<PAGE> 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 quarter ended March 31, 1999
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ______ to ________
COMMISSION FILE NUMBER 0-9592
RANGE RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 34-1312571
(State of incorporation) (I.R.S. Employer
Identification No.)
500 THROCKMORTON STREET, FT. WORTH, TEXAS 76102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 870-2601
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. Yes X No
--- ---
36,788,537 Common Shares were outstanding on May 10, 1999.
<PAGE> 2
PART I. FINANCIAL INFORMATION
The financial statements included herein have been prepared in
conformity with generally accepted accounting principles and should be read in
conjunction with the December 31, 1998 Form 10-K filing. The statements are
unaudited but reflect all adjustments which, in the opinion of management, are
necessary to fairly present the Company's financial position and results of
operations.
2
<PAGE> 3
RANGE RESOURCES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------------- ----------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents........................................ $ 10,954 $ 12,613
Accounts receivable......................................... 30,384 26,163
IPF receivables (Note 4).................................... 7,140 7,140
Marketable securities....................................... 3,258 3,661
Assets held for sale (Note 5)............................... 51,822 50,482
Inventory and other......................................... 3,373 4,534
------------------- ------------------
106,931 104,593
------------------- ------------------
IPF receivables, net (Note 4)................................. 70,032 67,535
Oil and gas properties, successful efforts method............. 935,822 942,833
Accumulated depletion and impairment...................... (273,723) (290,034)
------------------- ------------------
662,099 652,799
------------------- ------------------
Transportation, processing and field assets................... 89,471 89,134
Accumulated depreciation.................................. (15,146) (16,459)
------------------- ------------------
74,325 72,675
------------------- ------------------
Other......................................................... 8,225 7,920
------------------- ------------------
$ 921,612 $ 905,522
=================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable............................................ $ 28,163 $ 21,152
Accrued liabilities......................................... 20,929 19,669
Accrued interest............................................ 9,439 5,941
Accrued restructuring costs (Note 13)....................... 2,697 1,130
Current portion of debt (Note 6)............................ 55,187 55,193
------------------- ------------------
116,415 103,085
------------------- ------------------
Senior debt (Note 6).......................................... 311,875 317,451
Non-recourse debt of IPF subsidiary (Note 6).................. 60,100 60,100
Subordinated notes (Note 6)................................... 180,000 180,000
Commitments and contingencies (Note 8)........................
Company-obligated preferred securities of subsidiary trust (Note 9) 120,000 120,000
Stockholders' equity (Notes 9 and 10)
Preferred stock, $1 par, 10,000,000 shares authorized,
$2.03 convertible preferred, 1,149,840 issued and outstanding
(liquidation preference $28,746,000).................... 1,150 1,150
Common stock, $.01 par, 50,000,000 shares authorized,
35,933,523 and 36,268,660 issued and outstanding........ 359 363
Capital in excess of par value.............................. 334,817 334,882
Retained deficit........................................... (203,396) (212,377)
Other comprehensive income................................. 292 868
------------------- ------------------
133,222 124,886
------------------- ------------------
$ 921,612 $ 905,522
=================== ==================
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
RANGE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------
1998 1999
---------------- -----------------
(unaudited)
<S> <C> <C>
Revenues
Oil and gas sales..................................... $ 32,540 $ 33,799
Transportation, processing and marketing.............. 1,729 1,843
IPF income, net....................................... - 1,373
Interest and other.................................... 1,741 938
---------------- -----------------
36,010 37,953
---------------- -----------------
Expenses
Direct operating...................................... 8,396 11,269
Exploration........................................... 413 930
IPF expenses.......................................... - 1,502
General and administrative............................ 1,840 1,883
Interest.............................................. 8,734 12,100
Depletion, depreciation and amortization.............. 12,198 19,130
---------------- -----------------
31,581 46,814
---------------- -----------------
Income (loss) before taxes............................... 4,429 (8,861)
Income taxes
Current............................................... 109 120
Deferred.............................................. 1,551 -
---------------- -----------------
1,660 120
---------------- -----------------
Net income (loss)........................................ $ 2,769 $ (8,981)
================ =================
Comprehensive income (loss) (Note 2)..................... $ 2,892 $ (8,406)
================ =================
Earnings (loss) per common share (Note 14)
Basic................................................. $ 0.10 $ (0.26)
================ =================
Dilutive.............................................. $ 0.10 $ (0.26)
================ =================
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 5
RANGE RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------
1998 1999
---------------- -----------------
(unaudited)
<S> <C> <C>
Cash flows from operations:
Net income (loss)......................................... $ 2,769 $ (8,981)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operations:
Depletion, depreciation and amortization............. 12,198 19,130
Amortization of debt issuance costs.................. 345 305
Deferred income taxes................................ 1,551 -
Changes in working capital net of
effects of acquired businesses:
Accounts receivable.............................. 5,815 4,204
Marketable securities............................ 108 -
Inventory and other.............................. 737 (1,144)
Accounts payable................................. (7,233) (7,011)
Accrued liabilities ............................. (2,816) (5,380)
Gain on sale of assets and other..................... (1,751) (690)
---------------- -----------------
Net cash provided by (used in) operations................. 11,723 433
Cash flows from investing:
Oil and gas properties............................... (77,022) (7,994)
Additions to property and equipment.................. (472) 227
IPF investments ..................................... - (943)
IPF repayments....................................... - 3,441
Proceeds on sale of assets........................... 16,352 1,791
---------------- -----------------
Net cash used in investing................................ (61,142) (3,478)
Cash flows from financing:
Proceeds from indebtedness........................... 48,200 5,864
Repayments of indebtedness........................... (392) (282)
Preferred stock dividends............................ (584) (584)
Common stock dividends............................... (630) (362)
Proceeds from common stock issuance, net............. 380 90
Repurchase of common stock........................... (23) (22)
---------------- -----------------
Net cash provided by financing............................ 46,951 4,704
---------------- -----------------
Change in cash............................................ (2,468) 1,659
Cash and equivalents at beginning of period............... 9,725 10,954
---------------- -----------------
Cash and equivalents at end of period..................... $ 7,257 $ 12,613
================ =================
Supplemental disclosures of non-cash investing and
Financing activities:
Common stock issued in connection with benefit plans.... $ - $ 70
</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE> 6
RANGE RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Range Resources Corporation ("Range") is an independent oil and gas
company engaged in development, exploration and acquisition primarily in three
core areas of the United States: the Southwest, Gulf Coast and Appalachia.
Through its IPF subsidiary, the Company also provides financing to smaller
producers by purchasing term overriding royalty interests in oil and gas
properties. Historically, the Company has increased its reserves and production
through acquisitions, development and exploration. In pursuing this strategy,
the Company has concentrated its activities in selected geographic areas. In
each core area, the Company has established operating, engineering, geoscience,
marketing and acquisition expertise. At December 31, 1998, proved reserves
totaled 796 Bcfe, having a pre-tax present value at constant prices on that date
of $555 million and a reserve life index in excess of 13 years.
In August 1998, the stockholders of the Company approved the
acquisition via merger (the "Merger") of Domain Energy Corporation ("Domain").
Pursuant to the Merger, Domain became a wholly owned subsidiary and the
stockholders of Domain received approximately 13.6 million shares of the
Company's Common Stock and $50.5 million in cash. Simultaneously, the Company's
name was changed to Range Resources Corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying financial statements include the accounts of the
Company, all majority owned subsidiaries and its pro rata share of the assets,
liabilities, income and expenses of certain oil and gas partnerships and joint
ventures. Highly liquid temporary investments with an initial maturity of ninety
days or less are considered cash equivalents. The Company recognizes revenues
from the sale of its respective products in the period delivered. Revenue for
services are recognized in the period the services are provided.
MARKETABLE SECURITIES
Debt and marketable equity securities are classified in one of three
categories: trading, available-for-sale, or held to maturity. Equity securities
of other companies held by Range qualify as available-for-sale. Such securities
are recorded at fair value, and unrealized holding gains and losses, net of the
related tax effect, are reflected as a separate component of stockholders'
equity. A decline in the market value of an available-for-sale security below
cost that is deemed other than temporary is charged to earnings and results in
the establishment of a new cost basis for the security. Realized gains and
losses are determined on the specific identification method and are reflected in
income.
INDEPENDENT PRODUCER FINANCE ("IPF")
Through IPF, Range acquires dollar denominated term overriding royalty
interests in properties owned by smaller oil and gas producers. The Company
accounts for the acquired term overriding royalty interests as receivables
because the funds advanced to a producer for these interests are repaid from an
agreed upon share of cash proceeds from the sale of production until the amount
advanced plus a specified return is received. Only the interest portion of
payments, net of reserves, received from producers is recognized as IPF income
on the statement of income. The remaining cash receipts are recorded as a
reduction in receivables on the balance sheet and as a return of capital on the
statements of cash flows. Periodically, the Company reviews receivables and
provides an allowance for possible uncollectible amounts. During the first
quarter of 1999, IPF recorded gross income of $2.9
6
<PAGE> 7
million and valuation allowances of $1.5 million. At March 31, 1999 the
Company's allowance for uncollectible receivables totaled $15.5 million. During
the first quarter of 1999, IPF expenses were comprised of $1.1 million of
interest expense and $0.4 of administrative expenses.
OIL AND GAS PROPERTIES
The Company follows the successful efforts method of accounting for oil
and gas properties. Exploratory costs which result in the discovery of reserves
and the cost of development wells are capitalized. Geological and geophysical
costs, delay rentals and costs to drill unsuccessful exploratory wells are
expensed. Depletion is provided on the unit-of-production method. Oil is
converted to Mcfe at the rate of 6 Mcf per barrel. The depletion rates per Mcfe
were $0.83 and $0.91 in the first quarters of 1998 and 1999, respectively.
Per unit depletion rates rose because of the impact of low year-end
1998 oil and gas prices on the reserve volumes used to calculate the depletion
rate for 1999. Approximately $75.9 million and $74.9 million of oil and gas
properties were classified as unproved leaseholds as of December 31, 1998
and March 31, 1999, respectively.
The Company performs a review for impairment at least annually or
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is recognized if the carrying amount of an asset is
greater than its expected future cash flows. The amount of the impairment is
based on the estimated fair value of the asset. Unproved leaseholds whose
acquisition costs are not individually significant are aggregated, and the
portion of such costs estimated to ultimately prove unproductive are amortized
over an average holding period. During the first quarter of 1999, depletion
expense included $950,000 of amortization of unproved oil and gas properties.
TRANSPORTATION, PROCESSING AND FIELD ASSETS
The Company owns and operates over 3,000 miles of gas gathering systems
as well as a gas processing plant in proximity to its principal gas properties.
Depreciation is calculated on the straight-line method based on estimated useful
lives ranging from four to twenty years.
The Company receives fees for providing field related services. These
fees are recognized as earned. Depreciation is calculated on the straight-line
method based on estimated useful lives ranging from one to five years, except
buildings which are being depreciated over ten to twenty-five year periods.
SECURITY ISSUANCE COSTS
Expenses associated with the issuance of the 6% Convertible
Subordinated Debentures due 2007, the 8.75% Senior Subordinated Notes due 2007
and the 5 3/4% Trust Convertible Preferred Securities are included in Other
Assets on the accompanying balance sheets and are being amortized on the
interest method over the term of the securities.
GAS IMBALANCES
The Company uses the sales method to account for gas imbalances. Under
the sales method, revenue is recognized based on cash received rather than the
proportionate share of gas produced. Gas imbalances at December 31, 1998 and
March 31, 1999 were not material.
COMPREHENSIVE INCOME
Comprehensive income is defined as changes in stockholders' equity from
nonowner sources which includes net income and changes in the fair value of
marketable securities. The following is a calculation of comprehensive income
for the quarters ended March 31, 1998 and 1999.
7
<PAGE> 8
<TABLE>
<CAPTION>
For the quarters ended March 31,
----------------------------------
1998 1999
--------------- ---------------
<S> <C> <C>
Net income (loss)....................... $ 2,769 $ (8,981)
Add: Unrealized gain
Gross................................ 196 576
Tax effect........................... (73) -
Less: Realized gain (loss)
Gross................................ - (1)
Tax effect........................... - -
--------------- ---------------
Comprehensive income (loss)............. $ 2,892 $ (8,406)
=============== ===============
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NATURE OF BUSINESS
The Company operates in an environment with many financial and
operating risks, including, but not limited to, the ability to acquire
additional economically recoverable oil and gas reserves, the inherent risks of
the search for, development of and production of oil and gas, the ability to
sell oil and gas at prices which will provide attractive rates of return, and
the highly competitive nature of the industry and worldwide economic conditions.
The Company's ability to expand its reserve base and diversify its operations is
also dependent upon the Company's ability to obtain the necessary capital
through operating cash flow, borrowings or the issuance of additional equity.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which is effective for fiscal years
beginning after June 15, 1999.
SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. It also requires that an entity
recognize all derivatives as either assets or liabilities on the balance sheet
and measure those items at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the exposure to
change in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The Company plans to adopt SFAS No. 133 during the first quarter of
the year ended December 31, 2000 and is currently evaluating the effects of this
pronouncement.
RECLASSIFICATIONS
Certain reclassifications have been made to prior periods presentation
to conform with current period classifications.
8
<PAGE> 9
(3) ACQUISITION AND DEVELOPMENT:
All of the Company's acquisitions have been accounted for as purchases.
The purchase prices were allocated to the assets acquired based on estimates of
the fair value of such assets and liabilities at the respective acquisition
dates. The acquisitions were funded by working capital, advances under a
revolving credit facility and the issuance of equity.
In March 1998, oil and gas properties in the Powell Ranch Field in West
Texas (the "Powell Ranch Properties") were acquired for a purchase price of $60
million, comprised of $54.6 million in cash and $5.4 million of Common Stock.
As described in Note 1, the Company acquired Domain for a purchase
price of $161.6 million, comprised of $50.5 million of cash and $111.1 million
of Common Stock. Domain's principal assets included oil and gas properties
primarily onshore in the Gulf Coast and the Gulf of Mexico, as well as, IPF.
The Company also acquired other properties for an aggregate
consideration of $2.7 million and $0.8 million during the year ended
December 31, 1998 and the quarter ended March 31, 1999, respectively.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table presents unaudited pro forma operating results as
if certain transactions had occurred at the beginning of each period presented.
The pro forma operating results include the Domain and Powell Ranch
acquisitions.
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------------
1998 1999
----------------- -----------------
(in thousands, except per share data)
<S> <C> <C>
Revenues............................... $ 51,938 $ 37,953
Net income (loss)...................... (574) (8,981)
Earnings (loss) per share.............. (0.03) (0.26)
Earnings (loss) per share - dilutive... (0.03) (0.26)
Total assets........................... 1,060,420 905,522
Stockholders' equity................... 295,928 124,886
</TABLE>
The pro forma operating results have been prepared for comparative
purposes only. They do not purport to present actual operating results that
would have been achieved had the acquisitions been made at the beginning of each
period presented or to necessarily be indicative of future results of
operations.
(4) IPF RECEIVABLES
At March 31, 1999, IPF had net receivables of $74.6 million. The
receivables result from the purchase of production payments in the form of
term overriding royalty interests which represent an agreed share of
revenues from certain properties until the amount invested and a specified
rate of return are received. These royalty interests constitute property
interests that serve as security for the receivables. The Company has
estimated that $7.1 million of receivables will be repaid in the
next twelve months and has classified such receivables as current assets. The
net outstanding receivables include an allowance for uncollectible receivables
of $14.0 million and $15.5 million at December 31, 1998 and March 31, 1999,
respectively.
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<PAGE> 10
(5) ASSETS HELD FOR SALE
Assets held for sale primarily consists of oil and gas properties
located in south Texas and in the Gulf of Mexico. The Company has entered into
agreements with an independent firm to assist it in selling these assets. The
assets are recorded at the lower of cost or estimated market value of the
properties as assets held for sale in the current asset section of the
Consolidated Balance Sheets as of December 31, 1998 and March 31,1999. These
sales are expected to be completed during 1999. The Company sold properties for
$1.5 million during the three months ended March 31, 1999.
(6) INDEBTEDNESS:
The Company had the following debt outstanding as of the dates shown.
Interest rates at March 31, 1999 are shown parenthetically (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------- ------------------
<S> <C> <C>
Credit Facility (6.8%)............................... $ 365,175 $ 372,600
Other (5.9%)......................................... 1,887 44
------------------- ------------------
367,062 372,644
Less amounts due within one year..................... 55,187 55,193
------------------- ------------------
Senior debt, net..................................... $ 311,875 $ 317,451
=================== ==================
Non-recourse debt of IPF subsidiary (7.2%)........... $ 60,100 $ 60,100
8.75% Senior Subordinated Notes due 2007............ $ 125,000 $ 125,000
6% Convertible Subordinated Debentures due 2007..... 55,000 55,000
------------------- ------------------
Subordinated debt.................................... $ 180,000 $ 180,000
=================== ==================
</TABLE>
The Company maintains a $400 million revolving bank facility (the
"Credit Facility"). The Credit Facility provides for a borrowing base, which is
subject to semi-annual redeterminations. At April 30, 1999, the borrowing base
on the Credit Facility was $385 million of which $16.9 million was available to
be drawn. Interest is payable quarterly and the loan matures in February 2003. A
commitment fee is paid quarterly on the undrawn balance at a rate of .25% to
.375% depending upon the percentage of the borrowing base drawn. It is the
Company's policy to extend the term period of the Credit Facility annually.
Until amounts under the Credit Facility are reduced to $300 million or the
redetermined borrowing base, the interest rate will be LIBOR plus 1.75% and
increased to LIBOR plus 2.0% on May 1, 1999. If amounts outstanding under the
Credit Facility exceed the higher of the redetermined borrowing base or $300
million on June 30, 1999, then the Company will have 10 days to repay any
excess. At March 31, 1999, the Company classified $55.2 million of borrowings
under the Credit Facility as current to reflect an estimate of the amounts
outstanding that will be repaid during the next twelve months. The weighted
average interest rates on these borrowings were 6.6% and 6.8% for the three
months ended March 31, 1998 and 1999, respectively.
IPF has a $150 million revolving credit facility (the "IPF Facility")
through which it finances its activities. The IPF Facility matures July 1, 2001
at which time all amounts owed thereunder are due and payable. The IPF Facility
is secured by substantially all of IPF's assets and is non-recourse to the
Company. The borrowing base under the IPF Facility is subject to
redeterminations, which occur routinely
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<PAGE> 11
during the year. On April 30, 1999, the borrowing base on the IPF Facility was
$56.5 million, which was fully drawn. The IPF Facility bears interest at prime
rate or interest at LIBOR plus a margin of 1.75% to 2.25% per annum depending on
the total amount outstanding. Interest expense during the first quarter of 1999
amounted to $1.1 million and is included in IPF expenses on the statement of
income. A commitment fee is paid quarterly on the average undrawn balance at a
rate of 0.375% to 0.50%. The weighted average interest rate on these borrowings
was 7.2% on March 31, 1999.
The 8.75% Senior Subordinated Notes due 2007 (the "8.75% Notes") are
not redeemable prior to January 15, 2002. Thereafter, the 8.75% Notes will be
subject to redemption at the option of the Company, in whole or in part, at
redemption prices beginning at 104.375% of the principal amount and declining to
100% in 2005. The 8.75% Notes are unsecured general obligations of the Company
and are subordinated to all senior debt (as defined) of the Company, which
includes borrowings under the Bank Facility. The 8.75% Notes are guaranteed on a
senior subordinated basis by all of the subsidiaries of the Company. The
guarantees are full, unconditional and joint and several.
The 6% Convertible Subordinated Debentures Due 2007 (the "Debentures")
are convertible into shares of the Company's Common Stock at the option of the
holder at any time prior to maturity. The Debentures are convertible at a
conversion price of $19.25 per share, subject to adjustment in certain events.
Interest is payable semi-annually. The Debentures will mature in 2007 and are
not redeemable prior to February 1, 2000. The Debentures are unsecured general
obligations of the Company subordinated to all senior indebtedness (as defined)
of the Company, which includes the 8.75% Notes and the Bank Facility.
The debt agreements contain covenants relating to net worth, working
capital maintenance and financial ratio requirements. The Company is in
compliance with these various covenants as of March 31, 1999. Interest paid
during the three month periods ended March 31, 1998 and 1999 totaled, $12.6
million and $14.8 million, respectively.
(7) FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES:
The Company's financial instruments include cash and equivalents,
accounts receivable, accounts payable, debt obligations, commodity and interest
rate futures, options, and swaps. The book value of cash and equivalents,
accounts receivable and payable and short term debt are considered to be
representative of fair value because of the short maturity of these instruments.
The Company believes that the carrying value of its borrowings under its bank
credit facility approximates their fair value as they bear interest at rates
indexed to LIBOR. The Company's accounts receivable are concentrated in the oil
and gas industry. The Company does not view such a concentration as an unusual
credit risk. The Company has recorded an allowance for doubtful accounts
(excluding IPF) of $782,000 and $866,000 at December 31, 1998 and March 31,
1999, respectively.
A portion of the Company's crude oil and natural gas sales are
periodically hedged against price risks through the use of futures, option or
swap contracts. The gains and losses on these instruments are included in the
valuation of the production being hedged in the contract month and are included
as an adjustment to oil and gas revenue. The Company also manages interest rate
risk on its Credit Facility through the use of interest rate swap agreements.
Gains and losses on swap agreements are included as an adjustment to interest
expense.
11
<PAGE> 12
The following table sets forth the book value and estimated fair values
of the Company's financial instruments:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
------------------------------- -------------------------------
(In thousands)
Book Fair Book Fair
Value Value Value Value
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Cash and equivalents.................. $ 10,954 $ 10,954 $ 12,613 $ 12,613
Marketable securities................. 2,966 3,258 2,793 3,661
Long-term debt........................ (607,162) (607,162) (612,744) (612,744)
Commodity swaps....................... - 45 - (827)
Interest rate swaps................... - (361) - (395)
</TABLE>
At March 31, 1999, the Company had open contracts for gas and oil price
swaps of 18.7 Bcf of gas and 200,000 Bbls of oil. The swap contracts are
designed to set average prices ranging from $1.90 to $2.21 per Mcf of gas and
fix oil prices at $16.55 per Bbl. While these transactions have no carrying
value, their fair value, represented by the estimated amount that would be
required to terminate the contracts, was a net loss of approximately $827,400 at
March 31, 1999. These contracts expire monthly through October 1999 on gas and
through July 1999 on oil. The gains or losses on the Company's hedging
transactions are determined as the difference between the contract price and the
reference price, generally closing prices on the New York Mercantile Exchange.
The resulting transaction gains and losses are determined monthly and are
included in net income in the period the hedged production or inventory is sold.
Net gains or (losses) relating to these derivatives for the three months ended
March 31, 1998 and 1999 approximated $1.2 million and $(30,000), respectively.
Interest rate swap agreements, which are used by the Company in the
management of interest rate exposure, are accounted for on the accrual basis.
Income and expense resulting from these agreements are recorded in the same
category as expense arising from the related liability. Amounts to be paid or
received under interest rate swap agreements are recognized as an adjustment to
expense in the periods in which they accrue. At March 31, 1999, the Company had
$100 million of borrowings subject to five interest rate swap agreements at
rates of 5.71%, 5.59%, 5.35%, 4.82% and 5.64% through September 1999, October
1999, January 2000, September 2000 and October 2000 respectively. The interest
rate swaps may be extended at the counterparties' option for two years. The
agreements require that the Company pay the counterparty interest at the above
fixed swap rates and requires the counterparty to pay the Company interest at
the 30-day LIBOR rate. The closing 30-day LIBOR rate on March 31, 1999 was 4.9%.
The fair value of the interest rate swap agreements at March 31, 1999 is based
upon current quotes for equivalent agreements. As discussed in Note 6, the
Company's bank facilities are based on LIBOR plus applicable margin (as
defined).
These hedging activities are conducted with major financial or
commodities trading institutions which management believes entail acceptable
levels of market and credit risks. At times such risks may be concentrated with
certain counterparties or groups of counterparties. The credit worthiness of
counterparties is subject to continuing review and full performance is
anticipated.
(8) COMMITMENTS AND CONTINGENCIES:
The Company is involved in various legal actions and claims arising in
the ordinary course of business. In the opinion of management, such litigation
and claims are likely to be resolved without material adverse effect on the
Company's financial position, although an adverse outcome could have a material
effect on the results of operations for a given period.
12
<PAGE> 13
In July 1997, a gas utility filed an action in the state district
court. In the lawsuit, the gas utility asserted a breach of contract claim
arising out of a gas purchase contract. Under the gas utility's interpretation
of the contract it sought, as damages, the reimbursement of the difference
between the above-market contract price it paid and market price on a portion of
the gas it has taken beginning in July 1997. Range counterclaimed seeking
damages for breach of contract and repudiation of the contract. In May 1998, the
court granted a partial summary judgment on the contract interpretation issue in
favor of the gas utility. In October 1998, the gas utility dropped its damages
claim and the state district court signed a final judgment in this case. Range
has appealed the final judgment.
In May 1998, a Domain stockholder filed an action in the Delaware Court
of Chancery, alleging that the terms of the Merger were unfair to a purported
class of Domain stockholders and that the defendants (except Range) violated
their legal duties to the class in connection with the Merger. Range is alleged
to have aided and abetted the breaches of fiduciary duty allegedly committed by
the other defendants. The action sought an injunction enjoining the Merger as
well as a claim for money damages. On September 3, 1998, the parties executed a
Memorandum of Understanding (the "MOU"), which represents a settlement in
principle of the litigation. Under the terms of the MOU, appraisal rights
(subject to certain conditions) were offered to all holders of Domain common
stock (excluding the defendants and their affiliates). Domain also agreed to pay
any court-awarded attorneys' fees and expenses of the plaintiffs' counsel in an
amount not to exceed $290,000. The settlement in principle is subject to court
approval and certain other conditions that have not been satisfied.
(9) EQUITY SECURITIES:
On October 16, 1997, the Company, through a newly-formed affiliate
Lomak Financing Trust (the "Trust"), completed the issuance of $120 million of 5
3/4% trust convertible preferred securities (the "Convertible Preferred
Securities"). The Trust issued 2,400,000 shares of the Convertible Preferred
Securities at $50 per share. Each Convertible Preferred Security is convertible
at the holder's option into 2.1277 shares of Common Stock, representing a
conversion price of $23.50 per share.
The Trust invested the $120 million of proceeds in 5 3/4% convertible
junior subordinated debentures issued by Range (the " Junior Debentures"). In
turn, Range used the net proceeds from the issuance of the Junior Convertible
Debentures to repay a portion of its Credit Facility. The sole assets of the
Trust are the Junior Debentures. The Junior Debentures and the related
Convertible Preferred Securities mature on November 1, 2027. Range and the Trust
may redeem the Junior Debentures and the Convertible Preferred Securities,
respectively, in whole or in part, on or after November 4, 2000. For the first
twelve months thereafter, redemptions may be made at 104.025% of the principal
amount. This premium declines proportionally every twelve months until November
1, 2007, when the redemption price becomes fixed at 100% of the principal
amount. If Range redeems any Junior Debentures prior to the scheduled maturity
date, the Trust must redeem Convertible Preferred Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Junior
Debentures so redeemed.
The Company has guaranteed the payments of distributions and other
payments on the Convertible Preferred Securities only if and to the extent that
the Trust has funds available. Such guarantee, when taken together with Range's
obligations under the Junior Debentures and related indenture and declaration of
trust, provide a full and unconditional guarantee of amounts due on the
Convertible Preferred Securities.
Range owns all the common securities of the Trust. As such, the
accounts of the Trust have been included in Range's consolidated financial
statements after appropriate eliminations of intercompany balances. The
distributions on the Convertible Preferred Securities have been recorded as a
charge to interest expense on Range's consolidated statements of income, and
such distributions are deductible by Range for income tax purposes.
13
<PAGE> 14
In November 1995, the Company issued 1,150,000 shares of $2.03
convertible exchangeable preferred stock (the "$2.03 Preferred Stock") for $28.8
million. The $2.03 Preferred Stock is convertible into the Company's common
stock at a conversion price of $9.50 per share, subject to adjustment in certain
events. The $2.03 Preferred Stock is redeemable, at the option of the Company,
at any time on or after November 1, 1998, at redemption prices beginning at
105%. At the option of the Company, the $2.03 Preferred Stock is exchangeable
for the Company's 8-1/8% Convertible Subordinated Notes due 2005. The notes
would be subject to the same redemption and conversion terms as the $2.03
Preferred Stock.
(10) STOCK OPTION AND PURCHASE PLAN:
The Company has four stock option plans as well as a stock purchase
plan. Two of the stock option plans were adopted as a result of the Merger.
Information with respect to these plans is summarized below:
<TABLE>
<CAPTION>
Plans adopted via the Merger
-------------------------------
Option Director's Option Director's
Plan Plan Plan Plan Total
-------------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Outstanding at December 31, 1998: 2,042,757 140,000 938,976 19,340 3,141,073
Granted.................... 904,150 - - - 904,150
Exercised.................. - - (315,056) - (315,056)
Expired/Cancelled.......... (301,190) - (17,168) - (318,358)
-------------- --------------- --------------- --------------- -------------
Outstanding at March 31, 1999: 2,645,717 140,000 606,752 19,340 3,411,809
=============== ============== =============== =============== =============
</TABLE>
Range maintains a stock option plan (the "Option Plan") which
authorizes the grant of options on up to 3.0 million shares of Common Stock.
Under the Option Plan, incentive and non-qualified options may be issued to
officers, key employees and consultants. The Option Plan is administered by
the Compensation Committee of the Board. All options issued under the Option
Plan before September 1998 vest 30% after one year, 60% after two years and 100%
after three years. Options issued after that date vest 25% per year beginning
one year after the grant date. During the three months ended March 31, 1999,
no options were exercised. At March 31, 1999, 955,442 options were exercisable
at prices ranging from $3.375 to $18.00 per share.
In 1994, the stockholders approved the 1994 Outside Directors Stock
Option Plan (the "Directors Plan"). Only Directors who are not employees of the
Company are eligible under the Directors Plan. The Directors Plan covers a
maximum of 200,000 shares. At March 31, 1999, 72,800 directors options were
exercisable at prices ranging from $7.75 to $16.88 per share.
In connection with the Merger, Range adopted the Second Amended and
Restated 1996 Stock Purchase and Option Plan for Key Employees of Domain Energy
Corporation and Affiliates (the "Domain Option Plan") and the Domain Energy
Corporation 1997 Stock Option Plan for Nonemployee Directors (the "Domain
Director Plan"). Subsequent to the Merger, no new options will be granted under
the Domain Option and Director Plans and existing options are exercisable into
shares of Range Common Stock. During the three months ended March 31, 1999
options covering 315,056 shares were exercised at a price of $0.01 per share. At
March 31, 1999, 453,291 options were currently exercisable under the Domain
Option Plan at $3.46 to $11.70 per share. The remaining 153,461 options are
currently exercisable at an exercise price of $0.01 per share. At March 31,
1999, options totaling 19,340 shares were outstanding and exercisable under the
Domain Director Plan at $11.17 per share.
14
<PAGE> 15
In June 1997, the stockholders approved the 1997 Stock Purchase Plan
(the "1997 Plan") which authorizes the sale of up to 500,000 shares of common
stock to officers, directors, key employees and consultants. Under the Plan, the
right to purchase shares at prices ranging from 50% to 85% of market value may
be granted. The Company previously had stock purchase plans which covered
833,333 shares. The previous stock purchase plans have been terminated. The
plans are administered by the Compensation Committee of the Board. During the
three months ended March 31, 1999, officers, key employees and outside directors
purchased 8,128 registered common shares pursuant to this plan for $18,500.
From inception through March 31, 1999, a total of 399,297 unregistered shares
had been sold under this plan through stock purchase plans, for a total
consideration of approximately $2.5 million.
(11) BENEFIT PLAN:
The Company maintains a 401(K) Plan for the benefit of its employees.
The Plan permits employees to make contributions on a pre-tax salary reduction
basis. The Company makes discretionary contributions to the Plan. Company
contributions for 1998 totaled $678,000 of Common Stock, valued at fair market.
(12) INCOME TAXES:
The Company follows FASB Statement No. 109, "Accounting for Income
Taxes". Under Statement 109, the liability method is used in accounting for
income taxes. Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
The income tax provisions for the three month periods ended March 31,
1998 and 1999 were $1.7 million and $0.1 million, respectively. The current
portion of the income tax provisions represent state income taxes currently
payable. Statement 109 requires a valuation allowance be recorded when it is
more likely than not that some or all of the deferred tax assets will not be
realized. A valuation allowance for the full amount of the net deferred tax
asset was recorded due to the uncertainties as to the amount of taxable income
that would be generated in future years. The Company established a valuation
allowance of $25 million at December 31, 1998 and increased the allowance to
$28.1 million at March 31, 1999. Upon future realization of the deferred tax
asset, $28.1 million of the valuation allowance will reduce the Company's future
income tax expense.
The Company has entered into several business combinations accounted
for as purchases. In connection with these transactions, deferred tax assets and
liabilities of $7.7 million and $38.3 million respectively, were recorded. In
1998 the Company acquired Domain Energy Corporation in a taxable business
combination accounted for as a purchase. A net deferred tax liability of $29
million was recorded in the transaction.
At December 31, 1998, the Company had available for federal income tax
reporting purposes net operating loss carryovers of approximately $131 million
which are subject to annual limitations as to their utilization and otherwise
expire between 1999 and 2013, if unused. The Company has alternative minimum tax
net operating loss carryovers of $116 million which are subject to annual
limitations as to their utilization and otherwise expire from 1999 to 2013 if
unused. The Company has statutory depletion carryover of approximately $4
million and an alternative minimum tax credit carryover of approximately
$911,000. The statutory depletion carryover and alternative minimum tax credit
carryover are not subject to limitation or expiration.
15
<PAGE> 16
(13) ACCRUED RESTRUCTURING COSTS
In the fourth quarter of 1998, the Company implemented a restructuring
plan to reduce costs and improve efficiency. In connection with this
plan, 54 employees were terminated. In addition to termination costs, the
restructuring costs include the writedown of certain impaired assets and lease
and contract termination costs. Estimated charges of $658,000 for lease and
contract terminations and $363,000 for asset impairments were recorded during
the fourth quarter of 1998. At December 31, 1998 and March 31, 1999, $2.7
million and $1.1 million, respectively, were accrued in connection with
the restructuring. The accrual remaining at March 31, 1999 was comprised
primarily of lease and contract termination costs.
(14) EARNINGS PER COMMON SHARE
The following table sets forth the computation of earnings per common
share and earnings per common share - assuming dilution (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------------------
1998 1999
------------- -------------
<S> <C> <C>
Numerator:
Net Income (loss)........................... $ 2,769 $ (8,981)
Preferred stock dividends................... (584) (584)
------------- -------------
Numerator for earnings per common share..... 2,185 (9,565)
Effect of dilutive securities:
Preferred stock dividends................. - -
------------- -------------
Numerator for earnings per common
share - assuming dilution................. $ 2,185 $ (9,565)
============= =============
Denominator:
Denominator for earnings per common
share - weighted average shares........... 21,073 36,137
Effect of dilutive securities:
Employee stock options.................... 518 -
Warrants.................................. - -
------------- -------------
Dilutive potential common shares 518 -
------------- -------------
Denominator for diluted earnings per share
adjusted weighted-average shares and
assumed conversions....................... 21,591 36,137
============= =============
Earnings (loss) per common share................ $ 0.10 $ (0.26)
============= =============
Earnings (loss) per common
share - assuming dilution................. $ 0.10 $ (0.26)
============= =============
</TABLE>
For additional disclosure regarding the Company's Debentures and the
$2.03 Preferred Stock, see Notes 6 and 9, respectively. The Debentures were
outstanding during 1998 and the first quarter of 1999 but were not included in
the computation of diluted earnings per share because the conversion price was
greater
16
<PAGE> 17
than the average market price of common shares and, therefore, the effect would
be antidilutive. The $2.03 Preferred Stock was outstanding during 1998 and the
first quarter of 1999 and was convertible into 3,026,316 of additional shares of
common stock. The 3,026,316 additional shares were not included in the
computation of diluted earnings per share because the conversion price was
greater than the average market price of common shares and, therefore, the
effect would be antidilutive. There were employee stock options outstanding
during the first quarters of 1998 and 1999 which were exercisable, resulting in
1,018,052 and 1,634,994 additional shares, respectively, under the treasury
method of accounting for common stock equivalents. These additional shares were
not included in the first quarter 1998 and 1999 computations of diluted earnings
per share because the effect was antidilutive.
(15) MAJOR CUSTOMERS:
The Company markets its oil and gas production on a competitive basis.
The type of contract under which gas production is sold varies but can generally
be grouped into three categories: (a) life-of-the-well; (b) long-term (1 year or
longer); and (c) short-term contracts which may have a primary term of one year,
but which are cancelable at either party's discretion in 30-120 days.
Approximately 20% of the Company's gas production is currently sold under market
sensitive contracts which do not contain floor price provisions. For the three
months ended March 31, 1999, one customer accounted for 12% of the Company's
total oil and gas revenues. Management believes that the loss of any one
customer would not have a material adverse effect on the operations of the
Company. Oil is sold on a basis such that the purchaser can be changed on 30
days notice. The price received is generally equal to a posted price set by the
major purchasers in the area. Oil is sold on a basis of price and service.
(16) OIL AND GAS ACTIVITIES:
The following summarizes selected information with respect to oil and
gas activities (in thousands):
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---------------- ----------------
(unaudited)
<S> <C> <C>
Oil and gas properties:
Subject to depletion............................... $ 859,911 $ 867,955
Not subject to depletion........................... 75,911 74,878
---------------- ----------------
Total.......................................... 935,822 942,833
Accumulated depletion.............................. (273,723) (290,034)
---------------- ----------------
Net oil and gas properties..................... $ 662,099 $ 652,799
================ ================
</TABLE>
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31, March 31,
1998 1999
---------------- ----------------
(unaudited)
<S> <C> <C>
Costs incurred:
Acquisition........................................ $ 286,974 $ 758
Development........................................ 71,793 7,236
Exploration........................................ 9,756 677
---------------- ----------------
Total costs incurred........................... $ 368,523 $ 8,671
================ ================
</TABLE>
17
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
FACTORS EFFECTING FINANCIAL CONDITION AND LIQUIDITY
LIQUIDITY AND CAPITAL RESOURCES
General
At March 31, 1999 the Company had $16.3 million in cash and marketable
securities and total assets of $906 million. Working capital at that date was
$1.5 million. During the first quarter of 1999, total debt rose slightly.
Approximately $373 million of the long-term debt at that date was
comprised of borrowings under the Credit Facility, $125 million of 8.75% Senior
Subordinated Notes and $55 million of 6% Convertible Subordinated Debentures.
The Credit Facility currently provides for quarterly payments of interest with
principal due in February 2003.
Cash Flow
The Company's principal operating sources of cash include sales of oil
and gas and revenues from gas transportation and marketing. The Company's cash
flow is highly dependent upon oil and gas prices. Recent decreases in the market
price of oil or gas have reduced cash flow and could reduce the borrowing base
under the Credit Facility.
The Company has three principal operating sources of cash: (i) sales of
oil, natural gas and natural gas liquids, (ii) sales of natural gas and (iii)
revenues from transportation, processing and marketing. The decreases in the
Company's cash flow from operations can be attributed primarily to decreases
in oil and natural gas prices.
The Company's net cash used in investing for the three months ended
March 31, 1998 and 1999 was $61.1 million and $3.5 million, respectively.
Investing activities for these periods are comprised primarily of additions to
oil and gas properties through acquisitions and development and, to a lesser
extent, exploitation and additions of field assets. These uses of cash have
historically been partially offset through the Company's policy of divesting
those properties that it deems to be marginal or outside of its core areas of
operation. The Company's acquisition and development activities have been
financed through a combination of operating cash flow, bank borrowings and
capital raised through equity and debt offerings.
The Company's net cash provided by financing for the three months ended
March 31, 1998 and 1999 was $47.0 million and $4.7 million, respectively.
Sources of financing used by the Company have been primarily borrowings under
its Credit Facility and capital raised through the various debt and equity
offerings.
Capital Requirements
During the first three months of 1999, $7.9 million of costs were
incurred for development and exploration activities. In an effort to reduce
outstanding debt, the Company reduced its 1999 exploration and development
capital budget to $36 million. The development and exploration
expenditures are currently expected to be funded entirely by internally
generated cash flow.
Bank Facilities
The Credit Facility permits the Company to obtain revolving credit
loans and to issue letters of credit for the account of the Company from time to
time in an aggregate amount not to exceed $400 million. The
18
<PAGE> 19
Borrowing Base is currently $385 million and is subject to semi-annual
redetermination and certain other redeterminations based upon a variety of
factors, including the discounted present value of estimated future net cash
flow from oil and gas production. At the Company's option, loans may be prepaid,
and revolving credit commitments may be reduced, in whole or in part at any time
in certain minimum amounts. At May 10, 1999, the Company had $16.9 million of
availability under the Credit Facility. Until amounts under the Credit Facility
are reduced to $300 million or the redetermined borrowing base, the interest
rate will be LIBOR plus 1.75% and increased to LIBOR plus 2.0% on May 1, 1999.
If amounts outstanding under the Credit Facility exceed the higher of the
redetermined borrowing base or $300 million on June 30, 1999, then the Company
will have 10 days to repay any excess.
The Company plans to reduce outstanding amounts under the Credit
Facility through operating cash flow and the sale of assets. Since the borrowing
base is principally determined by the estimated value of oil and gas reserves
these asset sales are expected to reduce the borrowing base and cash flows due
to the loss of future production. The Company has developed a number of packages
of oil and gas assets to offer for sale. The Company will utilize the proceeds
from the sale of assets to reduce amounts outstanding under the Credit Facility.
Additionally, the Company is considering the monetization of oil and gas assets
whose proceeds would be used to reduce the Credit Facility. At March 31, 1999,
the Company classified $55.2 million of Credit Facility borrowings as current to
reflect an estimate of the amounts outstanding at March 31, 1999 that will be
repaid during the next twelve months.
The IPF Facility is secured by substantially all of IPF's assets and is
non-recourse to the Company. The borrowing base under the IPF Facility is
subject to redeterminations, which occur routinely during the year. On April 30,
1999, the borrowing base on the IPF Facility was $56.5 million, which did not
exceed the amounts outstanding on that date. The IPF Facility bears interest at
prime rate or interest at LIBOR plus a margin of 1.75% to 2.25% per annum
depending on the amount outstanding.
Hedging Activities
Periodically, the Company enters into futures, option and swap
contracts to reduce the effects of fluctuations in crude oil and natural gas
prices. At March 31, 1999, the Company had open contracts for natural gas swaps
of 18.7 Bcf and oil swaps of 200,000 barrels. The swap contracts are designed to
set average prices ranging from $1.90 to $2.21 per Mcf of gas and fix oil prices
at $16.55 per barrel. While these transactions have no carrying value, the
Company's mark-to-market exposure under these contracts at March 31, 1999 was a
net loss of $827,400. The gains or losses on the Company's hedging transactions
is determined as the difference between the contract price and a reference
price, generally closing prices on the NYMEX. The resulting transaction gains
and losses are determined monthly and are included in the period the hedged
production or inventory is sold. Net gains (losses) relating to these
derivatives for the three months ended March 31, 1998 and 1999 approximated $1.2
million and $(30,000), respectively.
INFLATION AND CHANGES IN PRICES
The Company's revenues and the value of its oil and gas properties have
been and will be affected by changes in oil and gas prices. The Company's
ability to maintain current borrowing capacity and to obtain additional capital
on attractive terms is also substantially dependent on oil and gas prices. Oil
and gas prices are subject to significant seasonal and other fluctuations that
are beyond the Company's ability to control or predict. During the first three
months of 1999, the Company received an average of $10.72 per barrel of oil and
$1.88 per Mcf of gas. Although certain of the Company's costs and expenses are
affected by the level of inflation, inflation did not have a significant effect
during the first three months of in 1999. Should conditions in the industry
improve, inflationary cost pressures may resume.
19
<PAGE> 20
RESULTS OF OPERATIONS
Comparison of 1999 to 1998
The Company reported a net loss for the three months ended March 31,
1999 of $9.0 million, versus a $2.8 million profit in the prior year period. The
decrease was primarily the result of lower product prices received on oil and
gas production and higher interest and depletion expenses. During the periods
presented, oil and gas production volumes increased 41% to 18.4 Bcfe, an average
of 204,200 Mcfe per day. Production revenues were impacted by a 26% decrease in
the average price received per Mcfe of production to $1.84. The average oil
price decreased 21% to $10.72 per barrel while average gas prices decreased 28%
to $1.88 per Mcf. As a result of the Company's larger base of producing
properties and production, oil and gas production expenses increased 34% to
$11.3 million in 1999 versus $8.4 million in 1998. The average operating cost
per Mcfe produced decreased 5% from $0.64 in 1998 to $0.61 in 1999.
Transportation, processing and marketing revenues increased only
marginally during 1999. IPF income consists of the interest portion of the term
overriding royalty interests and is net of an allowance for possible
uncollectible accounts. During 1999, IPF expenses included $1.1 million
of interest expense and $0.4 million of administrative expenses.
Exploration expense increased approximately $0.5 million to $0.9
million due to the addition of exploration activities acquired through Domain.
General and administrative expenses increased 2% to $1.9 million. The
average general and administrative cost per Mcfe produced decreased 29% from
$0.14 in 1998 to $0.10 in 1999. This decrease is principally attributable to the
cost reduction program.
Interest and other income decreased from $1.7 million in 1998 to $0.9
million in 1999 primarily due to fewer sales of non-strategic assets. In 1999
interest expense increased 39% to $12.1 million as compared to $8.7 million in
1998. This was primarily as a result of the higher average outstanding debt
balance during the year due to the financing of acquisitions and capital
expenditures and a higher average cost of borrowings. The average outstanding
balances on the Credit Facility were $181 million and $370 million the first
quarter of 1998 and 1999, respectively. The weighted average interest rate on
these borrowings were 6.6% and 6.8% for the three months ended March 31, 1998
and 1999, respectively.
Depletion, depreciation and amortization increased 57% compared to 1998
as a result of increased production volumes and the amortization of
$950,000 of unproved acreage. The Company's depletion rate was $0.83
per Mcfe in the first quarter of 1998 and $0.91 per Mcfe in the first
quarter of 1999.
YEAR 2000
The Company has developed a plan (the "Year 2000 Plan") to address the
Year 2000 issue caused by computer programs and applications that utilize two
digit date fields rather than four to designate a year. As a result, computer
equipment, software and devices with embedded technology that are date sensitive
may be unable to recognize or misinterpret the actual date. This could result in
a system failure or miscalculations causing disruptions of operations. The
Company's Board of Directors has established a Year 2000 committee to review the
adoption and implementation of the Year 2000 Plan.
Assessment has been substantially completed for the information
technology ("IT") and non-IT systems. The term "IT systems" include personal
computers, accounting / data processing software and other miscellaneous
systems. Range's computerized accounting system was upgraded to a version that
is
20
<PAGE> 21
Year 2000 compliant and is in the final phase of testing. The Company's personal
computer systems will be compliant with minor upgrades provided by the software
vendors and with the purchase of a nominal amount of additional computer
equipment.
The non-IT systems include operational and control equipment with
embedded chip technology that is utilized in the offices and field operations.
The systems were reviewed as part of the Year 2000 Plan. Most of the wells are
operated by non-computerized equipment. The potentially affected areas are gas
processing, telemetry and portable metering devices. Range is in the process of
resolving the Year 2000 problems. The suppliers of the affected equipment are
providing upgrades or modifications. The Company expects to complete this
remediation process by June 30, 1999.
Range is also monitoring the compliance efforts of its significant
suppliers, customers and service providers with whom it does business and whose
IT and non-IT systems interface with those of the Company to ensure that they
will be Year 2000 compliant. If they are not, such failure could affect the
ability of the Company to sell its oil and gas and receive payments therefrom
and the ability of vendors to provide products and services in support of the
Company's operations. Although the Company has no reason to believe that its
vendors and customers will not be compliant by the year 2000, the Company is
unable to determine the extent to which Year 2000 issues will affect its vendors
and customers. However, management believes that ongoing communication with and
assessment of the compliance efforts of these third parties will minimize these
risks.
The discussion of the Company's efforts and management's expectations
relating to Year 2000 compliance contains forward-looking statements. Range is
currently conducting a comprehensive analysis of the financial and operational
problems that would be reasonably likely to result from failure by Range and
significant third parties to complete efforts necessary to achieve Year 2000
compliance on a timely basis. The Company intends to establish a contingency
plan that the primary goals are to maintain continuity of operations, preserve
Company assets and protect the environment. Range plans to complete the analysis
and contingency planning by the third quarter of 1999.
The total costs for the Year 2000 Project is not expected to be in
excess of $180,000. Of this amount, approximately $65,000 had been incurred as
of March 31, 1999.
Range presently does not expect to experience significant operational
problems due to the Year 2000 issues. However, if all Year 2000 issues are not
properly and timely identified, assessed, remediated and tested, there can be no
assurance that the Year 2000 issue will not materially impact Range's results of
operations or adversely affect its relationship with customers, vendors, or
others. Additionally, there can be no assurance that the Year 2000 issues of
other entities will not have a material impact on Range's systems or results of
operations.
21
<PAGE> 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions and claims arising in
the ordinary course of business. In the opinion of management, such litigation
and claims will be resolved without a material adverse effect on the Company's
financial position.
In July 1997, a gas utility filed an action in the state district
court. In the lawsuit, the gas utility asserted a breach of contract claim
arising out of a gas purchase contract. Under the gas utility's interpretation
of the contract it sought, as damages, the reimbursement of the difference
between the above-market contract price it paid and market price on a portion of
the gas it has taken beginning in July 1997. Range counterclaimed seeking
damages for breach of contract and repudiation of the contract. In May 1998, the
court granted a partial summary judgment on the contract interpretation issue in
favor of the gas utility. In October 1998, the gas utility dropped its damages
claim and the state district court signed a final judgment in this case. Range
has appealed the final judgment.
In May 1998, a Domain stockholder filed an action in the Delaware Court
of Chancery, alleging that the terms of the Merger were unfair to a purported
class of Domain stockholders and that the defendants (except Range) violated
their legal duties to the class in connection with the Merger. Range is alleged
to have aided and abetted the breaches of fiduciary duty allegedly committed by
the other defendants. The action sought an injunction enjoining the Merger as
well as a claim for money damages. On September 3, 1998, the parties executed a
Memorandum of Understanding (the "MOU"), which represents a settlement in
principle of the litigation. Under the terms of the MOU, appraisal rights
(subject to certain conditions) were offered to all holders of Domain common
stock (excluding the defendants and their affiliates). Domain also agreed to pay
any court-awarded attorneys' fees and expenses of the plaintiffs' counsel in an
amount not to exceed $290,000. The settlement in principle is subject to court
approval and certain other conditions that have not been satisfied.
Items 2 - 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) No reports filed on Form 8-K.
22
<PAGE> 23
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.
RANGE RESOURCES CORPORATION
By: (Thomas W. Stoelk)
----------------------------------
Thomas W. Stoelk
Senior Vice President - Finance
and Administration
and Chief Financial Officer
May 13, 1999
23
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Number Description of Exhibit Numbered Page
- --------------------- --------------------------------------------------- --------------------
<S> <C> <C>
27 Financial Data Schedule 25
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 12,613
<SECURITIES> 3,661
<RECEIVABLES> 100,838
<ALLOWANCES> (16,317)
<INVENTORY> 4,534
<CURRENT-ASSETS> 104,593
<PP&E> 1,031,967
<DEPRECIATION> (306,993)
<TOTAL-ASSETS> 905,522
<CURRENT-LIABILITIES> 103,085
<BONDS> 0
0
1,150
<COMMON> 363
<OTHER-SE> 133,373
<TOTAL-LIABILITY-AND-EQUITY> 905,522
<SALES> 33,799
<TOTAL-REVENUES> 37,953
<CGS> 12,199
<TOTAL-COSTS> 13,701
<OTHER-EXPENSES> 33,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,100
<INCOME-PRETAX> (8,861)
<INCOME-TAX> 120
<INCOME-CONTINUING> (8,981)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,981)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
