8-K/A 1 a2039454z8-ka.txt FORM 8-K/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) December 7, 2000 FOREST OIL CORPORATION (Exact name of registrant as specified in charter) New York 1-13515 25-0484900 (State or other juris- (Commission (IRS Employer diction of incorporation) file number) Identification No.) 2200 Colorado State Bank Building, 1600 Broadway, Denver, CO 80202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (303) 812-1400 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On December 7, 2000 Forest Oil Corporation (Forest) announced the completion of its merger with Forcenergy Inc (Forcenergy) and approval of a 1-for-2 reverse split of Forest common stock by Forest shareholders. Pursuant to the terms of the merger agreement, and after giving effect to the reverse split of Forest common shares, Forcenergy stockholders received 0.8 of a Forest common share for each share of Forcenergy common stock they owned and 34.307 Forest common shares for each $1,000 stated value amount of Forcenergy preferred stock. Filed herewith are pro forma financial statements of the Company giving effect to the merger amd reverse stock split. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired Consolidated financial statements of Forcenergy Inc as of December 31, 1999 and 1998, and for each of the years in the three-year period ended December 31, 1999 Unaudited consolidated financial statements of Forcenergy Inc as of September 30, 2000 and December 31, 1999 and for the three and nine month periods ended September 30, 2000 and 1999. (b) Pro Forma Financial Statements Condensed pro forma combined financial statements of Forest Oil Corporation at September 30, 2000 and for the nine months ended September 30, 2000. (c) Exhibit 23.1 Consent of PricewaterhouseCoopers LLP Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FOREST OIL CORPORATION (Registrant) Dated: February 20, 2001 By /s/ Joan C. Sonnen -------------------------------- Joan C. Sonnen Vice President - Controller and Chief Accounting Officer FORCENERGY INC CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR EACH OF THE YEARS IN THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1999 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Forcenergy Inc In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows present fairly, in all material respects, the financial position of Forcenergy Inc ("Successor") at December 31, 1999 and Forcenergy Inc. ("Predecessor") at December 31, 1998 (collectively, the "Company"), and the results of the Company's operations and cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. 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, 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 the opinion expressed above. As discussed in Notes 1 and 2 to the consolidated financial statements, on March 21, 1999, the Company filed a voluntary petition for relief, under Chapter 11 of Title 11 of the United States Code ("Chapter 11"), with the United States Bankruptcy Court for the Eastern District of Louisiana. The Company's Plan of Reorganization, as amended, became effective on February 15, 2000 and the Company emerged from Chapter 11. In connection with its emergence from Chapter 11, the Company adopted Fresh-Start Reporting as of December 31, 1999. PricewaterhouseCoopers LLP Miami, Florida March 17, 2000 F-1 FORCENERGY INC CONSOLIDATED BALANCE SHEETS
SUCCESSOR PREDECESSOR COMPANY COMPANY ------------ ------------ DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ (IN THOUSANDS) ASSETS: CURRENT ASSETS: Cash...................................................... $ 96,506 $ 1,690 Accounts receivable, net.................................. 41,332 28,433 Other current assets...................................... 18,862 19,668 -- -- Total current assets.............................. 156,700 49,791 PROPERTY, PLANT AND EQUIPMENT, at cost (full cost method) net of accumulated depletion, depreciation and amortization.............................................. 512,000 610,948 OTHER ASSETS................................................ 6,701 17,729 -------- --------- $675,401 $ 678,468 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT): LIABILITIES NOT SUBJECT TO COMPROMISE: CURRENT LIABILITIES: Accounts payable and accrued liabilities.................. $120,928 $ -- -------- --------- Total current liabilities......................... 120,928 -- -------- --------- LIABILITIES SUBJECT TO COMPROMISE: Accounts payable and accrued liabilities.................. -- 107,020 Long-term debt............................................ -- 671,700 -------- --------- Total liabilities subject to compromise........... -- 778,720 -------- --------- LONG-TERM DEBT.............................................. 314,473 -- -------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued or outstanding................. -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 24,000,000 and 24,747,445 issued and outstanding at December 31, 1999 and 1998, respectively........................................... 240 247 Capital in excess of par value............................ 239,760 346,135 Accumulated deficit....................................... -- (446,634) -------- --------- Total stockholders' equity (deficit).............. 240,000 (100,252) -------- --------- $675,401 $ 678,468 ======== =========
The accompanying notes are an integral part of these financial statements. F-2 FORCENERGY INC CONSOLIDATED STATEMENTS OF OPERATIONS
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------- 1999 1998 1997 ---------- ----------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES: Oil and gas sales...................................... $265,824 $ 272,410 $ 281,690 Other.................................................. 906 1,139 2,495 -------- --------- --------- 266,730 273,549 284,185 -------- --------- --------- EXPENSES: Lease operating........................................ 87,009 99,242 77,174 Depletion, depreciation and amortization............... 116,400 145,856 113,347 Production taxes....................................... 4,512 4,218 4,791 General and administrative............................. 13,700 17,222 15,244 Impairment of oil and gas properties................... -- 275,000 200,000 -------- --------- --------- 221,621 541,538 410,556 -------- --------- --------- INCOME (LOSS) FROM OPERATIONS............................ 45,109 (267,989) (126,371) Other income............................................. 6,958 1,572 3,354 Interest expense, net of amounts capitalized............. (32,270) (48,077) (32,422) -------- --------- --------- INCOME (LOSS) BEFORE REORGANIZATION ITEMS, INCOME TAX BENEFIT AND EXTRAORDINARY ITEM......................... 19,797 (314,494) (155,439) -------- --------- --------- REORGANIZATION ITEMS: Interest income........................................ 2,293 -- -- Professional and administrative fees................... (16,205) -- -- Revaluation of assets to fair market value............. (56,005) -- -- -------- --------- --------- (69,917) -- -- -------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM..................................... (50,120) (314,494) (155,439) Income tax benefit....................................... -- -- 20,621 -------- --------- --------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.................. (50,120) (314,494) (134,818) Extraordinary item -- gain on reorganization discharge of indebtedness........................................... 159,972 -- -- -------- --------- --------- NET INCOME (LOSS)........................................ $109,852 $(314,494) $(134,818) ======== ========= ========= PER COMMON SHARE: Net income (loss) before extraordinary item (basic and diluted)................................. $ (2.02) $ (12.65) $ (5.83) Extraordinary item -- gain on reorganization discharge of indebtedness (basic and diluted)................. $ 6.46 $ -- $ -- Net income (loss) (basic and diluted).................. $ 4.44 $ (12.65) $ (5.83) Weighted average shares outstanding (basic and diluted)............................................ 24,754 24,856 23,142
The accompanying notes are an integral part of these financial statements. F-3 FORCENERGY INC CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK CAPITAL IN TOTAL -------------------- EXCESS OF ACCUMULATED STOCKHOLDERS SHARES AMOUNT PAR VALUE DEFICIT EQUITY (DEFICIT) ----------- ------ ---------- ----------- ---------------- (IN THOUSANDS, EXCEPT SHARES) BALANCE, JANUARY 1, 1997.............. 22,577,838 $226 $246,032 $ 2,678 $248,936 Exercises of stock options and warrants............................ 150,915 1 2,503 -- 2,504 Issuance of common stock.............. 2,775,864 28 98,341 -- 98,369 Net loss.............................. -- -- -- (134,818) (134,818) ----------- ---- -------- --------- -------- BALANCE, DECEMBER 31, 1997............ 25,504,617 255 346,876 (132,140) 214,991 ----------- ---- -------- --------- -------- Exercises of stock options............ 3,675 -- 187 -- 187 Issuance of common stock.............. 7,979,639 80 214,203 -- 214,283 Subsidiary investment in parent common stock........................ (8,740,486) (88) (215,131) -- (215,219) Net loss.............................. -- -- -- (314,494) (314,494) ----------- ---- -------- --------- -------- BALANCE, DECEMBER 31, 1998............ 24,747,445 247 346,135 (446,634) (100,252) ----------- ---- -------- --------- -------- Issuance of common stock.............. 8,904 -- -- -- -- Net income............................ -- -- -- 109,852 109,852 Cancellation of equity interests under plan of reorganization.............. (24,756,349) (247) (346,135) 336,782 (9,600) Issuance of equity interests under plan of reorganization.............. 24,000,000 240 239,760 -- 240,000 ----------- ---- -------- --------- -------- BALANCE, DECEMBER 31, 1999 (Successor Company)............................ 24,000,000 $240 $239,760 $ -- $240,000 =========== ==== ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-4 FORCENERGY INC CONSOLIDATED STATEMENTS OF CASH FLOWS
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- --------- --------- (IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)....................................... $109,852 $(314,494) $(134,818) -------- --------- --------- Adjustments to reconcile net income (loss) to net cash provided by operating activities before reorganization items: Reorganization items.................................... 69,917 -- -- Extraordinary item -- gain on discharge of indebtedness.......................................... (159,972) -- -- Depletion, depreciation and amortization................ 117,835 145,856 113,347 Impairment of oil and gas properties.................... -- 275,000 200,000 Deferred income taxes................................... -- -- (20,621) Sale of other assets.................................... (5,450) -- -- Other................................................... (320) 1,000 (223) (Increase) decrease in accounts receivable.............. (12,899) 15,069 496 (Increase) decrease in other current assets............. (770) 10,563 (18,597) Increase in accounts payable and accrued liabilities.... 26,808 8,859 38,037 -------- --------- --------- 35,149 456,347 312,439 -------- --------- --------- Net cash provided by operating activities before reorganization items.................................. 145,001 141,853 177,621 Reorganization items.................................... (69,917) -- -- Adjustments to reconcile reorganization items to cash used in reorganization items: Revaluation of assets to fair market value.............. 56,005 -- -- Accrued reorganization expenses......................... 11,236 -- -- -------- --------- --------- Net cash used in reorganization items................... (2,676) -- -- -------- --------- --------- Net cash provided by operating activities after reorganization items............................. 142,325 141,853 177,621 -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of oil and gas properties.................. (1,234) (53,956) (119,503) Capital expenditures.................................... (76,110) (283,475) (287,229) Sale of surety bonds.................................... -- -- 4,426 Dividends from affiliate................................ -- 1,806 900 Proceeds from sale of assets............................ 10,084 13,987 -- Change in other assets.................................. 1,978 (70) 457 -------- --------- --------- Net cash used in investing activities.............. (65,282) (321,708) (400,949) -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under senior credit facility................. 26,473 315,500 287,144 Repayments under senior credit facility................. (8,700) (150,364) (253,512) Issuance of long-term debt, net of expenses............. -- -- 193,414 Issuance of common stock, net........................... -- 361 2,661 -------- --------- --------- Net cash provided by financing activities.......... 17,773 165,497 229,707 -------- --------- --------- NET INCREASE (DECREASE) IN CASH............................. 94,816 (14,358) 6,379 CASH AT BEGINNING OF YEAR................................... 1,690 16,048 9,669 -------- --------- --------- CASH AT END OF YEAR......................................... $ 96,506 $ 1,690 $ 16,048 ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-5 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION ORGANIZATION Forcenergy Inc, a Delaware Corporation, and its subsidiaries ("Forcenergy" or the "Company"), is an independent oil and gas company engaged in the exploration, acquisition, development, exploitation and production of oil and natural gas. The Company's principal areas of operation are the Gulf of Mexico and the Cook Inlet, Alaska. Forcenergy and its wholly-owned subsidiary Forcenergy Resources Inc. ("Resources") emerged from bankruptcy effective February 15, 2000 (See Note 2 for a more detailed discussion on the reorganized entity). The original voluntary petition for relief under Chapter 11 of Title 11 of the United States Code was filed on March 21, 1999 (the "Petition Date") in order to facilitate the restructuring of the Company's long-term debt, revolving credit, trade debt and other obligations. The filing was made in the United States Bankruptcy Court for the Eastern District of Louisiana in New Orleans (the "Bankruptcy Court"). While the Company operated under Chapter 11, certain claims against the Company at the Petition Date were stayed while the Company continued its operations as a debtor-in-possession. On January 19, 2000, the Bankruptcy Court approved the Company's Plan of Reorganization (the "Plan"), which became effective on February 15, 2000 (the "Emergence Date"). The consolidated financial statements as of December 31, 1999 and for the year then ended included herein reflect accounting principles set forth in the American Institute of Certified Public Accountants Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," ("SOP 90-7"), which provides guidance for financial reporting by entities that have filed voluntary petitions for relief under, and have reorganized in accordance with, the Bankruptcy Code. In accordance with guidance provided by SOP 90-7 the consummation of the Plan (the "Reorganization") has been reflected as though effective on December 31, 1999 (the "Effective Date"). Under provisions of SOP 90-7 and fresh start reporting (See Note 2) the December 31, 1999 Consolidated Balance Sheet is the opening balance sheet of the reorganized company (the "Successor Company"). The December 31, 1999 Consolidated Balance Sheet includes all adjustments necessary to reflect assets at reorganization value and the Plan's treatment of creditor claims and previous equity interests. Since the December 31, 1999 Consolidated Balance Sheet was affected by the Reorganization and fresh-start reporting adjustments, it is not comparable in certain material respects to any of the consolidated balance sheets shown in these financial statements as of any prior date. The Consolidated Statements of Operations and Cash Flows for the years ended December 31, 1999, 1998 and 1997 each reflect the activities of the Company prior to the Effective Date (the "Predecessor Company"), however, the statements for 1999 do reflect certain Reorganization-related charges and credits. NOTE 2 -- REORGANIZATION AND FRESH-START REPORTING In August 1999, the Company filed with the Bankruptcy Court a disclosure statement that included the proposed Plan. The Plan set forth the means for satisfying claims, including liabilities subject to compromise and equity interests in the Company. The disclosure statement was approved by the bankruptcy court on October 22, 1999, and the Plan was confirmed by the bankruptcy court on January 19, 2000. F-6 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The principal categories of claims classified as liabilities subject to compromise were as follows:
PREDECESSOR COMPANY DECEMBER 31, -------------------- 1999* 1998 -------- -------- Accounts payable and accrued liabilities.................... $ 72,532 $107,020 9 1/2% Senior Subordinated Notes............................ 175,000 175,000 8 1/2% Senior Subordinated Notes............................ 200,000 200,000 Prior Senior Credit Facility................................ 314,473 296,700 -------- -------- $762,005 $778,720 ======== ========
-------------------- * Prior to Effective Date The Plan segregated the above pre-petition liabilities into various secured and unsecured classifications for treatment according to priority of claim and subject to elections available to certain classes of claims. Secured trade claimants included in accounts payable and accrued liabilities received or will receive either cash payments (of between 80-100% of their claim, depending on priority), or a 3 1/2 year interest-bearing trade note payable. Holders of unsecured claims will receive common stock of the Successor Company (the "New Common Stock"). On February 15, 2000, the Company issued 23,040,000 shares of New Common Stock in exchange for all of the outstanding 8.5% and 9.5% Senior Subordinated Notes, collectively (the "Senior Subordinated Notes"), including unpaid interest accrued through the Petition Date thereon of $8.4 million. The difference between the fair market value of the New Common Stock issued and the recorded amount of the unsecured claims, including deferred financing costs, resulted in a gain on discharge of indebtedness of $160 million included as an extraordinary item in the Statement of Operations for the year ended December 31, 1999. The unsecured claimants were also entitled to participate in the rights offering discussed below. On February 15, 2000, the Company and its existing bank lending group entered into a new senior credit facility (the "New Senior Credit Facility") that replaced the Company's prior senior credit facility (the "Prior Senior Credit Facility") and satisfied all pre-petition claims thereunder. Pursuant to provisions of the Plan and the New Senior Credit Facility the Company paid $66.9 million in cash on the Effective Date to the bank group, which included a repayment of $40 million in principal outstanding under the Prior Senior Credit Facility, $24.3 million in accrued interest, and loan fees and administrative expenses incurred by the bank group of $2.6 million. The $2.6 million of administrative expenses were accrued at December 31, 1999, and were included as reorganization items in the Consolidated Statement of Operations for the year ended December 31, 1999. In accordance with provisions of the Plan, all outstanding shares of the common stock of the Predecessor Company (the "Old Common Stock") were canceled effective as of the Emergence Date and the holders of Old Common Stock as of the January 28, 2000 record date received, on a pro-rata basis. 960,000 shares of New Common Stock and associated warrants to purchase 240,000 shares of New Common Stock at $16.67 per share (expiring on February 15, 2004) and warrants to purchase 240,000 shares of New Common Stock at $20.83 per share (expiring on February 15, 2005). The cancellation and issuance of these equity instruments was reflected in the Successor Company consolidated Balance Sheet and the Consolidated Statement of Stockholder's Equity at December 31, 1999. The Plan also provides for the payment of administrative costs incurred during the pendency of the Reorganization (primarily legal and financial advisory fees). The Company paid $5.0 million in administrative expenses during 1999 and accrued another $11.2 million at December 31, 1999, all of which are included in the Consolidated Statement of Operations for the year ended December 31, 1999, as a reorganization item. F-7 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Plan required the Company to raise $40 million in additional equity capital. This was to be accomplished through a rights offering to unsecured claimants to purchase units that include one share of 14% Series A Cumulative Preferred Stock (the "Preferred Stock") and a warrant (the "Subscription Warrants") to purchase 45 shares of New Common Stock (collectively, the "Rights Offering") for $1,000 per unit. On March 20, 2000 the Rights Offering was closed with the issuance of 40,000 shares of Preferred Stock and Subscription Warrants to purchase 1,800,000 shares of New Common Stock. The net proceeds from the Rights Offering aggregated $38.8 million, net of offering costs of $1.2 million. The proceeds were used to pay down amounts outstanding under the New Senior Credit Facility (see proforma later in this footnote). The Preferred Stock is perpetual in nature and quarterly dividends are payable commencing March 31, 2000 in additional shares of Preferred Stock for the first four years thereafter. The Preferred Stock is non-convertible, and is callable by the Company at any time for 100% of liquidation preferences plus accrued but unpaid dividends. Holders of each share of Preferred Stock are entitled to one vote in matters requiring shareholder approval and vote as one class with the common shareholders. Only upon certain types of changes in control, the Company must redeem all outstanding Preferred Stock at 101% of liquidation preference plus accrued and unpaid dividends. The Subscription Warrants entitle the holder to purchase shares of New Common Stock at an initial exercise price of $10.00 per share. The Subscription Warrants are detachable and expire on March 15, 2010 or upon notice of expiration by the Company after March 20, 2004 if the market price of the New Common Stock has exceeded the exercise price of the Subscription Warrants for a period of 30 consecutive trading days. If the Company fails to pay a dividend for any two consecutive quarters or any six quarters in the aggregate, the holders of the Preferred Stock voting as a single class shall be entitled to elect two members of the board of directors. The terms of the Preferred Stock include other events of default, representations and warranties and affirmative and negative covenants typical for instruments of this type. Pursuant to the guidance provided by SOP 90-7 the Company adopted the provisions of fresh-start reporting and as discussed earlier the Reorganization was reflected at December 31, 1999. Under fresh-start reporting, the overall fair market value of the Company ("Reorganization Value") was allocated to the Successor Company's net assets using the purchase method of accounting. The Reorganization Value of $678.3 million was developed by the Company and the Company's independent financial advisors and represents the fair market value of working capital and the Company's oil and gas reserves. That value, less the New Senior Credit Facility, results in an equity value of $240 million. Working capital assets and liabilities of the Company at any given time as reflected in the consolidated financial statements are stated at fair market value. The methodologies used in the valuation of oil and gas reserves were the discounted cash flow ("DCF") and the Comparable Transactions Methods. The DCF valuation is based on the present value of the pre-tax cash flows from the Company's reserves discounted at 10% using escalated pricing consistent with the New York Mercantile Exchange ("NYMEX") futures curve, as of August 12, 1999 through 2001 and held flat thereafter at approximately $18.00 per barrel for oil and $2.50 per million cubic feet for gas. Cash flow has been risk adjusted and discounted based on industry accepted factors for reserves valuation. The DCF value of $510 million was compared to observed 1999 transaction values by region (Comparable Transactions Method) and deemed to be in a reasonable range of value for present industry conditions. Reorganization Value was less than the recorded amount of net assets immediately prior to emergence by $56.0 million, which was reflected as a revaluation of assets to fair market value under reorganization items in the Statement of Operations for the year ended December 31, 1999. See fresh-start reporting adjustment (b) below. F-8 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The effects of the Reorganization and related fresh-start reporting adjustments at December 31, 1999, are shown in the following consolidated balance sheet. Also presented is a proforma presentation as if all of the financing transactions and claims settlements incorporated in the Plan of Reorganization had been consummated as of December 31, 1999:
PREDECESSOR SUCCESSOR COMPANY COMPANY PROFORMA DECEMBER 31, DEBT DECEMBER 31, PROFORMA DECEMBER 31, 1999 DISCHARGE FRESH-START 1999 ADJUSTMENTS 1999 ------------ --------- ----------- ------------ ----------- ------------ UNAUDITED UNAUDITED ASSETS CURRENT ASSETS: Cash..................................... $ 96,506 $ -- $ -- $ 96,506 $ 38,800(a) $ 670 (47,241)(b) (11,236)(c) (76,159)(d) Accounts receivable, net................. 41,332 -- -- 41,332 -- 41,332 Other current assets..................... 20,437 (1,461)(c) (114)(b) 18,862 -- 18,862 -------- --------- -------- -------- -------- -------- Total current assets............... 158,275 (1,461) (114) 156,700 (95,836) 60,864 PROPERTY, PLANT AND EQUIPMENT............. 565,348 -- (53,348)(b) 512,000 -- 512,000 OTHER ASSETS.............................. 16,546 (7,302)(c) (2,543)(b,c) 6,701 1,200(a) 7,901 -------- --------- -------- -------- -------- -------- $740,169 $ (8,763) $(56,005) $675,401 $(94,636) $580,765 ======== ========= ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY: LIABILITIES NOT SUBJECT TO COMPROMISE: CURRENT LIABILITIES: Accounts payable and accrued liabilities............................ $120,928 $ -- $ -- $120,928 $(47,241)(b) $ 41,534 (11,236)(c) (20,917)(d) -------- --------- -------- -------- -------- -------- Total liabilities not subject to compromise........................ 120,928 -- -- 120,928 (79,394) 41,534 -------- --------- -------- -------- -------- -------- LIABILITIES SUBJECT TO COMPROMISE: CURRENT LIABILITIES: Accounts payable and accrued liabilities............................ 24,135 (24,135)(a) -- -- -- -- -------- --------- -------- -------- -------- -------- Long-term debt........................... 689,473 (375,000)(a) (314,473)(d) -- -- -- -------- --------- -------- -------- -------- -------- Total liabilities subject to compromise........................ 713,608 (399,135) (314,473) -- -- -- -------- --------- -------- -------- -------- -------- LONG-TERM DEBT............................ -- -- 314,473(d) 314,473 (55,242)(d) 259,231 -------- --------- -------- -------- -------- -------- REDEEMABLE PREFERRED STOCK................ -- -- -- -- 29,038(a) 29,038 -------- --------- -------- -------- -------- -------- STOCKHOLDER'S (DEFICIT) EQUITY: Common stock............................. 247 240(f) (247)(e) 240 -- 240 Capital in excess of par value........... 346,135 (240)(f) (336,535)(e) 239,760 10,962(a) 250,722 230,400(a) Accumulated deficit...................... (440,749) 159,972(a) (56,005)(b,c) -- -- -- 336,782(e) -------- --------- -------- -------- -------- -------- TOTAL STOCKHOLDERS (DEFICIT) EQUITY............................ (94,367) 390,372 (56,005) 240,000 10,962 250,962 -------- --------- -------- -------- -------- -------- $740,169 $ (8,763) $(56,005) $675,401 $(94,636) $580,765 ======== ========= ======== ======== ======== ========
Reorganization and Fresh Start reporting adjustments: (a) Discharge of indebtedness. (b) Revaluation of the Company's oil and gas properties to fair market value. (c) Elimination of deferred financing costs associated with Prior Senior Credit Facility. (d) Establish the New Senior Credit Facility. (e) Cancellation of the Old Common Stock and elimination of accumulated deficit. (f) Issuance of 24 million shares of New Common Stock. Proforma Adjustments: (a) Issuance of Redeemable Preferred Stock and Subscription Warrants. (b) Satisfaction of remaining pre-petition claims. (c) Payment of accrued reorganization expenses. (d) Payment of accrued interest and principal on the New Senior Credit Facility. F-9 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 3 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Forcenergy Inc, and its subsidiaries after elimination of all intercompany transactions and balances. ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. CASH/CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. The Company maintains cash deposits with several financial institutions. At certain times, these deposits may exceed federally insured limits. ACCOUNTS RECEIVABLE Accounts receivable relate primarily to sales of oil and gas production and amounts due from joint interest partners for expenditures made by the Company on behalf of such partners. The Company reviews the financial condition of potential purchasers and partners prior to signing sales or joint interest agreements. The allowance for doubtful accounts was $2,000,000 at December 31, 1999 and 1998. The Company requires certain forms of financial assurance from its most significant customers. OIL AND GAS PROPERTIES The Company follows the full cost method of accounting for oil and gas properties whereby all productive and non-productive exploration, development and acquisition costs incurred for the purpose of finding oil and gas reserves are capitalized. Such capitalized costs include lease acquisition, geological and geophysical work, delay rentals, drilling, completing and equipping oil and gas wells, together with internal costs directly attributable to property acquisition, exploration and development activities. No gain or loss is recognized upon the sale or other disposition of oil and gas properties, except in unusually significant transactions. Depreciation, depletion and amortization of oil and gas properties are computed on a composite unit-of-production method based on estimated proved reserves. All costs associated with evaluated oil and gas properties, including an estimate of future development, restoration, dismantlement and abandonment costs associated therewith, are included in the computation base. The Company evaluates all unevaluated oil and gas properties on a quarterly basis to determine if any impairment has occurred or if the property has been otherwise evaluated. If a property has been evaluated, or if there is determined to be any impairment, costs related to the particular unevaluated properties are reclassified as an evaluated oil and gas property, and thus subject to amortization if there are proved reserves associated with the related cost center. Otherwise, such impairment will be recognized in the period in which it occurs. Under the Securities and Exchange Commission's full cost accounting rules, the Company reviews the carrying value of its oil and gas properties each quarter. Under full cost accounting rules, capitalized costs of oil and gas properties, net of deferred tax reserves, may not exceed the present value of estimated future net revenues from proved reserves, discounted at 10 percent, plus the lower of cost or fair market value of unproved properties, as adjusted for related tax effects. Application of this rule generally requires pricing F-10 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) future production at the unescalated oil and gas prices in effect at the end of each fiscal quarter and requires a permanent write-down of capitalized costs if the "ceiling" is exceeded, even if prices declined for only a short period of time. Under the provisions of fresh-start reporting the Company restated its oil and gas properties to fair market value ($510 million) at December 31, 1999 resulting in a non-cash charge to the Consolidated Statement of Operations for the year ended December 31, 1999 of approximately $54 million, which is reflected as a reorganization item (See Note 2). During the fourth quarter of 1998 and 1997 the Company recognized non-cash impairments of recorded oil and gas assets amounting to $275 million and $200 million ($162.8 million after tax), respectively, pursuant to the above discussed "ceiling test" provisions. The majority of the Company's oil and gas properties are located in the Gulf of Mexico and Cook Inlet, Alaska. REVENUE RECOGNITION During 1999, 1998 and 1997, the Company maintained a hedging program on a portion of its estimated future production to provide a certain minimum level of cash flow from its sales of crude oil and natural gas (See Note 10). Any hedging gains or losses under these contracts are recognized in revenue upon monthly settlement of hedged production. All commodity price-hedging contracts in place prior to the Petition Date were cancelled during 1999 at the option of the counterparties subsequent to the Chapter 11 bankruptcy filing. The Company has subsequently entered into new contracts in 1999 and 2000 (See Note 10). STOCK-BASED COMPENSATION Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123") encourages, but does not require, companies to record compensation costs for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based employee compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, compensation cost for stock options and warrants is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock (See Note 8). INCOME TAXES The Company follows the asset and liability approach to account for income taxes. Under this method, deferred taxes are recognized for temporary differences between the book and tax basis of assets and liabilities. These temporary differences are measured using applicable enacted tax rates and provisions of enacted tax laws. EARNINGS PER SHARE During 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128") and has restated all years presented in accordance therewith. SFAS No. 128 requires a dual presentation of basic and diluted earnings per share ("EPS") on the face of the statement of operations. Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of common shares for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in earnings (See Note 9). F-11 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ENVIRONMENTAL EXPENDITURES Environmental expenditures relating to current operations are expensed or capitalized, as appropriate, depending on whether such expenditures provide future economic benefits. Liabilities are recognized when the expenditures are considered probable and can be reasonably estimated. Measurement of liabilities is based on currently enacted laws and regulations, existing technology and undiscounted site-specific costs. Generally, such recognition coincides with the Company's commitment to a formal plan of action. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company includes fair value information in the Notes to Consolidated Financial Statements when the fair value of its financial instruments can be determined and is different from the book value. The Company generally assumes the book value of those financial instruments that are classified as current approximate fair value because of the short maturity of these instruments. For non-current financial instruments, the Company uses quoted market prices or, to the extent that there are no available quoted market prices, market prices for similar instruments. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"). The statement requires companies to report the fair market value of derivatives on the balance sheet and record in income or other comprehensive income, as appropriate, any changes in the fair value of the derivative. SFAS No. 133 will become effective with respect to the Company on January 1, 2001. The Company is currently evaluating the impact of SFAS No. 133. NOTE 4 -- ACQUISITIONS AND MERGERS The company had no material property acquisitions in 1999 during the pendency of the bankruptcy proceedings. 1998 ACQUISITIONS The Company completed several acquisitions during 1998 at an aggregate cost of approximately $54.0 million. The aggregate effect of these acquisitions on the results of operations of the Company for the periods presented was not material. 1997 ACQUISITIONS The Company completed several acquisitions during 1997 at an aggregate cost of approximately $220.5 million. The three most significant acquisitions, all of which were accounted for as purchases, are discussed below. The aggregate effect of other acquisitions on the results of operations of the Company for the periods presented was not material. On January 21, 1997, Forcenergy acquired all of the outstanding stock of Great Western Resources, Inc. ("Great Western") for approximately $48.3 million. The net assets acquired consisted primarily of producing oil and gas properties. The results of operations of the acquired properties are included in the Company's results of operations beginning January 21, 1997. On June 4, 1997, Forcenergy acquired a 97.75% working interest in certain oil and gas properties located in the Cook Inlet, Alaska from Stewart Petroleum Company ("Stewart") for $18.7 million and assumed operations of the field. The results of operations for the acquired properties are included in the Company's operations beginning June 4, 1997. In October 1997 the Company increased its interest in this field to 100%. F-12 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 22, 1997, Forcenergy, in separate transactions, acquired all of the outstanding common stock of Edisto Resources Corporation ("Edisto") and Convest Energy Corporation ("Convest"). Forcenergy issued approximately 2.8 million shares of common stock valued at $34.96 per share, or approximately $98.9 million. The shareholders of Edisto also received $69.3 million in cash from balances Forcenergy received in the merger. Edisto owned 73% of the outstanding common stock of Convest. The net assets acquired consisted principally of producing oil and gas properties. The results of operations of the acquired properties are included in the Company's operations beginning October 22, 1997. FORCENERGY AB ACQUISITION On December 19, 1997 Forcenergy made a public tender offer for all of the outstanding shares of Forcenergy AB ("FAB"). FAB was formed in 1990 to provide capital for Forcenergy's oil and gas operations in the United States and held 8,740,486 shares of Forcenergy common stock, its only significant asset. During 1998, the Company issued approximately 7.9 million shares valued at $27 per share (the price of the Company's common stock on the date the tender offer was initiated in 1997) in exchange for the tendered shares. The 8,740,486 Forcenergy shares owned by FAB were controlled by Forcenergy, and for accounting and voting purposes were no longer considered outstanding. The acquisition was accounted for as a purchase with results of operations included beginning March 31, 1998. During the fourth quarter of 1999, the Company sold all of the outstanding shares of FAB for $5.5 million in cash, resulting in a gain on the sale of $5.5 million, which is included in interest and other income in the Consolidated Statement of Operations for the year ended December 31, 1999. The Forcenergy shares held by FAB discussed above were cancelled pursuant to the transaction. NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT Investments in property, plant and equipment at December 31, 1999 and 1998 were as follows (in thousands):
SUCCESSOR PREDECESSOR COMPANY COMPANY 1999 1998 --------- ----------- Oil and Gas Properties: Proved.................................................... $450,000 $1,313,824 Unevaluated............................................... 60,000 165,885 -------- ---------- 510,000 1,479,709 Office Equipment............................................ 2,000 9,809 Less: accumulated depletion, depreciation and amortization.............................................. -- (878,570) -------- ---------- Net Property, Plant and Equipment........................... $512,000 $ 610,948 ======== ==========
Depletion, depreciation, and amortization for the years ended December 31, 1999, 1998 and 1997 was $116.4 million, $420.9 million (including a $275 million impairment (See Note 3)) and $313.3 million (including a $200 million impairment (See Note 3)), respectively. Under the provisions of fresh-start accounting the Company restated oil and gas properties and office equipment to fair market value at December 31, 1999 (See Notes 1 and 2). Depletion, depreciation and amortization rates per BOE of hydrocarbons produced (using a Mcf-to-Bbl conversion factor of 6 to 1) for the years ended December 31, 1999, 1998 and 1997 were $6.45, $6.84 (exclusive of impairment) and $6.36 (exclusive of impairment), respectively. Included in property, plant and equipment are capitalized internal costs relating to oil and gas property acquisition, exploration and development costs of $7.5 million, $10.2 million and $7.9 million for the years ended December 31, 1999, 1998 and 1997, respectively. F-13 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During the years ended December 31, 1999, 1998 and 1997 the Company capitalized interest of $2.2 million, $4.4 million and $4.2 million, respectively, on expenditures made in connection with exploration and development projects on significant unproved properties that are not subject to current depletion, depreciation or amortization. Interest is capitalized only for the period during which activities to bring the properties to their intended use are ongoing. The following sets forth the composition of capitalized costs excluded from the depletion, depreciation, and amortization base at December 31, 1999 and 1998 (in thousands):
SUCCESSOR PREDECESSOR COMPANY COMPANY 1999 1998 --------- ----------- Property Acquisition........................................ $43,743 $ 38,458 Development Costs........................................... 16,257 121,983 Interest Capitalized........................................ -- 5,444 ------- -------- $60,000 $165,885 ======= ========
At December 31, 1999, approximately 27% of excluded costs relate to offshore activities in the Gulf of Mexico and 73% relate to offshore activities in Alaska. The inclusion of these costs in the depletion, depreciation and amortization computation will be at the point in time that it is determined, through drilling activities, that proved reserves do or do not exist on the applicable properties, typically within three to five years. NOTE 6 -- DEBT Long-term debt consists of the following at December 31, 1999 and 1998 (in thousands):
SUCCESSOR PREDECESSOR COMPANY COMPANY 1999 1998 --------- ----------- New Senior Credit Facility.................................. $314,473 $ -- Prior Senior Credit Facility................................ -- 296,700 9 1/2% Senior Subordinated Notes............................ -- 175,000 8 1/2% Senior Subordinated Notes............................ -- 200,000 -------- -------- $314,473 $671,700 ======== ========
PRIOR SENIOR CREDIT FACILITY During 1998, the Company renegotiated, and subsequently amended, the Prior Senior Credit Facility to increase both the maximum loan amount and the borrowing base to $320 million with subsequent mandatory decreases to $300 million on May 1, 1999, and to $275 million on September 1, 1999. The mandatory decreases were stayed by the bankruptcy filing in March 1999. The Prior Senior Credit Facility provided for borrowings on a revolving basis through March 31, 2002, at which time all outstanding amounts under the Facility became due and payable. Advances bore interest at either the prime rate or a Fixed Rate (as defined in the agreement), at the election of the Company. Commitment fees on the unused portion of the Prior Senior Credit Facility were due quarterly at annual rates between .375% and 0.5%. The borrowing base was subject to redetermination semi-annually based on revised reserve estimates. The loan was secured by substantially all of the Company's oil and gas properties. At December 31, 1999 the Company had drawn down $314.5 million under the Prior Senior Credit Facility and an additional $5.4 million of availability was utilized for outstanding letters of credit issued under the Prior Senior Credit Facility. The Prior Senior Credit Facility contained certain covenants, which included maintenance of minimum tangible net worth, certain financial ratios, restrictions on asset sales, affiliated transactions and compensation and certain limitations on F-14 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) dividends and additional debt or liens. The Company was in violation of several of the financial covenants as of December 31, 1999 and 1998. As discussed in Note 1, all amounts drawn under the Prior Senior Credit Facility at December 31, 1998, were shown as liabilities subject to compromise pursuant to the Chapter 11 filing. Pursuant to the Reorganization the Company and substantially the same bank lending group entered into the New Senior Credit Facility on February 15, 2000, replacing the Prior Senior Credit Facility (See Notes 1 and 2). NEW SENIOR CREDIT FACILITY The New Senior Credit Facility consists of a $250 million Revolving Credit Facility (the "Revolver") and a $70 million Term Loan (the "Term Loan"). The amount that can be borrowed under the Revolver is further subject to a borrowing base which has been established at $250 million through February 15, 2001. The Revolver provides for borrowings on a revolving basis through August 15, 2003 at which time all outstanding amounts under the Revolver become due and payable. Advances under the Revolver bear interest at prime plus 1.5% or LIBOR plus 2% per annum at the election of the Company. The agreement provides for a commitment fee on the unused portion of the Revolver at .50% due quarterly. The borrowing base is subject to semi-annual re-determination after the first re-determination on February 15, 2001. The terms of the Term Loan provide mandatory quarterly principal repayments of $2.5 million commencing on March 31, 2001, with a $50 million balloon repayment at maturity on August 15, 2003. Interest is payable monthly at the prime rate plus 3% or LIBOR plus 3.5%. At March 28, 2000 the Company had drawn down $164.1 million under the Revolver under the New Senior Credit Facility and an additional $5.4 million of availability was utilized for outstanding letters of credit issued under the Revolver, leaving $80.5 million available for general corporate purposes. The New Senior Credit Facility is secured by substantially all of the Company's oil and gas properties and contains events of default, representation and warranties and covenants typical for facilities of this type. SENIOR SUBORDINATED NOTES On February 15, 2000, but effective December 31, 1999 for purposes of these financial statements, all of the outstanding Senior Subordinated Notes were exchanged for New Common Stock pursuant to the Reorganization (See Notes 1 and 2). In accordance with SOP 90-7 the Company did not accrue interest on the Senior Subordinated Notes after the Petition Date as it was unlikely such interest would be paid under the Plan. The amount of such unaccrued contractual interest from March 21, 1999, to December 31, 1999, was $26.2 million. The holders of the Notes did not pursue this interest as a part of their claims. On November 6, 1996, the Company issued an aggregate principal amount of $175 million of 9 1/2% Senior Subordinated Notes (the "9 1/2% Notes") that matured on November 1, 2006. The 9 1/2% Notes were issued under an Indenture which provided that interest was payable semiannually, in arrears, on May 1 and November 1 of each year, commencing May 1, 1997, with principal due at maturity. On February 14, 1997, the Company issued an aggregate principal amount of $200 million in 8 1/2% Senior Subordinated Notes priced at $99.338, with an effective yield to maturity of 8.6% (the "8 1/2% Notes"), that matured on February 15, 2007. The 8 1/2% Notes were issued under an Indenture which provided that interest on the 8 1/2% Notes was payable in cash in arrears semiannually on February 15 and August 15 of each year, commencing August 15, 1997 with principal due at maturity. F-15 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company's aggregate long-term debt maturities for the next five calendar years under the New Senior Credit Facility are as follows (in thousands): 2000...................................................... $ -- 2001...................................................... 10,000 2002...................................................... 10,000 2003...................................................... 294,473 -------- Total............................................. $314,473 ========
NOTE 5 -- INCOME TAXES The Company's benefit for income taxes is as follows (in thousands):
PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, ----------------------------- 1999 1998 1997 -------- -------- ------- Deferred: Federal....................................... $ -- $ -- $17,929 State......................................... -- -- 2,692 -------- -------- ------- Total................................. $ -- $ -- $20,621 ======== ======== =======
The Company's deferred income tax assets were comprised of the following differences between financial and tax reporting at December 31, 1999 and 1998 (in thousands):
SUCCESSOR PREDECESSOR COMPANY COMPANY 1999 1998 ---------- ----------- Capitalized costs and write-offs.................... $ 88,540 $ 99,898 Net operating loss carryforwards.................... 26,694 59,970 Valuation allowance................................. (115,234) (159,868) ---------- --------- Deferred tax asset.................................. $ -- $ -- ========== =========
At December 31, 1999 and 1998, the Company had approximately $115 million and $160 million, respectively, of deferred tax assets available to offset future taxable income for federal purposes. Valuation allowances have been provided against these deferred tax assets as it is assumed that more likely than not, the benefits will not be utilized. The Company continues to evaluate the realizability of its deferred tax assets and its estimate is subject to change. A reconciliation of the federal statutory income tax rates to the Company's effective rate is as follows:
PREDECESSOR COMPANY YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ----- ----- ----- Income taxes at federal statutory rates............. 35.0% 35.0% 35.0% State income tax, less federal benefit.............. 3.3 3.3 3.3 Valuation allowance................................. (38.3) (38.3) (25.3) Other, net.......................................... -- -- .3 ----- ----- ----- Total..................................... 0.0% 0.0% 13.3% ===== ===== =====
At December 31, 1999, the Company had a net operating loss carryforward for tax purposes of $69.8 million. The net operating loss will expire unless otherwise utilized beginning in year 2000. The utilization of F-16 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) this carryforward is subject to limitations under the Internal Revenue Code. Section 382 of the Code provides for limitations on the utilization of available net operating loss carryforwards following a change in ownership. The Company's annual limitation on the utilization of its net operating losses is approximately $13.8 million. Deferred tax assets will not provide an income tax benefit when realized. Rather, the future realization of these assets will result in an increase in stockholders' equity. As a result of its reorganization under Chapter 11 of Title 11 of the United States Code, the Company realized cancellation of indebtedness income of approximately $171.1 million. Although this income is not taxable to the Company for federal or state tax purposes, the Company's net operating loss carryforwards were reduced by a corresponding amount. NOTE 8 -- STOCK BASED COMPENSATION PLANS The Company has adopted the disclosure provisions of SFAS No. 123. Accordingly, no compensation costs have been recorded for the stock options and warrants as the exercise price of all options granted was the fair market value on the date of grant. STOCK OPTION PLANS The following table summarizes the Predecessor Company's stock option activity for 1997, 1998 and 1999 under the 1995 Forcenergy Stock Option Plan, which was cancelled on February 15, 2000 in conjunction with the Reorganization (See Notes 1 and 2):
WEIGHTED AVERAGE NUMBER OPTION PRICE EXERCISE OF SHARES PER SHARE PRICE ---------- --------------------- -------- Outstanding at December 31, 1996............... 2,510,918 $10.00 - $32.00 $15.25 Granted...................................... 1,512,225 25.81 - 38.88 28.93 Exercised.................................... (120,562) 10.00 - 26.88 14.73 Canceled..................................... (277,579) 10.00 - 36.25 23.70 ---------- --------------------- -------- Outstanding at December 31, 1997............... 3,625,002 10.00 - 38.88 20.25 Granted...................................... 708,086 5.56 - 26.75 21.11 Exercised.................................... (3,675) 10.00 - 14.13 10.28 Canceled..................................... (685,971) 10.00 - 38.88 29.60 ---------- --------------------- -------- Outstanding at December 31, 1998............... 3,643,442 5.56 - 34.75 18.79 ---------- --------------------- -------- Granted...................................... 3,855,408 1.06 - 2.63 1.27 Canceled..................................... (7,498,850) 1.06 - 34.75 9.78 ---------- --------------------- -------- Outstanding at December 31, 1999............... -- $ -- - $ -- $ -- ========== ===================== ========
The 1999 cancellations occurred on February 15, 2000 in conjunction with the Reorganization which for accounting and reporting purposes, was considered effective on December 31, 1999 (See Notes 1 and 2). F-17 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) If compensation expense for the stock options and warrants had been determined and recorded based on the fair value on the grant date, and using the Black-Scholes option pricing model to estimate the theoretical future value of those options, the Company's net income (loss) and net income (loss) per share amounts would have been reduced to the pro forma amounts indicated below:
PREDECESSOR COMPANY --------------------------------- 1999 1998 1997 ------- --------- --------- Pro forma net income (loss)....................... $97,883 $(320,127) $(142,585) ======= ========= ========= Pro forma net income (loss) per share............. $ 3.95 $ (12.88) $ (6.16) ======= ========= =========
The weighted average fair value for options granted during 1999, 1998 and 1997 was $.41, $4.98 and $13.30, respectively, under the Black-Scholes model. For proforma purposes, the fair value of each option grant is estimated on the date of grant with the following weighted-average assumptions:
1999 1998 1997 ---- ---- ---- Expected life (years)....................................... 2.4 4.5 4.5 Interest rate............................................... 4.67% 5.5% 6.17% Volatility.................................................. 77.0% 52.9% 45.6% Dividend yield.............................................. -- -- --
In February 1999, all options then outstanding were cancelled and reissued with an exercise price of $1.275 per share, the then current fair market value of the underlying stock on that date plus 20%. All other terms of options previously granted to non-executives remained unchanged. The number of options held by executives and directors was reduced by approximately 114,000 shares. As a result of this repricing of options, the plan changed from a fixed option plan to a variable plan for accounting purposes. Effective February 15, 2000, the Company terminated the 1995 Stock Option Plan and adopted the Forcenergy Inc 1999 Stock Option Plan (the "1999 Stock Option Plan"), the terms of which are substantially the same as the canceled 1995 Forcenergy Stock Option Plan. Under the 1999 Stock Option Plan, options to purchase 3,000,000 shares of New Common Stock are available for issuance. Effective February 15, 2000, options to purchase approximately 1,328,000 shares of New Common Stock were issued and outstanding, with an exercise price of $10 per share. EMPLOYEE STOCK PURCHASE PLAN On February 15, 2000 the Company adopted the Forcenergy Inc 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan") the terms of which are substantially the same as the previous employee stock purchase plan which was canceled on February 15, 2000 in conjunction with the Reorganization (See Notes 1 and 2). Up to 480,000 shares of New Common Stock are available to be sold to participants under terms of the Stock Purchase Plan. The Stock Purchase Plan permits full-time Company employees, or part-time employees meeting certain criteria, to purchase New Common Stock at a small discount from fair market value through payroll deductions. F-18 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 9 -- EARNINGS PER SHARE The following reconciles the numerators and denominators of the basic and diluted EPS computations (in thousands, except per share data):
PREDECESSOR COMPANY FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------------------- 1999 1998 1997 ------------------------- ---------------------------- --------------------------- PER PER PER INCOME SHARES SHARE LOSS SHARES SHARE LOSS SHARES SHARE -------- ------ ----- --------- ------ ------- --------- ------ ------ BASIC EPS Income (loss) available to common stockholders....................... $109,852 24,754 $4.44 $(314,494) 24,856 $(12.65) $(134,818) 23,142 $(5.83) EFFECT OF DILUTIVE SECURITIES Options and Warrants................. -- -- -- -- -- (1) -- -- (1) -------- ------ ----- --------- ------ ------- --------- ------ ------ DILUTED EPS Income (loss) available to common stockholders and assumed exercises.......................... $109,852 24,754 $4.44 $(314,494) 24,856 $(12.65) $(134,818) 23,142 $(5.83) ======== ====== ===== ========= ====== ======= ========= ====== ======
--------------- (1) The effect of 415,348 and 1,293,866 shares of potential common stock were anti-dilutive in 1998 and 1997, respectively, due to the losses in both years. NOTE 10 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK The Company has historically entered into various financial instruments with off-balance-sheet risk, in the normal course of business, to reduce its exposure to changing commodity prices. The Company normally utilizes these arrangements for portions of its current oil and gas production to achieve more predictable cash flows and to reduce its exposure to fluctuations in oil and gas prices for varying time periods. The remaining portion of current production is not hedged so as to provide the Company the opportunity to benefit from increases in prices on that portion of the production, should price increases materialize. The Company had various instruments in place on the Petition Date, all of which were cancelled at the option of the counterparties subsequent to the Company's bankruptcy filing. The Company received $5.5 million (fair market value of the contracts) in cash in April 1999, in final settlement of the contracts. The settlements were included in oil and gas sales in the Consolidated Statements of Operations for the year ended December 31, 1999. F-19 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company subsequently entered into several new financial hedging contracts ("Swaps") with respect to its future oil and natural gas production. Under these agreements, monthly settlements are based on the differences between the prices specified in the instrument and/or the settlement price of certain oil and gas futures contracts quoted on the New York Mercantile Exchange ("NYMEX"). In instances where the applicable settlement price is less than the price specified in the contract, the Company receives a settlement based on the difference and in instances where the applicable settlement price is higher than the specified prices, the Company pays an amount based on the difference. Swap contracts in place at December 31, 1999 and including contracts entered into after year-end on future oil production were as follows:
AVERAGE VOLUME IN NYMEX CONTRACT Bbl's PER DAY PRICE PER Bbl ------------- -------------- January 2000 -- March 2000....................... 2,000 $21.85 January 2000 -- May 2000......................... 1,000 21.56 January 2000 -- June 2000........................ 8,000 19.28 March 2000....................................... 5,000 30.05 April 2000 -- May 2000........................... 7,000 28.58 April 2000 -- June 2000.......................... 2,000 21.00 June 2000........................................ 6,000 27.02 July 2000 -- December 2000....................... 12,000 24.86
Swap contracts in place at December 31, 1999 on future natural gas production were as follows:
WEIGHTED AVERAGE VOLUME IN NYMEX Mcf CONTRACT PER DAY PRICE PER Mcf ------------- ---------------- January 2000...................................... 40,000 $3.04 February 2000..................................... 40,000 2.87 April 2000 -- June 2000........................... 110,000 2.63 July 2000 -- December 2000........................ 100,000 2.76
The instruments contain an element of credit risk and price risk. The company attempts to minimize the extent of credit risk by limiting the counterparties to major banks or significant industry participants. All of these arrangements are entered into on a no-cost basis and are settled monthly. The Company accounts for the swap arrangements as hedging activities and, accordingly, gains or losses are included in oil and gas revenues for the period the production was hedged. The Company recorded hedging gains of $2.7 million and $15.8 million in the years ended December 31, 1999 and 1998, respectively, associated with contracts in place during those periods. The Company's future exposure under the hedging instruments in place at December 31, 1999 and including contracts entered into after year-end (i.e. estimated future loss assuming that NYMEX prices remain at current levels) is estimated to be approximately $15.5 million ($16.9 million assuming extension options are exercised by the counterparty). At December 31, 1999, the Company had $6.0 million in collateral associated with the above contracts on deposit with the counterparty. This cash collateral is included in Other current assets. The Company is required to increase the amount of the deposit to the extent that the market price of oil and gas is higher than the contract price. Subsequent to the year-end the Company made additional deposits of $4 million. As an additional hedge on natural gas prices, the Company has also committed to fixed prices on approximately 26 MMCF per day of its estimated first quarter 2000 natural gas production at an average price of $2.69 per Mcf under existing sales contracts with certain of the Company's purchasers of physical production. The Company may enter into additional arrangements in the future as part of its strategy to reduce exposure to commodity price fluctuations. F-20 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In June 1998 the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"). The statement requires companies to report the fair market value of derivatives on the balance sheet and record in income or other comprehensive income, as appropriate, any changes in the fair value of the derivative. Statement No. 133 will become effective with respect to the Company on January 1, 2001. The Company is currently evaluating the impact of the statement. NOTE 11 -- LEASES The following is a schedule, by calendar year, of future minimum rental payments, covering primarily office space, required under operating leases with a term in excess of one year:
(IN THOUSANDS) 2000........................................................ $1,444 2001........................................................ 1,397 2002........................................................ 1,000 2003........................................................ 164 ------ Total............................................. $4,005 ======
Total rental expense for operating leases were approximately $1.6 million, $2.0 million and $1.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. NOTE 12 -- COMMITMENTS AND CONTINGENCIES The Company is involved in various litigation matters arising in the normal course of business. Management's assessment is that none of these matters are anticipated to have a material adverse affect on the financial position or results of operations of the Company. NOTE 13 -- SIGNIFICANT CUSTOMERS The following table reflects sales to oil and gas purchasers who individually accounted for more than 10% of the Company's total oil and gas revenues in a given year (in thousands):
PREDECESSOR COMPANY --------------------------- 1999 1998 1997 ------- ------- ------- Cornerstone Propane, Inc.......................... $28,115 $30,076 $93,342 Torch Energy Corporation.......................... 30,281 42,171 -- Tesoro Company.................................... 46,139 -- -- H&N Gas Ltd....................................... 47,227 -- -- Texon Corporation................................. -- -- 20,360
During 1999, four purchasers of the Company's production individually accounted for more than 10% of the value of oil and gas sold by the Company. Based on current demand for oil and natural gas sold, the Company does not believe the loss of these purchasers would have a material adverse effect on the Company's results of operations or cash flow. The Company currently relies on one purchaser for its Alaska production. The contract with this purchaser runs through December 2000 at which time a new contract must be negotiated or another purchaser found. The inability to negotiate a new contract or to find a new purchaser could materially impact the company's results of operations and cash flows. F-21 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 14 -- CURRENT ASSETS AND LIABILITIES Current assets and liabilities include the following:
SUCCESSOR PREDECESSOR COMPANY COMPANY DECEMBER 31, DECEMBER 31, 1999 1998 ------------ ------------ CURRENT ASSETS: Accounts receivable-joint interest billings................. $ 9,199 $ 7,331 Accrued oil and gas sales................................... 34,133 22,691 Other....................................................... -- 411 Allowance for doubtful accounts............................. (2,000) (2,000) -------- -------- Accounts receivable, net.......................... $ 41,332 $ 28,433 ======== ======== Prepaid drilling cost....................................... $ 5,393 $ 4,789 Royalties and production taxes receivable................... 2,581 5,463 Collateral deposit for hedging contracts.................... 5,977 -- Other....................................................... 4,911 9,416 -------- -------- Other current assets.............................. $ 18,862 $ 19,668 ======== ======== CURRENT LIABILITIES: Accounts payable............................................ $ 58,917 $ 42,183 Accrued drilling cost....................................... 11,693 25,725 Accrued lease operating expenses............................ 6,146 12,828 Accrued interest expense.................................... 20,917 10,799 Revenue and royalties payable............................... 5,779 4,588 Accrued reorganization costs................................ 11,236 -- Other....................................................... 6,240 10,897 -------- -------- Accounts payable and accrued liabilities.......... $120,928 $107,020 ======== ========
NOTE 15 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION During October 1997 Forcenergy acquired Edisto Resources Corporation and Convest Energy Corporation for Forcenergy Old Common Stock and cash balances Forcenergy received in the mergers. The accompanying financial statements include the following attributable to the Edisto and Convest mergers: Issuance of Old Common Stock................................ $98,934 Working capital acquired.................................... (4,196) ------- Total included in oil and gas properties.......... $94,738 =======
On March 31, 1998 the Company issued approximately 7.9 million shares of Old Common Stock valued at $27 per share pursuant to the tender offer for all of the outstanding common stock of FAB (See Note 4). The Company paid cash interest costs, including capitalized interest, of $14.2 million, $49.0 million, and $34.8 million for the years ended December 31, 1999, 1998 and 1997, respectively. F-22 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 16 -- SUPPLEMENTAL QUARTERLY INFORMATION (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA) -------------------------------------------------------- PREDECESSOR COMPANY -------------------------------------------------------- 1999 FIRST SECOND THIRD FOURTH ANNUAL ---- -------- ------- -------- --------- --------- Revenues............................... $ 59,738 $65,157 $ 67,598 $ 74,237 $ 266,730 Income (loss) from operations.......... $ (3,357) $ 6,048 $ 15,130 $ 27,288 $ 45,109 Net income (loss)...................... $(10,251) $ 2,626 $ 8,718 $ 108,759(1) $ 109,852 Net income (loss) per share: Basic and Diluted............ $ (.41) $ .11 $ .35 $ 4.39 $ 4.44 1998 ---- Revenues............................... $ 71,955 $70,778 $ 67,898 $ 62,918 $ 273,549 Income (loss) from operations.......... $ 6,984 $ 2,783 $ 186 $(277,942)(2) $(267,989) Net Loss............................... $ (1,599) $(5,611) $(12,577) $(294,707) $(314,494) Net Loss: Basic and Diluted............ $ (.06) $ (.23) $ (.51) $ (11.92) $ (12.65)
--------------- (1) Includes the revaluation of assets to fair market value of $56.0 million, gain on discharge of indebtedness of $160.0 million and reorganization costs of $13.9 million (See Notes 1 and 2). (2) Includes $275 million non-cash impairment of oil and gas assets recorded in the fourth quarter of 1998 pursuant to the full cost accounting rules mandated by the Securities and Exchange Commission ("SEC"). NOTE 17 -- SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES COST INCURRED IN OIL AND GAS PRODUCING ACTIVITIES Presented below are costs incurred in petroleum property acquisition, exploration and development activities (in thousands):
PREDECESSOR COMPANY ----------------------------- 1999 1998 1997 ------- -------- -------- Acquisition of properties: Proved properties...................................... $ -- $ 37,880 $168,450 Unevaluated properties................................. 1,234 17,430 41,907 Exploration costs........................................... 27,475 158,331 176,543 Development costs........................................... 47,836 111,546 106,260 ------- -------- -------- Total............................................. $76,545 $325,187 $493,160 ======= ======== ========
F-23 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CAPITALIZED COSTS RELATED TO OIL AND GAS PRODUCING ACTIVITIES The following table presents total capitalized costs of proved and unevaluated properties and accumulated depletion, depreciation and amortization related to oil and gas producing operations (thousands):
SUCCESSOR COMPANY PREDECESSOR COMPANY --------- ----------------------- 1999 1998 1997 --------- ---------- ---------- Proved properties........................... $ 450,000 $1,313,824 $ 999,126 Unevaluated properties...................... 60,000 165,885 165,480 --------- ---------- ---------- $ 510,000 $1,479,709 $1,164,606 Accumulated depletion, depreciation and amortization.............................. -- (874,064) (455,340) --------- ---------- ---------- Total............................. $ 510,000 $ 605,645 $ 709,266 ========= ========== ==========
Oil and gas properties were revalued to fair market value at December 31, 1999, pursuant to the Reorganization (See Notes 1 and 2). The Company anticipates evaluating these properties over the next three to five years as it continues its property exploitation and development program. RESULTS OF OPERATIONS FROM OIL AND GAS PRODUCING ACTIVITIES The results of operations from oil and gas producing activities, which do not include revenues associated with the production and sale of sulfur and processing fees for third party gas, and excluding corporate overhead and interest costs are as follows (in thousands):
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- --------- Revenues(1)................................. $ 257,646 $ 256,655 $ 292,456 Production costs............................ (91,521) (103,460) (81,965) Depreciation, depletion and amortization.... (114,064) (145,856) (113,347) Impairment of oil and gas properties........ -- (275,000) (200,000) Income tax benefit (provision).............. -- -- 20,621 --------- --------- --------- Results of operations for petroleum producing activities...................... $ 52,061 $(267,661) $ (82,235) ========= ========= ========= Average realized sales prices(2): Liquids (per Bbl)(3)........................ $ 15.48 $ 12.54 $ 17.34 Natural gas (per Mcf)....................... $ 2.27 $ 2.16 $ 2.41
--------------- (1) Does not include 1999 and 1998 financial hedging gains of $8.2 million and $15.8 million respectively, and 1997 financial hedging loss amounting to $10.8 million. (2) Net of effects of financial hedging and excluding the $5.5 million settlement on the cancellation of hedging contracts by the counterparties subsequent to the Companys filing of Chapter 11. (3) Includes condensate, crude oil and natural gas liquids. RESERVE QUANTITIES (UNAUDITED) Estimates of proved reserves of the Company and the related standardized measure of discounted future net cash flow information are based on the reports of independent petroleum engineers. All of the Company's proven reserves are located offshore or onshore- United States. There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values, including many factors beyond the control F-24 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of the producer. The reserve data set forth herein represents only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future oil and gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers at different times may vary substantially and such reserve estimates may be subject to downward or upward adjustment based upon such factors. Actual production, revenues and expenditures with respect to the Company's reserves will likely vary from estimates, and such variances may be material. The present value of estimated future net cash flows included herein should not be construed as the current market value of estimated oil and natural gas reserves attributable to the Company's operations. In accordance with the applicable requirements of the Commission, the estimated discounted net cash flows from proved reserves are based on current prices and costs as of the date of the estimate, whereas actual future prices and costs may be materially higher or lower. Current prices in effect as of the valuation date incorporated the estimated effects of hedging agreements in place (See Note 8) as of the valuation date, and for the period the agreements will be in effect. Actual future cash flows will also be affected by factors such as the amount and timing of actual production, supply and demand for oil and natural gas, curtailments or increases in consumption by purchasers and changes in governmental regulation or taxation. The timing of actual future net cash flows from proved reserves, and their actual present value, will be affected by the timing of both production and the incidence of expenses in connection with development and production of oil and gas properties. In addition, the calculation of the present value of the future net revenues using a 10% discount as required by the Commission, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and the risk associated with the Company's reserves or the oil and gas industry in general. F-25 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Predecessor Company's estimates of its proved reserves and proved developed reserves of oil and gas as of December 31, 1997, 1998 and 1999 and the changes in its proved reserves are as follows:
LIQUIDS (1) GAS 1997 (MBbl) (MMcf) ---- ----------- ------- Proved developed and undeveloped: Beginning of year........................................... 54,659 256,913 Production.................................................. (8,210) (57,737) Purchases of minerals-in-place.............................. 12,229 63,004 Extensions and discoveries.................................. 48 110,270 Revisions to previous estimates............................. (683) 8,311 ------ ------- End of year................................................. 58,043 380,761 ====== ======= Proved developed: Beginning of year................................. 45,040 187,949 ====== ======= End of year....................................... 39,766 309,542 ====== ======= 1998 ---- Proved developed and undeveloped: Beginning of year........................................... 58,043 380,761 Production.................................................. (8,513) (76,799) Purchases of minerals-in-place.............................. 3,324 44,161 Extensions and discoveries.................................. 3,204 47,088 Sales of minerals-in-place.................................. (118) (6,080) Revisions to previous estimates............................. (6,551) (19,188) ------ ------- End of year................................................. 49,389 369,943 ====== ======= Proved developed: Beginning of year................................. 39,766 309,542 ====== ======= End of year....................................... 31,746 297,117 ====== ======= 1999 ---- Proved developed and undeveloped: Beginning of year........................................... 49,389 369,943 Production.................................................. (7,877) (61,048) Purchases of minerals-in-place.............................. -- -- Extensions and discoveries.................................. 2,589 6,929 Sales of minerals-in-place.................................. (429) (4,544) Revisions to previous estimates............................. 21,287 (10,664) ------ ------- End of year (Successor Company)............................. 64,959 300,616 ====== ======= Proved developed: Beginning of year................................. 31,746 297,117 ====== ======= End of year (Successor Company)................... 41,650 243,119 ====== =======
--------------- (1) Includes crude oil, condensate and natural gas liquids. Proved reserves are estimated quantities of liquids and natural gas which geological and engineering data indicate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves, which can be expected to be recovered through existing wells with existing equipment and operating methods. F-26 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Revisions to previous estimates for the year ended December 31, 1999 were primarily the result of higher prices as related to oil reserves and production declines on certain properties for gas reserves. For the year ended December 31, 1998 revisions to previous estimates were primarily the result of lower prices and the effect of those lower prices on the economic life of the properties). In 1997, an 11 million barrel price-related negative volume reduction in the Alaskan reserves, due to a technical reduction in the economic life of the reserves, was substantially offset by other upward revisions. STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED) The standardized measure of discounted future net cash flows relating to proved oil and gas reserves is as follows (in thousands):
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ---------- ---------- ---------- Future cash inflows...................................... $2,158,260 $1,217,620 $1,683,235 Future production costs.................................. (624,130) (391,478) (530,327) Future development and dismantlement costs............... (326,129) (280,155) (311,065) Future income taxes...................................... (154,910) -- (52,291) ---------- ---------- ---------- Future net cash flows.................................... 1,053,091 545,987 789,552 10% annual discount for estimated timing of cash flows............................................. (284,162) (109,298) (194,354) ---------- ---------- ---------- Standardized measure of discounted future net cash flows............................................. $ 768,929 $ 436,689 $ 595,198 ========== ========== ==========
The following table summarizes the principal sources of change in the standardized measure of discounted future net cash flows (in thousands):
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, ----------------------------------- 1999 1998 1997 --------- --------- --------- Standardized measure -- beginning of period............... $ 436,689 $ 595,198 $ 802,145 Sales of oil and gas produced, net of production costs.... (166,125) (168,950) (210,491) Purchases of minerals-in-place............................ -- 19,066 160,608 Extensions and discoveries................................ 64,600 72,228 144,126 Sales of minerals-in-place................................ (6,527) (7,921) (1,322) Net changes in prices and production costs................ 440,630 (156,301) (575,863) Changes in estimated future development and dismantlement costs................................................... (30,974) (13,327) (21,217) Revisions to previous quantity estimates.................. 41,586 (14,623) 11,087 Accretion of discount..................................... 43,669 59,520 80,215 Changes in timing of production and other................. 34,782 10,578 (6,635) Net changes in income taxes............................... (89,401) 41,221 212,545 --------- --------- --------- Standardized measure -- end of period..................... $ 768,929 $ 436,689 $ 595,198 ========= ========= =========
The standardized measure is based on current prices as of the valuation date and reflects overall weighted average prices of:
PREDECESSOR COMPANY FOR THE YEAR ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 ------- ------- ------- Oil (per Bbl)............................................... $22.37 $10.67 $14.72 Gas (per Mcf)............................................... $ 2.34 $ 1.98 $ 2.18
F-27 FORCENERGY INC UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000 AND DECEMBER 31, 1999 AND FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2000 AND 1999. FORCENERGY INC CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 2000 1999 ------------- ------------ ASSETS: CURRENT ASSETS: Cash $ 1,257 $ 96,506 Accounts receivable, net 40,732 41,332 Other current assets 33,205 18,862 --------- --------- Total current assets 75,194 156,700 --------- --------- PROPERTY, PLANT AND EQUIPMENT, at cost (full cost method), net of accumulated depletion, depreciation and amortization 581,201 512,000 --------- --------- OTHER ASSETS 10,261 6,701 --------- --------- $ 666,656 $ 675,401 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 11,036 $ 11,924 Accrued liabilities 51,758 49,860 Pre-petition accounts payable and accrued liabilities 1,851 47,908 Accrued reorganization costs -- 11,236 Current maturities of long-term debt 7,500 -- --------- --------- Total current liabilities 72,145 120,928 --------- --------- LONG-TERM DEBT 235,644 314,473 --------- --------- COMMITMENTS AND CONTINGENCIES 14% SERIES A REDEEMABLE CUMULATIVE PREFERRED STOCK, $.01 par value; 43,005 shares issued and outstanding at September 30, 2000 32,043 -- --------- --------- STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 100,000,000 shares authorized; 24,271,176 outstanding 243 240 Capital in excess of par value 284,647 239,760 Retained earnings 43,101 -- Unearned stock compensation (945) -- Foreign currency translation (222) -- --------- --------- Total stockholders' equity 326,824 240,000 --------- --------- $ 666,656 $ 675,401 ========= =========
The accompanying notes are an integral part of these financial statements. 1 FORCENERGY INC CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SUCCESSOR PREDECESSOR SUCCESSOR PREDECESSOR COMPANY COMPANY COMPANY COMPANY ------------- ------------- ------------- ------------- THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- REVENUES: Oil and gas sales $ 95,073 $ 67,172 $ 250,170 $ 191,768 Other 249 426 665 725 --------- --------- --------- --------- 95,322 67,598 250,835 192,493 --------- --------- --------- --------- EXPENSES: Lease operating 21,445 18,563 62,178 67,269 Depletion, depreciation and amortization 29,018 26,993 84,173 90,661 Production taxes 1,834 1,128 5,084 3,118 General and administrative 3,163 3,364 13,125 10,177 --------- --------- --------- --------- 55,460 50,048 164,560 171,225 --------- --------- --------- --------- INCOME FROM OPERATIONS 39,862 17,550 86,275 21,268 Interest and other income 448 144 1,983 6,946 Interest expense, net of amounts capitalized (4,714) (6,608) (14,438) (24,150) --------- --------- --------- --------- INCOME BEFORE REORGANIZATION ITEMS AND INCOME TAXES 35,596 11,086 73,820 4,064 --------- --------- --------- --------- REORGANIZATION ITEMS: Interest income -- 731 533 1,154 Professional and administrative fees -- (2,420) -- (3,446) --------- --------- --------- --------- -- (1,689) 533 (2,292) --------- --------- --------- --------- INCOME BEFORE INCOME TAXES 35,596 9,397 74,353 1,772 Income tax provision (13,583) (679) (28,221) (679) --------- --------- --------- --------- NET INCOME 22,013 8,718 46,132 1,093 PREFERRED STOCK DIVIDEND (1,460) -- (3,031) -- --------- --------- --------- --------- NET INCOME AVAILABLE TO COMMON STOCKHOLDERS $ 20,553 $ 8,718 $ 43,101 $ 1,093 ========= ========= ========= ========= NET INCOME PER SHARE: Basic $ .85 $ .35 $ 1.79 $ .04 Diluted $ .79 $ .35 $ 1.72 $ .04 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic 24,080 24,756 24,027 24,753 Diluted 25,886 24,756 25,106 24,753
The accompanying notes are an integral part of these financial statements. 2 FORCENERGY INC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SUCCESSOR PREDECESSOR COMPANY COMPANY ------------ ------------ NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 46,132 $ 1,093 Adjustments to reconcile net income to net cash provided by operating activities before reorganization items: Reorganization items -- 2,292 Depletion, depreciation and amortization 84,173 91,716 Deferred taxes 28,221 679 Equity in net income of affiliate (778) (921) Reorganization related severance 1,933 Stock compensation 135 -- Decrease (increase) in accounts receivable 600 (12,526) Increase in other current assets (14,646) (9,605) Increase in accounts payable and accrued liabilities 3,865 21,894 ------------ ------------ 103,503 93,529 ------------ ------------ Net cash provided by operating activities before reorganization activities 149,635 94,622 Reorganization items 533 (2,292) Adjustments to reconcile reorganization activities to cash used in reorganization activities: Decrease in pre-petition accounts payable and accrued liabilities (46,057) -- Accrued reorganization costs (11,236) -- ------------ ------------ Net cash used in reorganization activities (56,760) (2,292) ------------ ------------ Net cash provided by operating activities after reorganization activities 92,875 92,330 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions (1,108) (794) Capital expenditures (153,416) (43,181) Proceeds from sale of assets 1,150 60 Change in other assets (1,754) 5,661 ------------ ------------ Net cash used in investing activities (155,128) (38,254) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under senior credit facility 134,557 26,473 Repayments under senior credit facility (209,030) (8,700) Issuance of common stock 2,697 310 Issuance of preferred stock 38,800 -- Preferred dividends (20) -- ------------ ------------ Net cash (used in) provided by financing activities (32,996) 18,083 ------------ ------------ Net increase (decrease) in cash (95,249) 72,159 Cash at beginning of period 96,506 1,690 ------------ ------------ Cash at end of period $ 1,257 $ 73,849 ============ ============
The accompanying notes are an integral part of these financial statements. 3 FORCENERGY INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION Forcenergy Inc, a Delaware corporation ("Forcenergy" or the "Company"), and its subsidiaries is an independent oil and gas company engaged in the exploration, acquisition, development, exploitation and production of oil and natural gas properties. The Company's principal areas of operation are the Gulf of Mexico and the Cook Inlet, Alaska. Forcenergy and its wholly owned subsidiary Forcenergy Resources Inc. ("Resources") emerged from bankruptcy on February 15, 2000 (see Note 3 for a more detailed discussion of the reorganized entity). The original voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code was filed on March 21, 1999 (the "Petition Date") in order to facilitate the restructuring of the Company's long-term debt, revolving credit, trade and other obligations. While under Chapter 11, certain claims against the Company as of the Petition Date were stayed while the Company continued its operations as a debtor-in-possession and worked to restructure its debt. On January 19, 2000, the Bankruptcy Court approved the Company's Plan of Reorganization (the "Plan"), which became effective on February 15, 2000 (the "Emergence Date"). The unaudited interim consolidated financial statements of the Company included herein reflect accounting principles set forth in the American Institute of Certified Public Accountants Statement of Position 90-7 "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", ("SOP 90-7"), which provides guidance for financial reporting by entities that have filed voluntary petitions for relief under, and have reorganized in accordance with, the Bankruptcy Code. In accordance with guidance provided by SOP 90-7, the consummation of the Plan (the "Reorganization") has been reflected as though effective on December 31, 1999 (the "Effective Date"). Under provisions of SOP 90-7 and fresh-start reporting (see Note 3), the December 31, 1999 Consolidated Balance Sheet is the opening balance sheet of the reorganized company (the "Successor Company"). The December 31, 1999 Consolidated Balance Sheet includes all adjustments necessary to reflect assets at fair market value as of the Effective Date and the Plan's treatment of creditor claims and previous equity interests. The unaudited interim consolidated financial statements of the Company included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission and in accordance with generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, necessary to present fairly the information in the accompanying consolidated financial statements have been included. Interim period results are not necessarily indicative of the results of operations or cash flows for a full year period. The unaudited interim consolidated financial statements included herein for the three and nine months ended September 30, 1999 and those of the Company prior to the Reorganization (the "Predecessor Company") may not be comparable in certain respects to the consolidated financial statements of the Successor Company. Capitalized terms not defined herein have the meanings as defined in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 4 NOTE 2 - PROPOSED MERGER On July 10, 2000 the board of directors of Forcenergy approved a plan of merger with Forest Oil Corporation ("Forest") (NYSE:FST). The plan of merger provides that Forest will issue 1.6 common shares for each Forcenergy common share outstanding and 68.6141 common shares for each Forcenergy share of preferred stock outstanding, plus accrued, unpaid dividends. The merger is subject to shareholder approval for both companies and will be treated as a tax-free reorganization and accounted for as a pooling of interests. The joint proxy statement/prospectus was approved by the Securities and Exchange Commission on November 7, 2000 and declared effective, with the special meeting of shareholders scheduled to be held on December 7, 2000. NOTE 3 - REORGANIZATION AND FRESH-START REPORTING In August 1999, the Company filed with the bankruptcy court a disclosure statement that included the proposed Plan. The disclosure statement was approved by the bankruptcy court on October 22, 1999, the Plan was approved by the bankruptcy court on January 19, 2000 and the Company emerged from bankruptcy on February 15, 2000. On February 15, 2000, the Company issued 23,040,000 shares of New Common Stock in exchange for all of the outstanding 8.5% and 9.5% Senior Subordinated Notes (collectively, the "Senior Subordinated Notes"), and in satisfaction of various other unsecured trade obligations. The unsecured claimants were also entitled to participate in the rights offering discussed below. Also, on February 15, 2000, the Company and its existing bank lending group entered into a new senior credit facility (the "New Senior Credit Facility") that replaced the Company's prior senior credit facility (the "Prior Facility") and satisfied all pre-petition claims thereunder (see Note 4). Pursuant to provisions of the Plan and the New Senior Credit Facility, the Company paid $66.9 million in cash to the bank group on the Effective Date, which included a repayment of $40 million in principal outstanding under the Prior Facility and $24.3 million in accrued interest. In accordance with provisions of the Plan, all outstanding shares of the common stock of the Predecessor Company (the "Old Common Stock") were cancelled effective as of the Emergence Date and the holders of Old Common Stock as of the January 28, 2000 record date received, on a pro-rata basis (i.e. approximately one share of New Common Stock for each 25.849 shares of Old Common Stock held): (i) 960,000 shares of New Common Stock; (ii) associated warrants to purchase 240,000 shares of New Common Stock at $16.67 per share (expiring on February 15, 2004); and (iii) warrants to purchase 240,000 shares of New Common Stock at $20.83 per share (expiring on February 15, 2005). The cancellation of Old Common Stock and issuance of these equity instruments is reflected in the Successor Company's Consolidated Balance Sheet at December 31, 1999. The Plan also required the Company to raise $40 million in additional equity capital through a rights offering to unsecured claimants to purchase preferred stock units, each of which included one share of 14% Series A Cumulative Preferred Stock (the "Preferred Stock") and warrants ("Subscription Warrants") to purchase 45 shares of New Common Stock (collectively, the "Rights Offering"), for $1,000 per unit. On March 20, 2000 the Rights Offering was closed with the issuance of 40,000 shares of Preferred Stock and Subscription Warrants to purchase 1,800,000 shares of New Common Stock. The proceeds from the Rights Offering were $38.8 million net of offering costs of $1.2 million. The Company allocated $29.0 million to Preferred Stock and $11.0 million to the Subscription Warrants (using the Black-Scholes valuation model), which is included in capital in excess of par value. The proceeds were used to pay down amounts outstanding under the New Senior Credit Facility. For more detailed discussion of the reorganization and fresh-start reporting refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. 5 NOTE 4 - LONG-TERM DEBT NEW SENIOR CREDIT FACILITY Pursuant to the Reorganization, the Company entered into the New Senior Credit Facility on February 15, 2000 (see Notes 1 and 3). The New Senior Credit Facility consists of a $250 million Revolving Credit Facility (the "Revolver") and a $70 million Term Loan (the "Term Loan"). The amount that can be borrowed under the Revolver is subject to a borrowing base limitation, which has been established initially at $250 million through February 15, 2001. The Revolver provides for borrowings on a revolving basis through August 15, 2003, at which time all outstanding amounts under the Revolver become due and payable. Advances under the Revolver bear interest at prime plus 1.5% or LIBOR plus 2% per annum at the election of the Company. The interest rate under the Revolver was 8.6% at September 30, 2000. The agreement provides for a commitment fee on the unused portion of the Revolver at .50% due quarterly. The borrowing base is subject to semi-annual redetermination after the first redetermination on February 15, 2001. The terms of the Term Loan provide mandatory quarterly principal repayments of $2.5 million each commencing on March 31, 2001, with a $50 million lump sum repayment at maturity on August 15, 2003. Interest is payable monthly at the prime rate plus 3% or LIBOR plus 3.5%. The interest rate in effect under the Term Loan was 10.13% at September 30, 2000. At October 31, 2000, the Company had drawn down $180.0 million under the Revolver and an additional $5.5 million of availability was utilized for outstanding letters of credit issued thereunder, leaving $64.5 million available for general corporate purposes. The New Senior Credit Facility is secured by substantially all of the Company's oil and gas properties and contains events of default, representations and warranties and covenants typical for facilities of this type. NOTE 5 - EARNINGS PER SHARE The following reconciles the numerators and denominators of the basic and diluted EPS computations (in thousands, except per share data):
SUCCESSOR COMPANY PREDECESSOR COMPANY THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------------------------- ------------------------------- PER PER INCOME SHARES SHARE INCOME SHARES SHARE ----------- ----------- ---------- --------- -------- --------- BASIC EPS: Income available to common stockholders............. $ 20,553 24,080 $ .85 $ 8,718 24,756 $ .35 EFFECT OF DILUTIVE SECURITIES: Options and warrants ................ -- 1,806 (.06) -- -- -- ----------- ----------- ---------- --------- --------- ---------- DILUTED EPS: Income available to common stockholders and assumed exercises.............. $ 20,553 25,886 $ .79 $ 8,718 24,756 $ .35 =========== =========== ========= ========= ========= =========
6
SUCCESSOR COMPANY PREDECESSOR COMPANY NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999 ------------------------------------- ------------------------------- PER PER INCOME SHARES SHARE INCOME SHARES SHARE ----------- ----------- ---------- ---------- -------- --------- BASIC EPS: Income (loss) available to common stockholders............. $ 43,101 24,027 $ 1.79 $ 1,093 24,753 $ .04 EFFECT OF DILUTIVE SECURITIES: Options and warrants ................ -- 1,079 (.07) -- -- -- ----------- ----------- ---------- ---------- --------- ---------- DILUTED EPS: Income (loss) available to Common stockholders And assumed exercises.............. $ 43,101 25,106 $ 1.72 $ 1,093 24,753 $ .04 =========== =========== ========= ========== ========= =========
NOTE 6 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company has historically entered into various financial instruments with off-balance-sheet risk in the normal course of business to reduce its exposure to changing commodity prices. The Company normally utilizes these arrangements for portions of its current oil and gas production to achieve more predictable cash flows and to reduce its exposure to fluctuations in oil and gas prices for varying time periods. The remaining portion of current production is not hedged so as to provide the Company the opportunity to benefit from increases in prices on that portion of the production, should price increases materialize. The Company has entered into several financial hedging contracts in the form of swaps and no-cost collars with respect to its future oil and natural gas production. The contracts, which are based on prices available in the financial markets at the time the contracts are entered into, are settled in cash and do not require physical deliveries of hydrocarbons. Under these agreements, monthly settlements are based on the differences between the prices specified in the instrument and/or the settlement price of certain oil and gas futures contracts quoted on the New York Mercantile Exchange ("NYMEX"). In instances where the applicable settlement price is less than the price specified in the contract, the Company receives a settlement based on the difference and in instances where the applicable settlement price is higher than the specified prices, the Company pays an amount based on the difference. Contracts in place at September 30, 2000 on future oil production were as follows:
SWAPS COLLARS --------------------------------- --------------------------------- WEIGHTED AVERAGE NYMEX CONTRACT WEIGHTED AVERAGE VOLUME PRICE PER BBL VOLUME IN NYMEX CONTRACT IN BBLS -------------------- PERIOD BBLS PER DAY PRICE PER BBL PER DAY FLOOR CEILING ------ ------------ ------------- ------- ----- ------- October 2000 - December 2000 12,000 $ 23.91 January 2001- December 2001 4,000 $ 26.49 $ 33.65
7 Contracts in place at September 30, 2000 on future natural gas production were as follows:
SWAPS COLLARS --------------------------------- --------------------------------- NYMEX CONTRACT WEIGHTED AVERAGE VOLUME PRICE PER MCF VOLUME IN NYMEX CONTRACT IN MCFS -------------------- PERIOD MCFS PER DAY PRICE PER MCF PER DAY FLOOR CEILING ------ ------------ ------------- ------- ------ ------- October 2000 - December 2000 100,000 $ 2.83 January 2001 - December 2001 20,000 $ 3.75 $ 6.57
The instruments contain an element of credit risk and price risk. The Company attempts to minimize the extent of credit risk by limiting the counterparties to major banks or significant industry participants. All of these arrangements are entered into on a no-cost basis and are settled monthly. The Company accounts for the swap and collar arrangements as hedging activities and, accordingly, gains or losses are included in oil and gas revenues for the period the production was hedged. The Company recorded a $22.1 million reduction in revenues associated with hedging contracts in place during the quarter ended September 30, 2000 and a $2.1 million reduction in revenues for the three months ended September 30, 1999. The Company recorded a $46.2 million reduction in revenues for the nine months ended September 30, 2000 and a $5.7 million increase in revenues for the nine months ended September 30, 1999 associated with its hedging activities. NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION The Company paid interest of $38.5 million and $14.2 million in the nine-month periods ending September 30, 2000 and 1999, respectively. The increase in interest paid over the previous year's period relates to the implementation of the Plan, as $24.3 million of interest accrued during the reorganization process was paid to the bank group on the Emergence Date. The Company paid non-cash dividends to the holders of Preferred Stock, in the form of additional Preferred Stock with a stated value of $3,005,000 during the first nine months of 2000. NOTE 8 - COMMITMENTS In connection with the April 2000 termination of employment of Stig Wennerstrom, the President and Chief Executive Officer of the Company, the Company became obligated to make severance payments equal to approximately 2.5 times Mr. Wennerstrom's base salary. In addition all options previously granted to Mr. Wennerstrom were immediately vested and became exercisable. Mr. Wennerstrom was also granted certain health and life benefits as well as office and secretarial services to be supplied by the Company. On April 3, 2000 the Company entered into an employment agreement with Richard G. Zepernick, Jr., its current President and Chief Executive Officer. The employment agreement is subject to early termination by the Company for cause or upon death or incapacity of Mr. Zepernick. If the employment agreement is terminated without cause by the Company or with cause (excluding certain changes in control of the Company) by Mr. Zepernick, the Company is obligated to pay Mr. Zepernick a termination fee equal to 2.0 times the amount of his average annual compensation for the prior two years. Upon a change of control of the Company, Mr. Zepernick will receive a fee equal to 100% of his annual base salary. Also, if Mr. Zepernick is terminated by the Company, or voluntarily 8 terminates his employment, within two years of a change of control, Mr. Zepernick will receive a fee equal to 2.5 times his average annual compensation for the prior two years. If Mr. Zepernick's employment is terminated due to death or permanent disability, he will receive a fee equal to 2.5 times his average annual compensation for the prior two years. The employment agreement also provides for cash incentive bonus payments to be awarded at the discretion of the Board of Directors. The employment agreement expires April 3, 2002 but is subject to automatic annual renewal for one-year periods that can be terminated upon 120 days' prior notice. NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("Statement No. 133"). The statement requires companies to report the fair market value of derivatives on the balance sheet and record in income or other comprehensive income, as appropriate, any changes in the fair value of the derivative. Statement No. 133 will become effective with respect to the Company on January 1, 2001. The Company is currently evaluating the impact of the statement. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 "Revenue Recognition" ("SAB 101"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 is applicable beginning with the Company's fourth quarter of 2000. Based on the Company's current analysis, SAB 101 will not have a material impact on the financial results of the Company. 9 FOREST OIL CORPORATION CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS On December 7, 2000 Forest Oil Corporation (Forest) announced the completion of its merger with Forcenergy Inc (Forcenergy) and approval of a 1-for-2 reverse split of Forest common stock by Forest shareholders. Pursuant to the terms of the merger agreement, and after giving effect to the reverse split of Forest common shares, Forcenergy stockholders received 0.8 of a Forest common share for each share of Forcenergy common stock they owned and 34.307 Forest common shares for each $1,000 stated value amount of Forcenergy preferred stock. The unaudited condensed pro forma combined financial statements included below are presented as if the merger was effective as of December 31, 1999, the effective date of Forcenergy's reorganization and fresh start reporting. These unaudited condensed pro forma combined financial statements combine the historical consolidated balance sheets of Forest and Forcenergy as of September 30, 2000 and December 31, 1999 and the consolidated statements of operations of Forest and Forcenergy for the nine months ended September 30, 2000. The unaudited condensed pro forma combined balance sheets include pro forma adjustments to give effect to the merger and to the reverse stock split. These statements are prepared on the pooling of interests method of accounting for the merger. Under the pooling of interests method, the results of operations of Forcenergy prior to the reorganization and fresh start reporting will not be included in the financial statements of the combined company. The pro forma combined financial statements are based on the assumptions set forth in the notes thereto. The information shown below should be read in conjunction with the consolidated historical financial statements and related notes of Forest for the year ended December 31, 1999 contained in its Annual Report on Form 10-K and the consolidated historical financial statements and related notes of Forcenergy filed as part of this Form 8-K/A. The pro forma financial statements are presented for informational purposes only and are not necessarily indicative of the combined financial position or results of operations which would have been realized had the merger been effective during the periods presented or the financial position or results of operations of the combined companies in the future. -1- FOREST OIL CORPORATION CONDENSED PRO FORMA COMBINED BALANCE SHEET SEPTEMBER 30, 2000 (UNAUDITED)
Historical Pro Forma ------------------------- Adjustments Combined Forest Forcenergy (Note B) Forest ----------- ---------- ------------ ---------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 7,807 1,257 -- 9,064 Accounts receivable 90,843 40,732 -- 131,575 Other current assets 23,149 12,307 -- 35,456 --------- -------- ------- --------- Total current assets 121,799 54,296 -- 176,095 Net property and equipment, at cost 738,462 581,201 -- 1,319,663 Goodwill and other intangible assets, net 19,830 -- -- 19,830 Other assets 9,074 10,261 -- 19,335 --------- -------- ------- --------- $ 889,165 645,758 -- 1,534,923 ========= ======== ======= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 93,706 28,832 36,000 (3) 158,538 Accrued interest 3,172 57 -- 3,229 Pre-petition accounts payable and accrued liabilities -- 1,851 -- 1,851 Other current liabilities 2,586 20,507 -- 23,093 --------- -------- ------- --------- Total current liabilities 99,464 51,247 36,000 186,711 Long-term debt 414,447 232,500 -- 646,947 Other liabilities 12,289 3,144 -- 15,433 Deferred income taxes 12,417 -- -- 12,417 Redeemable preferred stock -- 32,043 (32,043) (1) -- Shareholders' equity: Common stock 5,428 243 3,935 (1) 4,803 (4,803) (2) Capital surplus 725,991 284,647 28,108 (1) 1,040,182 4,803 (2) (3,367) (3) Retained earnings (deficit) (367,071) 43,101 (32,633) (3) (356,603) Unearned compensation - (945) -- (945) Accumulated other comprehensive loss (10,534) (222) -- (10,756) Treasury stock, at cost (3,266) -- - (3,266) --------- -------- ------- --------- Total shareholders' equity 350,548 326,824 (3,957) 673,415 --------- -------- ------- --------- $ 889,165 645,758 -- 1,534,923 ========= ======== ======= =========
See accompanying notes to condensed pro forma combined financial statements. -2- FOREST OIL CORPORATION CONDENSED PRO FORMA COMBINED BALANCE SHEET DECEMBER 31, 1999 (UNAUDITED)
Historical Pro Forma ------------------------- Adjustments Combined Forest Forcenergy (Note B) Forest ----------- ---------- ------------ ---------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 3,155 96,506 -- 99,661 Accounts receivable 64,719 41,332 -- 106,051 Other current assets 3,484 18,862 -- 22,346 --------- -------- ------- --------- Total current assets 71,358 156,700 -- 228,058 Net property and equipment, at cost 697,616 512,000 -- 1,209,616 Goodwill and other intangible assets, net 22,092 -- -- 22,092 Other assets 8,986 6,701 -- 15,687 --------- -------- ------- --------- $ 800,052 675,401 -- 1,475,453 ========= ======== ======= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 72,589 82,535 -- 155,124 Accrued interest 10,105 20,917 -- 31,022 Other current liabilities 3,481 17,476 -- 20,957 --------- -------- ------- --------- Total current liabilities 86,175 120,928 -- 207,103 Long-term debt 371,680 314,473 -- 686,153 Other liabilities 14,262 -- -- 14,262 Deferred income taxes 8,951 -- -- 8,951 Shareholders' equity: Common stock 5,381 240 3,600 (1) 4,611 (4,610)(2) Capital surplus 721,832 239,760 (3,600)(1) 962,602 4,610 (2) Accumulated deficit (396,007) -- -- (396,007) Accumulated other comprehensive loss (11,774) -- -- (11,774) Treasury stock, at cost (448) -- -- (448) --------- -------- ------- --------- Total shareholders' equity 318,984 240,000 -- 558,984 --------- -------- ------- --------- $ 800,052 675,401 -- 1,475,453 ========= ======== ======= =========
See accompanying notes to condensed pro forma combined financial statements. -3- FOREST OIL CORPORATION CONDENSED PRO FORMA COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
Historical Pro Forma ----------------------- Combined Forest Forcenergy Forest -------- ---------- --------- (In Thousands Except Per Share Amounts) Revenue: Marketing and processing $170,691 -- 170,691 Gas sales 119,507 123,237 242,744 Oil sales 63,744 127,598 191,342 -------- ------- ------- Total oil and gas sales 183,251 250,835 434,086 -------- ------- ------- Total revenue 353,942 250,835 604,777 Operating expenses: Marketing and processing 168,282 -- 168,282 Oil and gas production 33,805 67,262 101,067 General and administrative 12,592 13,125 25,717 Depreciation and depletion 69,565 84,173 153,738 -------- ------- ------- Total operating expenses 284,244 164,560 448,804 -------- ------- ------- Earnings from operations 69,698 86,275 155,973 Other income and expense: Other expense (income), net 516 (2,516) (2,000) Interest expense 28,221 14,438 42,659 Translation loss on subordinated debt 7,638 -- 7,638 -------- ------- ------- Total other income and expense 36,375 11,922 48,297 -------- ------- ------- Earnings before income taxes and extraordinary item 33,323 74,353 107,676 Income tax expense: Current 631 -- 631 Deferred 3,756 28,221 31,977 -------- ------- ------- 4,387 28,221 32,608 -------- ------- ------- Earnings from continuing operations $ 28,936 46,132 75,068 ======== ======= ======= Basic weighted average number of common shares outstanding 26,928 47,575 ======== ======= Diluted weighted average number of common shares outstanding 27,251 48,762 ======== ======= Basic earnings per common share from continuing operations $ 1.07 1.58 ======== ======= Diluted earnings per common share from continuing operations $ 1.06 1.54 ======== =======
See accompanying notes to condensed pro forma combined financial statements. -4- FOREST OIL CORPORATION NOTES TO CONDENSED PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The accompanying unaudited condensed pro forma combined balance sheets and unaudited condensed pro forma combined statements of operations are presented as if the merger of Forest and Forcenergy and the 1-for-2 reverse split of Forest common stock were effective as of December 31, 1999, the effective date of the reorganization and fresh start reporting for Forcenergy. The merger was accounted for as a pooling of interests. In the opinion of Forest management, these pro forma statements include all adjustments necessary for a fair presentation of pro forma financial statements. Accounting policies used in the preparation of the pro forma statements are those disclosed in Forest's and Forcenergy's consolidated financial statements filed on Form 10-K. Adjustments to conform the accounting policies of Forest and Forcenergy are insignificant. The pro forma statements are not necessarily indicative either of the results that actually would have been achieved if the transactions reflected therein had been effective during the periods presented or of results which may be obtained in the future. In preparing these pro forma statements, no adjustments have been made to reflect transactions which have occurred since the dates of the pro forma financial statements. The pro forma statements should be read in conjunction with the description of the merger of Forest and Forcenergy in the Joint Proxy Statement of Forest and Forcenergy as filed with the SEC, the historical financial statements and related notes of Forest as filed on Form 10-K for the year ended December 31, 1999 and the historical financial statements and related notes of Forcenergy filed as part of this Form 8-K/A. B. PRO FORMA ADJUSTMENTS These pro forma financial statements give effect to the following adjustments: 1. The issuance by Forest of 0.8 Forest common shares for each share of Forcenergy common stock and the issuance of 34.307 Forest common shares for each $1,000 stated value of Forcenergy preferred stock. 2. A 1-for-2 reverse stock split of Forest common shares. 3. Transaction costs, including fees for advisors, attorneys and other consultants and incremental direct costs of completing the merger, are estimated to be approximately $36 million (approximately $33 million after tax) and will be charged to expense on and after consummation of the merger. For the purposes of the pro forma financial statements, these transaction costs, net of the related income tax effect, have been recorded as an increase in accumulated deficit at September 30, 2000. -5-