-----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, ET6x395JmfLqF7wVy1JxIZviS71YGPvDQo3xzqDpWHClDqE89AUvL/0KgxRQ2H0r 2PGSLyQfz7howZ7cqT0Whw== 0000950152-99-004428.txt : 19990517 0000950152-99-004428.hdr.sgml : 19990517 ACCESSION NUMBER: 0000950152-99-004428 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 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: 99621628 BUSINESS ADDRESS: STREET 1: 5200 STONEHAM RD STREET 2: P O BOX 2500 CITY: NORTH CANTON STATE: OH ZIP: 44720 BUSINESS PHONE: 3304991660 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 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 March 31, 1999 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 April 30, 1999 10,229,189 2 BELDEN & BLAKE CORPORATION INDEX - -------------------------------------------------------------------------------- PAGE ---- PART I Financial Information: Item 1. Financial Statements Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 ..................................... 1 Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998 .................. 2 Consolidated Statements of Shareholders' Equity (Deficit) for the three months ended March 31, 1999 and the year ended December 31, 1998 ............................... 3 Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998 .................. 4 Notes to Consolidated Financial Statements ............... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 8 PART II Other Information Item 6. Exhibits and Reports on Form 8-K ......................... 12 3 BELDEN & BLAKE CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31, 1999 1998 ============= ============= (UNAUDITED) ASSETS - ------ CURRENT ASSETS Cash and cash equivalents $ 13,740 $ 10,691 Accounts receivable, net 28,167 33,204 Inventories 7,733 9,200 Deferred income taxes 2,419 2,449 Other current assets 1,513 3,384 --------- --------- TOTAL CURRENT ASSETS 53,572 58,928 PROPERTY AND EQUIPMENT, AT COST Oil and gas properties (successful efforts method) 535,735 535,837 Gas gathering systems 22,073 22,008 Land, buildings, machinery and equipment 28,702 28,551 --------- --------- 586,510 586,396 Less accumulated depreciation, depletion and amortization 256,759 246,689 --------- --------- PROPERTY AND EQUIPMENT, NET 329,751 339,707 OTHER ASSETS 19,158 19,970 --------- --------- $ 402,481 $ 418,605 ========= ========= LIABILITIES AND SHAREHOLDERS' DEFICIT - ------------------------------------- CURRENT LIABILITIES Accounts payable $ 4,283 $ 6,458 Accrued expenses 28,003 29,373 Current portion of long-term liabilities 15,289 29,365 --------- --------- TOTAL CURRENT LIABILITIES 47,575 65,196 LONG-TERM LIABILITIES Bank and other long-term debt 135,178 126,178 Senior subordinated notes 225,000 225,000 Other 2,716 3,204 --------- --------- 362,894 354,382 DEFERRED INCOME TAXES 29,243 32,041 SHAREHOLDERS' DEFICIT Common stock without par value; $.10 stated value per share; authorized 58,000,000 shares; issued and outstanding 10,229,189 and 10,110,915 shares 1,023 1,011 Paid in capital 107,825 107,897 Deficit (146,079) (141,922) --------- --------- TOTAL SHAREHOLDERS' DEFICIT (37,231) (33,014) --------- --------- $ 402,481 $ 418,605 ========= =========
See accompanying notes. 1 4 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 -------- -------- REVENUES Oil and gas sales $ 18,964 $ 23,020 Gas marketing and gathering 11,796 11,013 Oilfield sales and service 3,493 5,093 Other 1,103 677 -------- -------- 35,356 39,803 EXPENSES Production expense 5,089 5,681 Production taxes 792 888 Cost of gas and gathering expense 10,513 8,983 Oilfield sales and service 3,643 5,196 Exploration expense 1,611 1,921 General and administrative expense 1,073 1,369 Depreciation, depletion and amortization 10,942 16,937 Franchise, property and other taxes 179 413 -------- -------- 33,842 41,388 -------- -------- OPERATING INCOME (LOSS) 1,514 (1,585) Interest expense 8,439 8,062 -------- -------- LOSS BEFORE INCOME TAXES (6,925) (9,647) Income tax benefit (2,768) (3,376) -------- -------- NET LOSS $ (4,157) $ (6,271) ======== ========
See accompanying notes. 2 5 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
TOTAL COMMON COMMON PAID IN EQUITY SHARES STOCK CAPITAL DEFICIT (DEFICIT) ------ ------ ------- ------- --------- JANUARY 1, 1998 10,000 $1,000 $ 107,230 $ (11,372) $ 96,858 Employee stock bonus 111 11 667 678 Net loss (130,550) (130,550) - --------------------------------------------------------------------------------------------------------- DECEMBER 31, 1998 10,111 1,011 107,897 (141,922) (33,014) Employee stock bonus 118 12 (72) (60) Net loss (4,157) (4,157) - --------------------------------------------------------------------------------------------------------- MARCH 31, 1999 (UNAUDITED) 10,229 $1,023 $ 107,825 $(146,079) $ (37,231) =========================================================================================================
See accompanying notes. 3 6 BELDEN & BLAKE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, ---------------------------- 1999 1998 ---------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (4,157) $ (6,271) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization 10,942 16,937 Gain on disposal of property and equipment (82) (1) Deferred income taxes (2,768) (3,376) Deferred compensation and stock grants (299) 1,118 Change in operating assets and liabilities, net of effects of purchases of businesses: Accounts receivable and other operating assets 6,912 974 Inventories 1,467 (1,770) Accounts payable and accrued expenses (3,545) 2,265 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 8,470 9,876 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of businesses, net of cash acquired -- (3,478) Proceeds from property and equipment disposals 271 175 Additions to property and equipment (365) (7,698) Decrease (increase) in other assets 122 (386) -------- -------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 28 (11,387) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from revolving line of credit and term loan 9,000 6,000 Repayment of long-term debt and other obligations (14,449) (574) -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (5,449) 5,426 -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,049 3,915 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,691 6,552 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,740 $ 10,467 ======== ======== CASH PAID DURING THE PERIOD FOR: Interest $ 2,927 $ 1,879 Income taxes, net of refunds -- (29) NON-CASH INVESTING AND FINANCING ACTIVITIES: Acquisition of assets in exchange for long-term obligations $ 125 $ --
See accompanying notes. 4 7 BELDEN & BLAKE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) MARCH 31, 1999 - -------------------------------------------------------------------------------- (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 period ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. 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, 1998. (2) CREDIT AGREEMENT On June 27, 1997, the Company entered into a senior revolving credit agreement with several lenders. These lenders 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 credit agreement is a senior revolving credit facility which is secured by substantially all of the Company's assets. The 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 6.5% at March 31, 1999. 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's borrowing base at December 31, 1998 was $170 million. On January 15, 1999, the Company's borrowing base was redetermined at $126 million. The Company had $154 million outstanding under this agreement at December 31, 1998 which resulted in the Company having a borrowing base deficiency of $28 million. The Company agreed with the lenders, to reduce this deficiency by $14 million on March 22, 1999 and by the remaining $14 million on May 10, 1999. The May 10, 1999 payment was eliminated by the amendment discussed below. On March 22, 1999, the Company made a $14 million payment to reduce the outstanding amount under the credit agreement to $140 million. At March 31, 1999, the outstanding balance under the credit agreement was $140 million. The funds for the payment were provided by internally generated cash flow and a term loan provided by Chase Manhattan Bank. This term loan provided borrowings of $9 million and was originally due on September 22, 1999. Interest is payable monthly at LIBOR plus 1.5%. On May 10, 1999, the Company and its lenders amended the credit agreement to increase the Company's borrowing base from $126 million to $136 million, subject to redetermination in November, 1999, and the Company paid $4 million to reduce the outstanding loan balance to $136 million. The Company is further required to 5 8 make additional payments of $5 million on the earlier of the receipt of aggregate proceeds from asset sales totaling $5 million or August 10, 1999 and $5 million on November 9, 1999, which will lower the borrowing base and outstanding balance to $126 million. Future borrowing base revisions will require approval from all lenders and any deficiency must be repaid within 30 days of the effective date of the redetermination. The amended agreement increased the interest rate to LIBOR plus 2.5% and provided certain covenant ratio relief. The Company paid approximately $2 million in fees to the lenders and expenses associated with the amendment. The Company's $9 million term loan from Chase Manhattan Bank originally due September 22, 1999, has been extended to June 27, 2000. The Company expects to be able to meet its 1999 debt service requirements through internally generated cash flow, the sale of non-strategic assets, additional debt, the infusion of additional equity and/or the use of instruments in financial futures markets. The credit agreement contains a number of covenants that, among other things, restricts 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 credit agreement, the Company is required to maintain specified financial ratios and tests, including minimum interest coverage ratios and maximum leverage ratios. The agreement requires a minimum working capital ratio of 1.00 to 1.00. As of March 31, 1999, the Company's working capital ratio was 1.13 to 1.00. As part of the May 10, 1999 amendment, the Company and its lenders have agreed to exclude the current portion of certain long term debt from this calculation. After making these adjustments the working capital ratio as of March 31, 1999 was 1.60 to 1.00. (3) STOCK BASED COMPENSATION The Company measures expense associated with stock-based compensation under the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The Company has a qualified defined contribution plan (a 401(k) plan) covering substantially all of its employees. Common stock held in the 401k plan is subject to variable plan accounting with changes in share value reported as adjustments to compensation expense. The reduction in share value in the first quarter of 1999 resulted in a reduction in compensation expense of $646,000. (4) INDUSTRY SEGMENT FINANCIAL INFORMATION The Company's operations are conducted in the United States and are managed along three reportable segments which include: (1) exploration and production, (2) gas marketing and gathering, and (3) oilfield sales and service. 6 9 The following tables present certain financial information regarding the Company's reportable segments. The "all other" column in each of the following tables includes unallocated corporate charges that support the segments and eliminations of all intersegment transactions to reconcile the reportable segment's revenues, income or loss, assets and other significant items to the Company's consolidated totals. Segment information for the first quarter of 1998 has been restated to reflect changes in the composition of reportable segments. The Company measures segment operating results based on earnings before interest, taxes, depreciation, depletion, amortization and exploration expense ("EBITDAX") and (loss) income before income taxes.
THREE MONTHS ENDED MARCH 31, 1999 ---------------------------------------------------------------------------- EXPLORATION GAS MARKETING OILFIELD SALES & PRODUCTION & GATHERING & SERVICE ALL OTHER TOTAL -------------- ------------- -------------- --------- --------- (IN THOUSANDS) REVENUES FROM CUSTOMERS $ 19,911 $ 11,751 $ 3,635 $ 59 $ 35,356 INTERSEGMENT REVENUES -- 7,263 919 (8,182) -- (LOSS) INCOME BEFORE INCOME TAXES (5,434) 136 (664) (963) (6,925) INTEREST EXPENSE 7,680 421 312 26 8,439 EXPLORATION EXPENSE 1,697 -- -- (86) 1,611 DEPRECIATION, DEPLETION, AND AMORTIZATION 9,692 649 213 388 10,942 EBITDAX 13,635 1,206 (139) (635) 14,067 ASSETS 331,737 35,479 16,628 18,637 402,481 THREE MONTHS ENDED MARCH 31, 1998 ---------------------------------------------------------------------------- EXPLORATION GAS MARKETING OILFIELD SALES & PRODUCTION & GATHERING & SERVICE ALL OTHER TOTAL -------------- ------------- -------------- --------- --------- (IN THOUSANDS) REVENUES FROM CUSTOMERS $ 23,712 $ 10,901 $ 5,124 $ 66 $ 39,803 INTERSEGMENT REVENUES -- 8,673 1,644 (10,317) -- (LOSS) INCOME BEFORE INCOME TAXES (7,816) 944 (829) (1,946) (9,647) INTEREST EXPENSE 7,450 207 343 62 8,062 EXPLORATION EXPENSE 1,922 -- -- (1) 1,921 DEPRECIATION, DEPLETION, AND AMORTIZATION 15,377 808 429 323 16,937 EBITDAX 16,933 1,959 (57) (1,562) 17,273 ASSETS 493,171 43,877 28,545 32,826 598,419
(5) SUBSEQUENT EVENT In April 1999, the Company and its wholly-owned subsidiary, The Canton Oil & Gas Company ("COG"), entered into a stock sales agreement with an oilfield supply company for the sale of Target Oilfield Pipe and Supply Company ("TOPS"), a wholly-owned subsidiary of COG. The buyer will purchase all of the issued and outstanding shares of capital stock of TOPS from COG. The Company expects to close this transaction in June 1999. 7 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Operating income increased $3.1 million (196%) from an operating loss of $1.6 million in the first quarter of 1998 to operating income of $1.5 million in the first quarter of 1999. The increase in operating income was due primarily to a $6.0 million decrease in depreciation, depletion and amortization expense as a result of the $160.7 million write-down of certain permanently impaired assets in the fourth quarter of 1998 offset by a $4.2 million decrease in the Company's operating margin due to decreases in oil and gas prices and the volume of natural gas sold. Net loss decreased $2.1 million from a net loss of $6.3 million in the first quarter of 1998 to a net loss of $4.2 million in the first quarter of 1999. This decrease was the result of the $6.0 million decrease in depreciation, depletion and amortization expense offset by a $4.2 million decrease in the Company's operating margin discussed above. EBITDAX decreased $3.2 million from $17.3 million in the first quarter of 1998 to $14.1 million in the first quarter of 1999 primarily to due decreased operating margins. Total revenues decreased $4.4 million (11%) in the first quarter of 1999 compared to the first quarter of 1998. Gross operating margins decreased $4.2 million in the first quarter of 1999 compared to the first quarter of 1998. These decreases were primarily due to decreases in oil and gas prices and the volume of natural gas sold. Oil volumes increased 3,000 Bbls (barrels) from 193,000 Bbls in the first quarter of 1998 to 196,000 Bbls in the first quarter of 1999 resulting in an increase in oil sales of approximately $40,000. Gas volumes decreased 0.6 Bcf (billion cubic feet) (7%) from 7.6 Bcf in the first quarter of 1998 to 7.0 Bcf in the first quarter of 1999 resulting in a decrease in gas sales of approximately $1.5 million primarily due to the natural production decline of the wells. The average price paid for the Company's oil decreased from $13.76 per barrel in the first quarter of 1998 to $11.24 per barrel in the first quarter of 1999 which decreased oil sales by $493,000. The average price paid for the Company's natural gas decreased $.30 per Mcf (thousand cubic feet) to $2.40 per Mcf in the first quarter of 1999 compared to the first quarter of 1998 which decreased gas sales in the first quarter of 1999 by approximately $2.1 million. As a result of the Company's hedging activities the average gas price for the first quarter of 1999 was enhanced by $.18 per Mcf compared to $.02 per Mcf for the first quarter of 1998. Production expense decreased $592,000 (10%) from $5.7 million in the first quarter of 1998 to $5.1 million in the first quarter of 1999. The average production cost decreased from $.65 per Mcfe (Mcf of natural gas equivalent) in the first quarter of 1998 to $.62 per Mcfe in the first quarter of 1999. These decreases were due to reduced compensation expense and the Company's decision to defer work on marginal wells due to low oil and gas prices. Production taxes decreased $96,000 (11%) from $888,000 in the first quarter of 1998 to $792,000 in the first quarter of 1999 due to decreased oil and gas sales. General and administrative expense decreased by $296,000 (22%) from $1.4 million in the first quarter of 1998 to $1.1 million in the first quarter of 1999 primarily due to a reduction in compensation expense in the first quarter of 1999. 8 11 Depreciation, depletion and amortization decreased by $6.0 million (35%) from $16.9 million in the first quarter of 1998 to $10.9 million in the first quarter of 1999. Depletion expense decreased $5.9 million (41%) from $14.5 million in the first quarter of 1998 to $8.6 million in the first quarter of 1999. Depletion per Mcfe decreased from $1.66 per Mcfe in the first quarter of 1998 to $1.05 per Mcfe in the first quarter of 1999. These decreases were primarily the result of the $160.7 million write-down of certain permanently impaired assets in the fourth quarter of 1998. Interest expense increased $377,000 (5%) from approximately $8.1 million in the first quarter of 1998 to approximately $8.4 million in the first quarter of 1999 due to an increase in average outstanding borrowings and higher blended interest rates. The Company incurred $306,000 and $92,000 in additional interest expense during the first quarters of 1999 and 1998, respectively, related to interest rate swaps. Exploration and production segment revenues decreased $3.8 million (16%) from $23.7 million in the first quarter of 1998 to $19.9 million in the first quarter of 1999. This decrease was due to decreases in oil and gas prices and the volume of natural gas sold. Segment loss before income taxes decreased $2.4 million (30%) from $7.8 million in the first quarter of 1998 to $5.4 million in the first quarter of 1999. This decrease was due primarily to a $5.7 million decrease in depreciation, depletion and amortization expense from the write-down of certain permanently impaired exploration and production segment assets in the fourth quarter of 1998, offset by a $3.7 million decrease in the segment's operating margin as a result of decreases in oil and gas prices and the volume of natural gas sold. Gas marketing and gathering segment revenues increased $850,000 (8%) from $10.9 million in the first quarter of 1998 to $11.8 million in the first quarter of 1999. This increase was due to a $1.3 million increase in gas marketing revenues from third party gas sales. This increase in gas marketing revenues was offset by a $518,000 decrease in gas gathering revenues due to reduced transportation rates resulting from a renegotiated contract with a major end user and reduced gas gathering volumes from normal declines in production from Knox wells coupled with a reduction in drilling due to depressed oil and gas prices. Segment income before income taxes decreased $808,000 (86%) from $944,000 in the first quarter of 1998 to $136,000 in the first quarter of 1999 due primarily to a $774,000 decrease in the gas marketing and gathering segment operating margin. Oilfield sales and service segment revenues decreased $1.5 million (29%) from $5.1 million in the first quarter of 1998 to $3.6 million in the 1999 quarter. This decrease was primarily the result of work deferred by the Company and third parties due to low oil and gas prices. 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 March 31, 1999 was 1.13 to 1.00. During the first three months of 1999, working capital increased $12.3 million from a deficit of $6.3 million to $6.0 million primarily due to the payment of $14 million of long-term debt classified as current. The Company's operating activities provided cash flows of $8.5 million during the first three months of 1999. On June 27, 1997, the Company entered into a senior revolving credit agreement with several lenders. These lenders 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 credit agreement is a senior revolving credit facility which is secured by substantially all of the Company's assets. The credit agreement will mature on June 27, 2002. 9 12 Outstanding balances under the agreement incur interest at the Company's choice of several indexed rates, the most favorable being 6.5% at March 31, 1999. 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's borrowing base at December 31, 1998 was $170 million. On January 15, 1999, the Company's borrowing base was redetermined at $126 million. The Company had $154 million outstanding under this agreement at December 31, 1998 which resulted in the Company having a borrowing base deficiency of $28 million. The Company agreed with the lenders, to reduce this deficiency by $14 million on March 22, 1999 and by the remaining $14 million on May 10, 1999. The May 10, 1999 payment was eliminated by the amendment discussed below. On March 22, 1999, the Company made a $14 million payment to reduce the outstanding amount under the credit agreement to $140 million. At March 31, 1999, the outstanding balance under the credit agreement was $140 million. The funds for the payment were provided by internally generated cash flow and a term loan provided by Chase Manhattan Bank. This term loan provided borrowings of $9 million and was originally due on September 22, 1999. Interest is payable monthly at LIBOR plus 1.5%. On May 10, 1999, the Company and its lenders amended the credit agreement to increase the Company's borrowing base from $126 million to $136 million, subject to redetermination in November, 1999, and the Company paid $4 million to reduce the outstanding loan balance to $136 million. The Company is further required to make additional payments of $5 million on the earlier of the receipt of aggregate proceeds from asset sales totaling $5 million or August 10, 1999 and $5 million on November 9, 1999, which will lower the borrowing base and outstanding balance to $126 million. Future borrowing base revisions will require approval from all lenders and any deficiency must be repaid within 30 days of the effective date of the redetermination. The amended agreement increased the interest rate to LIBOR plus 2.5% and provided certain covenant ratio relief. The Company paid approximately $2 million in fees to the lenders and expenses associated with the amendment. The Company's $9 million term loan from Chase Manhattan Bank originally due September 22, 1999, has been extended to June 27, 2000. The Company expects to be able to meet its 1999 debt service requirements through internally generated cash flow, the sale of non-strategic assets, additional debt, the infusion of additional equity and/or the use of instruments in financial futures markets. The credit agreement contains a number of covenants that, among other things, restricts 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 credit agreement, the Company is required to maintain specified financial ratios and tests, including minimum interest coverage ratios and maximum leverage ratios. The agreement requires a minimum working capital ratio of 1.00 to 1.00. As of March 31, 1999, the Company's working capital ratio was 1.13 to 1.00. As part of the May 10, 1999 amendment, the Company and its lenders have agreed to exclude the current portion of certain long term debt from this calculation. After making these adjustments the working capital ratio as of March 31, 1999 was 1.60 to 1.00. 10 13 The Company issued $225 million of 9.875% Senior Subordinated Notes on June 27, 1997. The 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 shall 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 in control. 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. The Company currently expects to spend approximately $4 million during 1999 on its drilling activities and other capital expenditures. The Company intends to finance such activities, as well as its acquisition program, through its 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. 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 for a fixed rate of 7.485% (which includes an applicable margin of 1.5%) 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 for a fixed rate of 7.649% (which includes an applicable margin of 1.5%) 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 for a fixed rate of 7.2825% (which includes an applicable margin of 1.5%) for three years. Effective May 10, 1999 the applicable margin relating to these swaps was increased from 1.5% to 2.5%. 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 are minimal credit risks. The contracts may take the form of futures contracts, swaps or options. The Company had a pretax gain on its hedging activities of $1.3 million and $115,000 in the first quarter of 1999 and 1998, respectively. At March 31, 1999, the Company had open futures contracts covering 3.2 Bcf of 1999 gas production at a weighted average NYMEX price of $2.44 per Mcf which represented a net unrealized gain of $1.3 million. Since March 11 14 31, 1999, the Company has hedged an additional 3.6 Bcf of 1999 and 2000 gas production at a weighted average NYMEX price of $2.36 per Mcf. 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 gas marketing activity, production and costs of operation, the market demand for, and prices of, oil and natural gas, results of the Company's future drilling, the uncertainties of reserve estimates, environmental risks, availability of financing, the Company's readiness for Y2K as well as potential adverse consequences related to third party Y2K compliance 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 On February 1, 1999, the Company filed a Current Report on Form 8-K dated January 15, 1999 relating to the redetermination of the borrowing base under its revolving credit agreement and to the expected recording of a non-cash impairment charge in the fourth quarter of 1998. 12 15 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: May 12, 1999 By: /s/ Ronald L. Clements -------------------- ------------------------------------- Ronald L. Clements, Director and Chief Executive Officer Date: May 12, 1999 By: /s/ Ronald E. Huff -------------------- ------------------------------------- Ronald E. Huff, Director, President and Chief Financial Officer 13 EX-27 2 EXHIBIT 27
5 0000880114 BELDEN & BLAKE CORPORATION 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 13,740 0 28,167 0 7,733 53,572 586,510 256,759 402,481 47,575 362,894 0 0 1,023 (38,254) 402,481 34,253 35,356 20,037 20,037 13,805 0 8,439 (6,925) (2,768) (4,157) 0 0 0 (4,157) 0 0
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