-----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, PHNPfVjAcAN1/uk0rc7s//HlCypJUJrVSfQnrNlTqqX+CtxF39nmbGFMRbKSIi2B JQPUruvS3N9d8asHwHXs2w== 0000950152-98-006702.txt : 19980814 0000950152-98-006702.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950152-98-006702 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: 98685379 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 AND BLAKE CORPORATION FORM 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 June 30, 1998 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 July 31, 1998 10,110,915 2 BELDEN & BLAKE CORPORATION INDEX - --------------------------------------------------------------------------------
Page ---- PART I Financial Information: Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997......................................................... 1 Consolidated Statements of Operations: Three and six months ended June 30, 1998 (Successor Company) Three and six months ended June 30, 1997 (Predecessor Company)................ 2 Consolidated Statements of Shareholders' Equity: Six months ended June 30, 1998 (Successor Company) Six months ended December 31, 1997 (Successor Company) Six months ended June 30, 1997 (Predecessor Company) Year ended December 31, 1996 (Predecessor Company)............................ 3 Consolidated Statements of Cash Flows: Six months ended June 30, 1998 (Successor Company) Six months ended June 30, 1997 (Predecessor Company).......................... 4 Notes to Consolidated Financial Statements....................................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................... 6 PART II Other Information Item 6. Exhibits and Reports on Form 8-K................................................. 11
3 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 1998 1997 ================ ================ (UNAUDITED) ASSETS CURRENT ASSETS Cash and cash equivalents $ 8,225 $ 6,552 Accounts receivable, net 32,256 35,743 Inventories 12,973 9,614 Deferred income taxes 2,575 2,702 Other current assets 5,112 4,052 ---------------- ---------------- TOTAL CURRENT ASSETS 61,141 58,663 PROPERTY AND EQUIPMENT, AT COST Oil and gas properties (successful efforts method) 523,102 499,864 Gas gathering systems 21,109 20,713 Land, buildings, machinery and equipment 27,369 25,602 ---------------- ---------------- 571,580 546,179 Less accumulated depreciation, depletion and amortization 64,391 31,036 ---------------- ---------------- PROPERTY AND EQUIPMENT, NET 507,189 515,143 OTHER ASSETS 25,307 25,514 ---------------- ---------------- $ 593,637 $ 599,320 ================ ================ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 9,277 $ 9,078 Accrued expenses 28,439 28,442 Current portion of long-term liabilities 1,401 1,297 ---------------- ---------------- TOTAL CURRENT LIABILITIES 39,117 38,817 LONG-TERM LIABILITIES Bank and other long-term debt 142,192 126,269 Senior subordinated notes 225,000 225,000 Other 3,953 4,380 ---------------- ---------------- 371,145 355,649 DEFERRED INCOME TAXES 100,061 107,996 SHAREHOLDERS' EQUITY Common stock without par value; $.10 stated value per share; authorized 58,000,000 shares; issued and outstanding 10,110,915 and 10,000,000 shares 1,011 1,000 Paid in capital 108,176 107,230 Deficit (25,873) (11,372) ---------------- ---------------- TOTAL SHAREHOLDERS' EQUITY 83,314 96,858 ---------------- ---------------- $ 593,637 $ 599,320 ================ ================
See accompanying notes. 1 4 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
SUCCESSOR | PREDECESSOR SUCCESSOR | PREDECESSOR COMPANY | COMPANY COMPANY | COMPANY -------------- | -------------- -------------- | -------------- THREE MONTHS | THREE MONTHS SIX MONTHS | SIX MONTHS ENDED | ENDED ENDED | ENDED JUNE 30, 1998 | JUNE 30, 1997 JUNE 30, 1998 | JUNE 30, 1997 -------------- | -------------- -------------- | -------------- | | REVENUES | | Oil and gas sales $ 21,363 | $ 18,728 $ 44,383 | $ 41,591 Gas marketing and gathering 9,499 | 9,353 20,512 | 21,657 Oilfield sales and service 6,752 | 8,286 11,845 | 14,665 Interest and other 1,084 | 716 1,761 | 1,484 -------------- | -------------- -------------- | -------------- 38,698 | 37,083 78,501 | 79,397 EXPENSES | | Production expense 6,062 | 5,398 11,743 | 10,158 Production taxes 891 | 769 1,779 | 1,647 Cost of gas and gathering expense 7,697 | 7,504 16,680 | 18,340 Oilfield sales and service 6,310 | 7,972 11,506 | 13,936 Exploration expense 2,291 | 2,501 4,212 | 4,380 General and administrative expense 1,635 | 1,389 3,004 | 2,445 Depreciation, depletion and amortization 17,932 | 7,861 34,869 | 15,366 Franchise, property and other taxes 425 | 463 838 | 908 -------------- | -------------- -------------- | -------------- 43,243 | 33,857 84,631 | 67,180 -------------- | -------------- -------------- | -------------- | | OPERATING (LOSS) INCOME (4,545) | 3,226 (6,130) | 12,217 | | Interest expense 8,117 | 2,013 16,179 | 3,715 Transaction-related expenses | 16,758 | 16,758 -------------- | -------------- -------------- | -------------- 8,117 | 18,771 16,179 | 20,473 -------------- | -------------- -------------- | -------------- | | LOSS BEFORE INCOME TAXES (12,662) | (15,545) (22,309) | (8,256) (Benefit) provision for income taxes (4,432) | (825) (7,808) | 1,617 -------------- | -------------- -------------- | -------------- NET LOSS $ (8,230) | $ (14,720) $ (14,501) | $ (9,873) ============== | ============== ============== | ==============
See accompanying notes. 2 5 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
SUCCESSOR COMPANY PREDECESSOR COMPANY RETAINED UNEARNED ================= ===================== COMMON COMMON COMMON COMMON PREFERRED PAID IN EARNINGS RESTRICTED SHARES STOCK SHARES STOCK STOCK CAPITAL (DEFICIT) STOCK TOTAL ======== ========= ======== ========= ========= =========== ========== ========== =========== PREDECESSOR COMPANY: JANUARY 1, 1996 -- $ -- 11,137 $ 1,114 $ 2,400 $ 126,063 $ 12,820 $ (106) $ 142,291 Net income 14,755 14,755 Preferred stock dividend (180) (180) Stock options exercised and related tax benefit 3 -- 47 47 Employee stock bonus 26 3 418 421 Restricted stock activity 4 -- 263 71 334 Conversion of debentures 62 6 1,244 1,250 - ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1996 -- -- 11,232 1,123 2,400 128,035 27,395 (35) 158,918 Net loss (9,873) (9,873) Preferred stock redeemed (2,400) (2,400) Preferred stock dividend (45) (45) Subordinated debentures converted to common stock 275 27 5,523 5,550 Stock options exercised and surrendered and related tax benefit 1 -- 1,596 1,596 Employee stock bonus 36 4 926 930 Restricted stock activity 17 35 52 Redemption of common stock (11,544) (1,154) (136,097) (17,477) (154,728) Sale of common stock 10,000 1,000 107,230 108,230 SUCCESSOR COMPANY: - ---------------------------------------------------------------------------------------------------------------------------------- JUNE 30, 1997 10,000 1,000 -- -- -- 107,230 -- -- 108,230 Net loss (11,372) (11,372) - ---------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 1997 10,000 1,000 -- -- -- 107,230 (11,372) -- 96,858 Employee stock bonus 111 11 946 957 Net loss (14,501) (14,501) - ---------------------------------------------------------------------------------------------------------------------------------- JUNE 30, 1998 (UNAUDITED) 10,111 $ 1,011 -- $ -- $ -- $ 108,176 $ (25,873) $ -- $ 83,314 ==================================================================================================================================
See accompanying notes. 3 6 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
SUCCESSOR | PREDECESSOR COMPANY | COMPANY ---------------- | ------------------ SIX MONTHS | SIX MONTHS ENDED | ENDED JUNE 30, 1998 | JUNE 30, 1997 ---------------- | ------------------ CASH FLOWS FROM OPERATING ACTIVITIES: | Net loss $ (14,501) | $ (9,873) Adjustments to reconcile net loss to net cash | provided by operating activities: | Depreciation, depletion and amortization 34,869 | 15,366 Transaction-related expenses | 15,903 Loss on disposal of property and equipment 30 | 356 Deferred income taxes (7,808) | 3,125 Deferred compensation and stock grants 1,089 | 1,756 Change in operating assets and liabilities, net of | effects of purchases of businesses: | Accounts receivable and other operating assets 2,479 | 1,237 Inventories (3,369) | 112 Accounts payable and accrued expenses 196 | 4,800 ---------------- | ------------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 12,985 | 32,782 | CASH FLOWS FROM INVESTING ACTIVITIES: | Acquisition of businesses, net of cash acquired (9,512) | (9,263) Proceeds from property and equipment disposals 706 | 704 Additions to property and equipment (16,290) | (18,419) Increase in other assets (1,324) | (9,496) ---------------- | ------------------ NET CASH USED IN INVESTING ACTIVITIES (26,420) | (36,474) | CASH FLOWS FROM FINANCING ACTIVITIES: | Proceeds from revolving line of credit and long-term debt | 46,000 Proceeds from new credit agreement 18,000 | 104,000 Proceeds from senior subordinated notes | 225,000 Sale of common stock | 108,230 Repayment of long-term debt and other obligations (2,892) | (140,325) Payment to shareholders and optionholders | (312,164) Transaction-related expenses | (15,903) Preferred stock redeemed | (2,400) Preferred stock dividends | (45) Proceeds from sale of common stock and stock options | 15 ---------------- | ------------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 15,108 | 12,408 ---------------- | ------------------ NET INCREASE IN CASH AND CASH EQUIVALENTS 1,673 | 8,716 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,552 | 8,606 ---------------- | ------------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,225 | $ 17,322 ================ | ================== | CASH PAID DURING THE PERIOD FOR: | Interest $ 15,556 | $ 4,153 Income taxes, net of refunds (117) | 288 NON-CASH INVESTING AND FINANCING ACTIVITIES: | Debentures converted to common stock | 5,550 Acquisition of assets in exchange for long-term liabilities 359 | 792 See accompanying notes.
4 7 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1998 - -------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION Throughout this report, the "Company" refers to Belden & Blake Corporation ("Successor Company") and its predecessor which were acquired by TPG Partners II L.P. ("TPG") and certain other investors on June 27, 1997. The operations of the successor company represent 100% of the businesses of the predecessor. A vertical black line is shown in the financial statements to separate the results of operations of the predecessor and successor companies. The accompanying unaudited consolidated financial statements of Belden & Blake Corporation 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 six-month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. 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, 1997. (2) JOINT VENTURE On March 19, 1998, the Company entered into an agreement in principle with FirstEnergy Corp. ("FirstEnergy") to form an equally-owned joint venture to be named FE Holdings L.L.C. ("FE Holdings") to engage in the exploration, development, production, transportation and marketing of natural gas. Formation of the joint venture was subject to the negotiation and execution of a definitive joint venture agreement. The Company was unable to reach agreement with FirstEnergy regarding certain terms of the joint venture agreement and in June 1998, the Company determined it would not participate in the proposed joint venture. $350,000 of costs related to the proposed formation of the joint venture and to due diligence associated with a proposed acquisition by FE Holdings were written-off to general and administrative expense in the second quarter of 1998. (3) ACQUISITIONS During the first six months of 1998, the Company acquired working interests in oil and gas wells in Ohio and Michigan for approximately $6.6 million. Estimated proved developed reserves associated with the wells totaled 7.9 Bcfe (billion cubic feet of natural gas equivalent) net to the Company's interest at the time of acquisition. (4) SALE OF TAX CREDIT PROPERTIES In March 1998, the Company sold certain interests that qualify for the nonconventional fuel source tax credit. The interests were sold for approximately $510,000 in cash and a volumetric production payment under which 100% of the cash flow from the properties will go to the Company until approximately 10.8 Bcf (billion cubic feet) of gas has been produced and sold. In addition to receiving 100% of the cash flow from the properties, the Company will receive quarterly payments based on production from the interests. The Company has the option to repurchase the interests at a future date. 5 8 (5) NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In June, 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. (SFAS) 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS 133 is effective for fiscal years beginning after June 15, 1999. On adoption, the provisions of SFAS No. 133 must be applied prospectively. The Company has not determined the impact that SFAS 133 will have on its financial statements and has not determined the timing of or method of adoption of SFAS 133. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On March 27, 1997 the Company entered into a merger agreement with a TPG subsidiary 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 (the "TPG Merger"). For financial reporting purposes, the merger was considered effective June 30, 1997 and the operations of the Company prior to July 1, 1997 were classified as predecessor company operations. A vertical black line is shown in the financial statements to separate the results of operations of the predecessor and successor companies. The allocation of the purchase price 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 first six months of 1998 compared to the first six months of 1997. These higher charges are expected to continue in subsequent accounting periods. As a result of the substantial debt incurred to finance the TPG Merger, the Company is highly leveraged, resulting in materially higher interest charges in the first six months of 1998 compared to the first six months of 1997. These higher interest charges are expected to continue in subsequent accounting periods. As a result of the TPG Merger, the results of operations for the periods subsequent to June 30, 1997 are not necessarily comparable to those prior to July 1, 1997. RESULTS OF OPERATIONS - SECOND QUARTERS OF 1998 AND 1997 COMPARED Operating income decreased $7.7 million from $3.2 million in the second quarter of 1997 to an operating loss of $4.5 million in the second quarter of 1998. The decrease in operating income was due primarily to a $10.0 million increase in depreciation, depletion and amortization expense due to significant increases in the book value of property, equipment and other assets as a result of the purchase accounting associated with the TPG Merger discussed above. The operating income from the oil and gas operations segment decreased $8.1 million from $2.6 million in the second quarter of 1997 to an operating loss of $5.5 million in the second quarter of 1998. The operating loss from the oilfield sales and service segment was $92,000 in the second quarter of 1997 and $93,000 in the second quarter of 1998. Net loss decreased $6.5 million from $14.7 million in the second quarter of 1997 to $8.2 million in the second quarter of 1998. This decrease was the result of the absence in the second quarter of 1998 of $16.8 million in transaction expenses incurred in the second quarter of 1997 related to the TPG Merger, offset by a $10.0 million increase in depreciation, depletion and amortization expense and an increase of $6.1 million in interest expense in the second quarter of 1998 offset by an increase in the income tax benefit of $3.6 million. The increase in the income tax benefit was primarily due to the increase in loss before income taxes excluding transaction-related expenses combined with a change in the effective tax rate due to the nondeductibility of certain transaction-related expenses in the second quarter of 1997. Earnings before interest, income taxes, depreciation, depletion and amortization and exploration expense ("EBITDAX") was $15.7 million in the second quarter of 1998 compared to $13.6 million in the second quarter of 1997 primarily due to a $1.8 million increase in the operating margin from oil and gas sales. 6 9 Total revenues increased $1.6 million (4%) in the second quarter of 1998 compared to the second quarter of 1997. Gross operating margins increased $1.9 million (13%) in the second quarter of 1998 compared to the second quarter of 1997. Oil volumes decreased 7,000 Bbls (barrels) (3%) from 194,000 Bbls in the second quarter of 1997 to 187,000 Bbls in the second quarter of 1998 resulting in a decrease in oil sales of approximately $110,000. The oil volume decrease was primarily due to the Company postponing sales due to low oil prices. Gas volumes increased 1.3 Bcf (20%) from 6.3 Bcf in the second quarter of 1997 to 7.6 Bcf in the second quarter of 1998 resulting in an increase in gas sales of approximately $3.0 million. The gas volume increase was primarily due to production from properties acquired and wells drilled in 1997 and 1998. The average price paid for the Company's oil decreased from $17.72 per barrel in the second quarter of 1997 to $12.86 per barrel in the second quarter of 1998 which decreased oil sales by approximately $910,000. The average price paid for the Company's natural gas increased $.09 per Mcf (thousand cubic feet) to $2.51 per Mcf in the second quarter of 1998 compared to the second quarter of 1997 which increased gas sales in the second quarter of 1998 by approximately $680,000. The average gas price for the second quarter of 1998 was enhanced by $.03 per Mcf as a result of the Company's hedging activities for that period. There was no hedging activity in the 1997 period. Production expense increased $664,000 (12%) from $5.4 million in the second quarter of 1997 to $6.1 million in the second quarter of 1998. The average production cost decreased from $.72 per Mcfe (equivalent Mcf of natural gas) in the second quarter of 1997 to $.70 per Mcfe in the second quarter of 1998. The decrease in production cost per Mcfe was largely due to cost reductions from the Company's decision to defer work on marginal oil wells due to low oil prices. Production taxes increased $122,000 (16%) from $769,000 in the second quarter of 1997 to $891,000 in the second quarter of 1998. The average production taxes remained consistent at $.10 per Mcfe in the second quarter of 1998 and 1997. General and administrative expense increased by $246,000 (18%) from $1.4 million in the second quarter of 1997 to $1.6 million in the second quarter of 1998 primarily due to the write-off of $350,000 in costs related to the proposed joint venture with FirstEnergy and due diligence associated with a proposed acquisition by FE Holdings. Depreciation, depletion and amortization increased by $10.0 million (128%) from $7.9 million in the second quarter of 1997 to $17.9 million in the second quarter of 1998. Depletion expense increased $9.0 million (149%) from $6.1 million in the second quarter of 1997 to $15.1 million in the second quarter of 1998. Depletion per Mcfe increased from $.81 per Mcfe in the second quarter of 1997 to $1.75 per Mcfe in the second quarter of 1998. These increases were primarily the result of significant increases in the book value of property, equipment and other assets as a result of the purchase accounting associated with the TPG Merger discussed above. Interest expense increased $6.1 million (303%) from $2.0 million in the second quarter of 1997 to $8.1 million in the second quarter of 1998. This increase was primarily due to interest expense associated with the substantial additional debt incurred to finance the TPG Merger. The Company incurred $93,000 in additional interest expense during the second quarter of 1998 related to interest rate swaps. 7 10 RESULTS OF OPERATIONS - SIX MONTHS OF 1998 AND 1997 COMPARED Operating income decreased $18.3 million (150%) from $12.2 million in the first six months of 1997 to an operating loss of $6.1 million in the first six months of 1998. The decrease in operating income was due primarily to a $19.5 million increase in depreciation, depletion and amortization expense due to significant increases in the book value of property, equipment and other assets as a result of the purchase accounting associated with the TPG Merger discussed above. The operating income from the oil and gas operations segment decreased $18.0 million (167%) from $10.8 million in the first six months of 1997 to an operating loss of $7.2 million in the first six months of 1998 due primarily to a $19.2 million increase in depreciation, depletion and amortization expense. The operating loss from the oilfield sales and service segment increased $669,000 from $36,000 in the first six months of 1997 to $705,000 in the first six months of 1998 due to decreased revenue in the first six months of 1998 as a result of work deferred due to low oil prices and extended frost laws limiting access to roadways to drill or rework wells. Net loss increased $4.6 million from $9.9 million in the first six months of 1997 to $14.5 million in the first six months of 1998. The increased loss was the result of the $19.5 million increase in depreciation, depletion and amortization expense and an increase of $12.5 million in interest expense offset by a decrease in the provision for income taxes of $9.4 million and the $16.8 million in transaction expenses related to the TPG Merger in the second quarter of 1997. Earnings before interest, income taxes, depreciation, depletion and amortization and exploration expense ("EBITDAX") was $33.0 million in the first six months of 1998 compared to $32.0 million in the first six months of 1997 primarily due to a $1.1 million increase in the operating margin from oil and gas sales. Total revenues decreased $896,000 in the first six months of 1998 compared to the first six months of 1997. Gross operating margins increased $1.2 million (4%) in the first six months of 1998 compared to the first six months of 1997. Oil volumes decreased 1,000 Bbls from 381,000 Bbls in the first six months of 1997 to 380,000 Bbls in the first six months of 1998 resulting in a decrease in oil sales of approximately $20,000. The oil volume decrease was primarily due to the Company postponing sales due to low oil prices. Gas volumes increased 2.4 Bcf (19%) from 12.7 Bcf in the first six months of 1997 to 15.1 Bcf in the first six months of 1998 resulting in an increase in gas sales of approximately $6.3 million. The gas volume increase was primarily due to production from properties acquired and wells drilled in 1997 and 1998. The average price paid for the Company's oil decreased from $19.11 per barrel in the first six months of 1997 to $13.32 per barrel in the first six months of 1998 which decreased oil sales by approximately $2.2 million. The average price paid for the Company's natural gas decreased $.09 per Mcf to $2.60 per Mcf in the first six months of 1998 compared to the first six months of 1997 which decreased gas sales in the first six months of 1998 by approximately $1.4 million. The average gas price for the first six months of 1998 was enhanced by $.02 per Mcf as a result of the Company's hedging activities for that period. There was no hedging activity in the 1997 period. Production expense increased $1.5 million (16%) from $10.2 million in the first six months of 1997 to $11.7 million in the first six months of 1998 due to the net increase in volumes in the first six months of 1998 discussed above. The average production cost was $.68 per Mcfe in the first six months of 1997 and 1998. Production taxes increased $132,000 (8%) from $1.6 million in the first six months of 8 11 1997 to $1.8 million in the first six months of 1998. The average production taxes decreased from $.11 per Mcfe in the first six months of 1997 to $.10 per Mcfe in the first six months of 1998. General and administrative expense increased by $559,000 (23%) from $2.4 million in the first six months of 1997 to $3.0 million in the first six months of 1998 primarily due to the write-off of $350,000 in costs related to the proposed joint venture with FirstEnergy and increased compensation expense in the first six months of 1998. Depreciation, depletion and amortization increased by $19.5 million (127%) from $15.4 million in the first six months of 1997 to $34.9 million in the first six months of 1998. Depletion expense increased $17.7 million (150%) from $11.9 million in the first six months of 1997 to $29.6 million in the first six months of 1998. Depletion per Mcfe increased from $.79 per Mcfe in the first six months of 1997 to $1.70 per Mcfe in the first six months of 1998. These increases were primarily the result of significant increases in the book value of property, equipment and other assets as a result of the purchase accounting associated with the TPG Merger discussed above. Interest expense increased $12.5 million (336%) from $3.7 million in the first six months of 1997 to $16.2 million in the first six months of 1998. This increase was primarily due to substantial additional debt incurred to finance the TPG Merger. The Company incurred $185,000 in additional interest expense during the first six months of 1998 related to interest rate swaps. 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 June 30, 1998 was 1.56 to 1.00. During the first six months of 1998, working capital increased $2.2 million from $19.8 million to $22.0 million. The Company's operating activities provided cash flows of $13.0 million during the first six months of 1998. On June 27, 1997, the Company entered into a senior revolving credit agreement with several lenders. These lenders have committed to provide the Company with revolving credit loans of up to the lesser of the borrowing base or $200 million, of which $25 million will be available for the issuance of letters of credit. The initial borrowing base was 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 is currently under going a borrowing base review. The Company's lenders have proposed a revised base of $170 million which will become effective when 75% of the lenders approve the revised borrowing base. The Company borrowed $104 million under the credit agreement to partially finance the TPG Merger, to repay certain existing outstanding indebtedness of the Company and to pay certain fees and expenses related to the transaction. The credit agreement matures on June 27, 2002. Outstanding balances under the agreement incur interest at the Company's choice of several indexed rates, the most favorable being 7.21875% at June 30, 1998. The 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 9 12 activities. In addition, under the 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 is payable semiannually on June 15 and December 15 of each year. 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 occurs 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. The notes were issued pursuant to an indenture that 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. The Company currently expects to spend approximately $31 million during 1998 on its drilling activities and approximately $11 million for other capital expenditures. The Company's ongoing acquisition program is expected to be financed with available cash flow, available revolving credit line, additional borrowings or additional equity. 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 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. During June 1998, the Company entered into a third interest rate swap covering $50 million of debt. The Company swapped $50 million of floating rate three-month LIBOR +1.5% for a fixed rate of 7.2825% for three years. To manage its exposure to natural gas price volatility, the Company may partially hedge its physical gas sales prices by selling futures contracts on the New York Merchantile Exchange ("NYMEX") or by selling NYMEX based commodity derivative contracts which are placed with major financial institutions that the Company believes pose minimal credit risks. The contracts may take the 10 13 form of futures contracts, swaps or options. The Company had a pretax gain on its hedging activities of $236,000 in the second quarter of 1998. There was no hedging activity in the second quarter of 1997. At June 30, 1998, the Company had open futures contracts covering 8.8 Bcf of 1998 and 1999 gas production at a weighted average NYMEX price of $2.45 per Mcf which represented a net unrealized loss of $365,000. 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 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. - -------------------------------------------------------------------------------- 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 11 14 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: August 10, 1998 By: /s/ Ronald L. Clements ------------------- ------------------------------------ Ronald L. Clements, Director and Chief Executive Officer Date: August 10, 1998 By: /s/ Ronald E. Huff ------------------- ------------------------------------ Ronald E. Huff, Director, President and Chief Financial Officer 12 EX-27 2 EXHIBIT 27
5 0000880114 BELDEN & BLAKE CORPORATION 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 8,225 0 32,256 0 12,973 61,141 571,580 64,391 593,637 39,117 371,145 0 0 1,011 82,303 593,637 76,740 78,501 41,708 41,708 42,923 0 16,179 (22,309) (7,808) (14,501) 0 0 0 (14,501) 0 0
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