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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-9808
PLAINS RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2898764
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 Dallas Street, Suite 700
Houston, Texas 77002
(Address of principal executive offices)
(Zip Code)
(713) 739-6700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $0.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: none
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
On February 28, 2002, there were 23,649,537 shares of the registrant's
Common Stock outstanding. The aggregate value of the Common Stock held by non-
affiliates of the registrant (treating all executive officers and directors of
the registrant, for this purpose, as if they may be affiliates of the
registrant) was approximately $498,176,000 on February 28, 2002 (based on
$22.50 per share, the last sale price of the Common Stock as reported on the
New York Stock Exchange on such date).
DOCUMENTS INCORPORATED BY REFERENCE: The information required in Part III
of the Annual Report on Form 10-K is incorporated by reference to the
registrant's definitive proxy statement to be filed pursuant to Regulation 14A
for the registrant's 2002 Annual Meeting of Stockholders.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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We are amending our annual report on Form 10-K to revise the Condensed
Consolidating Statement of Cash Flows for the Year Ended December 31, 2001
included in Note 22--"Consolidating Financial Statements" of the Notes to our
Consolidated Financial Statements (located on page F-45). The revision consists
of correcting the classification of $131,785,000 of acquisition, exploration and
development costs from the "Nonguarantor Subsidiaries" column to the "Guarantor
Subsidiaries" column and a corresponding correction in advances from (payments
to) affiliates.
Except as noted above, no other information included in our original report
on Form 10-K has been amended by this Form 10-K/A.
PLAINS RESOURCES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Financial Statements
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000............ F-3
Consolidated Statements of Operations for the years ended December 31,
2001, 2000 and 1999.................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999.................................................... F-5
Consolidated Statements of Comprehensive Income for the years ended
December 31, 2001, 2000, and 1999...................................... F-6
Consolidated Statements of Changes in Non-redeemable Preferred Stock,
Common Stock and Other Stockholders' Equity for the years ended
December 31, 2001, 2000 and 1999....................................... F-7
Notes to Consolidated Financial Statements.............................. F-8
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Plains Resources Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Plains Resources Inc. and its subsidiaries at December 31, 2001
and 2000, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
These 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 of these statements in accordance
with auditing standards generally accepted in the United States of America,
which require that we plan and perform the audit to obtain reasonable
assurance about 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for its crude oil inventories in
connection with its adoption of Staff Accounting Bulletin No. 101, "Revenue
Recognition in Financial Statements", effective January 1, 2000.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for derivative instruments and
hedging activities in connection with its adoption of Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and
Hedging Activities", as amended, effective January 1, 2001.
PricewaterhouseCoopers LLP
Houston, Texas
March 13, 2002
F-2
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
December 31,
---------------------
2001 2000
--------- ----------
ASSETS
Current Assets
Cash and cash equivalents............................. $ 1,179 $ 5,080
Accounts receivable................................... 20,039 357,790
Commodity hedging contracts and other derivatives..... 23,257 6,033
Inventory............................................. 6,721 54,844
Other current assets.................................. 1,527 11,662
--------- ----------
52,723 435,409
--------- ----------
Property and Equipment, at cost
Oil and natural gas properties--full cost method
Subject to amortization.............................. 900,898 762,245
Not subject to amortization.......................... 40,506 42,581
Crude oil pipeline, gathering and terminal assets..... -- 470,460
Other property and equipment.......................... 4,003 6,453
--------- ----------
945,407 1,281,739
Less allowance for depreciation, depletion and
amortization......................................... (437,982) (437,465)
--------- ----------
507,425 844,274
--------- ----------
Investment in Plains All-American Pipeline, L.P......... 64,626 --
--------- ----------
Other Assets............................................ 24,014 114,646
--------- ----------
$ 648,788 $1,394,329
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities........ $ 53,895 $ 399,773
Interest payable...................................... 8,286 13,536
Notes payable......................................... 511 1,811
--------- ----------
62,692 415,120
--------- ----------
Long-Term Debt
Bank debt............................................. 11,500 27,300
Bank debt of subsidiary............................... -- 320,000
Subordinated debt..................................... 269,539 277,543
Other................................................. 1,022 1,533
--------- ----------
282,061 626,376
--------- ----------
Other Long-Term Liabilities............................. 4,889 3,422
--------- ----------
Deferred Income Taxes................................... 44,294 --
--------- ----------
Commitments and Contingencies (Note 15)
Minority Interest in Plains All American Pipeline,
L.P.................................................... -- 162,271
--------- ----------
Cumulative Convertible Preferred Stock, stated at
liquidation preference................................. -- 50,000
--------- ----------
Non-redeemable Preferred Stock, Common Stock and Other
Stockholders' Equity
Series D Cumulative Convertible Preferred Stock, $1.00
par value, 46,600 shares authorized, issued and
outstanding, at stated value......................... 23,300 23,300
Series H Cumulative Convertible Preferred Stock, $1.00
par value, 175,000 shares authorized; nil and 169,571
shares issued and outstanding, at stated value....... -- 84,785
Common Stock, $0.10 par value, 50,000,000 shares
authorized; 27,677,411 and 18,746,612 shares issued
for 2001 and 2000.................................... 2,768 1,875
Additional paid-in capital............................ 268,520 139,203
Retained earnings (deficit)........................... 37,676 (88,410)
Accumulated other comprehensive income................ 13,930 --
Treasury stock, at cost............................... (91,342) (23,613)
--------- ----------
254,852 137,140
--------- ----------
$ 648,788 $1,394,329
========= ==========
See notes to consolidated financial statements.
F-3
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
-------------------------------
2001 2000 1999
-------- --------- ----------
Revenues
Crude oil and liquids....................... $186,476 $ 133,325 $ 111,128
Natural gas................................. 28,771 16,017 5,095
Marketing, transportation, storage and
terminalling............................... -- 6,425,644 10,796,998
Gain on sale of assets...................... -- 48,188 16,457
Other operating revenues.................... 473
-------- --------- ----------
215,720 6,623,174 10,929,678
-------- --------- ----------
Costs and Expenses
Production expenses......................... 71,192 62,140 55,645
General and administrative.................. 21,293 50,776 31,402
Marketing, transportation, storage and
terminalling............................... -- 6,292,615 10,689,308
Unauthorized trading losses and related
expenses................................... -- 7,963 166,440
Depreciation, depletion and amortization.... 28,921 47,221 36,998
-------- --------- ----------
121,406 6,460,715 10,979,793
-------- --------- ----------
Income (Loss) from Operations................. 94,314 162,459 (50,115)
Other Income (Expense)
Equity in earnings of Plains All American
Pipeline, L.P.............................. 18,540 -- --
Gains on Plains All American Pipeline, L.P.
unit transactions and public offerings..... 170,157 -- 9,787
Interest expense............................ (26,385) (55,828) (46,378)
Interest and other income................... 151 7,411 1,237
-------- --------- ----------
Income (Loss) Before Income Taxes, Minority
Interest, Extraordinary Items and Cumulative
Effect of Accounting Changes................. 256,777 114,042 (85,469)
Minority interest in Plains All American
Pipeline, L.P.............................. -- (42,535) 40,203
Income tax (expense) benefit:
Current.................................... (9,947) (1,020) 7
Deferred................................... (91,513) (24,563) 20,472
-------- --------- ----------
Income (Loss) Before Extraordinary Items and
Cumulative Effect of Accounting Changes...... 155,317 45,924 (24,787)
Extraordinary items, net of tax benefit and
minority interest.......................... -- (4,988) (544)
Cumulative effect of accounting changes, net
of tax benefit............................. (1,986) (121) --
-------- --------- ----------
Net Income (Loss)............................. 153,331 40,815 (25,331)
Cumulative preferred dividends.............. (27,245) (14,725) (10,026)
-------- --------- ----------
Income (Loss) Available to Common
Stockholders................................. $126,086 $ 26,090 $ (35,357)
======== ========= ==========
Basic Earnings Per Share
Income (loss) before extraordinary items and
cumulative effect of accounting changes.... $ 6.07 $ 1.75 $ (2.02)
Extraordinary items......................... -- (0.28) (0.03)
Cumulative effect of accounting changes..... (0.09) (0.01) --
-------- --------- ----------
Net income (loss)........................... $ 5.98 $ 1.46 $ (2.05)
======== ========= ==========
Diluted Earnings Per Share
Income (loss) before extraordinary items and
cumulative effect of accounting changes.... $ 4.82 $ 1.56 $ (2.02)
Extraordinary items......................... -- (0.17) (0.03)
Cumulative effect of accounting changes..... (0.07) -- --
-------- --------- ----------
Net income (loss)........................... $ 4.75 $ 1.39 $ (2.05)
======== ========= ==========
See notes to consolidated financial statements.
F-4
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
2001 2000 1999
-------- ---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................. $153,331 $ 40,815 $(25,331)
Items not affecting cash flows from operating
activities:
Depreciation, depletion and amortization.... 28,921 47,221 36,998
Equity in earnings of Plains All American
Pipeline, L.P.............................. (18,540) -- --
Distributions received from Plains All
American Pipeline, L.P..................... 31,553 -- --
Noncash gains............................... (170,157) (48,188) (26,244)
Minority interest in income of a
subsidiary................................. -- 35,566 (40,203)
Loss on early extinguishment of debt, net of
tax........................................ --
Deferred income taxes....................... 91,513 21,297 (20,472)
Cumulative effect of adoption of SFAS 133... 1,986 -- --
Change in derivative fair value............. 1,227 -- --
Noncash compensation expense................ 4,514 2,682 1,013
Allowance for doubtful accounts............. -- 5,000 --
Other noncash items......................... 1,626 10,925 (61)
Change in assets and liabilities from
operating activities:
Accounts receivable and other............... 21,023 102,651 (226,438)
Inventory................................... 1,133 (13,977) 33,930
Accounts payable and other current
liabilities................................ (29,636) (143,453) 171,974
Pipeline linefill........................... -- (16,679) (3)
Other long-term liabilities................. 1,634 (8,000) 18,873
-------- ---------- --------
Net cash provided by (used in) operating
activities................................... 120,128 35,860 (75,964)
-------- ---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition, exploration and developments
costs........................................ (131,785) (78,726) (77,899)
Additions to other property and assets........ (561) (3,133) (2,472)
Plains All American Pipeline, L.P.
acquisitions and assets...................... -- (12,219) (189,425)
Proceeds from the sale of Plains All American
Pipeline, L.P. units......................... 106,941 -- --
Investment in Plains All American Pipeline,
L.P.......................................... (3,978) -- --
Proceeds from asset sales..................... -- 224,261 3,400
-------- ---------- --------
Net cash provided by (used in) investing
activities................................... (29,383) 130,183 (266,396)
-------- ---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.................. 204,900 1,698,575 744,971
Proceeds from short-term debt................. -- 51,300 131,119
Proceeds from sale of common stock............ 9,169 2,301 5,542
Proceeds from issuance of preferred stock..... -- -- 50,000
Proceeds from issuance of common units, net... -- -- 50,759
Purchase of senior subordinated notes......... (7,550) -- --
Principal payments of long-term debt.......... (221,211) (1,799,186) (449,332)
Principal payments of short-term debt......... -- (108,719) (82,150)
Purchase of common stock...................... (67,729) (23,613) --
Costs incurred in connection with financing
arrangements................................. -- (6,748) (19,448)
Preferred stock dividends..................... (8,698) (13,409) (4,245)
Distributions to Plains All American Pipeline,
L.P. unitholders............................. -- (29,432) (22,201)
Other......................................... (102) (260) (971)
-------- ---------- --------
Net cash provided by (used in) financing
activities................................... (91,221) (229,191) 404,044
-------- ---------- --------
Net increase (decrease) in cash and cash
equivalents.................................. (476) (63,148) 61,684
Decrease in cash due to deconsolidation of
Plains All American Pipeline, L.P............ (3,425) -- --
Cash and cash equivalents, beginning of year.. 5,080 68,228 6,544
-------- ---------- --------
Cash and cash equivalents, end of year........ $ 1,179 $ 5,080 $ 68,228
======== ========== ========
See notes to consolidated financial statements.
F-5
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Year Ended December 31,
--------------------------
2001 2000 1999
-------- ------- --------
Net Income (Loss).................................. $153,331 $40,815 $(25,331)
Other Comprehensive Income:
Unrealized gains on derivatives:
Cumulative effect of accounting change, net of
taxes of $4,383................................. 6,856 -- --
Unrealized gains arising during the year, net of
taxes of $8,329................................. 12,803 -- --
Reclassification adjustment for gains realized in
net income, net of tax benefit of $1,921........ (2,989) -- --
-------- ------- --------
16,670 -- --
Minimum pension liability adjustment, net of tax
benefit of $272.................................. (421) -- --
-------- ------- --------
16,249 -- --
-------- ------- --------
Equity in other comprehensive income changes of
Plains All American Pipeline, L.P.
Cumulative effect of accounting change, net of
tax benefit of $1,496.......................... (2,340) -- --
Change in fair value of open hedging positions,
net of taxes of $5............................. 21 -- --
-------- ------- --------
(2,319) -- --
-------- ------- --------
Other Comprehensive Income......................... 13,930 -- --
-------- ------- --------
Comprehensive Income (Loss)........................ $167,261 $40,815 $(25,331)
======== ======= ========
See notes to consolidated financial statements.
F-6
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NON-REDEEMABLE PREFERRED STOCK, COMMON
STOCK AND OTHER STOCKHOLDERS' EQUITY
(in thousands)
2001 2000 1999
---------------- ---------------- ---------------
Shares Amount Shares Amount Shares Amount
------ -------- ------ -------- ------ --------
Series D Cumulative
Convertible Preferred
Stock
Balance, beginning of
year................... 47 $ 23,300 47 $ 23,300 47 $ 21,946
Preferred stock
dividends.............. -- -- -- -- -- 1,354
------ -------- ------ -------- ------ --------
Balance, end of year.... 47 23,300 47 23,300 47 23,300
====== -------- ====== -------- ====== --------
Series H Cumulative
Convertible Preferred
Stock
Balance, beginning of
year................... 170 84,785 -- -- -- --
Shares issued upon
conversion of
redeemable preferred
stock.................. -- -- 170 84,785 -- --
Conversion of preferred
stock into common...... (170) (84,785) -- -- -- --
------ -------- ------ -------- ------ --------
Balance, end of year.... -- -- 170 84,785 -- --
====== -------- ====== -------- ====== --------
Common Stock
Balance, beginning of
year................... 18,747 1,875 17,924 1,792 16,882 1,688
Common stock issued upon
exercise of options,
warrants and other..... 1,041 103 557 56 943 94
Conversion of preferred
stock into common...... 7,889 790 266 27 99 10
------ -------- ------ -------- ------ --------
Balance, end of year.... 27,677 2,768 18,747 1,875 17,924 1,792
====== -------- ====== -------- ====== --------
Additional Paid-in Capital
Balance, beginning of
year................... 139,203 130,027 124,679
Common stock issued upon
exercise of options,
warrants and other..... 18,429 5,223 3,583
Conversion of preferred
stock into common...... 110,888 3,958 1,765
Redemption of preferred
stock.................. -- (5) --
-------- -------- --------
Balance, end of year.... 268,520 139,203 130,027
-------- -------- --------
Retained Earnings
(Deficit)
Balance, beginning of
year................... (88,410) (114,500) (79,143)
Preferred stock
dividends.............. (27,245) (14,725) (10,026)
Net income (loss)....... 153,331 40,815 (25,331)
-------- -------- --------
Balance, end of year.... 37,676 (88,410) (114,500)
-------- -------- --------
Accumulated Other
Comprehensive Income
Balance, beginning of
year................... -- -- --
Other comprehensive
income................. 13,930 -- --
-------- -------- --------
Balance, end of year.... 13,930 -- --
-------- -------- --------
Treasury Stock
Balance, beginning of
year................... (1,291) (23,613) -- -- -- --
Purchase of common
stock.................. (2,830) (67,729) (1,291) (23,613) -- --
------ -------- ------ -------- ------ --------
Balance, end of year.... (4,121) (91,342) (1,291) (23,613) -- --
====== -------- ====== -------- ====== --------
Total..................... $254,852 $137,140 $ 40,619
======== ======== ========
See notes to consolidated financial statements.
F-7
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Organization and Significant Accounting Policies
Organization
The consolidated financial statements of Plains Resources Inc. ("Plains",
"our", or "we") include the accounts of all wholly owned subsidiaries and for
periods prior to January 1, 2001, Plains All American Pipeline, L.P. ("PAA").
As discussed in Note 2, in June 2001 we reduced our interest in PAA from 54%
to 33% and as a result we no longer have the ability to exercise control over
the operations of PAA. Accordingly, effective January 1, 2001, our minority
interest investment in PAA is accounted for using the equity method of
accounting. Under the equity method, we no longer consolidate the assets,
liabilities and operating activities of PAA, but instead record our
proportionate share of PAA's net assets and results of operations. For periods
prior to January 1, 2001 the assets, liabilities and results of operations of
PAA are consolidated in our financial statements.
All significant intercompany transactions have been eliminated. Certain
reclassifications have been made to the prior year statements to conform to
the current year presentation.
We are an independent energy company that is currently engaged in the
"Upstream" oil and gas business. The Upstream business acquires, exploits,
develops, explores for and produces crude oil and natural gas. Our Upstream
activities are all located in the United States. Prior to the reduction in our
interest in PAA, we also participated directly in the "Midstream" oil and gas
business, which consists of the marketing, transportation and terminalling of
crude oil. We continue to participate indirectly in the Midstream oil and gas
business through our minority interest in PAA. All of PAA's Midstream
activities are conducted in the United States and Canada.
Significant Accounting Policies
Oil and Gas Properties. We follow the full cost method of accounting
whereby all costs associated with property acquisition, exploration,
exploitation and development activities are capitalized. Such costs include
internal general and administrative costs such as payroll and related benefits
and costs directly attributable to employees engaged in acquisition,
exploration, exploitation and development activities. General and
administrative costs associated with production, operations, marketing and
general corporate activities are expensed as incurred. These capitalized costs
along with our estimate of future development and abandonment costs, net of
salvage values and other considerations, are amortized to expense by the unit-
of-production method using engineers' estimates of proved oil and natural gas
reserves. The costs of unproved properties are excluded from amortization
until the properties are evaluated. Interest is capitalized on oil and natural
gas properties not subject to amortization and in the process of development.
Proceeds from the sale of oil and natural gas properties are accounted for as
reductions to capitalized costs unless such sales involve a significant change
in the relationship between costs and the estimated value of proved reserves,
in which case a gain or loss is recognized. Unamortized costs of proved
properties are subject to a ceiling which limits such costs to the present
value of estimated future cash flows from proved oil and natural gas reserves
of such properties (including the effect of any related hedging activities)
reduced by future operating expenses, development expenditures and abandonment
costs (net of salvage values), and estimated future income taxes thereon.
Other Property and Equipment. Other property and equipment is recorded at
cost and consists primarily of office furniture and fixtures and computer
hardware and software. Acquisitions, renewals, and betterments are
capitalized; maintenance and repairs are expensed. Depreciation is provided
using the straight-line method over estimated useful lives of three to seven
years. Net gains or losses on property and equipment disposed of are included
in interest and other income in the period in which the transaction occurs.
F-8
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Use of 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. Significant estimates made by management include
(1) crude oil and natural gas reserves, (2) depreciation, depletion and
amortization, including future abandonment costs, (3) income taxes and related
valuation allowance, (4) allowance for doubtful accounts receivable and (5)
accrued liabilities. Although management believes these estimates are
reasonable, actual results could differ from these estimates.
Cash and Cash Equivalents. Cash and cash equivalents consist of all demand
deposits and funds invested in highly liquid instruments with original
maturities of three months or less. At December 31, 2001 and 2000, the
majority of cash and cash equivalents is concentrated in two institutions and
at times may exceed federally insured limits. We periodically assess the
financial condition of the institutions and believe that any possible credit
risk is minimal.
Accounts Receivable, Net. At December 31, 2000, PAA had an allowance for
doubtful accounts receivable of $5.0 million that is reflected in the
consolidated balance sheet as a reduction of certain accounts receivable which
are included in Other Assets. At December 31, 2001 the allowance is reflected
in our investment in PAA.
Inventory. Plains' crude oil inventories are carried at cost. Materials and
supplies inventory is stated at the lower of cost or market with cost
determined on an average cost method. PAA's crude oil inventories are carried
at the lower of cost, adjusted for deferred gains or losses, or market value
using an average cost method.
Inventory consists of the following (in thousands):
December 31,
---------------
2001 2000
------- -------
Plains, excluding PAA
Crude oil................................................. $ 1,467 $ 3,347
Materials and supplies.................................... 5,254 4,716
------- -------
6,721 8,063
------- -------
PAA
Crude oil................................................. -- 45,914
Materials and supplies.................................... -- 867
------- -------
-- 46,781
------- -------
$ 6,721 $54,844
======= =======
F-9
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Assets. Other assets consists of the following (in thousands):
December 31,
----------------
2001 2000
------- --------
Plains, excluding PAA
Deferred tax asset....................................... $ -- $ 47,974
Land..................................................... 8,853 8,853
Commodity hedging contracts and other derivatives........ 5,661 --
Debt issue costs, net.................................... 3,566 7,249
Other.................................................... 5,934 3,318
------- --------
24,014 67,394
------- --------
PAA
Pipeline linefill, at cost............................... -- 34,312
Debt issue costs, net.................................... -- 7,259
Long-term receivable, net................................ -- 5,000
Other.................................................... -- 681
------- --------
-- 47,252
------- --------
$24,014 $114,646
======= ========
Costs incurred in connection with the issuance of long-term debt are
capitalized and amortized using the straight-line method over the term of the
related debt. Use of the straight-line method does not differ materially from
the "effective interest" method of amortization.
Federal and State Income Taxes. Income taxes are accounted for in
accordance with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("SFAS 109"). SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax bases of assets and
liabilities using tax rates in effect for the year in which the differences
are expected to reverse. A valuation allowance is established to reduce
deferred tax assets if it is more than likely than not that the related tax
benefits will not be realized.
Revenue Recognition. Oil and gas revenue from our interests in producing
wells is recognized when the production is delivered and the title transfers.
Transportation costs incurred in connection with such operations, which are
immaterial, are reflected as a reduction of sales revenues.
PAA's gathering and marketing revenues are accrued at the time title to the
product sold transfers to the purchaser, which occurs upon receipt of the
product by the purchaser, and purchases are accrued at the time title to the
product purchased transfers to PAA, which occurs upon our receipt of the
product. PAA's terminalling and storage revenues are recognized at the time
service is performed and revenues for the transportation of crude oil are
recognized based upon regulated and non-regulated tariff rates and the related
transported volumes.
Derivative Financial Instruments (Hedging). We utilize various derivative
instruments to reduce our exposure to decreases in the market price of crude
oil. The derivative instruments consist primarily of crude oil swap and option
contracts entered into with financial institutions. We also utilize interest
rate swaps to manage the interest rate exposure on our long-term debt.
F-10
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Options. We have elected to follow Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25") and
related interpretations in accounting for our employee stock options. Under
APB 25, no compensation expense is recognized when the number of options to be
issued is known and the exercise price of the options equals the fair value
(market price) of the underlying stock on the date of grant.
Sale of Units by PAA. When PAA sells additional units to a third party,
resulting in a change in our percentage ownership interest, we recognize a
gain or loss in our consolidated statement of operations if the selling price
per unit is more or less than our average carrying amount per unit.
Recent Accounting Pronouncements. The following Statements of Financial
Accounting Standards ("SFAS's") were issued in June 2001: SFAS No. 141,
Business Combinations, SFAS No. 142, Goodwill and Other Intangible Assets, and
SFAS No. 143, Accounting for Asset Retirement Obligations. In August 2001,
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
was also issued. SFAS No. 141 requires the use of the purchase method of
accounting for all business combinations. It applies to all business
combinations initiated after June 30, 2001 and to all business combinations
accounted for by the purchase method that are completed after June 30, 2001.
SFAS No. 142 requires that goodwill as well as other intangible assets with
indefinite lives not be amortized but be tested annually for impairment and is
effective for fiscal years beginning after December 15, 2001. SFAS No. 144
addresses financial accounting and reporting for the impairment of long-lived
assets and long-lived assets to be disposed of. It supersedes, with
exceptions, SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of and is effective for fiscal years
beginning after December 15, 2001. SFAS No. 141, No. 142 and No. 144 had no
effect on our financial statements. We will account for all future business
combinations and any related goodwill in accordance with the provisions of
SFAS No. 141 and SFAS No. 142.
SFAS No. 143 requires entities to record the fair value of a liability for
an asset retirement obligation in the period in which it is incurred and a
corresponding increase in the carrying amount of the related long-lived asset.
Subsequently, the asset retirement cost should be allocated to expense using a
systematic and rational method. SFAS No. 143 is effective for fiscal years
beginning after June 15, 2002. The Company is currently assessing the impact
of SFAS No. 143 and at this time cannot reasonably estimate the effect of this
statement on its consolidated financial position, results of operations or
cash flows.
In the fourth quarter of 2000, we adopted Securities and Exchange
Commission ("SEC") Staff Accounting Bulletin 101, "Revenue Recognition in
Financial Statements" ("SAB 101"). As a result, we record revenue from crude
oil production in the period it is sold as opposed to when it is produced and
carry any unsold production as inventory valued at historical cost. The total
effect of implementing SAB 101 was to reduce reported sales volumes by 144,000
barrels for 2000 and net income for the year by $175,000, including a $121,000
reduction for the cumulative effect of prior years. The effect of this change
in accounting for crude oil inventories on prior periods was deminimus.
Note 2--Investment in Plains All American Pipeline, L.P.
In a series of transactions on June 8, 2001, we sold a portion of our
interest in PAA to a group of investors and certain members of PAA management
for aggregate consideration of approximately $155.2 million (consisting of
$110.0 million in cash and $45.2 million in Series F Cumulative Convertible
Preferred Stock [the "Series F Preferred Stock"]) and recognized a pre-tax
gain of $128.3 million in connection with this sale. In addition, certain
holders of the Series F Preferred Stock and
F-11
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Series H Convertible Preferred Stock (the "Series H Preferred Stock")
converted their shares into shares of our common stock. We sold (i) 5.2
million Subordinated Units of PAA (the "Subordinated Units") for $69.5 million
in cash and the redemption of 23,108 shares of Series F Preferred Stock,
valued at $45.2 million; and (ii) an aggregate 54% ownership interest in the
general partner of PAA for $40.5 million in cash. In addition, the investor
group and certain other stockholders converted 26,892 shares of Series F
Preferred Stock and 132,022 shares of Series H Preferred Stock into a total of
6.6 million shares of our common stock. On September 5, 2001, pursuant to an
option granted as part of the June 8, 2001 transactions, certain members of
the executive management of PAA acquired an aggregate additional 2% ownership
interest in the general partner of PAA for $1.5 million in cash and notes,
further reducing our ownership in the general partner of PAA to 44%. We
recognized a gain of $1.1 million as a result of this transaction. These
transactions in the aggregate are hereinafter referred to as "the
Transactions".
As a result of the Transactions, all of the Series F Preferred Stock and
all but approximately 36,000 shares of the Series H Preferred Stock were
retired or converted. The remaining outstanding shares of the Series H
Preferred Stock converted to 1.2 million shares of our common stock during the
third quarter. Also as a result of the Transactions, certain of our employees
received transaction-related bonuses and other payments and vested in benefits
in accordance with the terms of certain of our employee benefit plans.
The excess of the fair value of the Series F Preferred stock as
consideration for the PAA Units over the carrying value of the Series F
Preferred Stock ($21.4 million) is deemed to be a dividend to preferred
stockholders and is deducted in determining the income available to common
stockholders for the purpose of determining basic and fully diluted earnings
per share. In connection with the conversion of the Series F Preferred Stock
into common stock, we made a $2.5 million inducement payment representing a
20% premium to the amount of dividends that would accrue on the Series F
Preferred Stock between the closing of the Transactions and the first date we
could potentially cause such conversion. Such amounts are included in
preferred dividends.
The Subordinated Units are subordinated in right to distributions from PAA
and are not publicly traded. However, PAA's partnership agreement provides
that, if certain financial tests are met, the Subordinated Units (including
those retained by us) will convert into common units on a one-for-one basis
commencing in 2003. In connection with the Transactions, we entered into Value
Assurance Agreements with such purchasers of the Subordinated Units under the
terms of which we will pay the purchasers an amount per fiscal year, payable
on a quarterly basis, equal to $1.85 per unit less the actual amount
distributed during that year. The Value Assurance Agreements expire upon the
earlier of (a) the conversion of the Subordinated Units to common units or (b)
June 8, 2006. In the first quarter of 2002 PAA paid a distribution of $0.5125
per unit ($2.05 annualized).
Also in connection with the Transactions, we entered into a separation
agreement with PAA pursuant to which, among other things, (a) we agreed to
indemnify PAA, the general partner of PAA, and the subsidiaries of PAA against
any losses or liabilities resulting from (i) the operation of the upstream
business or (ii) federal or state securities laws, or the regulations of any
self-regulatory authority, or other similar claims resulting from acts or
omissions by us, our subsidiaries, PAA, or PAA's subsidiaries on or before the
closing of the Transactions; and (b) PAA agreed to indemnify us and our
subsidiaries against any losses or liabilities resulting from the operation of
the midstream business. We also entered into a pension and employee benefits
assumption and transition agreement pursuant to which the general partner of
PAA and us agreed to the transition of certain employees to such general
partner, the provision of certain benefits with respect to such transfer, and
the provision of other transition services by us.
F-12
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, we agreed to contribute 287,500 of our Subordinated Units to
PAA's general partner to be used for option grants to officers and key
employees. These Subordinated Units are considered to be a contribution to the
general partner and we will receive no reimbursement for such units. Also, at
the time of the Transactions, certain of our employees, who are now employees
of PAA's general partner, held "in-the-money" but unvested Plains stock
options which were subject to forfeiture due to the transfer of employment. We
agreed to substitute, based on the present value of such options, a contingent
grant of 51,000 Subordinated Units that vest on the same schedule the stock
options were to vest. In connection with these substitute options, we
recognized $0.5 million in noncash compensation expense in 2001.
In May 2001, PAA issued 4.0 million common units in a public equity
offering. We recognized a gain of $19.6 million resulting from the increase in
the book value of our equity in PAA to reflect our proportionate share of the
increase in the underlying net assets of PAA due to the sale of the units. In
October 2001, PAA issued 4.5 million Common Units in a public offering. As a
result of the offering, we made a general partner capital contribution of
approximately $1.0 million, and our aggregate ownership interest in PAA was
reduced to approximately 29%. We recognized a gain of approximately $19.2
million resulting from the increase in book value of our equity in PAA to
reflect our proportionate share of the increase in the underlying net assets
of PAA resulting from this public offering.
At March 31, 2001, our aggregate ownership interest in PAA was
approximately 54%. Following the sale of common units by PAA in the
aforementioned public equity offerings and the Transactions, our aggregate
ownership interest in PAA was approximately 29%. At December 31, 2001, our
aggregate 29% ownership in PAA consisted of: (i) a 44% ownership interest in
the 2% general partner interest and incentive distribution rights, (ii) 45%,
or approximately 4.5 million, of the Subordinated Units and (iii) 24% or
approximately 7.9 million of the common units (including approximately 1.3
million Class B common units).
The following table presents summarized financial statement information of
PAA (in thousands of dollars):
Year Ended
December 31,
2001
------------
Revenues........................................................ $6,868,215
Cost of sales and operations.................................... 6,725,954
Gross margin.................................................... 142,261
Operating income................................................ 71,368
Income before cumulative effect of accounting change............ 43,671
Net income...................................................... 44,179
At
December 31,
2001
------------
Current assets.................................................. $ 558,082
Property and equipment, net..................................... 604,919
Other assets.................................................... 98,250
Total assets.................................................... 1,261,251
Current liabilities............................................. 505,160
Long-term debt.................................................. 351,677
Other long-term liabilities..................................... 1,617
Partners' capital............................................... 402,797
Total liabilities and partners' capital......................... 1,261,251
F-13
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 3--Derivative Instruments and Hedging Activities
On January 1, 2001, we adopted Statement of Financial Accounting Standards
("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging
Activities" as amended by SFAS 137 and SFAS 138 ("SFAS 133"). Under SFAS 133,
all derivative instruments are recorded on the balance sheet at fair value. If
the derivative does not qualify as a hedge or is not designated as a hedge,
the gain or loss on the derivative is recognized currently in earnings. To
qualify for hedge accounting, the derivative must qualify either as a fair
value hedge, cash flow hedge or foreign currency hedge. Currently, we use only
cash flow hedges and the remaining discussion will relate exclusively to this
type of derivative instrument. If the derivative qualifies for hedge
accounting, the gain or loss on the derivative is deferred in accumulated
Other Comprehensive Income ("OCI"), a component of Stockholders' Equity to the
extent the hedge is effective.
The relationship between the hedging instrument and the hedged item must be
highly effective in achieving the offset of changes in cash flows attributable
to the hedged risk both at the inception of the contract and on an ongoing
basis. Hedge accounting is discontinued prospectively when a hedge instrument
becomes ineffective. Gains and losses deferred in OCI related to cash flow
hedges that become ineffective remain unchanged until the related product is
delivered. If it is determined that it is probable that a hedged forecasted
transaction will not occur, deferred gains or losses on the hedging instrument
are recognized in earnings immediately.
We formally document all relationships between hedging instruments and
hedged items, as well as our risk management objectives and strategy for
undertaking the hedge. Hedge effectiveness is measured on a quarterly basis.
This process includes specific identification of the hedging instrument and
the hedge transaction, the nature of the risk being hedged and how the hedging
instrument's effectiveness will be assessed. Both at the inception of the
hedge and on an ongoing basis, we assess whether the derivatives that are used
in hedging transactions are highly effective in offsetting changes in cash
flows of hedged items. No amounts were excluded from the computation of hedge
effectiveness. At December 31, 2001, all open positions qualified for hedge
accounting.
Unrealized gains and losses on hedging instruments reflected in OCI and
adjustments to carrying amounts on hedged volumes are included in oil and gas
revenues in the period that the related volumes are delivered. Gains and
losses from hedging instruments, which represent hedge ineffectiveness as well
as any amounts excluded from the assessment of hedge effectiveness, are
recognized currently in oil and gas revenues. Effective October 2001, we
implemented Derivatives Implementation Group ("DIG") Issue G20, "Cash Flow
Hedges: Assessing and Measuring the Effectiveness of a Purchased Option Used
in a Cash Flow Hedge", which provides guidance for assessing the effectiveness
on total changes in an option's cash flows rather than only on changes in the
option's intrinsic value. Implementation of this DIG issue will reduce
earnings volatility since it allows us to include changes in the time value of
purchased options and collars in the assessment of hedge effectiveness. Time
value changes were previously recognized in current earnings since we excluded
time value changes from the assessment of hedge effectiveness. Oil and gas
revenues for the year ended December 31, 2001 include a $3.4 million non-cash
loss related to the ineffective portion of the cash flow hedges representing
the fair value change in the time value of options for the nine months prior
to the implementation of DIG Issue G20.
We utilize various derivative instruments to hedge our exposure to price
fluctuations on crude oil sales. The derivative instruments consist primarily
of cash-settled crude oil option and swap contracts entered into with
financial institutions. We do not currently have any natural gas hedges. We
also utilize interest rate swaps and collars to manage the interest rate
exposure on our long-term debt. In October
F-14
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2001 we entered into a three-year interest rate swap agreement, fixing at
5.29% the interest rate on $7.5 million of borrowing under our revolving
credit facility. At December 31, 2001, we had the following open crude oil
hedge positions:
Barrels Per
Day
------------
2002 2003
------ -----
Puts
Average price $20.00/bbl...................................... 2,000 --
Calls
Average price $35.17/bbl...................................... 9,000 --
Swaps
Average price $24.00/bbl...................................... 17,000 --
Average price $23.16/bbl...................................... -- 7,500
On January 1, 2001, in accordance with the transition provisions of SFAS
133, we recorded a gain of $4.5 million in OCI, representing the cumulative
effect of an accounting change to recognize at fair value all cash flow
derivatives, including our equity in the cash flow derivatives of PAA. We
recorded cash flow hedge derivative assets and liabilities of $20.6 million
and $18.1 million, respectively, and a net-of-tax non-cash charge of $2.0
million was recorded in earnings as a cumulative effect adjustment.
For the year ended December 31, 2001, net unrealized gains of $9.8 million
were added to OCI and the fair value of open positions increased $16.2
million. At December 31, 2000, we had an interest rate swap arrangement to
protect interest rate fluctuations on a portion of our outstanding debt. The
position was terminated prior to maturity and as a result $0.6 million related
to such position was relieved from OCI when the debt was repaid in June 2001.
At December 31, 2001, net unrealized gains on our option and swap contracts
included in OCI was $16.7 million. The related assets and liabilities were
included in commodity hedging contracts and other derivatives ($21.8 million),
other assets ($5.7 million), and deferred income taxes ($10.8 million).
Additionally, OCI includes our $2.3 million net of tax equity in the
unrealized OCI losses of PAA. As of December 31, 2001, $13.2 million of
deferred net gains on derivative instruments recorded in OCI are expected to
be reclassified to earnings during the next twelve-month period.
F-15
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Long-Term Debt and Credit Facilities
Short-term debt and long-term debt consists of the following at December
31, 2001 and 2000 (in thousands):
2001 2000
----------------- -----------------
Current Long-Term Current Long-Term
------- --------- ------- ---------
Plains
Revolving credit facility, bearing
interest at 4.2% and 8.4%, at December
31, 2001 and 2000, respectively......... $ -- $ 11,500 $ -- $ 27,300
10.25% Senior Subordinated Notes, due
2006, net of repurchased notes of $7.55
million and nil, and unamortized premium
of $2.1 million and $2.5 million at
December 31, 2001 and 2000,
respectively............................ -- 269,539 -- 277,543
Other long-term debt..................... 511 1,533 511 2,044
---- -------- ------ --------
511 282,572 511 306,887
PAA
Letter of credit facility and hedged
inventory facility, bearing interest at
a weighted average interest rate of
8.4%.................................... -- -- 1,300 --
Plains Marketing, L.P. revolving credit
facility, bearing interest at 9.2%, at
December 31, 2000....................... -- -- -- 320,000
---- -------- ------ --------
$511 $282,572 $1,811 $626,887
==== ======== ====== ========
Aggregate total maturities of long-term debt in the next five years are as
follows: 2002--$0.5 million; 2003--$1.9 million; 2004--$6.3 million; 2005--
$4.3 million; and 2006--$267.5 million.
Plains Long-Term Debt and Credit Facilities
Revolving Credit Facility
We have a $225.0 million revolving credit facility with a group of banks.
The revolving credit facility is guaranteed by all of our upstream
subsidiaries and is collateralized by our upstream oil and natural gas
properties and those of the guaranteeing subsidiaries and the stock of all the
upstream subsidiaries. The borrowing base under the revolving credit facility
at December 31, 2001, is $225.0 million and is subject to redetermination from
time to time by the lenders in good faith, in the exercise of the lenders'
sole discretion, and in accordance with customary practices and standards in
effect from time to time for crude oil and natural gas loans to borrowers
similar to our company. Our borrowing base may be affected from time to time
by the performance of our oil and natural gas properties and changes in oil
and natural gas prices. We incur a commitment fee of 3/8% per annum on the
unused portion of the borrowing base. In addition, we pay a fee of 1 3/8% per
annum of the face amount of letters of credit that are issued under our
revolving credit facility. The revolving credit facility, as amended,
terminates on July 1, 2003, at which time the remaining outstanding balance
converts to a term loan, repayable in eight equal quarterly installments
commencing October 1, 2003, with a final maturity of July 1, 2005. The
revolving credit facility bears interest, at our option, of either LIBOR plus
1 3/8% or the Base Rate (as defined therein). At December 31, 2001, letters of
credit of $0.6 million were outstanding under the revolving credit facility.
F-16
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The revolving credit facility contains covenants which, among other things,
limit the payment of cash dividends on common stock, limit repurchases of
common stock, limit the amount of consolidated debt, limit our ability to make
certain loans and investments and provide that we must maintain a specified
relationship between current assets and current liabilities. At December 31,
2001 we were in compliance with such covenants and could have borrowed the
full $225.0 million available under the facility.
Under the terms of the revolving credit facility we can purchase any
combination of our own common stock, our senior subordinated notes and PAA
common units and pay cash dividends on our common stock (up to $30.0 million)
up to a total of $150.0 million. At December 31, 2001 we had $117.5 million
remaining under this limit. The Board of Directors, subject to the $150.0
million limit, has authorized the purchase of up to eight million shares of
our common stock, our senior subordinated notes and PAA units in the open
market from time to time as market conditions are deemed favorable.
In October 2001 we entered into a three-year interest rate swap agreement,
fixing the interest rate on $7.5 million of borrowing under our revolving
credit facility at 5.29%
10.25% Senior Subordinated Notes Due 2006
At December 31, 2001 we had $267.5 million principal amount of 10.25%
Senior Subordinated Notes Due 2006 (the "10.25% Notes") outstanding, bearing a
coupon rate of 10.25%. In 1996 we issued $150.0 million principal amount at
99.38% of par to yield 10.35%. In 1997 $50.0 million principal amount was
issued at approximately 107% of par and in 1999 $75.0 million principal amount
was issued at approximately 101% of par. In 2001 we repurchased $7.5 million
principal amount at 99.5% of par.
The 10.25% Notes are redeemable, at our option at 105.13% of the principal
amount through March 15, 2002, at 103.42% on or after March 15, 2002, at
101.71% on or after March 15, 2003 and at 100% on or after March 15, 2004
plus, in each case, accrued interest to the date of redemption.
The Indenture contains covenants that include, but are not limited to,
covenants that: (1) limit the incurrence of additional indebtedness; (2) limit
certain investments; (3) limit restricted payments; (4) limit the disposition
of assets; (5) limit the payment of dividends and other payment restrictions
affecting subsidiaries; (6) limit transactions with affiliates; (7) limit the
creation of liens; and (8) restrict mergers, consolidations and transfers of
assets. In the event of a Change of Control and a corresponding Rating
Decline, as both are defined in the Indenture, we will be required to make an
offer to repurchase the 10.25% Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest to the date of the repurchase.
The 10.25% Notes are unsecured general obligations and are subordinated in
right of payment to all our existing and future senior indebtedness and are
guaranteed by certain of our Upstream subsidiaries on a full, unconditional,
joint and several basis.
PAA Credit Facilities
At December 31, 2000, PAA's bank credit agreements consisted of a $400.0
million senior secured revolving credit facility and a $300.0 million senior
secured letter of credit and borrowing facility, both of which were secured by
substantially all of PAA's assets. PAA's credit facilities were nonrecourse to
us.
F-17
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Unauthorized Trading Losses
In November 1999, we discovered that a former employee of PAA had engaged
in unauthorized trading activity, resulting in losses of approximately $174.0
million, including estimated associated costs and legal expenses.
Approximately $7.1 million of the unauthorized trading losses were recognized
in 1998 and the remainder in 1999. In 2000, we recognized an additional $8.0
million charge for litigation related to the unauthorized trading losses.
Note 6--PAA Acquisitions and Dispositions
Scurlock Acquisition
On May 12, 1999, PAA completed the acquisition of Scurlock Permian LLC
("Scurlock") and certain other pipeline assets from Marathon Ashland Petroleum
LLC. Including working capital adjustments and closing and financing costs,
the cash purchase price was approximately $141.7 million.
Financing for the Scurlock acquisition was provided through: (i) borrowings
of approximately $92.0 million under a PAA bank facility; (ii) the sale to the
general partner of 1.3 million Class B common units of PAA for a total cash
consideration of $25.0 million, or $19.125 per unit, the price equal to the
market value of PAA's common units on May 12, 1999; and (iii) a $25.0 million
draw under PAA's existing revolving credit agreement.
The funds for the purchase of the Class B units by the general partner were
provided by a capital contribution from us. We financed our capital
contribution through our revolving credit facility.
The assets, liabilities and results of operations of Scurlock are included
in our consolidated financial statements effective May 1, 1999. The Scurlock
acquisition has been accounted for using the purchase method of accounting and
the purchase price was allocated in accordance with Accounting Principles
Board Opinion No. 16, Business Combinations ("APB 16") as follows (in
thousands):
Crude oil pipeline, gathering and terminal assets.................. $125,120
Other property and equipment....................................... 1,546
Pipeline linefill.................................................. 16,057
Other assets (debt issue costs).................................... 3,100
Other long-term liabilities (environmental accrual)................ (1,000)
Net working capital items.......................................... (3,090)
--------
Cash paid.......................................................... $141,733
========
F-18
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Results for the Scurlock Acquisition
The following unaudited pro forma data is presented to show pro forma
revenues, net loss and basic and diluted net loss per share for the year ended
December 31, 1999 as if the Scurlock acquisition, which was effective May 1,
1999, had occurred on January 1, 1999 (in thousands, except per share data):
Revenues....................................................... $11,323,577
===========
Net loss....................................................... $ (27,147)
===========
Net loss per share available to common stockholders:
Basic and diluted............................................ $ (2.15)
===========
All American Pipeline Linefill Sale and Asset Disposition
In March 2000, PAA sold the segment of the All American Pipeline that
extends from Emidio, California to McCamey, Texas to a unit of El Paso
Corporation for $129.0 million. PAA realized net proceeds of approximately
$124.0 million after the associated transaction costs and estimated costs to
remove some equipment. The proceeds from the sale were used to reduce the
outstanding debt of PAA. PAA recognized a gain of approximately $20.1 million
in connection with the sale.
PAA had suspended shipments of crude oil on this segment of the pipeline in
November 1999. At that time, PAA owned approximately 5.2 million barrels of
crude oil in the segment of the pipeline. PAA sold this crude oil from
November 1999 to February 2000 for net proceeds of approximately $100.0
million and recognized gains of approximately $28.1 million and $16.5 million
in 2000 and 1999, respectively, in connection with the sale of the linefill.
Note 7--Redeemable Preferred Stock
Series F Cumulative Convertible Preferred Stock
On December 14, 1999, we sold in a private placement 50,000 shares of
Series F Preferred Stock for $50.0 million As discussed in Note 2, in
conjunction with the Transactions we redeemed 23,108 shares of the Series F
Preferred Stock and the remaining 26,892 shares were converted into 2.2
million shares of our common stock. Each share of the Series F Preferred Stock
had a stated value of $1,000 per share and bore a dividend of 10% per annum.
Dividends were payable semi-annually in either cash or additional shares of
Series F Preferred Stock at our option and were cumulative from the date of
issue. Dividends paid in additional shares of Series F Preferred Stock were
limited to an aggregate of six dividend periods. Each share of Series F
Preferred Stock was convertible into 81.63 shares of common stock (an initial
effective conversion price of $12.25 per share). At December 31, 2000 there
were 50,000 shares of Series F Preferred Stock outstanding.
The Series F Preferred Stock is stated at liquidation preference on the
consolidated balance sheet at December 31, 2000. Liquidation preference
represents the number of shares outstanding multiplied by the stated value of
the shares. Any unpaid cash dividends are accrued in accounts payable and
other current liabilities on the consolidated balance sheet.
Series E and Series G Convertible Preferred Stock
In July 1998 we issued $85.0 million of Series E Cumulative Convertible
Preferred Stock (the "Series E Preferred Stock"). Each share of the Series E
Preferred Stock had a stated value of $500 per share and bore a dividend of
9.5% per annum. Dividends were payable semi-annually in either
F-19
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
cash or additional shares of Series E Preferred Stock at our option and were
cumulative from the date of issue. Each share of Series E Preferred Stock was
convertible into 27.78 shares of common stock (an initial effective conversion
price of $18.00 per share). In February 2000 each outstanding share of the
Series E Preferred Stock was exchanged for a share of a new Series G
Cumulative Convertible Preferred Stock (the "Series G Preferred Stock") which
had a conversion price of $15.00 per share. Other than the reduced conversion
price, the terms of the Series G Preferred Stock were substantially identical
to those of the Series E Preferred Stock
In December 2000, we exchanged or redeemed all of the shares of Series G
Preferred Stock that had not been previously converted into shares of common
stock. We exchanged 169,571 shares of Series G Preferred Stock for 169,571
shares of Series H Preferred Stock and in connection therewith paid $2.0
million, the amount equal to accrued dividends, and converted 1,825 shares of
Series G Preferred Stock into 62,226 shares of common stock. The remaining 213
shares of the Series G Preferred Stock were redeemed at 105% of stated value
in accordance with the original terms. In connection with that redemption, we
paid $114,000 consisting of $112,000 for stated value and $2,000 for accrued
and unpaid dividends.
Note 8--Common Stock and Non-Redeemable Preferred Stock
Common and Preferred Stock
We have authorized capital stock consisting of 50.0 million shares of
common stock, $0.10 par value, and 2 million shares of preferred stock, $1.00
par value. At December 31, 2001 and 2000, there were 23.6 million shares and
17.5 million shares of common stock outstanding (net of treasury shares),
respectively, and 46,600 and 266,171 shares of preferred stock outstanding.
Stock Warrants and Options
At December 31, 2001, we had a warrant outstanding which entitles the
holder thereof to purchase an aggregate 150,000 shares of common stock at
$25.00 per share expiring in 2002. We have various stock option plans for our
employees and directors (see Note 14).
Series D Cumulative Convertible Preferred Stock
In November 1997, we issued 46,600 shares of Series D Cumulative
Convertible Preferred Stock (the "Series D Preferred Stock"). The Series D
Preferred Stock has an aggregate stated value of $23.3 million and is
redeemable at our option at 140% of stated value. If not previously redeemed
or converted, the Series D Preferred Stock will automatically convert into
932,000 shares of common stock in 2012. Each share of the Series D Preferred
Stock has a stated value of $500 and is convertible into common stock at a
ratio of $25.00 of stated value for each share of Common Stock to be issued.
The Series D Preferred Stock bears an annual dividend of $30.00 per share.
Series H Convertible Preferred Stock
In December 2000, we exchanged 169,571 shares of Series G Preferred Stock
for 169,571 shares of Series H Preferred Stock. The Series H Preferred Stock
was convertible into the same number of shares of common stock as the Series G
Preferred Stock (33.33 shares of common), but did not bear a dividend and did
not contain a mandatory redemption feature. As discussed in Note 2, in
conjunction with the Transactions, 132,022 shares of the Series H Preferred
Stock were converted into 4.4 million shares of our common stock. In the third
quarter of 2001 the remaining outstanding shares were converted into 1.2
million common shares.
F-20
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Treasury Stock
Our Board of Directors has authorized the repurchase of up to eight million
shares of our common stock. In 2001, we repurchased 2.8 million common shares
at a cost of $67.7 million, and in 2000 we repurchased 1.3 million common
shares at a cost of $23.6 million.
Note 9--Earnings Per Share
The following is a reconciliation of the numerators and the denominators of
the basic and diluted earnings per share computations for income (loss) from
continuing operations before extraordinary items and the cumulative effect of
accounting change for the years ended December 31, 2001, 2000 and 1999 (in
thousands, except per share amounts):
For the Year Ended December 31,
--------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------- -------------------------------- --------------------------------
Per Per Per
Income Shares Share Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------
Income (loss) before
extraordinary item
and cumulative
effect of
accounting change.. $155,317 $45,924 $(24,787)
Less: preferred
stock dividends.... (27,245) (14,725) (10,026)
-------- ------- --------
Income (loss)
available to common
stockholders....... 128,072 21,090 $6.07 31,199 17,845 $1.75 (34,813) 17,262 $(2.02)
======== ======= ========
Effect of dilutive
securities:
Preferred Stock
conversion......... 3,365 5,280 14,725 10,673
Employee stock
options and
warrants........... -- 874 -- 855 -- --
-------- ------ ------- ------ -------- ------
Income (loss)
available to common
stockholders
assuming dilution.. $131,437 27,244 $4.82 $45,924 29,373 $1.56 $(34,813) 17,262 $(2.02)
======== ====== ===== ======= ====== ===== ======== ====== ======
In 1999, we recorded a net loss and our options and warrants were not
included in the computations of diluted earnings per share because their
assumed conversion was antidilutive. In addition, our preferred stock that was
outstanding at December 31, 1999 was convertible into 7.0 million shares of
common stock but was not included in the computation of diluted earnings per
share in 1999 because the effect was antidilutive. See Note 14 for additional
information concerning outstanding options and warrants.
F-21
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Income Taxes
Our deferred income tax assets and liabilities at December 31, 2001 and
2000 consist of the tax effect of income tax carryforwards and differences
related to the timing of recognition of certain types of costs as follows (in
thousands):
December 31,
-----------------
2001 2000
-------- -------
U.S. Federal
Deferred tax assets:
Net operating losses...................................... $ 18,142 $64,370
Percentage depletion...................................... 2,450 2,450
Tax credit carryforwards.................................. 8,988 4,662
Excess outside tax basis over outside book basis.......... 9,979 24,504
Other..................................................... 4,926 1,669
-------- -------
44,485 97,655
Deferred tax liabilities:
Net oil & gas acquisition, exploration and development
costs.................................................... (63,693) (42,946)
Commodity hedging contracts and other .................... (9,028) --
-------- -------
Net deferred tax asset (liability)........................ (28,236) 54,709
Valuation allowance....................................... (2,450) (2,555)
-------- -------
(30,686) 52,154
-------- -------
Foreign
Excess outside tax basis over outside book basis.......... 466 --
-------- -------
States
Deferred tax liability...................................... (14,074) (4,180)
-------- -------
Net deferred tax assets (liability)......................... $(44,294) $47,974
======== =======
At December 31, 2001, we have carryforwards of approximately $51.8 million
of regular tax net operating losses ("NOL"), $7.0 million of statutory
depletion, $5.1 million of alternative minimum tax credits and $3.8 million of
enhanced oil recovery credits. At December 31, 2001, we also had approximately
$34.1 million of alternative minimum tax NOL carryforwards available as a
deduction against future alternative minimum tax income. The NOL carryforwards
expire in 2019.
Set forth below is a reconciliation between the income tax provision
(benefit) computed at the United States statutory rate on income (loss) before
income taxes and the income tax provision in the accompanying consolidated
statements of operations (in thousands):
Year Ended December 31,
---------------------------
2001 2000 1999
-------- ------- --------
U.S. federal income tax provision at statutory
rate............................................ $ 89,872 $25,028 $(15,842)
State income taxes, net of federal benefit....... 10,050 2,018 (1,298)
Foreign income taxes, net of federal benefit..... 916 -- --
Full cost ceiling test limitation................ -- -- (3,617)
Other............................................ 622 (1,463) 278
-------- ------- --------
Income tax expense (benefit) on income before
extraordinary item.............................. 101,460 25,583 (20,479)
Income tax benefit allocated to extraordinary
item............................................ -- (3,190) (293)
Income tax benefit allocated to cumulative effect
of accounting change............................ (1,270) (76) --
-------- ------- --------
Income tax (benefit) provision................... $100,190 $22,317 $(20,772)
======== ======= ========
F-22
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In accordance with certain provisions of the Tax Reform Act of 1986, a
change of greater than 50% of our beneficial ownership within a three-year
period (an "Ownership Change") will place an annual limitation on our ability
to utilize our existing tax carryforwards. Under the Final Treasury
Regulations issued by the Internal Revenue Service, we do not believe that an
Ownership Change has occurred as of December 31, 2001.
Note 11--Early Extinguishment of Debt
In 2000, PAA recognized a $15.2 million extraordinary loss ($5.0 million
net of minority interest of $7.0 million and deferred income taxes of $3.2
million) consisting primarily of unamortized debt issue costs related to the
refinancing of PAA's credit facilities. In addition, interest and other income
for 2000 includes $4.4 million of previously deferred net gains from interest
rate swaps terminated as a result of the debt extinguishment. In 1999, PAA
recognized a $1.5 million extraordinary loss ($0.5 million net of minority
interest of $0.7 million and deferred tax of $0.3 million) related to the
write-off of certain debt issue costs and penalties associated with the
prepayment of debt.
Note 12--Related Party Transactions
Reimbursement of Expenses of the General Partner and Its Affiliates
Prior to the Transactions, the general partner of PAA was a wholly-owned
subsidiary of Plains. As a result of the Transactions another entity was named
general partner and our ownership in that entity is 44%. Previously, we had
sole responsibility for conducting PAA's business and managing its operations.
We did not receive any management fee or other compensation in connection with
the management of PAA's business, but were reimbursed for all direct and
indirect expenses incurred on its behalf. For the period from January 1, 2001
to June 8, 2001, and for the years ended December 31, 2000 and 1999, we were
reimbursed approximately $31.2 million, $63.8 million and $44.7 million,
respectively, for direct and indirect expenses on PAA's behalf. The reimbursed
costs consisted primarily of employee salaries and benefits. PAA does not
employ any persons to manage its business. These functions are provided by
employees of the general partner.
Crude Oil Marketing Agreement
PAA is the exclusive marketer/purchaser for all of our equity crude oil
production. The marketing agreement provides that PAA will purchase for resale
at market prices all of our equity crude oil production for which PAA charges
a fee of $0.20 per barrel. For the years ended December 31, 2001, 2000 and
1999, we paid approximately $223.1 million, $244.9 million and $131.5 million,
respectively, for the purchase of crude oil under the agreement, including the
royalty share of production.
Financing
In December 1999, we loaned PAA $114.0 million, which was repaid in May
2000. Interest on the notes was $3.3 million and $0.6 million for the years
ended December 31, 2000 and 1999, respectively.
Transaction Grant Agreements
In 1998, at no cost to PAA, we agreed to grant 400,000 of our PAA common
units (including distribution equivalent rights attributable to such units) to
certain key officers and employees of the general partner and its affiliates.
The grants vested over a three year period subject to PAA paying
F-23
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
distributions on common and subordinated units. Of these grants, 69,000 vested
in 1999 and 133,000 vested in 2000. The remaining grants vested in 2001 as a
result of the Transactions. PAA recognized noncash compensation expense
related to the transaction grants of approximately $4.8 million, $2.7 million
and $1.0 million in the years ended December 31, 2001, 2000, and 1999,
respectively, and we reflected capital contributions of a similar amount. The
noncash compensation is included in general and administrative expense in the
Consolidated Statements of Operations for the years ended December 31, 2000
and 1999. Our share of this expense is included in our equity in the earnings
of PAA in 2001.
Note 13--Benefit Plans
We have a nonqualified retirement plan (the "Plan") for certain of our
officers. Benefits under the Plan are based on salary at the time of adoption,
vest over a 15-year period and are payable over a 15-year period commencing at
age 60. The Plan is unfunded.
Net pension expense for the years ended December 31, 2001, 2000 and 1999 is
comprised of the following components (in thousands):
Year Ended
December 31,
--------------
2001 2000 1999
---- ---- ----
Service cost--benefits earned during the period.............. $156 $ 99 $109
Interest on projected benefit obligation..................... 131 96 83
Amortization of prior service cost........................... 31 37 37
Unrecognized loss............................................ 17 -- 6
---- ---- ----
Net pension expense.......................................... $335 $232 $235
==== ==== ====
Summarized information of our retirement plan for the periods indicated is
as follows (in thousands):
December 31,
----------------
2001 2000
------- -------
Change in benefit obligation:
Benefit obligation at beginning of year................ $ 1,821 $ 1,233
Service cost........................................... 155 99
Interest cost.......................................... 131 96
Settlement losses...................................... 271 --
Special termination benefits........................... -- 175
Benefits paid.......................................... (67) --
Settlement payments.................................... (1,159) --
Actuarial (gains) losses............................... 755 218
------- -------
Benefit obligation at end of year........................ $ 1,907 $ 1,821
======= =======
Amounts recognized in the consolidated balance sheets:
Projected benefit obligation for service rendered to
date.................................................. $ 1,907 $ 1,821
Plan assets at fair value.............................. -- --
------- -------
Benefit obligation in excess of fair value of plan
assets................................................ (1,907) (1,821)
Unrecognized (gain) loss............................... 720 185
Unrecognized prior service costs....................... 310 508
Adjustment to recognize minimum liability.............. (1,030) (693)
------- -------
Net amount recognized.................................. $(1,907) $(1,821)
======= =======
F-24
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted-average discount rate used in determining the projected
benefit obligation was 7.25% and 7.5% for the years ended December 31, 2001
and 2000, respectively.
We also maintain a 401(k) defined contribution plan whereby we match 100%
of an employee's contribution (subject to certain limitations in the plan).
Matching contributions are made 50% in cash and 50% in common stock of the
Company, with the number of shares for the stock match based on the market
value of the common stock at the time the shares are granted. For the years
ended December 31, 2001, 2000 and 1999, defined contribution plan expense was
$0.3 million, $1.4 million and $1.0 million, respectively. Such expense for
2000 and 1999 includes amounts attributable to employees of the general
partner of PAA.
Note 14--Stock Compensation Plans
Stock Options
Historically, we have used stock options as a long-term incentive for our
employees, officers and directors under various stock option plans. We have
options outstanding under our 2001 and 1996 plans, under which a maximum of
5.6 million shares of common stock were reserved for issuance. Generally, the
options are granted: (i) at an exercise price equal to or greater than the
market price of the underlying stock on the date of grant; and (ii) with a pro
rata vesting period of two to five years and an exercise period of five to ten
years. Certain options have vesting provisions related to the market price of
our common stock. If such options do not vest under such provisions, they vest
at the end of a five-year period.
Performance options to purchase a total of 500,000 shares of common stock
were granted to two executive officers in 1996. Terms of the options provided
for an exercise price of $13.50, the market price on the date of grant, and
were to vest if shares of our common stock traded at or above $24.00 per share
for any 20 trading days in any 30 consecutive trading day period prior to
August 2001, or upon a change in control if certain conditions were met. The
performance options vested in the second quarter of 2001 and we recognized
$4.0 million of noncash compensation expense, which is included in general and
administrative expense.
In May 2001 we granted options on 2,250,000 shares under the terms of our
2001 plan subject to the approval of such plan by our board of directors. The
market price of our common stock at the time the plan was approved in July
2001 exceeded the exercise price with respect to 1,450,000 of such options
and, accordingly, we recognized noncash compensation with respect to such
options. During 2001, $0.3 million in compensation expense with respect to
such options is included in general and administrative expense.
F-25
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of our stock options as of December 31, 2001, 2000,
and 1999, and changes during the years ending on those dates are presented
below (shares in thousands):
2001 2000 1999
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
------------- ------ -------- ------ -------- ------ --------
Outstanding at beginning of
year...................... 2,749 $12.11 2,811 $11.06 2,749 $10.53
Granted.................... 2,464 24.02 419 13.91 237 15.09
Exercised.................. (1,431) 11.51 (444) 6.96 (158) 7.94
Forfeited.................. (115) 14.06 (37) 14.37 (17) 9.93
------ ----- -----
Outstanding at end of
year...................... 3,667 $20.30 2,749 $12.11 2,811 $11.06
====== ===== =====
Options exercisable at
year-end.................. 1,084 $13.32 1,708 $11.07 1,836 $ 9.50
====== ===== =====
Weighted-average fair value
of options granted during
the year.................. $10.12 $5.39 $5.40
In October 1995, the Financial Accounting Standards Board issued SFAS 123,
which established financial accounting and reporting standards for stock-based
employee compensation. SFAS 123 defines a fair value based method of
accounting for an employee stock option or similar equity instrument. SFAS 123
also allows an entity to continue to measure compensation cost for those
instruments using the intrinsic value-based method of accounting prescribed by
APB 25. We have elected to follow APB 25 and related interpretations in
accounting for our employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires the use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of our employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense has been recognized in the accompanying financial
statements.
Pro forma information regarding net income (loss) and earnings per share is
required by SFAS 123 and has been determined as if we had accounted for our
employee stock options under the fair value method as provided therein. The
fair value for the options was estimated at the date of grant using a Black-
Scholes option pricing model with the following weighted average assumptions
for grants in 2001, 2000 and 1999: risk-free interest rates of 2.5% for 2001,
6.3% for 2000, and 5.1% for 1999; a volatility factor of the expected market
price of our common stock of .0.50 for 2001, 0.50 for 2000 and 0.50 for 1999;
no expected dividends; and weighted average expected option lives of 5.3 years
in 2001, 2.6 years in 2000 and 2.7 years in 1999. For purposes of pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period.
The Black-Scholes option valuation model and other existing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of and are highly sensitive to subjective assumptions
including the expected stock price volatility. Because our employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not provide a reliable single measure of the fair value of
its employee stock options.
F-26
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Set forth below is a summary of our net income (loss) before extraordinary
item and earnings per share as reported and pro forma as if the fair value
based method of accounting defined in SFAS 123 had been applied (in thousands,
except per share data).
Year Ended December 31,
-------------------------
2001 2000 1999
-------- ------- --------
As Reported:
Net income (loss) before extraordinary item and
cumulative effect of accounting change........... $155,317 $45,924 $(24,787)
Net income (loss) per common share, basic......... 6.07 1.75 (2.02)
Net income (loss) per common share, diluted....... 4.82 1.56 (2.02)
Pro Forma:
Net income (loss) before extraordinary item and
cumulative effect of accounting change........... $152,335 $45,132 $(25,125)
Net income (loss) per common share, basic......... 5.93 1.70 (2.04)
Net income (loss) per common share, diluted....... 4.72 1.54 (2.04)
The following table summarizes information about stock options outstanding
at December 31, 2001 (share amounts in thousands):
Weighted Weighted
Number Weighted Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise Price at 12/31/01 Contractual Life Price at 12/31/01 Price
-------------- ----------- ---------------- -------- ----------- --------
$ 6.25 to $14.19 702 2.4 years $10.08 542 $ 8.97
14.31 to 21.12 508 1.9 years 16.39 461 16.43
23.00 to 23.00 1,000 9.4 years 23.00 -- --
23.74 to 25.30 1,457 5.0 years 24.74 81 24.73
$ 6.25 to $25.30 3,667 5.3 years $20.30 1,084 $13.32
Share Grant
In May 2001, an officer was granted the right to receive an amount, payable
in our common stock, equal to the excess of the "fair market value" (as
defined in our 2001 plan) of a share of common stock on the effective date and
$22.00, multiplied by one million. On the effective date, May 8, 2001, the
closing price of our common stock was $23.00 and accordingly, the employee
will receive $1.0 million, to be paid in five annual installments as of each
anniversary of the effective date, in the form of a direct grant of shares of
common stock. The number of shares is determined by dividing the annual
installment by the fair market value of a share on the applicable anniversary
date. We will recognize $1.0 million of noncash compensation expense ratably
over the five-year period. General and administrative expense for 2001
includes $0.3 million in compensation expense with respect to this share
grant.
F-27
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15--Commitments, Contingencies and Industry Concentration
Commitments and Contingencies
We lease certain real property, equipment and operating facilities under
various operating leases. Future non-cancelable commitments related to these
items at December 31, 2001, are summarized below (in thousands):
2002.................................................................... $616
2003.................................................................... 593
2004.................................................................... 595
2005.................................................................... 573
2006.................................................................... 143
Thereafter.............................................................. --
Total expenses related to these commitments for the years ended December
31, 2001, 2000 and 1999 were $0.7 million, $7.3 million and $9.3 million,
respectively. Such amounts for 2000 and 1999 include $6.7 million and $8.8
million, respectively, attributable to PAA.
Under the amended terms of an asset purchase agreement with respect to
certain of our onshore California properties, commencing with the year
beginning January 1, 2000, and each year thereafter, we are required to plug
and abandon 20% of the then remaining inactive wells, which currently
aggregate approximately 149. To the extent we elect not to plug and abandon
the number of required wells, we are required to escrow an amount equal to the
greater of $25,000 per well or the actual average plugging cost per well in
order to provide for the future plugging and abandonment of such wells. In
addition, we are required to expend a minimum of $600,000 per year in each of
the ten years beginning January 1, 1996, and $300,000 per year in each of the
succeeding five years to remediate oil contaminated soil from existing well
sites, provided there are remaining sites to be remediated. In the event we do
not expend the required amounts during a calendar year, we are required to
contribute an amount equal to 125% of the actual shortfall to an escrow
account. We may withdraw amounts from the escrow account to the extent we
expend excess amounts in a future year. Through December 31, 2001, we have not
been required to make contributions to an escrow account.
In connection with the acquisition of our interest in the Point Arguello
field, offshore California, we assumed our 26% share of (1) plugging and
abandoning all existing well bores, (2) removing conductors, (3) flushing
hydrocarbons from all lines and vessels and (4) removing/abandoning all
structures, fixtures and conditions created subsequent to closing. The seller
retained the obligation for all other abandonment costs, including but not
limited to (1) removing, dismantling and disposing of the existing offshore
platforms, (2) removing and disposing of all existing pipelines and (3)
removing, dismantling, disposing and remediation of all existing onshore
facilities.
Although we obtained environmental studies on our properties in California,
Florida and Illinois and we believe that such properties have been operated in
accordance with standard oil field practices, certain of the fields have been
in operation for more than 90 years, and current or future local, state and
federal environmental laws and regulations may require substantial
expenditures to comply with such rules and regulations. In connection with the
purchase of certain of our onshore California properties, we received a
limited indemnity for certain conditions if they violate applicable local,
state and federal environmental laws and regulations in effect on the date of
such agreement. We believe that we do not have any material obligations for
operations conducted prior to our acquisition of the properties, other than
our obligation to plug existing wells and those normally associated with
F-28
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
customary oil field operations of similarly situated properties, there can be
no assurance that current or future local, state or federal rules and
regulations will not require us to spend material amounts to comply with such
rules and regulations or that any portion of such amounts will be recoverable
under the indemnity.
Consistent with normal industry practices, substantially all of our crude
oil and natural gas leases require that, upon termination of economic
production, the working interest owners plug and abandon non-producing
wellbores, remove tanks, production equipment and flow lines and restore the
wellsite. We have estimated that the costs to perform these tasks is
approximately $17.0 million, net of salvage value and other considerations.
Such estimated costs are amortized to expense through the unit-of-production
method as a component of accumulated depreciation, depletion and amortization.
Results from operations for 2001, 2000 and 1999 each include $0.5 million of
expense associated with these estimated future costs. For valuation and
realization purposes of the affected crude oil and natural gas properties,
these estimated future costs are also deducted from estimated future gross
revenues to arrive at the estimated future net revenues and the Standardized
Measure disclosed in Note 19.
As is common within the industry, we have entered into various commitments
and operating agreements related to the exploration and development of and
production from proved crude oil and natural gas properties and the marketing,
transportation, terminalling and storage of crude oil. It is management's
belief that such commitments will be met without a material adverse effect on
our financial position, results of operations or cash flows.
Industry Concentration
Financial instruments which potentially subject us to concentrations of
credit risk consist principally of accounts receivable with respect to our oil
and gas operations and derivative instruments related to our hedging
activities. PAA is the exclusive marketer/purchaser for all of our equity oil
production. This concentration has the potential to impact our overall
exposure to credit risk, either positively or negatively, in that PAA may be
affected by changes in economic, industry or other conditions. We do not
believe the loss of PAA as the exclusive purchaser of our equity production
would have a material adverse affect on our results of operations. We believe
PAA could be replaced by other purchasers under contracts with similar terms
and conditions. The contract counterparties for our derivative commodity
contracts are all major financial institutions with Standard & Poor's ratings
of A or better. Three of the financial institutions are participating lenders
in our revolving credit facility, with one such counterparty holding contracts
that represent approximately 37% of the fair value of all open positions at
December 31, 2001.
There are a limited number of alternative methods of transportation for our
production. Substantially all of our oil and gas production is transported by
pipelines, trucks and barges owned by third parties. The inability or
unwillingness of these parties to provide transportation services to us for a
reasonable fee could result in our having to find transportation alternatives,
increased transportation costs or involuntary curtailment of a significant
portion of our oil and gas production which could have a negative impact on
future results of operations or cash flows.
F-29
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Litigation
Texas Securities Litigation. In November and December of 1999, class action
lawsuits were filed in the United States District Court for the Southern
District of Texas alleging that PAA. and certain of the general partner's
officers and directors violated federal securities laws, primarily in
connection with unauthorized trading by a former employee. The consolidated
class action filed by purchasers of our common stock and options is captioned
Koplovitz v. Plains Resources Inc., et al. The consolidated action filed by
purchasers of PAA's common units is captioned Di Giacomo v. Plains All
American Pipeline, L.P., et al.
We and PAA reached an agreement with representatives for the plaintiffs for
the settlement of all of the class actions, and in January 2001, PAA deposited
approximately $30.0 million under the terms of the settlement agreement. The
total cost of the settlement to us and PAA, including interest and expenses,
and after insurance reimbursements, was $14.9 million. Of that amount, $1.0
million was allocated to us by agreement between special independent
committees of our board of directors and the board of directors of Plains
Holdings Inc. (formerly known as Plains All American Inc.), the then general
partner of PAA. The settlement has received final approval by the court. The
settlement agreement does not affect the Texas Derivative Litigation and
Delaware Derivative Litigation described below.
Delaware Derivative Litigation. Beginning December 3, 1999 derivative
lawsuits were filed in the Delaware Chancery Court, New Castle County naming
Plains Holdings Inc., the then general partner of PAA, its directors and
certain of its officers as defendants, alleging that the defendants breached
the fiduciary duties they owed to PAA and its unitholders by failing to
monitor properly the activities of its employees. The court has consolidated
all of the cases under the caption In Re Plains All American Inc. Shareholders
Litigation. A motion to dismiss was filed on behalf of the defendants on
August 11, 2000.
An agreement has been reached with the plaintiffs to settle the Delaware
litigation by PAA making an aggregate payment of approximately $1.1 million.
On March 6, 2002 the Delaware court approved this settlement.
Texas Derivative Litigation. On July 11, 2000, a derivative lawsuit was
filed in the United States District Court for the Southern District of Texas
entitled Fernandez v. Plains All American Inc., et al., naming Plains Holdings
Inc., the then general partner of PAA, its directors and certain of its
officers as defendants. This lawsuit contains the same claims and seeks the
same relief as the Delaware derivative litigation described above. A motion to
dismiss was filed on behalf of the defendants on August 14, 2000. PAA has
reached an agreement in principle to settle the Texas derivative litigation.
The settlement, which is subject to court approval, contemplates a payment of
$112,500 by PAA and does not contemplate any payment by the Company.
We, in the ordinary course of business, are a claimant and/or defendant in
various other legal proceedings. Management does not believe that the outcome
of these legal proceedings, individually and in the aggregate, will have a
materially adverse effect on our financial condition, results of operations or
cash flows.
F-30
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 17--Financial Instruments
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Value of
Financial Instruments ("SFAS 107"). The estimated fair value amounts have been
determined using available market information and valuation methodologies
described below. Considerable judgment is required in interpreting market data
to develop the estimates of fair value. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts.
The carrying values of items comprising current assets and current
liabilities approximate fair values due to the short-term maturities of these
instruments. Derivative financial instruments included in other assets are
stated at fair value. The carrying amounts and fair values of our other
financial instruments are as follows (in thousands):
December 31,
---------------------------------
2001 2000
---------------- ----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Long-Term Debt:
Bank debt................................ $11,500 $11,500 $27,300 $27,300
Subordinated debt........................ 269,539 272,130 277,543 274,313
Other long-term debt..................... 1,022 1,022 1,533 1,533
The carrying value of bank debt approximates its fair value, as interest
rates are variable, based on prevailing market rates. The fair value of
subordinated debt is based on quoted market prices based on trades of
subordinated debt.
Note 18--Supplemental Disclosures of Cash Flow Information
Selected cash payments and noncash activities were as follows (in
thousands):
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------- -------
Cash paid for interest (net of amount
capitalized)..................................... $27,939 $56,154 $44,329
======= ======= =======
Cash paid for taxes............................... $ 7,048 $ 987 $ 548
======= ======= =======
Noncash sources and (uses) of investing and
financing activities:
Series D Preferred Stock dividends.............. $ -- $ -- $(1,354)
======= ======= =======
Exchange of preferred stock for common stock.... $ -- $ 62 $ 71
======= ======= =======
Series E Preferred Stock dividends.............. $ -- $ -- $(2,030)
======= ======= =======
Tax benefit from exercise of employee stock
options........................................ $ 6,990 $ 1,901 $ 440
======= ======= =======
F-31
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 19--Crude Oil and Natural Gas Activities
Costs Incurred
Our oil and natural gas acquisition, exploration, exploitation and
development activities are conducted in the United States. The following table
summarizes the costs incurred during the last three years (in thousands).
Year Ended December 31,
-----------------------
2001 2000 1999
------- ------- -------
Property acquisitions costs:
Unproved properties............................... $ 44 $ 73 $ 879
Proved properties................................. 1,798 2,433 2,880
Exploration costs................................... 329 872 4,101
Exploitation and development costs.................. 134,304 77,550 65,119
------- ------- -------
136,475 $80,928 $72,979
======= ======= =======
Capitalized Costs
The following table presents the aggregate capitalized costs subject to
amortization relating to our crude oil and natural gas acquisition,
exploration, exploitation and development activities, and the aggregate
related accumulated DD&A (in thousands).
December 31,
------------------
2001 2000
-------- --------
Proved properties........................................ $900,898 $762,245
Accumulated DD&A......................................... (435,269) (408,337)
-------- --------
$465,629 $353,908
======== ========
The DD&A rate per equivalent unit of production was $2.75, $2.25, and $2.13
for the years ended December 31, 2001, 2000, and 1999, respectively.
Costs Not Subject to Amortization
The following table summarizes the categories of costs comprising the
amount of unproved properties not subject to amortization (in thousands).
December 31,
-----------------------
2001 2000 1999
------- ------- -------
Acquisition costs.................................... $30,038 $34,087 $42,261
Exploration costs.................................... 3,579 4,456 4,842
Capitalized interest................................. 6,890 4,038 4,928
------- ------- -------
$40,507 $42,581 $52,031
======= ======= =======
Unproved property costs not subject to amortization consist mainly of
acquisition and lease costs and seismic data related to unproved areas. We
will continue to evaluate these properties over the
F-32
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
lease terms; however, the timing of the ultimate evaluation and disposition of
a significant portion of the properties has not been determined. Costs
associated with seismic data and all other costs will become subject to
amortization as the prospects to which they relate are evaluated.
Approximately 13%, 11% and 16% of the balance in unproved properties at
December 31, 2001, related to additions made in 2001, 2000 and 1999,
respectively.
During 2001, 2000 and 1999, we capitalized $3.6 million, $4.4 million and
$4.4 million, respectively, of interest related to the costs of unproved
properties in the process of development.
Supplemental Reserve Information (Unaudited)
The following information summarizes our net proved reserves of crude oil
(including condensate and natural gas liquids) and natural gas and the present
values thereof for the three years ended December 31, 2001. The following
reserve information is based upon reports of the independent petroleum
consulting firms of Netherland, Sewell & Associates, Inc., and Ryder Scott
Company in 2001, and H.J. Gruy and Associates, Inc., Netherland, Sewell &
Associates, Inc., and Ryder Scott Company in 2000 and 1999. The estimates are
in accordance with regulations prescribed by the SEC.
In management's opinion, the reserve estimates presented herein, in
accordance with generally accepted engineering and evaluation principles
consistently applied, are believed to be reasonable. However, there are
numerous uncertainties inherent in estimating quantities and values of proved
reserves and in projecting future rates of production and timing of
development expenditures, including many factors beyond our control. Reserve
engineering is a subjective process of estimating the recovery from
underground accumulations of crude oil and natural gas that cannot be measured
in an exact manner, and the accuracy of any reserve estimate is a function of
the quality of available data and of engineering and geological interpretation
and judgment. Because all reserve estimates are to some degree speculative,
the quantities of crude oil and natural gas that are ultimately recovered,
production and operating costs, the amount and timing of future development
expenditures and future crude oil and natural gas sales prices may all differ
from those assumed in these estimates. In addition, different reserve
engineers may make different estimates of reserve quantities and cash flows
based upon the same available data. Therefore, the Standardized Measure shown
below represents estimates only and should not be construed as the current
market value of the estimated crude oil and natural gas reserves attributable
to our properties. In this regard, the information set forth in the following
tables includes revisions of reserve estimates attributable to proved
properties included in the preceding year's estimates. Such revisions reflect
additional information from subsequent exploitation and development
activities, production history of the properties involved and any adjustments
in the projected economic life of such properties resulting from changes in
product prices.
Decreases in the prices of crude oil and natural gas have had, and could
have in the future, an adverse effect on the carrying value of our proved
reserves and our revenues, profitability and cash flow. Almost all of our
reserve base (approximately 94% of year-end 2001 reserve volumes) is comprised
of crude oil properties that are sensitive to crude oil price volatility.
F-33
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Estimated Quantities of Crude Oil and Natural Gas Reserves (Unaudited)
The following table sets forth certain data pertaining to our proved and
proved developed reserves for the three years ended December 31, 2001 (in
thousands).
As of or for the Year Ended December 31,
-------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
Oil Gas Oil Gas Oil Gas
(MBbl) (MMcf) (MBbl) (MMcf) (MBbl) (MMcf)
------- ------ ------- ------ ------- ------
Proved Reserves
Beginning balance......... 223,162 93,486 218,922 90,873 120,208 86,781
Revision of previous
estimates................ (15,457) (5,485) (9,834) (3,597) 62,895 (8,234)
Extensions, discoveries,
improved recovery and
other additions.......... 42,210 11,571 22,429 9,252 37,393 15,488
Sale of reserves in-
place.................... -- -- -- -- -- --
Purchase of reserves in-
place.................... -- -- -- -- 6,442 --
Production................ (9,279) (3,355) (8,355) (3,042) (8,016) (3,162)
------- ------ ------- ------ ------- ------
Ending balance............ 240,636 96,217 223,162 93,486 218,922 90,873
======= ====== ======= ====== ======= ======
Proved Developed Reserves
Beginning balance......... 123,532 52,184 120,141 49,255 73,264 58,445
======= ====== ======= ====== ======= ======
Ending balance............ 134,704 59,101 123,532 52,184 120,141 49,255
======= ====== ======= ====== ======= ======
Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
The Standardized Measure of discounted future net cash flows relating to
proved crude oil and natural gas reserves is presented below (in thousands):
December 31,
----------------------------------
2001 2000 1999
---------- ---------- ----------
Future cash inflows.................... $3,833,456 $6,057,344 $4,837,010
Future development costs............... (329,393) (275,862) (231,914)
Future production expense.............. (1,826,634) (2,875,301) (1,758,572)
Future income tax expense.............. (511,040) (887,107) (845,133)
---------- ---------- ----------
Future net cash flows.................. 1,166,389 2,019,074 2,001,391
Discounted at 10% per year............. (742,981) (1,099,413) (1,073,591)
---------- ---------- ----------
Standardized measure of discounted
future net cash flows................. $ 423,408 $ 919,661 $ 927,800
========== ========== ==========
The Standardized Measure of discounted future net cash flows (discounted at
10%) from production of proved reserves was developed as follows:
1. An estimate was made of the quantity of proved reserves and the
future periods in which they are expected to be produced based on year-end
economic conditions.
2. In accordance with SEC guidelines, the engineers' estimates of future
net revenues from our proved properties and the present value thereof are
made using crude oil and natural gas sales prices in effect as of the dates
of such estimates and are held constant throughout the life of the
properties, except where such guidelines permit alternate treatment,
including the use of
F-34
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
fixed and determinable contractual price escalations. We have entered into
various arrangements to fix or limit the NYMEX crude oil price for a
significant portion of our crude oil production. Arrangements in effect at
December 31, 2001 are discussed in Note 3. Such arrangements are not
reflected in the reserve reports. The overall average year-end prices used
in the reserve reports as of December 31, 2001, were $14.91 per barrel of
crude oil and $2.56 per Mcf of natural gas. Such prices as of December 31,
2000 were $21.02 per barrel of crude oil and $14.63 per Mcf of natural gas.
3. The future gross revenue streams were reduced by estimated future
operating costs (including production and ad valorem taxes) and future
development and abandonment costs, all of which were based on current
costs.
4. The reports reflect the pre-tax Present Value of Proved Reserves to
be $0.7 billion, $1.3 billion and $1.2 billion at December 31, 2001, 2000
and 1999, respectively. SFAS No. 69 requires us to further reduce these
estimates by an amount equal to the present value of estimated income taxes
which might be payable by us in future years to arrive at the Standardized
Measure. Future income taxes were calculated by applying the statutory
federal and state income tax rate to pre-tax future net cash flows, net of
the tax basis of the properties involved and utilization of available tax
carryforwards related to oil and gas operations.
The principal sources of changes in the Standardized Measure of the future
net cash flows for the three years ended December 31, 2001, are as follows (in
thousands):
Year Ended December 31,
-------------------------------
2001 2000 1999
--------- --------- ---------
Balance, beginning of year................... $ 919,661 $ 927,800 $ 226,943
Sales, net of production expenses............ (144,055) (166,571) (60,578)
Net change in sales and transfer prices, net
of production expenses...................... (674,439) 96,104 516,097
Changes in estimated future development
costs....................................... (18,134) (14,593) (52,951)
Extensions, discoveries and improved
recovery, net of costs...................... 94,775 141,638 112,573
Previously estimated development costs
incurred during the year.................... 87,721 31,363 22,842
Purchase of reserves in-place................ -- -- 53,724
Revision of quantity estimates............... (166,869) (104,200) 404,705
Accretion of discount........................ 145,375 115,605 22,694
Net change in income taxes................... 179,373 (107,485) (318,249)
--------- --------- ---------
Balance, end of year......................... $ 423,408 $ 919,661 $ 927,800
========= ========= =========
F-35
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Results of Operations for Oil and Gas Producing Activities
The results of operations from oil and gas producing activities below
exclude non-oil and gas revenues, general and administrative expenses,
interest charges, interest income and interest capitalized. Income tax
(expense) or benefit was determined by applying the statutory rates to pretax
operating results (in thousands).
Year Ended December 31,
----------------------------
2001 2000 1999
-------- -------- --------
Revenues from oil and gas producing activities... $215,247 $149,342 $116,223
Production costs................................. (71,192) (62,140) (55,645)
Depreciation, depletion and amortization......... (27,009) (19,953) (18,177)
Income tax expense............................... (45,987) (26,227) (16,536)
-------- -------- --------
Results of operations from producing activities
(excluding corporate overhead and interest
costs).......................................... $ 71,059 $ 41,022 $ 25,865
======== ======== ========
F-36
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 20--Quarterly Financial Data (Unaudited)
The following table shows summary financial data for 2001 and 2000 (in
thousands, except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter(1) Total
---------- ---------- ---------- ---------- ----------
2001
Revenues................ $ 58,232 $ 58,424 $ 54,168 $ 44,896 $ 215,720
Operating profit........ 31,172 22,510 25,217 15,415 94,314
Income before cumulative
effect of accounting
change................. 20,952 100,102 15,154 19,109 155,317
Cumulative effect of
accounting change...... (1,986) -- -- -- (1,986)
Net income.............. 18,966 100,102 15,154 19,109 153,331
Basic EPS
Income before
cumulative effect of
accounting change..... 1.11 3.83 0.63 0.79 6.07
Cumulative effect of
accounting change..... (0.11) -- -- -- (0.09)
Net income............. 1.00 3.83 0.63 0.79 5.98
Diluted EPS
Income before
cumulative effect of
accounting change..... 0.72 2.68 0.58 0.75 4.82
Cumulative effect of
accounting change..... (0.06) -- -- -- (0.07)
Net income............. 0.66 2.68 0.58 0.75 4.75
2000
Revenues................ $2,087,685 $1,427,044 $1,542,463 $1,573,393 $6,630,585
Operating profit........ 53,502 54,400 48,706 55,660 212,268
Income before
extraordinary item and
cumulative effect of
accounting change...... 21,268 8,992 7,026 8,638 45,924
Extraordinary item...... (1,365) (3,623) -- -- (4,988)
Cumulative effect of
accounting change...... (121) -- -- -- (121)
Net income.............. 19,782 5,369 7,026 8,638 40,815
Basic EPS
Income before
extraordinary item and
cumulative effect of
accounting change..... 0.98 0.29 0.19 0.29 1.75
Extraordinary item..... (0.08) (0.20) -- -- (0.28)
Cumulative effect of
accounting change..... -- -- -- -- (0.01)
Net income............. 0.90 0.09 0.19 0.29 1.46
Diluted EPS
Income before
extraordinary item and
cumulative effect of
accounting change..... 0.72 0.28 0.18 0.27 1.56
Extraordinary item..... (0.05) (0.19) -- -- (0.17)
Cumulative effect of
accounting change..... -- -- -- -- --
Net income............ 0.67 0.09 0.18 0.27 1.39
--------
(1) For 2000, includes a $5.0 million charge to reserve for potentially
uncollectible accounts receivable.
F-37
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 21--Operating Segments
Prior to completion of the Transactions , our operations consisted of two
operating segments: (1) Upstream Operations--engages in the acquisition,
exploitation, development, exploration and production of crude oil and natural
gas and (2) Midstream Operations--engages in pipeline transportation,
purchases and resales of crude oil at various points along the distribution
chain and the leasing of certain terminalling and storage assets. As a result
of the Transactions we no longer have a Midstream segment.
Upstream Midstream Total
-------- ----------- -----------
(In thousands)
2000
Revenues:
External customers....................... $149,342 $ 6,425,644 $ 6,574,986
Intersegment (a)......................... -- 215,543 215,543
Gain on sale of assets................... -- 48,188 48,188
Interest and other income (expense)...... (3,468) 10,879 7,411
-------- ----------- -----------
Total revenues of reportable segments.. $145,874 $ 6,700,254 $ 6,846,128
======== =========== ===========
Segment gross margin (b)................... $ 86,202 $ 126,066 $ 212,268
Segment gross profit (c)................... 76,297 85,195 161,492
Segment income (loss) before income taxes,
extraordinary item and cumulative effect
of accounting change...................... 23,009 91,033 114,042
Interest expense........................... 27,346 28,482 55,828
Depreciation, depletion and amortization... 22,474 24,747 47,221
Income tax expense......................... 6,503 19,080 25,583
Extraordinary item, net of tax and minority
interest.................................. -- (4,988) (4,988)
Capital expenditures....................... 81,475 12,603 94,078
Assets..................................... 458,678 935,651 1,394,329
1999
Revenues:
External customers....................... $116,223 $10,796,998 $10,913,221
Intersegment (a)......................... -- 75,454 75,454
Gain on sale of assets................... -- 16,457 16,457
Interest and other income................ 241 10,783 11,024
-------- ----------- -----------
Total revenues of reportable segments.. $116,464 $10,899,692 $11,016,156
======== =========== ===========
Segment gross margin (b)................... $ 60,578 $ (58,750) $ 1,828
Segment gross profit (c)................... 52,775 (82,349) (29,574)
Segment income (loss) before income taxes
and extraordinary item.................... 8,132 (93,601) (85,469)
Interest expense........................... 25,298 21,080 46,378
Depreciation, depletion and amortization... 19,586 17,412 36,998
Income tax benefit......................... 1,635 18,844 20,479
Extraordinary item, net of tax and minority
interest.................................. -- (544) (544)
Capital expenditures....................... 77,899 189,286 267,185
Assets..................................... 445,921 1,243,639 1,689,560
--------
(a) Intersegment revenues and transfers were conducted on an arm's-length
basis.
(b) Gross margin is calculated as operating revenues less operating expenses.
(c) Gross profit is calculated as operating revenues less operating expenses
and general and administrative expenses.
F-38
PLAINS RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reconciles segment revenues to amounts reported in our
financial statements:
For the Year Ended
December 31,
-----------------------
2000 1999
---------- -----------
Revenues of reportable segments................... $6,846,128 $11,016,156
Intersegment...................................... (215,543) (75,454)
Net gain recorded upon the formation of PAA not
allocated to reportable segments................. -- --
---------- -----------
Total company revenues.......................... $6,630,585 $10,940,702
========== ===========
PAA is the exclusive purchaser of all of our equity oil production. The
following table reflects for the years ended December 31, 2000 and 1999,
during which periods PAA was included in our consolidated financial
statements, customers accounting for more than 10% of consolidated sales
(excluding hedging effects):
Percentage of
Consolidated Sales
---------------------
Year Ended
December 31,
---------------------
2000 1999
Customer --------- ---------
Marathon Ashland Petroleum (1)....................... 12% --
Sempra Energy Trading Corporation (1)................ -- 22%
Koch Oil Company (1)................................. -- 18%
Percentage of Oil
and Gas Sales(2)
---------------------
Chevron.............................................. 43% 39%
Equiva Trading Company............................... 23% --
Tosco Refining Company............................... -- 19%
Conoco Inc........................................... -- 11%
Marathon Ashland Petroleum........................... 13% 16%
--------
(1) These customers pertain to our midstream segment Represents percentage of
oil and gas sales revenues plus marketing, transportation, storage and
terminalling revenues.
(2) These percentages represent the entities that purchased our equity crude
production from PAA.
We do not believe the loss of PAA as the exclusive purchaser of our equity
production would have a material adverse effect on our results of operations.
We believe PAA could be replaced by other purchasers under contracts with
similar terms and conditions.
Note 22--Consolidating Financial Statements
The following financial information presents consolidating financial
statements, which include:
. the parent company only ("Parent");
. the guarantor subsidiaries on a combined basis ("Guarantor
Subsidiaries");
. the nonguarantor subsidiaries on a combined basis ("Nonguarantor
Subsidiaries");
. elimination entries necessary to consolidate the Parent, the Guarantor
Subsidiaries and the Nonguarantor Subsidiaries; and
. Plains Resources Inc. on a consolidated basis.
These statements are presented because the 10.25% Notes discussed in Note 4
are not guaranteed by all of our subsidiaries.
F-39
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (in thousands)
DECEMBER 31, 2001
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
ASSETS --------- ------------ ------------ ------------ ------------
Current Assets
Cash and cash
equivalents......... $ 1,013 $ 13 $ 153 $ -- $ 1,179
Accounts receivable
and other........... 26,773 18,050 -- -- 44,823
Current intercompany
advances............ -- 13,662 (13,662) -- --
Inventory............ -- 6,721 -- -- 6,721
--------- -------- -------- --------- ---------
27,786 38,446 (13,509) -- 52,723
--------- -------- -------- --------- ---------
Property and Equipment,
at cost............... 243,969 701,587 -- (149) 945,407
Less allowance for
depreciation,
depletion and
amortization........ (217,801) 164,795) -- (55,386) (437,982)
--------- -------- -------- --------- ---------
26,168 536,792 -- (55,535) 507,425
--------- -------- -------- --------- ---------
Investment in
Subsidiaries and
Intercompany
Advances.............. 467,837 (279,496) 178,202 (301,917) 64,626
--------- -------- -------- --------- ---------
Other Assets........... 10,313 13,769 383 (451) 24,014
--------- -------- -------- --------- ---------
$ 532,104 $309,511 $165,076 $(357,903) $ 648,788
========= ======== ======== ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Accounts payable and
other current
liabilities......... $ (68,896) $ 42,581 $ 80,210 $ -- $ 53,895
Interest payable..... 8,286 -- -- -- 8,286
Notes payable........ -- 511 -- -- 511
--------- -------- -------- --------- ---------
(60,610) 43,092 80,210 -- 62,692
--------- -------- -------- --------- ---------
Long-Term Debt
Bank debt............ 11,500 -- -- -- 11,500
Subordinated debt.... 269,539 -- -- -- 269,539
Other................ -- 1,022 -- -- 1,022
--------- -------- -------- --------- ---------
281,039 1,022 -- -- 282,061
--------- -------- -------- --------- ---------
Other Long-Term
Liabilities........... 3,013 1,413 463 -- 4,889
--------- -------- -------- --------- ---------
Deferred Income Taxes.. 53,810 8,415 (17,931) -- 44,294
--------- -------- -------- --------- ---------
Non-redeemable
Preferred Stock,
Common Stock and Other
Stockholders' Equity
Series D Cumulative
Convertible
Preferred Stock..... 23,300 -- -- -- 23,300
Common Stock......... 2,768 837 -- (837) 2,768
Additional paid-in
capital............. 268,520 3,805 43,390 (47,195) 268,520
Retained earnings
(accumulated
deficit)............ 37,676 250,927 61,263 (312,190) 37,676
Accumulated other
comprehensive
income.............. 13,930 -- (2,319) 2,319 13,930
Treasury stock, at
cost................ (91,342) -- -- -- (91,342)
--------- -------- -------- --------- ---------
254,852 255,569 102,334 (357,903) 254,852
--------- -------- -------- --------- ---------
$ 532,104 $309,511 $165,076 $(357,903) $ 648,788
========= ======== ======== ========= =========
F-40
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (in thousands)
DECEMBER 31, 2000
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
ASSETS --------- ------------ ------------ ------------ ------------
Current Assets
Cash and cash
equivalents......... $ 4 $ 597 $ 4,479 $ -- $ 5,080
Accounts receivable
and other........... 12,193 15,596 347,696 -- 375,485
Current intercompany
advances............ -- 17,605 (17,605) -- --
Inventory............ -- 8,063 46,781 -- 54,844
--------- --------- -------- --------- ----------
12,197 41,861 381,351 -- 435,409
--------- --------- -------- --------- ----------
Property and Equipment,
at cost............... 237,591 570,677 473,471 -- 1,281,739
Less allowance for
depreciation,
depletion and
amortization........ (215,942) (138,871) (27,266) (55,386) (437,465)
--------- --------- -------- --------- ----------
21,649 431,806 446,205 (55,386) 844,274
--------- --------- -------- --------- ----------
Investment in
Subsidiaries and
Intercompany
Advances.............. 389,467 (254,891) (6,372) (128,204) --
Other Assets........... 8,151 16,005 90,490 -- 114,646
--------- --------- -------- --------- ----------
$ 431,464 $ 234,781 $911,674 $(183,590) $1,394,329
========= ========= ======== ========= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities
Accounts payable and
other current
liabilities......... $ 7,105 $ 46,368 $359,823 $ 13 $ 413,309
Notes payable and
other current
obligations......... -- 511 1,300 -- 1,811
--------- --------- -------- --------- ----------
7,105 46,879 361,123 13 415,120
--------- --------- -------- --------- ----------
Long-Term Debt
Bank debt............ 27,300 -- -- -- 27,300
Bank debt of a
subsidiary.......... -- -- 320,000 -- 320,000
Subordinated debt.... 277,543 -- -- -- 277,543
Other................ -- 1,533 -- -- 1,533
--------- --------- -------- --------- ----------
304,843 1,533 320,000 -- 626,376
--------- --------- -------- --------- ----------
Other Long-Term
Liabilities........... 2,413 -- 1,009 -- 3,422
--------- --------- -------- --------- ----------
Minority Interest in
PAA................... (70,037) -- 232,216 92 162,271
--------- --------- -------- --------- ----------
Cumulative Convertible
Preferred Stock,
Stated at Liquidation
Preference............ 50,000 -- -- -- 50,000
--------- --------- -------- --------- ----------
Non-redeemable
Preferred Stock,
Common Stock and Other
Stockholders' Equity
Series D Cumulative
Convertible Preferred
Stock................. 23,300 -- -- -- 23,300
Series H Cumulative
Convertible Preferred
Stock................. 84,785 -- -- -- 84,785
Common Stock........... 1,875 78 -- (78) 1,875
Additional paid-in
capital............... 139,203 3,951 43,393 (47,344) 139,203
Retained earnings
(accumulated
deficit).............. (88,410) 182,340 (46,067) (136,273) (88,410)
Treasury stock, at
cost.................. (23,613) -- -- -- (23,613)
--------- --------- -------- --------- ----------
137,140 186,369 (2,674) (183,695) 137,140
--------- --------- -------- --------- ----------
$ 431,464 $ 234,781 $911,674 $(183,590) $1,394,329
========= ========= ======== ========= ==========
F-41
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)
YEAR ENDED DECEMBER 31, 2001
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Revenues
Crude oil and
liquids.............. $ -- $186,476 $ -- $ -- $186,476
Natural gas........... -- 28,771 -- -- 28,771
Other operating
revenues............. -- 473 -- -- 473
-------- -------- -------- --------- --------
-- 215,720 -- -- 215,720
-------- -------- -------- --------- --------
Expenses
Production expenses... -- 71,192 -- -- 71,192
General and
administrative....... 10,023 11,260 10 -- 21,293
Depreciation,
depletion and
amortization......... 1,502 27,419 -- -- 28,921
-------- -------- -------- --------- --------
11,525 109,871 10 -- 121,406
-------- -------- -------- --------- --------
Income (Loss) from
Operations............. (11,525) 105,849 (10) -- 94,314
Other Income (Expense)
Equity in earnings of
subsidiary........... 176,527 -- 18,540 (176,527) 18,540
Gain on PAA unit
transactions and
public offerings..... -- -- 170,157 -- 170,157
Interest expense...... (2,805) (23,580) -- -- (26,385)
Interest and other
income............... (312) 463 -- -- 151
-------- -------- -------- --------- --------
Income (Loss) Before
Income Taxes and
Cumulative Effect of
Accounting Change...... 161,885 82,732 188,687 (176,527) 256,777
Income tax (expense)
benefit:
Current............. 44,749 -- (54,696) -- (9,947)
Deferred............ (51,175) (13,532) (26,806) -- (91,513)
-------- -------- -------- --------- --------
Income (Loss) Before
Cumulative Effect of
Accounting Change...... 155,459 69,200 107,185 (176,527) 155,317
Cumulative effect of
accounting change,
net of tax benefit... (2,128) -- 142 -- (1,986)
-------- -------- -------- --------- --------
Net Income (Loss)....... 153,331 69,200 107,327 (176,527) 153,331
Cumulative preferred
dividends............ (27,245) -- -- -- (27,245)
-------- -------- -------- --------- --------
Income (Loss) Available
to Common
Stockholders........... $126,086 $ 69,200 $107,327 $(176,527) $126,086
======== ======== ======== ========= ========
F-42
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)
YEAR ENDED DECEMBER 31, 2000
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
------- ------------ ------------ ------------ ------------
Revenues
Crude oil and
liquids.............. $ 4 $131,667 $ -- $ 1,654 $ 133,325
Natural gas........... -- 16,017 -- -- 16,017
Marketing,
transportation,
storage and
terminalling......... -- -- 6,641,187 (215,543) 6,425,644
Gain on sale of
assets............... -- -- 48,188 -- 48,188
------- -------- --------- -------- ---------
4 147,684 6,689,375 (213,889) 6,623,174
------- -------- --------- -------- ---------
Expenses
Production expenses... -- 62,140 -- -- 62,140
General and
administrative....... 2,054 7,851 40,871 -- 50,776
Marketing,
transportation,
storage and
terminalling......... -- -- 6,506,504 (213,889) 6,292,615
Unauthorized trading
losses and related
expenses............. 1,000 -- 6,963 -- 7,963
Depreciation,
depletion and
amortization......... 3,068 19,406 24,747 -- 47,221
------- -------- --------- -------- ---------
6,122 89,397 6,579,085 (213,889) 6,460,715
------- -------- --------- -------- ---------
Income from Operations.. (6,118) 58,287 110,290 -- 162,459
Other Income (Expense)
Equity in earnings of
subsidiary........... 64,115 -- -- (64,115) --
Interest expense...... (9,581) (20,827) (28,482) 3,062 (55,828)
Interest and other
income............... (737) 331 10,879 (3,062) 7,411
------- -------- --------- -------- ---------
Income (Loss) Before
Income Taxes, Minority
Interest, Extraordinary
Item and Cumulative
Effect of Accounting
Change................. 47,679 37,791 92,687 (64,115) 114,042
Minority interest..... -- -- (42,535) -- (42,535)
Income tax (expense)
benefit:
Current............. 24,094 -- (25,114) -- (1,020)
Deferred............ (30,958) 361 6,034 -- (24,563)
------- -------- --------- -------- ---------
Income (Loss) Before
Extraordinary Item and
Cumulative Effect of
Accounting Change...... 40,815 38,152 31,072 (64,115) 45,924
Extraordinary item,
net of tax benefit
and minority
interest............. -- -- (4,988) -- (4,988)
Cumulative effect of
accounting change,
net of tax benefit... -- (121) -- -- (121)
------- -------- --------- -------- ---------
Net Income (Loss)....... 40,815 38,031 26,084 (64,115) 40,815
Cumulative preferred
dividends............ (14,725) -- -- -- (14,725)
------- -------- --------- -------- ---------
Income (Loss) Available
to Common
Stockholders........... $26,090 $ 38,031 $ 26,084 $(64,115) $ 26,090
======= ======== ========= ======== =========
F-43
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS (in thousands)
YEAR ENDED DECEMBER 31, 1999
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
Revenues
Crude oil and
liquids.............. $ -- $109,641 $ -- $ 1,487 $ 111,128
Natural gas........... -- 5,095 -- -- 5,095
Marketing,
transportation,
storage and
terminalling......... -- -- 10,872,452 (75,454) 10,796,998
Gain on sale of
assets............... -- -- 16,457 -- 16,457
-------- -------- ----------- -------- -----------
-- 114,736 10,888,909 (73,967) 10,929,678
-------- -------- ----------- -------- -----------
Expenses
Production expenses... -- 55,645 -- -- 55,645
General and
administrative....... 2,311 5,492 23,599 -- 31,402
Depreciation,
depletion and
amortization......... 2,096 17,490 17,412 -- 36,998
Marketing,
transportation,
storage and
terminalling......... -- -- 10,763,275 (73,967) 10,689,308
Unauthorized trading
losses and related
expenses............. -- -- 166,440 -- 166,440
-------- -------- ----------- -------- -----------
4,407 78,627 10,970,726 (73,967) 10,979,793
-------- -------- ----------- -------- -----------
Income (Loss) from
Operations............. (4,407) 36,109 (81,817) -- (50,115)
Other Income (Expense)
Equity in earnings
(loss) of
subsidiary........... (11,510) -- -- 11,510 --
Gain on PAA unit
offering............. -- -- 9,787 -- 9,787
Interest expense...... (6,994) (18,851) (21,080) 547 (46,378)
Interest and other
income............... 699 89 996 (547) 1,237
-------- -------- ----------- -------- -----------
Income (Loss) Before
Income Taxes, Minority
Interest and
Extraordinary Item..... (22,212) 17,347 (92,114) 11,510 (85,469)
Minority interest in
PAA.................. -- -- 40,203 -- 40,203
Income tax (expense)
benefit:
Current............. 338 -- (331) -- 7
Deferred............ (3,457) 4,754 19,175 -- 20,472
-------- -------- ----------- -------- -----------
Income (Loss) Before
Extraordinary Item..... (25,331) 22,101 (33,067) 11,510 (24,787)
Extraordinary item,
net of tax benefit
and minority
interest............. -- -- (544) -- (544)
-------- -------- ----------- -------- -----------
Net Income (Loss)....... (25,331) 22,101 (33,611) 11,510 (25,331)
Cumulative preferred
dividends............ (10,026) -- -- -- (10,026)
-------- -------- ----------- -------- -----------
Income (Loss) Available
to Common
Stockholders........... $(35,357) $ 22,101 $ (33,611) $ 11,510 $ (35,357)
======== ======== =========== ======== ===========
F-44
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31, 2001
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ 153,331 $ 69,200 $107,327 $(176,527) $ 153,331
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation,
depletion, and
amortization......... 1,502 27,419 -- -- 28,921
Equity earnings in
subsidiary........... (176,527) -- (18,540) 176,527 (18,540)
Distributions from
subsidiary........... -- -- 31,553 -- 31,553
Noncash gains......... -- -- (170,157) -- (170,157)
Deferred income tax... 51,175 13,532 26,806 -- 91,513
Cumulative effect of
adoption of SFAS
123.................. 2,128 -- (142) -- 1,986
Change in derivative
fair value........... 1,227 -- -- -- 1,227
Noncash compensation
expense.............. 4,514 -- -- -- 4,514
Other noncash items... 1,626 -- -- -- 1,626
Change in assets and
liabilities resulting
from operating
activities:............
Accounts receivable
and other............ (14,580) (7,461) 43,064 -- 21,023
Inventory............. -- 1,342 1,133 -- 2,475
Accounts payable and
other current
liabilities.......... (76,001) (3,787) (1,486) -- (81,274)
Other long-term
liabilities.......... 600 1,413 (546) -- 1,467
Advances from
(payments to)
affiliates........... 143,285 30,054 (122,876) -- 50,463
--------- -------- -------- --------- ---------
Net cash provided by
(used in) operating
activities............. 92,280 131,712 (103,864) -- 120,128
--------- -------- -------- --------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition, exploration
and development costs.. -- (131,785) -- -- (131,785)
Additions to other
property and assets.... (561) -- -- -- (561)
Proceeds from the sale
of PAA units........... -- -- 106,941 -- 106,941
Investment in PAA....... -- -- (3,978) -- (3,978)
--------- -------- -------- --------- ---------
Net cash provided by
(used in) investing
activities............. (561) (131,785) 102,963 -- (29,383)
--------- -------- -------- --------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 204,900 -- -- -- 204,900
Proceeds from sale of
capital stock, options
and warrants........... 9,169 -- -- -- 9,169
Proceeds from issuance
of preferred stock..... -- -- -- -- --
Purchase of senior
subordinated notes..... (7,550) -- -- -- (7,550)
Principal payments of
long-term debt......... (220,700) (511) -- -- (221,211)
Purchase of treasury
stock.................. (67,729) -- -- -- (67,729)
Preferred stock
dividends.............. (8,698) -- -- -- (8,698)
Other................... (102) -- -- -- (102)
--------- -------- -------- --------- ---------
Net cash used in
financing activities... (90,710) (511) -- -- (91,221)
--------- -------- -------- --------- ---------
Net decrease in cash and
cash equivalents....... 1,009 (584) (901) -- (476)
Decrease in cash due to
deconsolidation of
PAA.................... -- -- (3,425) -- (3,425)
Cash and cash
equivalents, beginning
of period.............. $ 4 $ 597 $ 4,479 $ -- 5,080
--------- -------- -------- --------- ---------
Cash and cash
equivalents, end of
period................. $ 1,013 $ 13 $ 153 $ -- $ 1,179
========= ======== ======== ========= =========
F-45
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31, 2000
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
-------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ 40,815 $38,031 $ 26,084 $(64,115) $ 40,815
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation,
depletion, and
amortization......... 3,068 19,406 24,747 -- 47,221
Gain on sale of assets
(Note 6)............. -- -- (48,188) -- (48,188)
Minority interest in
income of a
subsidiary........... -- -- 35,566 -- 35,566
Equity earnings in
subsidiary........... (64,115) -- -- 64,115 --
Deferred income tax... 30,958 (362) (9,299) -- 21,297
Noncash compensation
expense.............. (407) -- 3,089 -- 2,682
Allowance for doubtful
accounts............. -- -- 5,000 -- 5,000
Other noncash items... 6,351 -- 4,574 -- 10,925
Change in assets and
liabilities resulting
from operating
activities:
Accounts receivable
and other............ (10,385) (7,461) 120,497 -- 102,651
Inventory............. -- (2,023) (11,954) -- (13,977)
Pipeline linefill..... -- -- (16,679) -- (16,679)
Accounts payable and
other current
liabilities.......... (16,595) 34,685 (161,543) -- (143,453)
Other long-term
liabilities.......... 591 -- (8,591) -- (8,000)
Advances from
(payments to)
affiliates........... 119,735 (9,889) (109,846) -- --
-------- ------- ---------- -------- ----------
Net cash provided by
(used in) operating
activities............. 110,016 72,387 (146,543) -- 35,860
-------- ------- ---------- -------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES
Payments for crude oil
pipeline, gathering and
terminal assets........ -- -- (12,219) -- (12,219)
Payments for
acquisition,
exploration, and
development costs...... (3,894) (74,448) (384) -- (78,726)
Payments for additions
to other property and
assets................. -- (2,476) (657) -- (3,133)
Proceeds from asset
sales (Note 6)......... -- -- 224,261 -- 224,261
-------- ------- ---------- -------- ----------
Net cash provided by
(used in) investing
activities............. (3,894) (76,924) 211,001 -- 130,183
-------- ------- ---------- -------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Proceeds from long-term
debt................... 264,825 -- 1,433,750 -- 1,698,575
Proceeds from short-term
debt................... -- -- 51,300 -- 51,300
Proceeds from sale of
capital stock, options
and warrants........... 2,301 -- -- -- 2,301
Principal payments of
long-term debt......... (375,336) -- (1,423,850) -- (1,799,186)
Principal payments of
short-term debt........ -- -- (108,719) -- (108,719)
Purchase of treasury
stock.................. (23,613) -- -- -- (23,613)
Costs incurred in
connection with
financing
arrangements........... -- -- (6,748) -- (6,748)
Preferred stock
dividends.............. (13,409) -- -- -- (13,409)
Distribution to
unitholders............ 30,133 -- (59,565) -- (29,432)
Other................... (260) -- -- -- (260)
-------- ------- ---------- -------- ----------
Net cash used in
financing activities... (115,359) -- (113,832) -- (229,191)
-------- ------- ---------- -------- ----------
Net decrease in cash and
cash equivalents....... (9,237) (4,537) (49,374) -- (63,148)
Cash and cash
equivalents, beginning
of period.............. $ 9,241 $ 5,134 $ 53,853 $ -- 68,228
-------- ------- ---------- -------- ----------
Cash and cash
equivalents, end of
period................. $ 4 $ 597 $ 4,479 $ -- $ 5,080
======== ======= ========== ======== ==========
F-46
PLAINS RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (in thousands)
YEAR ENDED DECEMBER 31, 1999
Guarantor Nonguarantor Intercompany
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------ ------------ ------------ ------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income (loss)....... $ (25,331) $ 22,101 $ (33,611) $ 11,510 $ (25,331)
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation,
depletion, and
amortization......... 2,096 17,490 17,412 -- 36,998
Noncash gains (Note 4
and 6)............... -- -- (26,244) -- (26,244)
Minority interest in
income of a
subsidiary........... -- -- (40,203) -- (40,203)
Equity in earnings of
subsidiary........... 11,510 -- -- (11,510) --
Deferred income tax... 3,457 (4,754) (19,175) -- (20,472)
Noncash compensation
expense.............. -- -- 1,013 -- 1,013
Other noncash items... (1,108) -- 1,047 -- (61)
Change in assets and
liabilities resulting
from operating
activities:
Accounts receivable
and other............ (970) (1,287) (224,181) -- (226,438)
Inventory............. -- (842) 34,772 -- 33,930
Pipeline linefill..... -- -- (3) -- (3)
Accounts payable and
other current
liabilities.......... 5,275 2,169 164,530 -- 171,974
Other long-term
liabilities.......... -- -- 18,873 -- 18,873
--------- -------- --------- -------- ---------
Net cash provided by
(used in) operating
activities............. (5,071) 34,877 (105,770) -- (75,964)
--------- -------- --------- -------- ---------
CASH FLOWS FROM
INVESTING ACTIVITIES
Payments for midstream
acquisitions (See Note
6)..................... -- -- (176,918) -- (176,918)
Payments for crude oil
pipeline, gathering and
terminal assets........ -- -- (12,507) -- (12,507)
Payments for
acquisition,
exploration, and
development costs...... (3,793) (74,106) -- -- (77,899)
Payments for additions
to other property and
assets................. (267) (2,137) (68) -- (2,472)
Proceeds from sale of
pipeline linefill...... -- -- 3,400 -- 3,400
--------- -------- --------- -------- ---------
Net cash provided by
(used in) investing
activities............. (4,060) (76,243) (186,093) -- (266,396)
--------- -------- --------- -------- ---------
CASH FLOWS FROM
FINANCING ACTIVITIES
Advances/investments
with affiliates........ (194,902) 46,306 148,396 200 --
Proceeds from long-term
debt................... 341,250 -- 403,721 -- 744,971
Proceeds from short-term
debt................... -- -- 131,119 -- 131,119
Proceeds from sale of
capital stock, options
and warrants........... 5,542 -- -- -- 5,542
Proceeds from issuance
of preferred stock..... 50,000 -- -- -- 50,000
Proceeds from issuance
of common units (Note
4)..................... (25,000) -- 75,759 -- 50,759
Principal payments of
long-term debt......... (180,711) -- (268,621) -- (449,332)
Principal payments of
short-term debt........ -- -- (82,150) -- (82,150)
Costs incurred in
connection with
financing
arrangements........... (2,205) -- (17,243) -- (19,448)
Preferred stock
dividends.............. (4,245) -- -- -- (4,245)
Distribution to
unitholders............ 29,472 -- (51,673) -- (22,201)
Other................... (971) -- -- -- (971)
--------- -------- --------- -------- ---------
Net cash provided by
financing activities... 18,230 46,306 339,308 200 404,044
--------- -------- --------- -------- ---------
Net increase in cash and
cash equivalents....... 9,099 4,940 47,445 200 61,684
Cash and cash
equivalents, beginning
of period.............. 142 194 6,408 (200) 6,544
--------- -------- --------- -------- ---------
Cash and cash
equivalents, end of
period................. $ 9,241 $ 5,134 $ 53,853 $ -- $ 68,228
========= ======== ========= ======== =========
F-47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PLAINS RESOURCES INC.
By: /s/ CYNTHIA A. FEEBACK
------------------------------
Cynthia A. Feeback, Senior
Vice President--Accounting
and Treasurer (Principal
Accounting Officer)
Date: March 28, 2002