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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 25, 1997
- -------------------------------------------------------------------------------
CONTINENTAL NATURAL GAS, INC.
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(Exact name of registrant as specified in its charter)
Oklahoma 0-22867 73-1198957
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(State of other jurisdiction (Commission) (IRS Employer File Number)
of incorporation)
1437 South Boulder, Suite 1250 Tulsa, Oklahoma 74119
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 582-4700
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Not Applicable
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(Former name or former address, if changed since last report.)
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The undersigned Registrant hereby amends its Form 8-K filed on
December 9, 1997, to include the audited financial statements of Taurus Energy
Corp. and the related pro forma financial information.
Item 7. Financial Statements, Pro-Forma Financial Information and Exhibits
(a) Historical financial statements of Taurus Energy Corp.
(b) Pro forma financial information
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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 hereto duly authorized.
CONTINENTAL NATURAL GAS, INC.
Dated: February 6, 1998 By /s/ GARRY D. SMITH
-------------------------------------
Garry D. Smith
Vice President and Controller
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ITEM 7(a) HISTORICAL FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Continental Natural Gas, Inc.
We were engaged to audit the accompanying balance sheet of Taurus
Energy Corporation as of December 31, 1996, and the related statements of
operations and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management.
We were unable to obtain certain written representations from
management as required by generally accepted auditing standards.
Since we were unable to obtain the required written representations
from management, the scope of our work was not sufficient to enable us to
express, and we do not express, an opinion on these financial statements.
/s/ COOPERS & LYBRAND LLP.
Tulsa, Oklahoma
January 16, 1998
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TAURUS ENERGY CORPORATION
BALANCE SHEETS
As of December 31, 1996 and September 30, 1997
(in thousands)
December 31, September 30,
ASSETS 1996 1997
------ -------- --------
(Unaudited)
Current assets:
Accounts receivable $ 6,965 $ 5,113
Prepaid expenses 103 91
Inventory 56 --
-------- --------
7,124 5,204
-------- --------
Gas plants and processing systems 33,454 35,735
Other property and equipment 163 163
Less accumulated depreciation and amortization (2,113) (4,116)
-------- --------
31,504 31,782
-------- --------
Other assets:
Gas contract rights, net 844 459
Other assets 168 175
-------- --------
1,012 634
-------- --------
Total assets $ 39,640 $ 37,620
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 7,505 $ 5,415
-------- --------
Payable to parent company 15,100 15,111
-------- --------
Deferred income taxes 6,212 6,232
-------- --------
Stockholders' equity:
Common stock, $1 par value, 1,000 shares
authorized, issued and outstanding 1 1
Additional paid-in capital 10,036 10,036
Retained earnings 786 825
-------- --------
10,823 10,862
-------- --------
Total liabilities and stockholders' equity $ 39,640 $ 37,620
======== ========
The accompanying notes are an integral part
of the financial statements.
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TAURUS ENERGY CORPORATION
STATEMENTS OF OPERATIONS
For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997
(in thousands)
December 31, September 30,
1996 1997
---------- ----------
(Unaudited)
Revenue:
Gas sales $ 27,557 $ 22,697
Gas Sales--related party 1,173 --
Product sales 16,145 10,018
---------- ----------
44,875 32,715
---------- ----------
Expenses:
Cost of purchased gas 33,237 24,813
Operating expenses 4,155 3,223
Depreciation and amortization 3,082 2,394
General and administrative 1,866 1,490
Interest 1,168 736
---------- ----------
43,508 32,656
---------- ----------
Income before income taxes 1,367 59
Income taxes 465 20
---------- ----------
Net income $ 902 $ 39
========== ==========
The accompanying notes are an integral part
of the financial statements.
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TAURUS ENERGY CORPORATION
STATEMENTS OF CASH FLOWS
For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997
(in thousands)
December 31, September 30,
1996 1997
---------- ----------
(Unaudited)
Cash flow from operating activities:
Net income $ 902 $ 39
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,082 2,394
Deferred income tax expense 465 20
Effect of changes in:
Accounts receivable (2,586) 1,852
Other current assets 2 68
Accounts payable and accrued liabilities 2,106 (1,809)
---------- ----------
Net cash provided by operating activities 3,971 2,564
---------- ----------
Cash flows from investing activities:
Additions to gas plants and processing systems (600) (2,301)
Other 78 7
---------- ----------
Cash flows used by investing activities (522) (2,294)
---------- ----------
Cash flows from financing activities:
Increase (decrease) in payable to parent company (4,018) 11
Increase (decrease) in book overdraft 569 (281)
---------- ----------
Cash flows used by financing activities (3,449) (270)
Increase (decrease) in cash -- --
Cash at beginning of period -- --
---------- ----------
Cash at end of period $ -- $ --
========== ==========
The accompanying notes are an integral part
of the financial statements.
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TAURUS ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information relating to September 30, 1997
and for nine months then ended is unaudited
1. GENERAL
Taurus Energy Corporation ("Taurus" or the "Company") is a Texas
corporation involved primarily in natural gas gathering, processing and
marketing with operations principally in Texas. On November 24, 1997,
Continental Natural Gas, Inc. ("Continental") acquired all of the
outstanding equity interest of Taurus from Coda Energy, Inc. ("Coda").
Coda is a majority-owned subsidiary of Joint Energy Development
Investment Limited Partnership ("JEDI").
The accompanying financial statements present the historical
financial condition, results of operations and cash flows of the
Company for periods during which the Company was owned by Coda and/or
JEDI.
2. SIGNIFICANT ACCOUNTING POLICIES
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash and
short-term, highly liquid investments that are readily convertible to
cash and have maturities of 90 days or less at the date of purchase. At
December 31, 1996 and at September 30, 1997, Taurus had outstanding
checks in excess of available cash balances. The resulting liabilities
are included in accounts payable.
ACCOUNTS RECEIVABLE - Substantially all of Taurus' accounts receivable
arise from sales of natural gas or natural gas liquids produced at its
plants. Most of Taurus' accounts receivable are from a broad and
diverse group of oil and gas companies and do not represent a
significant credit risk.
INVENTORY - Inventory consists of natural gas liquids and is stated at
the lower of cost, using the average cost method, or market.
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TAURUS ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information relating to September 30, 1997
and for nine months then ended is unaudited
2. SIGNIFICANT ACCOUNTING POLICIES, Continued
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is stated
at cost. Depreciation is computed using the straight-line method over
estimated useful lives ranging from 5 to 15 years. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is
reflected in income for the period. Maintenance and repairs are
charged to expense as incurred.
The carrying value of property and equipment is reviewed for
possible impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Assets
determined to be impaired based on estimated undiscounted future net
cash flows are reduced to estimated fair value. No such reduction in
the carrying value of assets has been reflected in the accompanying
financial statements.
OTHER ASSETS - Other assets at December 31, 1996 and September 30, 1997
include $844,000 and $459,000, respectively, of purchased gas contract
rights that are being amortized over the term of the related contract
which end July 31, 1998.
REVENUE RECOGNITION - Revenue is recognized when product is delivered.
INCOME TAXES - Taurus is a member of a consolidated group with Coda for
federal income tax purposes. The provision for income taxes reflected
in the financial statements is calculated on a separate company basis.
3. RELATED PARTY TRANSACTIONS
Coda provides certain accounting, land, data processing and
management services for which Coda has historically charged a fee of
$90,000 per month, based upon an allocation of Coda's overhead. Such
fee has been recorded as general and administrative expense in the
accompanying financial statements.
During the year ended December 31, 1996, Taurus paid Coda $218,000
for gas produced from wells operated by Coda. These amounts are
included in gas purchases in the accompanying statements of operations.
Revenues for the year ended December 31, 1996, include approximately
$1.1 million for sales to an affiliate of JEDI. No such affiliate
sales occurred for the nine months ended September 30, 1997. Accounts
receivable from this affiliate of JEDI at December 31, 1996, were
$11,000.
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TAURUS ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information relating to September 30, 1997
and for nine months then ended is unaudited
3. RELATED PARTY TRANSACTIONS, Continued
Coda provided a corporate guaranty of Taurus' obligations under a
gas purchase contract in an amount up to $1.2 million which expires
with the production month of August 1998. The guaranty was terminated
on November 24, 1997, when Taurus was acquired by Continental.
4. COMMITMENTS AND CONTINGENCIES
The Company has an inter-company payable to its parent, Coda,
which represents an accumulated balance of advances and repayments
since the acquisition of Taurus by Coda. The balance includes amounts
originally borrowed to acquire Taurus, subsequent advances provided to
fund processing plant additions, and other items paid on behalf of
Taurus by Coda. This payable bears interest at a rate equivalent to
Coda's current borrowing rates (approximately 7% for the year ended
December 31, 1996). No specific repayment terms have been established
with respect to the payable; however, Coda committed that it will not
require repayment of the payable during 1997 and, therefore, the
advances have been classified as long-term.
During 1996 and 1997, Taurus was a joint and several guarantor of
borrowings under Coda's debt agreements. As of the date of the
acquisition by Continental, Taurus was released as a guarantor.
In connection with the Company's acquisition of a gas plant in
1994, the seller entered into a four year contract with Taurus to
purchase 10,000 MMBtu of gas per day at the Houston Ship Channel spot
price plus a specified amount. Associated with this contract, Taurus
entered into a contract to purchase 10,000 MMBtu of gas per day from an
unrelated third party at the Houston Ship Channel spot price less $.01
per MMBtu throughout the contract period which ends July 31, 1998.
5. CONCENTRATIONS
During the year ended December 31, 1996, Taurus had sales to two
customers which accounted for 21% and 11% of total revenues.
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TAURUS ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information relating to September 30, 1997
and for nine months then ended is unaudited
5. CONCENTRATIONS, Continued
During 1996, one producer accounted for approximately 21% of the
natural gas volumes purchased through the Company's gas systems and
the four largest producers accounted for 42% of such volumes
purchased. The loss of these producers could impact Taurus' production
and the subsequent sale of its natural gas and natural gas liquids,
which may adversely affect operating results.
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax
purposes. The components of Taurus' deferred tax liabilities and assets
are as follows (in thousands):
December 31,
1996
----------
Deferred tax liability:
Book basis of gas plants and processing systems in excess of tax basis $ 6,867
Deferred tax assets:
Net operating loss carryforwards (655)
----------
Net deferred tax liabilities $ 6,212
==========
All income tax expense and benefits shown on the accompanying
statements of operations are deferred benefits and were computed at the
U.S. statutory federal income tax rate.
As of December 31, 1996, Taurus had net operating loss
carryforwards ("NOLs") of approximately $1.9 million for income tax
purposes that expire beginning in 2006.
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TAURUS ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENTS
Information relating to September 30, 1997
and for nine months then ended is unaudited
7. EMPLOYEE BENEFITS
The Company's parent sponsors a 401(k) defined contribution plan
in which Taurus employees may participate. The 401(k) plan is available
to all employees who have at least six months of service. The Company
annually matches between 50% and 100% (based on years of service) of an
employee's contribution up to 6% of an employee's annual compensation.
For the year ended December 31, 1996, the Company's 401(k) expense was
$53,000.
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ITEM 7(b) Pro forma financial information
CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1997
Continental Taurus Adjustments Pro Forma
----------- -------- ----------- ---------
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 6,287 $ -- $ $ 6,287
Accounts receivable 42,839 5,113 47,952
Notes receivable - affiliates 18 -- 18
Gas inventory 650 -- 650
Prepaid expenses 82 91 173
-------- -------- -------- --------
Total current assets 49,876 5,204 55,080
Investments 527 -- 527
Property and equipment, net 69,898 31,782 (449)(a) 111,650
10,419 (b)
Deferred tax asset 6,608 -- 6,608
Other assets 672 634 (175)(a) 1,131
-------- -------- -------- --------
Total assets $127,581 $ 37,620 $ 9,795 $174,996
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 47,916 $ 5,415 $ $53,331
Contract advances 518 -- 518
Current portion of long-term debt 4,204 -- 4,204
Current portion of capital lease obligations 1,372 -- 1,372
-------- -------- -------- --------
Total current liabilities 54,010 5,415 59,425
Long-term debt 23,301 -- 42,000 (c) 65,301
Capital lease obligations 6,588 -- 6,588
Deferred gain on sale - leaseback 163 -- 163
Payable to Parent Company -- 15,111 (15,111)(b) --
Deferred income taxes -- 6,232 (6,232)(b) --
-------- -------- -------- --------
Total liabilities 84,062 26,758 20,657 131,477
Shareholders' equity 43,519 10,862 (10,862)(d) 43,519
-------- -------- -------- --------
Total liabilities and shareholders' equity $127,581 $ 37,620 $ 9,795 $174,996
======== ======== ======== ========
The accompanying notes are an integral
part of the consolidated financial statements.
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NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
The pro forma condensed consolidated balance sheet, which has been
prepared utilizing the historical balance sheet of Continental Natural Gas, Inc.
and subsidiaries ("Continental") and Taurus Energy Corporation ("Taurus") as of
September 30, 1997, is based upon the assumptions that the acquisition by
Continental, accounted for under the purchase method, occurred as of September
30, 1997 and includes the following pro forma adjustments.
(a) Adjustment to remove certain assets owned by Taurus at
September 30, 1997 which were transferred to the owner of
Taurus prior to the acquisition by Continental.
(b) Adjustment to reflect the allocation of the total purchase
price for Taurus of $42,000,000 in cash to the assets acquired
and liabilities assumed.
The final allocation of the purchase price is contingent upon
the receipt of final information on the acquired assets, but
is not expected to differ materially from the preliminary
allocation herein.
(c) To reflect additional net borrowings of Continental
associated with the acquisition.
(d) To eliminate Taurus shareholders' equity.
The pro forma balance sheet should be read in conjunction with the
financial statements and notes of Continental and Taurus as of September 30,
1997 and December 31, 1996.
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CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Nine Months Ended September 30, 1997
Continental Taurus Adjustments Pro Forma
--------- --------- --------- ---------
(in thousands except per share)
Natural gas sales $ 202,983 $ 22,697 $ $ 225,680
Natural gas liquids sales 30,751 10,018 (542)(a) 40,227
Gathering fees 2,863 -- 2,863
Other 21 -- 21
--------- --------- --------- ---------
Total operating revenue 236,618 32,715 (542) 268,791
--------- --------- --------- ---------
Operating costs and expenses:
Cost of purchased gas 219,017 24,813 (44)(a) 243,786
Operating expenses 4,676 3,223 (348)(a) 7,551
General and administrative 5,412 1,490 (810)(b) 6,092
Depreciation, depletion and amortization 2,852 2,394 (39)(a) 4,779
(428)(c)
--------- --------- --------- ---------
Total operating costs and expenses 231,957 31,920 (1,669) 262,208
--------- --------- --------- ---------
Operating income 4,661 795 1,127 6,583
--------- --------- --------- ---------
Operating income (expense):
Interest expense (3,994) (736) (1,784)(d) (6,514)
Other, net 555 555
--------- --------- --------- ---------
Total other income (expense) (3,439) (736) (1,784) (5,959)
--------- --------- --------- ---------
Income (loss) before income taxes 1,222 59 (657) 624
Income tax benefit (expense) (493) (20) 250(e) (263)
--------- --------- --------- ---------
Net income (loss) $ 729 $ 39 $ (407) $ 361
========= ========= ========= =========
Net income (loss) per common share:
Primary $ 0.12 $ 0.03
========= =========
Fully diluted $ 0.11 $ 0.03
========= =========
Weighted average common shares outstanding:
Primary 4,214 4,214
Fully diluted 4,413 4,413
See Accompanying Notes.
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CONTINENTAL NATURAL GAS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Year Ended December 31, 1996
Continental Taurus Adjustments Pro Forma
--------- --------- --------- ---------
(in thousands except per share)
Operating revenue:
Natural gas sales $ 208,779 $ 28,730 $ $ 237,509
Natural gas liquids sales 34,757 16,145 (772)(a) 50,130
Gathering fees 1,995 -- 1,995
Marketing fees and other 1,130 -- 1,130
--------- --------- --------- ---------
Total operating revenue 246,661 44,875 (772) 290,764
--------- --------- --------- ---------
Operating costs and expenses:
Cost of purchased gas 225,535 33,237 (56)(a) 258,716
Operating expenses 5,978 4,155 (449)(a) 9,684
General and administrative 5,623 1,866 (1,080)(b) 6,409
Depreciation, depletion and amortization 2,854 3,082 (51)(a) 5,427
(458)(c)
--------- --------- --------- ---------
Total operating costs and expenses 239,990 42,340 (2,094) 280,236
--------- --------- --------- ---------
Operating income 6,671 2,535 1,322 10,528
--------- --------- --------- ---------
Operating income (expense):
Interest expense (2,702) (1,168) (2,167)(d) (6,037)
Other, net 16 -- 16
--------- --------- --------- ---------
Total other income (expense) (2,686) (1,168) (2,167) (6,021)
--------- --------- --------- ---------
Income (loss) before income taxes and 3,985 1,367 (845) 4,507
extraordinary item
Income tax benefit (expense) 3,635 (465) 321(e) 3,491
--------- --------- --------- ---------
Income (loss) before extraordinary item $ 7,620 $ 902 $ (524) $ 7,998
========= ========= ========= =========
Income before extraordinary item per common share:
Primary $ 1.99 $ 2.10
========= =========
Fully diluted $ 1.71 $ 1.79
========= =========
Weighted average common shares outstanding:
Primary 3,536 3,536
Fully diluted 4,466 4,466
See Accompanying Notes.
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NOTES TO UNAUDITED PRO FORMA CONDENSED
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The pro forma condensed consolidated statement of operations, which has
been prepared utilizing the historical statements of operations of Continental
Natural Gas, Inc. and Subsidiaries ("Continental") and Taurus Energy Corporation
("Taurus") for the year ended December 31, 1996 and the nine months ended
September 30, 1997, are based upon the assumption that the acquisition by
Continental, accounted for under the purchase method, occurred as of January 1,
1996 and include the following pro forma adjustments.
(a) Adjustment to remove revenues and expense associated with
certain assets owned by Taurus during 1996 and 1997 which were
transferred to the owner of Taurus prior to the acquisition by
Continental.
(b) Adjustment to remove corporate overhead allocations charged by
the prior owner of Taurus, which costs will not be incurred by
Continental.
(c) Adjustment to depreciation expense to reflect the increase in
value of fixed assets acquired associated with the acquisition
and estimated depreciation lives associated with the acquired
assets.
(d) Adjustment to reflect increase in interest expense on debt
issued associated with the acquisitions.
(e) Adjustment to income tax expense recognized to reflect expense
associated with consolidated results of operations.
The pro forma financial statements should be read in conjunction with
the financial statements and notes of Continental and Taurus for the year ended
December 31, 1996 and the nine months ended September 30, 1997. These pro forma
statements may not be indicative of the results that actually would have
occurred if the combination had been in effect on the dates indicated or which
may be obtained in the future.
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