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FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
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, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-20100
BELDEN & BLAKE CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-1686642
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 Stoneham Road
North Canton, Ohio 44720
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(Address of principal executive offices) (Zip Code)
(330) 499-1660
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(Registrant's telephone number, including area code)
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(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 26, 1996
11,168,581
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BELDEN & BLAKE CORPORATION
INDEX
Page
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PART I Financial Information:
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Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and 1
December 31, 1995
Consolidated Statements of Operations for the three 3
months ended March 31, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the 4
three months ended March 31, 1996 and the years ended
December 31, 1995 and 1994
Consolidated Statements of Cash Flows for the three 5
months ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II Other Information
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Item 6. Exhibits and Reports on Form 8-K 11
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BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
---------------- ----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10,409 $ 12,322
Accounts receivable, net 35,252 28,123
Inventories 9,806 9,253
Deferred income taxes 2,488 2,254
Other current assets 2,011 2,198
---------------- ----------------
TOTAL CURRENT ASSETS 59,966 54,150
PROPERTY AND EQUIPMENT
Oil and gas properties (successful efforts method) 236,487 235,344
Gas gathering systems 25,454 25,416
Land, buildings, machinery and equipment 30,474 29,977
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292,415 290,737
Less accumulated depreciation, depletion
and amortization 66,317 59,209
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PROPERTY AND EQUIPMENT, NET 226,098 231,528
OTHER ASSETS 10,938 11,620
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$ 297,002 $ 297,298
================ ================
The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes generally required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
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BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31, DECEMBER 31,
1996 1995
--------- -----------
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 8,014 $ 11,004
Accrued expenses 25,171 23,811
Current portion of long-term liabilities 2,038 1,976
---------------- ----------------
TOTAL CURRENT LIABILITIES 35,223 36,791
LONG-TERM LIABILITIES
Bank and other long-term debt 63,217 67,223
Senior notes 35,000 35,000
Convertible subordinated debentures 6,800 6,800
Other 1,476 1,500
---------------- ----------------
TOTAL LONG-TERM LIABILITIES 106,493 110,523
DEFERRED INCOME TAXES 9,159 7,693
SHAREHOLDERS' EQUITY
Common stock without par value; $.10 stated
value per share; authorized 12,000,000 shares; issued
and outstanding 11,168,581 and 11,136,496 shares 1,117 1,114
Preferred stock without par value; $100 stated value
per share; authorized 8,000,000 shares;
issued and outstanding 24,000 shares 2,400 2,400
Paid in capital 126,586 126,063
Retained earnings 16,200 12,820
Unearned portion of restricted stock (176) (106)
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TOTAL SHAREHOLDERS' EQUITY 146,127 142,291
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$ 297,002 $ 297,298
================ ================
The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes generally required by generally accepted accounting
principles for complete financial statements.
See accompanying notes.
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BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1996 1995
--------- ---------
REVENUES
Oil and gas sales $ 19,678 $ 9,207
Gas marketing and gathering 13,201 8,916
Oilfield sales and service 5,480 2,748
Interest and other 633 182
--------------- ---------------
38,992 21,053
EXPENSES
Production expense 4,144 2,269
Production taxes 794 365
Cost of gas and gathering expense 11,257 7,902
Oilfield sales and service 5,101 2,740
Exploration expense 1,530 895
General and administrative expense 1,218 949
Interest expense 2,011 1,136
Depreciation, depletion and amortization 7,568 3,451
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33,623 19,707
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INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,369 1,346
Provision for income taxes 1,944 495
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INCOME FROM CONTINUING OPERATIONS 3,425 851
LOSS FROM DISCONTINUED OPERATIONS -- (112)
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NET INCOME $ 3,425 $ 739
=============== ===============
PER COMMON SHARE:
CONTINUING OPERATIONS $ 0.30 $ 0.12
DISCONTINUED OPERATIONS -- (0.02)
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NET INCOME $ 0.30 $ 0.10
=============== ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 11,161 7,102
=============== ===============
See accompanying notes.
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BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
UNEARNED
COMMON COMMON PREFERRED PAID IN RETAINED RESTRICTED
SHARES STOCK STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ----------- ----------- ---------- ----------- ----------- ------------
JANUARY 1, 1994 7,053 $ 706 $ 2,400 $ 69,865 $ 4,216 $ (330) $ 76,857
Stock issued 32 3 385 388
Net income 3,843 3,843
Preferred stock dividend (180) (180)
Restricted stock 129 105 234
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DECEMBER 31, 1994 7,085 709 2,400 70,379 7,879 (225) 81,142
Stock issued 4,028 403 55,264 55,667
Net income 5,121 5,121
Preferred stock dividend (180) (180)
Stock options exercised 2 -- 25 25
Employee stock bonus 22 2 251 253
Restricted stock 144 119 263
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DECEMBER 31, 1995 11,137 1,114 2,400 126,063 12,820 (106) 142,291
Net income 3,425 3,425
Preferred stock dividend (45) (45)
Employee stock bonus 26 2 419 421
Restricted stock 6 1 104 (70) 35
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MARCH 31, 1996 (UNAUDITED) 11,169 $ 1,117 $ 2,400 $ 126,586 $ 16,200 $ (176) $ 146,127
=================================================================================================================
See accompanying notes.
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BELDEN & BLAKE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
THREE MONTHS ENDED MARCH 31
--------------------------------------
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,425 $ 739
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 7,568 3,499
(Gain) loss on disposal of property and equipment (63) (133)
Deferred income taxes 1,232 223
Deferred compensation and stock grants 471 290
Change in operating assets and liabilities,
net of effects of purchases of businesses:
Accounts receivable and other operating assets (6,117) 1,781
Inventories (553) 932
Accounts payable and accrued expenses (510) (3,798)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 5,453 3,533
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired -- (11,832)
Proceeds from property and equipment disposals 1,080 177
Additions to property and equipment (3,931) (1,965)
Decrease in other assets (452) 16
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NET CASH USED IN INVESTING ACTIVITIES (3,303) (13,604)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving line of credit and long-term debt 3,105 22,000
Repayment of long-term debt and other obligations (7,123) (8,169)
Preferred stock dividends (45) (45)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,063) 13,786
---------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,913) 3,715
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,322 3,649
---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 10,409 $ 7,364
================ =================
CASH PAID DURING THE PERIOD FOR:
Interest $ 1,989 $ 1,322
Income taxes 193 152
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of assets in exchange for long-term obligations -- 5,460
See accompanying notes.
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BELDEN & BLAKE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(UNAUDITED)
MARCH 31, 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Belden
& Blake Corporation and its subsidiaries (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, 1996 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. 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, 1995.
(2) CHANGE IN ACCOUNTING PRINCIPLE
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Company adopted Statement 121 in the first quarter of 1996. The Company's
estimate of undiscounted cash flows indicated that such carrying amounts of
assets are expected to be recovered. However, it is reasonably possible that
the estimates may change in the future resulting in the need to write-down
assets to fair value.
(3) SALE OF TAX CREDIT PROPERTIES
In February and March 1996, the Company sold certain interests that
qualify for the nonconventional fuel source tax credit. The interests were
sold in two separate transactions for approximately $750,000 and $100,000,
respectively, in cash and a volumetric production payment under which 100% of
the cash flow from the properties will go to the Company until approximately
11.7 Bcf (billion cubic feet) and 3.4 Bcf, respectively, 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.
(4) HEDGING ACTIVITIES
As a result of certain 1995 acquisitions, the Company has several
contracts to sell gas at indexed prices. The Company may, from time to time,
partially hedge these contract prices by selling futures contracts on the
NYMEX. The Company began partially hedging its gas price exposure in January
1996. The Company had an immaterial gain on these transactions in the first
quarter of 1996.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND RESULTS OF OPERATIONS
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RESULTS OF OPERATIONS
OIL AND GAS SALES. Oil and gas sales increased $10.5 million (114%) in
the first quarter of 1996 compared to the same period of 1995 due to an
increase in oil and gas volumes sold and a higher average price paid for the
Company's oil and gas.
Oil volumes increased 53,000 Bbls (barrels) (46%) from 118,000 Bbls in
the first quarter of 1995 to 171,000 Bbls in the first quarter of 1996
resulting in an increase in oil sales of approximately $900,000. Gas volumes
increased 3.5 Bcf (119%) from 2.9 Bcf in the first quarter of 1995 to 6.4 Bcf
in the first quarter of 1996 resulting in an increase in gas sales of
approximately $8.6 million. These volume increases were primarily due to
production from properties acquired in 1995 and production from wells drilled
in 1995.
The average price paid for the Company's oil increased from $16.70 per
barrel in the first quarter of 1995 to $17.74 per barrel in the first quarter
of 1996 which increased oil sales by approximately $180,000. The average price
paid for the Company's natural gas increased $.12 per Mcf (thousand cubic
feet) to $2.59 per Mcf in the first quarter of 1996 compared to the first
quarter of 1995 which increased gas sales in the first quarter of 1996 by
approximately $770,000.
GAS MARKETING AND GATHERING REVENUE. Gas marketing and gathering
revenue increased $4.3 million (48%) from $8.9 million in the first quarter of
1995 to $13.2 million in the first quarter of 1996 due to an increase in the
volume of gas gathered and marketed and an increase in the average selling
price of gas.
OILFIELD SALES AND SERVICE REVENUE. Oilfield sales and service
revenue increased $2.8 million (99%) from $2.7 million in the first quarter of
1995 to $5.5 million in the first quarter of 1996. This increase was primarily
due to the sales generated by the three oilfield sales and service companies
acquired by the Company in 1995.
INTEREST AND OTHER REVENUE. Interest and other revenue increased
$451,000 (248%) from $182,000 in the first quarter of 1995 to $633,000 in the
first quarter of 1996 primarily due to the recognition of income in 1996 from
an incentive production payment associated with certain properties operated in
Michigan by the Company's subsidiary, Ward Lake Drilling, Inc.
PRODUCTION EXPENSE. Production expense increased $1.8 million (83%)
from $2.3 million in the first quarter of 1995 to $4.1 million in the first
quarter of 1996. This increase was largely due to the increased production
discussed above. The average production cost decreased from $.62 per Mcfe
(equivalent Mcf of natural gas) in the first quarter of 1995 to $.56 per Mcfe
in the first quarter of 1996. This decrease was primarily due to lower
operating costs associated with certain of the producing properties acquired in
1995 and to increased efficiencies gained from cost control in the Company's
existing operating areas.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------
PRODUCTION TAXES. Production taxes increased $429,000 (118%) from
$365,000 in the first quarter of 1995 to $794,000 in the first quarter of 1996.
This increase was primarily due to the increased production volumes discussed
above.
COST OF GAS AND GATHERING EXPENSE. Cost of gas and gathering expense
increased $3.4 million (42%) from $7.9 million in the first quarter of 1995 to
$11.3 million the first quarter of 1996 due to an increase in volumes of gas
purchased and an increase in the cost of gas.
OILFIELD SALES AND SERVICE EXPENSE. Oilfield sales and service
expense increased $2.4 million (86%) from $2.7 million in the first quarter of
1995 to $5.1 million in the first quarter of 1996 primarily as a result of the
increased cost of goods sold associated with increased sales resulting from the
acquisitions described above.
EXPLORATION EXPENSE. Exploration expense increased $635,000 (71%)
from $895,000 in the first quarter of 1995 to $1.5 million in the first quarter
of 1996 primarily due to higher levels of geological, geophysical and leasing
activity and increases in the size of the technical staff in conjunction with
increased drilling activity.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative
expense increased $269,000 (28%) from $949,000 in the first quarter of 1995 to
$1.2 million in the first quarter of 1996 primarily due to an increase in
franchise taxes and an estimated increase in profit sharing and bonuses for
1996.
INTEREST EXPENSE. Interest expense increased $875,000 (77%) from $1.1
million in the first quarter of 1995 to $2.0 million in the first quarter of
1996. This increase was primarily due to higher average debt balances incurred
to finance the 1995 acquisitions.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization increased by $4.1 million (119%) from $3.5 million in 1995 to $7.6
million in 1996. Depletion expense increased $3.5 million (140%) from $2.5
million in 1995 to $6.0 million in 1996. This increase was primarily due to
the increased production volumes described above. Depletion per Mcfe increased
from $.69 per Mcfe in the first quarter of 1995 to $.80 per Mcfe in the first
quarter of 1996. This increase was primarily the result of proved reserves
added through acquisitions and drilling at a higher cost per Mcfe.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. Income from
continuing operations before income taxes increased $4.1 million (299%) from
$1.3 million in the first quarter of 1995 to $5.4 million in the first quarter
of 1996. The operating income from the oil and gas operations segment
increased $4.2 million (166%) from $2.5 million in the first quarter of 1995 to
$6.7 million in the first quarter of 1996. The increase was attributable to
the items discussed above. The operating income from the oilfield sales and
service segment increased $292,000 from an operating loss of $199,000 in the
first quarter of 1995 to operating income of $93,000 in the first quarter of
1996.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------
INCOME FROM CONTINUING OPERATIONS. Income from continuing operations
increased $2.6 million (302%) from $851,000 in the first quarter of 1995 to
$3.4 million in the first quarter of 1996. This increase in income from
continuing operations was primarily the result of the items discussed above.
Provision for income taxes from continuing operations increased $1.4 million
(293%) from $495,000 in the first quarter of 1995 to $1.9 million in the first
quarter of 1996. This increase was attributable to an increase in income from
continuing operations before income taxes. Income from continuing operations
on a per share basis increased from $.12 per share in the first quarter of 1995
to $.30 per share in the first quarter of 1996. This increase was primarily
the result of the factors discussed above.
LOSS FROM DISCONTINUED OPERATIONS. Loss from discontinued operations
was $173,000 ($112,000 net of tax benefit or $.02 per share) in the first
quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital is closely related to and dependent on
the current prices paid for its oil and gas.
The Company's current ratio at March 31, 1996 was 1.70 to 1.00. During
the first quarter of 1996, working capital increased $7.3 million from $17.4
million to $24.7 million. The increase is primarily due to increases in
accounts receivable ($7.1 million). This working capital increase was
primarily related to the Company's production enhancement program on its Antrim
wells in Michigan and receivables associated with increased revenues. The
Company's operating activities provided cash flow of $5.5 million during the
first quarter of 1996.
On May 25, 1995, the Company's bank group amended its revolving bank
facility. The facility was increased to $200 million, the maturity date was
extended to March 31, 1999, and the borrowing base was increased to $81
million. The borrowing base is calculated by the bank group and is based on
the cash flows generated by the Company's proved developed reserves, gas
gathering systems and other corporate assets. Generally, the Company can
expect to have the borrowing base increased by at least 50% of the present
value before income taxes (discounted at 10% per annum) of any proved developed
reserves added through acquisition or drilling.
On February 16, 1996, the Company's bank group further amended its
revolving bank facility. The maturity date was extended to March 31, 2001 and
the LIBOR interest rate option was modified to decrease from LIBOR + 2% to a
range of LIBOR + 1-1/4% to LIBOR + 3/4% as outstanding balances decrease in
relation to the borrowing base.
Outstanding balances under the agreement incur interest at the
Company's choice of either: (1) the one, two or three-month LIBOR + 1.25%
(6.72% for the three-month LIBOR interest rate option at March 31, 1996) or (2)
the bank's prime rate (8.25% at March 31, 1996). At March 31, 1996, the
Company had $63 million outstanding under this facility.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS (CONTINUED)
-------------------------------------
When market conditions are favorable, the Company may enter into
interest rate swap arrangements, whereby a portion of the Company's floating
rate exposure is exchanged for a fixed interest rate. The Company had no such
derivative financial instruments at March 31, 1996.
The amended agreement will continue to restrict the sale of assets to
no more than 15% of shareholders' equity in any one year and will require the
Company to maintain certain levels of net worth, working capital and debt
service coverage.
During 1993, the Company placed $35 million of 7% fixed-rate senior
notes with five insurance companies in a private placement. These notes, which
are interest-only for four years, mature on September 30, 2005. Equal annual
principal payments of $3,888,888 will be required on each September 30
commencing in 1997.
The senior note agreement limits the Company's senior debt to 50% of
the Company's discounted present value (at 10%) of its oil and gas reserves
plus the net book value of its gas gathering systems. Other terms and
covenants are substantially the same as those contained in the $200 million
revolving credit facility.
The Company currently expects to spend approximately $27 million
during 1996 on its drilling activities and approximately $9.2 million for other
capital expenditures. The Company's acquisition program is expected to be
financed with any available cash flow over $36.2 million and with its available
bank credit line. The Company believes that its existing sources of working
capital are sufficient to satisfy all currently anticipated working capital
requirements.
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, through additional borrowings and,
to the extent necessary, the issuance of additional common or preferred stock.
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PART II Other information
Item 6, Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Common Share and Common
Equivalent Shares
(27) 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,
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 6, 1996 By: /S/ Henry S. Belden, IV
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Henry S. Belden, IV,
Director, Chairman, and Chief
Executive Officer
Date: May 6, 1996 By: /S/ Ronald E. Huff
------------------------------ ----------------------------------------------------------------------
Ronald E. Huff, Director, Senior Vice
President and Chief Financial Officer
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