-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PWEOOw+7+ZLD/3lXyfvguzx3h/RhAVbcrWcGYp+IiFwjaOS1v3mHWBlTWz4yVslp oIoElZAJdV1tMpIbW11KTQ== 0000912057-97-003742.txt : 19970221 0000912057-97-003742.hdr.sgml : 19970221 ACCESSION NUMBER: 0000912057-97-003742 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19970210 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-04597 FILM NUMBER: 97521234 BUSINESS ADDRESS: STREET 1: 1600 BROADWAY STREET 2: STE 2200 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038121400 10-K/A 1 10K/A - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A (AMENDMENT NO. 2) (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1995 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission File Number: 0-4597 FOREST OIL CORPORATION (Exact name of registrant as specified in its charter) State of incorporation: New York I.R.S. Employer Identification No. 25-0484900 1600 Broadway Suite 2200 Denver, Colorado 80202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 303-812-1400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Common Stock, Par Value $.10 Per Share Warrants to purchase shares of Common Stock $.75 Convertible Preferred Stock, Par Value $.01 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by persons other than non-affiliates of the registrant was approximately $231,371,978 as of February 29, 1996 (based on the last sale price of such stock as quoted on the NASDAQ National Market). There were 24,527,575 shares of the registrant's Common Stock, Par Value $.10 Per Share outstanding as of February 29, 1996. Document incorporated by reference: Proxy Statement of Forest Oil Corporation relative to the Annual Meeting of Shareholders to be held on May 8, 1996, which is incorporated into Part III of this Form 10-K. - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page No. -------- PART I Item 1. Business 1 Item 2. Properties 10 Item 3. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 17 Item 4A. Executive Officers of Forest 17 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19 Item 6. Selected Financial and Operating Data 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24 Item 8. Financial Statements and Supplementary Data 33 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 33 PART III Item 10. Directors and Executive Officers of the Registrant 69 Item 11. Executive Compensation 69 Item 12. Security Ownership of Certain Beneficial Owners and Management 69 Item 13. Certain Relationships and Related Transactions 69 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information concerning this Item begins on the following page. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 33 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Forest Oil Corporation: We have audited the accompanying consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forest Oil Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. As discussed in Notes 7 and 10 of Notes to Consolidated Financial Statements, the Company adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. KPMG PEAT MARWICK LLP Denver, Colorado February 20, 1996 34 FOREST OIL CORPORATION CONSOLIDATED BALANCE SHEETS Pro Forma 1995 (Note 2) December 31, (Unaudited) 1995 1994 ----------- -------- -------- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 3,287 3,287 2,869 Accounts receivable 35,763 17,395 20,418 Other current assets 4,612 2,557 2,231 -------- -------- -------- Total current assets 43,662 23,239 25,518 Net property and equipment, at cost (Note 5) 429,584 277,599 276,609 Investment in affiliate (Note 4) 11,301 11,301 11,652 Other assets 33,443 8,904 11,053 -------- -------- -------- $517,990 321,043 324,832 -------- -------- -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 2,055 2,055 4,445 Current portion of long-term debt (Note 5) 2,263 2,263 1,636 Current portion of gas balancing liability 4,700 4,700 5,735 Accounts payable 37,561 17,456 26,557 Accrued interest 4,219 4,029 4,318 Other current liabilities 1,917 1,917 4,927 -------- -------- -------- Total current liabilities 52,715 32,420 47,618 Commitments and contingencies (Notes 10, 12 and 13) Long-term debt (Notes 3 and 5) 192,848 193,879 207,054 Gas balancing liability 3,841 3,841 8,525 Other liabilities 25,824 23,298 19,641 Deferred revenue (Note 6) 15,137 15,137 35,908 Deferred income taxes 38,502 - - Minority interest (Note 2) 8,882 8,171 - Shareholders' equity (Notes 2, 3, 5, 8 and 9): Preferred stock 24,359 24,359 15,845 Common stock, 10,660,291 shares in 1995 (22,800,291 shares pro forma, and 5,659,042 shares in 1994) 2,280 1,066 566 Capital surplus 366,431 241,241 192,337 Common shares to be issued in debt restructuring 6,073 6,073 - Accumulated deficit (217,495) (217,495) (199,499) Foreign currency translation (1,407) (1,407) (1,337) Treasury stock, at cost, 1,060,000 shares in 1995 and 21,188 shares in 1994 - (9,540) (1,826) -------- -------- -------- Total shareholders' equity 180,241 44,297 6,086 -------- -------- -------- $517,990 321,043 324,832 -------- -------- -------- -------- -------- -------- See accompanying Notes to Consolidated Financial Statements. 35 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 1995 1994 1993 -------- -------- -------- (In Thousands Except Per Share Amounts) Revenue: Oil and gas sales: Gas $ 59,084 91,309 77,249 Gas contract settlement (Note 15) 4,263 - - Oil and condensate 18,602 22,874 25,341 Products and other 326 358 293 -------- -------- -------- 82,275 114,541 102,883 Miscellaneous, net 181 1,406 2,265 -------- -------- -------- Total revenue 82,456 115,947 105,148 Expenses: Oil and gas production 22,463 22,384 19,540 General and administrative 9,081 11,166 12,003 Interest 25,323 26,773 23,729 Depreciation and depletion 43,592 65,468 60,581 Provision for impairment of oil and gas properties - 58,000 - -------- -------- -------- Total expenses 100,459 183,791 115,853 -------- -------- -------- Loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item (18,003) (67,844) (10,705) Income tax expense (benefit) (Note 7): Current (7) 9 254 Deferred - - (1,604) -------- -------- -------- (7) 9 (1,350) -------- -------- -------- Loss before cumulative effects of changes in accounting principles and extraordinary item (17,996) (67,853) (9,355) Cumulative effects of changes in accounting principles: Oil and gas sales (Note 1) - (13,990) - Postretirement benefits, net of income tax benefit of $1,639,000 (Note 10) - - (3,183) Income taxes (Note 7) - - 2,060 -------- -------- -------- - (13,990) (1,123) -------- -------- -------- Loss before extraordinary item (17,996) (81,843) (10,478) Extraordinary item - loss on extinguishment of debt, net of income tax benefit of $4,652,000 (Note 5) - - (10,735) Net loss $(17,996) (81,843) (21,213) -------- -------- -------- -------- -------- -------- Weighted average number of common shares outstanding 7,360 5,619 4,399 -------- -------- -------- -------- -------- -------- Net loss attributable to common stock $(20,156) (84,004) (23,463) -------- -------- -------- -------- -------- -------- Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (3,962) -------- -------- Net loss $(15,820) -------- --------
(continued on following page) 36 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) Years Ended December 31, 1995 1994 1993 ---- ---- ---- (In Thousands Except Per Share Amounts) Primary and fully diluted loss per common share: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (2.74) (12.46) (2.64) Cumulative effects of changes in accounting principles - (2.49) (.26) -------- ------ ------ Loss before extraordinary item (2.74) (14.95) (2.90) Extraordinary item - loss on extinguishment of debt - - (2.44) -------- ------ ------ Net loss attributable to common stock $ (2.74) (14.95) (5.34) -------- ------ ------ -------- ------ ------ Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Primary and fully diluted loss per common share: Loss before cumulative effects of changes in accounting principles and extraordinary item $ (1.41) ------- ------- Net loss attributable to common stock $ (4.11) ------- -------
See accompanying Notes to Consolidated Financial Statements. 37 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Common Common Shares to be Stock and Issued Accumu- Foreign Preferred Class B Capital in Debt lated Currency Treasury Stock Stock Surplus Restructuring Deficit Translation Stock --------- --------- ------- ------------- -------- ----------- -------- (In Thousands) Balance December 31, 1992 $17,214 300 146,592 - (96,443) (427) (7,355) Net loss - - - - (21,213) - - Issuance of common stock, net of offering costs (Note 9) - 222 51,284 - - - - $.75 Convertible Preferred Stock dividends paid in common stock (Note 8) - 13 (13) - - - - Conversion of $.75 Convertible Preferred Stock to common stock (Note 8) (1,369) 17 1,352 - - - - Reclassification of Class B to common stock (Note 9) - 7 (7) - - - - Exercise of employee stock options (Note 9) - 3 393 - - - - Common stock issued and treasury stock contributed to the Retirement Savings Plan and other (Note 10) - 3 (586) - - - 1,565 Unfunded pension liability (Note 10) - - (3,038) - - - - Foreign currency translation - - - - - (358) - ------- ----- ------- ----- -------- ------ ------ Balance December 31, 1993 15,845 565 195,977 - (117,656) (785) (5,790) Net loss - - - - (81,843) - - Exercise of employee stock options (Note 9) - 1 104 - - - - $.75 Convertible Preferred Stock dividends paid in cash (Note 8) - - (2,161) - - - - Treasury stock contributed to the Retirement Savings Plan and other (Note 10) - - (1,583) - - - 3,964 Foreign currency translation - - - - - (552) - ------- ----- ------- ----- -------- ------ ------ Balance December 31, 1994 15,845 566 192,337 - (199,499) (1,337) (1,826) NET LOSS - - - - (17,996) - - ISSUANCE OF COMMON STOCK TO ANSCHUTZ (NOTES 3 AND 9) - 376 27,796 - - - - ISSUANCE OF SECOND SERIES CONVERTIBLE PREFERRED STOCK TO ANSCHUTZ (NOTES 3 AND 8) 8,518 - - - - - - ISSUANCE OF WARRANTS TO ANSCHUTZ (NOTES 3 AND 9) - - 8,311 - - - - ISSUANCE OF WARRANTS TO JEDI (NOTES 3 AND 9) - - 12,116 - - - - COSTS ASSOCIATED WITH EQUITY ISSUED TO ANSCHUTZ AND JEDI - - (3,940) - - - - COMMON STOCK ISSUED IN ACQUISITION OF SAXON (NOTES 2 AND 9) - 106 9,434 - - - (9,540) COMMON STOCK ISSUED AND TREASURY STOCK CONTRIBUTED TO THE RETIREMENT SAVINGS PLAN (NOTE 10) - 2 (1,425) - - - 1,826 $.75 CONVERTIBLE PREFERRED STOCK DIVIDENDS PAID IN CASH (NOTE 8) - - (540) - - - - $.75 CONVERTIBLE PREFERRED STOCK DIVIDENDS PAID IN COMMON STOCK (NOTE 8) - 16 (16) - - - - CONVERSION OF $.75 CONVERTIBLE PREFERRED STOCK TO COMMON STOCK (NOTE 8) (4) - 4 - - - - COMMON SHARES TO BE ISSUED IN DEBT RESTRUCTURING (NOTE 3) - - - 6,073 - - - UNFUNDED PENSION LIABILITY (NOTE 10) - - (2,836) - - - - FOREIGN CURRENCY TRANSLATION - - - - - (70) - ------- ----- ------- ----- -------- ------ ------ BALANCE DECEMBER 31, 1995 $24,359 1,066 241,241 6,073 (217,495) (1,407) (9,540) ------- ----- ------- ----- -------- ------ ------ ------- ----- ------- ----- -------- ------ ------
See accompanying Notes to Consolidated Financial Statements. 38 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, ------------------------------- 1995 1994 1993 -------- ------- -------- (In Thousands) Cash flows from operating activities: Loss before cumulative effects of changes in accounting principles and extraordinary item $(17,996) (67,853) (9,355) Adjustments to reconcile loss before cumulative effects of changes in accounting principles and extraordinary item to net cash provided (used) by operating activities: Depreciation and depletion 43,592 65,468 60,581 Provision for impairment of oil and gas properties - 58,000 - Deferred Federal income tax benefit - - (1,604) Other, net 3,303 5,372 3,045 Decrease in accounts receivable 4,285 4,839 2,264 (Increase) decrease in other current assets (152) 1,078 375 Increase (decrease) in accounts payable (11,458) 4,021 (12,668) Increase (decrease) in accrued interest and other current liabilities (3,865) 2,941 (1,078) Proceeds from volumetric production payments - 4,353 40,468 Amortization of deferred revenue (20,771) (35,673) (40,306) -------- ------- -------- Net cash provided (used) by operating activities (3,062) 42,546 41,722 Cash flows from investing activities: Capital expenditures for property and equipment (27,098) (42,780) (171,166) Cash paid for acquisition of subsidiary (1,121) - - Proceeds of sales of property and equipment, net 8,715 12,941 2,997 Decrease (increase) in other assets, net 2,285 (2,468) (1,965) -------- ------- -------- Net cash used by investing activities (17,219) (32,307) (170,134) Cash flows from financing activities: Proceeds from bank borrowings 82,600 31,500 25,000 Repayments of bank borrowings (91,800) (23,500) - Proceeds from nonrecourse secured loan - 1,400 57,400 Repayments of nonrecourse secured loan (1,143) - - Repayments of production payment obligation (2,316) (2,771) (5,980) Issuance of senior subordinated notes, net of offering costs - - 95,827 Redemptions and repurchases of subordinated debentures and secured notes - (7,171) (148,918) Proceeds from capital stock and warrants issued, net of issuance costs 41,060 - 51,506 Payment of preferred stock dividends (540) (2,161) - Debt issuance costs (491) (772) (1,336) Increase (decrease) in cash overdraft (2,390) 551 (1,347) Decrease in other liabilities, net (4,282) (11,307) (266) -------- ------- -------- Net cash provided (used) by financing activities 20,698 (14,231) 71,886 Effect of exchange rate changes on cash 1 (88) (12) -------- ------- -------- Net increase (decrease) in cash and cash equivalents 418 (4,080) (56,538) Cash and cash equivalents at beginning of year 2,869 6,949 63,487 -------- ------- -------- Cash and cash equivalents at end of year $ 3,287 2,869 6,949 -------- ------- -------- -------- ------- -------- Cash paid during the year for: Interest $ 22,138 23,989 23,123 -------- ------- -------- -------- ------- -------- Income taxes $ - 9 452 -------- ------- -------- -------- ------- --------
See accompanying Notes to Consolidated Financial Statements. 39 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - ------------------------------------------------------------------------------ BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION - Forest Oil Corporation is engaged in the acquisition, exploration, development, production and marketing of natural gas and crude oil in North America. The Company was incorporated in New York in 1924, the successor to a company formed in 1916, and has been publicly held since 1969. The Company is active in several of the major exploration and producing areas in and offshore the United States and, following two recent acquisitions, in Canada. The consolidated financial statements include the accounts of Forest Oil Corporation and its consolidated subsidiaries (Forest or the Company). Significant intercompany balances and transactions are eliminated. The Company generally consolidates all subsidiaries in which it controls over 50% of the voting interests. Entities in which the Company does not have a direct or indirect majority voting interest are generally accounted for using the equity method. In the course of preparing the consolidated financial statements, management makes various assumptions and estimates to determine the reported amounts of assets, liabilities, revenue and expenses, and in the disclosures of commitments and contingencies. Changes in these assumptions and estimates will occur as a result of the passage of time and the occurrence of future events and, accordingly, actual results could differ from amounts estimated. Unless otherwise indicated, all share amounts, share prices and per share amounts have been adjusted to give effect to a 5 to 1 reverse stock split that was effective on January 8, 1996. CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company considers all debt instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for oil and gas properties. During 1995, 1994 and 1993, the Company's oil and gas operations were conducted in the United States. All costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration and development activities) are capitalized. Capitalized costs are depleted using the units of production method. A reserve is provided for estimated future costs of site restoration, dismantlement and abandonment activities as a component of depletion. Unusually significant investments in unproved properties, including related capitalized interest costs, are not depleted pending the determination of the existence of proved reserves. As of December 31, 1995, 1994 and 1993, there were undeveloped property costs of $28,380,000, $30,441,000 and $41,216,000, respectively, in the United States which were not being depleted. Of the undeveloped costs not being depleted at December 31, 1995, approximately 20% were incurred in 1995, 4% in 1994, 71% in 1993 and 5% in 1992. Depletion per unit of production was determined based on conversion to common units of measure using one barrel of oil as an equivalent to six thousand cubic feet (MCF) of natural gas. Depletion per unit of production (MCFE) for the years ended December 31, 1995, 1994 and 1993 was $1.06, $1.13 and $1.19, respectively. Pursuant to full cost accounting rules, capitalized costs less related accumulated depletion and deferred income taxes may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. As a result of this limitation on capitalized costs, the accompanying financial statements include a provision for impairment of oil and gas property costs of $58,000,000 in 1994. There was no impairment of oil and gas property costs in 1995 or 1993. Gain or loss is recognized only on the sale of oil and gas properties involving significant reserves. Buildings, transportation and other equipment are depreciated on the straight-line method based upon estimated useful lives of the assets ranging from five to forty-five years. 40 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): - ------------------------------------------------------------------------------ Net property and equipment at December 31 consists of the following: 1995 1994 ---- ---- (In Thousands) Oil and gas properties $1,216,027 1,171,887 Buildings, transportation and other equipment 10,502 12,649 ---------- --------- 1,226,529 1,184,536 Less accumulated depreciation, depletion and valuation allowance 948,930 907,927 ---------- --------- $ 277,599 276,609 ---------- --------- ---------- --------- OIL AND GAS SALES - The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993 was a charge of $13,990,000. The effect of this change on 1994 was an increase in earnings from operations of $3,584,000 and an increase in production volumes of 1,555,000 MCF. There were no related income tax effects in 1994. The pro forma amounts shown on the consolidated statements of operations have been adjusted for the effect of the retroactive application of the change, including the related income tax effects. As of December 31, 1995 the Company had produced approximately 5 BCF more than its entitled share of production. The estimated value of this imbalance of approximately $8,541,000 is included in the accompanying consolidated balance sheet as a short-term liability of $4,700,000 and a long-term liability of $3,841,000. HEDGING TRANSACTIONS - In order to minimize exposure to fluctuations in oil and natural gas prices, the Company hedges the price of future oil and natural gas production by entering into certain contracts and financial arrangements. Gains and losses related to these hedging transactions are recognized as adjustments to revenue recorded for the related production. Costs associated with the purchase of certain hedge instruments are deferred and amortized against revenue related to hedged production. INCOME TAXES - The adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993 changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. Previously, the Company deferred the tax effects of timing differences between financial reporting and taxable income. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. 41 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED): - ------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION - Assets and liabilities related to Canadian investments are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity. Income statement accounts are translated at the average rates during the period. EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares and common share equivalents outstanding during each period, excluding treasury shares. Net earnings (loss) attributable to common stock represents net earnings (loss) less preferred stock dividend requirements of $2,160,000 in 1995, $2,161,000 in 1994 and $2,250,000 in 1993. Common share equivalents include, when applicable, dilutive stock options and warrants using the treasury stock method. Fully diluted earnings (loss) per share is computed assuming, in addition to the above, (i) that convertible debentures were converted at the beginning of each period or date of issuance, if later, with earnings being increased for interest expense, net of taxes, that would not have been incurred had conversion taken place, (ii) that convertible preferred stock was converted at the beginning of each period or date of issuance, if later, and (iii) any additional dilutive effect of stock options and warrants. The effects of these assumptions were anti-dilutive in 1995, 1994 and 1993. RECLASSIFICATIONS - Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 financial statement presentation. (2) ACQUISITIONS: - ------------------------------------------------------------------------------- In May and December, 1993, the Company purchased interests in properties from Atlantic Richfield Company (ARCO) for approximately $60,862,000. In conjunction with the ARCO acquisitions, the Company sold volumetric production payments from certain of the ARCO properties for approximately $40,468,000 (net of fees). In December 1993, the Company purchased interests in offshore properties for approximately $24,050,000 and interests in properties in south Texas for approximately $59,458,000. In conjunction with these acquisitions, the Company entered into a nonrecourse secured loan agreement for $51,600,000. The Company's results of operations include the effects of the first ARCO acquisition since May 1, 1993, the offshore properties and the second ARCO acquisition since December 1, 1993 and the south Texas properties since January 1, 1994. During 1994, the Company completed acquisitions totaling $9,762,000, including additional interests in properties acquired in 1993. In order to finance one of the acquisitions, the Company sold a volumetric production payment for approximately $4,353,000 (net of fees). During 1995, the Company completed acquisitions totaling $26,807,000. The most significant of these was the purchase on December 20, 1995 of a 56% economic (49% voting) interest in Saxon Petroleum Inc. (Saxon) for approximately $22,000,000. In the transaction, Forest received from Saxon 40,800,000 voting common shares, 12,300,000 nonvoting common shares, 15,500,000 convertible preferred shares and warrants to purchase 5,300,000 common shares. In exchange, Forest transferred to Saxon its preferred shares of Archean Energy, Ltd., issued to Saxon 1,060,000 common shares of Forest and paid Saxon $1,500,000 CDN. The preferred shares of Archean Energy, Ltd. were recorded at their historical carrying value of $11,301,000. The Forest common shares issued to Saxon were recorded at their estimated fair value determined by reference to the quoted market prices of the shares immediately preceding the announcement of the acquisition. 42 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (2) ACQUISITIONS (CONTINUED): - ------------------------------------------------------------------------------- The Forest common shares held by Saxon were recorded as treasury stock on Forest's consolidated balance sheet at December 31, 1995. In January 1996, Saxon sold these shares in a public offering of Forest common stock and used the proceeds to reduce its bank debt. Saxon is a Canadian exploration and production company with headquarters in Calgary, Alberta and operations concentrated in western Alberta. Saxon had estimated proved reserves at December 31, 1995 of 16.2 BCF of natural gas and 4.3 million barrels of oil. Forest has the ability to convert its preferred shares and its nonvoting common shares of Saxon into voting common shares at any time. As a result, Forest has financial control over Saxon and has accounted for Saxon as a consolidated subsidiary. The consolidated balance sheet of Forest includes the accounts of Saxon at December 31, 1995. The Company has not recorded any production or results of operations of Saxon for the period from December 20 to December 31, 1995 as the results of operations for such period are not significant. On January 31, 1996 the Company completed the acquisition of ATCOR Resources Ltd. of Calgary, Alberta for approximately $134,900,000, exclusive of acquisition costs of approximately $1,800,000. The purchase was funded by the net proceeds of a common stock offering and approximately $8,300,000 drawn under the Company's bank credit facility. The exploration and production business of ATCOR was renamed Canadian Forest Oil Ltd. (Canadian Forest). Canadian Forest's principal reserves and producing properties are located in Alberta and British Columbia. At December 31, 1995 Canadian Forest had estimated proved reserves of 92.0 BCF of natural gas and 10.2 million barrels of oil. As part of the Canadian Forest acquisition, Forest also acquired ATCOR's natural gas marketing business which was renamed Producers Marketing Ltd. (ProMark). The pro forma consolidated balance sheet at December 31, 1995 gives effect to the public offering of common stock and the Canadian Forest acquisition as if both had occurred on that date. The following pro forma consolidated statement of operations information assumes that the common stock offering and the acquisitions of Saxon and Canadian Forest occurred as of January 1, 1995: Pro Forma Year Ended December 31, 1995 -------------------- (In Thousands Except Per Share Amounts) Revenue: Oil and gas sales $ 129,778 Marketing and processing 139,815 Miscellaneous, net 188 --------- Total revenue $ 269,781 --------- --------- Loss before income taxes, cumulative effect of changes in accounting principles and extraordinary item $ (7,768) --------- --------- Net loss $ (14,117) --------- --------- Primary and fully diluted loss per share $ (.73) --------- --------- 43 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (3) ANSCHUTZ AND JEDI TRANSACTIONS: - ------------------------------------------------------------------------------- During 1995, following receipt of shareholder approval, the Company consummated transactions with The Anschutz Corporation (Anschutz) and with Joint Energy Development Investments Limited Partnership (JEDI), a Delaware limited partnership the general partner of which is an affiliate of Enron Corp. (Enron). Pursuant to a purchase agreement between the Company and Anschutz, Anschutz purchased 3,760,000 shares of the Company's common stock and 620,000 shares of a new series of preferred stock that are convertible into 1,240,000 additional shares of common stock for a total consideration of $45,000,000. The preferred stock has a liquidation preference of $18.00 per share and receives dividends ratably with the common stock. In addition, Anschutz received a warrant that entitles it to purchase 3,888,888 shares of the Company's common stock for $10.50 per share (the A Warrant). The A Warrant expires July 27, 1998. The Anschutz investment was made in two closings. At the first closing, which occurred on May 19, 1995, Anschutz loaned the Company $9,900,000. The loan carried interest at 8% per annum. The loan was nonrecourse to the Company and was secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd., and a cash collateral account with an initial balance of $2,000,000. At the second closing, which occurred in July 1995, Anschutz converted the loan into 1,100,000 shares of common stock and the shares issued were recorded at the carrying amount of the loan ($9,900,000). At the second closing, Anschutz purchased an additional 2,660,000 shares of common stock, the convertible preferred stock and the A Warrant for $35,100,000. The total proceeds received by the Company at the second closing were allocated based on the relative fair market values of the common stock ($18,272,000), convertible preferred stock ($8,518,000) and the A Warrant ($8,311,000) issued. At the second closing, Anschutz also received from JEDI an option to purchase from JEDI up to 2,250,000 shares of common stock that JEDI had the right to acquire from the Company upon exercise of the B Warrant referred to below (the Anschutz Option). The Anschutz Option terminates on July 27, 1998. The Company has entered into a shareholders agreement with Anschutz pursuant to which Anschutz agreed to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing. At the second closing on July 27, 1995, Forest and JEDI restructured JEDI's existing loan which had a principal balance of approximately $62,368,000 before unamortized discount of $4,984,000. As a part of the restructuring, the existing JEDI loan balance was divided into two tranches: a $40,000,000 tranche, which bears interest at the rate of 12.5% per annum and is due and payable in full on December 31, 2000; and an approximately $22,400,000 tranche, which did not bear interest and was due and payable in full on December 31, 2002. JEDI also relinquished the net profits interest that it held in certain properties of the Company. In consideration, JEDI received a warrant (the B Warrant) that entitled it to purchase 2,250,000 shares of the Company's common stock for $10.00 per share. The B Warrant was recorded at its estimated fair value. The fair value of the warrants was estimated to be approximately $12,100,000, representing the amount determined using the Black-Scholes Option Pricing Model, based on the market value of the stock at the date of the transaction, less a discount of 10% to reflect the size of the block of shares to be issued, less the estimated brokerage fees on the ultimate disposition of the shares. Also at the second closing, JEDI granted the Anschutz Option to Anschutz, pursuant to which anschutz was entitled to purchase from JEDI up to 2,250,000 shares of the Company's common stock at a purchase price per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. JEDI was to satisfy its obligations under the Anschutz Option by exercising the B Warrant. The Company also agreed to use the proceeds from the exercise of the A Warrant to pay principal and interest on the $40,000,000 tranche of the JEDI loan. As a result of the loan restructuring and the issuance of the B Warrant, the Company reduced the recorded amount of the related liability to approximately $45,493,000. No gain or loss was recorded on the loan restructuring since the estimated fair value of the restructured loan and the B Warrant is approximately equal to the original loan balance. In December 1995, JEDI exchanged the $22,400,000 tranche and the B Warrant for 1,680,000 shares of common stock (the JEDI Exchange). The fair value of the 1,680,000 shares of common stock was estimated to be $15,400,000 based on the quoted market price of the common stock at the date of the transaction, less a discount of 35% to reflect the shareholder agreement with JEDI that limited JEDI's ability to vote the shares or to transfer the shares before July 27, 1998, the size of the block of stock and the estimated brokerage fees on the ultimate disposition of the shares. No gain or loss was recorded on the exchange since the estimated fair value of the common stock issued less the estimated fair value of the B warrant reacquired was approximately equal to the carrying amount of the $22,400,000 tranche. Pursuant to the JEDI Exchange, the Company assumed JEDI's obligations under the Anschutz Option. Under the Anschutz Option, the Company is now obligated to issue shares directly to Anschutz that previously would have been issued to JEDI pursuant to the B Warrant. Upon the exercise of the Anschutz 44 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (3) ANSCHUTZ AND JEDI TRANSACTIONS (CONTINUED): - ------------------------------------------------------------------------------- Option, instead of the original B Warrant price of $10.00 per share, the Company will receive an amount per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The Company is permitted to use proceeds from the exercise of the Anschutz Option for any corporate purpose. Pursuant to the JEDI Exchange, JEDI entered into a shareholders agreement with the Company that limits JEDI's right to vote its shares of common stock and, except in certain circumstances, to transfer its shares before July 27, 1998. (4) INVESTMENT IN AFFILIATE: - ------------------------------------------------------------------------------- In 1992, the Company sold its Canadian assets and related operations to CanEagle Resources Corporation (CanEagle) for approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). In the transaction, the Company received cash of approximately $28,000,000 CDN ($22,400,000 U.S.), net of expenses, and provided financing in the aggregate principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994, CanEagle sold a significant portion of its oil and gas properties to a third party. In conjunction with this transaction, the Company received $6,124,000 CDN ($4,,400,000 U.S.) and exchanged its investment in CanEagle for shares of preferred stock of a newly formed entity, Archean Energy, Ltd. (Archean). The Company accounted for the proceeds from the 1992 and 1994 transactions as reductions in the carrying value of its investment in CanEagle. The preferred shares of Archean were recorded at an amount equal to the remaining carrying value of the Company's investment in CanEagle. The Company accounted for its investment in Archean (and CanEagle prior to June 24, 1994) in a manner analagous to equity accounting. Losses were recognized to the extent that losses were attributable to the Company's interest. Earnings were recognized only if realization was assured. Under this method, no earnings or losses were recognized in 1995, 1994 or 1993. In December, 1995, in connection with the Saxon acquisition, the Company transferred its Archean preferred stock to Saxon. In consolidation, the Company is accounting for the investment in Archean at its historical carrying value. (5) LONG-TERM DEBT: - ------------------------------------------------------------------------------- Long-term debt at December 31 for the years presented consists of the following: 1995 1994 -------- ------- Credit facility $ 23,800 33,000 Saxon credit facilities 16,437 - Nonrecourse secured loan 40,322 57,840 Production payment obligation 16,218 18,534 11-1/4% Senior Subordinated Notes 99,365 99,316 -------- ------ 196,142 208,690 Less current portion (2,263) (1,636) -------- ------- Long-term debt $193,879 207,054 -------- ------- -------- ------- CREDIT FACILITY: The Company has a secured credit facility (the Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit Facility, as amended, the Company may borrow up to $40,000,000 for working capital and/or general corporate purposes. Advances under this facility bear interest at rates ranging from the banks' prime rate plus 1/4% to prime plus 1% or, alternatively, Eurodollar prime plus 1 1/2% to prime plus 2 1/4% depending on amounts outstanding under the Credit Facility. The borrowing base is subject to formal redetermination semi-annually, but may be changed at the banks' discretion at any time. 45 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (5) LONG-TERM DEBT (CONTINUED): - ------------------------------------------------------------------------------- The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's domestic proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries. The maturity date of the Credit Facility is July 1, 1998. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests, including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends on capital stock and reporting responsibilities. At December 31, 1995, notes payable of $23,800,000 were outstanding under the Credit Facility with interest at rates ranging from 7.38% to 9.0% per annum. The Company has also used the Credit Facility for a $1,500,000 letter of credit. SAXON CREDIT FACILITIES At December 31, 1995, Saxon has credit facilities with Canadian banks which include a demand revolving operating loan, a demand revolving production loan and a bridge loan. The operating loan facility has a borrowing base of $2,000,000 CDN. Advances made under this facility bear interest at the bank prime rate and are secured by a fixed and floating charge debenture and a general assignment of book debts. The loan is subject to semi-annual review and has a demand feature; however, repayments are not required provided that borrowings are not in excess of the borrowing base and Saxon complies with other existing covenants. At December 31, 1995 the amount outstanding under the operating loan facility was $929,000 CDN and the interest rate was 8 1/4%. The production loan facility has a borrowing base of $20,000,000 CDN. Advances made under this facility bear interest at the bank prime rate or the bankers acceptance rate plus a stamping fee at the option of the Company and are secured by a fixed and floating charge debenture and a general assignment of book debts. The loan is subject to semi-annual review and has a demand feature; however, repayments are not required provided that borrowings are not in excess of the borrowing base and Saxon complies with other existing covenants. At December 31, 1995 the amount outstanding under the production loan facility was $14,000,000 CDN and the interest rate was 8 1/2%. The bridge loan of $7,500,000 CDN outstanding at December 31, 1995 was a term loan due December 18, 1996. The loan bore interest at the bank prime rate plus 1 1/2% (9% at December 31, 1995) and was secured by Saxon's marketable securities, including its shares of Forest common stock. On January 31, 1996, using proceeds from the sale of its Forest common stock, Saxon repaid the bridge loan and reduced the balance outstanding under the production loan. CANADIAN CREDIT FACILITY On February 8, 1996 a newly-formed Canadian subsidiary of Forest entered into a credit agreement (the Canadian Credit Facility) with The Chase Manhattan Bank of Canada for the benefit of Canadian Forest and ProMark. The initial borrowing base under the Canadian Credit Facility is $60,000,000 CDN. The borrowing base is subject to formal redeterminations semi-annually, but may be changed by the bank at its discretion at any time. The Canadian Credit Facility has a three- year term and is indirectly secured by substantially all the assets of Canadian Forest. Under the terms of the Canadian Credit Facility, the three Canadian subsidiaries are subject to certain covenants and financial tests including restrictions or requirements with respect to working capital, cash flow, additional debt, liens, asset sales, investments, mergers, cash dividends and reporting responsibilities. NONRECOURSE SECURED LOAN: On December 30, 1993, the Company entered into a nonrecourse secured loan agreement with JEDI. The terms of the JEDI loan were restructured in 1995 as described in Note 3. Under the terms of the restructured JEDI loan, the Company is required to make payments based on the net proceeds, as defined, from certain subject properties. Payments under the JEDI loan are due monthly and are equal to 90% of total net operating income from the secured properties, reduced by 80% of allowable capital expenditures, as defined. 46 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (5) LONG-TERM DEBT (CONTINUED): - ------------------------------------------------------------------------------- Under the restructured loan, the Company is required to pay interest at 12.5% per annum on the outstanding loan balance. Payments are applied first to interest and then to principal. Principal payments will be applied to reduce the outstanding balance as will the proceeds, if any, from the exercise of the A Warrant. The outstanding loan balance as of December 31, 1995, was $40,322,000. The Company's current estimate, based on expected production and prices and budgeted capital expenditure levels, is that the liability will increase by approximately $4,018,000 in 1996 and $812,000 in 1997, and that the liability will decrease by approximately $10,756,000 in 1998, $12,314,000 in 1999, and $13,772,000 in 2000. Properties to which approximately 19% of the Company's estimated proved reserves are attributable, on an MCFE equivalent basis, are dedicated to repayment of the JEDI loan. PRODUCTION PAYMENT OBLIGATION: The dollar-denominated production payment was entered into in 1992 to finance property acquisitions. The original amount of the dollar-denominated production payment was $37,550,000, which was recorded as a liability of $28,805,000 after a discount to reflect a market rate of interest of 15.5%. At December 31, 1995 the remaining principal amount was $20,701,000 and the recorded liability was $16,218,000. Under the terms of this production payment, the Company must make a monthly cash payment which is the greater of a base amount or 85% of net proceeds from the subject properties, as defined, except that the amount required to be paid in any given month shall not exceed 100% of the net proceeds from the subject properties. The Company retains a management fee equal to 10% of sales from the properties, which is deducted in the calculation of net proceeds. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that 1996 payments will reduce the recorded liability by approximately $1,942,000, which amount is included in current liabilities, and by approximately $1,931,000 in 1997, $1,002,000 in 1998, $3,824,000 in 1999 and $3,235,000 in 2000. Properties to which approximately 6% of the Company's estimated proved reserves are attributable, on an MCFE basis, are dedicated to this production payment financing. 11-1/4% SENIOR SUBORDINATED NOTES: On September 8, 1993 the Company completed a public offering of $100,000,000 aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1, 2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding 11.375% to the holders. The Company used the net proceeds from the sale of the Senior Subordinated Notes of approximately $95,827,000, together with approximately $19,400,000 of available cash, to redeem all of its outstanding Senior Secured Notes and long-term subordinated debentures. The redemptions resulted in a loss of $15,387,000 which was recorded as an extraordinary loss of $10,735,000 (net of income tax benefit of $4,652,000). The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after September 1, 1998 initially at a redemption price of 105.688%, plus accrued interest to the date of redemption, declining at the rate of 1.896% per year to September 9, 2000 and at 100% thereafter. In addition, the Company may, at its option, redeem prior to September 1, 1996 up to 30% of the initially outstanding principal amount of the Notes at 110% of the principal amount thereof, plus accrued interest to the date of redemption, with the net proceeds of any future public offering of its common stock. Under the terms of the Senior Subordinated Notes, the Company must meet certain tests before it is able to pay cash dividends (other than dividends on the Company's $.75 Convertible Preferred Stock) or make other restricted payments, incur additional indebtedness, engage in transactions with its affiliates, incur liens and engage in certain sale and leaseback arrangements. The terms of the Senior Secured Notes also limit the Company's ability to undertake a consolidation, merger or transfer of all or substantially all of its assets. In addition, the Company is, subject to certain conditions, obligated to offer to repurchase Senior Subordinated Notes at par value plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or dispositions of assets. Upon a change of control, as defined, the Company will be required to make an offer to purchase the Senior Subordinated Notes at 101% of the principal amount thereof, plus accrued interest to the date of purchase. 47 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (6) DEFERRED REVENUE: - ------------------------------------------------------------------------------- From April 1991 through May 1993, the Company entered into four volumetric production payments with entities affiliated with Enron for net proceeds of $121,498,000. Under the terms of these production payments, the Company was required to deliver 70.1 bcf of natural gas and 770,000 barrels of oil over periods ranging from three to six years. Effective November 1, 1993, the four separate volumetric payment financings described above between the Company and Enron were consolidated into one production payment. The delivery schedules from the previously separate production payments were not adjusted; however, delivery shortfalls on any property can now be made up from excess production from any other property which is dedicated to the production payment obligation. The consolidation also provided that certain acreage previously committed to the production payments was released and can be developed by the Company unburdened by the delivery obligations of the production payment. In connection with the purchase of interests in properties from ARCO in December 1993, a volumetric production payment from certain of the ARCO properties was sold to Enron for net proceeds of $13,207,000. This production payment covered approximately 7.3 BCF of natural gas to be delivered over 8 years. In July 1994, the Company purchased additional interests in the properties acquired from ARCO in December 1993. In connection with this transaction, a volumetric production payment was sold to Enron for net proceeds of $4,353,000. This production payment covered approximately 2.7 BCF of natural gas to be delivered over 8 years. The Company is required to deliver the scheduled volumes from the subject properties or to make a cash payment for volumes produced but not delivered, in combination not to exceed a specified percentage of monthly production. If production levels are not sufficient to meet scheduled delivery commitments, the Company must account for and make up such shortages, at market-based prices, from future production. The Company is responsible for royalties and for production costs associated with operating the properties subject to the production payment agreements. The Company may grant liens on properties subject to the production payment agreements, but it must notify prospective lienholders that their rights are subject to the prior rights of the production payment owner. Amounts received under the production payments were recorded as deferred revenue. Volumes associated with amortization of deferred revenue for the years ended December 31, 1995, 1994 and 1993 were as follows: Net Sales Volumes Attributable to Production Volumes Delivered (1) Payment Deliveries (2) ---------------------- -------------------------- Natural Gas Oil Natural Gas Oil (MMCF) (MBBLS) (MMCF) (MBBLS) ----------- ------- ----------- ------- 1995 11,045 173 9,120 145 1994 19,985 218 16,005 182 1993 23,392 221 18,731 185 (1) Amounts settled in cash in lieu of volumes were $1,276,000, $1,611,381 and $3,138,628 for the years ended December 31, 1995, 1994, and 1993, respectively. (2) Represents volumes required to be delivered to Enron affiliates net of estimated royalty volumes. 48 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (6) DEFERRED REVENUE (CONTINUED): - ------------------------------------------------------------------------------- Future amortization of deferred revenue, based on the scheduled deliveries under the production payment agreements, is as follows: Net Sales Volumes Attributable to Volumes Required to be Production Payment Delivered to Enron Deliveries (1) ---------------------- --------------------- Annual Natural Gas Oil Natural Gas Oil Amortization (MMCF) (MBBLS) (MMCF) (MBBLS) ------------ ----------- ------- ----------- ------- (In Thousands) 1996 $ 7,546 3,721 87 2,895 74 1997 2,439 1,410 - 1,097 - 1998 1,592 892 - 694 - THEREAFTER 3,560 1,994 - 1,552 - ------- ----- -- ----- -- $15,137 8,017 87 6,238 74 ------- ----- -- ----- -- ------- ----- -- ----- -- (1) Represents volumes required to be delivered to Enron net of estimated royalty volumes. (7) INCOME TAXES: - ------------------------------------------------------------------------------- The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective January 1, 1993. The cumulative effect of this change in accounting for income taxes of $2,060,000 was determined as of January 1, 1993 and was reported separately in the consolidated statement of operations for the year ended December 31, 1993. The income tax expense (benefit) is different from amounts computed by applying the statutory Federal income tax rate for the following reasons: 1995 1994 1993 ------- ------- ------ (In Thousands) Tax benefit at 35% of loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item $(6,367) (23,749) (3,747) Change in the balance of the valuation allowance for deferred tax assets attributable to loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item 5,732 23,220 2,034 Expiration of tax carryforwards 535 455 318 Other 93 83 45 ------- ------- ------ Total income tax expense (benefit) $ (7) 9 (1,350) ------- ------- ------ ------- ------- ------ Deferred income taxes generally result from recognizing income and expenses at different times for financial and tax reporting. These differences result in part from capitalization of certain development, exploration and other costs under the full cost method of accounting, recording proceeds from the sale of properties in the full cost pool, and the provision for impairment of oil and gas properties for financial accounting purposes. 49 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (7) INCOME TAXES: - ------------------------------------------------------------------------------- The components of the net deferred tax liability at December 31, 1995 and 1994 are as follows: 1995 1994 --------- ------- (In Thousands) Deferred tax assets: Allowance for doubtful accounts $ 283 308 Accrual for retirement benefits 1,229 1,447 Accrual for medical benefits 2,216 2,037 Accrual for sales recorded on the entitlements method 2,990 3,642 Net operating loss carryforward 39,204 21,976 Depletion carryforward 6,958 6,958 Investment tax credit carryforward 3,219 3,674 Alternative minimum tax credit carryforward 2,206 2,206 Other 375 455 -------- ------- Total gross deferred tax assets 58,680 42,703 Less valuation allowance (46,524) (40,792) -------- ------- Net deferred tax assets 12,156 1,911 Deferred tax liabilities: Oil and gas properties, due to full cost method of accounting (12,156) (1,911) -------- ------- Net deferred tax liability $ - - -------- ------- -------- ------- The net change in the total valuation allowance for the year ended December 31, 1995 was an increase of $5,732,000. The Alternative Minimum Tax (AMT) credit carryforward available to reduce future Federal regular taxes aggregated $2,206,000 at December 31, 1995. This amount may be carried forward indefinitely. Regular and AMT net operating loss carryforwards at December 31, 1995 were $112,015,000 and $109,779,000, respectively, and will expire in the years indicated below: Regular AMT -------- ------- (In Thousands) 2000 $ 2,665 4,143 2005 8,307 - 2008 28,999 31,800 2009 22,817 22,964 2010 49,227 50,872 -------- ------- $112,015 109,779 -------- ------- -------- ------- AMT net operating loss carryforwards can be used to offset 90% of AMT income in future years. Investment tax credit carryforwards available to reduce future Federal income taxes aggregated $3,219,000 at December 31, 1995 and expire at various dates through the year 2001. Percentage depletion carryforwards available to reduce future Federal taxable income aggregated $19,879,000 at December 31, 1995. This amount may be carried forward indefinitely. The availability of some of these tax attributes to reduce current and future taxable income of the Company is subject to various limitations under the Internal Revenue Code. In particular, the Company's ability to utilize such tax attributes could be limited due to the occurrence of an "ownership change" within the meaning of Section 382 of the Internal Revenue Code resulting from the Anschutz transaction in 1995. Under the general provisions of 50 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (7) INCOME TAXES (CONTINUED): - ------------------------------------------------------------------------------- Section 382 of the Code, the Company's net operating loss carryforwards will be subject to an annual limitation as to their use of approximately $5,700,000. Even though the Company is limited in its ability to use the net operating loss carryovers under these provisions of Section 382, it may be entitled to use these net operating loss carryovers to offset (a) gains recognized in the five years following the ownership change on the disposition of certain assets, to the extent that the value of the assets disposed of exceeds their tax basis on the date of the ownership change or (b) any item of income which is properly taken into account in the five years following the ownership change but which is attributable to periods before the ownership change ("built-in gain"). The ability of the Company to use these net operating loss carryovers to offset built-in gain first requires that the Company have total built-in gains at the time of the ownership change which are greater than a threshold amount. In addition, the use of these net operating loss carryforwards to offset built-in gain cannot exceed the amount of the total built-in gain. The Company has not finalized its calculation of the amount of built-in gains at the date of the ownership change, but estimates that its ability to fully utilize its net operating loss carryforwards may be limited by these provisions. Due to limitations in the Internal Revenue Code, other than the Section 382 limitations discussed above, the Company believes it is unlikely that it will be able to use any significant portion of its investment tax credit carryforwards before they expire. (8) PREFERRED STOCK: - ------------------------------------------------------------------------------- $.75 CONVERTIBLE PREFERRED STOCK: The Company has 10,000,000 shares of $.75 Convertible Preferred Stock authorized, par value $.01 per share, of which there were 2,880,173 shares outstanding at December 31, 1995 and 2,880,973 shares outstanding at December 31, 1994, with an aggregate liquidation preference of $28,801,730 at December 31, 1995 and $28,809,730 at December 31, 1994. This stock is convertible at any time, at the option of the holder, at the rate of .7 shares of common stock for each share of $.75 Convertible Preferred Stock, subject to adjustment upon occurrence of certain events. During 1995, 800 shares of $.75 Convertible Preferred Stock were converted into 560 shares of common stock; there were no conversions in 1994; and during 1993, 248,817 shares of $.75 Convertible Preferred Stock were converted into 174,172 shares of common stock. The $.75 Convertible Preferred Stock is redeemable, in whole or in part, at the option of the Company, at any time after the earlier of (i) July 1, 1996 or (ii) the date on which the last reported sales price of the common stock will have been $37.50 or higher for at least 20 of the prior 30 trading days, at a redemption price of $10.17 per share during the twelve-month period which began July 1, 1995 and declining to $10.00 per share at July 1, 1996 and thereafter, including accumulated and unpaid dividends. Cumulative annual dividends of $.75 per share are payable quarterly, in arrears, on the first day of February, May, August and November, when and as declared. Until December 31, 1993, the Company was required to pay such dividends in shares of common stock. After such date, dividends may be paid in cash or, at the Company's election, in shares of common stock or in a combination of cash and common stock. However, the Company was prohibited from paying cash dividends on its $.75 Convertible Preferred Stock after the February 1, 1995 dividend due to restrictions contained in the Credit Facility with its lending banks. Under the terms of the $.75 Convertible Preferred Stock, common stock delivered in payment of dividends is valued for dividend payment purposes at between 75% and 90%, depending on trading volume, of the average last reported sales price of the common stock during a specified period prior to the record date for the dividend payment. During any period in which dividends on preferred stock are in arrears, no dividends or distributions, except for dividends paid in shares of common stock, may be paid or declared on the common stock, nor may any shares of common stock be acquired by the Company. SECOND SERIES PREFERRED STOCK: The Company has 620,000 shares of Second Series Preferred Stock authorized, par value $.01 per share, of which there were 620,000 shares outstanding at December 31, 1995, with an aggregate liquidation preference of $11,160,000 at December 31, 1995. Each share of Second Series Preferred Stock (1) is convertible into 2 shares of Common Stock, which conversion may be made from time to time on or before July 27, 2000, but which in any event shall be made on July 27, 2000, (2) has no right to vote, (3) has the right to receive dividends on the dates and in the form that dividends are payable on the common stock, in each case in an amount equal to the amount of 51 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (8) PREFERRED STOCK (CONTINUED): - ------------------------------------------------------------------------------ such dividend payable on the number of shares of common stock into which such share of Second Series Preferred Stock shall be convertible immediately preceding the record date for the determination of the shareholders entitled to receive such dividend, and (4) has the right, upon any liquidation, dissolution or winding up of the Company, before any distribution is made on any shares of common stock, to be paid the amount of $18.00 and, after there shall have been paid to each share of common stock the amount of $9.00, has the right to receive distributions on the dates and in the form that distributions are payable on the common stock, in each case in an amount equal to the amount of such distributions payable on the number of shares of common stock into which such share of Second Series Preferred Stock is convertible (assuming for such purpose that such conversion were possible) immediately preceding the record date for the determination of the shareholders entitled to receive such distribution. the rights of the holders of the Second Series Preferred Stock to receive dividends are junior and subordinate to the rights of the holders of the $.75 Convertible Preferred Stock to the same extent that the rights of the holders of the common stock are subordinate in right to receive dividends to the rights of the holders of the $.75 Convertible Preferred Stock to receive dividends, and the rights of the holders of the Second Series Preferred Stock rank pari passu with the Company's $.75 Convertible Preferred Stock as to liquidation preference. (9) COMMON STOCK: - ------------------------------------------------------------------------------ COMMON STOCK: The Company has 200,000,000 shares of common stock authorized, par value $.10 per share. On January 5, 1996 a 5-to-1 reverse stock split was approved by the Company's shareholders. The reverse split became effective on January 8, 1996. Unless otherwise indicated, all share amounts have been adjusted to give effect to the 5-to-1 reverse stock split. There were 10,660,291 and 5,659,042 shares of common stock issued at December 31, 1995 and 1994, respectively, with 1,060,000 and 21,188 shares held by the Company as treasury shares at December 31, 1995 and 1994, respectively. The common stock is entitled to one vote per share. Prior to May 1993 the Company also had Class B stock which had superior voting rights to the Company's common stock, had limited transferability and was not traded in any public market but was convertible at any time into shares of common stock on a share-for-share basis. The Company's Restated Certificate of Incorporation was amended on May 12, 1993 to reclassify each share of Class B Stock into 1.1 shares of common stock. On January 31, 1996, 13,200,000 shares of common stock were sold for $11.00 per share in a public offering. Of this amount 1,060,000 shares were sold by Saxon and 12,140,000 were sold by Forest. The net proceeds to Forest from the issuance of shares totalled approximately $125,600,000 after deducting issuance costs and underwriting fees. On June 15, 1993 the Company issued 2,216,000 shares of common stock for $25.00 per share in a public offering. The net proceeds from the issuance of the shares totalled approximately $51,506,000 after deducting issuance costs and underwriting fees. In October 1993, the Board of Directors adopted a shareholders' rights plan (the Plan) and entered into the Rights Agreement. The Company paid a dividend distribution of one Preferred Share Purchase Right (the Rights) on each outstanding share of the Company's common stock. The Rights are exercisable only if a person or group acquires 20% or more of the Company's common stock or announces a tender offer which would result in ownership by a person or group of 20% or more of the common stock. Each Right initially entitles each shareholder to buy 1/100th of a share of a new series of Preferred Stock at an exercise price of $30.00, subject to adjustment upon certain occurrences. Each 1/100th of a share of such new Preferred Stock that can be purchased upon exercise of a Right has economic terms designed to approximate the value of one share of common stock. The Rights will expire on October 29, 2003, unless extended or terminated earlier. In connection with the Anschutz transaction, the Company amended the Rights Agreement to exempt from the provisions of the Rights Agreement shares of common stock acquired by Anschutz and JEDI in the Anschutz and JEDI transactions (including shares later 52 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (9) COMMON STOCK (CONTINUED): - ------------------------------------------------------------------------------ acquired pursuant to the conversion of the Second Series Preferred Stock or the exercise of the A Warrant or the Anschutz option. The amendment to the Rights Agreement did not exempt other shares of common stock acquired by Anschutz or JEDI from the provisions of the Rights Agreement. WARRANTS: The Company has outstanding 1,244,715 warrants to purchase shares of its common stock (the Public Warrants). Each Public Warrant entitles the holder to purchase one-fifth share of common stock at a price of $3.00, is non-callable and expires on October 1, 1996. The Company has outstanding the A Warrant that is held by Anschutz. The A Warrant entitles the holder to purchase 3,888,888 shares of common stock at a price of $10.50 per share and expires on July 27, 1998. In December 1995, the Company assumed JEDI's obligations under an option to purchase 2,250,000 shares of common stock (the Anschutz Option). Upon the exercise of the Anschutz Option, the Company will receive an amount per share equal to the lesser of (a) $10.00 plus 18% per annum from July 27, 1995 to the date of exercise of the option, or (b) $15.50. The Anschutz Option expires on July 27, 1998. STOCK OPTIONS: In March 1992, the Company adopted the 1992 Stock Option Plan under which non-qualified stock options may be granted to key employees and non-employee directors. The aggregate number of shares of Common Stock which the Company may issue under options granted pursuant to this plan may not exceed 10% of the total number of shares outstanding or issuable at the date of grant pursuant to outstanding rights, warrants, convertible or exchangeable securities or other options. The exercise price of an option may not be less than 85% of the fair market value of one share of the Company's common stock on the date of grant. The options vest 20% on the date of grant and an additional 20% on each grant anniversary date thereafter. A summary of stock option activity related to the Plan is as follows: Option Price Shares Per Share ------ --------- Options outstanding at December 31, 1992 348,000 $ 15.00 Granted 305,000 25.00 Exercised (26,400) 15.00 Cancelled or surrendered (15,800) 15.00 ------- ------------ Options outstanding at December 31, 1993 610,800 $15.00-25.00 Granted 62,000 25.00 Exercised (7,000) 15.00 Cancelled or surrendered (7,000) 25.00 ------- ------------ Options outstanding at December 31, 1994 658,800 $15.00-25.00 GRANTED - - EXERCISED - - CANCELLED OR SURRENDERED (30,800) - ------- ------------ OPTIONS OUTSTANDING AT DECEMBER 31, 1995 628,000 $15.00-25.00 ------- ------------ ------- ------------ OPTIONS EXERCISABLE AT DECEMBER 31, 1995 461,200 $15.00-25.00 ------- ------------ ------- ------------ 53 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (9) COMMON STOCK (CONTINUED): - ------------------------------------------------------------------------------ On February 1, 1996 the Company offered option holders employed by the Company the opportunity to surrender their existing options exercisable at $15.00 to $25.00 per share in exchange for options exercisable at $11.25 per share. Pursuant to this offer, options to purchase 491,800 shares of common stock at $15.00 to $25.00 per share were cancelled and options to purchase 474,400 shares at $11.25 per share were granted. Concurrently, the Company granted certain employees additional options to purchase 99,000 shares at $11.25 per share. (10) EMPLOYEE BENEFITS - ------------------------------------------------------------------------------ PENSION PLANS The Company has a qualified defined benefit pension plan (Pension Plan). The Pension Plan has been curtailed and all benefit accruals were suspended effective May 31, 1991. The benefits under the Pension Plan are based on years of service and the employee's average compensation during the highest consecutive sixty-month period in the fifteen years prior to retirement. No contribution was made to the Plan in 1995, 1994 or 1993. The following table sets forth the Pension Plan's funded status and amounts recognized in the Company's consolidated financial statements at December 31: 1995 1994 ---- ---- (In Thousands) Actuarial present value of accumulated benefit obligation (all benefits are vested) $(27,485) (23,953) -------- ------- -------- ------- Projected benefit obligation for service rendered to date $(27,485) (23,953) Plan assets at fair market value, consisting primarily of listed stocks, bonds and other fixed income obligations 24,270 23,443 -------- ------- Unfunded pension liability (3,215) (510) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 4,133 1,468 -------- ------- Pension asset recognized in the balance sheet $ 918 958 -------- ------- -------- ------- For 1995, the discount rate used in determining the actuarial present value of the projected benefit obligation was 7.25% and the expected long-term rate of return on assets was 9%. For 1994 the discount rate used in determining the actuarial present value of the projected benefit obligation was 9% and the expected long-term rate of return on assets was 9%. For 1993, the discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% and the expected long-term rate of return on assets was 9%. The components of net pension expense (benefit) for the years ended December 31, 1995, 1994 and 1993 are as follows: 1995 1994 1993 ---- ---- ---- (In Thousands) Net pension expense (benefit) included the following components: Interest cost on projected benefit obligation $ 2,049 1,976 2,039 Actual return on plan assets (3,243) (245) (3,534) Net amortization and deferral 1,234 (1,955) 1,441 ------- ------ ------ Net pension expense (benefit) $ 40 (224) (54) ------- ------ ------ ------- ------ ------ 54 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (10) EMPLOYEE BENEFITS (CONTINUED): - ------------------------------------------------------------------------------ The Company has a non-qualified unfunded supplementary retirement plan that provides certain officers with defined retirement benefits in excess of qualified plan limits imposed by Federal tax law. Benefit accruals under this plan were suspended effective May 31, 1991 in connection with suspension of benefit accruals under the Pension Plan. At December 31, 1995 the projected benefit obligation under this plan totaled $639,000, which amount is included in other liabilities in the accompanying balance sheet. The projected benefit obligation is determined using the same discount rate as is used for calculations for the Pension Plan. In 1993 as a result of the change in the discount rate for the Pension Plan and the supplementary retirement plan, the Company recorded a liability of $3,038,000, representing the unfunded pension liability, and a corresponding decrease in capital surplus. As a result of the increase in the discount rate for the Pension Plan and the supplementary retirement plan in 1994, the Company reduced the liability representing the unfunded pension liability by approximately $1,570,000, with a corresponding increase in capital surplus. As a result of the decrease in the discount rate for the Pension Plan and the supplementary retirement plan in 1995, the Company increased the liability representing the pension liability by approximately $2,836,000, with a corresponding decrease in capital surplus. RETIREMENT SAVINGS PLAN: The Company sponsors a qualified tax deferred savings plan in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Employees may defer up to 10% of their compensation, subject to certain limitations. The Company matches the employee contributions up to 5% of employee compensation. In the first six months of 1995 and in 1994 and 1993, Company contributions were made using treasury stock. In the last six months of 1995, Company contributions were made by issuing authorized but unissued shares. The expense associated with the Company's contribution was $423,000 in 1995, $516,000 in 1994 and $367,000 in 1993. Effective January 1, 1992 the plan was amended to include profit-sharing contributions by the Company. In 1995 and 1994, the Company did not make any profit sharing contributions. The Company's profit-sharing contributions were made using common stock valued at $276,000 in 1993. ANNUAL INCENTIVE PLAN: The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which became effective January 1, 1992, permitted participating employees to earn annual bonus awards payable in cash or in shares of the Company's Common Stock, generally based in part upon the Company attaining certain levels of performance. In 1995 and 1994, no bonuses were awarded. In 1993, the Company accrued bonuses of $426,000 under the incentive plan. Amounts awarded are disbursed in equal annual installments over the succeeding three-year period. This plan was terminated effective January 1, 1996. EXECUTIVE RETIREMENT AGREEMENTS: The Company entered into agreements in December 1990 (the Agreements) with certain former executives and directors (the Retirees) whereby each executive retired from the employ of the Company as of December 28, 1990. Pursuant to the terms of the Agreements, the Retirees are entitled to receive supplemental retirement payments from the Company in addition to the amounts to which they are entitled under the Company's retirement plan. In addition, the Retirees and their spouses are entitled to lifetime coverage under the Company's group medical and dental plans, tax and other financial services, and payments by the Company in connection with certain club membership dues. The Retirees also continued to participate in the Company's royalty bonus program until December 31, 1995. The Company has also agreed to maintain certain life insurance policies in effect at December 1990, for the benefit of each of the Retirees. The Company's obligation to one retiree under a revised retirement agreement is payable in Common Stock or cash, at the Company's option, in May of each year from 1993 through 1996 at approximately $190,000 per year with the balance of $149,000 payable in May 1997. The Agreements for the other six Retirees provide for supplemental retirement payments totalling approximately $970,000 per year through 1998 and approximately $770,000 per year in 1999 and 2000. 55 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (10) EMPLOYEE BENEFITS (CONTINUED): - ------------------------------------------------------------------------------- The $3,617,000 present value of the amounts due under the agreements, discounted at 13%, is included in other current and long-term liabilities. LIFE INSURANCE: The Company provides life insurance benefits for certain key employees and retirees under split dollar life insurance plans. The premiums paid for the life insurance policies were $921,000, $916,000 and $861,000 in 1995, 1994 and 1993, respectively, including $831,000, $831,000 and $766,000 paid for policies for retired executives. Under the life insurance plans, the Company is assigned a portion of the benefits which is designed to recover the premiums paid. POSTRETIREMENT BENEFITS: The Company accrues expected costs of providing postretirement benefits to employees, their beneficiaries and covered dependents in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company adopted the provisions of SFAS No. 106 in the first quarter of 1993. The estimated accumulated postretirement benefit obligation as of January 1, 1993 was approximately $4,822,000. This amount, reduced by applicable income tax benefits, was charged to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. The following table sets forth the status of the postretirement benefit plan and the amounts recognized in the Company's consolidated financial statements at December 31: 1995 1994 ---- ---- (In Thousands) Retired participants $4,803 4,427 Active participants fully eligible for benefits 201 156 Other active participants 1,026 873 ------ ------ Accumulated postretirement benefit obligation (APBO) 6,030 5,456 Plan assets at fair market value - - ------ ------ APBO in excess of plan assets 6,030 5,456 Unrecognized loss (595) (330) ------ ------ Accrued postretirement benefit liability $ 5,435 5,126 ------ ------ ------ ------ The discount rates used in determining the actuarial present value of the APBO at December 31, 1995, 1994 and 1993 were 7.25%, 9% and 7.5%, respectively. The components of postretirement benefit expense for the years ended December 31, 1995, 1994 and 1993 are as follows: 1995 1994 1993 ---- ---- ---- (In Thousands) Service cost $ 83 103 86 Interest cost on APBO 421 407 397 ---- ---- ---- Postretirement benefit cost $ 504 510 483 ---- ---- ---- ---- ---- ---- For 1995, a 1% increase in health care cost trends would have increased the APBO by $793,000 and the service interest costs by $62,000. 56 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (11) RELATED PARTY TRANSACTIONS: - ------------------------------------------------------------------------------- Prior to 1995, the company used a real estate complex (the Complex) owned directly or indirectly by certain stockholders and members of the Board of Directors for Company-sponsored seminars, the accommodation of business guests, the housing of personnel attending corporate meetings and for other general business purposes. In 1994, in connection with the Company's termination of usage, the Company paid $662,000 on account of the business use of such property, and an additional $300,000 as a partial reimbursement of deferred maintenance costs. The company incurred expenses for its use of the complex of $635,000 in 1993. John F. Dorn resigned as an executive officer and director of the Company in 1993. The Company agreed to pay Mr. Dorn his salary at the time of his resignation through September 30, 1996. In addition, the Company provided certain other benefits and services to Mr. Dorn. The present value of the severance package was estimated at $500,000, which amount was recorded as an expense and a liability at December 31, 1993. In March 1994, the Company sold certain non-strategic oil and gas properties to an entity controlled by Mr. Dorn and another former executive officer of the Company for net proceeds, after costs of sale and purchase price adjustments, of $3,661,000. The Company established the sales price based upon an opinion from an independent third party. (12) COMMITMENTS AND CONTINGENCIES: - ------------------------------------------------------------------------------- Future rental payments for office facilities and equipment under the remaining terms of noncancelable leases are $1,154,000, $962,000, $953,000, $985,000 and $851,000 for the years ending December 31, 1996 through 2000, respectively. These amounts include future rentals payable by Saxon. Net rental payments applicable to exploration and development activities and capitalized in the oil and gas property accounts aggregated $972,000 in 1995, $851,000 in 1994 and $688,000 in 1993. Net rental payments charged to expense amounted to $3,529,000 in 1995, $3,512,000 in 1994 and $3,098,000 in 1993. Rental payments include the short-term lease of vehicles. none of the leases are accounted for as capital leases. The Company, in the ordinary course of business, is a party to various legal actions. In the opinion of management, none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, liquidity or results of operations. 57 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (13) FINANCIAL INSTRUMENTS: - ------------------------------------------------------------------------------- The Company is exposed to off-balance-sheet risks associated with energy swap agreements arising from movements in the prices of oil and natural gas and from the unlikely event of non-performance by the counterparty to the swap agreements. In order to hedge against the effects of declines in oil and natural gas prices, the Company enters into energy swap agreements with third parties and accounts for the agreements as hedges based on analogy to the criteria set forth in Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts". In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed-upon third party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. For the years ended December 31, 1995, 1994 and 1993, the Company's gains (losses) under its swap agreements were $3,536,000, $1,810,000 and $(2,050,000) respectively. The following table indicates outstanding energy swaps of the Company at December 31, 1995: Product Volume Fixed Price Duration ------- ------ ----------- -------- Natural Gas 194 to 7,091 MMBTU/day $2.1875 to $2.535 1/96 - 12/99 Natural Gas 10,000 MMBTU/day $2.00 to $2.37 1/96 - 12/97 Natural Gas 100 to 300 MMBTU/day $2.1855 to $3.003 1/96 - 12/02 Natural Gas 5,000 to 10,000 MMBTU/day $1.90 to $2.0225 1/96 - 12/96 Natural Gas 5,000 MMBTU/day $1.9225 4/96 - 12/96 Natural Gas 1,500 to 2,000 MMBTU/day $1.0282 (1) 1/96 - 6/98 Oil 661 BBLS/day $16.70 1/96 - 4/96 Oil 659 BBLS/day $17.75 1/96 - 6/96 Oil 332 BBLS/day $17.90 5/96 - 12/96 Oil 325 BBLS/day $16.7345 1/96 - 6/96 (1) Based on Alberta Energy Company "C" (AECO "C") basis. All other swaps are settled on the basis of New York Mercantile Exchange (NYMEX) prices. 58 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (13) FINANCIAL INSTRUMENTS (CONTINUED): - ------------------------------------------------------------------------------- Set forth below is the estimated fair value of certain on and off-balance sheet financial instruments, along with the methods and assumptions used to estimate such fair values as of December 31, 1995: CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE: The carrying amount of these instruments approximates fair value due to their short maturity. NONRECOURSE SECURED LOAN: The fair value of the Company's nonrecourse secured loan has been estimated as approximately $43,147,000 by discounting the projected future cash payments required under the agreement by 10.5%. PRODUCTION PAYMENT OBLIGATION: The fair value of the Company's production payment obligation has been estimated as approximately $15,188,000 by discounting the projected future cash payments required under the agreement by 10.5%. SENIOR SUBORDINATED NOTES: The fair value of the Company's 11 1/4% Senior Subordinated Notes was approximately $104,000,000, based upon quoted market prices of the Notes. ENERGY SWAP AGREEMENTS: The fair value of the Company's energy swap agreements was approximately $1,007,000, based upon the estimated net amount the Company would have to pay to terminate the agreements. (14) MAJOR CUSTOMERS: - ------------------------------------------------------------------------------- The Company's sales of oil and natural gas to individual customers which exceeded 10% of the Company's total sales (exclusive of the effects of energy swaps and hedges) were: 1995 1994 1993 ---- ---- ---- (In Thousands) Enron Affiliates (A) $30,916 58,805 63,075 Chevron USA Production Company 11,893 12,829 - (A) The amount shown for Enron Affiliates includes oil and natural gas sales to Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation, Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership, Enron Gas Services Corporation and Enron Reserve Acquisition. Approximately $17,217,000, $29,046,000 and $32,702,000 represent sales recorded for deliveries under volumetric production payments in the years ended December 31, 1995, 1994 and 1993, respectively. (15) GAS CONTRACT SETTLEMENT: - ------------------------------------------------------------------------------- The Company had gas sales contracts with Columbia Gas Transmission (Columbia) which were rejected by Columbia in 1991 in connection with its bankruptcy proceedings. The Company had a secured claim of approximately $1,600,000 relating to Columbia's failure to pay the contract price for a period of time prior to the rejection of the contracts. This amount was recorded as natural gas sales when the gas was delivered in 1991. The Company also had an unsecured claim relating to the rejection of the gas purchase contracts. The Company established a reserve of approximately $750,000 against the secured portion of the bankruptcy claim in 1991. This reserve was reversed in 1994 when it became apparent that the amount the Company would receive in the Columbia settlement would exceed the amount of the secured claim. The reversal of the reserve was recorded as miscellaneous revenue in 1994. In 1995, the creditors reached agreement with Columbia regarding settlement of the various claims. The Company recorded approximately $4,263,000 of revenue as a result of the settlement. This amount represents the Company's portion of the settlement amount related to its unsecured claim, net of a provision for royalties payable. 59 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): - ------------------------------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- (In Thousands Except Per Share Amounts) 1995 - ---- REVENUE $ 22,361 20,550 17,617 21,928 -------- ------ ------ ------ -------- ------ ------ ------ EARNINGS FROM OPERATIONS $ 14,900 12,740 10,177 12,914 -------- ------ ------ ------ -------- ------ ------ ------ NET LOSS $ (3,144) (4,815) (6,574) (3,463) -------- ------ ------ ------ -------- ------ ------ ------ NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (3,684) (5,355) (7,114) (4,003) -------- ------ ------ ------ -------- ------ ------ ------ PRIMARY AND FULLY DILUTED LOSS PER SHARE $ (.65) (.94) (.84) (.42) -------- ------ ------ ------ -------- ------ ------ ------ 1994 - ---- Revenue $ 32,543 32,977 28,207 22,220 -------- ------ ------ ------ -------- ------ ------ ------ Earnings from operations $ 24,241 23,600 19,387 13,763 -------- ------ ------ ------ -------- ------ ------ ------ Income (loss) before cumulative effects of changes in accounting principles and extraordinary item $ 236 (265) (32,873) (34,951) -------- ------ ------ ------ -------- ------ ------ ------ Net loss $(13,754) (265) (32,873) (34,951) -------- ------ ------ ------ -------- ------ ------ ------ Net loss attributable to common stock $(14,294) (805) (33,414) (35,491) -------- ------ ------ ------ -------- ------ ------ ------ Primary and fully diluted loss per share before cumulative effects of changes in accounting principles and extraordinary item $ (.05) (.14) (5.94) (6.30) -------- ------ ------ ------ -------- ------ ------ ------ Primary and fully diluted loss per share $ (2.55) (.14) (5.94) (6.30) -------- ------ ------ ------ -------- ------ ------ ------
60 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): - -------------------------------------------------------------------------------- The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosure about Oil and Gas Producing Activities," (SFAS No. 69), except as noted. (A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES -The following costs were incurred in oil and gas exploration and development activities during the years ended December 31, 1995, 1994 and 1993: UNITED STATES CANADA TOTAL ------ ------ ----- (In Thousands) 1995 - ---- PROPERTY ACQUISITION COSTS (UNDEVELOPED LEASES AND PROVED PROPERTIES) $ 844 25,963 (1) 26,807 EXPLORATION COSTS 12,739 - 12,739 DEVELOPMENT COSTS 13,198 - 13,198 -------- ------ ------- TOTAL $ 26,781 25,963 52,744 -------- ------ ------- -------- ------ ------- 1994 - ---- Property acquisition costs (undeveloped leases and proved properties) $ 9,762 - 9,762 Exploration costs 15,693 - 15,693 Development costs 17,089 - 17,089 -------- ------ ------- Total $ 42,544 - 42,544 -------- ------ ------- -------- ------ ------- 1993 - ---- Property acquisition costs (undeveloped leases and proved properties) $144,916 - 144,916 Exploration costs 5,433 - 5,433 Development costs 20,472 - 20,472 -------- ------ ------- Total $170,821 - 170,821 -------- ------ ------- -------- ------ ------- (1) Consists of the allocation of purchase price to the oil and gas properties acquired in the purchase of Saxon. (B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to oil and gas activities were incurred as of December 31 of the years indicated: 1995 1994 1993 ---- ---- ---- (In Thousands) Costs related to proved properties $1,169,636 1,109,158 1,066,855 Costs related to unproved properties: Costs subject to depletion 18,011 32,288 32,585 Costs not subject to depletion 28,380 30,441 41,216 ---------- --------- --------- 1,216,027 1,171,887 1,140,656 Less accumulated depletion and valuation allowance 941,482 895,335 778,226 ---------- --------- --------- $ 274,545 276,552 362,430 ---------- --------- --------- ---------- --------- --------- 61 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations from producing activities for 1995, 1994 and 1993 are presented below. 1995 1994 1993 ---- ---- ---- (In Thousands) Oil and gas sales $82,275 114,541 102,883 Production expense 22,463 22,384 19,540 Depletion expense 42,973 64,883 59,759 Provision for impairment of oil and gas properties - 58,000 - ------- ------- ------- 65,436 145,267 79,299 ------- ------- ------- Results of operations from producing activities $16,839 (30,726) 23,584 ------- ------- ------- ------- ------- ------- (D) ESTIMATED PROVED OIL AND GAS RESERVES - The Company's estimate of its proved and proved developed future net recoverable oil and gas reserves and changes for 1993, 1994 and 1995 follows. The Canadian reserves at December 31, 1995 represent 100% of the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangement, including energy swap agreements (see Note 13), but not on escalations based on future conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved mechanisms of primary recovery are included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. The Company's presentation of estimated proved oil and gas reserves excludes, for each of the years presented, those quantities attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled at expected BTU factors, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. The Company has also presented, as additional information, proved oil and gas reserves including quantities attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements as the related oil and gas property costs and deferred revenue are included on the Company's balance sheets for each of the years presented. This additional information is not presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis. 62 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- LIQUIDS GAS ------------------------------ ------------------------------ (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------ ------ ----- Balance at December 31, 1992 6,973 - 6,973 164,421 - 164,421 Revisions of previous estimates 507 - 507 17,874 - 17,874 Extensions and discoveries 201 - 201 8,395 - 8,395 Production (1,308) - (1,308) (22,383) - (22,383) Sales of reserves in place (280) - (280) (18,941) - (18,941) Purchases of reserves in place 1,704 - 1,704 94,730 - 94,730 ------ ------ ------ ------- ------- ------- Balance at December 31, 1993 7,797 - 7,797 244,096 - 244,096 Additional disclosures: Volumes attributable to volumetric production payments 401 - 401 29,286 - 29,286 ------ ------ ------ ------- ------- ------- Balance at December 31, 1993, including volumes attributable to volumetric production payments 8,198 - 8,198 273,382 - 273,382 ------ ------ ------ ------- ------- ------- Balance at December 31, 1993 7,797 - 7,797 244,096 - 244,096 Revisions of previous estimates 989 - 989 7,848 - 7,848 Extensions and discoveries 41 - 41 9,894 - 9,894 Production (1,361) - (1,361) (32,043) - (32,043) Sales of reserves in place (170) - (170) (6,377) - (6,377) Purchases of reserves in place 17 - 17 8,220 - 8,220 ------ ------ ------ ------- ------- ------- Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638 Additional disclosures: Volumes attributable to volumetric production payments 219 - 219 15,358 - 15,358 ------ ------ ------ ------- ------- ------- Balance at December 31, 1994, including volumes attributable to volumetric production payments 7,532 - 7,532 246,996 - 246,996 ------ ------ ------ ------- ------- ------- Balance at December 31, 1994 7,313 - 7,313 231,638 - 231,638 REVISIONS OF PREVIOUS ESTIMATES (227) - (227) 2,398 - 2,398 EXTENSIONS AND DISCOVERIES 18 - 18 6,861 - 6,861 PRODUCTION (1,028) - (1,028) (24,222) - (24,222) SALES OF RESERVES IN PLACE (6) - (6) (2,438) - (2,438) PURCHASES OF RESERVES IN PLACE 59 4,338 4,397 1,435 16,218 17,653 ------ ------ ------ ------- ------- ------- BALANCE AT DECEMBER 31, 1995 6,129 4,338 10,467 215,672 16,218 231,890 ADDITIONAL DISCLOSURES: VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS 74 - 74 6,238 - 6,238 ------ ------ ------ ------- ------- ------- BALANCE AT DECEMBER 31, 1995, INCLUDING VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS 6,203 4,338 10,541 221,910 16,218 238,128 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- ------- PRO FORMA RESERVES, INCLUDING VOLUMES ATTRIBUTABLE TO VOLUMETRIC PRODUCTION PAYMENTS, AFTER GIVING EFFECT TO THE CANADIAN FOREST ACQUISITION (SEE NOTE 2) 6,203 14,585 20,788 221,910 108,256 330,166 ------ ------ ------ ------- ------- ------- ------ ------ ------ ------- ------- -------
Purchases of reserves in place represent volumes recorded on the closing dates of the acquisitions for financial accounting purposes. The revisions of previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment related to the change in accounting for oil and gas sales from the sales method to the entitlements method. 63 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (D) ESTIMATED PROVED OIL AND GAS RESERVES (CONTINUED)
Oil and Condensate Gas -------------------------- ----------------------------- (MBBLS) (MMCF) United United States Canada Total States Canada Total ------ ------ ----- ------ ------ ----- Proved developed reserves at: December 31, 1992 5,831 - 5,831 146,048 - 146,048 December 31, 1993 6,377 - 6,377 187,534 - 187,534 December 31, 1994 6,775 - 6,775 179,574 - 179,574 DECEMBER 31, 1995 5,678 3,188 8,866 156,471 4,184 170,655 Pro forma proved developed reserves after giving effect to the Canadian Forest acquisition (see Note 2) 5,678 13,435 19,113 156,471 106,222 262,693
The Company's proved developed reserves, including amounts attributable to volumetric production payments, are shown below. This disclosure is presented as additional information and is not intended to represent required disclosure pursuant to SFAS No. 69.
Oil and Condensate Gas -------------------------- ----------------------------- (MBBLS) (MMCF) United United States Canada Total States Canada Total ------ ------ ----- ------ ------ ----- Proved developed reserves, including amounts attributable to volumetric production payments at: December 31, 1992 6,418 - 6,418 176,282 - 176,282 December 31, 1993 6,778 - 6,778 216,820 - 216,820 December 31, 1994 6,994 - 6,994 194,932 - 194,932 DECEMBER 31, 1995 5,752 3,188 8,940 162,709 14,184 176,893 Pro forma proved developed reserves, including amounts attributable to volumetric production payments after giving effect to the Canadian Forest acquisition (see Note 2) 5,752 13,435 19,187 162,709 106,222 268,931
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Future oil and gas sales and production and development costs have been estimated using prices and costs in effect at the end of the years indicated, except in those instances where the sale of oil and natural gas is covered by contracts, energy swap agreements or volumetric production payments. At December 31, 1995, Canadian disclosures represents 100% of amounts attributable to the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. All of the estimated reserves at December 31, 1994 and 1993 were in the United States. In the case of contracts, the applicable contract prices, including fixed and determinable escalations, were used for the duration of the contract. Thereafter, the current spot price was used. Future oil and gas sales also include the estimated effects of existing energy swap agreements as discussed in Note 13. 64 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) Future income tax expenses are estimated using the statutory tax rate of 35%. Estimates for future general and administrative and interest expenses have not been considered. Changes in the demand for oil and natural gas, inflation and other factors make such estimates inherently imprecise and subject to substantial revision. This table should not be construed to be an estimate of the current market value of the Company's proved reserves. Management does not rely upon the information that follows in making investment decisions. The Company's presentation of the standardized measure of discounted future net cash flows and changes therein excludes, for each of the years presented, amounts attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled, that production costs corresponding to the volumes delivered are incurred by the Company at average rates for the properties subject to the production payments, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. The Company has also presented, as additional information, the standardized measure of discounted future net cash flows and changes therein including amounts attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements because the related oil and gas property costs and deferred revenue are shown on the Company's balance sheets for each of the years presented. This additional information is not required to be presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis.
December 31, 1995 --------------------------------- United States Canada Total ------ ------ ----- (In Thousands) Future oil and gas sales $554,609 93,021 647,630 Future production and development costs (195,399) (43,060) (238,459) -------- -------- -------- Future net revenue 359,210 49,961 409,171 10% annual discount for estimated timing of cash flows (122,528) (19,108) (141,636) -------- -------- -------- Present value of future net cash flows before income taxes 236,682 30,853 267,535 Present value of future income tax expense (8,855) (1,763) (10,618) -------- -------- -------- Standardized measure of discounted future net cash flows 227,827 29,090 256,917 Additional disclosures: Amounts attributable to volumetric production payments 8,476 - 8,476 -------- -------- -------- Total discounted future net cash flows, including amounts attributable to volumetric production payments $236,303 29,090 265,393 -------- -------- -------- -------- -------- -------- Pro forma standardized measure of discounted future net cash flows, including amounts attributable to volumetric production payments, after giving effect to the Canadian Forest acquisition (see Note 2) $236,303 105,849 342,152 -------- -------- -------- -------- -------- --------
65 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) Undiscounted future income tax expense was $22,316,000 in the United States and $2,924,000 in Canada at December 31, 1995.
December 31, 1994 1993 ---- ---- (In Thousands) Future oil and gas sales $502,186 662,265 Future production and development costs (193,376) (240,145) -------- -------- Future net revenue 308,810 422,120 10% annual discount for estimated timing of cash flows (100,480) (138,917) -------- -------- Present value of future net cash flows before income taxes 208,330 283,203 Present value of future income tax expense (781) (21,027) -------- -------- Standardized measure of discounted future net cash flows 207,549 262,176 Additional disclosures: Amounts attributable to volumetric production payments 22,600 36,877 -------- -------- Total discounted future net cash flows, including amounts attributable to volumetric production payments $230,149 299,053 -------- -------- -------- --------
Undiscounted future income tax expense was $1,348,000 at December 31, 1994 and $35,028,000 at December 31, 1993. 66 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED) CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES - An analysis of the changes in the standardized measure of discounted future net cash flows during each of the last three years is as follows. At December 31, 1995, Canadian disclosures represent amounts attributable to 100% of the reserves owned by Saxon, a consolidated subsidiary in which the Company holds a 56% economic interest. All of the estimated reserves at December 31, 1994 and 1993 were in the United States.
December 31, 1995 --------------------------------- United States Canada Total ------ ------ ----- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year $207,549 - 207,549 Changes resulting from: Sales of oil and gas, net of production costs (48,090) - (48,090) Net changes in prices and future production costs 43,991 - 43,991 Net changes in future development costs (3,392) - (3,392) Extensions, discoveries and improved recovery 7,231 - 7,231 Previously estimated development costs incurred during the period 7,633 - 7,633 Revisions of previous quantity estimates 127 - 127 Sales of reserves in place (3,114) - (3,114) Purchases of reserves in place 865 30,853 31,718 Accretion of discount on reserves at beginning of year before income taxes 23,102 - 23,102 Net change in income taxes (8,075) (1,763) (9,838) -------- ------- ------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year 227,827 29,090 256,917 Additional disclosures: Amounts attributable to volumetric production payments 8,476 - 8,476 -------- ------- ------- Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments, at end of year $236,303 29,090 265,393 -------- ------- ------- -------- ------- ------- Proforma standardized measure of discounted future net cash flows, including amounts attributable to volumetric production payments, after giving effect to the Canadian Forest acquisition (see Note 2) $236,303 105,849 342,152 -------- ------- ------- -------- ------- -------
67 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 (17) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONTINUED)
1994 1993 ---- ---- (In Thousands) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year $262,176 190,971 Changes resulting from: Sales of oil and gas, net of production costs (69,607) (59,572) Net changes in prices and future production costs (80,526) (22,010) Net changes in future development costs 7,432 (18,724) Extensions, discoveries and improved recovery 10,817 15,322 Previously estimated development costs incurred during the period 10,000 13,424 Revisions of previous quantity estimates 16,840 25,262 Sales of reserves in place (10,630) (28,802) Purchases of reserves in place 8,467 127,418 Accretion of discount on reserves at beginning of year before income taxes 32,334 24,558 Net change in income taxes 20,246 (5,671) -------- ------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year 207,549 262,176 Additional disclosures: Amounts attributable to volumetric production payments 22,600 36,877 -------- ------- Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments, at end of year $230,149 299,053 -------- ------- -------- -------
68 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) (1) Financial Statements 1. Independent Auditors' Report 2. Consolidated Balance Sheets - December 31, 1995 and 1994 3. Consolidated Statements of Operations - Years ended December 31, 1995, 1994 and 1993 4. Consolidated Statements of Shareholders' Equity - Years ended December 31, 1995, 1994 and 1993 5. Consolidated Statements of Cash Flows - Years ended December 31, 1995, 1994 and 1993 6. Notes to Consolidated Financial Statements - Years ended December 31, 1995, 1994 and 1993 (2) Financial Statement Schedules All schedules have been omitted because the information is either not required or is set forth in the financial statements or the notes thereto. (3) Exhibits - Forest shall, upon written request to Daniel L. McNamara, Corporate Secretary of Forest, addressed to Forest Oil Corporation, 1600 Broadway, Suite 2200, Denver, CO 80202, provide copies of each of the following Exhibits: Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(i)(a) Certificate of Amendment of the Restated Certificate of Incorporation dated as of July 20, 1995, incorporated herein by reference to Exhibit 3(i)(a) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(i)(b) Certificate of Amendment of Restated Certificate of Incorporation dated as of July 26, 1995, incorporated herein by reference to Exhibit 3(i)(b) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). 69 Exhibit 3(i)(c) Certificate of Amendment of the Restated Certificate of Incorporation dated as of January 5, 1996, incorporated herein by reference to Exhibit 3(i)(c) to Forest Oil Corporation's Registration Statement on Form S-2 (File No. 33-64949). Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to By-Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(c) Amendment No. 9 to By-Laws dated as of May 15, 1995, incorporated herein by reference to Exhibit 3(ii)(c) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 3(ii)(d) Amendment No. 10 to By-Laws dated as of July 27, 1995, incorporated herein by reference to Exhibit 3(ii)(d) to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1995 (File No. 0-4597). Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and Shawmut Bank, Connecticut, (National Association), incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 4.2 First Supplemental Indenture dated as of February 8, 1996 among Forest Oil Corporation, 611852 Saskatchewan Ltd. and Fleet National Bank of Connecticut (formerly known as Shawmut Bank, Connecticut, National Association, which was formerly known as The Connecticut Bank). Exhibit 4.3 Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership dated as of December 28, 1993, incorporated herein by reference to Exhibit 4.1 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.4 First Amendment dated as of December 28, 1993 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.5 Second Amendment dated as of July 27, 1995 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated by reference to Exhibit 99.4 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 4.6 Third Amendment dated January 24, 1996 to the Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership. 70 Exhibit 4.7 Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 by and between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.8 First Amendment dated as of June 15, 1994 to the Deed of Trust, Assignment of Production, Security Agreement and Financing Statement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.9 Second Amendment effective as of July 27, 1995 to Deed of Trust, Assignment of Production, Security Agreement and Financing Statement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 99.9 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 4.10 Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.3 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.11 Amended and Restated Credit Agreement dated as of August 31, 1995 between Forest Oil Corporation and Subsidiaries, Borrower and Subsidiary Guarantors and the Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1995 (File No. 0-4597). Exhibit 4.12 Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated as of December 1, 1993, incorporated herein by reference to Exhibit 4.6 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993. Exhibit 4.13 Amendment No. 1 dated as of June 3, 1994 to the Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation for the year ended December 31, 1994 (File No. 0-4597). Exhibit 4.14 Amendment No. 2 dated as of August 31, 1995 to the Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent. Exhibit 4.15 Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons) and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.9 of Form 10-K for Forest Oil Corporation for the year ended December 31, 1994 (File No. 0-4597). Exhibit 4.16 Amendment No. 1 dated as of August 31, 1995 to Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property Including Hydrocarbons), and Fixture Filing dated June 3, 1994. 71 Exhibit 4.17 Warrant Agreement dated as of December 3, 1991 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as Warrant Agent (including Form of Warrant), incorporated herein by reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 4.18 Rights Agreement between Forest Oil Corporation and Mellon Securities Trust Company, as Rights Agent dated as of October 14, 1993, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 4.19 Amendment No. 1 dated as of July 27, 1995 to Rights Agreement dated as of October 14, 1993 between Forest Oil Corporation and Mellon Securities Trust Company, incorporated herein by reference to Exhibit 99.5 of Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.3 Form of non-qualified Executive Deferred Compensation Agreement, incorporated herein by reference to Exhibit 10.3 to Form 10-Q for Forest Oil Corporation for the years ended December 31, 1990 (File No. 0-4597). Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit 10.5, incorporated herein by reference to Exhibit 10.11 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1992 (File No. 0-4597). Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 10.10 Shareholders Agreement dated as of July 27, 1995 between Forest Oil Corporation and The Anschutz Corporation incorporated by reference to Exhibit 99.7 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). Exhibit 10.11 Tranche A Warrant to Purchase 3,888,888 shares of Common Stock issued to The Anschutz Corporation dated July 27, 1995 incorporated by reference to Exhibit 99.6 to Form 8-K for Forest Oil Corporation dated October 11, 1995 (File No. 0-4597). 72 Exhibit 10.12 Shareholders Agreement dated as of January 24, 1996 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership. Exhibit 10.13 Option dated July 27, 1995 from Joint energy Development Investments Limited Partnership to The Anschutz Corporation. Exhibit 10.14 Assumption of Option dated January 24, 1996 between Forest Oil Corporation and The Anschutz Corporation. Exhibit 11 Computation of Earnings Per Share of Common Stock. Forest Oil Corporation and Subsidiaries. Exhibit 21.1 List of Subsidiaries of the Registrant. *Exhibit 23 Consent of KPMG Peat Marwick LLP Exhibit 24 Powers of Attorney of the following Officers and Directors: Philip F. Anschutz, Robert S. Boswell, Richard J. Callahan, Dale F. Dorn, William L. Dorn, David H. Keyte, James H. Lee, Craig D. Slater, Joan C. Sonnen, Drake S. Tempest, Michael B. Yanney. Exhibit 27 Financial Data Schedule ___________________ * filed herewith. (b) Reports on Form 8-K The following reports on Form 8-K were filed by Forest during the last quarter of 1995: Date of Report Item Reported Financial Statements Filed -------------- ------------- -------------------------- October 11, 1995 Item 5 None December 12, 1995 Item 5 None December 20, 1995 Item 5 None December 29, 1995 Item 5 None 73 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FOREST OIL CORPORATION (Registrant) Date: February 7, 1997 By: /s/ Daniel L. McNamara ------------------------------------- Daniel L. McNamara Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- Robert S. Boswell* President and Chief Executive Officer March 29, 1996 (Robert S. Boswell) (Principal Executive Officer) David H. Keyte* Vice President and Chief Financial Officer March 29, 1996 (David H. Keyte) (Principal Financial Officer) Joan C. Sonnen* Controller March 29, 1996 (Joan C. Sonnen) (Chief Accounting Officer) Philip F. Anschutz* Directors of the Registrant March 29, 1996 (Philip F. Anschutz) Robert S. Boswell* (Robert S. Boswell) Richard J. Callahan* (Richard J. Callahan) Dale F. Dorn* (Dale F. Dorn) William L. Dorn* (William L. Dorn) James H. Lee* (James H. Lee) Craig D. Slater* (Craig D. Slater) Drake S. Tempest* (Drake S. Tempest) Michael B. Yanney* (Michael B. Yanney) *By /s/ Daniel L. McNamara March 29, 1996 --------------------------------- Daniel L. McNamara (as attorney-in-fact for each of the persons indicated) 74 EX-23 2 EX 23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS FOREST OIL CORPORATION We consent to the incorporation by reference in (i) the Registration Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of Forest Oil Corporation - Retirement Savings Plan of Forest Oil Corporation, (ii) the Registration Statement (No. 33-48440) on Form S-8 of Forest Oil Corporation -1992 Stock Option Plan of Forest Oil Corporation and (iii) the Registration Statements (Nos. 33-47477 and 33-47478) on Forms S-2 and S-3 of Forest Oil Corporation - Common Stock issuable to Richard Dorn and resales thereof, of our report dated February 20, 1996 relating to the consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K/A (Amendment No. 2) of Forest Oil Corporation. Our report on the consolidated financial statements refers to a change in the method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994 and to changes in the method of accounting for postretirement benefits other than pensions and income taxes in 1993. KPMG PEAT MARWICK LLP Denver, Colorado February 7, 1997 -----END PRIVACY-ENHANCED MESSAGE-----