UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1999
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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: 1-7940
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Goodrich Petroleum Corporation
(Exact name of registrant as specified in its charter)
Delaware 76-0466193
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer ID. No.)
incorporation or organization)
5847 San Felipe, Suite 700, Houston, Texas 77057
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 780-9494
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(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
At August 13, 1999, there were 5,277,703 shares of Goodrich Petroleum
Corporation common stock outstanding.
1
GOODRICH PETROLEUM CORPORATION
FORM 10-Q
June 30, 1999
INDEX
Page No.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
June 30, 1999 (Unaudited) and December 31, 1998................ 3-4
Consolidated Statements of Operations (Unaudited)
Six Months Ended June 30, 1999 and 1998........................ 5
Three Months Ended June 30, 1999 and 1998...................... 6
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1999 and 1998........................ 7
Consolidated Statements of Stockholders' Equity (Unaudited)
Six Months Ended June 30, 1999 and 1998........................ 8
Notes to Consolidated Financial Statements........................ 9-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 12-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
PART II - OTHER INFORMATION 18
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
2
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, December 31,
1999 1998
----------- ------------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents..........................$ 45,938 $ 95,630
Marketable-equity securities....................... --- 358,700
Accounts receivable
Trade and other, net of allowance................ 414,118 2,197,179
Accrued oil and gas revenue...................... 1,204,435 1,089,226
Prepaid insurance.................................. 113,964 184,898
----------- -----------
Total current assets......................... 1,778,455 3,925,633
----------- ---------
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method). 54,798,931 53,320,832
Furniture, fixtures and equipment.................. 198,841 195,279
----------- -----------
54,997,772 53,516,111
Less accumulated depletion, depreciation
and amortization................................. (16,750,471) (13,720,009)
------------ -----------
Net property and equipment................... 38,247,301 39,796,102
----------- -----------
OTHER ASSETS........................................ 427,456 314,853
----------- -----------
TOTAL ASSETS.........................$ 40,453,212 $ 44,036,588
=========== ===========
See notes to consolidated financial statements.
3
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Continued)
June 30, December 31,
1999 1998
---------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt.............. $ 12,600,000 $ 29,500,000
Accounts payable............................... 6,736,208 7,763,507
Accrued liabilities............................ 1,038,981 1,813,693
---------- -----------
Total current liabilities................ 20,375,189 39,077,200
---------- -----------
LONG TERM DEBT .................................. 16,300,000 ---
STOCKHOLDERS' EQUITY
Preferred stock; authorized 10,000,000 shares:
Series A convertible preferred stock, par
value $1.00 per share; issued and out-
standing 796,318 shares (liquidation
preference $10 per share, aggregating
to $7,963,180)........................... 796,318 796,318
Series B convertible preferred stock, par
value $1.00 per share; issued and out-
standing 750,000 shares (liquidation
preference $10 per share, aggregating
to $7,500,000)........................... 750,000 750,000
Common stock, par value $0.20 per share;
authorized 25,000,000 shares; issued
and outstanding 5,247,703 and
5,232,403 shares......................... 1,055,541 1,049,541
Additional paid-in capital......................... 15,250,027 15,226,027
Accumulated deficit............................ (14,073,863) (12,461,598)
Accumulated other comprehensive income......... --- (400,900)
----------- -----------
Total stockholders' equity..................... 3,778,023 4,959,388
----------- -----------
TOTAL LIABILITIES AND STOCK
HOLDERS' EQUITY................... $ 40,453,212 $ 44,036,588
=========== ===========
See notes to consolidated financial statements.
4
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Six Months Ended
June 30,
--------------------
1999 1998
-------- --------
REVENUES
Oil and gas sales...................................$ 5,607,822 4,405,084
Other ....................................... 163,404 297,096
---------- ----------
Total revenues................................ 5,771,226 4,702,180
----------- ----------
EXPENSES
Lease operating expense and production taxes........ 1,367,534 1,287,314
Depletion, depreciation and amortization............ 2,466,956 2,102,268
Exploration......................................... 822,074 3,171,425
Interest expense.................................... 1,082,172 803,682
General and administrative.......................... 1,125,260 1,296,773
----------- ----------
Total costs and expenses...................... 6,863,996 8,661,462
----------- ----------
LOSS ON SALE OF ASSETS............................... (519,495) ---
----------- ----------
LOSS BEFORE INCOME TAXES............................. (1,612,265) (3,959,282)
Income taxes ....................................... --- ---
----------- ----------
NET LOSS ........................................... (1,612,265) (3,959,282)
Preferred stock dividends (1999 amounts in arrears). 627,824 627,814
----------- ----------
LOSS APPLICABLE TO COMMON STOCK......................$ (2,240,089) (4,587,096)
=========== ==========
BASIC LOSS PER AVERAGE COMMON SHARE..................$ (.43) (.88)
=========== ==========
DILUTED LOSS PER AVERAGE COMMON SHARE................$ (.43) (.88)
=========== ==========
AVERAGE COMMON SHARES OUTSTANDING.................... 5,254,501 5,235,824
See notes to consolidated financial statements.
5
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
June 30,
----------------------
1999 1998
-------- --------
REVENUES
Oil and gas sales....................................$ 2,784,953 2,015,860
Other........... .................................... 44,577 248,537
--------- ----------
Total revenues................................. 2,829,530 2,264,397
--------- ----------
EXPENSES
Lease operating expense and production taxes......... 700,780 613,547
Depletion, depreciation and amortization............. 1,158,403 975,702
Exploration.......................................... 423,293 2,560,555
Interest expense..................................... 561,692 418,107
General and administrative........................... 561,378 647,253
--------- ----------
Total costs and expenses....................... 3,405,546 5,215,164
--------- ----------
LOSS BEFORE INCOME TAXES.............................. (576,016) (2,950,767)
Income taxes ........................................ --- ---
--------- --------
NET LOSS ........................................... (576,016) (2,950,767)
Preferred stock dividends (1999 amounts in arrears).. 313,912 313,902
--------- ----------
LOSS APPLICABLE TO COMMON STOCK.......................$ (889,928) (3,264,669)
========== ==========
LOSS PER AVERAGE COMMON SHARE.........................$ (.17) (.62)
========== ==========
AVERAGE COMMON SHARES
OUTSTANDING .................................... 5,261,221 5,242,270
See notes to consolidated financial statements.
6
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months
Ended June 30,
----------------------
1999 1998
-------- --------
OPERATING ACTIVITIES
Net loss..............................................$(1,612,265) (3,959,282)
Adjustments to reconcile net loss to net
cash provided (used in) by operating activities:
Depletion, depreciation and amortization............. 2,466,956 2,102,268
Amortization of leasehold costs...................... 563,506 295,247
Loss on sale of assets............................... 519,495 (4,206)
Capital expenditures charged to income............... 43,922 2,588,062
Director stock grant................................. 30,000 79,932
Payment of contingent liability...................... --- (107,625)
Payment of other liabilities......................... --- (160,518)
---------- ----------
2,011,614 833,878
Net change in:
Accounts receivable.................................. 1,667,852 (191,623)
Prepaid insurance and other.......................... (41,669) 91,661
Accounts payable..................................... (1,027,299) (1,051,251)
Accrued liabilities.................................. (774,712) (41,911)
---------- ----------
Net cash provided by (used in) operating activities. 1,835,786 (359,246)
---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of assets......................... 240,105 49,091
Acquisition of oil and gas properties................. --- (129,325)
Exploration and drilling capital expenditures paid.... (1,525,583) (4,462,883)
---------- ----------
Net cash used in investing activities............... (1,285,478) (4,543,117)
---------- ----------
FINANCING ACTIVITIES
Proceeds from bank borrowings......................... --- 5,500,000
Principal payments of bank borrowings................. (600,000) (500,000)
Preferred stock dividends --- (627,814)
---------- ----------
Net cash provided by (used in) financing activities. (600,000) 4,372,186
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS.............. (49,692) (530,177)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 95,630 793,358
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.............$ 45,938 263,181
========== ==========
NON-CASH INVESTING ACTIVITIES
Accrued capital expenditures.......................... --- 3,695,232
See notes to consolidated financial statements.
7
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Six Months Ended June 30, 1999 and 1998
(Unaudited)
Series A* Series B*
Preferred Stock Preferred Stock Common Stock
--------------- --------------- ------------
Number of Par Number of Par Number of Par
Shares Value Shares Value Shares Value
------ ----- ------ ----- ------- ------
Balance at December 31, 1997........ 796,318 $ 796,318 750,000 $ 750,000 5,232,403 $ 1,046,481
Net loss............................ --- --- --- --- --- ---
Unrealized depreciation of marketable
securities available for sale..... --- --- --- --- --- ---
Preferred stock dividends........... --- --- --- --- --- ---
Employee and director stock grants.. --- --- --- --- 15,300 3,060
-------- --------- ----------- ------------ ----------- ------------
Balance at June 30, 1998............ 796,318 $ 796,318 750,000 $ 750,000 5,247,703 $ 1,049,541
======== ========= =========== ============ =========== ============
Balance at December 31, 1998........ 796,318 $ 796,318 750,000 $ 750,000 5,247,705 $ 1,049,541
Net loss............................ --- --- --- --- --- ---
Directors Stock Grant............... --- --- --- --- 30,000 6,000
Realized loss on sale of
marketable securities............. --- --- --- --- --- ---
-------- --------- ----------- ------------ ----------- ------------
Balance at June 30, 1999............ 796,318 $ 796,318 750,000 $ 750,000 5,277,705 $ 1,055,541
======== ========= =========== ============ =========== ============
Accumulated Other
Comprehensive
Income - Unrealized
Additional Gain (Loss) on Total
Paid-In Accumulated Marketable Stockholders'
Capital Deficit Equity Securities Equity
---------- ----------- -------------------- -------------
Balance at December 31, 1997........ $ 15,146,095 $ (3,490,618) $ 84,400 $ 14,332,676
Net loss............................ --- (3,959,282) --- (3,959,282)
Unrealized depreciation of marketable
securities available for sale..... --- --- (295,400) (295,400)
Preferred stock dividends........... --- (313,912) --- (313,912)
Employee and director stock grants.. 79,932 --- --- 82,992
----------- ----------- ------------- ---------------
Balance at June 30, 1998............ $ 15,226,027 $ (8,077,714) $ (211,000) $ 9,533,172
=========== ============ ============== ===============
Balance at December 31, 1998........ $ 15,226,027 $ (12,461,598) $ (400,900) $ 4,959,388
Net loss............................ --- (1,612,265) --- (1,612,265)
Directors Stock Grant............... 24,000 --- --- 30,000
Realized loss on sale of
marketable securities............. --- --- 400,900 400,900
----------- ------------ ------------- --------------
Balance at June 30, 1999............ $ 15,250 027 $ (14,073,863) $ --- $ 3,778,023
=========== ============ ============= ==============
*Dividends are cumulative and arrearages amounted to $627,824, or $.12 per share
at June 30, 1999.
See notes to consolidated financial statements.
8
GOODRICH PETROLEUM CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999 and 1998
(Unaudited)
NOTE A - Basis of Presentation
- ------------------------------
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to rules and regulations of the
Securities and Exchange Commission; however, the Company believes the
disclosures which are made are adequate to make the information presented not
misleading. The financial statements and footnotes included in this Form 10-Q
should be read in conjunction with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1998.
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position of the Company as
of June 30, 1999 and the results of its operations for the six and three months
ended June 30, 1999 and 1998.
The results of operations for the six and three-month periods ended June 30,
1999 are not necessarily indicative of the results to be expected for the full
year.
NOTE B - Indebtedness
- ---------------------
On May 12, 1999 the Company signed a definitive agreement with Compass Bank to
restructure its existing credit facility. The credit facility provides for a
borrowing base facility of $20,500,000 with monthly reductions of $50,000
beginning on April 1, 1999 and May 1, 1999, $200,000 on June 1, 1999 and
$300,000 on July 1, 1999 and each month thereafter. Semi-annual borrowing base
determinations will be made beginning July 1, 1999 based in part on the
Company's oil and gas reserve information. The maturity date for amounts drawn
under the bank Borrowing Base facility is February 1, 2001. Interest on such
facility is based on LIBOR plus 2%, and rates are set on specific draws for one,
two, three or six month periods at the option of the Company.
The facility also establishes a Tranche A in the amount of $9,000,000. The
maturity date for the Tranche A facility is December 1, 1999. The Tranche A
requires that excess cash flow from operations, as defined in the agreement, be
applied to outstanding principal and interest until the maturity date, with
interest based on the Compass Bank Index Rate plus 2%.
The credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the borrowing base facility
9
and Tranche A. Additionally, under the terms of the credit facility, the Company
may not make any distributions or pay dividends, including dividends on any
class of its preferred stock, until Tranche A is paid in full.
Substantially all of the Company's assets are pledged to secure this credit
facility.
NOTE C - Liquidity and Management's Plan
- ----------------------------------------
The unaudited consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The following discusses the Company's
current liquidity and management's plan.
Liquidity - As disclosed in Note B, the Company's current liabilities include
- ---------
current maturities of long term debt in the amount of $12,600,000, and exceed
current assets by $18,597,000. Additionally, the Company is unable to incur
additional debt under its credit facility. Additionally, the Company is unable
to incur additional debt at the parent company level under its credit facility
or from any other sources until such time as its stockholders' equity balance
is greater than the liquidation preference of the Series A Preferred Stock of
approximately $7.9 million.
Management's Plan - Due to the Company's existing current working capital
- ------------------
deficiency, required pay downs under its credit facility and the restrictions
imposed by the Series A Preferred Stock, management is exploring a number of
alternatives that are directed toward making the Company profitable and
improving its liquidity. The principal strategies include:
1) raising additional capital through the issuance of equity securities; or
a combination of equity and subordinated debt;
2) acquisition of value enhancing oil and gas properties that offer
additional development opportunities and increased cash flow;
3) mergers with and/or acquisitions by other entities;
4) reducing operating costs;
5) renegotiation or amendment of the Company's credit facility and capital
structure
As with any plan of this nature, its ultimate realization will depend upon the
cooperation of creditors, potential investors and others. As a result, the
outcome of the plan cannot presently be determined and no adjustments related to
the specific considerations of management's plan have been made in the
accompanying consolidated financial statements. Should the plan not be
completed, the Company may not be able to liquidate liabilities as they come
due.
10
NOTE D - Commitments and Contingencies
- --------------------------------------
The U.S. Environmental Protection Agency ("EPA") has identified the Company as a
potentially responsible party ("PRP") for the cost of clean-up of "hazardous
substances" at an oil field waste disposal site in Vermilion Parish, Louisiana.
The Company has estimated that the remaining cost of long-term clean up of the
site will be approximately $4.5 million with the Company's percentage of
responsibility to be approximately 3.05%. As of June 30, 1999, the Company has
paid approximately $321,000 in costs related to this matter and has $92,000
accrued for the remaining liability. These costs have not been discounted to
their present value. The EPA and the PRPs will continue to evaluate the site and
revise estimates for the long-term clean up of the site. There can be no
assurance that the cost of clean up and the Company's percentage responsibility
will not be higher than currently estimated. In addition, under the federal
environmental laws, the liability costs for the clean up of the site is joint
and several among all PRPs. Therefore, the ultimate cost of the clean up to the
Company could be significantly higher than the amount presently estimated or
accrued for this liability.
NOTE E - Income Taxes
- ---------------------
No provision for income taxes has been recorded for the Company for the six
months ended June 30, 1999 and 1998 due to its incurring a net loss for each
period. A valuation allowance has been provided for the amount of net operating
losses incurred.
NOTE F - Loss Per Share
- -----------------------
During 1999, the Company suspended dividend payments on its Series A and Series
B convertible preferred stock. Dividends on both classes of its preferred stock
are cumulative and arrearages amounted to $628,000 at June 30,1999. Accordingly,
undeclared dividends held in arrears have been added to the Company's net loss
in computing loss per share amounts applicable to common stockholders.
11
Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Changes in Results of Operations
- --------------------------------
Six months ended June 30, 1999 versus six months ended June 30, 1998
Total revenues for the six months ended June 30, 1999 amounted to $5,771,000 and
were $1,069,000 higher than the $4,702,000 for the six months ended June 30,
1998 due to higher oil and gas revenues. Oil and gas sales were $1,203,000
higher due primarily to higher oil and gas production partially offset by lower
oil and gas prices. Oil and gas sales were higher by approximately $350,000 due
to the recording of previously suspended oil and gas sales.
The following table reflects the production volumes and pricing information for
the periods presented.
Six months Six months
ended June 30, 1999 ended June 30, 1998
------------------- -------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
Gas (Mcf)...... 1,564,419 $ 1.95 1,106,260 $ 2.27
Oil (Bbls)..... 203,326 12.60 136,152 13.87
Lease operating expense and production taxes were $1,368,000 for the six months
ended June 30, 1999, versus $1,287,000 for the six months ended June 30, 1998,
or $81,000 higher due primarily to higher oil and gas sales. Depletion,
depreciation and amortization was $2,467,000 for the six months ended June 30,
1999, versus $2,102,000 for the six months ended June 30, 1998, or $365,000
higher due to slightly higher depletion rates and higher volumes in the first
six months of 1999 versus 1998.
Exploration expense for the six months ended June 30, 1999 was $822,000 versus
$3,171,000 for the same period of 1998, or $2,349,000 lower due primarily to dry
hole costs of $5,000 in the current period compared to $2,042,000 for the same
period of 1998. Additionally, seismic costs and prospect depletion were of
$73,000 and $564,000 for the six months ended June 30, 1999 versus $575,000 and
$295,000 in the same period in 1998.
Interest expense was $1,082,000 in the six months ended June 30, 1999 compared
to $804,000 in the six months ended June 30, 1998 due to higher average debt
outstanding for the six months ended June 30, 1999.
General and administrative expenses amounted to $1,125,000 in the six months
ended June 30, 1999 versus $1,297,000 in the six months ended June 30, 1998.
12
The Company incurred a loss on the sale of marketable equity securities of
$519,000 for the six months ended June 30, 1999.
On March 23, 1999 the Company announced that it suspended payment of its regular
quarterly cash dividend on both classes of its preferred stock. This measure was
taken to conserve cash for corporate and operating purposes. The dividends are
cumulative and arrearages amounted to $628,000 at June 30, 1999. The Company has
no plans to reinstate the cash dividends in the foreseeable future. Preferred
stock dividends amount to $628,000 for the six months ended June 30, 1998.
Three months ended June 30, 1999 versus three months ended June 30,1998
Total revenues for the three months ended June 30, 1999 amounted to $2,830,000
and were $566,000 higher than the $2,264,000 for the three months ended June 30,
1998. Oil and gas sales were $769,000 higher due primarily to higher oil prices
and increased oil and gas production.
The following table reflects the production volumes and pricing information for
the periods presented.
Three months Three months
ended June 30, 1999 ended June 30, 1998
------------------- -------------------
Production Average Price Production Average Price
---------- ------------- ---------- -------------
Gas (Mcf)....... 679,463 $ 2.11 561,957 $ 2.13
Oil (Bbls)...... 88,706 15.25 65,789 12.49
Lease operating expense and production taxes were $701,000 for the three months
ended June 30, 1999, versus $614,000 for the three months ended June 30, 1998,
or $87,000 higher due to higher oil and gas sales. Depletion, deprecation and
amortization was $1,158,000 for the three months ended June 30, 1999, versus
$976,000 for the three months ended June 30, 1998, or $182,000 higher than the
second quarter of 1998 due to higher production volumes in the second quarter of
1999 versus 1998.
The Company incurred $423,000 of exploration expense in the second quarter of
1999, compared to $2,561,000 in the second quarter of 1998, or $2,138,000 lower
primarily due to dry hole costs of $2,107,000 in the second quarter of 1998
versus $0 in 1999.
Interest expense was $562,000 in the three months ended June 30, 1999 compared
to $418,000 in the second quarter of 1998 due to higher average debt outstanding
for the quarter ended June 30, 1999.
13
General and administrative expenses amounted to $561,000 in the three months
ended June 30, 1999 versus $647,000 in the second quarter of 1998.
Liquidity and Capital Resources
- -------------------------------
Net cash provided by operating activities was $1,836,000 in the six months ended
June 30, 1999 compared to net cash used in operating activities of $359,000 in
the six months ended June 30, 1998. The Company's accompanying consolidated
statements of cash flows identify major differences between net income and net
cash provided by operating activities for each of the periods presented.
Net cash used in investing activities totaled $1,285,000 for the six months
ended June 30, 1999 compared to $4,543,000 in 1998. The six months ended June
30, 1999 reflects capital expenditures paid totaling $1,526,000 and proceeds
from the sales of marketable equitable securities of $240,000. The six months
ended June 30, 1998 reflects $4,463,000 in exploration and drilling capital
expenditures paid and $129,000 of cash paid in connection with the purchase of
oil and gas properties offset by $49,000 in proceeds from the sale of certain
oil and gas properties.
Net cash used in financing activities was $600,000 for the six months ended June
30, 1999 as compared to net cash provided by financing activities of $4,372,000
in the prior year period. The 1999 amount includes pay downs of $600,000 by the
Company under its line of credit. The 1998 amount included the borrowing of
$5,500,000 by the Company under its line of credit and pay downs under its line
of credit of $500,000. The 1999 period reflects no preferred dividends, whereas
the 1998 period contains dividends of $628,000.
On May 12, 1999 the Company signed a definitive agreement with Compass Bank to
restructure its existing credit facility. The credit facility provides for a
borrowing base facility of $20,500,000 with monthly reductions of $50,000
beginning on April 1, 1999 and May 1, 1999, $200,000 on June 1, 1999 and
$300,000 on July 1, 1999 and each month thereafter. Semi-annual borrowing base
determinations will be made beginning July 1, 1999 based in part on the
Company's oil and gas reserve information. The maturity date for amounts drawn
under the bank Borrowing Base facility is February 1, 2001. Interest on such
facility is based on LIBOR plus 2%, and rates are set on specific draws for one,
two, three or six month periods at the option of the Company.
The facility also establishes a Tranche A in the amount of $9,000,000. The
maturity date for the Tranche A facility is December 1, 1999. The Tranche A
requires that excess cash flow from operations, as defined in the agreement, be
applied to outstanding principal and interest until the maturity date, with
interest based on the Compass Bank Index Rate plus 2%.
The credit facility requires the net proceeds of asset sales be used to
extinguish outstanding principal and interest under the borrowing base facility
14
and Tranche A. Additionally, under the terms of the credit facility, the Company
may not make any distributions or pay dividends, including dividends on any
class of its preferred stock, until Tranche A is paid in full.
Substantially all of the Company's assets are pledged to secure this credit
facility.
Due to the Company's existing current working capital deficiency, required pay
downs under its credit facility and the restrictions imposed by the Series A
preferred stock, management is exploring a number of alternatives that are
directed toward making the Company profitable and improving its liquidity. The
principal strategies include:
1) raising additional capital through the issuance of equity securities; or
a combination of equity and subordinated debt;
2) acquisition of value enhancing oil and gas properties that offer
additional development opportunities and increased cash flow;
3) mergers with and/or acquisitions by other entities;
4) reducing operating costs;
5) renegotiation or amendment of the Company's credit facility and capital
structure
As with any plan of this nature, its ultimate realization will depend upon the
cooperation of creditors, potential investors and others. As a result, the
outcome of the plan cannot presently be determined and no adjustments related to
the specific considerations of management's plan have been made in the
accompanying consolidated financial statements. Should the plan not be
completed, the Company may not be able to liquidate liabilities as they come
due. In addition, the Company's current liquidity situation and its agreement
with Compass Bank have resulted in a suspension of new drilling expenditures
until such time as certain aforementioned principle strategies have been
effected. The Company incurred $1,526,000 in capital expenditures in the three
months ended June 30, 1999, related primarily to recompletion of existing wells
and maintenance of existing leases.
Year 2000
- ---------
The Company's senior financial management has taken responsibility for
identifying, addressing and monitoring its Year 2000 issues and has assessed the
ability of its various electronic operating systems, and those of significant
third parties, to appropriately consider periods and dates after December 31,
1999. These individuals report to the Audit Committee of the Board of Directors
on a periodic basis.
The Company completed a comprehensive analysis of the operational problems and
costs (including loss of revenues) that would be reasonably likely to result
from the failure by the Company and certain third parties to complete efforts
15
necessary to achieve Year 2000 compliance timely. The Company has taken steps
necessary, including upgrades of application software and hardware, to ensure
its electronic operating systems comply with Year 2000 issues. A contingency
plan has been developed to address the likelihood that problems could arise
associated with non-compliance.
The estimated costs associated with becoming Year 2000 compliant are not
expected to be material to the Company.
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 efforts
are expected to significantly reduce the Company's level of uncertainty about
the Year 2000 problem. The Company believes that, with the implementation of new
business systems and completion of the various above-mentioned tasks as
scheduled, the possibility of interruptions to normal operations should be
significantly reduced.
Stock Listing
- -------------
On July 28, 1999 the Company was notified by the New York Stock Exchange that
the Exchange had revised its minimum financial criteria for listed companies and
the time frame required for listed companies to become compliant. In addition
the Company was informed that it was not in compliance with the revised
criteria. The Company plans to submit a revised 12-18 month business plan to the
Exchange in response to the notice. As described above, the Company's liquidity
situation may make it difficult for the Company to adhere to this business plan.
If the Company fails to do so, there can be no assurance that the New York Stock
Exchange will not delist the Company's common stock.
The Company has been notified by the NASDAQ Stock Market that it may not be able
to sustain compliance with certain of the Market's listing requirements for its
Series A Preferred Stock. The Company plans to submit a business plan to the
Market in response to the notice.
Quantitative and Qualitative Disclosures about Market Risk Debt
---------------------------------------------------------------
and Debt Related Derivatives
----------------------------
The Company is exposed to interest rate risk on its short-term and long-term
debt with variable interest rates ($28,900,000 at June 30, 1999). Based on the
overall interest rate exposure on variable rate debt at June 30, 1999 a
hypothetical 2% change in interest rates would increase interest expense by
approximately $578,000.
16
Disclosure Regarding Forward-Looking Statement
----------------------------------------------
Certain statements in this quarterly report on Form 10-Q regarding future
expectations and plans for future activities may be regarded as "forward looking
statements" within the meaning of Private Securities Litigation Reform Act of
1995. They are subject to various risks, such as financial market conditions,
operating hazards, drilling risks and the inherent uncertainties in interpreting
engineering data relating to underground accumulations of oil and gas, as well
as other risks discussed in detail in the Company's Annual Report on Form 10-K
and other filings with the Securities and Exchange Commission. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to be correct.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Shareholders of the Company was held on May 20,
1999. Set forth below is a brief description of each matter acted upon at the
meeting and the number of votes cast for, against or withheld, and abstaining or
not voting as to each matter.
Election of Class III Directors and Class I Director
- ----------------------------------------------------
FOR WITHHELD
--- --------
Sheldon Appel 4,514,698 47,121
Jeff Benhard 4,514,684 47,135
Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
- --------------------------------------------------------------------------------
independent auditors for 1999
- -----------------------------
FOR AGAINST WITHHELD
--- ------- --------
4,561,819 20,948 15,579
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOODRICH PETROLEUM CORPORATION
(registrant)
August 13, 1999 /s/ Walter G. Goodrich
- -------------------- ---------------------------------
Date Walter G. Goodrich, President and
Chief Executive Officer
August 13, 1999 /s/ Roland L. Frautschi
- -------------------- --------------------------------
Date Roland L. Frautschi, Senior Vice
President, Chief Financial Officer
and Treasurer
19