992.
Sales revenues and volumes, lease operating expenses, and DD&A
for the 1992 divested properties were as follows:
Six Months Ended
($ in millions) June 30, 1992
----------------
Revenues $20.1
Lease Operating Expense $6.6
DD&A $8.3
Sales Volumes
-------------
Oil and Condensate (MBbls) 494
Natural Gas Liquids (MBbls) 125
Natural Gas (MMCF) 5,006
A-9
14
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
D. Non-Operating Items ($ in thousands)
(1) Interest Expense, Net For the years ended December 31,
1994 1993 1992
-------- -------- --------
Interest expense* $ 4,692 $ 4,588 $ 7,456
Interest income (645) (793) (518)
-------- -------- ---------
Total interest expense, net $ 4,047 $ 3,795 $ 6,938
======== ======== =========
*Interest of $1,145,000, $1,515,000, and $2,961,000 was
capitalized in 1994, 1993 and 1992, respectively. In 1992,
interest of $2,067,000 was charged to the loss on the sale of the
U.S. assets.
(2) Other Income, Net For the years ended December 31,
1994 1993 1992
------- --------- --------
Gas contract and
transportation adjustments (201) (91) 300
Equity earnings - - (756)
Gain on sale of equity
investment - - (1,914)
Adjustment to prior accruals (211) - (960)
Merger costs* 537 - -
Gain on settlement of
litigation (514) - -
Foreign exchange (gains) losses 354 (66) 84
All other, net - 34 24
------- --------- --------
Total other income, net $ (35) $ (123) $(3,222)
======= ========= ========
*See Note B, "Plan of Merger" in the Notes to the Consolidated
Financial Statements.
A-10
15
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Income and Other Taxes ($ in thousands)
Effective January 1, 1993, the Company adopted the liability
method of accounting for income taxes under Statement of
Financial Accounting Standards (SFAS) No. 109. Prior to 1993,
deferred income taxes were calculated in accordance with
Accounting Principles Board Opinion No. 11. The adoption of SFAS
109 resulted in a one time benefit adjustment of $5.3 million
which was recognized in the first quarter of 1993.
For the years ended December 31,
1994 1993 1992
---------- ---------- ---------
Income and other taxes by
jurisdiction are as follows:
Current:
Federal $ (140) $ 140 $ (4,786)
State 100 50 46
Foreign 515 579 3,293
---------- ---------- ---------
475 769 (1,447)
Deferred:
Federal - - 2,340
Foreign 5,554 5,226 (10,681)
---------- ---------- ---------
5,554 5,226 (8,341)
---------- ---------- ---------
Income and other taxes 6,029 5,995 (9,788)
---------- ---------- ---------
SFAS No. 109 adjustment - (5,334) -
---------- ---------- ---------
Total income and other taxes $ 6,029 $ 661 $ (9,788)
========== ========== =========
A-11
16
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Income and Other Taxes (Continued) ($ in thousands)
Income and other taxes for continuing operations was a provision
of $6,029 in 1994, $5,995 in 1993 and a benefit of $9,788 in
1992. Deferred tax expense (benefit) results from the following
types of differences in the timing of the recognition of revenues
and expense for tax and financial statement purposes.
For the years ended December 31,
1994 1993 1992
--------- --------- ---------
Related to oil and gas operations
including depletion and
intangible drilling costs $ 5,475 $ 5,326 $ 4,534
Tax depreciation greater than
(less than) book depreciation - (412) (3,172)
Provision for impairment of
oil and gas properties - - (21,108)
Asset dispositions - (515) 1,135
Capitalized interest 459 515 475
Capitalized overhead - - 366
Deferred tax benefit not
realizable - - 2,340
Losses for which no U.S.
tax benefits were recorded - - 7,934
Other accruals (380) 312 (845)
Total timing differences --------- --------- ---------
from continuing operations $ 5,554 $ 5,226 $ (8,341)
========= ========= =========
For the years ended Decmber 31,
1994 1993 1992
---------- ---------- ----------
Income and other taxes is comprised
of the following:
Income taxes $ (140) $ 140 $ (2,096)
Capital and other taxes* 615 629 649
Deferred income taxes 5,554 5,226 (8,341)
---------- ---------- ----------
Total income and other taxes $ 6,029 $ 5,995 $ (9,788)
========== ========== ==========
*Consists of Canadian Large Corporations Tax, franchise taxes and withholding taxes.
A-12
17
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Income and Other Taxes (Continued) ($ in thousands)
Total tax provisions (benefits) resulted in effective tax rates
differing from that of the statutory income tax rates. The
reasons for these differences are:
Percent of Pretax Earnings
For the years ended December 31,
1994 1993 1992
------ ------ ------
% % %
Statutory rate* 44.3 44.3 (34.0)
Statutory deductions in excess
of accounting charges (1.9) (5.3) -
Tax refund limitation** 0.9 8.2 19.6
Other non-income tax 3.7 4.4 0.1
Other - (0.2) 1.9
------ ------ ------
Effective rate for
continuing operations 47.0 51.4 (12.4)
SFAS No. 109 adjustment - (45.7) -
------ ------ ------
47.0 5.7 (12.4)
====== ====== ======
* 1994 and 1993 Canadian statutory rate; 1992 U.S. federal statutory rate
** Tax refund limitations result from losses for which no U.S. tax benefit
has been recorded
Earnings (loss) from continuing
operations before inccome taxes
for the years ended December 31,
1994 1993 1992
---------- ---------- ----------
U.S. $ (253) $ (2,151) $ (59,707)
Canada 13,095 13,818 (19,334)
---------- ---------- ----------
Earnings (loss) from continuing
operations before taxes $ 12,842 $ 11,667 $ (79,041)
========== ========== ==========
A-13
18
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Income and Other Taxes (Continued) ($ in thousands)
The components of the net deferred tax liabilities under SFAS No.
109 are as follows:
For the years ended December 31,
Deferred Tax Assets: 1994 1993
----------- -----------
Current
Allowance for uncollectible
accounts receivable $ (30) $ (241)
Non-Current
Liabilities (2,717) (3,366)
Tax net operating loss
carryforward (10,665) (7,201)
Investment tax credits
carryforward (1,656) (1,539)
----------- -----------
Total deferred assets (15,068) (12,347)
Valuation allowance 13,460 10,954
----------- -----------
Net deferred tax assets (1,608) (1,393)
Deferred Tax Liabilities
Non-current oil &
gas properties 28,704 24,238
----------- -----------
Net deferred tax liability $ 27,096 $ 22,845
=========== ===========
The Company has recorded a valuation allowance for all U.S.
federal tax operating loss carryforwards and U.S. future
deductible amounts net of future taxable income amounts under
SFAS No. 109 since the Company has limited future taxable income
in the United States to realize these benefits.
For U.S. tax purposes there are approximately $31.4 million in
tax operating loss carryforwards remaining as at December 31,
1994. These losses, if not utilized, will expire in 2007.
Investment tax credits of approximately $1.4 million are
available to offset U.S. income taxes payable after December 31,
1994. If not utilized, these credits will expire by 2003.
For Canadian tax purposes there are approximately $.5 million of
investment tax credits available to offset Canadian federal
income taxes payable after December 31, 1994. If not utilized,
these credits will begin to expire in 1995 through to 2002.
A-14
19
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. Other Current Liabilities ($ in thousands)
As of December 31,
1994 1993
------ ------
Interest $1,772 $1,772
Compensation 410 371
Insurance reserves 541 1,285
Taxes 485 247
Liabilities on disposition of U.S. assets 541 718
Other 160 568
------ ------
Total other current liabilities $3,909 $4,961
====== ======
G. Debt ($ in thousands)
As of December 31,
1994 1993
-------- --------
Term debt (1):
Publicly held notes - 10.0%
interest, due in 1998 $22,100 $22,100
Publicly held notes - 9.875%
interest, due in 2000 29,225 29,225
Revolving term credit facility (2) 10,222 5,663
-------- --------
61,547 56,988
Less current maturities - 5,663
-------- --------
Net long-term debt $61,547 $51,325
======== ========
(1) Term Debt
Aggregate maturities on the term debt for the years ending
December 31, 1995 through 1998 and thereafter, are as follows:
1995 1996 1997 1998 1999 Thereafter
--------- -------- --------- --------- -------- ---------
$ - $ - $ - $22,100 $ - $29,225
On or after April 15, 1995, the Company will be permitted to
redeem in full the $22.1 million outstanding of 10% long-term
publicly held notes, at a price equal to 100% of the principal
amount, plus accrued interest to the redemption date. If this
option is pursued, the proceeds for redemption of these notes
will come from existing cash of approximately $ 15 million,
operating cash flow and additional financing from the revolving
term credit facility described below.
The term debt agreements contain restrictions on the disposition
of assets of the Company and limitations on the amount of sale
and leaseback transactions. These restrictions are not expected
to affect the pending merger with Apache Corporation (see Note B,
"Plan of Merger" in the Notes to the Consolidated Financial
Statements).
In 1992, upon receipt of the proceeds from the disposition of the
U.S. assets, the Company repurchased $55.3 million of its
publicly held notes. An additional $18.4 million was purchased
during 1993.
A-15
20
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
G. Debt (Continued)
(2) Revolving Term Credit Facility
Effective November 19, 1992, DEKALB Energy Canada Ltd. ("DECL")
entered into a revolving term credit facility with the Royal Bank
of Canada (the "Lender"), which allows borrowings of up to
$30.0 million Canadian funds or the equivalent amount in U.S.
funds. DECL may borrow in Canadian dollars at Canadian prime
(8.0% at December 31, 1994), in U.S. dollars at U.S. prime (8.50%
at December 31, 1994) plus one-eighth of one percent or under a
number of other financing alternatives. Commitment fees are paid
on the unused portion of the commitment to the extent it exceeds
$10.0 million Canadian dollars. This agreement replaced DECL's
$13 million Canadian funds facility. The weighted average
interest rate was 6.69%, 5.50% and 7.54% for the years ending
December 31, 1994, 1993 and 1992, respectively.
At December 31, 1994, DECL had $14.3 million Canadian funds
($10.2 million U.S.) outstanding under this revolving term credit
facility. The facility is guaranteed by DEKALB Energy Company.
The current term of the facility is up for renewal on June 30,
1995, at which time the Company expects a twelve month extension,
subject to the annual review of the Lender. However, if the term
is not extended by the Lender, the commitment will be reduced to
the amount of the borrowings then outstanding or two-thirds of
DECL's reserve value, whichever is less. DECL is then required
to pay down the commitment in 20 quarterly installments. The
first installment is due six months after the cancellation date.
The Company intends to repay the outstanding line of credit using
internally generated cash. However, as discretionary cash
outflows for the 1995 calendar year are expected to approximately
equal or exceed the Company's cash flow from operating
activities, the Company does not intend to make any repayments
during 1995. Accordingly, the revolving term credit facility has
been reclassified to long-term debt for financial statement
purposes.
Under the terms of the revolving term credit facility, the
Company may not enter into an amalgamation of any type without
the prior written consent of the Lender. Such consent may not be
reasonably withheld and is expected to be obtained in normal
course with respect to the pending merger with Apache Corporation
(see Note B, "Plan of Merger" in the Notes to the Consolidated
Financial Statements).
The revolving term credit facility contains a debt to equity
covenant for DECL during the term of the agreement, and a cash
flow covenant during the repayment period after the termination
of the facility. DECL must notify the Lender when various
adverse events occur. The Lender, at its discretion, may require
DECL to collateralize certain of its properties.
At December 31, 1994, the Company had no collateralized oil and
gas properties.
In 1992, upon receipt of the proceeds from the disposition of
U.S. assets, the Company repaid its U.S. line of credit.
H. Commitments and Contingencies and Off-Balance Sheet Risks
Commitments and Contingencies
(1) The Company and its subsidiaries are defendants in various
legal actions arising in the course of their current and
discontinued business activities. In the opinion of
management, these actions will not result in a material
effect on the consolidated financial position, results of
operations, or liquidity of the Company.
A-16
21
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. Commitments and Contingencies and Off-Balance Sheet Risks
(Continued)
(2) At December 31, 1994, the Company had various offsetting tax
matters pending relating to the Canadian operations which
have not been provided for in the financial statements. In
the opinion of management the net impact of these matters
will not have a material effect on the consolidated financial
position, the results of operations, or liquidity of the
Company, and will be provided for in the financial statements
if required upon resolution of each item.
(3) The Company has noncancellable agreements with terms ranging
from 1 to 10 years to lease office space and equipment, and
for terms ranging from 15 to 30 years for pipeline
transportation capacity. Minimum payments due under the
terms of the agreements are as follows:
($ in thousands) 1995 1996 1997 1998 1999 Thereafter
------ ------ ------ ------ ------ ---------
Lease commitments $ 390 $ 381 $ 408 $ 399 $ 398 $ 131
Pipeline
commitments 3,905 3,092 3,013 2,835 2,816 55,157
------ ------ ------ ------ ------ ---------
Total $ 4,295 $ 3,473 $ 3,421 $ 3,234 $ 3,214 $ 55,288
====== ====== ====== ====== ====== =========
Rental expense for operating leases for the years ended
December 31, 1994, 1993, and 1992 was $347,000, $370,000 and
$1,054,000 respectively.
(4) The Company maintains a voluntary retirement plan for its
employees requiring the Company to contribute certain amounts
each year to the plan (see Note K, "Defined Contribution
Plans" in the Notes to the Consolidated Financial
Statements).
Off-Balance Sheet Risks
At December 31, 1994, the Company had in its name, stand-by
letters of credit in the amount of $0.3 million, which covered 15
months of pipeline demand charges from Alberta Natural Gas Co.
Ltd.
Commodity Price Hedge Contracts
The Company has from time to time entered into various commodity
derivative contracts contracts to protect against fluctuations in
prices for natural gas and crude oil. In 1994, the Company used
swap contracts to hedge approximately 24% of its gross gas
production and 13% of its gross oil production at prices
averaging $2.22 per MCF and $18.71 per barrel, respectively.
Gains of approximately $1.5 million have been included in
operating revenues for the year.
A-17
22
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. Commitments and Contingencies and Off-Balance Sheet Risks
(Continued)
Commodity Price Hedge Contracts (Continued)
The Company has entered into NYMEX based swap contracts with a
third party for the 1995 fiscal year as follows:
Contracts entered into as at December 31, 1994:
Type of Hedge Period Terms Hedge Price
---------------------- ------ --------- -----------
NYMEX crude oil price 12/94 Sell 200 $17.95
swap 05/95 bbls/day U.S./Bbl
NYMEX crude oil price 07/94 Sell 200 $19.18
swap 01/95 bbls/day U.S./Bbl
NYMEX/Empress gas 11/94 Sell 20 $0.56
differential swap 10/95 MMBTU/day U.S./MMBTU
NYMEX/Permian gas 09/94 Sell 12 $0.200
differential swap 02/95 MMBTU/day U.S./MMBTU
NYMEX gas price swap 03/95 Sell 10 $1.93
10/95 MMBTU/day U.S./MMBTU
NYMEX gas price swap 04/95 Sell 10 $1.9375
10/95 MMBTU/day U.S./MMBTU
Unrealized profits on these contracts at year end based upon
prices in effect at December 30, 1994 were approximately $1.9
million.
Contracts entered into subsequent to December 31, 1994:
Type of Hedge Period Terms Hedge Price
---------------------- ------ --------- -----------
NYMEX crude oil price 01/95 Sell 200 $25.50
swap 07/95 bbls/day CDN./Bbl
(1)(2)
NYMEX crude oil price 01/95 Sell 200 $25.23
swap 12/95 bbls/day CDN./Bbl (2)
NYMEX crude oil price 03/95 Sell 400 $25.95
swap 08/95 bbls/day CDN./Bbl
(1)(2)
NYMEX/Empress gas 03/95 Buy 10 $0.800
differential swap 10/95 MMBTU/day U.S./MMBTU
(1) These contracts have options, on behalf of the counterparty,
to extend the contracts for an additional six months.
Assuming all options were extended, the additional volumes of
oil could total 109,200 barrels.
(2) These contracts are priced in Canadian funds to provide for
additional protection against fluctuations in the exchange
rate between Canadian and U.S. dollars.
A-18
23
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. Commitments and Contingencies and Off-Balance Sheet Risks
(Continued)
Commodity Price Hedge Contracts (Continued)
The swap contracts are conducted with a major financial
institution which the Company believes presents a minimal credit
risk. The Company is exposed to potential market risk should
commodity prices increase beyond the prices that have been
hedged, or should differential spreads decrease below what has
been hedged. Basis differential swap contracts are implemented
to guarantee a price spread between NYMEX market prices and a
desired point. This has the effect of fixing transportation
costs related to the sale of a commodity to ensure a netback
price at a specific sales location.
I. Capital Stock and Incentive Plans
Class A Stock and Class B (Nonvoting) Stock
The holders of Class A Stock and Class B (nonvoting) Stock have
the same rights in all respects, including rights with respect to
dividends and other distributions, except that (i) the holders of
Class B (nonvoting) Stock have no voting rights other than as
required by the Delaware General Corporation Law, (ii) the
holders of Class A Stock may exchange, at their election, any of
their shares for an equal number of shares of Class B (nonvoting)
Stock on a continuing basis and (iii) the Board of Directors of
the Company may distribute (1) voting stock of subsidiaries of
the Company to the holders of Class A Stock of the Company and
(2) non-voting stock of subsidiaries of the Company to the
holders of Class B (nonvoting) Stock of the Company.
Preferred Stock
The Company has 500,000 shares of $1 par value preferred stock
authorized and unissued.
Incentive Plans
In 1990, the Company adopted a Long-Term Incentive Plan ( the
"Plan") which provides for the awarding, from time to time, of
stock options, restricted stock, stock appreciation rights
(SARs), performance awards and stock indemnification rights
(SIRs). The Compensation Committee of the Board may make awards
of SARs, SIRs, restricted stock, performance awards, or stock
options to certain officers and other key employees of the
Company. Stock options may be granted at no less than fair
market value of the Company's stock at the date of grant and are
exercisable within periods specified by the Compensation
Committee. The Plan replaced an Incentive Stock Option Plan and
a non-qualified stock option plan. All stock options granted
prior to December 31,1990, were granted under these latter two
plans and continue in effect, but no new stock options may be
awarded under these plans. At December 31, 1994, 252,395 shares
of Class A Stock subject to options and 7,050 shares of Class B
(nonvoting) Stock subject to options were exercisable under the
Plan. The Company had 646 shares available for future grants
either as Class A or Class B shares, under the Plan at December
31, 1994.
A-19
24
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
I. Capital Stock and Incentive Plans (Continued)
DEKALB Energy Company
CAPITAL STOCK AND INCENTIVE PLAN
Class Prices
------------------ --------------------------
A B A B
--------- ------- --------------- -----
Shares under option at December 31, 1991 298,245 7,050 $1.00 - $31.75 $7.39
Activity:
Granted 219,850 - $11.50 - $16.50 -
Cancelled (132,370) - $13.00 - $31.75 -
Reissued 13,875 - $13.00 - $16.00 -
Exercised (33,980) - $1.00 - $ 7.39 -
--------- ------- --------------- -----
Shares under option at December 31, 1992 365,620 7,050 $2.096 - $22.25 $7.39
--------- ------- --------------- -----
Activity:
Granted 103,725 - $12.25 - $16.75 -
Cancelled (154,037) - $12.25 - $22.25 -
Exercised (15,843) - $2.096 - $16.00 -
--------- ------- --------------- -----
Shares under option at December 31, 1993 299,465 7,050 $2.096 - $22.25 $7.39
--------- ------- --------------- -----
Activity:
Granted 194,870 - $14.00 - $15.50 -
Cancelled (58,952) - $13.75 - $22.25 -
Exercised - - - -
--------- ------- --------------- -----
Shares under option at December 31, 1994 435,383 7,050 $2.096 - $22.25 $7.39
========= ======= =============== =====
Certain current and former officers of the Company were
participants in a Phantom Stock Plan. The Phantom Stock Plan
expired in November of 1992. The Company paid $.5 million to the
remaining participants.
Subsequent to the expiration of the previous Phantom Stock Plan,
the Company granted 77,380 phantom units exercisable in 1993 at
$16.00 per unit, to certain former officers of the Company. All
of the new phantom units were exercised in 1993, resulting in a
$.1 million payment. This payment had been accrued as part of
the loss on the sale of the U.S. assets in 1992.
In 1994, the Company granted 20,000 phantom units to officers of
the Company exercisable beginning in 1994 at a price range of
$14.00 to $15.25 per unit. At December 31, 1994, none of these
units had been exercised.
A-20
25
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. Pension Plans
Prior to the sale of the U.S. assets in 1992, the Company's U.S.
employees participated in a noncontributory pension plan which
was designed to provide benefits based on such employees' career
earnings. As part of the sale of the U.S. assets, this plan was
terminated, and assets were distributed.
The Company maintains a noncontributory pension plan covering
certain management employees which is not funded. Benefits are
based on each participant's years of service, final average
compensation (in the U.S.), or average of three highest paid
years (in Canada) and estimated benefits received from certain
other plans. At December 31, 1993, the U.S. did not have any
active employees in the plan. Eight previous U.S. employees
continue to receive benefits under the plan. The 1994 interest
cost of $153,000 associated with the U.S. employees was
accumulated as part of the loss on the sale of U.S. assets in
1992 and therefore did not result in an expense in 1994.
Total pension expense for the years ended December 31, 1994,
1993, and 1992, was $159,000, $85,000 and $2,134,000,
respectively.
The components of total pension expense are as follows
($ in thousands):
For the years ended December 31,
1994 1993 1992
----- ----- -----
Service cost - benefits earned during the year $ 26 $ 19 $ 256
Prior service cost 64 - -
Interest cost on projected benefit obligations 62 65 416
Net amortization and deferral 7 1 (19)
----- ----- -----
Total pension expense $ 159 $ 85 $ 653
===== ===== =====
Actuarial assumptions for 1994 and 1993 are as follows:
For the years ended December 31,
1994 1993 1992
------ ------ ------
Discount rate 7.00% 7.00% 8.00%
Average salary growth rate 4.50% 4.50% 5.50%
A-21
26
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. Pension Plans (Continued)
A reconciliation of accrued pension liability, included in other
long-term liabilities on the financial statements, is as follows
($ in thousands):
Unfunded Plan
As of December 31,
1994 1993
---------- ----------
Actuarial present value of benefits
based on service to date and present pay levels:
Vested $ 2,919 $ 2,952
Nonvested - -
---------- ----------
Accumulated benefit obligation 2,919 2,952
Additional amounts related to projected pay increases 176 241
---------- ----------
Projected benefit obligation 3,095 3,193
Plan assets at fair value - -
Plan assets (less than) benefit obligation (3,095) (3,193)
Unrecognized (gain) loss from experience (67) 31
Unrecognized net (asset) liability 6 (58)
---------- ----------
Accrued pension (liability) included in the Consolidated Balance Sheets $ (3,156) $ (3,220)
========== ==========
K. Defined Contribution Plans
Prior to the sale of the U.S. assets in 1992, the Company's U.S.
employees participated in a voluntary thrift plan which provided
that the Company contribute a minimum of $.50 for every dollar
contributed by employees up to 6% of their salaries. Additional
discretionary amounts could have been contributed when warranted
by results of operations. Company contributions charged to
expense under this plan were $243,000 for the year ended December
31, 1992.
Following the sale of the U.S. assets in 1992, this plan was
discontinued and the assets were distributed to the individuals.
The remaining U.S. eligible employees participated in a voluntary
thrift plan with the same basic design as the previous plan;
however, it contained an aged based contribution in addition to
the $.50 match and the additional discretionary payments.
Following the 1993 sale of assets in California, this plan is no
longer active. During 1994 the Company distributed the assets of
this plan to its members. Company contributions charged to
expense under this plan were $15,000 and $38,000 for the years
ended December 31, 1994 and 1993, respectively.
The Company's Canadian employees participate in a voluntary
retirement plan established in 1991. The Company contributes not
less than 1% and not greater than 5.5% of the salary for each
employee who participates in the plan, regardless of the
employees' contribution to the plan. In addition, the Company
contributes a minimum of $.50 for every dollar contributed by
employees up to 3% of their salaries. Additional discretionary
amounts may also be contributed when warranted by results of
operations. Company contributions charged to expense under this
plan were $403,000, $507,000, and $375,000 for the years ended
December 31, 1994, 1993, and 1992, respectively.
A-22
27
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
L. Operations by Geographic Area
Information on the Company's continuing operations by geographic
area for the year ended December 31, 1992 is shown below. U.S.
operations have been combined with Canada for 1994 and 1993 due
to the immateriality of the U.S. operations in relation to the
Company's operations as a whole. Operating earnings from
continuing operations are total revenues less operating expenses
of the geographic area, excluding interest and general corporate
items.
In 1994, two Canadian customers each accounted for 11% of the
Company's sales. In 1993, the Company had three Canadian
customers who accounted for 18%, 16% and 11% of sales,
respectively. In 1992, the Company had one Canadian customer who
accounted for 11% of sales.
As of or for the years
ended December 31, Operating
Operating Earnings Identifiable
($ in thousands) Revenues (Loss) Assets
--------- --------- -------------
1994 $ 46,290 $ 16,854 $ 211,589*
========= ========= =============
1993 $ 45,903 $ 15,339 $ 210,174*
========= ========= =============
1992
United States $ 22,773 $(57,801) $ 29,787
Canada 37,960 (17,524) 189,198
--------- --------- -------------
$ 60,733 $(75,325) $ 218,985
========= ========= =============
* Identifiable assets include $15.0 million and $22.6 million of
cash and cash equivalents on deposit in the U.S. in 1994 and
1993, respectively.
Note: Included in 1992 Canadian operating revenues
were $1.6 million of sales of natural gas from Canada to the
U.S. which were recorded at fair market value. The resale
of such gas to outside parties was eliminated from U.S.
sales.
M. Discontinued Operations
Summary of Earnings
For the years ended December 31,
($ in thousands) 1994 1993 1992
------ ------ -------
Lindsay Manufacturing Co.
(Loss) on divestiture $ - $ - $ (300)
Commodities Brokerage
(Loss) on divestiture - - (750)
Earnings (loss) from ------ ------ -------
discontinued operations $ - $ - $(1,050)
====== ====== =======
A-23
28
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
M. Discontinued Operations (Continued)
Other
The Company sold the stock of its commodities brokerage business
in 1986 and Lindsay Manufacturing Co. in 1989. The 1992 losses
resulted from changes in estimated future expenses related to the
above transactions. As a result of the Company's cumulative loss
position in the U.S., no tax benefit was recognized for the
losses.
N. Oil and Gas Disclosures
Capitalized costs at December 31, 1994 (all relating to assets
located in Canada) which have been excluded from the amortization
base as prescribed by the Securities and Exchange Commission
Financial Reporting Release No. 14 are as follows:
($ in thousands)
Interest
Fiscal Year Leasehold Exploration Related to
of Acquisition Costs Costs Excluded Costs Total
-------------- --------- ----------- -------------- ------
Canada
Prior $ 46 $ 302 $ 71 $ 419
1992 258 564 168 990
1993 1,483 829 472 2,784
1994 4,723 1,306 1,232 7,261
-------- -------- ---------- -------
Total $ 6,510 $ 3,001 $ 1,943 $11,454
======== ======== ========== =======
The properties associated with the above excluded costs are being
evaluated in the normal course of the Company's exploration
activities. While it is not possible to determine the exact
period in which these costs will be transferred to the
amortization base, it is estimated that the majority will be
included within five years after the costs were incurred.
Any material impairment to the properties associated with the
excluded costs will be moved to the full cost amortization base.
O. Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and Cash Equivalents
The carrying amount approximates the fair value due to the short
term maturity of these instruments.
A-24
29
DEKALB Energy Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
O. Disclosures About Fair Value of Financial Instruments
(Continued)
Long-Term Debt
The fair value of the Company's publicly held notes at December
31, 1994 is estimated to be $51.0 million, or $0.3 million under
stated book value, based upon estimates provided to the Company
by independent sources. The fair value of the Company's
revolving term credit facility approximates the carrying amount.
P. Postemployment Benefits
In November 1992, the Financial Accounting Standards Board
introduced Statement No. 112, "Employer's Accounting for
Postemployment Benefits" effective for fiscal years beginning
after December 15, 1993. No provision for any future obligation
has been made by the Company for postemployment benefits arising
from the proposed merger with Apache (see Note B,"Plan of Merger
") as the amounts, if any, cannot be reasonably estimated.
Other estimated postemployment benefits are not material.
Q. Future Removal and Site Restoration Costs
At December 31, 1994, the Company estimated future removal and
site restoration costs to be $6.8 million ($1.0 million present
value). These costs are included in DD&A expense using the unit-
of-production method based on proved oil and gas reserves. The
Company charged $0.4 million in 1994, $0.6 million in 1993 and
$0.6 million in 1992.
A-25
30
DEKALB Energy Company
SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)
Estimated Net Quantities of Proved Reserves*
As of or for the years ended December 31,
1994 (1) 1993 (1) 1992
-------- -------- ----------------------------
Oil, Condensate and Total U.S. Canada
Natural Gas Liquids -------- -------- --------
(thousands of barrels)
Proved developed and
undeveloped reserves:
Beginning of year 13,234 13,984 26,077 11,693 14,384
Revisions of previous
estimates (2,239) (300) (12) - (12)
Sales of reserves (90) (46) (10,928) (10,928) -
Purchase of minerals
in place 83 188 382 - 382
Extensions, discoveries
and other additions 690 397 227 - 227
Production (962) (989) (1,762) (765) (997)
-------- -------- -------- -------- --------
End of year 10,716 13,234 13,984 - 13,984
======== ======== ======== ======== ========
Proved developed reserves:
Beginning of year 13,221 13,972 25,094 10,723 14,371
======== ======== ======== ======== ========
End of year 10,612 13,221 13,972 - 13,972
======== ======== ======== ======== ========
Natural Gas 1994 (1) 1993 (1) 1992
-------- -------- ------------------------------
(millions of cubic feet) Total U.S. Canada
Proved developed and -------- -------- --------
undeveloped reserves:
Beginning of year 277,411 276,343 361,194 80,464 280,730
Revisions of previous
estimates 6,880 2,198 1,026 732 294
Sales of reserves (11,526) (3,660) (71,429) (71,342) (87)
Purchase of minerals
in place 2,710 4,405 1,617 - 1,617
and other additions
Extensions, discoveries 44,912 19,094 7,239 1,335 5,904
Production (20,491) (20,969) (23,304) (6,671) (16,633)
-------- -------- -------- -------- --------
End of year 299,896 277,411 276,343 4,518 271,825
======== ======== ======== ======== ========
Proved developed reserves:
Beginning of year 263,070 263,305 341,353 73,962 267,391
======== ======== ======== ======== ========
End of year 274,611 263,070 263,305 4,518 258,787
======== ======== ======== ======== ========
* Proved oil and gas reserve quantities for all three years
presented were estimated by the Company's engineers. The total
proved reserve quantities for 1994, 1993 and 1992 were reviewed
and determined to be reasonable by Ryder Scott Company
Petroleum Engineers, independent petroleum engineers, in
accordance with Securities and Exchange Commission guidelines.
(1) U.S. reserve information has been combined with Canada for
1993 due to the immateriality of the U.S. reserves in
relation to the total Company reserves. No U.S. reserves
have been assigned at December 31, 1994.
A-26
31
DEKALB Energy Company
SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO
PROVED OIL AND GAS RESERVES
As of or for the year ended December 31, 1994, 1993, and 1992 ($ in
millions*)
1994
Total
--------
Future cash inflows $ 536.5 (4)
Future production costs 133.8
Future development costs 22.8
--------
Future net cash flows before income taxes 379.9
Discount at 10% per annum 175.8
--------
Present value of future net cash flows before income taxes 204.1 (4)
Present value of future income taxes** 44.5
--------
Standardized measure of discounted future net cash flows $ 159.6
========
1993 (5)
Total
--------
Future cash inflows $ 672.0 (4)
Future production costs 134.8
Future development costs 20.4
--------
Future net cash flows before income taxes 516.8
Discount at 10% per annum 249.8
--------
Present value of future net cash flows before income taxes 267.0 (4)
Present value of future income taxes** 64.6
--------
Standardized measure of discounted future net cash flows $ 202.4
========
United
1992 States Canada Total
-------- -------- --------
Future cash inflows $ 8.9 $ 648.1 (4) $ 657.0
Future production costs 2.0 172.1 174.1
Future development costs 0.4 22.2 22.6
------- -------- --------
Future net cash flows before income taxes 6.5 453.8 460.3
Discount at 10% per annum 1.3 248.6 249.9
------- -------- --------
Present value of future net cash flows before income taxes 5.2 205.2 (4) 210.4
Present value of future income taxes** - 44.7 44.7
------- -------- --------
Standardized measure of discounted future net cash flows $ 5.2 $ 160.5 $ 165.7
======= ======== ========
* As developed by using the following conventions:
(1) Estimates are made of quantities of proved reserves at fiscal
year-end and for future periods during which these reserves are
expected to be produced, based on year-end economic conditions.
(2) Pricing of future production of proved reserves is based on the
prices in effect at fiscal year-end in accordance with Securities
and Exchange Commission (SEC) Guidelines and do not reflect current
prices. Estimated future production and development costs reflect
current economic conditions.
(3) The provision for income taxes has been computed by applying
future statutory tax rates under the present law to the future
taxable income to be generated from producing proved reserves
giving effect to applicable permanent differences.
(4) Included in future cash inflows is approximately $25.7 million,
$39.4 million and $45.6 million ($9.8 million, $12.0 million and
$14.1 million after discount at 10% per annum) for 1994, 1993 and
1992 respectively of Canadian provincial tax credits expected to
be realized beyond the date at which the legislation, under its
provisions, could be repealed.
(5) U.S. net cash flows have been included with Canada for 1993 due
to their immateriality in relation to the total net cash flows for
the Company as a whole. No future net cash flows were assigned to
the U.S. at December 31, 1994.
** Canadian undiscounted future income taxes in 1994, 1993, and 1992
were $91.7 million, $135.3 million and $119.8 million,
respectively.
A-27
32
DEKALB Energy Company
SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)
The following table sets forth the changes in the Standardized Measure
of Discounted Future Cash Flow relating to Proved Oil and Gas Reserves
($ in millions)
As of or for the years ended December 31,
Revision Purchases
Current Changes of Discoveries of Sales of Accretion
Beginning Year in Prices Estimated and Minerals Minerals of Income End of
of Year Sales and Costs Quantities Extensions in Place* in Place Discount taxes Other Year
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
1994 (1)
Total $ 202.4 $ (31.1) $ (58.4) $ 0.7 $ 28.3 $ 1.8 $ (13.7) $ 23.4 $ 16.6 $ (10.4) $ 159.6
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
1993(1)
Total $ 165.7 $ (31.8) $ 54.1 $ 2.6 $ 20.3 $ 4.8 $ (4.2) $ 18.3 $ (19.9) $ (7.5) $ 202.4
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
1992
U.S. $ 114.3 $ (15.0) $ (1.3) $ - $ 2.1 $ - $ (95.3) $ 0.4 $ - $ - $ 5.2
Canada $ 161.0 $ (27.4) $ 22.5 $ 2.4 $ 5.8 $ 3.3 $ - $ 16.6 $ (6.9) $ (16.8) $ 160.5
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total $ 275.3 $ (42.2) $ 21.2 $ 2.4 $ 7.9 $ 3.3 $ (95.3) $ 17.0 $ (6.9) $ (16.8) $ 165.7
======== ======== ======== ======== ======== ======== ======== ======== ======== ======== ========
* Includes any unevaluated costs associated with acquired properties.
(1) U.S. data has been included with Canada for 1993 due to its
immateriality in relation to the total data for the Company as a
whole. No future net cash flows were assigned to the U.S. at
December 31, 1994.
CAPITALIZED COSTS RELATED TO OIL AND GAS PROPERTIES
($ in thousands)
As of December 31, 1994 1993 (2)
-------- --------
Evaluated Properties $ 312,649 $ 298,235
Unevaluated Properties (1) 11,454 9,048
-------- --------
Total properties 324,103 307,283
Less reserves for accumulated
depreciation, depletion
and amortization 139,555 130,079
-------- --------
End of year $ 184,548 $ 177,204
======== ========
(1) Unevaluated costs represent acquisition and exploration costs
which are excluded from the current amortization base as
described in Note N.
(2) U.S. costs have been included with Canada for 1994 and 1993
due to their immateriality in relation to the total costs for
the Company as a whole.
A-28
33
DEKALB Energy Company
SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)
COSTS INCURRED IN PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
ACTIVITIES (1)
($ in thousands)
For the years ended December 31,
1994 (2) 1993 (2) 1992
-------- -------- ---------------------------
Total U.S. Canada
-------- -------- -------
Leasehold costs $ 7,337 $ 2,686 $ 906 $ - $ 906
Purchases of minerals
in place 770 2,075 1,912 - 1,912
Exploration 13,399 8,168 7,709 2,649 5,060
Development 19,714 6,532 6,504 3,361 3,143
------- ------- ------- ------ -------
Total $41,220 $19,461 $17,031 $6,010 $11,021
======= ======= ======= ====== =======
(1) Costs do not include capitalized interest. Capitalized general and
administrative costs of $2,335,000, $2,422,000 and $1,853,000 for
1994, 1993 and 1992, respectively, have been included.
(2) U.S. costs for 1993 have been combined with Canada due to the
immateriality of the U.S. costs in relation to the total Company
costs as a whole. No U.S. costs were incurred in 1994.
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES
($ in thousands)
For the years ended December 31,
1994 (5) 1993 (5) 1992
----------- ----------- ----------------------------------
Total U.S. Canada
----------- ----------- ----------
Revenues (4) $ 46,290 $ 45,903 $ 60,733 $ 22,773 $ 37,960
Lease operations and other
direct charges (1) 11,654 12,467 18,833 7,218 11,615
Depreciation, depletion
and amortization 14,603 15,142 22,522 9,683 12,839
Provision for impairment of
oil and gas properties - - 53,320 24,728 28,592
Income and other taxes (2) 8,833 8,164 (13,756) (7,067) (6,689)
---------- ---------- ---------- ---------- ----------
Results of Operations for oil
and as producing activities $ 11,200 $ 10,130 $ (20,186) $ (11,789) $ (8,397)
========== ========== ========== ========== ==========
"Full Cost" Amortization Rate (3) $ 3.33 $ 3.37 $ 5.16 $ 3.31
========== ========== ========== ==========
(1) Excludes general and administrative and interest costs.
(2) This provision is not an indication of the total corporate income
tax provision and is provided at statutory tax rates.
(3) Dollars per equivalent barrel (gas converted to oil at 6,000 cubic
feet per barrel).
(4) Included in 1992 Canadian operating revenues were $1.6 million of
sales of natural gas from Canada to the U.S. which were recorded
at fair market value. The resale of such gas to outside parties
was eliminated from U.S. sales.
(5) U.S. results of operations for 1994 and 1993 have been combined
with Canada due to the immateriality of the U.S. results in
relation to the total Company results as a whole.
A-29
34
SCHEDULE B
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands)
(Unaudited)
For the three months
ended March 31,
--------------------
1995 1994
---- ----
Operating revenues (Note 9)
Oil and liquids sales $ 3,467 $ 2,820
Natural gas sales 5,350 7,951
Other 249 359
-------- --------
Total operating revenues 9,066 11,130
Operating expenses
Lease operations and other direct charges 2,857 2,490
Depreciation, depletion and amortization 3,775 3,267
General and administrative 647 779
-------- --------
Operating income 1,787 4,594
Interest expense, net of interest income
and capitalized interest (Note 4) 999 969
Other (income) expense, net (Note 2) 419 (47)
-------- --------
Earnings from continuing operations
before income and other taxes 369 3,672
Income and other taxes (Note 6) 778 1,922
-------- --------
Net earnings (loss) $ (409) $ 1,750
======== ========
Net earnings (loss) per share (Note 5) $ (0.04) $ 0.18
======== ========
Weighted average shares outstanding
(in thousands) 9,388 9,666
The accompanying notes are an integral part of the financial statements.
B-1
35
DEKALB Energy Company
CONSOLIDATED BALANCE SHEETS
($ in thousands)
(Unaudited)
As of
March 31, December 31,
1995 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents (Note 7) $ 15,239 $ 14,980
Accounts receivable 9,395 9,509
Other current assets 305 928
---------- ----------
Total current assets 24,939 25,417
Other assets 774 790
Property, plant and equipment (Note 8):
Oil and gas assets, full cost method
Proved properties, being amortized 321,084 312,649
Unproved properties and properties under development,
not being amortized 12,990 11,454
Other property and equipment 2,819 2,791
Less accumulated depreciation, depletion and amortization (145,492) (141,512)
---------- ----------
Net property, plant and equipment 191,401 185,382
---------- ----------
TOTAL ASSETS $ 217,114 $ 211,589
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,982 $ 11,820
Other current liabilities 3,264 3,909
---------- ----------
Total current liabilities 15,246 15,729
Other liabilities 10,391 10,386
Deferred income taxes (Note 6) 27,769 27,096
Long-term debt (Note 7) 66,956 61,547
---------- ----------
TOTAL LIABILITIES 120,362 114,758
---------- ----------
Commitments and contingencies (Note 3)
Shareholders' equity:
Capital stock:
Class A; $.625 stated value; 6,000,000 shares
authorized; 2,329,603 shares issued at March 31, 1995;
2,381,106 shares issued at December 31, 1994; 1,456 1,488
Class B (nonvoting); $.625 stated value; 13,000,000 shares
authorized; 11,348,880 shares issued at March 31, 1995;
11,297,377 shares issued at December 31 ,1994 7,093 7,061
Capital in excess of stated value 51,513 51,657
Retained earnings 148,959 149,367
Currency translation adjustments (19,008) (19,337)
---------- ----------
190,013 190,236
Treasury shares, at cost (4,283,871 shares at March 31, 1995 and
4,292,258 shares at December 31, 1994) (93,261) (93,405)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 96,752 96,831
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 217,114 $ 211,589
========== ==========
The accompanying notes are an integral part of the financial statements.
B-2
36
DEKALB Energy Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
For the three months
ended March 31,
--------------------
1995 1994
---- ----
Cash Flows from Operating Activities
Net earnings (loss) $ (409) $ 1,750
Adjustments to reconcile net earnings (loss) to net
cash flows from operating activities:
Depreciation, depletion and amortization 3,775 3,267
Provision for deferred income taxes (Note 6) 618 1,738
Other (14) 16
Changes in assets and liabilities:
Accounts receivable and other current assets 762 (700)
Accounts payable and other current liabilities (3,922) (1,756)
Other assets 16 16
Other liabilities (3) 304
--------- ---------
Net cash flows from operating activities 823 4,635
--------- ---------
Cash Flows from Investing Activities
Purchases of property, plant and equipment (8,080) (12,269)
Proceeds from sale of property, plant and equipment (Note 8) 76 3,768
Increase (decrease) in short-term payables for purchases of property,
plant and equipment 2,085 (1,311)
--------- ---------
Net cash flows from investing activities (5,919) (9,812)
--------- ---------
Cash Flows from Financing Activities
Net short-term borrowings -- (1,774)
Increase in long-term debt 5,352 --
--------- ---------
Net cash flows from financing activities 5,352 (1,774)
--------- ---------
Net effect of exchange rates on cash 3 (134)
--------- ---------
Net increase (decrease) in cash and cash equivalents 259 (7,085)
Cash and cash equivalents, at December 31 14,980 22,664
--------- ---------
Cash and cash equivalents, at March 31 $ 15,239 $ 15,579
========= =========
Note: Cash paid during the period for:
Income taxes $ 233 $ 257
Interest 1,374 1,250
Capitalized interest (Note 4) 300 238
The accompanying notes are an integral part of the financial statements.
B-3
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. General
The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not
include all of the disclosures normally made in the registrant's annual Form
10-K filing. These financial statements should be read in conjunction with
the financial statements and notes thereto included in DEKALB Energy
Company's (the "Company") latest annual report on Form 10-K.
In the opinion of management, the unaudited consolidated financial
statements reflect all adjustments of a normal recurring nature necessary to
fairly represent the financial position, results of operations, and cash
flows for the respective interim periods.
2. Plan of Merger
On December 21, 1994, the Company announced it had entered into a
merger agreement with Houston-based Apache Corporation ("Apache"), whereby
the outstanding shares of DEKALB Class A Stock and Class B (nonvoting)
Stock will be converted into Apache Common Stock at a conversion rate as
specified in the agreement. The Board of Directors is recommending
approval and adoption of the merger, which is expected to be considered at
a Special Meeting of the shareholders on May 17, 1995. Apache filed the
final Form S-4 Registration Statement (Amendment No. 3) with the Securities
and Exchange Commission on April 14, 1995 (Registration No. 33-57321).
This Form S-4 was declared effective on Monday, April 17, 1995.
For the three months ended March 31, 1995, $0.4 million of merger costs
incurred during the period were expensed as other expense in the
consolidated financial statements. Once the merger proceeds, various
additional restructuring costs associated with the merger will be expensed
as incurred.
3. Commitments and Contingencies
The Company and its subsidiaries are defendants in various legal actions
arising in the course of their current and discontinued business
activities. Management is of the opinion there are no pending legal
proceedings that would have a material effect on the consolidated financial
position, results of operations or liquidity of the Company.
At March 31, 1995, the Company had various offsetting tax matters
pending relating to the Canadian operations which have not been provided for
in the consolidated financial statements. In the opinion of management, the
net impact of these matters will not have a material effect on the
consolidated financial position, results of operations or liquidity of the
Company, and will be provided for in the consolidated financial statements
if required upon resolution of each item.
4. Interest Expense, Capitalized Interest and Interest Income
($ in thousands)
Interest Capitalized Interest Net Interest
1995 Expense Interest Income Expense
- ---- ------- ----------- -------- ------------
1st Qtr. $ 1,524 $ (300) $ (225) $ 999
1994
- ----
1st Qtr. $ 1,333 $ (238) $ (126) $ 969
B-4
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
5. Earnings (Loss) Per Share Calculation
Earnings (loss) per share is calculated by dividing the earnings (loss)
by the weighted average number of shares outstanding during each period.
The computation of weighted average shares outstanding excludes
anti-dilutive shares.
6. Income and Other Taxes
Income and other taxes is comprised of the following ($ in thousands):
Income Capital and Deferred Total Income and
1995 Taxes Other Taxes* Income Taxes Other Taxes
- ---- ------ ------------ ------------ ----------------
1st Qtr. $ - $ 160 $ 618 $ 778
1994
- ----
1st Qtr. $ - $ 184 $ 1,738 $ 1,922
* Consists of Canadian Large Corporations Tax, franchise taxes and
withholding taxes.
The first quarter tax provisions for 1995 and 1994 resulted in
effective tax rates higher than the statutory Canadian income tax rate,
principally due to the lack of tax benefits associated with interest and
other costs incurred in the U.S. Effective February 27, 1995, the Canadian
statutory income tax rate was increased to 44.62% from 44.34%. The
deferred tax liability at March 31, 1995 was increased by approximately
$0.2 million as a result of the rate change.
7. Disclosures About Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates the fair
value due to the short term maturities of these instruments. The fair
value of the Company's long-term debt at March 31, 1995 is approximately
$67.8 million, or $0.8 million over stated book value, based upon estimates
provided to the Company by independent sources.
8. Disposition of Assets
In March 1994, the Company reflected the sale of its interest in
leasehold and tangible property in the Rigel area of the Province of
British Columbia for proceeds of $3.6 million. In accordance with the full
cost method of accounting, the proceeds received for the 1994 dispositions
were credited to the full cost pool; therefore, no gains or losses were
recorded on the sales.
B-5
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
9. Hedge Contracts
The Company enters into various commodity derivative contracts to
protect a portion of its oil and gas production against fluctuating prices.
Approximately 25% of the Company's average annual production is presently
hedged through various contracts (all of which were in effect at December
31, 1994) with terms ranging to December 1995. The results of these
contracts are included in revenues as the oil or gas is produced. Gains of
approximately $0.3 million have been included in operating revenues in the
first quarter of 1995.
The fair value of the swap agreements at March 31, 1995 exceeded
contract values by approximately $2.0 million and is not included in the
consolidated financial statements.
10. Financial Statement Presentation
Certain prior year figures have been reclassified to conform to the
current year financial statement presentation.
B-6
40
SCHEDULE C
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
The following unaudited consolidated condensed financial statements and
related notes are presented to show (i) the pro forma effects of the merger of
DEKALB Energy Company (DEKALB) with and into a wholly owned subsidiary of
Apache Corporation (Apache), (ii) the purchase of oil and gas properties from
Texaco Exploration and Production Inc. (Texaco) on March 1, 1995 and (iii) the
cumulative pro forma effects of both of these transactions.
The DEKALB transaction, hereinafter referred to as the "Merger", was
completed May 17, 1995 and will be reported using the pooling of interests
method of accounting. The Texaco acquisition is being reported using the
purchase method of accounting.
The condensed statements of operations are presented to show income
from continuing operations as if the Merger occurred effective January 1, 1992
and as if the Texaco transaction occurred effective January 1, 1994. The pro
forma condensed balance sheet is based on the assumption that the merger
occurred on March 31, 1995.
Pro forma data are based on assumptions and include adjustments as
explained in the notes to the unaudited pro forma consolidated condensed
financial statements. The pro forma data are not necessarily indicative of the
financial results that would have occurred had the transactions been effective
on and as of the dates referenced above, and should not be viewed as indicative
of operations in future periods. The unaudited pro forma consolidated condensed
financial statements should be read in conjunction with the notes thereto,
Apache's Annual Report on Form 10-K for the fiscal year ended December 31, 1994,
Apache's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995,
Apache's Current Report on Form 8-K and Form 8-K/A, dated March 1, 1995 and
filed in connection with the Texaco acquisition, DEKALB'S Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, and DEKALB's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1995.
C-1
41
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF
OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MERGER
APACHE DEKALB PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
REVENUES
Oil and gas production revenues........................... $394,552 $ 59,283 $ $453,835
Gathering, processing and marketing revenues.............. 28,594 -- 28,594
Equity in income of affiliates............................ 2,695 756 3,451
Gain on sale of investment in affiliate................... 28,345 1,914 30,259
Other revenues............................................ 114 1,150 1,264
-------- -------- ------- --------
Total revenues......................................... 454,300 63,103 517,403
OPERATING EXPENSES
Depreciation, depletion and amortization.................. 157,508 22,522 (154)(a) 179,876
Impairments............................................... 12,000 53,320 65,320
Loss on disposal of U.S. assets........................... -- 34,942 34,942
Operating costs........................................... 125,337 18,833 144,170
Gathering, processing and marketing costs................. 21,452 -- 21,452
Administrative, selling and other......................... 35,010 5,589 40,599
Financing costs, net...................................... 32,515 6,938 39,453
-------- -------- ------- --------
383,822 142,144 (154) 525,812
-------- -------- ------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES............................ 70,478 (79,041) 154 (8,409)
Provision (benefit) for income taxes...................... 22,702 (9,788) 55 (b) 6,223
(6,746)(c)
-------- -------- ------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS................... $ 47,776 $(69,253) $ 6,845 $(14,632)
-------- -------- ------- --------
INCOME (LOSS) FROM CONTINUING
OPERATIONS PER COMMON SHARE............................... $ 1.02 $ (7.19) $ (.26)
======== ========= ========
WEIGHTED AVERAGE COMMON SHARES............................. 46,904 9,630 (1,190)(d) 55,344
======== ======== ======= ========
The accompanying notes to unaudited pro forma financial statements are an
integral part of these statements.
C-2
42
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MERGER
APACHE DEKALB PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
REVENUES
Oil and gas production
revenues................................................. $437,342 $44,506 $ $481,848
Gathering, processing and marketing revenues.............. 25,862 -- 25,862
Equity in income of affiliates............................ 624 -- 624
Other revenues............................................ 2,810 1,488 4,298
-------- ------- ------- --------
Total revenues......................................... 466,638 45,994 512,632
OPERATING EXPENSES
Depreciation, depletion and amortization.................. 176,335 15,142 6,843 (a) 198,320
Impairments............................................... 23,200 -- 23,200
Gain on disposal of U.S.
assets................................................... -- (513) (513)
Operating costs........................................... 128,113 12,467 140,580
Gathering, processing and marketing costs................. 21,010 -- 21,010
Administrative, selling
and other................................................ 33,193 3,436 36,629
Financing costs, net...................................... 26,882 3,795 30,677
-------- ------- ------- --------
408,733 34,327 6,843 449,903
-------- ------- ------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.............................................. 57,905 11,667 (6,843) 62,729
Provision for income taxes................................ 20,571 5,995 (2,532)(b) 21,308
(2,726)(c)
-------- ------- ------- --------
INCOME FROM CONTINUING OPERATIONS.......................... $ 37,334 $ 5,672 $(1,585) $ 41,421
-------- ------- ------- --------
INCOME FROM CONTINUING OPERATIONS PER
COMMON SHARE.............................................. $ 0.70 $ 0 .59 $ .67
======== ======= ========
WEIGHTED AVERAGE COMMON SHARES............................. 53,534 9,675 (1,196)(d) 62,013
======== ======= ======= ========
The accompanying notes to unaudited pro forma financial statements are an
integral part of these statements.
C-3
43
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MERGER APACHE AND TEXACO
APACHE DEKALB PRO FORMA DEKALB TEXACO PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------- ---------- ----------- ---------
REVENUES
Oil and gas production
revenues.................. $493,500 $44,889 $ $538,389 $163,300 $ $701,689
Gathering, processing and
marketing revenues........ 44,287 -- 44,287 44,287
Equity in income of
affiliates................ 459 -- 459 459
Other revenues............. 7,375 2,116 9,491 9,491
-------- ------- ------- -------- -------- -------- --------
Total revenues.......... 545,621 47,005 592,626 163,300 755,926
OPERATING EXPENSES
Depreciation, depletion
and amortization.......... 232,612 14,603 10,606 (a) 257,821 63,946 (f) 321,767
Impairments................ 7,300 -- 7,300 7,300
Operating costs............ 137,820 11,654 149,474 83,700 233,174
Gathering, processing
and marketing costs....... 37,866 -- 37,866 37,866
Administrative,
selling and other......... 34,870 3,859 38,729 4,000 (g) 42,729
Financing costs, net....... 30,696 4,047 34,743 27,883 (h) 62,626
-------- ------- ------- -------- -------- -------- --------
481,164 34,163 10,606 525,933 83,700 95,829 705,462
-------- ------- ------- -------- -------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES............... 64,457 12,842 (10,606) 66,693 79,600 (95,829) 50,464
Provision (benefit)........ (3,924)(b)
for income taxes.......... 21,620 6,029 (2,615)(c) 21,110 (6,005)(i) 15,105
-------- ------- ------- -------- -------- -------- --------
NET INCOME FROM
CONTINUING
OPERATIONS................. $ 42,837 $ 6,813 $(4,067) $ 45,583 $ 79,600 $(89,824) $ 35,359
======== ======= ======= ======== ======== ======== ========
NET INCOME FROM
CONTINUING OPERATIONS
PER COMMON SHARE........... $ .70 $ .71 $ .65 $ .51
======== ======= ======== ========
WEIGHTED AVERAGE
COMMON SHARES.............. 61,317 9,583 (1,184)(d) 69,716 69,716
======== ======= ======= ======== ========
The accompanying notes to unaudited pro forma financial statements are
an integral part of these statements.
C-4
44
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MERGER APACHE AND TEXACO
APACHE DEKALB PRO FORMA DEKALB TEXACO PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ACQUISITION ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ----------- ----------- ----------- ---------
REVENUES
Oil and gas production
revenues.................. $134,372 $ 8,817 $ $143,189 $23,775 $ $166,964
Gathering, processing and
marketing revenues........ 22,869 -- 22,869 22,869
Other revenues............. 1,411 249 1,660 1,660
-------- ------- ------- -------- ------- -------- --------
Total revenues.......... 158,652 9,066 167,718 23,775 191,493
OPERATING EXPENSES
Depreciation, depletion
and amortization.......... 62,734 3,775 3,285 (a) 69,794 9,720 (f) 79,514
Operating costs............ 42,122 2,857 44,979 10,951 55,930
Gathering, processing
and marketing costs....... 21,461 -- 21,461 21,461
Administrative,
selling and other......... 9,052 1,050 (413)(e) 9,689 667 (g) 10,356
Financing costs, net....... 14,281 1,015 15,296 4,491 (h) 19,787
-------- ------- ------- -------- ------- -------- --------
149,650 8,697 2,872 161,219 10,951 14,878 187,048
-------- ------- ------- -------- ------- -------- --------
INCOME FROM CONTINUING
OPERATIONS BEFORE
INCOME TAXES............... 9,002 369 (2,872) 6,499 12,824 (14,878) 4,445
Provision (benefit)........ (1,215)(b)
for income taxes........... 3,011 778 (159)(c) 2,415 (760)(i) 1,655
-------- ------- ------- -------- ------- -------- --------
NET INCOME FROM
CONTINUING
OPERATIONS................. $ 5,991 $ (409) $(1,498) $ 4,084 $12,824 $(14,118) $ 2,790
======== ======= ======= ======== ======= ======== ========
NET INCOME FROM
CONTINUING OPERATIONS
PER COMMON SHARE........... $ .10 $ (.04) $ .06 $ .04
======== ======= ======== ========
WEIGHTED AVERAGE
COMMON SHARES.............. 61,445 9,388 (1,160)(d) 69,673 69,673
======== ======= ======= ======== ========
The accompanying notes to unaudited pro forma financial statements are
an integral part of these statements.
C-5
45
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1995
(IN THOUSANDS)
MERGER
APACHE DEKALB PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents........ $ 5,166 $ 15,239 $ $ 20,405
Receivables...................... 107,896 9,395 117,291
Inventories...................... 12,418 -- 12,418
Advances to oil and gas ventures
and other....................... 10,102 305 413 (m) 10,820
---------- --------- ----------- -----------
Total current assets.......... 135,582 24,939 413 160,934
Net property and equipment........ 2,248,754 191,401 (57,269)(k) 2,382,886
Other assets...................... 37,870 774 38,644
---------- --------- ----------- -----------
TOTAL ASSETS...................... $2,422,206 $ 217,114 $ (56,856) $ 2,582,464
========== ========= =========== ===========
LIABILITIES AND
SHAREHOLDERS'
EQUITY
Current liabilities................ $134,597 15,246 $ $ 149,843
Long-term debt..................... 1,207,852 66,956 1,274,808
Deferred income taxes.............. 160,566 27,769 (21,190)(k) 154,900
(12,245)(l)
Other noncurrent liabilities....... $ 100,723 10,391 111,114
---------- --------- ----------- -----------
TOTAL LIABILITIES.................. 1,603,738 120,362 (33,435) 1,690,665
SHAREHOLDERS' EQUITY:
Common stock...................... 78,242 8,549 1,961 (j) 88,752
Paid-in capital................... 544,141 51,513 (95,222)(j) 500,432
Retained earnings................. 209,538 148,959 12,245 (l) 335,076
(36,079)(k)
413 (m)
Currency translation adjustments.. -- (19,008) (19,008)
Treasury stock at cost............ (13,453) (93,261) 93,261 (k) (13,453)
---------- --------- ----------- -----------
Total shareholders' equity.... 818,468 96,752 (23,421) 891,799
---------- --------- ----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY............. $2,422,206 $ 217,114 $ (56,856) $ 2,582,464
========== ========= =========== ===========
The accompanying notes to unaudited pro forma financial statements are
an integral part of these statements.
C-6
46
APACHE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The unaudited pro forma consolidated condensed statements of operations
relative to the Merger are based on the audited statements of DEKALB and Apache
for the years ended December 31, 1992, 1993 and 1994 and on the unaudited
statements of DEKALB and Apache for the quarter ended March 31, 1995. The pro
forma information relating to the Merger reflects the combination of Apache's
and DEKALB's historical results of operations, as adjusted (i) to convert
Apache's method of calculating depreciation, depletion and amortization expense
(DD&A expense) from the future-gross-revenue method to the units-of-production
method which is the method used by DEKALB and (ii) to adjust DEKALB's historical
tax provision to reflect the expected future benefits associated with DEKALB's
U.S. federal net operating loss carryforwards. These adjustments are covered by
conforming pro forma adjustments (a), (b), (c), (k) and (l), which are discussed
below. Other differences in accounting policies and methods between DEKALB and
Apache were reviewed and considered to have an immaterial impact on the combined
financial results. The pro forma data relative to the Texaco acquisition are
based on Texaco's Audited Statement of Revenues and Direct Operating Expenses
for the year ended December 31, 1994, on unaudited revenues and direct operating
expenses for the two months ended February 28, 1995, and on the adjustments and
assumptions described below.
Certain historical DEKALB data have been reclassified to conform to
Apache's historical presentations.
The pro forma balance sheet is based on Apache's and DEKALB's
unaudited balance sheets at March 31, 1995, and upon the adjustments and
assumptions described below.
Pursuant to the Terms of Merger Agreement, Apache issued 8,407,711
shares of its common shares for DEKALB outstanding shares and for DEKALB stock
options that remained outstanding at the time of the Merger.
PRO FORMA ADJUSTMENTS
THE UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS REFLECT THE FOLLOWING
ADJUSTMENTS:
(a) Record the pro forma impact of converting Apache's
historical DD&A expense from the future-gross-revenue method to the
units-of-production method.
(b) Record the related deferred tax provision (benefit)
relating to the pro forma adjustments referred to in (a) above.
(c) Reverse DEKALB's U.S. tax asset valuation allowances,
recorded in accordance with SFAS No. 109, assuming that Apache's future
U.S. operations will benefit from the utilization of DEKALB's U.S.
federal net operating loss carryforwards and other U.S. tax assets.
DEKALB had established valuation allowances because substantially all
of its operations were concentrated in Canada and no U.S. tax benefit
could be associated with these tax assets.
(d) Adjust DEKALB's historic weighted average shares
outstanding to reflect an Exchange Ratio of 0.8764 share of Apache
common stock for each DEKALB share.
(e) Reclassify certain Merger related costs incurred by DEKALB
to prepaid expense to conform to Apache's treatment of such costs. (See
Merger Expenses note below).
C-7
47
(f) Record incremental DD&A expense, using the units-of-
production method, resulting from the purchase of properties from
Texaco.
(g) Record increases in general and administrative expense
assumed with acquisition of Texaco properties.
(h) Record interest expense and amortization of deferred
financing costs associated with debt incurred ($571 million before
adjustments) to purchase the Texaco properties, net of capitalized
interest, assuming, on a preliminary basis, that $119 million of the
purchase price is initially classified as unevaluated property costs.
Interest expense was computed assuming a 6 percent rate on $172.5
million, reflecting the rate applicable to the 6% Convertible
Subordinated Debentures due 2002 (6% debentures) issued January 1995,
and an interest rate applicable to bank debt of 5.8 percent for the
twelve months ended December 31, 1994 and 6.6 percent for the two
months ended February 28, 1995.
(i) Record pro forma income tax (benefit) relating to the pro
forma pre-tax (loss) on the Texaco properties, assuming an effective
federal and state tax rate of 37 percent.
THE UNAUDITED PRO FORMA BALANCE SHEETS REFLECT THE FOLLOWING ADJUSTMENTS:
(j) Adjust historical combined common stock and paid-in
capital account balances (i) to reflect the number of shares issued and
for the differences in par value per common share of Apache and DEKALB
common stock, and (ii) to eliminate the historical carrying value of
DEKALB Treasury Shares. The impact of these entries does not result in
a change to total combined shareholders' equity.
(k) Record the inception-to-date adjustment relating to
conversion to the units-of-production method of calculating DD&A
expense net of the related deferred tax effect.
(l) Record the reversal of certain of DEKALB's U.S. deferred
tax asset valuation allowances as discussed in adjustment (c) above.
(m) Record deferral of expense associated with adjustment (e)
above.
INCOME PER SHARE
For purposes of computing pro forma income per share, Apache's and
DEKALB's combined historic weighted average shares outstanding were adjusted to
give effect to an Exchange Ratio of 0.8764.
MERGER EXPENSES
The unaudited pro forma consolidated condensed financial statements
exclude nonrecurring expenses to be incurred after December 31, 1994 as a direct
result of the Merger transaction. These expenses, which primarily consist of
financial, advisory, legal, accounting and other professional fees, are expected
to total approximately $10 million and will be included in the consolidated
statement of operations for Apache in the second quarter of 1995.
C-8
48
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE
The following table sets forth certain unaudited pro forma information
concerning Apache's proved oil and gas reserves at December 31, 1994, giving
effect to the Merger and the Texaco acquisition as if the Merger and the Texaco
acquisition had occurred on January 1, 1994. There are numerous uncertainties
inherent in estimating the quantities of proved reserves and projecting future
rates of production and timing of development expenditures. The following
reserve data represents estimates only and should not be construed as being
exact.
UNAUDITED PROVED OIL AND NATURAL GAS RESERVES AT DECEMBER 31, 1994
NATURAL GAS
-----------
APACHE DEKALB TEXACO PRO FORMA
------ ------ ------ ---------
(MILLION CUBIC FEET)
Beginning of year.......................................... 848,219 277,411 226,139 1,351,769
Extension, discoveries and other additions................. 190,794 44,912 16,420 252,126
Purchase of minerals in place.............................. 158,309 2,710 -- 161,019
Revisions of previous estimates............................ (20,823) 6,880 -- (13,943)
Production................................................. (155,905) (20,491) (33,089) (209,485)
Sale of properties......................................... (4,335) (11,526) -- (15,861)
--------- ------- ------- ---------
End of year................................................ 1,016,259 299,896 209,470 1,525,625
========= ======= ======= =========
Proved developed reserves
Beginning of year......................................... 720,672 263,070 212,635 1,196,377
========= ======= ======= =========
End of year............................................... 910,304 274,611 193,286 1,378,201
========= ======= ======= =========
OIL, CONDENSATE AND NATURAL GAS LIQUIDS
-----------------------------------------------
APACHE DEKALB TEXACO PRO FORMA
------ ------ ------ ---------
(THOUSANDS OF BARRELS)
----------------------
Beginning of year.......................................... 89,723 13,234 81,402 184,359
Extension, discoveries and other additions................. 10,018 690 1,825 12,533
Purchase of minerals in place.............................. 9,232 83 -- 9,315
Revisions of previous estimates............................ 5,620 (2,239) -- 3,381
Production................................................. (13,577) (962) (7,291) (21,830)
Sale of properties......................................... (1,108) (90) -- (1,198)
------- ------ ------ -------
End of year................................................ 99,908 10,716 75,936 186,560
======= ====== ====== =======
Proved developed reserves
Beginning of year......................................... 79,401 13,221 63,762 156,384
======= ====== ====== =======
End of year............................................... 89,407 10,612 61,655 161,674
======= ====== ====== =======
The following table sets forth certain unaudited pro forma information
concerning Apache's interest in productive oil and gas wells at December 31,
1994, giving effect to the Merger and the Texaco acquisition.
PRODUCTIVE WELLS
----------------
GAS OIL
----------------- -----------------
GROSS NET GROSS NET
----- --- ----- ---
Apache Historical.......................................... 3,275 1,262 4,819 2,415
DEKALB Historical.......................................... 393 257 882 151
Texaco Estimate............................................ 737 248 6,927 1,866
----- ----- ------ -----
Total Pro Forma......................................... 4,405 1,767 12,628 4,432
===== ===== ====== =====
C-9
49
APACHE CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA SUPPLEMENTAL OIL AND GAS DISCLOSURE -- (CONTINUED)
The following table sets forth unaudited pro forma information
concerning the discounted future net cash flows from proved oil and gas reserves
of Apache as of December 31, 1994, net of income tax expense, and giving effect
to the Merger and the Texaco acquisition as if the Merger and the Texaco
acquisition had occurred on January 1, 1994. Income tax expense has been
computed using assumptions relating to the future tax rates and the permanent
differences and credits under the tax laws relating to oil and gas activities at
December 31, 1994, and do not take into account subsequent changes in tax laws.
The information should be viewed only as a form of standardized disclosure
concerning possible future cash flows that would result under the assumptions
used, but should not be viewed as indicative of fair market value.
PRO FORMA
APACHE DEKALB TEXACO(1) ADJUSTMENTS PRO FORMA
------ ------ --------- ----------- ---------
(IN MILLIONS)
Standardized measure of discounted future net
cash flows relating to proved reserves, net of
income tax expense as of December 31, 1994:
Cash inflows................................. $ 3,564.6 $ 536.5 $ 1,526.4 $ $ 5,627.5
Production and development costs............. (1,363.0) (156.6) (982.2) (2,501.8)
Income tax expense........................... (404.8) (91.7) (171.3) 138.5 (2) (529.3)
--------- -------- --------- ------- ---------
Net cash flows............................... 1,796.8 288.2 372.9 138.5 2,596.4
10% annual discount rate..................... (643.8) (128.6) (155.8) (49.2)(2) (977.4)
--------- -------- --------- ------- ---------
Discounted future net cash flows............. $ 1,153.0 $ 159.6 $ 217.1 $ 89.3 $ 1,619.0
========= ======== ========= ======= =========
PRO FORMA
APACHE DEKALB TEXACO(1) ADJUSTMENTS PRO FORMA
------ ------ --------- ----------- ---------
(IN MILLIONS)
Change in standardized measure of discounted
future net cash flows related to proved oil and
gas reserves for the year ended December 31,
1994:
Sales, net of production costs............... $ (355.7) $ (31.1) $ (79.6) $ $ (466.4)
Net change in prices and production costs.... (113.9) (58.4) 78.9 (93.4)
Discoveries and improved recovery, net of
related costs............................... 176.4 28.3 8.7 213.4
Change in future development costs........... 26.6 -- 19.9 46.5
Revisions in quantities...................... 12.5 .7 -- 13.2
Purchases.................................... 163.5 1.8 -- 165.3
Accretion of discount........................ 135.8 23.4 40.7 199.9
Change in income taxes....................... (.1) 16.6 (32.3) 89.3 (2) 73.5
Sales of properties.......................... (6.9) (13.7) (20.6)
Change in production rates and other......... (.6) (10.4) (11.0)
---------- --------- --------- --------- ---------
$ 37.6 $ (42.8) $ 36.3 $ 89.3 $ 120.4
========== ========= ========= ========= =========
- ---------------
(1) Apache has evaluated the Texaco properties and believes, based on
such evaluation and prior experience with oil and gas property
acquisitions, that the future net cash flows from the Texaco
properties can be improved significantly through substantial
reductions in production and development costs and through enhancement
of production relative to the costs and production estimated by Texaco.
No pro forma adjustment to reflect any such cost savings or production
increases has been made.
(2) Record a pro forma adjustment to reduce income tax expense, and the
related effect on the discount amount, to reflect that portion of the
purchase price allocated to proved properties that is in excess of
Texaco's estimated tax basis in the properties.
C-10
50
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 Amended and Restated Plan of Merger among Apache,
XPX and DEKALB, dated December 21, 1994 (incorporated
by reference to Exhibit 2.1 to Amendment No. 3 to
Apache's Registration Statement on Form S-4,
Registration No. 33-57321, filed April 14, 1995).
23.1* Consent of Coopers & Lybrand
99.1 Press Release, dated December 21, 1994, "Apache and
DEKALB to Merge" (incorporated by reference to
Exhibit 99.2 to Registrant's Current Report on Form
8-K, dated December 21, 1994, SEC File No. 1-4300,
filed December 29, 1994).
99.2 Press Release, dated May 17, 1995, "Apache and DEKALB
Complete Merger" (incorporated by reference to Exhibit
99.2 to Registrant's Current Report on Form 8-K, dated
May 17, 1995, SEC File No. 1-4300, filed June 1, 1995).
- ---------------
*filed herewith