-----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, N3CZf6ctpXKgNX4jfceREvi1tWWWdGIdqEm1uXc426KiqrbBfkgiLRtd1kktMvP3 B/W+K9PpCqGgbNRCaXJkkw== 0000950152-97-007632.txt : 19971106 0000950152-97-007632.hdr.sgml : 19971106 ACCESSION NUMBER: 0000950152-97-007632 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BELDEN & BLAKE CORP /OH/ CENTRAL INDEX KEY: 0000880114 STANDARD INDUSTRIAL CLASSIFICATION: DRILLING OIL & GAS WELLS [1381] IRS NUMBER: 341686642 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-20100 FILM NUMBER: 97708498 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 2164991660 MAIL ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 10-Q 1 BELDEN & BLAKE CORPORATION 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____________________________to _____________________________ Commission File Number: 0-20100 BELDEN & BLAKE CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Ohio 34-1686642 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5200 Stoneham Road North Canton, Ohio 44720 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (330) 499-1660 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) 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 Number of common shares of Belden & Blake Corporation Outstanding as of October 31, 1997 10,000,000 2 BELDEN & BLAKE CORPORATION INDEX - --------------------------------------------------------------------------------
Page ---- PART I Financial Information: - ------ Item 1. Financial Statements Consolidated Balance Sheets as of September 30, 1997 and 1 December 31, 1996 Consolidated Statements of Operations for the Successor 3 Company three months ended September 30, 1997 and the Predecessor Company six months ended June 30, 1997 and three and nine months ended September 30, 1996 Consolidated Statements of Shareholders' Equity for the 4 Successor Company three months ended September 30, 1997 and Predecessor Company six months ended June 30, 1997 and the years ended December 31, 1996 and 1995 Consolidated Statements of Cash Flows for the Successor Company 5 three months ended September 30, 1997 and the Predecessor Company six months ended June 30, 1997 and nine months ended September 30, 1996 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition 10 and Results of Operations PART II Other Information - ------ Item 6. Exhibits and Reports on Form 8-K 17
3 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SUCCESSOR | PREDECESSOR COMPANY | COMPANY ================ | ================= SEPTEMBER 30, | DECEMBER 31, 1997 | 1996 ================ | ================ (UNAUDITED) | | ASSETS | | CURRENT ASSETS | Cash and cash equivalents $ 6,879 | $ 8,606 Accounts receivable, net 32,496 | 33,523 Inventories 8,550 | 9,397 Deferred income taxes 2,739 | 2,918 Other current assets 5,128 | 2,280 ---------------- | ---------------- TOTAL CURRENT ASSETS 55,792 | 56,724 | PROPERTY AND EQUIPMENT, AT COST | Oil and gas properties (successful efforts method) 470,804 | 266,521 Gas gathering systems 19,119 | 26,045 Land, buildings, machinery and equipment 25,809 | 31,578 ---------------- | ---------------- 515,732 | 324,144 Less accumulated depreciation, depletion | and amortization 14,518 | 86,808 ---------------- | ---------------- PROPERTY AND EQUIPMENT, NET 501,214 | 237,336 | OTHER ASSETS 31,487 | 9,703 ---------------- | ---------------- $ 588,493 | $ 303,763 ================ | ================
The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 1 4 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SUCCESSOR | PREDECESSOR COMPANY | COMPANY ================ | ================= SEPTEMBER 30, | DECEMBER 31, 1997 | 1996 ================ | ================ (UNAUDITED) | | LIABILITIES AND SHAREHOLDERS' EQUITY | | CURRENT LIABILITIES | Accounts payable $ 9,105 | $ 9,421 Accrued expenses 30,679 | 20,990 Current portion of long-term liabilities 1,348 | 4,203 ---------------- | ---------------- TOTAL CURRENT LIABILITIES 41,132 | 34,614 | LONG-TERM LIABILITIES | Bank and other long-term debt 104,314 | 59,216 Senior notes -- | 31,111 Senior subordinated notes 225,000 | -- Convertible subordinated debentures -- | 5,550 Other 4,308 | 1,765 ---------------- | ---------------- 333,622 | 97,642 | DEFERRED INCOME TAXES 111,319 | 12,589 | SHAREHOLDERS' EQUITY | Predecessor common stock without par value; $.10 stated | value per share; authorized 50,000,000 shares; | issued and outstanding 11,231,865 shares | 1,123 Successor common stock without par value; $.10 stated | value per share; authorized 58,000,000 shares; | issued and outstanding 10,000,000 shares 1,000 | Predecessor preferred stock without par value; $100 stated | value per share; authorized 8,000,000 shares; | issued and outstanding 24,000 shares | 2,400 Paid in capital 107,230 | 128,035 Retained (deficit) earnings (5,810) | 27,395 Unearned portion of restricted stock -- | (35) ---------------- | ---------------- TOTAL SHAREHOLDERS' EQUITY 102,420 | 158,918 ---------------- | ---------------- $ 588,493 | $ 303,763 ================ | ================
The balance sheet at December 31, 1996 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See accompanying notes. 2 5 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
SUCCESSOR | PREDECESSOR SUCCESSOR | PREDECESSOR COMPANY | COMPANY COMPANY | COMPANY ----------------- | -------------- ----------------| -------------------------------- THREE MONTHS | THREE MONTHS THREE MONTHS | SIX MONTHS NINE MONTHS ENDED | ENDED ENDED | ENDED ENDED SEPTEMBER 30, | SEPTEMBER 30, SEPTEMBER 30, | JUNE 30, SEPTEMBER 30, 1997 | 1996 1997 | 1997 1996 ================= | =============== ===============| =============== ================ | | REVENUES | | Oil and gas sales $ 19,770 | $ 19,075 $ 19,770| $ 41,591 $ 57,265 Gas marketing and gathering 10,613 | 9,835 10,613| 21,657 31,624 Oilfield sales and service 7,999 | 7,661 7,999| 14,665 18,583 Interest and other 736 | 814 736| 1,484 2,555 ---------------- |-------------- ---------------| --------------- ---------------- 39,118 | 37,385 39,118| 79,397 110,027 EXPENSES | | Production expense 5,255 | 4,655 5,255| 10,158 13,033 Production taxes 801 | 748 801| 1,647 2,259 Cost of gas and gathering expense 8,929 | 8,155 8,929| 18,340 26,145 Oilfield sales and service 6,989 | 6,759 6,989| 13,936 16,785 Exploration expense 1,925 | 1,548 1,925| 4,380 4,407 General and administrative expense 820 | 944 820| 2,445 3,059 Depreciation, depletion and amortization 15,619 | 7,240 15,619| 15,366 21,941 Franchise, property and other taxes 443 | 446 443| 908 1,328 ---------------- |-------------- ---------------| --------------- ---------------- 40,781 | 30,495 40,781| 67,180 88,957 ---------------- |-------------- ---------------| --------------- ---------------- OPERATING (LOSS) INCOME (1,663) | 6,890 (1,663)| 12,217 21,070 | | Interest expense 7,552 | 1,763 7,552| 3,715 5,587 Transaction related expenses | | 16,758 ---------------- |-------------- ---------------| --------------- ---------------- 7,552 | 1,763 7,552| 20,473 5,587 ---------------- |-------------- ---------------| --------------- ---------------- (LOSS) INCOME FROM CONTINUING | | OPERATIONS BEFORE INCOME TAXES (9,215) | 5,127 (9,215)| (8,256) 15,483 (Benefit) provision for income taxes (3,405) | 1,502 (3,405)| 1,617 5,031 ---------------- |-------------- ----------------|----------------- ---------------- (LOSS) INCOME FROM | | CONTINUING OPERATIONS (5,810) | 3,625 (5,810)| (9,873) 10,452 LOSS FROM DISCONTINUED OPERATIONS -- | (439) --| -- (439) ---------------- |-------------- ---------------| --------------- ---------------- NET (LOSS) INCOME $ (5,810) | $ 3,186 $ (5,810)| $ (9,873) $ 10,013 ================ | ============== ===============| =============== ================
See accompanying notes. 3 6 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
SUCCESSOR PREDECESSOR ===================== =================== COMMON COMMON COMMON COMMON PREFERRED PAID IN SHARES STOCK SHARES STOCK STOCK CAPITAL ========= =========== ======== ========= ========== ============ PREDECESSOR COMPANY: JANUARY 1, 1995 -- $ -- 7,085 $ 709 $ 2,400 $ 70,379 Stock issued 4,028 403 55,264 Net income Preferred stock dividend Stock options exercised 2 -- 25 Employee stock bonus 22 2 251 Restricted stock 144 - ---------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1995 -- -- 11,137 1,114 2,400 126,063 Net income Preferred stock dividend Stock options exercised and related tax benefit 3 -- 47 Employee stock bonus 26 3 418 Restricted stock activity 4 -- 263 Conversion of debentures 62 6 1,244 - ---------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1996 -- -- 11,232 1,123 2,400 128,035 Net loss Preferred stock redeemed (2,400) Preferred stock dividend Subordinated debentures converted to common stock 275 27 5,523 Stock options exercised and surrendered and related tax benefit 1 -- 1,596 Employee stock bonus 36 4 926 Restricted stock activity 17 - ---------------------------------------------------------------------------------------------------------------- JUNE 30, 1997 (UNAUDITED) -- $ -- 11,544 $ 1,154 -- $ 136,097 - ---------------------------------------------------------------------------------------------------------------- SUCCESSOR COMPANY: Redemption of common stock (11,544) (1,154) (136,097) Sale of common stock to TPG 10,000 1,000 107,230 Net loss - ---------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, 1997 (UNAUDITED) 10,000 $ 1,000 -- $ -- $ -- $ 107,230 ================================================================================================================ UNEARNED RETAINED RESTRICTED EARNINGS STOCK TOTAL ========== =========== ============= PREDECESSOR COMPANY: JANUARY 1, 1995 $ 7,879 $ (225) $ 81,142 Stock issued 55,667 Net income 5,121 5,121 Preferred stock dividend (180) (180) Stock options exercised 25 Employee stock bonus 253 Restricted stock 119 263 - -------------------------------------------------------------------------------- DECEMBER 31, 1995 12,820 (106) 142,291 Net income 14,755 14,755 Preferred stock dividend (180) (180) Stock options exercised and related tax benefit 47 Employee stock bonus 421 Restricted stock activity 71 334 Conversion of debentures 1,250 - -------------------------------------------------------------------------------- DECEMBER 31, 1996 27,395 (35) 158,918 Net loss (9,873) (9,873) Preferred stock redeemed (2,400) Preferred stock dividend (45) (45) Subordinated debentures converted to common stock 5,550 Stock options exercised and surrendered and related tax benefit 1,596 Employee stock bonus 930 Restricted stock activity 35 52 - -------------------------------------------------------------------------------- JUNE 30, 1997 (UNAUDITED) $ 17,477 $ -- $ 154,728 - -------------------------------------------------------------------------------- SUCCESSOR COMPANY: Redemption of common stock (17,477) (154,728) Sale of common stock to TPG 108,230 Net loss (5,810) (5,810) - -------------------------------------------------------------------------------- SEPTEMBER 30, 1997 (UNAUDITED) $ (5,810) $ -- $ 102,420 ================================================================================
See accompanying notes. 4 7 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SUCCESSOR | PREDECESSOR COMPANY | COMPANY ------------------- | ------------------------------------- THREE MONTHS | SIX MONTHS NINE MONTHS ENDED | ENDED ENDED SEPTEMBER 30, | JUNE 30, SEPTEMBER 30, 1997 | 1997 1996 =================== | =============== ================== | CASH FLOWS FROM OPERATING ACTIVITIES: | Net (loss) income $ (5,810) | $ (9,873) $ 10,013 Adjustments to reconcile net (loss) income to net cash | provided by operating activities: | Depreciation, depletion and amortization 15,619 | 15,366 21,941 Transaction related expenses -- | 15,903 -- Loss (gain) on disposal of property and equipment 17 | 356 393 Deferred income taxes (3,093) | 3,125 2,832 Deferred compensation and stock grants 26 | 1,756 840 Change in operating assets and liabilities, net of | effects of purchases of businesses: | Accounts receivable and other operating assets (3,103) | 1,237 791 Inventories 736 | 112 (322) Accounts payable and accrued expenses (1,800) | 4,800 (1,449) ------------------- | --------------- ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 2,592 | 32,782 35,039 | CASH FLOWS FROM INVESTING ACTIVITIES: | Acquisition of businesses, net of cash acquired (196) | (9,263) (4,490) Proceeds from property and equipment disposals 520 | 704 2,128 Additions to property and equipment (12,892) | (18,419) (24,269) Decrease (increase) in other assets 124 | (9,496) (500) ------------------- | --------------- ------------------ NET CASH USED IN INVESTING ACTIVITIES (12,444) | (36,474) (27,131) | CASH FLOWS FROM FINANCING ACTIVITIES: | Proceeds from revolving line of credit and long-term debt -- | 46,000 12,105 Proceeds from new credit agreement 2,000 | 104,000 -- Proceeds from senior subordinated notes -- | 225,000 -- Repayment of long-term debt and other obligations (2,591) | (140,325) (20,907) Payment to shareholders and optionholders -- | (203,934) -- Transaction related expenses -- | (15,903) -- Preferred stock redeemed -- | (2,400) -- Preferred stock dividends -- | (45) (135) Proceeds from sale of common stock and stock options -- | 15 -- ------------------- | --------------- ------------------ NET CASH PROVIDED BY (USED IN) | FINANCING ACTIVITIES (591) | 12,408 (8,937) ------------------- | --------------- ------------------ NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (10,443) | 8,716 (1,029) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,322 | 8,606 12,322 ------------------- | --------------- ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,879 | $ 17,322 $ 11,293 ================== | ============== ================== CASH PAID DURING THE PERIOD FOR: | Interest $ 1,518 | $ 4,153 $ 6,472 Income taxes -- | 288 1,069 NON-CASH INVESTING AND FINANCING ACTIVITIES: | Debentures converted to stock -- | 5,550 -- Acquisition of assets in exchange for long-term obligations -- | 792 --
See accompanying notes. 5 8 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (UNAUDITED) SEPTEMBER 30, 1997 - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Belden & Blake Corporation (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and nine-month periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 1996. (2) MERGER On March 27, 1997, the Company signed a definitive merger agreement with TPG Partners II, L.P. ("TPG"), a private investment partnership, pursuant to which TPG and certain other investors acquired the Company in an all-cash transaction valued at $485 million. Under the terms of the agreement, TPG and such investors paid $27 per share for all common shares outstanding plus an additional amount to redeem certain options held by directors and employees. The transaction was completed on June 27, 1997 and for financial reporting purposes has been accounted for as a purchase effective June 30, 1997. The results of operations for the periods ended June 30, 1997 reflect the historical results of the predecessor company including the recognition of transaction related expenses which were paid by the predecessor company. The September 30, 1997 balance sheet includes the preliminary allocation of the purchase price to the assets acquired and liabilities assumed by the successor company and is not comparable to the balance sheet as of December 31, 1996. A vertical black line is shown to separate the financial statements of the predecessor and successor companies. Following are unaudited pro forma results of operations as if the transaction occurred at the beginning of 1996 (in thousands):
Nine months ended September 30, ------------------------------------ 1997 1996 ------------------ ---------------- Total revenues $ 118,515 $ 110,027 Net loss from continuing operations (14,408) (26,746)
The unaudited pro forma information presented above does not purport to be indicative of the results that actually would have been obtained if the merger had been consummated at the beginning of 1996 and is not intended to be a projection of future results or trends. In connection with the merger, the Company entered into a Transaction Advisory Agreement with TPG pursuant to which TPG received a cash financial advisory fee of $5.0 million for services as financial advisor in connection with the merger. The fee is included in the $16.8 million of transaction related expenses. TPG also will be entitled to receive (but, at its discretion, may waive) fees of up to 6 9 1.5% of the transaction value for each subsequent transaction (a tender offer, acquisition, sale, merger, exchange offer, recapitalization, restructuring or other similar transaction) entered into by the successor company. Certain former officers have entered into non-competition agreements with the Company dated March 27, 1997, which became effective contemporaneously with consummation of the merger. These agreements have a term of 36 months and a total present value of $3.0 million as of June 30, 1997. The obligation for these agreements is included in the balance sheet. Certain executives of the predecessor company have agreed that they would not exercise or surrender certain stock options having an aggregate value of $1.8 million, based on the intrinsic value of the options (the difference between the exercise price of the options and a purchase price of $27 per share). New stock options of the successor company were issued to these individuals based on the intrinsic value of the predecessor company's options. (3) LONG-TERM DEBT Long-term debt consists of the following (in thousands):
September 30, December 31, 1997 1996 ----------------- ----------------- New credit agreement $ 104,000 $ -- Revolving line of credit -- 59,000 Senior Notes -- 35,000 Senior subordinated notes 225,000 -- Convertible subordinated debentures -- 5,550 Other 449 246 ----------------- ----------------- 329,449 99,796 Less current portion 135 3,918 ----------------- ----------------- Long-term debt $ 329,314 $ 95,878 ================= =================
On June 27, 1997, the Company completed a private placement (pursuant to Rule 144A) of $225 million of 9 7/8% Senior Subordinated Notes, Series A, which mature on June 15, 2007. The notes were issued under an indenture which requires interest to be paid semiannually on June 15 and December 15 of each year, commencing December 15, 1997. The notes are subordinate to the new credit agreement. In September 1997, the Company completed a registration statement on Form S-4 providing for an exchange offer under which each Series A Senior Subordinated Note would be exchanged for a Series B Senior Subordinated Note. The terms of the Series B Notes are the same in all respects as the Series A Notes except that the Series B Notes have been registered under the Securities Act of 1933 and therefore will not be subject to certain restrictions on transfer. 7 10 The notes are redeemable in whole or in part at the option of the Company, at any time on or after June 15, 2002, at the redemption prices set forth below plus, in each case, accrued and unpaid interest, if any, thereon.
YEAR PERCENTAGE ---- ---------- 2002............................................ 104.938% 2003............................................ 103.292% 2004............................................ 101.646% 2005 and thereafter............................. 100.000%
Prior to June 15, 2000, the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of the notes at a redemption price equal to 109.875% of the principal amount, plus accrued and unpaid interest, if any, on the redemption date, with all or a portion of net proceeds of public sales of common stock of the Company; provided that at least 60% of the original aggregate principal amount of the notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall occur within 60 days of the date of the closing of the related sale of common stock of the Company. Upon a "change in control" of the Company, as defined in the indenture, the note holders may require, at their election, that the Company repurchase all or a portion of the notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon. The indenture under which the subordinated notes were issued contains certain covenants that limit the ability of the Company and its subsidiaries to incur additional indebtedness and issue stock, pay dividends, make distributions, make investments, make certain other restricted payments, enter into certain transactions with affiliates, dispose of certain assets, incur liens securing indebtedness of any kind other than permitted liens, and engage in mergers and consolidations. On June 27, 1997, the Company entered into a new credit agreement with several lenders. These lenders have committed, subject to compliance with the borrowing base, to provide the Company with revolving credit loans of up to $200 million, of which $25 million will be available for the issuance of letters of credit. The new credit agreement is a senior revolving credit facility. The initial borrowing base has been set at $180 million. The borrowing base is the sum of the Company's proved developed reserves, proved developed non-producing reserves, proved undeveloped reserves and related processing and gathering assets and other assets of the Company, adjusted by the engineering committee of the bank in accordance with their standard oil and gas lending practices. If less than 75% of the borrowing base is utilized, the borrowing base will be re-determined annually. If more than 75% of the borrowing base is utilized, the borrowing base will be re-determined semi-annually. The Company borrowed $104 million under the new credit agreement to partially finance the acquisition of the Company by TPG; to repay certain existing outstanding indebtedness of the Company and to pay certain fees and expenses related to the transaction. The new credit agreement will mature on June 27, 2002. Outstanding balances under the agreement incur interest at the Company's choice of several indexed rates, the most favorable being 7.156% at September 30, 1997. The new credit agreement contains a number of covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness or amend certain debt instruments, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in 8 11 mergers or consolidations, change the business conducted by the Company or its subsidiaries, make capital expenditures or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, under the new credit agreement, the Company is required to maintain specified financial ratios and tests, including minimum interest coverage ratios and maximum leverage ratios. From time to time the Company may enter into interest rate swaps to hedge the interest rate exposure associated with the credit agreement, whereby a portion of the Company's floating rate exposure would be exchanged for a fixed interest rate. During October 1997, the Company entered into two interest rate swap arrangements with a major financial institution covering $90 million of debt. The Company swapped $40 million of floating three-month LIBOR +1.5% for a fixed rate of 7.485% for three years, extendible at the institution's option for an additional two years. The Company also swapped $50 million of floating three-month LIBOR +1.5% for a fixed rate of 7.649% for five years. (4) RECENT ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 128, "Earnings per Share" and Statement of Financial Accounting Standards (SFAS) 129, "Disclosure of Information About Capital Structure." The Company will adopt these statements effective December 31, 1997. While SFAS 128 simplifies the standards for computing earnings per share (EPS) by replacing primary and fully diluted EPS with the new basic and diluted EPS, it will not impact the Company's disclosure. SFAS 129 establishes standards for disclosing information about an entity's capital structure. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) 130, "Reporting Comprehensive Income" and Statement of Financial Accounting Standards (SFAS) 131, "Disclosure about Segments of an Enterprise and Related Information." The Company expects to adopt these statements effective the year ended December 31, 1998. SFAS 130 establishes standards for reporting and displaying comprehensive income and its components in general-purpose financial statements. The Company does not believe this pronouncement will have a material impact on its financial statements. SFAS 131 establishes standards for public business enterprises for reporting information about operating segments in annual financial statements and requires that such enterprises report selected information about operating segments in interim financial reports issued to shareholders. This statement also establishes standards for related disclosures about products and services, geographic areas, and major customers. The Company will begin presenting any additional information required by the statement in its financial statements for the year ended December 31, 1998. (5) HEDGING ACTIVITIES From time to time the Company may enter into a combination of futures contracts, commodity derivatives and fixed-price physical contracts to manage its exposure to natural gas price volatility. The Company employs a policy of hedging gas production sold under NYMEX based contracts by selling NYMEX based commodity derivative contracts which are placed with major financial institutions that the Company believes are minimal credit risks. The contracts may take the form of futures contracts, swaps or options. During October 1997, the Company hedged 3.1 Bcf of 1998 gas production at a weighted average NYMEX price of $2.37 per Mcf. Gains and losses on these instruments are included as an adjustment to gas revenue for the production being hedged in the contract month. The effect of gas 9 12 hedging in the third quarter of 1997 was immaterial and open futures contracts as of September 30, 1997 were immaterial. When market conditions are favorable the Company may enter into interest rate swap arrangements, whereby a portion of the Company's floating rate exposure may be exchanged for a fixed rate. See Note 3, "Long-Term Debt." ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- As disclosed in the accompanying notes to consolidated financial statements, on March 27, 1997 the Company entered into a merger agreement with TPG which resulted in all of the Company's common stock being acquired by TPG and certain other investors on June 27, 1997 in a transaction accounted for as a purchase. For financial reporting purposes, the merger is considered effective June 30, 1997 and the operations of the company prior to July 1, 1997 are classified as predecessor company operations. The consolidated balance sheet at September 30, 1997 includes the application of purchase accounting to measure the Company's assets and liabilities at fair value and is not comparable to the historical balance sheet as of December 31, 1996. Debt incurred to finance the acquisition and related transaction costs are reflected in the September 30, 1997 financial statements. A vertical black line is shown in the financial statements to separate the financial position and results of operations of the predecessor and successor companies. The allocation of the purchase price at fair value resulted in a significant increase in the book value of the Company's assets. The increase in the book value of assets resulted in materially higher charges for depreciation, depletion and amortization in the third quarter of 1997. These higher charges are expected to continue in subsequent accounting periods. The Company incurred transaction costs associated with the acquisition by TPG of $16.8 million. These costs were expensed in the second quarter of 1997. As a result of the acquisition by TPG, the Company is highly leveraged, resulting in materially higher interest charges in the third quarter of 1997. These higher interest charges are expected to continue in subsequent accounting periods. RESULTS OF OPERATIONS As a result of the merger with TPG, the results of operations for the periods subsequent to June 30, 1997 are not necessarily comparable to those prior to July 1, 1997. The following table combines the six month predecessor company period ended June 30, 1997 with the three month successor company period ended September 30, 1997 for purposes of the discussion of nine months results (dollars in thousands, percentage of revenue). 10 13
Three months ended September 30, Nine months ended September 30, ------------------------------------ -------------------------------------- REVENUES 1997 1996 1997 1996 ----------------- ----------------- ------------------ ------------------ Oil and gas sales $ 19,770 50.5% $ 19,075 51.0% $ 61,361 51.8% $ 57,265 52.1% Gas marketing and gathering 10,613 27.1 9,835 26.3 32,270 27.2 31,624 28.7 Oilfield sales and service 7,999 20.5 7,661 20.5 22,664 19.1 18,583 16.9 Interest and other 736 1.9 814 2.2 2,220 1.9 2,555 2.3 ----------------- ----------------- ------------------ ------------------ 39,118 100.0 37,385 100.0 118,515 100.0 110,027 100.0 EXPENSES Production expense 5,255 13.4 4,655 12.5 15,413 13.0 13,033 11.9 Production taxes 801 2.1 748 2.0 2,448 2.1 2,259 2.1 Cost of gas and gathering expense 8,929 22.8 8,155 21.8 27,269 23.0 26,145 23.8 Oilfield sales and service 6,989 17.9 6,759 18.1 20,925 17.7 16,785 15.3 Exploration expense 1,925 4.9 1,548 4.1 6,305 5.3 4,407 4.0 General and administrative expense 820 2.1 944 2.5 3,265 2.8 3,059 2.8 Depreciation, depletion and amortization 15,619 39.9 7,240 19.4 30,985 26.1 21,941 19.9 Franchise, property and other taxes 443 1.1 446 1.2 1,351 1.1 1,328 1.2 ----------------- ----------------- ------------------ ------------------ 40,781 104.3 30,495 81.6 107,961 91.1 88,957 80.9 ----------------- ----------------- ------------------ ------------------ OPERATING (LOSS) INCOME (1,663) (4.3) 6,890 18.4 10,554 8.9 21,070 19.2 Interest expense 7,552 19.3 1,763 4.7 11,267 9.5 5,587 5.1 Transaction expense 16,758 14.1 ----------------- ----------------- ------------------ ------------------ 7,552 19.3 1,763 4.7 28,025 23.7 5,587 5.1 ----------------- ----------------- ------------------ ------------------ (LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (9,215) (23.6) 5,127 13.7 (17,471) (14.7) 15,483 14.1 (Benefit) provision for income taxes (3,405) (8.7) 1,502 4.0 (1,788) (1.5) 5,031 4.6 ----------------- ----------------- ------------------ ------------------ (LOSS) INCOME FROM CONTINUING (5,810) (14.9) 3,625 9.7 (15,683) (13.2) 10,452 9.5 OPERATIONS LOSS FROM DISCONTINUED OPERATIONS (439) (1.2) (439) (.4) ----------------- ----------------- ------------------ ------------------ NET (LOSS) INCOME $ (5,810)(14.9)% $ 3,186 8.5% $ (15,683) (13.2)% $ 10,013 9.1% ================= ================= ================== ================== EBITDAX $ 15,881 40.6% $ 15,678 41.9% $ 47,844 40.4% $ 47,418 43.1%
THIRD QUARTERS OF 1997 AND 1996 Operating income decreased $8.6 million (124%) from $6.9 million in the third quarter of 1996 to an operating loss of $1.7 million in the third quarter of 1997. The operating income from the oil and gas operations segment decreased $8.4 million (152%) from $5.5 million in the third quarter of 1996 to an operating loss of $2.9 million in the third quarter of 1997. The operating income from the oilfield sales and service segment decreased $30,000 from $538,000 in the third quarter of 1996 to $508,000 in the third quarter of 1997. The decrease in operating income was due primarily to an $8.4 million increase in depreciation, depletion and amortization expense from significant increases in property, equipment and other assets as a result of the purchase accounting associated with the merger discussed above. Income from continuing operations decreased $9.4 million from income of $3.6 million in the third quarter of 1996 to a loss of $5.8 million in the third quarter of 1997. This decrease was the result of the $8.4 million increase in depreciation, depletion and amortization expense and an increase of $5.8 million in interest expense offset by a decrease in the provision for income taxes of $4.9 million. This decrease in the provision for income taxes was primarily due to the decrease in income from continuing operations before income taxes combined with an increase in the effective tax rate. The increase in the third quarter effective tax rate was primarily due to the decrease in the utilization of nonconventional fuel source tax credits in the 1997 period. Earnings before interest, income taxes, depreciation, depletion and amortization and exploration expense ("EBITDAX") was $15.9 million in the third quarter of 1997 compared to $15.7 million in the third quarter of 1996. 11 14 Total revenues increased $1.7 million (5%) in the third quarter of 1997 compared to the same period of 1996. Gross operating margins in the third quarter of 1997 were consistent when compared to the same period in 1996. Oil volumes increased 3,000 Bbls (barrels) (1%) from 181,000 Bbls in the third quarter of 1996 to 184,000 Bbls in the third quarter of 1997 resulting in an increase in oil sales of approximately $50,000. Gas volumes increased 0.6 Bcf (billion cubic feet) (9%) from 6.3 Bcf in the third quarter of 1996 to 6.9 Bcf in the third quarter of 1997 resulting in an increase in gas sales of approximately $1.4 million. These volume increases were primarily due to production from properties acquired and wells drilled in 1996 and 1997. The average price paid for the Company's oil decreased from $20.14 per barrel in the third quarter of 1996 to $17.00 per barrel in the third quarter of 1997 which decreased oil sales by approximately $580,000. The average price paid for the Company's natural gas decreased $.03 per Mcf (thousand cubic feet) to $2.43 per Mcf in the third quarter of 1997 compared to the third quarter of 1996 which decreased gas sales in the third quarter of 1997 by approximately $210,000. Production expense increased $600,000 (13%) from $4.7 million in the third quarter of 1996 to $5.3 million in the third quarter of 1997. The average production cost increased from $.63 per Mcfe (equivalent Mcf of natural gas) in the third quarter of 1996 to $.66 per Mcfe in the third quarter of 1997. These increases were due to an anticipated steep decline in production volumes from certain high volume wells with low production costs coupled with a reduction in operating fees received from third parties primarily due to the purchase of certain third party working interests by the Company. Such fees are recorded as a reduction of production expense. Production taxes increased $53,000 (7%) from $748,000 in the third quarter of 1996 to $801,000 in the third quarter of 1997. This increase was primarily due to the increased production volumes discussed above. Depreciation, depletion and amortization increased by $8.4 million (116%) from $7.2 million in the third quarter of 1996 to $15.6 million in the third quarter of 1997. Depletion expense increased $7.5 million (136%) from $5.5 million in the third quarter of 1996 to $13.0 million in the third quarter of 1997. Depletion per Mcfe increased from $.75 per Mcfe in the third quarter of 1996 to $1.64 per Mcfe in the third quarter of 1997. These increases were primarily the result of significant increases in property, equipment and other assets as a result of the purchase accounting associated with the merger discussed above. Interest expense increased $5.8 million (328%) from $1.8 million in the third quarter of 1996 to $7.6 million in the third quarter of 1997. This increase was due to substantial additional debt incurred to finance the merger. NINE MONTHS OF 1997 AND 1996 Operating income decreased $10.5 million (50%) from $21.1 million in the first nine months of 1996 to $10.6 million in the first nine months of 1997. The operating income from the oil and gas operations segment decreased $9.9 million (56%) from $17.8 million in the first nine months of 1996 to $7.9 million in the first nine months of 1997. The operating income from the oilfield sales and service segment decreased $260,000 from $732,000 in the first nine months of 1996 to $472,000 in the first nine months of 1997. The decrease in operating income was due primarily to a $9.1 million increase in depreciation, depletion and amortization expense resulting from significant increases in property and equipment primarily as a result of the purchase accounting associated with the merger discussed above. 12 15 Income from continuing operations decreased $26.2 million from income of $10.5 million in the first nine months of 1996 to a loss of $15.7 million in the first nine months of 1997. This decrease was the result of $16.8 million of transaction expenses related to the merger, the $9.1 million increase in depreciation, depletion and amortization expense and an increase of $5.7 million in interest expense offset by a decrease in the provision for income taxes of $6.8 million. This decrease in the provision for income taxes was primarily due to the decrease in income from continuing operations before income taxes combined with a change in the effective tax rate due to the nondeductibility of certain transaction related expenses and a decrease in the utilization of nonconventional fuel source tax credits in the first nine months of 1997. EBITDAX was $47.8 million in the first nine months of 1997 compared to $47.4 million in the first nine months of 1996. Total revenues increased $8.5 million (8%) in the first nine months of 1997 compared to the same period of 1996. Gross operating margins in the first nine months of 1997 were consistent when compared to the same period in 1996. Oil volumes increased 26,000 Bbls (5%) from 539,000 Bbls in the first nine months of 1996 to 565,000 Bbls in the first nine months of 1997 resulting in an increase in oil sales of approximately $510,000. Gas volumes increased 1.0 Bcf (5%) from 18.6 Bcf in the first nine months of 1996 to 19.6 Bcf in the first nine months of 1997 resulting in an increase in gas sales of approximately $2.5 million. These volume increases were primarily due to production from properties acquired and wells drilled in 1996 and 1997. The average price paid for the Company's oil decreased from $19.44 per barrel in the first nine months of 1996 to $18.42 per barrel in the first nine months of 1997 which decreased oil sales by approximately $580,000. The average price paid for the Company's natural gas increased $.09 per Mcf to $2.60 per Mcf in the first nine months of 1997 compared to the first nine months of 1996 which increased gas sales in the first nine months of 1997 by approximately $1.8 million. Production expense increased $2.4 million (18%) from $13.0 million in the first nine months of 1996 to $15.4 million in the first nine months of 1997. The average production cost increased from $.60 per Mcfe in the first nine months of 1996 to $.67 per Mcfe in the first nine months of 1997. These increases were due to an anticipated steep decline in production volumes from certain high volume wells with low production costs coupled with a reduction in operating fees received from third parties primarily due to the purchase of certain third party working interests by the Company. Such fees are recorded as a reduction of production expense. Production taxes increased $189,000 (8%) from $2.3 million in the first nine months of 1996 to $2.4 million in the first nine months of 1997. This increase was primarily due to the increased production volumes discussed above. Depreciation, depletion and amortization increased by $9.1 million (41%) from $21.9 million in the first nine months of 1996 to $31.0 million in the first nine months of 1997. Depletion expense increased $8.0 million (47%) from $16.9 million in the first nine months of 1996 to $24.9 million in the first nine months of 1997. Depletion per Mcfe increased from $.77 per Mcfe in the first nine months of 1996 to $1.08 per Mcfe in the first nine months of 1997. These increases were primarily due to significant increases in property, equipment and other assets which resulted from the purchase accounting associated with the merger discussed above. 13 16 Interest expense increased $5.7 million (102%) from $5.6 million in the first nine months of 1996 to $11.3 million in the first nine months of 1997. This increase was due to substantial additional debt incurred to finance the merger. Transaction related expenses were $16.8 million in the first nine months of 1997 reflecting non-recurring costs of the merger paid by the predecessor company. LIQUIDITY AND CAPITAL RESOURCES The Company's liquidity and capital resources are closely related to and dependent on the current prices paid for its oil and gas. The Company's current ratio at September 30, 1997 was 1.36 to 1.00. During the first nine months of 1997, working capital decreased $7.4 million from $22.1 million to $14.7 million. The decrease was primarily due to an increase in accrued interest expense of $5.6 million and an increase in accrued drilling costs of $3.0 million. The Company's operating activities provided cash flows of $35.4 million during the first nine months of 1997. On June 27, 1997, the Company entered into a senior revolving credit agreement with several lenders. These lenders have committed, subject to compliance with the borrowing base, to provide the Company with revolving credit loans of up to $200 million, of which $25 million will be available for the issuance of letters of credit. The initial borrowing base has been set at $180 million. The borrowing base is determined based on the Company's oil and gas reserves and other assets and is subject to annual or semi-annual adjustment. The Company borrowed $104 million under the new credit agreement to partially finance the acquisition of the Company by TPG, to repay certain existing outstanding indebtedness of the Company and to pay certain fees and expenses related to the transaction. The new credit agreement will mature on June 27, 2002. Outstanding balances under the agreement incur interest at the Company's choice of several indexed rates, the most favorable being 7.156% at September 30, 1997. The new credit agreement contains a number of covenants that, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur additional indebtedness, prepay other indebtedness or amend certain debt instruments, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company or its subsidiaries, make capital expenditures or engage in certain transactions with affiliates and otherwise restrict certain corporate activities. In addition, under the new credit agreement, the Company is required to maintain specified financial ratios and tests, including minimum interest coverage ratios and maximum leverage ratios. The Company issued $225 million of 9.875% Senior Subordinated Notes on June 27, 1997. These notes mature June 15, 2007. Interest will be payable semiannually on June 15 and December 15 of each year, commencing December 15, 1997. The notes are general unsecured obligations of the Company and are subordinated in right of payment to senior debt. Except as otherwise described below, the notes are not redeemable prior to June 15, 2002. Thereafter, the notes are subject to redemption at the option of the Company at specific redemption prices. Prior to June 15, 2000, the Company may, at its option, on any one or more occasions, redeem up to 40% of the original aggregate principal amount of the notes at a redemption price equal to 109.875% of the principal amount, plus accrued and unpaid interest, if any on the redemption date, with all or a portion of net proceeds of public sales of common stock of the Company; provided that at least 60% of the original aggregate principal amount of the notes remains outstanding immediately after the occurrence of such redemption; and provided, further, that such redemption shall 14 17 occur within 60 days of the date of the closing of the related sale of common stock of the Company. Prior to June 15, 2002, the notes may be redeemed as a whole at the option of the Company upon the occurrence of a change of control. Upon a "change in control" of the Company, as defined in the indenture under which the notes were issued, the note holders may require, at their election, that the Company repurchase all or a portion of the notes at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, thereon. The indenture contains certain covenants that limit the ability of the Company and its subsidiaries to incur additional indebtedness and issue stock, pay dividends, make distributions, make investments, make certain other restricted payments, enter into certain transactions with affiliates, dispose of certain assets, incur liens securing indebtedness of any kind other than permitted liens, and engage in mergers and consolidations. On March 31, 1997, the Company redeemed all of the outstanding Class II Series A preferred stock for $2.4 million in cash. On April 3, 1997, the Company gave notice of redemption of all of the outstanding 9.25% convertible subordinated debentures for 104% of face value. Redemption of these debentures occurred June 10, 1997 when holders of the debentures elected to convert them into 275,425 shares of common stock in the Company. On June 25, 1997, the Company redeemed all $35 million of its 7% fixed-rate senior notes. On June 27, 1997, the Company repaid all outstanding amounts due under the then existing revolving bank facility in the amount of $94.0 million. The Company currently expects to spend approximately $35 million during 1997 on its drilling activities and approximately $7 million for other capital expenditures. The Company's acquisition program is expected to be financed with available cash flow and with its available revolving credit line. The level of the Company's cash flow in the future will depend on a number of factors including the demand and price levels for oil and gas, its ability to acquire additional producing properties and the scope and success of its drilling activities. The Company intends to finance such activities principally through its available cash flow and through additional borrowings under its new credit agreement. From time to time the Company may enter into interest rate swaps to hedge the interest rate exposure associated with the credit facility, whereby a portion of the Company's floating rate exposure would be exchanged for a fixed interest rate. During October 1997, the Company entered into two interest rate swap arrangements covering $90 million of debt. The Company swapped $40 million of floating three-month LIBOR +1.5% for a fixed rate of 7.485% for three years, extendible at the institution's option for an additional two years. The Company also swapped $50 million of floating three-month LIBOR +1.5% for a fixed rate of 7.649% for five years. FORWARD-LOOKING INFORMATION The forward-looking statements regarding future operating and financial performance contained in this report involve risks and uncertainties that include, but are not limited to, the Company's future production and costs of operation, the market demand for, and prices of, oil and natural gas, results of the 15 18 Company's future drilling and gas marketing activity, the uncertainties of reserve estimates, environmental risks, and other factors detailed in the Company's filings with the Securities and Exchange Commission. Actual results may differ materially from forward-looking statements made in this report. 16 19 - -------------------------------------------------------------------------------- PART II Other information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K None 17 20 - -------------------------------------------------------------------------------- SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BELDEN & BLAKE CORPORATION Date: November 3, 1997 By: /s/ Ronald L. Clements ------------------------ ------------------------ Ronald L. Clements, Director and Chief Executive Officer Date: November 3, 1997 By: /s/ Ronald E. Huff ------------------------ ------------------------ Ronald E. Huff, Director, President and Chief Financial Officer 18 EX-27 2 EXHIBIT 27
5 The operating results information for the nine-month period combines the six-month predecessor company period ended June 30, 1997 and the three-month successor company period ended September 30, 1997. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 6,879 0 32,496 0 8,550 55,792 515,732 14,518 588,493 41,132 333,622 0 0 1,000 101,420 588,493 116,295 118,515 66,055 66,055 58,664 0 11,267 (17,471) (1,788) (15,683) 0 0 0 (15,683) 0 0
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