-----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, TOf15PVb3gYsmaff+hyJ+liOEotr46se3AAmWuC6vRvwNiFYQ82+A09fEHLb2Q3i fWlmRd08Ha0z2U5sDvx0Sg== 0000899243-02-000011.txt : 20020413 0000899243-02-000011.hdr.sgml : 20020413 ACCESSION NUMBER: 0000899243-02-000011 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010816 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CABOT OIL & GAS CORP CENTRAL INDEX KEY: 0000858470 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 043072771 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-10447 FILM NUMBER: 2502248 BUSINESS ADDRESS: STREET 1: 1200 ENCLAVE PARKWAY CITY: HOUSTON STATE: TX ZIP: 77077 BUSINESS PHONE: 2815894600 8-K/A 1 d8ka.txt CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K/A CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): August 16, 2001 CABOT OIL & GAS CORPORATION (Exact name of registrant as specified in its charter) Delaware 1-10447 04-3072771 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.)
1200 Enclave Parkway Houston, Texas 77077 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (281) 589-4600 This Form 8-K/A amends and supplements the Form 8-K filed on August 30, 2001, as amended by the 8-K/A filed on October 30, 2001, by amending Item 7 and Exhibit 99.2 as set forth herein. Item 7. Financial Statements and Exhibits (a) Financial Statements of Businesses Acquired. The following consolidated financial statements of Cody Company are filed herewith as Exhibit 99.2: Independent Auditor's Report Consolidated Balance Sheets - June 30, 2001 (unaudited) and December 31, 2000 Consolidated Statements of Operations - For the Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 Consolidated Statements of Comprehensive Income - For Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 Consolidated Statement of Changes in Stockholders' Equity - For the Period from January 1, 2001 through June 30, 2001 (unaudited) and for the Period from January 1, 2000 through December 31, 2000 Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 Notes to Consolidated Financial Statements 2 (b) Pro Forma Financial Information. The accompanying unaudited pro forma combined financial statements and related notes thereto are presented to reflect the merger of Cody Company with a subsidiary of Cabot Oil & Gas Corporation ("Cabot"). Effective August 16, 2001, Cabot, COG Colorado Corporation, a wholly owned subsidiary of Cabot ("Merger Sub"), and Cody Company consummated their Agreement and Plan of Merger (the "Merger Agreement"), whereby (i) Cody Company distributed to its shareholders certain assets and liabilities (the "Assignment and Assumption"), and thereafter (ii) Merger Sub merged with and into Cody Company (the "Merger"), with Cody Company surviving as a wholly owned subsidiary of Cabot. The Merger has been accounted for in the unaudited pro forma combined financial statements using the purchase method of accounting. Consequently, the unaudited pro forma combined balance sheet as of June 30, 2001 reflects the recording of assets acquired and liabilities assumed of Cody Company at estimated fair value as if the Merger had occurred on that date. The unaudited pro forma combined statements of operations are prepared for the six months ended June 30, 2001 and for the year ended December 31, 2000 and illustrate the effects of the Merger as if it had occurred on January 1, 2000. The management of Cabot believes that the assumptions utilized provide a reasonable basis for presenting the significant effects of the Merger and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma combined financial statements. The unaudited pro forma combined financial statements do not purport to be indicative of the financial position or results of operations of Cabot had the Merger occurred on the dates mentioned above, nor are the unaudited pro forma combined financial statements necessarily indicative of the future financial position or results of operations of Cabot. The unaudited pro forma combined financial statements should be read in conjunction with the notes thereto and the historical financial statements of Cody Company, referred to in Item 7(a) of this Form 8-K/A. In addition, reference should be made to the historical financial statements of Cabot included in its Form 10-K for the year ended December 31, 2000 and its Form 10-Q for the six months ended June 30, 2001 filed with the Securities and Exchange Commission. 3 Cabot Oil & Gas Corporation Unaudited Pro Forma Combined Statement of Operations For the Year Ended December 31, 2000 (in thousands, except per share amounts)
Pro Forma Combining Adjustments ------------------------------- Historical Assignment and Purchase Pro Forma ---------- Revenues Cabot Cody Assumption and Other Combined - -------- ----- ---- ---------- --------- -------- Oil and Gas Sales $ 219,729 $ 64,813 $ 284,542 Brokered Natural Gas 141,085 141,085 Ranching 4,874 $ (4,874) a -- Investment Income 4,388 (4,388) a -- Sales of Land Held for Development 1,407 (1,407) a -- Other Income 7,837 660 (492) a 8,005 ----------------------------------------------------------------------------------------- Total Revenues 368,651 76,142 (11,161) 433,632 Costs and Expenses - ------------------ Oil and Gas Operations: Brokered Natural Gas Cost 135,700 135,700 Direct Operations-Field & Pipeline 35,727 9,992 45,719 Taxes Other Than Income 23,041 5,319 28,360 Exploration 19,858 2,552 22,410 Impairment of Properties 13,511 13,511 Ranching 1,600 (1,600) a -- Land Operations 1,073 (1,073) a -- General and Administrative 22,517 7,207 (3,531) a 26,193 Accrued Severence Expense 3,600 $ (3,600) i -- Depletion, Depreciation and amortization 53,441 19,628 9,779 j 82,848 ----------------------------------------------------------------------------------------- Total Cost and Expenses 303,795 50,971 (6,204) 6,179 354,741 Gain/(Loss) on Sale of Assets and Other (39) (793) 999 a 167 ----------------------------------------------------------------------------------------- Income from Operations 64,817 24,378 (3,958) (6,179) 79,058 Interest Expense 22,878 2,931 (486) a 12,943 k 38,266 ----------------------------------------------------------------------------------------- Income from Continuing Operations Before Income Taxes 41,939 21,447 (3,472) (19,122) 40,792 Income Tax Expense 16,467 3,912 (633) a (3,839) l 15,907 ----------------------------------------------------------------------------------------- Income from Continuing Operations 25,472 17,535 (2,839) (15,283) 24,885 Preferred Stock Dividend (3,749) -- -- -- (3,749) ----------------------------------------------------------------------------------------- Net Income Available to Common Stockholders $ 29,221 $ 17,535 $ (2,839) $ (15,283) $ 28,634 ========================================================================================= Earning per common share: Basic $ 1.07 $ 0.97 Diluted $ 1.06 $ 0.97
See the notes to the unaudited pro forma combined financial statements. 4 Cabot Oil & Gas Corporation Unaudited Pro Forma Combined Statement of Operations For the Six Months Ended June 30, 2001 (in thousands, except per share amounts)
Pro Forma Combining Adjustments ------------------------------- Historical Assignment and Purchase Pro Forma ---------- Revenues Cabot Cody Assumption and Other Combined - -------- ----- ---- ---------- --------- -------- Oil and Gas Sales $ 196,656 $ 53,368 $ 250,024 Brokered Natural Gas 62,695 62,695 Change in Derivative Fair Value 1,211 1,211 Ranching 661 $ (661) a -- Investment Income 1,250 (1,250) a -- Other Income 1,936 3,387 (826) a 4,497 ----------------------------------------------------------------------------------------- Total Revenues 262,498 58,666 (2,737) 318,427 Costs and Expenses - ------------------ Oil and Gas Operations: Brokered Natural Gas Cost 60,479 60,479 Direct Operations-Field & Pipeline 17,870 5,464 23,334 Taxes Other Than Income 16,617 905 17,522 Exploration 25,313 477 25,790 Impairment of Properties 2,964 2,964 Ranching 657 (657) a -- Land Operations -- General and Administrative 11,638 5,394 (2,226) a 14,806 Accrued Severence Expense 12,552 $ (12,552) i -- Depletion, depreciation and amortization 32,089 9,338 7,857 j 49,284 ----------------------------------------------------------------------------------------- Total Cost and Expenses 166,970 34,787 (2,883) (4,695) 194,179 Gain/(Loss) on Sale of Assets and Other (27) 66 63 a 102 ----------------------------------------------------------------------------------------- Income from Operations 95,501 23,945 209 4,695 124,350 Interest Expense 9,409 475 (176) a 6,471 k 16,179 ----------------------------------------------------------------------------------------- Income from Continuing Operations Before Income Taxes 86,092 23,470 385 (1,776) 108,171 Income Tax Expense 33,438 12,153 177 a (3,706) l 42,062 ----------------------------------------------------------------------------------------- Income from Continuing Operations $ 52,654 $ 11,317 $ 208 $ 1,930 $ 66,109 ========================================================================================= Earning per common share: Basic $ 1.79 $ 2.10 Diluted $ 1.76 $ 2.08
See the notes to the unaudited pro forma combined financial statements. 5 Cabot Oil & Gas Corporation Unaudited Pro Forma Balance Sheet As of June 30, 2001 (in thousands)
Pro Forma Combining Adjustments ------------------------------- Historical Assignment and Purchase Pro Forma ---------- -------------- -------- --------- Cabot Cody Assumption and Other Combined ----- ---- ---------- --------- -------- Current Assets Cash and Cash Equivalents $ 9,361 $ 1,028 $ 12,428 a $ (18,261) b $ 38,977 14,924 c 5,000 e 10,047 c 4,450 g Marketable Securities, at fair value 33,440 (33,440) a 0 Receivables, sale of securities 55,604 32,177 (32,177) a 55,604 Accounts Receivable, net 14,194 11,538 (608) a 842 d 25,966 Other Current Assets 30,065 13,708 (1,185) a 33,127 (10,047) c 586 d ---------------------------------------------------------------------------------------- Total Current Assets 109,224 91,891 (40,058) (7,383) 153,674 Property and Equipment, net 661,732 128,009 (16,181) a (111,828) d 967,316 301,133 d 4,451 m Other Assets 1,974 28,243 (28,243) a 1,974 ---------------------------------------------------------------------------------------- Total Assets $ 772,930 $ 248,143 $ (84,482) $ 186,373 $ 1,122,964 ======================================================================================== Current Liabilities Accounts Payable $ 95,050 $ 5,419 $ (115) a $ 5,000 e $ 106,480 1,126 d Accrued Liabilities 27,334 23,386 (50) a 100 f 38,699 4,450 g (4,820) d (16,152) b 4,451 m Other Current Liabilities 21,118 (19,218) a 16,824 14,924 c ---------------------------------------------------------------------------------------- Total Current Liabilities 122,384 49,923 (4,459) (5,845) 162,003 Long-Term Debt 187,000 50 181,353 h 368,403 Deferred Income Taxes 135,626 8,939 (8,939) a 79,152 d 214,778 Other Liabilities 13,837 13,837 Stockholders' Equity 314,083 189,231 (71,084) a (118,147) h 363,943 49,860 h ---------------------------------------------------------------------------------------- $ 772,930 $ 248,143 $ (84,482) $ 186,373 $ 1,122,964 ========================================================================================
See the notes to the unaudited pro forma combined financial statements. 6 Cabot Oil & Gas Corporation Notes to Unaudited Pro Forma Combined Financial Statements a) To reflect the distribution of certain assets and liabilities to the former shareholders of Cody Company pursuant to the Assignment and Assumption, including cash, marketable securities and land, property and equipment not related to energy activities, as well as the distribution of the cash surrender value of the insurance policies, and the related revenue and expenses associated with these assets and liabilities. Pursuant to the Merger Agreement, Cody Company was required to hold cash at the date of the Merger sufficient to fund the payment of Federal and state income and franchise taxes as of the Merger date as well as severance and bonus expenses noted in (i) below. These funds were made available from the monetization of marketable securities and receivables from the sale of securities that otherwise would have been distributed to the shareholders of Cody Company. b) To reflect the payment of the investment banking transaction fee and the payment of executive and employee severance and bonus plans prior to closing. These costs were the responsibility of the former shareholders of Cody Company. c) To record the tax liability related to the Assignment and Assumption of certain assets and liabilities to Cody Company shareholders and the tax liability related to the closing the short sale of certain marketable securities as set forth below (in thousands): Estimated Total Tax Liability $ 26,871 Estimated Tax Payments (10,047) Previously Recorded Tax Liability (1,900) --------- Adjustment to Fair Value of Tax Liability $ 14,924 ========= d) To reflect the elimination of the Cody Company historical property and equipment of $111.8 million and record such amounts at fair value based on the purchase price allocation, inclusive of acquisition related fees and costs associated with the closing of the transaction, as noted in M below, and deferred income taxes to reflect the difference between the purchase price allocated to the properties acquired and their associated remaining tax basis acquired. The table below sets forth the allocation of the purchase price (in thousands): Unproved oil & gas properties $ 29,931 Proved oil & gas properties 275,653 Net working capital items 9,232 --------- Total net assets 314,816 Acquisition related fees and costs (4,451) Deferred tax component (79,152) --------- Total cash and equity consideration $ 231,213 ========= 7 The purchase price allocation has been based on preliminary estimates of fair value and is subject to adjustment as additional information becomes available and is evaluated. Pursuant to the Merger Agreement, Cody Company was required to hold cash at the date of the Merger sufficient to fund the payment of Federal and state income and franchise taxes as of the Merger date as well as severance and bonus expenses noted in (i) below. These funds were made available from the monetization of marketable securities and receivables from the sale of securities that otherwise would have been distributed to the shareholders of Cody Company. e) To reflect the reclassification of certain balances to conform to the classification of such items in Cabot's historical financial statements. f) To reflect the accrual of legal and accounting fees associated with the closing of the acquisition of Cody Company. g) To reflect escrowed purchase price consideration and the associated liability payable to the former shareholders of Cody Company. h) To reflect the financing of the acquisition with long-term debt and class A common stock and the elimination of the remaining equity of Cody Company totaling $118.1 million. Cash consideration paid to former Cody Company shareholders was financed by the issuance of $170 million of 7.3% weighted average fixed rate debt instruments and $11.4 million from Cabot's existing revolving line of credit. The class A common stock consisted of 1,999,993 shares valued at $24.93 per share which represents the average closing price for the three-day period surrounding the date of announcement. i) To reflect the reduction of expenses related to Cody Company severance and bonus plans which were paid by the former shareholders of Cody Company pursuant to the Merger Agreement. These costs were the responsibility of the former shareholders of Cody Company. j) To reflect the incremental depletion, depreciation and amortization resulting from the increase in property and equipment. k) To reflect the interest expense associated with the debt component of the acquisition at a weighted average fixed interest rate of 7.14%. l) To reflect the reduction in income tax expense at the statutory tax rate of 39%. m) To reflect the accrual of acquisition related fees and costs (See D above). 8 (c) Exhibits. 2.1 -- Agreement and Plan of Merger, dated as of June 20, 2001, among Cabot Oil & Gas Corporation, COG Colorado Corporation, Cody Company and the shareholders of Cody Company. (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K for the event dated June 20, 2001.) 2.2* -- Amendment to Agreement and Plan of Merger dated as of July 10, 2001 to the Agreement and Plan of Merger, dated June 20, 2001, among Cabot Oil & Gas Corporation, COG Colorado Corporation, Cody Company and the shareholders of Cody Company. 2.3* -- Closing Agreement dated August 16, 2001. 4.1* -- Note Purchase Agreement dated as of July 26, 2001 among Cabot Oil & Gas Corporation and the Purchasers listed therein. 23.1 -- Consent of Netherland Sewell & Associates, Inc. 23.2 -- Consent of Hein + Associates LLP. 99.1* -- Press Release dated August 16, 2001. 99.2 -- Consolidated Financial Statements of Cody Company as of June 30, 2001 (unaudited) and December 31, 2000, and for the six month period ended June 30, 2001 (unaudited) and for the twelve months ended December 31, 2000. __________________ * Filed with the Form 8-K as originally filed on August 30, 2001. 9 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CABOT OIL & GAS CORPORATION By: /s/ Scott C. Schroeder ---------------------------------- Scott C. Schroeder Vice President, Chief Financial Officer and Treasurer Date: January 4, 2002 10 EX-23.1 3 dex231.txt CONSENT OF NETHERLAND SEWELL & ASSOC., INC. Exhibit 23.1 CONSENT OF NETHERLAND, SEWELL & ASSOCIATES, INC. As independent oil and gas consultants, Netherland, Sewell & Associates, Inc. hereby consents to the use of our report, as of January 1, 2001, dated October 22, 2001, setting forth the Cody Energy, LLC proved developed producing oil and gas reserves and revenue estimates for properties located in Louisiana, New Mexico, and Texas. We hereby consent to all references to our firm included in or made a part of Form 8-K, filed by Cabot Oil & Gas Corporation. NETHERLAND, SEWELL & ASSOCIATES, INC. By: /s/ Danny D. Simmons -------------------- Danny D. Simmons Senior Vice President Houston, Texas October 29, 2001 EX-23.2 4 dex232.txt CONSENT OF HEIN & ASSOCIATES Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 33-35478, 33-71134, 33-52723, and 333-83819) and Form S-3 (File No. 333-68350) of Cabot Oil & Gas Corporation of our report dated March 16, 2001 relating to the consolidated financial statements of Cody Company, which appears in the Cabot Oil & Gas Company Form 8-K/A. Hein & Associates LLP January 4, 2002 EX-99.2 5 dex992.txt CODY COMPANY FINANCIALS INDEX TO FINANCIAL STATEMENTS EXHIBIT 99.2
PAGE ---- Independent Auditor's Report ............................................................................. F-2 Consolidated Balance Sheets - June 30, 2001 (unaudited) and December 31, 2000 ............................ F-3 Consolidated Statements of Operations - For the Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 ............................................................ F-4 Consolidated Statements of Comprehensive Income - For the Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 ................................................ F-5 Consolidated Statement of Changes in Stockholders' Equity - For the Period from January 1, 2000 through June 30, 2001 (unaudited) ................................................................... F-6 Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2001 (unaudited) and for the Year Ended December 31, 2000 ............................................................ F-7 Notes to Consolidated Financial Statements ............................................................... F-8
F-1 INDEPENDENT AUDITOR'S REPORT Board of Directors and Stockholders Cody Company and Subsidiaries Denver, Colorado We have audited the accompanying consolidated balance sheet of Cody Company and Subsidiaries (the "Company"), as of December 31, 2000, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audit provides 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 Cody Company and Subsidiaries as of December 31, 2000, and the results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. HEIN + ASSOCIATES LLP Denver, Colorado March 16, 2001 CODY COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 2001 December 31, (unaudited) 2000 ------------- ------------ ($ in 000's) ASSETS ------ Current Assets: Cash and cash equivalents $ 1,028 $ 8,061 Marketable securities, at fair value 33,440 34,559 Receivables, sale of securities 32,177 32,177 Accounts receivable, net 11,538 11,540 Current income tax receivable 10,047 - Current portion of notes receivable 25 26 Other current assets 3,636 4,362 -------------- -------------- Total current assets 91,891 90,725 Property and Equipment Oil and gas properties, under the successful efforts method, net 111,440 109,526 Other, net 16,569 14,458 -------------- -------------- Total property and equipment 128,009 123,984 Notes Receivable and Other 793 801 Cash Surrender Value of Life Insurance Policies 27,450 27,388 -------------- -------------- Total Assets $ 248,143 $ 242,898 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Accounts payable $ 5,419 $ 8,965 Accrued liabilities 23,386 7,214 Taxes payable 1,900 - Deferred income taxes 11,416 10,200 Other current liabilities 7,802 7,770 -------------- -------------- Total current liabilities 49,923 34,149 Long-term Debt 50 22,700 Deferred Income Taxes 8,939 5,800 Commitments and Contingencies (Note 9) Stockholders' Equity: Common stock, no par value; 500,000 shares authorized; 448,164 shares issued and outstanding - - Additional paid-in capital 60,451 60,451 Retained earnings 124,823 115,630 Accumulated other comprehensive income 3,957 4,168 -------------- -------------- Total stockholders' equity 189,231 180,249 -------------- -------------- Total Liabilities and Stockholders' Equity $ 248,143 $ 242,898 ============== ==============
See accompanying notes to these consolidated financial statements. F-3 CODY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ending For the Year June 30, Ending 2001 December 31, (unaudited) 2000 ----------------- --------------- ($ in 000's) Revenues: Oil and gas sales $ 53,368 $ 64,813 Ranching 661 4,874 Investment income 1,250 4,388 Sales of land held for development - 1,407 Other income 3,387 660 --------------- --------------- Total revenues 58,666 76,142 --------------- --------------- Costs and Expenses: Oil and gas operations: Lease operating 5,464 9,992 Severance taxes and marketing 905 5,319 Exploratory and other oil and gas costs 477 2,552 Ranching 657 1,600 Land operations - 1,073 General and administrative 5,394 7,207 Severance expense and merger costs 12,552 3,600 Depletion, depreciation and amortization 9,338 19,628 --------------- --------------- Total costs and expenses 34,787 50,971 --------------- --------------- Income From Operations 23,879 25,171 Interest expense (475) (2,931) Gain (loss) on sale of assets 4 (1,369) Other 62 576 --------------- --------------- Income Before Income Taxes and Cumulative Effect of Change in Accounting Principle 23,470 21,447 Income tax expense (12,153) (3,912) --------------- ---------------- Income Before Cumulative Effect of a Change in Accounting Principle 11,317 17,535 Cumulative effect of change in accounting for derivatives, net of income tax benefit of ($1,252) (2,124) - --------------- --------------- Net Income $ 9,193 $ 17,535 =============== ===============
See accompanying notes to these consolidated financial statements. F-4 CODY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Six Months Ending June 30, For the Year 2001 Ending December (unaudited) 31, 2000 --------------- ------------------ ($ in 000's) Net Income $ 9,193 $ 17,535 Change in Unrealized Gains on Available for Sale Securities, Net of Income Taxes: (211) 703 --------------- --------------- Comprehensive Income $ 8,982 $ 18,238 =============== ===============
See accompanying notes to these consolidated financial statements. F-5 CODY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH JUNE 30, 2001 ($ in 000's)
Unrealized Gains On Common Stock Additional Securities Total ------------------------- Paid-in Retained Available- Stockholders' Shares Amount Capital Earnings For-sale Equity ------------ ---------- -------------- ------------- ---------------- --------------- Balances, January 1, 2000 448,164 $ - $ 60,451 $ 98,095 $ 3,465 $ 162,011 Net change in unrealized gain - - - - 703 703 Net income - - - 17,535 - 17,535 ---------- --------- ------------- ------------ -------------- --------------- Balances, December 31, 2000 448,164 - 60,451 115,630 4,168 180,249 Net change in unrealized gain (unaudited) - - - - (211) (211) Net income (unaudited) - - - 9,193 - 9,193 ---------- --------- ------------- ------------ -------------- --------------- Balances, June 30, 2001 (unaudited) 448,164 $ - $ 60,451 $ 124,823 $ 3,957 $ 189,231 ========== ========= ============= ============ ============== ===============
See accompanying notes to these consolidated financial statements. F-6 CODY COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six For the Year Months Ending Ending June 30, 2001 December 31, (unaudited) 2000 ------------------ ---------------- ($ in 000's) Cash Flows from Operating Activities: Net income $ 9,193 $ 17,535 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle 2,124 - Depletion, depreciation and amortization 9,338 19,628 (Gain)/ loss on sale of oil and gas properties (102) (206) Change in cash surrender value of life insurance policies (62) (577) (Gain)/loss on sale of investments 98 1,575 Deferred income tax expense 5,736 469 Changes in operating assets and liabilities: Accounts receivable and accrued income 2 (6,102) Income tax receivable (10,047) - Prepaid expenses and other current assets (912) (1,121) Accounts payable and accrued liabilities 13,165 8,992 Other 162 495 -------------- ------------- Net cash provided by operating activities 28,695 40,688 Cash Flows from Investing Activities: Additions to property and equipment (13,697) (51,102) Proceeds from sale of oil and gas properties 436 1,169 Proceeds from sale of land - 950 Net sale of marketable securities 681 6,052 Decrease in notes receivable and other 9 2,067 -------------- ------------ Net cash used in investing activities (12,571) (40,864) Cash Flows from Financing Activities: Draw on short sale of equity securities (507) (1,138) Proceeds from long-term debt - 18,800 Payments on long-term debt (22,650) (21,300) -------------- ------------ Net cash used in financing activities (23,157) (3,638) -------------- ------------ Net Decrease in Cash and Cash Equivalents (7,033) (3,814) Cash and Cash Equivalents, at beginning of period 8,061 11,875 -------------- ------------ Cash and Cash Equivalents, at end of period $ 1,028 $ 8,061 ============== ============ Supplemental Cash Flow Information: Interest paid $ 489 $ 2,900 ============== ============ Income taxes paid $ 12,865 $ 4,746 ============== ============
See accompanying notes to these consolidated financial statements. F-7 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2001 is unaudited) 1. Organization and Summary of Significant Accounting Policies: ----------------------------------------------------------- Organization - Cody Company (Cody) was formed in 1967, as a wholly-owned ------------ subsidiary of The Gates Corporation (Gates), to act as a holding company for Gates' interests in the oil and gas industry. In 1996, Gates reorganized its holdings, and in a simultaneous spinoff, Cody received various Gates assets including Gates Land Company (a land development company located in Colorado Springs, Colorado), and A Bar A Ranch, Inc. (cattle and dude ranching (hospitality) operations located in Colorado and Wyoming, which are reporting as ranching for financial statement purposes). Oil and gas interests were also transferred from Gates to a wholly-owned Limited Liability Company, Cody Energy, LLC (CEL). Gates Land Company, Bear Creek Land, LLC and the ranches operate as divisions of Cody. Collectively, these entities, along with CEL, are referred to as "the Company." Cody is wholly owned by the Gates Family Foundation (2%) and Gates Family trusts and family members (98%) (See Note. 12.) CEL has two subsidiary companies, Cody Oil & Gas Inc. and Cody Texas, L.P. Cody Texas, L.P. is the general partner of five oil and gas limited partnerships, which are consolidated for financial statement purposes. The Company operates in four segments: oil and gas, hospitality, ranching, and land sales. The oil and gas operations represent over 90% of all identifiable segments. Cody Company does not consider marketable securities, receivables related to sale of marketable securities and cash surrender life insurance and income tax receivables as part of a reportable segment. Nature of Business - The Company's operating activities primarily consist ------------------ of oil and gas exploration, development and production in Texas, New Mexico, Oklahoma, and Louisiana. The Company is also engaged in land development in Colorado; and dude and cattle ranches in Wyoming and Colorado. In 2000, the Company had no significant land development operations in Colorado. In addition, the Company holds for investment purposes various stocks and bonds. Basis of Consolidation and Presentation - The consolidated financial --------------------------------------- statements include the accounts of Cody and subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated. Use of Estimates - The preparation of the Company's consolidated financial ---------------- statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company's financial statements are based on a number of significant estimates, including oil and gas reserve quantities which are the basis for the calculation of depreciation, depletion and impairment of oil and gas properties. CEL's reserve estimates were prepared by an independent petroleum engineering firm. Management emphasizes that reserve estimates are inherently imprecise and that estimates of more recent discoveries are more imprecise than those for properties with long production histories. In addition, recoverable reserves are directly correlated to the market price of oil and gas, which have been very volatile in F-8 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is audited) recent years. Accordingly, CEL's oil and gas reserve estimates are expected to change as future information becomes available and with changes in the market price of oil and gas. Cash and Cash Equivalents - The Company considers all highly liquid debt ------------------------- instruments purchased with an initial maturity of three months or less to be cash equivalents. Marketable Securities and Related Receivables and Other Liabilities - ------------------------------------------------------------------- Marketable securities are accounted for in accordance with Statement of Financial Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities. Pursuant to SFAS No. 115, the Company's securities are classified as available-for-sale based on management's intent. Investment securities are stated at market value, with unrealized gains and losses, net of applicable income taxes, reported as a separate component of stockholder's equity. These securities are primarily comprised of government and municipal bonds. In 1994, a portion of the Company's securities was sold short. Subsequent to June 30, 2001, the Company closed the short sale transaction. This amount is reflected as receivables, sale of securities. Also, at June 30, 2001 and December 31, 2000, the Company has a related note payable, the outstanding balance of which is $6,779,000 and $7,275,000, respectively. This amount is reflected as "other current liabilities" in the Company's balance sheet. This balance was also repaid after June 30, 2001. Notes Receivable - Notes receivable arise from sales of commercial property ---------------- and are classified in accordance with the term of the related agreement. Generally, the notes are collateralized by the underlying property. Oil and Gas Properties - The Company follows the successful efforts method ---------------------- of accounting for oil and gas properties. Under the successful efforts method, costs of productive wells, development dry holes, and productive leases are capitalized and amortized on a unit of production basis over the life of remaining related reserves. Cost centers for amortization purposes are determined on a field-by-field basis. Management estimates that the salvage value of lease and well equipment will approximately offset the future liability for plugging and abandonment of the related wells. Accordingly, no accrual for such costs has been recorded. Productive wells, development dry holes, and productive leasehold costs are evaluated periodically and any impairments in value are charged to expense (Note 6). Oil and gas leasehold costs are capitalized when incurred. Unproved properties are evaluated periodically and any impairments in value are charged to expense. Exploratory expenses, including geological and geophysical expenses and annual delay rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined to be unsuccessful. Ranches and Other Property and Equipment - Ranch improvements, livestock, ---------------------------------------- and other property and equipment (consisting primarily of furniture, fixtures, and computers) are depreciated and amortized by the straight-line method based on useful lives ranging from 31 years for ranch improvements and 3 to 7 years for livestock and other properties and equipment. F-9 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2001 is unaudited) Revenue Recognition - The Company recognizes oil and gas revenues as it is ------------------- produced. Purchase, sale, and transportation of natural gas and crude oil are recognized upon completion of the sale and when transported volumes are delivered. Land sales of Gates Land Company are recognized upon completion of the sale under the full accrual method. Income Taxes - The provision for income taxes has been determined using ------------ the liability method required by SFAS No. 109, Accounting for Income Taxes. Under this statement, a current or deferred income tax asset or liability is recognized, subject to certain limitations, for the tax consequences of all events recognized in the financial statements. The deferred income tax asset or liability is measured by the provisions of enacted tax law. Concentration of Market and Credit Risk - Financial instruments which --------------------------------------- subject the Company to concentrations of credit risk consist principally of available-for-sale securities and receivables. The Company's policy is to evaluate, prior to entering agreements, each purchaser's and partner's financial condition. The Company sells to purchasers with different geographic and economic characteristics. Receivables are generally uncollateralized, are from purchasers and partners and are predominantly from oil and gas companies generally located in southwestern region of the United States. Unaudited Information - The consolidated balance sheet as of June 30, 2001 --------------------- and the consolidated statement of operations for the six month periods ended June 30, 2001 were taken from the Company's books and records without audit. However, in the opinion of management, such information includes all adjustments (consisting only of normal recurring accruals) which are necessary to properly reflect the consolidated financial position of the Company as of June 30, 2001 and the results of operations for the six months then ended. New Accounting Pronouncements - In June 2001, the Financial Accounting ----------------------------- Standards Board ("FASB") issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method. For all business combinations for which the date of acquisition is after June 30, 2001, SFAS 141 also establishes specific criteria for the recognition of intangible assets separately from goodwill and requires unallocated negative goodwill to be written off immediately as an extraordinary gain, rather than deferred and amortized. SFAS 142 changes the accounting for goodwill and other intangible assets after an acquisition. The most significant changes made by SFAS 142 are: 1) goodwill and intangible assets with indefinite lives will no longer be amortized; 2) goodwill and intangible assets with indefinite lives must be tested for impairment at least annually; and 3) the amortization period for intangible assets with finite lives will no longer be limited to forty years. The Company does not believe that the adoption of these statements will have a material effect on its financial position, results of operations, or cash flows. In June 2001, the FASB also approved for issuance SFAS 143 "Asset Retirement Obligations." SFAS 143 establishes accounting requirements for retirement obligations associated with tangible long-lived assets, including (1) the timing of the liability recognition, (2) initial measurement of the liability, (3) allocation of asset retirement cost to expense, (4) subsequent measurement of the liability and (5) financial statement disclosures. SFAS 143 requires that an asset retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. The F-10 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2001 is unaudited) Company will adopt the statement effective no later than January 1, 2003, as required. The transition adjustment resulting from the adoption of SFAS 143 will be reported as a cumulative effect of a change in accounting principle. At this time, the Company cannot reasonably estimate the effect of the adoption of this statement on its financial position, results of operations, or cash flows. In August 2001, the FASB also approved SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 replaces SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The new accounting model for long-lived assets to be disposed of by sale applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, Reporting Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, for the disposal of segments of a business. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. The provisions of SFAS 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, are to be applied prospectively. At this time, the Company cannot estimate the effect of this statement on its financial position, results of operations, or cash flows. 2. Acquisitions: ------------ In 2000, CEL acquired working interest in the Raymondville Field for approximately $11.3 million. The Raymondville Field includes six producing wells. CEL also acquired a working interest in the Lopeno Field for approximately $10.9 million in cash in 2000. The Lopeno Field includes 34 producing wells. 3. Marketable Securities and Investment Income: ------------------------------------------- Marketable securities as of June 30, 2001 and December 31, 2000 consist of the following (in thousands):
Unrealized Marketable Cost Gain Securities --------------- -------------- --------------- June 30, 2001 ------------- Fixed income bonds and securities $ 33,204 $ 236 $ 33,440 December 31, 2000 ------------------ Fixed income bonds and securities $ 34,209 $ 350 $ 34,559
Fixed income securities generally consist of government and municipal bonds. F-11 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) Investment income consists of dividends and interest. 4. Accounts Receivable: ------------------- Accounts receivable are comprised of the following:
June 30, December 31, 2001 2000 ---------------- -------------- ($ in 000's) Oil and gas sales, net of allowance for doubtful accounts of $0 and $12 $ 9,500 $ 9,633 Joint interest billings, net of allowance for doubtful accounts of $20 and $20 1,399 1,654 Other 639 253 ------------- ------------- Net accounts receivable $ 11,538 $ 11,540 ============= =============
F-12 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited) 5. Property and Equipment: ---------------------- Property and equipment, at cost, by significant categories are as follows:
June 30, December 31, 2001 2000 ------------- -------------- ($ in 000's) Oil and Gas Properties: Producing properties $ 186,855 $ 177,655 Unevaluated 4,275 3,628 Well and field equipment 40,680 40,096 ------------- ------------- 231,810 221,379 Less accumulated depletion, depreciation and amortization (120,370) (111,853) ------------- ------------- $ 111,440 $ 109,526 ============= ============= Other: Land and building in progress $ 4,879 $ 2,535 Ranches 12,434 12,223 Other 9,695 9,707 ------------- ------------- 27,008 24,465 Less accumulated depreciation and amortization (10,439) (10,007) ------------- ------------- $ 16,569 $ 14,458 ============= =============
6. Impairment of Long-lived Assets: ------------------------------- The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Impairment amounts are offset directly to the related assets. A substantial portion of the Company's long-lived assets are oil and gas producing properties. The Company evaluates these properties on a field-by-field basis by comparing estimated undiscounted future net cash flows to the net book value. If such comparisons are negative, then the properties are adjusted to their estimated fair value. Based upon this evaluation, CEL determined that no impairments were required at December 31, 2000 and June 30, 2001. F-13 7. Long-Term Debt: -------------- The following is a summary of CEL's debt (in thousands): June 30, December 31, 2001 2000 --------------- ---------------- Note payable to bank $ 50 $ 22,700 =============== ================ The Company has a note payable to the bank with available credit of $45 million. The note is due in quarterly installments plus interest commencing January 1, 2002 with the first principal payment due March 31, 2002. The interest rates fluctuate based on the bank's prime or Eurodollar rate as elected by CEL. The interest rates on various debt tranches were 6.02% (June 30, 2001) and 8.105% (December 31, 2000). The notes are collateralized by the Company's oil and gas properties including those held by the partnerships, and require CEL to maintain certain working capital and borrowing base ratios and impose limitations on dividends, interest, principal payments, acquisitions and sales of property. Future minimum maturities for subsequent years as of December 31, 2000, are as follows (in 000's): 2001 $ - 2002 5,675 2003 5,675 2004 5,675 2005 5,675 ----------- $ 22,700 =========== During the six months ended June 30, 2001, the Company repaid all its outstanding debt except for $50,000. This remaining $50,000 was repaid subsequent to June 30, 2001. 8. Oil and Gas Derivatives: ----------------------- At December 31, 2000, CEL was a party to several derivative agreements, primarily in the form of costless collars. The majority of these agreements expired in June 2001. Under these agreements, CEL is required to pay a third party a cash settlement equal to the excess of the New York Mercantile (NYMEX) settlement price over an agreed upon strike price for certain volumes of oil and gas. The Company receives cash from the third party when the NYMEX settlement price falls below the agreed upon strike price. The agreements are generally for 6 to 12-month periods. Prior to December 31, 2000, CEL designated these agreements as hedges up to the amount of actual production. In addition, CEL requires the NYMEX swap price to be at least 80% correlated with prices in its market. F-14 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited) Effective January 1, 2001, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." The Company did not designate the contracts for hedge accounting under SFAS 133, and therefore all realized and unrealized gains and losses have been immediately recorded in the Statement of Operations for the six months ending June 30, 2001. As of January 1, 2001, the fair value of the derivative instruments was approximately ($3,376,000). This amount is recorded, net of income tax benefit, in statement of operations as a cumulative effect from change in accounting principle. At June 30, 2001, CEL has one put option for which it receives payment from a third party equal to the excess of the strike price over the NYMEX settlement price for the option period on the specified volumes. If the NYMEX settlement price exceeds the strike price, no payment is exchanged. The fair value of this put option was $130,000 at June 30, 2001, and is recorded in current assets as the contract will expire within the next six months. All other contracts expired during the six months ended June 30, 2001. Recorded with Other Income is the Unrealized gain associated with the change in fair value of derivative instruments totaling $3,506,000 for the period. In addition, Other Income also includes realized losses of $1,738,000 associated with the settlement of derivative instruments that did not qualify for hedge accounting. 9. Commitments and Contingencies: ----------------------------- Significant Customer - CEL and a purchaser have executed long-term gas -------------------- purchase agreements covering several properties. These agreements provide for CEL to sell produced gas at market responsive prices which are tied to published indexes and have a term for the life of production. Sales to this purchaser and its affiliate represented 11% and 12% of total oil and gas sales for the six months ended June 30, 2001 and the year ended December 31, 2000, respectively. In addition, CEL sold 34% and 47% of its production to three other purchasers during the six months ended June 30, 2001 and the year ended December 31, 2000, respectively. Lease Arrangements - The Company leases its office space and equipment ------------------ under noncancelable operating leases. Future minimum rental commitments, by year and in the aggregate, for operating leases are as follows as of December 31, 2000: ($ in 000's) -------------- 2001 $ 563 2002 544 2003 522 2004 19 ------------- $ 1,648 ============= Rental expense was approximately $282,000 and $543,000 for the six months ended June 30, 2001 and the year ended December 31, 2000. F-15 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) Partnership Commitments - Cody Texas, L.P. as general partner of five ----------------------- limited partnerships is required to meet obligations of the partnerships if these partnerships do not generate sufficient cash flow. No payments were required under the terms of the partnership agreements in 2000 and the six months ended June 30, 2001. Employment Agreements - CEL is obligated under employment agreements --------------------- with senior management to provide specific severance amounts upon the occurrence of certain events. Also in connection with the merger of the Company, Cody has advised CEL's employees it will provide certain benefits to CEL's employees. Pursuant to these arrangements, CEL and Cody expensed $3,600,000 during 2000 and $9,568,000 during the six months ended June 30, 2001. Profit Sharing - CEL has a profit sharing plan for all employees based -------------- on a percentage of adjusted income. Total expense under the plan was approximately $530,000 for the six months ending June 30, 2001, and $903,000 in 2000. Contingencies - Various Federal, state, and local laws and regulations ------------- covering the release of waste materials into the environment affect the Company's operations and costs. Management believes it is in substantial compliance with environmental laws and the ultimate resolution of any claims or legal proceedings instituted against it will not have a material adverse effect on the Company's financial position, results of operations or cash flows. 10. Income Taxes: ------------ Deferred tax assets and liabilities reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Current deferred tax liabilities relate primarily to gains on securities ($11,800,000 at December 31, 2000), which have been deferred for tax purposes, but recognized for financial reporting in prior periods, net of deferred tax assets created primarily by severance arrangements ($1,200,000) and capital loss carryforwards ($400,000). Long-term tax liabilities differences are primarily due to intangible drilling costs, depreciation, depletion, and impaired properties totaling approximately $5,800,000, which are recorded in different periods for financial and tax reporting purposes. The provision for income taxes includes the following components: June 30, December 31, 2001 2000 ------------- ------------- Current expense $ 6,417 $ 3,443 Deferred tax expense 4,484 469 ------------- ------------- Total $ 10,901 $ 3,912 ============= ============= F-16 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) The difference between the U.S. Federal statutory rate and the Company effective tax rate is as follows:
June 30, December 31, 2001 2000 -------------- --------------- U.S. Federal statutory rate 34% 34% State taxes 3% 2% Foreign taxes 1% - Tax exempt interest (1%) (4%) Non deductible merger expenses 6% - Other 11% (14%) -------- ---------- Tax expense per financial statements 54% 18% ======== ==========
11. Defined Contribution Plan: ------------------------- The Company has a defined contribution plan which qualifies under Section 401(k) of the Internal Revenue Code. It covers all full-time employees at date of employment. Subject to maximums imposed by the Internal Revenue Service, the Company matches 100% of the employee's contributions up to 6% of the employee's annual compensation if the employee contributes at least 3% of annual compensation. All employer contributions are fully vested at the time of contribution. Company contributions were approximately $200,000 for the year ended December 31, 2000 and the six months ended June 30, 2001. 12. Subsequent Event (Unaudited): ---------------------------- Subsequent to June 30, 2001, the Company merged with a subsidiary of Cabot Oil & Gas Corporation. In the merger, total consideration was approximately $230 million, consisting of $181 million in cash and approximately 2,000,000 shares at Cabot Class A common stock valued at approximately $49 million. Prior to the merger, substantially all non-oil and gas related assets were distributed to an entity owned by the shareholders of the Cody Company. This entity is not affiliated with Cabot Oil & Gas Corporation. F-17 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) 13. Oil and Gas Producing Activities: -------------------------------- Costs Incurred in Oil and Gas Producing Activities - Costs incurred in oil -------------------------------------------------- and gas producing activities during the year ended December 31, 2000 are set forth below (in thousands): 2000 ----------- Property acquisition costs (including lease and well equipment): Proved properties $ 25,278 Unproved properties 1,118 ----------- $ 26,396 Exploration costs $ 2,552 =========== Development costs $ 18,101 =========== Results of Operations for Oil and Gas Producing Activities - The ---------------------------------------------------------- following table sets forth the direct results of operations from oil and gas producing and exploration activities (excluding corporate overhead, interest, and income taxes) for the year ending December 31, 2000 (in thousands). 2000 ------------ Sales $ 64,813 Production costs (16,582) Exploration expenses (2,552) Depreciation, depletion and amortization (18,974) ------------ Results of operations from producing and exploration activities (excluding corporate overhead and interest costs) $ 26,705 ============ 14. Estimated Proved Oil and Gas Reserves (unaudited): ------------------------------------------------- Reserve information presented below is based upon reports prepared by independent petroleum reservoir engineers (Netherland, Sewell and Associates, Inc.). Reserve estimates are inherently imprecise and estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. F-18 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) 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. Proved developed oil and gas reserves are those expected to be recovered through existing wells with existing equipment and operating methods. Estimated Reserve Quantities - Net quantities of crude oil (including ---------------------------- condensate and natural gas liquids) and natural gas for the Company as of the beginning and the end of the years ended December 31, 2000, as well as the changes in proved reserves, are set forth in the tables below (in thousands). Oil Gas (bbls) (mcf) ----------- ---------- (in thousands) Total Proved Reserves: Balance, January 1, 2000 8,741 70,046 Revisions of previous estimates 2,891 4,123 Sales of reserves (10) (577) Extensions, discoveries, and purchases 1,593 40,516 Production (534) (15,394) ---------- ----------- Balance, December 31, 2000 12,681 98,714 ========== =========== Proved Developed Reserves: Balance, January 1, 2000 5,951 47,840 ========== =========== Balance, December 31, 2000 7,430 63,939 ========== =========== Standardized Measure of Discounted Future Net Cash Flows Relating to Proved --------------------------------------------------------------------------- Reserves - The following tables set forth the computation of the -------- standardized measure of discounted future net cash flows relating to proved reserves (in thousands). The standardized measure is the estimated future cash inflows from proved reserves less estimated future production and development costs and estimated future income taxes. Future cash inflows represent expected revenues from the production of proved reserves based on prices and any fixed determinable future escalation provided by contractual arrangements in existence at the fiscal year end. Escalation based on inflation, federal regulatory changes and supply and demand is not considered. Estimated future production and development costs related to future production of reserves are based on historical costs. Such costs include, but are not limited to, drilling development wells and installation of production facilities. Inflation and other anticipatory costs are not considered until the actual cost change takes effect. Estimated future income tax expenses are computed using the appropriate year-end statutory tax rates. Consideration is given to the effects of permanent differences, tax credits and allowances. A discount rate of 10% is applied to the annual future net cash flows after income taxes. F-19 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) The methodology and assumptions used in calculating the standardized measure are those required by SFAS No. 69. It is not intended to be representative of the fair market value of proved reserves. The valuations of revenues and costs do not necessarily reflect the amounts to be received or expended by the Company. In addition to the valuations used, numerous other factors are considered in evaluating known and prospective oil and gas reserves. Future net cash flows presented below are computed using a year-end price of $26.80 per bbl for oil, $9.52 per MMBtu for gas, and $30.32 per bbl for natural gas liquids.
For the Year Ended December 31, 2000 ------------ Future cash inflows $ 1,291,208 Future production and development costs (345,460) Future income taxes payable to parent (289,987) ----------- Net future cash flows 655,761 10% annual discount for estimated timing of cash flows (277,660) ----------- Standardized measure of discounted future net cash flows $ 378,101 ===========
F-20 CODY COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Information for periods subsequent to December 31, 2000 is unaudited.) The principal sources of the changes in the standardized measure of discounted future net cash flows are as follows (in thousands):
For the Year Ended December 31, 2000 ------------------ Extensions, discoveries, additions $ 26,221 Acquisition of oil and gas reserves 133,622 Sales and transfers net of production costs (48,230) Revisions in quantity estimates 22,856 Sale of producing properties (332) Changes in estimated future development costs (33,491) Previously estimated development costs incurred during the year 8,511 Net change due to changes in prices and production costs 271,495 Net change in income taxes (138,296) Accretion of discount 9,443 Other 31,867 --------------- Net increase (decrease) 283,666 Beginning of year 94,435 --------------- End of year $ 378,101 ===============
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