The amount recorded to PP&E of $794 million represents the fair value, for accounting purposes, of the acquired assets as determined by an independent reserve evaluation. Included in this amount is a $72.5 million adjustment to reflect a portion of the future income tax liability recorded on acquisition up to the fair value of the acquired assets. The remaining $157.6 million of the future income tax liability recorded on acquisition has been recorded as goodwill. The future income tax liability was determined based on the enacted income tax rate of 42 per cent as at April 16, 2003. The future income tax liability on the acquisition of Star was not adjusted for the subsequent reduction in corporate income tax rates. In conjunction with the Star acquisition, the Trust issued $320 million of convertible debentures to the shareholder of Star. Between May 30, 2003 and August 5, 2003, all $320 million of the convertible debentures were converted into trust units. A total of 27,027,027 units were issued as a result of the conversions. Based on the terms of the convertible debentures, interest of $4.1 million for the year ended December 31, 2003 has been recorded as a reduction of the accumulated earnings in accordance with the equity classification of the debentures. The convertible debentures were subordinated to senior debt and paid a quarterly coupon commencing on June 30, 2003 of eight per cent per annum to March 31, 2005 and increasing to 10 per cent per annum from June 30, 2005 through to maturity on June 30, 2008. The Trust had the right to redeem the debentures in full at any time with cash or the Trust could have redeemed $40 million per quarter commencing on June 30, 2003, using a combination of cash and Trust units. The Trust had the right to satisfy payment at maturity by issuing trust units. Holders of the convertible debentures could have converted the debentures into trust units at $11.84 per unit through June 30, 2005 and $11.38 per unit after June 30, 2005 to maturity. Certain properties acquired in conjunction with the Star acquisition were subsequently sold to third parties for proceeds of $78.2 million. These transactions closed on May 2, 2003. These consolidated financial statements incorporate operations of Star effective April 16, 2003.
RECLAMATION FUND 2003 Balance, beginning of year
Contributions, net of actual expenditures
Interest earned on fund Balance, end of year
A reclamation fund was established to fund future asset retirement obligation costs. The Board of Directors of ARC Resources has approved contributions over a 20-year period which results in minimum annual contributions of $6 million ($4 million in 2002) based upon properties owned as at December 31, 2003. Contributions to the reclamation fund and interest earned on the reclamation fund balance have been deducted from the cash distributions to the unitholders. During the year, $1.9 million ($2 million in 2002) of actual expenditures were charged against the reclamation fund.