<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1994
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from to
Commission File Number: 0-4597
FOREST OIL CORPORATION
(Exact name of registrant as specified in its charter)
State of incorporation: New York I.R.S. Employer Identification No. 25-0484900
1500 Colorado National Building
950 - 17th Street
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 303-592-2400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, Par Value $.10 Per Share
Warrants to purchase shares of Common Stock
$.75 Convertible Preferred Stock, Par Value $.01 Per Share
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by persons other than
officers and directors of the registrant was approximately $60,298,023 as of
March 31, 1995 (based on the last sale price of such stock as quoted on the
National Market System of NASDAQ System).
There were 28,250,647 shares of the registrant's Common Stock, Par Value
$.10 Per Share outstanding as of March 31, 1995.
Document incorporated by reference: None.
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<PAGE>
TABLE OF CONTENTS
Page No
-------
PART I
Item 4A. Executive Officers of Forest 1
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 3
Item 6. Selected Financial and Operating Data 7
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 8. Financial Statements and Supplementary Data 24
PART III
Item 10. Directors and Executive Officers of the Registrant 54
Item 11. Executive Compensation 58
Item 12. Security Ownership of Certain Beneficial
Owners and Management 64
Item 13. Certain Relationships and Related Transactions 67
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 71
<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF FOREST
The following information with respect to the executive officers of Forest is
furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
<TABLE>
<CAPTION>
Years with
Name (A) Age Forest Office (B)
------- --- ----------- -----------
<S> <C> <C> <C>
William L. Dorn* 46 23 Chairman of the Board and Chairman of the
Executive Committee since July 1991. Member
of the Executive Committee since August 1988.
President from February 1990 until November
1993 and Chief Executive Officer since
February 1990. Executive Vice President from
August 1989 until February 1990. Member of
the Royalty Bonus Committee since August 1991
and Chairman since May 1994.
Robert S. Boswell* 45 5 President since November 1993. Vice
President from May 1991 until November 1993
and Chief Financial Officer since May 1991.
Financial Vice President from September 1989
until May 1991. Member of the Executive
Committee since July 1991 and member of the
Royalty Bonus Committee since August 1991.
V. Bruce Thompson 48 0 Vice President and General Counsel since
August 1994. Vice President - Legal of Mid-
America Dairymen, Inc. from November 1993 to
August 1994. Chief of Staff for Oklahoma
Congressman James M. Inhofe from February
1990 to November 1993.
Bulent A. Berilgen 46 10 Vice President of Operations since December
1993. Prior thereto Vice President -
Engineering and Development since January
1992. Prior thereto Regional Reservoir
Engineer.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Years with
Name (A) Age Forest Office (B)
------- --- ----------- -----------
<S> <C> <C> <C>
Kenton M. Scroggs 43 11 Vice President since December 1993 and
Treasurer since May 1988. Member of the
Company's Employee Benefits Committee, which
assumed the duties of the Trustees of the
Pension Trust and of the Administrative
Committee of the Retirement Savings Plan in
August 1994.
Forest D. Dorn 40 17 Vice President since February 1991 and
General Business Manager since December 1993.
Prior thereto General Manager - Operations
since January 1992. Prior thereto Assistant
Division Manager of the Southern Division.
David H. Keyte 39 7 Vice President and Chief Accounting Officer
since December 1993. Prior thereto Corporate
Controller since January 1989. Chairman of
the Company's Employee Benefits Committee,
which assumed the duties of the Trustees of
the Pension Trust and of the Administrative
Committee of the Retirement Savings Plan in
August 1994.
Daniel L. McNamara 49 23 Secretary and Corporate Counsel since January
1991. Prior thereto Assistant Secretary and
Associate Corporate Counsel. Member of the
Company's Employee Benefits Committee, which
assumed the duties of the Trustees of the
Pension Trust and of the Administrative
Committee of the Retirement Savings Plan in
August 1994.
Joan C. Sonnen 41 5 Controller since December 1993. Prior
thereto Director of Financial Accounting and
Reporting since April 1991 and Manager of
Financial Systems and Reporting since July
1989.
<FN>
- - --------------------
*Also a Director
(A) William L. Dorn and Forest D. Dorn are brothers, and they are nephews of
John C. Dorn, a director of the Company.
(B) The term of office of each officer is one year from the date of his or her
election immediately following the last annual meeting of shareholders and
until the officer's respective successor has been elected and qualified or
until his or her earlier death, resignation or removal from office
whichever occurs first. Each of the named persons has held the office
indicated since the last annual meeting of shareholders, except as
otherwise indicated.
</TABLE>
2
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Forest Oil Corporation has one class of common equity securities outstanding.
The Common Stock, par value $.10 per share, has one vote per share. During
1993, each share of the Class B Stock, par value $.10 per share, which had 10
votes per share, was reclassified into 1.1 shares of Common Stock pursuant to a
vote of the shareholders. In the event of dissolution, liquidation or
insolvency, holders of Common Stock share ratably in the net assets of Forest,
subject to the liquidation rights of the holders of the $.75 Convertible
Preferred Stock.
The Company also has outstanding Warrants to purchase shares of its Common
Stock. Each Warrant entitles the holder to purchase one share of Common Stock
at a price of $3.00, is non-callable and expires on October 1, 1996.
As of March 31, 1995, 28,250,647 shares of Common Stock were held by 2,060
recordholders and 1,244,715 Warrants were held by 80 recordholders.
Subject to the prior right of the holders of Forest's $.75 Convertible Preferred
Stock, the only restrictions on its present or future ability to pay dividends
are (i) the provisions of the New York Business Corporation Law (NYBCL), (ii)
certain restrictive provisions in the Indenture executed in connection with
Forest's 11 1/4% Senior Subordinated Notes due September 1, 2003 pursuant to
which the Company is currently prohibited from paying any cash dividends other
than on its $.75 Convertible Preferred Stock, and (iii) the Company's Credit
Agreement dated December 1, 1993 with The Chase Manhattan Bank (National
Association), as agent, under which the Company is restricted in amounts it may
pay as dividends (other than dividends payable in common stock). Under the
dividend restrictions in the Credit Agreement, the Company is prohibited from
paying cash dividends on its $.75 Convertible Preferred Stock after the February
1, 1995 dividend. While these restrictions are effective, subsequent dividends,
when and as declared, will be paid in shares of Forest Oil Corporation Common
Stock. There is no assurance that Forest will pay any dividends. For further
information on Forest's ability to pay dividends on its Common Stock and $.75
Convertible Preferred Stock, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Notes 4, 7 and 8 of Notes to
Consolidated Financial Statements.
The Company has one class of preferred stock outstanding. Annual dividends on
the $.75 Convertible Preferred Stock are cumulative and are payable quarterly
each February 1, May 1, August 1 and November 1, when and as declared.
Dividends may be paid in cash or, at the Company's election, in shares of Common
Stock or in a combination of cash and Common Stock. As described above, the
Company is prohibited from paying cash dividends on its $.75 Convertible
Preferred Stock after the February 1, 1995 dividend, due to restrictions
contained in the Credit Agreement with its lending banks. While these
restrictions are effective, subsequent dividends, when and as declared, will be
paid in shares of Forest Oil Corporation Common Stock.
Whenever dividends on the $.75 Convertible Preferred Stock have not been paid,
the amount of the deficiency, plus an amount equal to the accumulated dividend
for the then current quarterly dividend period, must be fully paid, or declared
and set apart for payment, before any dividend may be declared and paid or set
apart for payment upon the Common Stock, except for dividends paid in shares of
Common Stock.
Whenever $.75 Convertible Preferred Stock dividends are in arrears in an amount
equivalent to six full quarterly dividends, the holders of the $.75 Convertible
Preferred Stock, voting separately as a class and with one vote per share, will
have the right to elect two directors. If two consecutive dividend payments are
in arrears, the holder of each share of $.75 Convertible Preferred Stock will be
entitled to a penalty conversion right enabling such holder to convert each such
share, plus accumulated dividends, into a share of Common Stock during a two-day
period 30 days after the second dividend payment date at a conversion price of
75% of the average of the last reported sales prices of the Common Stock during
the period from such second dividend payment date to five trading days prior to
the conversion date.
The holder of each share of $.75 Convertible Preferred Stock has the right to
convert each such share into 3.5 shares of Common Stock at any time. The
conversion rate is subject to adjustment in certain events.
3
<PAGE>
The $.75 Convertible Preferred Stock may be redeemed at the option of the
Company, in whole or in part, upon notice duly given, at any time after the
earlier of (i) July 1, 1996, and (ii) the date on which the last reported sales
price of the Common Stock will have been $7.50 or higher for at least 20 of the
prior 30 trading days, at the redemption prices set forth below, in each case
with an amount equal to dividends (whether or not declared) accrued to the date
fixed for redemption and remaining unpaid:
<TABLE>
<CAPTION>
Redemption
Price Per
Redemption Period Share
----------------------------- ----------
<S> <C>
July 1, 1994 to June 30, 1995 $10.33
July 1, 1995 to June 30, 1996 $10.17
July 1, 1996 and thereafter $10.00
</TABLE>
As of March 31, 1995, 2,880,973 shares of $.75 Convertible Preferred Stock were
held by 92 recordholders.
Forest's Common Stock is traded on the National Market System of the National
Association of Securities Dealers, Inc., Automated Quotation System
(NASDAQ/NMS). The High and Low sales prices of the Common Stock for each
quarterly period of the years presented as reported by the NASDAQ/NMS are listed
in the chart below. The Class B Stock was not traded in any public trading
market. There were no dividends on Common Stock or Class B Stock in 1993, 1994
or in the first quarter of 1995.
<TABLE>
<CAPTION>
High Low
---- ---
1993
----
<S> <C> <C>
First Quarter $ 4-1/2 $ 2-7/8
Second Quarter 5-13/16 4
Third Quarter 5-13/16 4-1/4
Fourth Quarter 5-7/16 3-5/16
1994
----
First Quarter $ 4-3/4 $ 3-7/16
Second Quarter 4-9/16 3-7/16
Third Quarter 4-7/16 3-5/16
Fourth Quarter 3-7/16 2-1/8
1995
----
First Quarter (through March 31) $ 2-3/8 $ 1-1/2
</TABLE>
On March 31, 1995, the last reported sales price of the Common Stock as quoted
on the NASDAQ/NMS was $2-5/16 per share.
4
<PAGE>
The Warrants are traded on the NASDAQ/NMS. The High and Low sales prices of the
Warrants for each quarterly period of the years presented as reported by the
NASDAQ/NMS are listed in the chart below.
<TABLE>
<CAPTION>
High Low
---- ---
1993
----
<S> <C> <C>
First Quarter $ 2-3/8 $ 1-1/8
Second Quarter 3-5/8 2-1/16
Third Quarter 3-5/8 2-5/8
Fourth Quarter 3 1-3/4
1994
----
First Quarter $ 2-3/4 $ 1-7/8
Second Quarter 2-1/2 1-3/4
Third Quarter 2-1/8 1-5/8
Fourth Quarter 1-5/8 1/2
1995
----
First Quarter (through March 31) $ 5/8 $ 3/8
</TABLE>
On March 31, 1995, the last reported sales price of the Warrants as quoted on
the NASDAQ/NMS was $3/8 per Warrant.
The $.75 Convertible Preferred Stock is traded on the NASDAQ/NMS. The High and
Low sales prices of the $.75 Convertible Preferred Stock for each quarterly
period of the years presented as reported by the NASDAQ/NMS are listed in the
chart below.
<TABLE>
<CAPTION>
Dividends
High Low Paid (A)
1993 ---- --- ----------
----
<S> <C> <C> <C>
First Quarter $15-3/4 $ 10-3/4 0.068587
Second Quarter 20-1/8 14-1/4 0.057176
Third Quarter 20-5/8 15-1/2 0.038513
Fourth Quarter 18-3/4 12 0.044563
1994
----
First Quarter $17 $ 13-1/2 $ .1875
Second Quarter 16-1/2 13-1/4 .1875
Third Quarter 16 12-1/2 .1875
Fourth Quarter 13 8-3/4 .1875
1995
----
First Quarter (through March 31) $ 9-1/8 $ 6-1/2 $ .1875
<FN>
(A) In 1993 the dividends on the $.75 Convertible Preferred Stock were paid in
shares of Common Stock at the above stated rates. In 1994, the dividends
on the $.75 Convertible Preferred Stock were paid in cash. On February 1,
1995, a cash dividend of $.1875 was paid to holders of record on January
10, 1995. On February 23, 1995 the Board of Directors declared a dividend
payable in shares of Common Stock on May 1, 1995 to holders of record on
April 10, 1995. The number of shares of Common Stock to be issued per
share of the $.75 Convertible Preferred Stock will be 0.094693, determined
in accordance with the formula for determining dividends payable.
</TABLE>
On March 31, 1995, the last reported sales price of the $.75 Convertible
Preferred Stock as quoted on the NASDAQ/NMS was $9-1/8 per share.
5
<PAGE>
In October 1993, the Board of Directors adopted a shareholders' rights plan
(the "Plan"). The Company issued a dividend of a preferred stock purchase right
(the "Rights") on each outstanding share of Common Stock of the Company, which,
after the Rights become exercisable, entitles the holder to purchase 1/100th of
a share of a newly issued series of the Company's preferred stock at a purchase
price of $30 per 1/100th of a preferred share, subject to adjustment. The
Rights expire on October 29, 2003 unless extended or redeemed earlier. The
Rights will become exercisable (unless previously redeemed or the expiration
date of the Rights has occurred) following a public announcement that a person
or group (an "Acquiring Person") has acquired 20% or more of the Common Stock or
has commenced (or announced an intention to make) a tender offer or exchange
offer for 20% or more of the Common Stock. In certain circumstances each holder
of Rights (other than an Acquiring Person) will have the right to receive, upon
exercise, (i) shares of Common Stock of the Company having a value significantly
in excess of the exercise price of the Rights, or (ii) shares of Common Stock of
an acquiring company having a value significantly in excess of the exercise
price of the Rights.
It is the Company's intention to amend the Plan to exclude from the provisions
of the Plan shares of Common Stock acquired by The Anschutz Corporation pursuant
to the transaction discussed in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, "Liquidity and Capital
Resources."
For further information regarding the Company's equity securities and related
stockholder matters, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes thereto.
6
<PAGE>
ITEM 6. SELECTED FINANCIAL AND OPERATING DATA
The following table sets forth selected data regarding the Company as of and for
each of the years in the five-year period ended December 31, 1994. This data
should be read in conjunction with Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations and the Consolidated Financial
Statements and Notes thereto.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1994(1) 1993 1992(2) 1991 1990
---- ---- ---- ---- ----
(In Thousands Except per Share Amounts and Volumes)
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
Revenue $115,947 105,148 113,186 69,897 84,824
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary items $(67,853) (9,355) 7,298 (34,850) (75,549)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary items $(81,843) (10,478) 7,298 (34,850) (75,549)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net earnings (loss) $(81,843) (21,213) 7,298 (25,348) (75,549)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted average number of common shares
outstanding 28,097 21,997 13,774 12,494 12,307
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net earnings (loss) attributable to
common stock $(84,004) (23,463) 4,950 (30,557) (85,395)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Primary earnings (loss) per share: (3)
Earnings (loss) before cumulative effects of
changes in accounting principles and
extraordinary items $(2.49) (.53) .36 (3.21) (6.94)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings (loss) before extraordinary items $(2.99) (.58) .36 (3.21) (6.94)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net earnings (loss) attributable to common
stock $(2.99) (1.07) .36 (2.45) (6.94)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total assets $324,832 426,755 378,532 296,189 339,676
Long-term obligations
and redeemable preferred stock 271,128 288,588 250,672 203,136 220,508
Shareholders' equity 6,086 88,156 59,881 54,840 58,457
OPERATING DATA
Annual production (4):
Gas (MMCF) 48,048 41,114 29,174 23,877 31,415
Oil (MBBLS) 1,543 1,493 1,450 847 912
Average price received (4):
Gas (per MCF) $1.90 1.88 1.70 1.84 2.06
Oil (per Barrel) 14.83 16.97 18.14 25.31 23.19
Capital expenditures $42,544 170,821 106,627 35,664 65,466
Overhead Costs $18,719 19,561 18,760 23,292 41,176
Proved Reserves (4):
Gas (MMCF) 246,996 273,382 194,655 193,471 205,013
Oil (MBBLS) 7,532 8,198 7,560 5,315 6,559
Standardized measure of discounted future net
cash flows relating to proved oil and gas
reserves $207,463 258,917 187,761 157,921 241,303
Total discounted future net cash flows
relating to proved oil and gas reserves,
including amounts attributable to
volumetric production payments $230,149 299,053 227,009 188,069 241,303
Average spot price received at end of year
Gas (per MCF) $1.77 2.48 2.38 2.01 2.32
Oil (per barrel) 15.50 12.00 18.00 17.75 27.60
<FN>
(1) Effective January 1, 1994 the Company changed its method of accounting for
oil and gas sales from the sales method to the entitlements method. See
Note 1 of Notes to Consolidated Financial Statements.
(2) The results for 1992 include the effects of the ONEOK settlement.
(3) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all years except 1992. In 1992, fully diluted earnings
per share was $.29.
(4) Includes amounts attributable to required deliveries under volumetric
production payments. See Notes 5 and 16 of Notes to Consolidated Financial
Statements.
</TABLE>
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
NET EARNINGS (LOSS). The Company's net loss was $81,843,000 in 1994 compared to
a net loss of $21,213,000 in 1993 and net earnings of $7,298,000 in 1992. There
would have been a net loss of $16,745,000 in 1992 excluding the effects of the
settlement of gas contract litigation with ONEOK Inc. (the ONEOK settlement).
Earnings from operations (consisting of total revenue less oil and gas
production expense and expensed general and administrative costs) increased in
1994 compared to 1993 as a result of increased natural gas production from
acquisitions made throughout 1993; however, this increase was more than offset
by a $58,000,000 writedown of the book value of the Company's oil and gas
properties due to a ceiling test limitation and a charge of $13,990,000 to
reflect the cumulative effects of a change in the Company's method of accounting
for oil and gas sales from the sales ("takes") method to the entitlements
method. Earnings from operations increased in 1993 compared to the 1992 results
(excluding the effects of the ONEOK settlement) as a result of the acquisition
of properties; however, this increase was more than offset by higher
depreciation and depletion expense, an extraordinary loss of $10,735,000 (net of
tax benefit of $4,652,000) recorded as a result of the redemption or purchase of
all of the Company's 12 3/4% Senior Secured Notes and long-term subordinated
debt and a charge of $1,123,000 to reflect the cumulative effects of changes in
accounting principles related to postretirement benefits and income taxes.
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. As a result,
earnings from operations for 1994 increased by $3,584,000. Earnings from
operations for 1993 and 1992, on a pro forma basis, would have been higher by
$5,393,000 and $8,868,000, respectively, as a result of this change in
accounting method. The 1993 and 1992 amounts presented herein are not required
to be restated to show the effects of this change.
8
<PAGE>
The ONEOK settlement in 1992 had a significant impact on the Company's reported
revenue, expense and net earnings. A summary of the Company's income and
expenses for 1992, before and after the amounts recorded as a result of the
ONEOK settlement, is as follows:
<TABLE>
<CAPTION>
Year ended
Effects of December 31, 1992
Year ended ONEOK excluding ONEOK
December 31, 1992 settlement settlement
----------------- ---------- -----------------
(In Thousands)
<S> <C> <C> <C>
REVENUE:
Oil and gas sales $ 99,239 22,392 76,847
Miscellaneous, net 13,947 15,149 (1,202)
------ ------ ------
Total revenue 113,186 37,541 75,645
EXPENSES:
Oil and gas production 15,865 1,589 14,276
General and administrative 11,611 (477) 12,088
Interest 27,800 - 27,800
Depreciation and depletion 46,624 - 46,624
------ ------ ------
Total expenses 101,900 1,112 100,788
------- ------ -------
Earnings (loss) before income taxes 11,286 36,429 (25,143)
Income tax expense
Current 435 - 435
Deferred expense (benefit) 3,553 12,386 (8,833)
------ ------ -----
3,988 12,386 (8,398)
------ ------ -----
Net earnings $ 7,298 24,043 (16,745)
------ ------ ------
------ ------ ------
</TABLE>
The inclusion of the effects of the ONEOK settlement in a discussion of the
Company's results of operations distorts the trends which would otherwise be
reported. In the discussion which follows, results for 1992 exclude the effects
of the ONEOK settlement in order to more meaningfully compare and discuss the
Company's results of operations for 1994, 1993 and 1992.
REVENUE. Total revenue increased 10% to $115,947,000 in 1994 from $105,148,000
in 1993, and increased 39% in 1993 from $75,645,000 in 1992.
Oil and gas sales increased to $114,541,000 from $102,883,000, or by
approximately 11%, in 1994 compared to 1993 due primarily to increased natural
gas production from properties acquired throughout 1993 and the effects of the
change in method of accounting for oil and gas sales, partially offset by normal
production declines. In 1994, natural gas production volumes were up 17%
compared to 1993 while oil production volumes were 3% higher. The increase in
revenue attributable to increased production was partially offset by a 13%
decrease in the average sales price for oil. The average sales price for
natural gas in 1994 did not differ significantly from the 1993 price.
Oil and gas sales increased to $102,883,000 from $76,847,000, or by
approximately 34%, in 1993 compared to 1992 due primarily to increased
production from newly-acquired properties and an 11% increase in the average
sales price for natural gas. In 1993, oil production volumes were up 3% and
natural gas production volumes were up 41% compared to 1992. The increase in
revenue attributable to the increased production was partially offset by a 6%
decrease in the average sales price for oil.
9
<PAGE>
The production volumes and average sales prices for the years ended December 31,
1994, 1993 and 1992 for Forest and its wholly-owned subsidiaries were as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
NATURAL GAS
<S> <C> <C> <C>
Production under long-term fixed price
contracts (MMCF) (1) 16,656 19,065 9,689
Average contract sales price (per MCF) $ 1.78 1.65 1.67
Production sold on the spot market (MMCF) 31,392 22,049 19,485
Spot sales price received (per MCF) (2) $ 1.90 2.21 1.78
Effects of energy swaps (per MCF) (3) .06 (.13) (.07)
------ ------ ------
Average spot sales price (per MCF) (2) $ 1.96 2.08 1.71
Total production (MMCF) 48,048 41,114 29,174
Average sales price (per MCF) $ 1.90 1.88 1.70
OIL AND CONDENSATE (1)(4)
Total production (MBBLS) 1,543 1,493 1,450
Average sales price (per BBL) $ 14.83 16.97 18.14
<FN>
- - ------------------
(1) Production under long-term fixed price contracts includes scheduled
deliveries under volumetric production payments, net of royalties. For
further information concerning volumes and prices recorded under volumetric
production payments, see "Liquidity and Capital Resources -- Volumetric
Production Payments" and Notes 5 and 16 of Notes to Consolidated Financial
Statements.
(2) The 1992 amounts exclude $1.15 per MCF attributable to the ONEOK
settlement. Including such amount, the spot sales price received and the
average spot sales price for natural gas were $2.93 and $2.86 per MCF,
respectively.
(3) Energy swaps were entered into to hedge the price of spot market volumes
against price fluctuation. Hedged volumes were 12,184 MMCF, 8,057 MMCF and
4,691 MMCF for the years ended December 31, 1994, 1993 and 1992,
respectively.
(4) Oil and condensate production is sold primarily on the spot market. An
immaterial amount of production is covered by long-term fixed price
contracts, including scheduled deliveries under volumetric production
payments.
</TABLE>
10
<PAGE>
Natural gas delivered pursuant to volumetric production payment agreements and
other long-term fixed price contracts represented approximately 35% of total
production in 1994 versus 46% in 1993 and 33% in 1992. In recent years, the
industry trend has been for more natural gas to be sold on the spot market as
long-term contracts expire. The overall increase experienced by Forest in
natural gas sold under long-term fixed price contracts over the three year
period presented herein was the result of the Company entering into volumetric
production payments.
Miscellaneous net revenue of $1,406,000 in 1994 included income from the sale of
miscellaneous pipeline systems and equipment and the reversal of an accounts
receivable reserve, partially offset by a reserve for settlement of a royalty
dispute and a payment of deferred maintenance costs of a real estate complex
used for general business purposes. Miscellaneous net revenue of $2,265,000 in
1993 included $1,380,000 of interest income on short-term investments and an
adjustment to reduce accrued severance taxes based on discussions with the
applicable state taxing authorities. The net expense of $1,202,000 in 1992 was
primarily attributable to a $926,000 provision for future rent payments on
vacated office space.
OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased 15% to
$22,384,000 in 1994 compared to $19,540,000 in 1993 due primarily to increased
natural gas production as a result of property acquisitions throughout 1993,
partially offset by a decrease in workover expenses and a general decrease in
expenses due to the sale of properties. Oil and gas production expense
increased 37% to $19,540,000 in 1993 compared to $14,276,000 in 1992, due
primarily to increased production from newly acquired properties and increased
workover expense. In 1994 and 1993, production expense was approximately $.39
on an MCFE basis compared to $.38 in 1992.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
decreased 7% to $11,166,000 in 1994 compared to $12,003,000 in 1993. Decreases
in salaries, wages and burden from the termination of executives and middle
level managers and increases in production operation credits were partially
offset by increases in insurance and office and storage rental expenses.
General and administrative expense for 1993 was $12,003,000 compared to
$12,088,000 in 1992. Increases attributable to severance and employee
relocation costs and the effects of the postretirement medical benefit accrual
in 1993 were more than offset by lower office and storage rentals and lower
professional services expense. The capitalization rate remained relatively
constant from 1992 to 1994.
Total overhead costs, including amounts related to exploration and development
activities, were $18,719,000 in 1994, $19,561,000 in 1993 and $19,237,000 in
1992. Excluding the severance and employee relocation costs in 1993 described
below, total overhead costs were approximately 8% higher in 1994 than in 1993.
This increase is primarily due to an increase in storage rentals and higher
insurance expense attributable to a larger asset base, partially offset by a
decrease in salaries, wages and burden from the termination of executives and
middle level managers as described below. The increase in 1993 from 1992 was
only 2% despite charges amounting to $2,300,000 for severance and employee
relocation costs and $480,000 for postretirement medical benefits; without
these charges, total overhead costs would have decreased by approximately 13%
in 1993 compared to 1992. Severance and employee relocation costs of
approximately $2,300,000 in 1993 resulted from the termination of 10 executives
and middle level managers and a loss incurred on an employee's former residence
in accordance with the Company's relocation policy. The following table
summarizes the total overhead costs incurred during the periods:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1994 1993 1992
----- ----- -----
(In Thousands)
<S> <C> <C> <C>
Overhead costs capitalized $ 7,553 7,558 7,149
General and administrative costs expensed 11,166 12,003 12,088
------ ------ ------
Total overhead costs $ 18,719 (A) 19,561 (B) 19,237
------ ------ ------
------ ------ ------
<FN>
(A) Includes $510,000 for postretirement medical benefits.
(B) Includes approximately $2,300,000 of severance and employee relocation costs and
$483,000 for postretirement medical benefits.
</TABLE>
11
<PAGE>
RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the Company
entered into retirement agreements with seven executives and directors
("Retirees") pursuant to which the Retirees will receive supplemental retirement
payments totalling approximately $1,127,700 per year through 1996, $1,087,400 in
1997, $938,400 in 1998 and approximately $740,400 per year in 1999 and 2000.
The liability to the Retirees was recorded in 1990 and 1991.
INTEREST EXPENSE. Interest expense of $26,773,000 increased $3,044,000 or 13%
compared to 1993 due to higher loan balances as a result of recent capital
spending. Interest expense of $23,729,000 in 1993 decreased $4,071,000 or 15%
compared to 1992, primarily due to redemptions or purchases of certain of the
Company's subordinated debentures and 12 3/4% Senior Secured Notes in 1993,
partially offset by the interest expense incurred in connection with the
Company's new 11 1/4% Senior Subordinated Notes.
DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense
increased 8% to $65,468,000 in 1994 from $60,581,000 in 1993 due to increased
production in the 1994 period as a result of property acquisitions.
Depreciation and depletion expense increased 30% to $60,581,000 in 1993 from
$46,624,000 in 1992 due to increased production in the 1993 period as a result
of property acquisitions and workovers. The depletion rate was $1.13 per MCFE
for U.S. production in 1994 compared to corresponding rates of $1.19 for U.S.
production in 1993 and $1.21 for U.S. production and $1.19 for Canadian
production in 1992.
IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company recorded a writedown of its
oil and gas properties of $58,000,000 in 1994 due primarily to a decrease in
spot market prices for natural gas. The Company could have chosen to lessen or
completely eliminate the need for a writedown by entering into financial
derivatives (swaps) and locking in future natural gas prices. The Company would
have had to contract a significant portion of its natural gas reserve base to
avoid the entire writedown. Company management decided not to enter into such
contracts because it believes the natural gas market is now at a cyclical low,
and such arrangements would ultimately be detrimental to the Company's
shareholders. In addition, the Company considered but chose not to adopt
successful efforts accounting. It is management's belief that full cost
accounting remains the most appropriate method of accounting for the Company's
current mix of operations, despite the quarterly ceiling test requirement.
Additional writedowns of the full cost pool may be required if prices decrease,
undeveloped property values decrease, estimated proved reserve volumes are
revised downward or costs incurred in exploration, development, or acquisition
activities exceed the discounted future net cash flows from the additional
reserves, if any.
The average Gulf Coast spot price received by the Company for natural gas
declined from $1.77 per MCF at December 31, 1994 to $1.59 per MCF at April 1,
1995. The West Texas Intermediate price for crude oil increased from $15.50 per
barrel at December 31, 1994 to $17.25 per barrel at April 1, 1995. Based on
April 1, 1995 prices the standardized measure of discounted future net cash
flows, exclusive of amounts attributable to volumetric production payments,
would have been approximately $193,600,000 at December 31, 1994.
CHANGES IN ACCOUNTING
The Company changed its method of accounting for oil and gas sales from the
sales method to the entitlements method effective January 1, 1994. Under the
sales method previously used by the Company, all proceeds from production
credited to the Company were recorded as revenue until such time as the Company
had produced its share of related reserves. Under the entitlements method,
revenue is recorded based upon the Company's share of volumes sold, regardless
of whether the Company has taken its proportionate share of volumes produced.
Under the entitlements method, the Company records a receivable or payable to
the extent it receives less or more than its proportionate share of the related
revenue. The Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the Company's actual share
of jointly owned production and provides a better matching of revenue and
related expenses.
The cumulative effect of the change for the periods through December 31, 1993,
was a charge of $13,990,000. The effect of this change on 1994 was an increase
in earnings from operations of $3,584,000 and an increase in
12
<PAGE>
production volumes of 1,555,000 MCF. There were no related income tax effects
in 1994. As the Company adopted this change in the fourth quarter of 1994,
previously reported 1994 quarterly information has been restated to reflect the
change effective January 1, 1994. See Note 15 for restated selected quarterly
financial data.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106) required the
Company to accrue expected costs of providing postretirement benefits to
employees and the employees' beneficiaries and covered dependents. The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
estimated accumulated postretirement benefit obligation as of January 1, 1993
was approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost (included in total overhead costs) was approximately
$510,000 for 1994 and $483,000 for 1993.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," (SFAS No. 109), required the Company to adopt the liability method of
accounting for income taxes. The Company adopted such method on a prospective
basis as of January 1, 1993 and, as such, prior periods have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 resulted in
a reduction of the net amount of deferred income taxes recorded as of December
31, 1992 of approximately $2,060,000. This amount was credited to operations in
the first quarter of 1993 as the cumulative effect of a change in accounting
principle.
LIQUIDITY AND CAPITAL RESOURCES
RECENT DEVELOPMENTS. On April 17, 1995, the Company signed letters of intent
with The Anschutz Corporation (Anschutz) and with Joint Energy Development
Investments Limited Partnership (JEDI), an affiliate of Enron Corp. in each case
as described below.
The Anschutz letter of intent contemplates that Anschutz will purchase
18,800,000 shares of the Company's common stock and shares of newly-issued
preferred stock that are convertible into 6,200,000 additional shares of common
stock for a total consideration of $45.0 million, or $1.80 per share. The
preferred stock will have a liquidation preference and will receive dividends
ratably with the common stock. The investment will be made in two closings. In
the first closing, expected to occur in early May 1995, Anschutz will loan the
Company $9.9 million for a term of 9 months. The loan will bear interest at 8%
per annum for 16 weeks and at 12.5% per annum thereafter. The loan will be
secured by oil and gas properties owned by the Company, the preferred stock of
Archean Energy Ltd. and certain other assets acceptable to Anschutz. The loan
may be converted into 5,500,000 shares of Forest's common stock at Anschutz's
election, but the loan must be so converted at the second closing. At the
second closing, expected to occur by July 1995 following receipt of shareholder
approval of the transactions contemplated by the letter of intent, Anschutz
will purchase 13,300,000 shares of common stock and the convertible preferred
stock. In connection with this purchase, Anschutz will agree to certain
voting, acquisition, and transfer limitations regarding shares of common stock
for five years after the second closing, including (a) a limit on voting,
subject to certain exceptions, that would require Anschutz to vote all shares of
common stock acquired by Anschutz in the transaction in excess of an amount
equal to 19.99% of the shares of common stock then outstanding in the same
proportion as all other shares of common stock are voted, (b) a limit on the
number of persons associated with Anschutz that may at any time be elected as
directors of the Company and (c) a limit on the acquisition of additional shares
of common stock by Anschutz (whether pursuant to the exercise of the $2.10
warrants or the option received from JEDI, each as described below, or
otherwise), subject to certain exceptions, that would prohibit any acquisition
by Anschutz that would result in Anschutz owning 40% or more of the shares of
common stock then issued and outstanding. While the foregoing limitations are
in effect, Anschutz will have a minority representation on the board of
directors.
The JEDI letter of intent contemplates that, at the second closing referred to
above, Forest and JEDI will restructure JEDI's existing loan currently having a
principal balance of approximately $62.1 million. In exchange for certain
warrants referred to below, JEDI will relinquish the net profits interest that
it holds in certain Forest properties and will reduce the interest rate relating
to the loan. As a result of the loan restructuring and the issuance of the
warrants, the Company anticipates a reduction of the recorded amount of the
related liability to approximately $45.0 million and a reduction of interest
expense of approximately $2.1 million per annum.
The JEDI letter of intent also contemplates that, at the second closing, JEDI
will receive warrants to purchase 11,250,000 shares of the Company's common
stock for $2.00 per share and warrants to purchase 19,444,444 shares of common
stock at $2.10 per share. The $2.00 warrants expire on December 31, 2002,
except that, in certain circumstances, the Company may terminate the warrants at
any time beginning 36 months after the second closing if the average closing
price of the common stock for both the 90 day and 15 day periods immediately
preceding the termination is in excess of $2.50 per share. For the first 36
months after the second closing, the $2.00 warrants may be exercised only on the
dates and in the respective numbers of shares required to be delivered by JEDI
to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz,
as described below. The $2.10 warrants are exercisable during the first 18
months after the second closing, subject to extension in certain circumstances
to 36 months after the second closing. The letters of intent also contemplate
that, at the second closing, JEDI will assign to Anschutz the $2.10 warrants and
will grant to Anschutz an option to purchase up to 11,250,000 shares of common
stock during the first 36 months after the second closing.
The letters of intent require the Company to pay Anschutz and JEDI certain fees
and expenses in connection with the letters of intent and the transactions
contemplated thereby in certain circumstances. The Anschutz letter of intent
requires the Company to pay to Anschutz a fee (called a subsequent event fee) of
up to $2,500,000 upon the occurrence of certain events prior to the second
closing (or, if the second closing does not occur, April 17, 1996), such as a
merger, consolidation or other business combination between the Company and a
13
<PAGE>
person other than Anschutz. In the Anschutz letter of intent, the Company has
agreed not to solicit proposals for transactions that would require the Company
to pay a subsequent event fee and to keep Anschutz generally informed regarding
the receipt and disposition by the Company of proposals regarding such
transactions made by other persons.
The transactions contemplated by the letters of intent are subject to, among
other things, the preparation and execution of definitive documentation
satisfactory to the parties and to the approval of Forest's board of directors
and certain of its creditors. The purchase by Anschutz of common stock at the
second closing, the restructure of JEDI's existing loan and the transactions
between Anschutz and JEDI described above are also subject to, among other
things, the prior approval of Forest's shareholders and Hart-Scott-Rodino
clearance. The Company believes that short-term and long-term liquidity would
be significantly improved by the conclusion of the transactions,
described above. Although the Company believes that the conditions
to the closing of the transactions can be satisfied, there can be no
assurance that the transactions will close on the terms and on the dates
referred to above, or at all.
SHORT-TERM LIQUIDITY. During 1994 and the first quarter of 1995, the Company's
operating cash flows and working capital were adversely affected by a severe
industry-wide decline in the price of natural gas. The prices the Company
receives for its future oil and natural gas production will significantly impact
future operating cash flows. No prediction can be made as to the prices the
Company will receive for its future oil and gas production.
Since December 31, 1994, the Company has taken steps and committed to certain
actions to address its short-term liquidity needs, including the recent
developments described above. Key short-term actions taken and committed to are
set forth below.
The Company has reduced its budgeted general and administrative expenditures for
1995 principally through a workforce reduction in March 1995. As a result,
total overhead for 1995 is expected to decrease by approximately $4,000,000
compared to 1994 or by approximately 20%.
In response to current market conditions, the Company has reduced its budgeted
capital expenditures to those required to maintain its producing oil and gas
properties as well as certain essential development, drilling and other
activities. The Company's 1995 budgeted expenditures for exploration and
development are approximately $5,700,000, and $12,300,000, respectively,
including capitalized overhead of $2,300,000 and $3,600,000, respectively. The
planned levels of capital expenditures could be further reduced if the Company
experiences lower than anticipated net cash provided by operations or other
liquidity needs.
The Company has a secured credit facility (the Credit Facility) with The Chase
Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit
Facility, the Company may borrow up to $17,500,000 for acquisition or
development of proved oil and gas reserves and up to $32,500,000 for working
capital and general corporate purposes, subject to semi-annual redetermination
at the banks' discretion. The total borrowing capacity of the Company under the
Credit Facility is $50,000,000. In March 1995, the banks completed their most
recent semi-annual redetermination of the Credit Facility and advised the
Company that the maximum borrowing capacity would be maintained at $50,000,000.
However, the amount of the maximum borrowings under the Credit Facility is at
the discretion of the banks and is subject to change at any time.
The Credit Facility is secured by a lien on, and a security interest in, a
majority of the Company's proved oil and gas properties and related assets
(subject to prior security interests granted to holders of volumetric production
payment agreements), a pledge of accounts receivable, material contracts and the
stock of material subsidiaries, and a negative pledge on remaining assets. The
maturity date of the Credit Facility is December 31, 1996. Under the terms of
the Credit Facility, the Company is subject to certain covenants and financial
tests (which may from time to time restrict the Company's activities), including
restrictions or requirements with respect to working capital, net cash flow,
additional debt, asset sales, mergers, cash dividends on capital stock and
reporting responsibilities. At December 31, 1994 the outstanding balance under
this facility was $33,000,000, and the Company was in compliance with the
covenants of the Credit Facility. The Company currently anticipates that it may
not meet the Credit Facility's working capital and/or interest coverage ratio
tests during 1995. Management believes that any instances of noncompliance
can be cured within the period of time permitted or that waivers can be obtained
from the banks, although there can be no assurance that this will be the case.
At March 31, 1995, the outstanding balance under the Credit Facility was
$45,000,000. The Company has used the facility for a $1,500,000 letter of
credit, leaving an available borrowing capacity of $3,500,000, which the
Company intends to use to meet monthly cash flow requirements.
On April 13, 1995 Forest sold to a bank a participation interest in Forest's
claim in a bankruptcy proceeding as described in Item 3. Legal Proceedings.
Consideration received consisted of a $4,000,000 nonrecourse loan, in exchange
for which the bank will receive, solely from the proceeds of the bankruptcy
claim, an amount equal to the loan principal plus accrued interest at 16.5% per
annum plus 25% of the excess, if any, of the proceeds over the loan principal
and interest. The Company may, under certain conditions, limit the overall cost
of financing to 23.5% per annum by exercising its option to repurchase the
bank's interest in the bankruptcy claim prior to receipt of any proceeds of the
claim. Proceeds from this sale will be used for working capital needs.
Based on the Company's actions taken to date and its plans, including the
recent developments described above, management believes the Company
will have adequate sources of short-term liquidity to meet its working capital
needs, fund capital expenditures at reduced levels, and meet its current debt
service obligations.
CASH FLOW. Historically, one of the Company's primary sources of capital has
been funds provided by operations, which has varied dramatically in prior
periods depending upon factors such as natural gas contract settlements and
price fluctuations which are difficult to predict.
14
<PAGE>
The following summary table reflects comparative cash flows for the Company for
the periods ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------
1994 1993 1992
----- ------ -----
(In Thousands)
<S> <C> <C> <C>
Funds provided by operations (A) $ 60,987 52,667 24,433 (B)
Net cash provided by operating activities 42,546 41,722 45,991 (C)
Net cash used by investing activities (32,307)(D) (170,134) (83,354)
Net cash provided (used) by financing activities (14,231) 71,886 30,846
<FN>
(A) Funds provided by operations consists of net cash provided by operating
activities adjusted for the change in working capital and non-cash items.
(B) Excludes $36,429,000 of net proceeds associated with the ONEOK settlement.
(C) Excludes $51,250,000 of revenue associated with the ONEOK settlement in
1992.
(D) Includes approximately $4,400,000 representing repayment of an advance by
the Company's Canadian affiliate.
</TABLE>
LONG-TERM LIQUIDITY. The Company has historically addressed its long-term
liquidity needs through the use of nonrecourse production-based financing and
through issuance of debt and common stock when market conditions permit.
Significant events affecting the Company's long-term liquidity over the past
few years are discussed below.
In December, 1992, the Company received gross proceeds of $51,250,000 as a
result of the ONEOK settlement. The net proceeds, after payment of related
royalties and production taxes, were approximately $36,429,000. Pursuant to the
terms of its 12 3/4% Senior Secured Notes, the Company was required to make an
offer to purchase $16,000,000 principal amount of the 12 3/4% Senior Secured
Notes at a purchase price of 100% of their principal amount plus accrued
interest to the date of purchase. Pursuant to such offer, the Company purchased
approximately $3,926,000 principal amount of 12 3/4% Senior Secured Notes in
February, 1993. The remainder of the net proceeds were used for general
corporate purposes, including working capital, debt reduction and the
acquisition of oil and gas properties.
On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00
per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after issuance costs and underwriting
fees, of which the Company used approximately $30,300,000 to purchase or redeem
a portion of its 12 3/4% Senior Secured Notes. The remainder of the net
proceeds was used for general corporate purposes, including working capital,
debt reduction and the acquisition of oil and gas properties.
On September 8, 1993, the Company completed a public offering of $100,000,000
aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1,
2003. The 11 1/4% Senior Subordinated Notes were issued at a price of 99.259%
yielding 11.375% to the holders. On October 13, 1993 the Company used the net
proceeds from the sale of the 11 1/4% Senior Subordinated Notes of approximately
$95,827,000, together with approximately $19,400,000 of available cash, to
redeem all of its outstanding 12 3/4% Senior Secured Notes and long-term
subordinated debentures.
On November 9, 1993, the Company purchased $308,000 principal amount of its 5
1/2% Convertible Subordinated Debentures. The remaining $7,171,000 principal
amount of the 5 1/2% Debentures was redeemed February 1, 1994.
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement (the Enron loan) arranged by Enron Finance Corp., an affiliate of
Enron Gas Services. For a further discussion of the Enron loan, see
"Nonrecourse Secured Loan and Dollar-Denominated Production Payment" below.
This financing provided acquisition capital, and capital to execute Forest's
exploitation strategy.
15
<PAGE>
Many of the factors which may affect the Company's future operating performance
and long-term liquidity are beyond the Company's control, including, but not
limited to, oil and natural gas prices, governmental actions and taxes, the
availability and attractiveness of properties for acquisition, the adequacy and
attractiveness of financing and operational results. The Company continues to
examine alternative sources of long-term liquidity, including public and private
issuances of equity and refinancing debt with equity.
VOLUMETRIC PRODUCTION PAYMENTS. Through December 31, 1994, the Company received
approximately $139,058,000 (net of fees) from the sale of volumetric production
payments and, in return, committed to deliver from the subject properties
approximately 80.1 BCF of natural gas and 770,000 barrels of oil to entities
associated with Enron Corp. (Enron). As of December 31, 1994, the volumes
remaining to be delivered were approximately 19.1 BCF of natural gas and 261,000
barrels of oil. Amounts received for volumetric production payments are
recorded as deferred revenue, which is amortized as sales are recorded based
upon the scheduled deliveries under the production payment agreements.
The Company is required to deliver the scheduled volumes from the subject
properties or to make a cash payment for volumes produced but not delivered, in
combination not to exceed a specified percentage of monthly production. If
production levels are not sufficient to meet scheduled delivery commitments, the
Company must account for and make up such shortages, at market-based prices,
from future production.
The purchaser of a volumetric production payment determines the amount paid to
the Company for the production payment by calculating the net present value of
the scheduled deliveries priced using the purchaser's assumed future prices.
However, the sales price per MCFE recorded by the Company upon delivery of
production payment volumes is determined by dividing the net proceeds from the
sale of the production payment by the total volumes scheduled to be delivered.
This price is therefore fixed at the inception of the production payment and
does not change. There is no interest expense recorded with respect to a
volumetric production payment, the interest factor having been effectively
netted against the calculated sales price. In addition, the Company must pay
applicable royalties on volumes delivered and is responsible for production-
related costs associated with operating the properties subject to the production
payment agreements. These accounting treatments should be considered when
assessing the Company's financial statements and related information, including
information presented with respect to cash flows and average prices for volumes
sold under fixed contracts.
Deferred revenue relating to production payments was $35,908,000 as of December
31, 1994. The annual amortization of deferred revenue and the corresponding
delivery and net sales volumes are set forth below:
<TABLE>
<CAPTION>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
---------------------- --------------------------
Annual amortization Natural Natural
of deferred revenue Oil Gas Oil Gas
(In Thousands) (MBBLS) (MMCF) (MBBLS) (MMCF)
------------------- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C>
1995 $ 20,770 174 11,045 145 8,899
1996 7,546 87 3,721 74 2,998
1997 2,439 -- 1,410 -- 1,136
1998 1,593 -- 892 -- 719
Thereafter 3,560 -- 1,994 -- 1,606
----- -- ----- -- -----
$ 35,908 261 19,062 219 15,358
------ --- ------ --- ------
------ --- ------ --- ------
<FN>
(1) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT. Under the
terms of the Enron loan agreement and the dollar-denominated production payment,
the Company is required to make payments based on the net proceeds, as defined,
from certain subject properties. The terms of the Enron loan will be
restructured based on the terms of a letter of intent as described in "Recent
Developments."
16
<PAGE>
The Enron loan, which bears annual interest at the rate of 12.5%, was recorded
at a discounted amount to reflect the conveyance to the lender of a 20% interest
in the net profits, as defined, of properties located in south Texas. At
December 31, 1994 the principal amount of the loan was $61,717,000 and the
recorded liability was $57,840,000. Under the terms of the Enron loan,
additional funds may be advanced to fund a portion of the development projects
which will be undertaken by the Company on the properties pledged as security
for the loan. Payments of principal and interest under the Enron loan are due
monthly and are equal to 90% of total net operating income from the secured
properties, reduced by 80% of allowable capital expenditures, as defined. The
Company's current estimate, based on expected production and prices, budgeted
capital expenditure levels and expected discount amortization, is that 1995
payments will reduce the recorded liability by approximately $524,000.
Estimated liability reductions, including required principal payments, for 1996
through 1999, under the same production, pricing, capital expenditure and
discount scenario are approximately $11,280,000, $18,741,000, $15,119,000 and
$9,113,000, respectively. Payments, if any, under the net profits conveyance
will commence upon repayment of the principal amount of the Enron loan and will
cease when the lender has received an internal rate of return, as defined, of
18% (15.25% through December 31, 1995). Properties to which approximately 22%
of the Company's estimated proved reserves are attributable, on an MCFE
equivalent basis, are dedicated to repayment of the Enron loan.
Under the provisions of the Enron loan, the Company is required to make
periodic principal payments, beginning in February 1996, if the outstanding
balance of the loan exceeds specified balances and the cash flow (as defined)
from the mortgaged properties is less than specified minimums. Based upon
current projections, the Company anticipates that these provisions will require
a significant principal payment in February 1996 to avoid an event of default.
As described above, the Company has signed a letter of intent to restructure
the loan.
The original amount of the dollar-denominated production payment was
$37,550,000, which was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest. At December 31, 1994 the remaining
principal amount was $23,373,000 and the recorded liability was $18,534,000.
Under the terms of this production payment, the Company must make a monthly cash
payment which is the greater of a base amount or 85% of the net proceeds from
the subject properties, as defined, except that the amount required to be paid
in any given month shall not exceed 100% of the net proceeds from the subject
properties. The Company retains a management fee equal to 10% of sales from the
properties, which is deducted in the calculation of net proceeds. The Company's
current estimate, based on expected production and prices, budgeted capital
expenditure levels and expected discount amortization, is that 1995 payments
will reduce the recorded liability by approximately $1,112,000. Estimated
liability reductions for 1996 through 1999, under the same production, pricing,
capital expenditure and discount scenario are approximately $811,000,
$1,177,000, $2,988,000 and $4,220,000, respectively. Properties to which
approximately 8% of the Company's estimated proved reserves are attributable, on
an MCFE basis, are dedicated to this production payment financing through July
1999.
HEDGING PROGRAM. In addition to the volumes of natural gas and oil dedicated to
volumetric production payments, the Company has also used energy swaps and other
financial agreements to hedge against the effects of fluctuations in the sales
prices for oil and natural gas. In a typical swap agreement, the Company
receives the difference between a fixed price per unit of production and a price
based on an agreed upon third-party index if the index price is lower. If the
index price is higher, the Company pays the difference. The Company's current
swaps are settled on a monthly basis. At December 31, 1994, the Company had
natural gas swaps and collars for an aggregate of approximately 27.5 BBTU
(billion British Thermal Units) per day of natural gas during 1995 at fixed
prices (NYMEX basis) ranging from $1.90 to $2.38 per MMBTU (million British
Thermal Units) and an aggregate of approximately 16.7 BBTU per day of natural
gas during 1996 at fixed prices and floors ranging from $1.96 to $2.37 per
MMBTU. At December 31, 1994 the Company had oil swaps for an aggregate of
approximately 1,300 barrels per day of oil during 1995 at fixed prices ranging
from $16.70 to $17.75 (NYMEX basis) and an aggregate of approximately 1,000
barrels per day of oil from January, 1996 through June, 1996 at fixed prices
ranging from $16.70 to $17.75 per barrel.
17
<PAGE>
OPTION AGREEMENT. In 1993, under another agreement (the Option Agreement), the
Company paid a premium of $516,000 in conjunction with the closing of the Enron
loan agreement. The payment of this premium gave Forest the right to set a
floor price of $1.70 per MMBTU on a total of 18,400 BBTU of natural gas over a
five year period commencing January 1, 1995. In order to exercise this right to
set a floor, the Company must pay an additional premium of 10 CENTS per MMBTU,
effectively setting the floor at $1.60 per MMBTU. The option agreement is
broken into five calendar year periods with the option for each calendar year
expiring four trading days prior to the last trading day for the January NYMEX
contract for that year. The Company was able to sell its 1995 option, covering
approximately 4,300 BBTU, for $25,000 a few days prior to expiration when the
1995 swap price was approximately $1.73 per MMBTU. The options for calendar
years 1996 through 1999 remain in place.
SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK.
Pursuant to certain of the Company's financing arrangements, significant amounts
of production are contractually dedicated to production payments and the
repayment of nonrecourse debt over the next five years (dedicated volumes). The
dedicated volumes decrease over the next five years and also decrease as a
percentage of the Company's total production during this period. The production
volumes not contractually dedicated to repayment of nonrecourse debt
(undedicated volumes) are relatively stable but increase as a percentage of the
Company's total production over the next five years. This relative stability of
undedicated volumes is due to the fact that the decrease in dedicated volumes
corresponds generally to the Company's estimates of the decrease in its total
production. In the Company's opinion, the relative stability of undedicated
volumes should provide a more constant level of cash flow available for
corporate purposes other than debt repayment. The following table presents, on
a percentage basis, the Company's estimates of dedicated and undedicated volumes
as a percentage of estimated total production:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Dedicated volumes 47% 44% 38% 39% 39% 18% 33%
Undedicated volumes 53 56 62 61 61 82 67
--- --- --- --- --- --- ---
Total production 100% 100% 100% 100% 100% 100% 100%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
As a result of volumetric production payments, energy swaps and fixed contracts,
the Company currently estimates that approximately 59% of its natural gas
production and 51% of its oil production will not be subject to price
fluctuations from January 1995 through December 1995. It is estimated that
existing volumetric production payments, energy swaps, collars and fixed
contracts currently cover approximately 41% (including the option to purchase
the $1.70 floor described above) of the Company's natural gas production and 23%
of its oil production for the year ending December 31, 1996. Currently, it is
the Company's intention to commit no more than 75% of its anticipated total
production and no more than 85% of its anticipated undedicated production to
such arrangements at any point in time. See "Hedging Program" above.
The Company's hedging strategy for dedicated volumes differs from that for
undedicated volumes. The Company believes that hedging of dedicated volumes
provides for greater assurance of debt repayment and decreased financial risk.
The Company believes that hedging undedicated volumes is also warranted in order
to facilitate its short-term planning and budgeting. The Company has not hedged
significant amounts of undedicated volumes beyond 36 months. The Company may
consider long-term hedging of undedicated volumes in the future if product
prices rise to significantly higher levels. The Company believes that stability
of cash flow should be considered by separately reviewing its hedge position
relative to dedicated volumes and undedicated volumes. The following table
reflects the estimated hedge position as a percentage of the Company's
undedicated volumes:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Volumes not hedged 61% 79% 84% 99% 99% 100% 91%
Volumes hedged 39 21 16 1 1 0 9
-- -- -- -- -- --- --
Total undedicated volumes 100% 100% 100% 100% 100% 100% 100%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
18
<PAGE>
The Company believes it is important to hedge volumes dedicated to production
payments or required to repay debt. The following table reflects the estimated
hedge position as a percentage of the Company's dedicated volumes. (Volumes
attributable to volumetric production payments are treated as hedged for
purposes of this presentation):
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 Thereafter Total
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Volumes not hedged 21% 39% 49% 69% 74% 91% 55%
Volumes hedged 79 61 51 31 26 9 45
-- -- -- -- -- -- --
Total dedicated volumes 100% 100% 100% 100% 100% 100% 100%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
Estimates of commercially recoverable oil and gas reserves and of the future net
cash flows therefrom are based upon a number of variable factors and
assumptions, such as historical production from the subject properties,
comparison with other producing properties, the assumed effects of regulation by
governmental agencies and assumptions concerning future oil and gas prices and
future operating costs, severance and excise taxes, abandonment costs,
development costs and workover and remedial costs, all of which may in fact vary
considerably from actual results. All such estimates are to some degree
speculative. Actual production, revenues, severance and excise taxes,
development expenditures, workover and remedial expenditures, abandonment
expenditures and operating expenditures with respect to the Company's reserves
will likely vary from such estimates, and such variances may be material.
19
<PAGE>
CAPITAL EXPENDITURES. The Company's expenditures for property acquisition,
exploration and development for the past three years, were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Property acquisition costs:
Proved properties $ 9,553 121,882 70,466
Undeveloped properties 209 23,034 18,306
------ ------- -------
9,762 144,916 88,772
Exploration costs:
Direct costs $15,229 4,923 1,391
Overhead capitalized 464 510 906
------ ------- -------
15,693 5,433 2,297
Development costs:
Direct costs $10,000 13,424 9,315
Overhead capitalized 7,089 7,048 6,243
------ ------- -------
17,089 20,472 15,558
------ ------- -------
$42,544 170,821 106,627
------ ------- -------
------ ------- -------
</TABLE>
In 1994, the Company's property acquisition expenditures of $9,762,000 resulted
in proved reserve additions of an estimated 8.2 BCF of natural gas and 17,000
barrels of oil, as measured at the closing dates of the acquisitions for
financial accounting purposes. In 1993, the Company's property acquisition
expenditures of $144,916,000 resulted in proved reserve additions of an
estimated 94.7 BCF of natural gas and 1.7 million barrels of oil, as measured at
the closing dates, as well as eight exploitation prospects and three exploratory
offshore blocks. In 1992, the Company's property acquisition expenditures, as
measured at the closing dates, of $88,772,000 resulted in proved reserve
additions of an estimated 63 BCF of natural gas and 5.8 million barrels of oil,
including reserves acquired as a result of gas balancing settlements.
The Company's 1995 budgeted expenditures for exploration and development are
approximately $5,700,000, and $12,300,000, respectively, including capitalized
overhead of $2,300,000 and $3,600,000, respectively.
During 1995, the Company intends to continue a strategy of acquiring reserves
that meet its investment criteria; however, no assurance can be given that the
Company can locate or finance any property acquisitions. In order to finance
future acquisitions, the Company is exploring many options including, but not
limited to: a variety of debt instruments; sale of production payments or
other nonrecourse financing; the issuance of net profits interests; sales of
non-strategic properties, prospects and technical information or joint venture
financing. Availability of these sources of capital and, therefore, the
Company's ability to execute its operating strategy will depend upon a number
of factors, some of which are beyond the control of the Company. If adequate
sources of liquidity are not available to the Company in 1995, the amount
invested in exploration, development and reserve acquisitions may be reduced due
principally to the desire of the Company to protect its capital in the event of
inadequate liquidity.
OTHER MATTERS
GAS BALANCING. The Company changed its method of accounting for oil and gas
sales from the sales method to the entitlements method effective January 1,
1994. Under the sales method previously used by the Company, all proceeds from
production credited to the Company were recorded as revenue until such time as
the Company had produced its share of related reserves. Under the entitlements
method, revenue is recorded based upon the Company's share of volumes sold,
regardless of whether the Company has taken its proportionate share of volumes
20
<PAGE>
produced. Under the entitlements method, the Company records a receivable or
payable to the extent it receives less or more than its proportionate share of
the related revenue.
As of December 31, 1994 the Company had produced approximately 8.4 BCF more than
its entitled share of production. The undiscounted value of this imbalance is
approximately $14,260,000, of which $5,735,000 is reflected on the balance sheet
as a short-term liability and the remaining $8,525,000 is reflected on the
balance sheet as a long-term liability.
UNFUNDED PENSION LIABILITIES. In 1994, in response to market conditions, the
Company increased from 7.5% to 9% the discount rate used in determining the
actuarial present value of the projected benefit obligations under its qualified
defined benefit trusteed pension plan and its supplemental executive retirement
plan. As a result of the change in the discount rate, the Company reduced the
liability representing the unfunded liabilities of these plans by approximately
$1,570,000 with a corresponding increase in capital surplus. The Company does
not expect the change in discount rate to have a significant impact on future
expense due to a pension plan curtailment effected May 31, 1991. The Company
currently is not required to make a contribution to the pension plan under the
minimum funding requirements of ERISA, but may choose to do so or may be
required to do so in the future.
NATURAL GAS SALES CONTRACTS. The Company had two natural gas sales contracts
with Columbia Gas Transmission Corp. (Transmission), a subsidiary of Columbia
Gas System (CGS). On July 31, 1991, CGS and Transmission filed Chapter 11
bankruptcy petitions with the United States Bankruptcy Court for the District of
Delaware. Both contracts have been rejected pursuant to the bankruptcy
proceedings. The Company has filed a proof of claim in the bankruptcy
proceeding consisting of a secured claim of $1,600,000 based on Louisiana vendor
lien laws and an unsecured claim relating to the rejection of the contracts.
The secured claim arises from Transmission's failure to pay the contract price
for a period of time prior to rejection of the contracts. The unsecured claim
was calculated on an undiscounted basis and without any assumption of mitigation
of damages through spot market sales. No prediction can be given as to when or
how these matters will ultimately be concluded. The Company sold a
participation interest in the claim to a bank on April 13, 1995, as discussed
above under "Liquidity and Capital Resources".
NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS. At December 31, 1994, the
Company estimated that for United States federal income tax purposes, it had
consolidated net operating loss carryforwards of $57,044,000, depletion
carryforwards of approximately $19,879,000 and investment tax credit
carryforwards of approximately $3,674,000. The availability of some of these tax
attributes to reduce current and future taxable income of the Company is subject
to various limitations under the Internal Revenue Code of 1986, as amended (the
Code). In particular, the Company's ability to utilize such tax attributes
could be severely restricted due to the occurrence of an "ownership change"
within the meaning of Section 382 of the Code resulting from the 1991
recapitalization. At December 31, 1994, the Company estimated that net
operating loss and investment tax credit carryforwards would be limited to
offset current taxable income to the extent described below.
Approximately $46,000,000 of the net operating loss carryforwards are not
subject to the provisions of Section 382 as they were generated subsequent to
the ownership change. Even though the Company is limited in its ability to use
the remaining net operating loss carryforwards under the general provisions of
Section 382, it may be entitled to use these net operating loss carryovers to
offset (a) gains recognized in the five years following the ownership change on
the disposition of certain assets, to the extent that the value of the assets
disposed of exceeds its tax basis on the date of the ownership change or (b) any
item of income which is properly taken into account in the five years following
the ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date of
ownership change, and the recognition of such gain through December 31, 1994,
that there will be no significant limitation on the Company's ability to use
these net operating loss carryforwards or investment tax credit carryforwards.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information concerning this Item begins on the following page.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Forest Oil Corporation:
We have audited the accompanying consolidated balance sheets of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Forest Oil
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for oil and gas sales from the sales method to
the entitlements method effective January 1, 1994.
As discussed in Notes 6 and 10 of Notes to Consolidated Financial Statements,
the Company adopted the provisions of Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" in 1993.
KPMG PEAT MARWICK LLP
Denver, Colorado
March 30, 1995, except as to Note 17
which is as of April 17, 1995
23
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,869 6,949
Accounts receivable 20,418 25,257
Other current assets 2,231 3,309
---------- ----------
Total current assets 25,518 35,515
Property and equipment, at cost:
Oil and gas properties - full cost accounting method (Note 2) 1,171,887 1,140,656
Buildings, transportation and other equipment 12,649 12,420
---------- ----------
1,184,536 1,153,076
Less accumulated depreciation, depletion and valuation allowance 907,927 787,380
---------- ----------
Net property and equipment 276,609 365,696
Investment in and advances to affiliate (Note 3) 11,652 16,451
Other assets 11,053 9,093
---------- ----------
$ 324,832 426,755
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 4,445 3,894
Current portion of long-term debt (Notes 4 and 17) 1,636 11,542
Current portion of gas balancing liability 5,735 --
Accounts payable 26,557 28,348
Retirement benefits payable to executives and directors (Note 10) 630 553
Accrued expenses and other liabilities:
Interest 4,318 3,817
Other 4,297 1,857
---------- ----------
Total current liabilities 47,618 50,011
Commitments and contingencies (Notes 10 and 12)
Long-term debt (Notes 4 and 17) 207,054 194,307
Retirement benefits payable to executives and directors (Note 10) 3,505 4,135
Gas balancing liability 8,525 --
Other liabilities 16,136 22,918
Deferred revenue (Note 5) 35,908 67,228
Shareholders' equity (Notes 4, 7, 8 and 17):
Preferred stock 15,845 15,845
Common stock 2,829 2,825
Capital surplus 190,074 193,717
Accumulated deficit (199,499) (117,656)
Foreign currency translation (1,337) (785)
Treasury stock, at cost (1,826) (5,790)
---------- ----------
Total shareholders' equity 6,086 88,156
---------- ----------
$ 324,832 426,755
---------- ----------
---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
------- ------- -------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Revenue:
Oil and gas sales:
Gas $ 91,309 77,249 72,011
Oil and condensate 22,874 25,341 26,299
Products and other 358 293 929
------- ------- -------
114,541 102,883 99,239
Miscellaneous, net 1,406 2,265 13,947
------- ------- -------
Total revenue 115,947 105,148 113,186
Expenses:
Oil and gas production 22,384 19,540 15,865
General and administrative 11,166 12,003 11,611
Interest 26,773 23,729 27,800
Depreciation and depletion 65,468 60,581 46,624
Provision for impairment of oil and gas properties 58,000 -- --
------- ------- -------
Total expenses 183,791 115,853 101,900
------- ------- -------
Earnings (loss) before income taxes, cumulative effects of changes in
accounting principles and extraordinary item (67,844) (10,705) 11,286
Income tax expense (benefit) (Note 6):
Current 9 254 435
Deferred -- (1,604) 3,553
------- ------- -------
9 (1,350) 3,988
------- ------- -------
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary item (67,853) (9,355) 7,298
Cumulative effects of changes in accounting principles:
Oil and gas sales (Note 1) (13,990) -- --
Postretirement benefits, net of income tax benefit of $1,639,000 (Note 10) -- (3,183) --
Income taxes (Note 6) -- 2,060 --
------- ------- -------
(13,990) (1,123) --
Earnings (loss) before extraordinary item (81,843) (10,478) 7,298
Extraordinary item - extinguishment of debt, net of income tax benefit of
$4,652,000 in 1993 (Note 4) -- (10,735) --
------- ------- -------
Net earnings (loss) $ (81,843) (21,213) 7,298
------- ------- -------
------- ------- -------
Weighted average number of common shares outstanding 28,097 21,997 13,774
------- ------- -------
------- ------- -------
Net earnings (loss) attributable to common stock $ (84,004) (23,463) 4,950
------- ------- -------
------- ------- -------
Pro forma amounts assuming the change in accounting for
oil and gas sales is applied retroactively:
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary item $ (3,962) 13,151
------- -------
------- -------
Net earnings (loss) (15,820) 13,151
------- -------
------- -------
</TABLE>
(continued on following page)
See accompanying Notes to Consolidated Financial Statements.
25
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
-------- ------- -------
(In Thousands Except Per Share Amounts)
<S> <C> <C> <C>
Primary earnings (loss) per common share (1):
Earnings (loss) before cumulative effects of changes in accounting
principles and extraordinary item $ (2.49) (.53) .36
Cumulative effects of changes in accounting principles (.50) (.05) --
-------- ------- -------
Earnings (loss) before extraordinary item (2.99) (.58) .36
Extraordinary item - extinguishment of debt -- (.49) --
-------- ------- -------
Net earnings (loss) attributable to common stock $ (2.99) (1.07) .36
-------- ------- -------
-------- ------- -------
Pro forma amounts assuming the change in accounting for oil and
gas sales is applied retroactively:
Primary earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary item $ (.28) .78
------- -------
------- -------
Net earnings (loss) attributable to common stock $ (.82) .78
------- -------
------- -------
Fully diluted earnings (loss) per common share:
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary item $ (.28) .51
------- -------
------- -------
Net earnings (loss) attributable to common stock $ (.82) .51
------- -------
------- -------
<FN>
(1) Fully diluted earnings (loss) per share was the same as primary earnings
(loss) per share in all years except 1992. In 1992, fully diluted earnings
per share was $.29.
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
26
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
$.75
CONVERTIBLE
PREFERRED COMMON CLASS B CAPITAL
STOCK STOCK STOCK SURPLUS
---------- ---------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Balance December 31, 1991 $ 17,280 951 375 149,069
Net earnings -- -- -- --
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 7) -- 153 -- (153)
Conversions of $.75 Convertible Preferred
Stock to Common Stock (66) 4 -- 62
Issuance of Common Stock in payment of
executive retirement liability (Note 10) -- 16 -- 173
Treasury stock contributed to the
Retirement Savings Plan and other -- 10 (10) (3,758)
Foreign currency translation -- -- -- --
--------- ------ ------ -------
Balance December 31, 1992 $ 17,214 1,134 365 145,393
Net loss -- -- -- --
Common Stock issued, net of
offering costs (Note 8) -- 1,108 -- 50,398
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 7) -- 64 -- (64)
Conversions of $.75 Convertible Preferred
Stock to Common Stock (1,369) 87 -- 1,282
Reclassification of Class B to Common
Stock (Note 8) -- 396 (360) (36)
Exercise of employee stock options (Note 8) -- 13 -- 383
Stock issued to the Retirement Savings Plan
for profit sharing contributions (Note 10) -- 18 -- 597
Unfunded pension liability (Note 10) -- -- -- (3,038)
Treasury stock contributed to the
Retirement Savings Plan and other -- 5 (5) (1,198)
Foreign currency translation -- -- -- --
--------- ------ ------ -------
Balance December 31, 1993 $ 15,845 2,825 -- 193,717
Net loss -- -- -- --
Exercise of employee stock options (Note 8) -- 3 -- 102
$.75 Convertible Preferred Stock dividends
paid in cash (Note 7) -- -- -- (2,161)
Treasury stock issued to the Retirement
Savings Plan for profit sharing
contributions (Note 10) -- -- -- (824)
Treasury stock contributed to the
Retirement Savings Plan and other -- 1 -- (760)
Foreign currency translation -- -- -- --
--------- ------ ------ -------
Balance December 31, 1994 $ 15,845 2,829 -- 190,074
--------- ------ ------ -------
--------- ------ ------ -------
<CAPTION>
ACCUMU- FOREIGN
LATED CURRENCY TREASURY
DEFICIT TRANSLATION STOCK
--------- ------------- ---------
(In Thousands)
<S> <C> <C> <C>
Balance December 31, 1991 (103,741) 2,476 (11,570)
Net earnings 7,298 -- --
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 7) -- -- --
Conversions of $.75 Convertible Preferred
Stock to Common Stock -- -- --
Issuance of Common Stock in payment of
executive retirement liability (Note 10) -- -- --
Treasury stock contributed to the
Retirement Savings Plan and other -- -- 4,215
Foreign currency translation -- (2,903) --
-------- ----- -------
Balance December 31, 1992 (96,443) (427) (7,355)
Net loss (21,213) -- --
Common Stock issued, net of
offering costs (Note 8) -- -- --
$.75 Convertible Preferred Stock dividends
paid in Common Stock (Note 7) -- -- --
Conversions of $.75 Convertible Preferred
Stock to Common Stock -- -- --
Reclassification of Class B to Common
Stock (Note 8) -- -- --
Exercise of employee stock options (Note 8) -- -- --
Stock issued to the Retirement Savings Plan
for profit sharing contributions (Note 10) -- -- --
Unfunded pension liability (Note 10) --
Treasury stock contributed to the
Retirement Savings Plan and other -- -- 1,565
Foreign currency translation -- (358) --
-------- ----- -------
Balance December 31, 1993 (117,656) (785) (5,790)
Net loss (81,843) -- --
Exercise of employee stock options (Note 8) -- -- --
$.75 Convertible Preferred Stock dividends
paid in cash (Note 7) -- -- --
Treasury stock issued to the Retirement
Savings Plan for profit sharing
contributions (Note 10) -- -- 1,035
Treasury stock contributed to the
Retirement Savings Plan and other -- -- 2,929
Foreign currency translation -- (552) --
-------- ----- -------
Balance December 31, 1994 (199,499) (1,337) (1,826)
-------- ----- -------
-------- ----- -------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
27
<PAGE>
FOREST OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss) before cumulative effects of changes in
accounting principles and extraordinary item $ (67,853) (9,355) 7,298
Adjustments to reconcile earnings (loss) before cumulative effects of
changes in accounting principles and extraordinary item
to net cash provided by operating activities:
Depreciation and depletion 65,468 60,581 46,624
Provision for impairment of oil and gas properties 58,000 -- --
Deferred Federal income tax expense (benefit) -- (1,604) 3,553
Other, net 5,372 3,045 3,387
-------- -------- --------
60,987 52,667 60,862
Net changes in other operating assets and liabilities:
(Increase) decrease in accounts receivable 4,839 2,264 (3,447)
(Increase) decrease in other current assets 1,078 375 (1,903)
Increase (decrease) in accounts payable 4,021 (12,668) 13,090
Increase (decrease) in accrued expenses and other liabilities 2,941 (1,078) 1,772
Proceeds from volumetric production payments 4,353 40,468 45,057
Amortization of deferred revenue (35,673) (40,306) (18,190)
-------- -------- --------
Net cash provided by operating activities 42,546 41,722 97,241
Cash flows from investing activities:
Capital expenditures for property and equipment (42,780) (171,166) (107,425)
Proceeds of sales of property and equipment, net 12,941 2,997 25,730
Increase in other assets, net (2,468) (1,965) (1,659)
-------- -------- --------
Net cash used by investing activities (32,307) (170,134) (83,354)
Cash flows from financing activities:
Proceeds of long-term bank debt 31,500 25,000 9,623
Repayments of long-term bank debt (23,500) -- (9,623)
Proceeds of nonrecourse secured loan 1,400 57,400 --
Proceeds of production payment -- -- 28,805
Repayments of production payment (2,771) (5,980) (1,520)
Proceeds of common stock offering, net of offering costs -- 51,506 --
Issuance of senior subordinated notes, net of offering costs -- 95,827 --
Redemptions and repurchases of subordinated debentures and secured notes (7,171) (148,918) (1,115)
Payment of preferred stock dividends (2,161) -- --
Deferred debt and exchange offer costs (772) (1,336) (285)
Increase (decrease) in cash overdraft 551 (1,347) 2,963
Increase (decrease) in other liabilities, net (11,307) (266) 1,998
-------- -------- --------
Net cash provided (used) by financing activities (14,231) 71,886 30,846
Effect of exchange rate changes on cash (88) (12) (110)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (4,080) (56,538) 44,623
Cash and cash equivalents at beginning of year 6,949 63,487 18,864
-------- -------- --------
Cash and cash equivalents at end of year $ 2,869 6,949 63,487
-------- -------- --------
-------- -------- --------
Cash paid during the year for:
Interest $ 23,989 23,123 26,079
-------- -------- --------
-------- -------- --------
Income taxes $ 9 452 177
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
28
<PAGE>
FOREST OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- - --------------------------------------------------------------------------------
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of Forest Oil Corporation (the Company) and its wholly-owned
subsidiaries. Significant intercompany balances and transactions are
eliminated.
CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company
considers all debt instruments with original maturities of three months or less
to be cash equivalents.
PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for
oil and gas properties. Presently, the Company's operations are conducted in
the United States. All costs incurred in the acquisition, exploration and
development of properties (including costs of surrendered and abandoned
leaseholds, delay lease rentals, dry holes and overhead related to exploration
and development activities) are capitalized. Capitalized costs are depleted
using the units of production method. A reserve is provided for estimated
future costs of site restoration, dismantlement and abandonment activities as a
component of depletion. Unusually significant investments in unproved
properties, including related capitalized interest costs, are not depleted
pending the determination of the existence of proved reserves. As of
December 31, 1994, 1993 and 1992, there were undeveloped property costs of
$30,441,000, $41,216,000 and $18,306,000, respectively, in the United States
which were not being depleted.
Depletion per unit of production was determined based on conversion to common
units of measure using one barrel of oil as an equivalent to six MCF of natural
gas. Depletion per unit of production (MCFE) for each of the Company's cost
centers was as follows:
<TABLE>
<CAPTION>
UNITED STATES CANADA
------------- ------
<S> <C> <C>
1994 $1.13 -
1993 1.19 -
1992 1.21 1.19
</TABLE>
Capitalized costs less related accumulated depletion and deferred income taxes
may not exceed the sum of (1) the present value of future net revenue from
estimated production of proved oil and gas reserves; plus (2) the cost of
properties not being amortized, if any; plus (3) the lower of cost or estimated
fair value of unproved properties included in the costs being amortized, if any;
less (4) income tax effects related to differences in the book and tax basis of
oil and gas properties. As a result of this limitation on capitalized costs,
the accompanying financial statements include a provision for impairment of oil
and gas property costs of $58,000,000 in 1994. There was no impairment of oil
and gas property costs in 1993 or 1992.
Gain or loss is recognized only on the sale of oil and gas properties involving
significant reserves.
Buildings, transportation and other equipment are depreciated on the straight-
line method based upon estimated useful lives of the assets ranging from five to
forty-five years.
OIL AND GAS SALES - The Company changed its method of accounting for oil and gas
sales from the sales method to the entitlements method effective January 1,
1994. Under the sales method previously used by the Company, all proceeds from
production credited to the Company were recorded as revenue until such time as
the Company had produced its share of related reserves. Under the entitlements
method, revenue is recorded based upon the Company's share of volumes sold,
regardless of whether the Company has taken its proportionate share of volumes
produced.
29
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D):
- - --------------------------------------------------------------------------------
Under the entitlements method, the Company records a receivable or payable to
the extent it receives less or more than its proportionate share of the related
revenue. The Company believes that the entitlements method is preferable
because it allows for recognition of revenue based on the Company's actual share
of jointly owned production and provides a better matching of revenue and
related expenses.
The cumulative effect of the change for the periods through December 31, 1993
was a charge of $13,990,000. The effect of this change on 1994 was an increase
in earnings from operations of $3,584,000 and an increase in production volumes
of 1,555,000 MCF. There were no related income tax effects in 1994. As the
Company adopted this change in the fourth quarter of 1994, previously reported
1994 quarterly information has been restated to reflect the change effective
January 1, 1994. See Note 15 for restated selected quarterly financial data.
The pro forma amounts shown on the consolidated statements of operations have
been adjusted for the effect of the retroactive application of the change and
related income taxes.
As of December 31, 1994 the Company had produced approximately 8.4 BCF more than
its entitled share of production. The estimated value of this imbalance is
approximately $14,260,000, which is reflected on the accompanying balance sheet
as a short-term liability of $5,735,000 and a long-term liability of $8,525,000.
HEDGING TRANSACTIONS - In order to minimize exposure to fluctuations in oil and
natural gas prices, the Company hedges the price of future oil and natural
gas production by entering into certain contracts and financial arrangements.
Gains and losses related to these hedging transactions are recognized as
adjustments to revenue recorded for the related production. Costs associated
with the purchase of certain hedge instruments are deferred and amortized
against revenue related to hedged production.
INCOME TAXES - The adoption of Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993
changed the Company's method of accounting for income taxes from the deferred
method to an asset and liability method. Previously, the Company deferred the
tax effects of timing differences between financial reporting and taxable
income. The asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between financial accounting bases and tax bases of assets and
liabilities.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities related to Canadian
investments are generally translated at current exchange rates, and related
translation adjustments are reported as a component of shareholders' equity.
Income statement accounts are translated at the average rates during the period.
EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by
dividing net earnings (loss) attributable to common stock by the weighted
average number of common shares and common share equivalents outstanding during
each period, excluding treasury shares. Net earnings (loss) attributable to
common stock represents net earnings (loss) less preferred stock dividend
requirements of $2,161,000 in 1994, $2,250,000 in 1993 and $2,348,000 in 1992.
Common share equivalents include, when applicable, dilutive stock options using
the treasury stock method and warrants using the if converted method.
Fully diluted earnings per share is computed assuming, in addition to the above,
(i) that convertible debentures were converted at the beginning of each period
or date of issuance, if later, with earnings being increased for interest
expense, net of taxes, that would not have been incurred had conversion taken
place, (ii) that convertible preferred stock was converted at the beginning of
each period or date of issuance, if later, and (iii) any additional dilutive
effect of stock options and warrants. The effects of these assumptions were
anti-dilutive in 1994 and 1993. The weighted average number of shares
outstanding on a fully-diluted basis was 26,515,000 for the year ended December
31, 1992.
RECLASSIFICATIONS - Certain amounts in the 1993 and 1992 financial statements
have been reclassified to conform to the 1994 financial statement presentation.
30
<PAGE>
(2) ACQUISITIONS:
- - --------------------------------------------------------------------------------
During 1994, the Company completed acquisitions totaling $9,762,000, including
additional interests in properties acquired in 1993. In order to finance one of
the acquisitions, the Company sold a volumetric production payment for
approximately $4,353,000 (net of fees).
In May and December, 1993, the Company purchased interests in properties from
Atlantic Richfield Company (ARCO) for approximately $60,862,000. In conjunction
with the ARCO acquisitions, the Company sold volumetric production payments from
certain of the ARCO properties for approximately $40,468,000 (net of fees). In
December 1993, the Company purchased interests in offshore properties for
approximately $24,050,000 and interests in properties in south Texas for
approximately $59,458,000. In conjunction with these acquisitions, the Company
entered into a nonrecourse secured loan agreement for $51,600,000.
In February 1992, Forest I Development Company, a wholly-owned subsidiary of the
Company, purchased substantially all of the assets of Harbert Energy Corporation
and its associated entities in an acquisition accounted for as a purchase. The
purchase price of $40,400,000 was funded primarily through the sale of a dollar-
denominated production payment which was recorded at its present value of
$28,805,000. In July 1992, the Company purchased Transco Exploration and
Production Company (TEPCO) for approximately $45,000,000. In conjunction with
the acquisition, the Company sold a volumetric production payment from certain
of the TEPCO properties for approximately $38,500,000 (net of fees).
The Company's results of operations for the year ended December 31, 1993 include
the effects of the first ARCO acquisition since May 1, 1993 and the offshore
properties and the second ARCO acquisition since December 1, 1993. The
Company's results of operations for the year ended December 31, 1992 include the
effects of the Harbert and TEPCO acquisitions since February 1, 1992 and August
1, 1992, respectively.
(3) INVESTMENT IN AND ADVANCES TO AFFILIATE:
- - --------------------------------------------------------------------------------
In May 1992, the Company transferred substantially all of its Canadian oil and
gas properties to a wholly-owned Canadian subsidiary, Forest Canada I
Development Ltd. (FCID). In September 1992, FCID sold its Canadian assets and
related operations to CanEagle Resources Corporation (CanEagle) for
approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). CanEagle was
formed for the purpose of acquiring the assets and related operations of FCID.
In the transaction, FCID received cash of approximately $28,000,000 CDN
($22,400,000 U.S.), net of expenses, and provided financing in the aggregate
principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994,
CanEagle sold a significant portion of its oil and gas properties in Canada to a
third party. In conjunction with this transaction, the Company received payment
of $6,124,000 CDN ($4,400,000 U.S.) representing principal and unpaid interest
on a CanEagle subordinated debenture held by the Company. In addition, the
Company exchanged its remaining investment in CanEagle for preferred shares of a
newly formed entity, Archean Energy, Ltd. (Archean).
The Company has accounted for the proceeds from the aforementioned transactions
as reductions in the carrying value of its investment in and advances to its
Canadian affiliates. The Company accounts for its investment in Canadian
affiliates in a manner analagous to equity accounting. Losses will be
recognized to the extent that the Canadian affiliates' losses are attributable
to the Company's interest. Earnings will be recognized only if realization is
assured. No earnings or losses attributable to the investment in Canadian
affiliates have been recognized in 1994, 1993 or 1992.
31
<PAGE>
(4) LONG-TERM DEBT:
- - --------------------------------------------------------------------------------
Long-term debt at December 31, 1994 and 1993 consists of the following:
<TABLE>
<CAPTION>
1994 1993
-------- -------
<S> <C> <C>
Bank debt $ 33,000 25,000
Nonrecourse secured loan 57,840 53,101
Production payment obligation 18,534 21,305
11-1/4% Subordinated debentures 99,316 99,272
5-1/2% Subordinated debentures - 7,171
-------- -------
208,690 205,849
Less current portion (1,636) (11,542)
-------- -------
Long-term debt $207,054 194,307
-------- -------
-------- -------
</TABLE>
BANK DEBT:
The Company has a secured credit facility (The Credit Facility) with The
Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the
Credit Facility, the Company may borrow up to $17,500,000 for acquisition or
development of proved oil and gas reserves, and up to $32,500,000 for working
capital and general corporate purposes, subject to semi-annual redemption at the
banks' discretion. The total borrowing capacity of the Company under the Credit
Facility is $50,000,000. In March, 1995, the banks completed their most recent
semi-annual redetermination of the Credit Facility and advised the Company that
the maximum borrowing capacity would be maintained at $50,000,000. However,
the amount of the maximum borrowings under the Credit Facility is at the
discretion of the banks and is subject to change at any time.
The Credit Facility is secured by a lien on, and a security interest in, a
majority of the Company's proved oil and gas properties and related assets
(subject to prior security interests granted to holders of volumetric production
payment agreements), a pledge of accounts receivable, material contracts and the
stock of material subsidiaries, and a negative pledge on remaining assets. The
maturity date of the Credit Facility is December 31, 1996. Under the terms of
the Credit Facility, the Company is subject to certain covenants and
financial tests (which may from time to time restrict the Company's
activities), including restrictions or requirements with respect to working
capital, net cash flow, additional debt, asset sales, mergers, cash dividends
on capital stock and reporting responsibilities. At December 31, 1994 the
outstanding balance under the Credit Facility was $33,000,000 at interest rates
ranging from 7.255% to 8.875% and the Company was in compliance with the
covenants of the Credit Facility. The Company currently anticipates that it may
not meet the working capital and/or interest coverage ratio tests during 1995.
Management believes, however, that any instances of noncompliance can be cured
within the period of time permitted or that waivers can be obtained from the
banks.
NONRECOURSE SECURED LOAN:
On December 30, 1993, the Company entered into a nonrecourse secured loan
agreement arranged by Enron Finance Corp., an affiliate of Enron Gas Services
(the Enron loan). Advances under the loan agreement bear annual interest at the
rate of 12.5%. Approximately $51,600,000 was advanced on December 30, 1993 to
provide financing for acquisitions. Another $5,800,000 of the available balance
was advanced on December 30, 1993 to fund a portion of the development projects
which will be undertaken by the Company on the properties pledged as security
for the loan. Under the terms of the Enron loan, additional funds may be
advanced to fund additional development projects which will be undertaken by the
Company on the properties pledged as security for the loan.
The loan was recorded at a discount to reflect conveyance to the lender of a 20%
interest in the net profits, as defined, of properties located in south Texas.
This discount of $4,299,000 is being amortized over the life of the
loan using the effective interest method. At December 31, 1994 the principal
amount of the loan was $61,717,000 and the recorded liability was $57,840,000.
Payments of principal and interest under the Enron loan are due monthly and are
equal to 90% of total net operating income from the secured properties, reduced
by 80% of allowable capital expenditures, as defined. The
32
<PAGE>
(4) LONG-TERM DEBT (CONT'D):
- - --------------------------------------------------------------------------------
Company's current estimate, based on expected production and prices, budgeted
capital expenediture levels and expected discount amortization, is that 1995
payments will reduce the recorded liability by approximately $524,000. This
amount is included in current liabilities. Estimated liability reductions,
including required principal payments, for 1996 through 1999, under the same
production, pricing, capital expenditure and discount scenario, are
approximately $11,280,000, $18,741,000, $15,119,000 and $9,113,000,
respectively. Payments, if any, under the net profits conveyance will commence
upon repayment of the principal amount of the Enron loan and will cease when the
lender has received an internal rate of return, as defined, of 18% (15.25%
through December 31, 1995). The Company has signed a letter of intent to
restructure the loan as described in Note 17.
PRODUCTION PAYMENT OBLIGATION:
The original principal amount of the dollar-denominated production payment was
$37,550,000, which was recorded as a liability of $28,805,000 after a discount
to reflect a market rate of interest of 15.5%. At December 31, 1994 the
remaining principal amount was $23,373,000 and the recorded liability was
$18,534,000. Under the terms of this production payment, the Company must make
a monthly cash payment which is the greater of a base amount or 85% of net
proceeds from the subject properties, as defined, except that the amount
required to be paid in any given month shall not exceed 100% of the net proceeds
from the subject properties. The Company retains a management fee equal to 10%
of sales from the properties, which is deducted in the calculation of net
proceeds. The Company's current estimate, based on expected production and
prices, budgeted capital expenditure levels and expected discount amortization,
is that 1995 payments will reduce the recorded liability by approximately
$1,112,000; this amount is included in current liabilities. Estimated liability
reductions for 1996 through 1999, under the same production, pricing, capital
expenditure and discount scenario, are $811,000, $1,177,000, $2,988,000 and
$4,220,000, respectively.
11-1/4% SUBORDINATED DEBENTURES:
On September 8, 1993 the Company completed a public offering of $100,000,000
aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1,
2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding
11.375% to the holders. The Company used the net proceeds from the sale of the
Senior Subordinated Notes of approximately $95,827,000, together with
approximately $19,400,000 of available cash, to redeem all of its outstanding
Senior Secured Notes and long-term subordinated debentures. The redemptions
resulted in a net loss of $15,387,000 which was recorded as an extraordinary
loss of $10,735,000 (net of income tax benefit of $4,652,000).
The Senior Subordinated Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after September 1, 1998 initially at a
redemption price of 105.688%, plus accrued interest to the date of redemption,
declining at the rate of 1.896% per year to September 9, 2000 and at 100%
thereafter. In addition, the Company may, at its option, redeem prior to
September 1, 1996 up to 30% of the initially outstanding principal amount of the
Notes at 110% of the principal amount thereof, plus accrued interest to the date
of redemption, with the net proceeds of any future public offering of its Common
Stock.
Under the terms of the Senior Subordinated Notes, the Company must meet certain
tests before it is able to pay cash dividends (other than dividends on the
Company's $.75 Convertible Preferred Stock) or make other restricted payments,
incur additional indebtedness, engage in transactions with its affiliates, incur
liens and engage in certain sale and leaseback arrangements. The terms of the
Senior Secured Notes also limit the Company's ability to undertake a
consolidation, merger or transfer of all or substantially all of its assets. In
addition, the Company is, subject to certain conditions, obligated to offer to
repurchase Senior Subordinated Notes at par value plus accrued and unpaid
interest to the date of repurchase, with the net cash proceeds of certain sales
or dispositions of assets. Upon a change of control, as defined, the Company
will be required to make an offer to purchase the Senior Subordinated Notes at
101% of the principal amount thereof, plus accrued interest to the date of
purchase.
5-1/2% SUBORDINATED DEBENTURES:
At December 31, 1993 the 5-1/2% Convertible Subordinated Debentures had a
remaining balance of $7,171,000 which was paid in full on the February 1, 1994
due date.
33
<PAGE>
(5) DEFERRED REVENUE:
- - --------------------------------------------------------------------------------
From April 1991 through May 1993, the Company entered into four volumetric
production payments with entities associated with Enron Corp. (Enron) for net
proceeds of $121,498,000. Under the terms of these production payments, the
Company was required to deliver 70.1 BCF of natural gas and 770,000 barrels of
oil over periods ranging from three to six years.
Effective November 1, 1993, the four separate volumetric payment financings
described above between the Company and Enron were consolidated into one
production payment. The delivery schedules from the previously separate
production payments were not adjusted; however, delivery shortfalls on any
property can now be made up from excess production from any other property which
is dedicated to the production payment obligation. The consolidation also
provided that certain acreage previously committed to the production payments
was released and can be developed by the Company unburdened by the delivery
obligations of the production payment.
In connection with the purchase of interests in properties from ARCO in December
1993, a volumetric production payment from certain of the ARCO properties was
sold to Enron for net proceeds of $13,207,000. This production payment covered
approximately 7.3 BCF of natural gas to be delivered over 8 years.
In July 1994, the Company purchased additional interests in the properties
acquired from ARCO in December 1993. In connection with this transaction, a
volumetric production payment was sold to Enron for net proceeds of $4,353,000.
This production payment covered approximately 2.7 BCF of natural gas to be
delivered over 8 years.
The Company is required to deliver the scheduled volumes from the subject
properties or to make a cash payment for volumes produced but not delivered, in
combination not to exceed a specified percentage of monthly production. If
production levels are not sufficient to meet scheduled delivery commitments, the
Company must account for and make up such shortages, at market-based prices,
from future production.
The Company is responsible for royalties and for production costs associated
with operating the properties subject to the production payment agreements. The
Company may grant liens on properties subject to the production payment
agreements, but it must notify prospective lienholders that their rights are
subject to the prior rights of the production payment owner.
Amounts received were recorded as deferred revenue. Volumes associated with
amortization of deferred revenue for the years ended December 31, 1994, 1993 and
1992 were as follows:
<TABLE>
<CAPTION>
Net sales volume
attributable to production
Volumes delivered (1) payment deliveries (2)
----------------------- --------------------------
Natural Natural
Oil Gas Oil Gas
(MBBLS) (MMCF) (MBBLS) (MMCF)
------- ------- ------- ------
<S> <C> <C> <C> <C>
1994 218 19,985 182 16,005
1993 221 23,392 185 18,731
1992 70 11,689 59 9,117
<FN>
(1) Amounts settled in cash in lieu of volumes were $1,611,381, $3,138,628 and
$7,965,945, for the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) Represents volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
34
<PAGE>
(5) DEFERRED REVENUE (CONT'D):
- - --------------------------------------------------------------------------------
Future amortization of deferred revenue, based on the scheduled deliveries under
the production payment agreements, is as follows:
<TABLE>
<CAPTION>
Net sales volumes
Volumes required to be attributable to production
delivered to Enron payment deliveries (1)
------------------------- --------------------------
Annual Natural Gas Oil Natural Gas Oil
Amortization (MMCF) (MBBLS) (MMCF) (MBBLS)
------------ ------ ------- ------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
1995 $ 20,770 11,045 174 8,899 145
1996 7,546 3,721 87 2,998 74
1997 2,439 1,410 - 1,136 -
1998 1,593 892 - 719 -
Thereafter 3,560 1,994 - 1,606 -
-------- --------- ---- -------- -----
$35,908 19,062 261 15,358 219
-------- --------- ---- -------- -----
-------- --------- ---- -------- -----
<FN>
- - -----------
(1) Represent volumes required to be delivered to Enron net of estimated
royalty volumes.
</TABLE>
(6) INCOME TAXES:
- - --------------------------------------------------------------------------------
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective
January 1, 1993. The cumulative effect of this change in accounting for income
taxes of $2,060,000 was determined as of January 1, 1993 and was reported
separately in the Consolidated Statement of Operations for the year ended
December 31, 1993.
The income tax expense (benefit) is different from amounts computed by applying
the statutory Federal income tax rate for the following reasons:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Tax expense (benefit) at 35% (34% for 1992)
of earnings (loss) before income taxes, cumulative
effects of changes in accounting principles and
extraordinary item $(23,749) (3,747) 3,837
Change in the balance of the valuation
allowance for deferred tax assets
attributable to loss before income taxes,
cumulative effects of changes in accounting
principles and extraordinary item 23,220 2,034 -
Expiration of tax carryforwards 455 318 -
Other 83 45 151
-------- -------- --------
Total income tax expense (benefit) $ 9 (1,350) 3,988
-------- -------- --------
-------- -------- --------
</TABLE>
The Omnibus Budget Reconciliation Act of 1993 increased the Federal corporate
tax rate from 34% to 35% retroactively to January 1, 1993. As a result of this
tax increase, the tax benefits at December 31, 1994 and December 31, 1993,
respectively, on the losses from continuing operations were approximately
$677,000 and $167,000 less than such amounts would have been without such
increase in the tax rate. However, due to limitations on the recognition of
deferred tax assets, the total tax benefit at December 31, 1994 and December 31,
1993, including the tax benefit on the cumulative effect of the change in
accounting method in 1994 and on the extraordinary loss on extinguishment of
debt in 1993, is unaffected by the tax rate increase. The impact of the tax
rate increase will be recognized when future taxable income allows the
unrecognized deferred tax asset to be realized.
Deferred income taxes generally result from recognizing income and expenses at
different times for financial and tax reporting. These differences result from
recording proceeds from the sale of properties in the full cost pool,
capitalization of certain development, exploration and other costs under the
full cost method of accounting and the provision for impairment of oil and gas
properties for financial accounting purposes.
35
<PAGE>
(6) INCOME TAXES (CONT'D):
- - --------------------------------------------------------------------------------
The components of the net deferred tax liability, computed in accordance with
SFAS No. 109 are as follows:
<TABLE>
<CAPTION>
December 31, 1994 January 1, 1994
----------------- ---------------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, due to allowance for doubtful accounts $ 289 468
Current and long term liabilities due to accrual for retirement benefits 1,475 1,641
Current and long term liabilities due to accrual for medical benefits 2,040 1,857
Current and long term liabilities due to accrual for sales recorded
on the entitlements method 3,642 -
Net operating loss carryforward 19,965 13,990
Depletion carryforward 6,958 6,958
Contribution carryforward 106 348
Investment tax credit carryforward 3,674 3,885
Alternative minimum tax credit carryforward 2,206 2,206
Other 94 96
--------- ---------
Total gross deferred tax assets 40,449 31,449
Less valuation allowance (36,258) (8,142)
--------- ---------
Net deferred tax assets 4,191 23,307
Deferred tax liabilities:
Full cost pool, due principally to capitalized expenditures (4,191) (23,307)
--------- ---------
Net deferred tax liability $ - -
--------- ---------
--------- ---------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$8,142,000. The net change in the total valuation allowance for the tax year
ended December 31, 1994 was an increase of $28,116,000. The total increase in
the valuation allowance includes $4,896,000 resulting from the cumulative effect
of the change in accounting for oil and gas sales from the sales method to the
entitlements method.
The Alternative Minimum Tax (AMT) credit carryforward available to reduce future
Federal regular taxes aggregated $2,206,000 at December 31, 1994. This amount
may be carried forward indefinitely. Regular and AMT net operating loss
carryforwards at December 31, 1994 were $57,044,000 and $55,387,000,
respectively, and will expire in the years indicated below:
<TABLE>
<CAPTION>
REGULAR AMT
------- ---
(In Thousands)
<S> <C> <C>
2000 $ 2,665 4,143
2005 8,307 -
2008 28,999 31,800
2009 17,073 19,444
------- ------
$57,044 55,387
------- ------
------- ------
</TABLE>
AMT net operating loss carryforwards can be used to offset 90% of AMT income in
future years.
Investment tax credit carryforwards available to reduce future Federal income
taxes aggregated $3,674,000 at December 31, 1994 and expire at various dates
through the year 2001. Percentage depletion carryforwards available to reduce
future Federal taxable income aggregated $19,879,000 at December 31, 1994. This
amount may be carried forward indefinitely. The net operating loss and
investment tax credit carryforwards have been recognized as a deferred tax
asset, subject to a valuation allowance.
36
<PAGE>
(6) INCOME TAXES (CONT'D):
- - --------------------------------------------------------------------------------
The availability of some of these tax attributes to reduce current and future
taxable income of the Company is subject to various limitations under the
Internal Revenue Code. In particular, the Company's ability to utilize such tax
attributes could be severely restricted due to the occurrence of an "ownership
change" within the meaning of Section 382 of the Internal Revenue Code resulting
from the Company's 1991 recapitalization. At December 31, 1994, the Company
estimated that net operating loss and investment tax credit carryforwards would
be limited to offset current taxable income to the extent described below.
The net operating loss carryforwards which expire in 2008 and 2009 are not
subject to the provisions of Section 382 as they were generated subsequent to
the ownership change. Even though the Company is limited in its ability to use
the remaining net operating loss carryovers under the general provisions of
Section 382, it may be entitled to use these net operating loss carryovers to
offset (a) gains recognized in the five years following the ownership change on
the disposition of certain assets, to the extent that the value of the assets
disposed of exceeds its tax basis on the date of the ownership change or (b) any
item of income which is properly taken into account in the five years following
the ownership change but which is attributable to periods before the ownership
change ("built-in gain"). The ability of the Company to use these net operating
loss carryovers to offset built-in gain first requires that the Company have
total built-in gains at the time of the ownership change which are greater than
a threshold amount. In addition, the use of these net operating loss
carryforwards to offset built-in gain cannot exceed the amount of the total
built-in gain.
The Company believes that due to the amount of built-in gain as of the date of
ownership change, and the recognition of such gain through December 31, 1994,
there is no significant limitation on the Company's ability to use these net
operating loss carryforwards or investment tax credit carryforwards.
(7) PREFERRED STOCK:
- - --------------------------------------------------------------------------------
The Company has 10,000,000 shares of $.75 Convertible Preferred Stock
authorized, par value $.01 per share, of which there were 2,880,973 shares
outstanding at December 31, 1994 and 1993, with an aggregate liquidation
preference of $28,809,730 at December 31, 1994 and 1993. This stock is
convertible at any time, at the option of the holder, at the rate of 3.5 shares
of Common Stock for each share of $.75 Convertible Preferred Stock, subject to
adjustment upon occurrence of certain events. During 1994, no shares of $.75
Convertible Preferred Stock were converted into shares of Common Stock. The
$.75 Convertible Preferred Stock is redeemable, in whole or in part, at the
option of the Company, at any time after the earlier of (i) July 1, 1996 or (ii)
the date on which the last reported sales price of the Common Stock will have
been $7.50 or higher for at least 20 of the prior 30 trading days, at a
redemption price of $10.33 per share during the twelve-month period which began
July 1, 1994 and declining ratably to $10.00 per share at July 1, 1996 and
thereafter, including accumulated and unpaid dividends. Cumulative annual
dividends of $.75 per share are payable quarterly, in arrears, on the first day
of February, May, August and November, when and as declared. Until December 31,
1993, the Company paid such dividends in shares of Common Stock. After such
date, dividends may be paid in cash or, at the Company's election, in shares of
Common Stock or in a combination of cash and Common Stock. However, the Company
is prohibited from paying cash dividends on its $.75 Convertible Preferred Stock
after the February 1, 1995 dividend due to restrictions contained in the Credit
Agreement with its lending banks. Common Stock delivered in payment of dividend
will be valued for dividend payment purposes at between 75% and 90%, based on
trading volume, of the average last reported sales price of the Common Stock
during a specified period prior to the record date for the dividend payment.
During any period in which dividends on preferred stock are in arrears, no
dividends or distributions, except for dividends paid in shares of Common Stock,
may be paid or declared on the Common Stock, nor may any shares of Common Stock
be acquired by the Company.
37
<PAGE>
(8) COMMON STOCK:
- - --------------------------------------------------------------------------------
The Company has 112,000,000 shares of Common Stock authorized, par value $.10
per share, of which there were 28,295,209 and 28,250,445 shares issued at
December 31, 1994 and 1993, respectively, with 105,940 and 335,813 shares held
by the Company at December 31, 1994 and 1993, respectively. The Common Stock is
entitled to one vote per share. Prior to May 1993 the Company also had Class B
stock which had superior voting rights to the Company's Common Stock, had
limited transferability and was not traded in any public market but was
convertible at any time into shares of Common Stock on a share-for-share basis.
At the Company's Annual Meeting of Shareholders on May 12, 1993, the
shareholders adopted amendments to the Company's Restated Certificate of
Incorporation to increase the number of authorized shares of Common Stock to
112,000,000 and to reclassify each share of Class B Stock into 1.1 shares of
Common Stock.
On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00
per share in a public offering. The net proceeds from the issuance of the
shares totalled approximately $51,506,000 after deducting issuance costs and
underwriting fees.
On October 29, 1993 the Company paid a dividend distribution of one Preferred
Share Purchase Right on each outstanding share of the Company's Common Stock.
The Rights are exercisable only if a person or group acquires 20% or more of the
Company's Common Stock or announces a tender offer which would result in
ownership by a person or group of 20% or more of the Common Stock. Each Right
initially entitles each shareholder to buy 1/100th of a share of a new series of
Preferred Stock at an exercise price of $30.00, subject to adjustment upon
certain occurrences. Each 1/100th of a share of such new Preferred Stock that
can be purchased upon exercise of a Right has economic terms designed to
approximate the value of one share of Common Stock. The Rights will expire on
October 29, 2003, unless extended or terminated earlier.
The Company has Warrants outstanding which permit holders thereof to purchase
1,244,715 shares of Common Stock at an exercise price of $3.00 per share. The
Warrants are noncallable by the Company and expire on October 1, 1996. The
exercise price is payable in cash.
In March 1992, the Company adopted the 1992 Stock Option Plan under which non-
qualified stock options may be granted to key employees and non-employee
directors. The aggregate number of shares of Common Stock which the Company may
issue under options granted pursuant to this plan may not exceed 10% of the
total number of shares outstanding or issuable at the date of grant pursuant to
outstanding rights, warrants, convertible or exchangeable securities or other
options. The exercise price of an option may not be less than 85% of the fair
market value of one share of the Company's Common Stock on the date of grant.
The options vest 20% on the date of grant and an additional 20% on each grant
anniversary date thereafter. The Company may, in its discretion, grant each
optionee a cash bonus upon the exercise of each granted option.
A summary of stock option activity related to the Plan is as follows:
<TABLE>
<CAPTION>
Option Price
Shares Per Share
----------- -----------
<S> <C> <C>
Options granted during 1992 and outstanding at
December 31, 1992 1,740,000 $ 3.00
Granted 1,525,000 5.00
Exercised (132,000) 3.00
Cancelled or surrendered (79,000) 3.00
----------- -----------
Options outstanding at December 31, 1993 3,054,000 3.00-5.00
Granted 310,000 5.00
Exercised (35,000) 3.00
Cancelled or surrendered (35,000) 5.00
----------- -----------
Options outstanding at December 31, 1994 3,294,000 $ 3.00-5.00
----------- -----------
----------- -----------
Options exercisable at December 31, 1994 1,860,400 $ 3.00-5.00
----------- -----------
----------- -----------
</TABLE>
38
<PAGE>
(9) GAS PURCHASE CONTRACT SETTLEMENT:
- - --------------------------------------------------------------------------------
On December 17, 1992, the Company and ONEOK, Inc. (ONEOK) agreed to settle the
case styled Forest Oil Corporation v. ONEOK, Inc. (Number 71,582) and its
companion case styled Forest Oil Corporation v. ONEOK, Inc. (Case No. C-89-53).
The cases involved take-or-pay damages relating to a natural gas purchase
contract between the Company and ONEOK. The settlement encompassed all disputed
contracts, claims and future claims. The cash proceeds of $51,250,000 were
received by the Company on December 24, 1992. Proceeds after deducting related
royalties and production taxes were approximately $36,429,000. The ONEOK
settlement increased the Company's net earnings for 1992 by approximately
$24,043,000 or $1.75 per share.
(10) EMPLOYEE BENEFITS:
- - --------------------------------------------------------------------------------
PENSION PLANS:
The Company has a qualified defined benefit pension plan (Pension Plan). The
Company has effected a curtailment of the Pension Plan pursuant to which all
benefit accruals were suspended effective May 31, 1991.
The benefits under the Pension Plan are based on years of service and the
employee's average compensation during the highest consecutive sixty-month
period in the fifteen years prior to retirement. No contribution was made in
1994, 1993 or 1992. The following table sets forth the Pension Plan's funded
status and amounts recognized in the Company's consolidated financial statements
at December 31:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$23,953,000 in 1994 and $28,484,000 in 1993 $(23,953) (28,484)
-------- --------
-------- --------
Projected benefit obligation for service rendered to date $(23,953) (28,484)
Plan assets at fair market value, consisting primarily of listed stocks, bonds
and other fixed income obligations 23,443 25,576
-------- --------
Plan assets in excess of projected benefit obligation (unfunded pension liability) (510) (2,908)
Unrecognized net loss from past experience different from that assumed and
effects of changes in assumptions 1,468 3,642
-------- --------
Pension asset recognized in the balance sheet $ 958 734
-------- --------
-------- --------
</TABLE>
For 1994 the discount rate used in determining the actuarial present value of
the projected benefit obligation was 9% and the expected long-term rate of
return on assets was 9%. For 1993, the discount rate used in determining the
actuarial present value of the projected benefit obligation was 7.5% and the
expected long-term rate of return on assets was 9%. For 1992, the discount rate
used in determining the actuarial present value of the projected benefit
obligation was 9% and the expected long-term rate of return on assets was 9%.
The components of net pension expense (benefit) for the years ended December 31,
1994, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Net pension expense (benefit) included the following components:
Interest cost on projected benefit obligation $ 1,976 2,039 2,074
Actual return on plan assets (245) (3,534) (1,890)
Net amortization and deferral (1,955) 1,441 (240)
------- ------- -------
Net pension expense (benefit) $ (224) (54) (56)
------- ------- -------
------- ------- -------
</TABLE>
39
<PAGE>
(10) EMPLOYEE BENEFITS (CONT'D):
- - --------------------------------------------------------------------------------
The Company has a non-qualified unfunded supplementary retirement plan that
provides certain officers with defined retirement benefits in excess of
qualified plan limits imposed by Federal tax law. Benefit accruals under this
plan were suspended effective May 31, 1991 in connection with suspension of
benefit accruals under the Company's Pension Plan. At December 31, 1994 the
projected benefit obligation under this plan totaled $480,000, which is included
in other liabilities in the accompanying balance sheet. The projected benefit
obligation is determined using the same discount rate as is used for
calculations for the Pension Plan.
In 1993 as a result of the change in the discount rate for the Pension Plan and
the supplementary retirement plan, the Company recorded a liability of
$3,038,000 representing the unfunded pension liability and a corresponding
decrease in capital surplus. As a result of the increase in the discount rate
for the Pension Plan and the supplementary retirement plan in 1994, the Company
reduced the liability representing the unfunded pension liability by
approximately $1,570,000 with a corresponding increase in capital surplus.
RETIREMENT SAVINGS PLAN:
The Company sponsors a qualified tax deferred savings plan in accordance with
the provisions of Section 401(k) of the Internal Revenue Code. Employees may
defer up to 10% of their compensation, subject to certain limitations. The
Company matches the employee contributions up to 5% of employee compensation.
In 1994, 1993 and 1992, Company contributions were made using treasury stock.
The expense associated with the Company's contribution was $516,000 in 1994,
$367,000 in 1993 and $454,000 in 1992.
Effective January 1, 1992 the plan was amended to include profit-sharing
contributions by the Company. In 1994, the Company did not make any profit
sharing contributions. The Company's profit-sharing contributions were made
using Company stock valued at $276,000 and $465,000 for 1993 and 1992,
respectively.
ANNUAL INCENTIVE PLAN:
The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which
became effective January 1, 1992, permits participating employees to earn annual
bonus awards payable in cash or in shares of the Company's Common Stock,
generally based in part upon the Company attaining certain levels of
performance. In 1994, no bonuses were awarded. In 1993 and 1992, the Company
accrued bonuses of $426,000 and $930,000, respectively, under the Incentive
Plan. Amounts awarded will be disbursed in equal annual installments over the
succeeding three-year period.
EXECUTIVE RETIREMENT AGREEMENTS:
The Company entered into Agreements in December 1990 (the Agreements) with
certain executives and directors (the Retirees) whereby each executive retired
from the employ of the Company as of December 28, 1990. Pursuant to the terms
of the Agreements, the Retirees are entitled to receive supplemental retirement
payments from the Company in addition to the amounts to which they are entitled
under the Company's retirement plan. In addition, the Retirees and their
spouses are entitled to lifetime coverage under the Company's group medical and
dental plans, tax and other financial services, and payments by the Company in
connection with certain club membership dues. The Retirees will also continue
to participate in the Company's royalty bonus program until December 31, 1995.
The Company has also agreed to maintain certain life insurance policies in
effect at December 1990, for the benefit of each of the Retirees.
Six of the Retirees have subsequently resigned as directors. One of the
Retirees continues to serve as a director and will be paid the customary non-
employee director's fee. Pursuant to the terms of the retirement agreements,
the former directors and any other Retiree who ceases to be a director (or his
spouse) will be paid $2,500 a month until December 2000.
The Company's obligation to one retiree under a revised retirement agreement is
payable in Common Stock or cash, at the Company's option, in May of each year
from 1993 through 1996 at approximately $190,000 per year with the balance of
$149,000 payable in May 1997. The retirement agreements for the other six
Retirees, one of
40
<PAGE>
(10) EMPLOYEE BENEFITS (CONT'D):
- - --------------------------------------------------------------------------------
whom received in 1991 the payments scheduled to be made in 1999 and 2000,
provide for supplemental retirement payments totalling approximately $938,400
per year through 1998 and approximately $740,400 per year in 1999 and 2000.
The present value of the amounts due under the agreements, discounted at 13%,
has been recorded as retirement benefits payable to executives and directors.
LIFE INSURANCE:
The Company provides life insurance benefits for certain key employees and
retirees under split dollar life insurance plans. The premiums paid for the
life insurance policies were $916,000, $861,000, and $995,000 in 1994, 1993 and
1992, respectively, including $831,000, $766,000 and $765,000 paid for policies
for retired executives. Under the life insurance plans, the Company is assigned
a portion of the benefits which is designed to recover the premiums paid.
HEALTH AND DENTAL INSURANCE:
The Company provides health and dental insurance to all of its employees,
eligible retirees and eligible dependents. The Company provides these benefits
at nominal cost to employees and retirees who are required to contribute an
estimated 50% of the cost of dependent coverage. In 1994, 1993 and 1992 the
costs of providing these benefits for both active and retired employees totalled
$1,714,000, $1,350,000 and $1,359,000, respectively. The 1994 cost includes
$1,384,000 related to 191 participating active employees and 4 employees on
long-term disability and $330,000 related to 115 eligible retirees. The 1993
cost includes $993,000 related to 184 participating active employees and 4
employees on long-term disability and $357,000 related to 125 eligible retirees.
The 1992 cost includes $1,011,000 related to 183 participating active employees
and $348,000 related to 119 eligible retirees.
POSTRETIREMENT BENEFITS:
The Company accrues expected costs of providing postretirement benefits to
employees, their beneficiaries and covered dependents in accordance with
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company
adopted the provisions of SFAS No. 106 in the first quarter of 1993. The
estimated accumulated postretirement benefit obligation as of January 1, 1993
was approximately $4,822,000. This amount, reduced by applicable income tax
benefits, was charged to operations in the first quarter of 1993 as the
cumulative effect of a change in accounting principle. The annual net
postretirement benefit cost was approximately $510,000 for 1994 and $483,000 in
1993.
At December 31, 1994, December 31, 1993 and January 1, 1993 the discount rates
used in determining the actuarial present value of the accumulated
postretirement benefit obligation were 9%, 7.5% and 8.5%, respectively.
(11) RELATED PARTY TRANSACTIONS:
- - --------------------------------------------------------------------------------
During 1994, the Company used a real estate complex (the Complex) owned directly
or indirectly by certain stockholders and members of the Board of Directors for
Company-sponsored seminars, the accommodation of business guests, the housing of
personnel attending corporate meetings and for other general business purposes.
In 1994, in connection with the Company's termination of usage, the Company paid
$662,000 on account of the business use of such property, and an additional
$300,000 as a partial reimbursement of deferred maintenance costs. The Company
incurred expenses for its use of the Complex of $635,000 in 1993 and $611,000 in
1992.
John F. Dorn resigned as an executive officer and director of the Company in
1993. The Company agreed to pay John F. Dorn his salary at time of resignation
through September 30, 1996. In addition, the Company provided certain other
benefits and services to Mr. Dorn. The present value of the severance package
was estimated at $500,000, which amount was recorded as an expense and a
liability at December 31, 1993.
41
<PAGE>
(11) RELATED PARTY TRANSACTIONS (CONT'D):
- - --------------------------------------------------------------------------------
In March 1994, the Company sold certain non-strategic oil and gas properties to
an entity controlled by John F. Dorn and another former executive officer of the
Company for net proceeds, after costs of sale and purchase price adjustments, of
$3,661,000. The Company established the sales price based upon an opinion from
an independent third party. The purchasers financed 100% of the purchase price
with a loan bearing interest at the rate of prime plus 1%. The loan was secured
by a mortgage on the properties and personal guarantees of the purchasers. The
Company participated as a lender in the loan in the amount of approximately
$800,000. In addition, the Company agreed to subordinate to the other lender
its right of payment of principal on default. The purchasers have separately
agreed with the Company that certain options to purchase company stock will be
cancelled to the extent that the Company's participation in the loan is not
repaid in full. Collectively, the purchasers have options to purchase 275,000
shares of the Company's Common Stock at $3.00 per share and 275,000 shares at
$5.00 per share.
(12) COMMITMENTS AND CONTINGENCIES:
- - --------------------------------------------------------------------------------
Future rental payments for office facilities and equipment under the remaining
terms of noncancelable leases are $1,619,000, $1,138,000, $961,000, $969,000 and
$1,002,000 for the years ending December 31, 1995 through 1999, respectively.
Net rental payments applicable to exploration and development activities and
capitalized in the oil and gas property accounts aggregated $851,000 in 1994,
$688,000 in 1993 and $874,000 in 1992. Net rental payments charged to expense
amounted to $3,512,000 in 1994, $3,098,000 in 1993 and $3,112,000 in 1992.
Rental payments include the short-term lease of vehicles. None of the leases
are accounted for as capital leases.
The Company, in the ordinary course of business, is a party to various legal
actions. In the opinion of management, none of these actions, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial condition, liquidity or results of operations.
(13) FINANCIAL INSTRUMENTS:
- - --------------------------------------------------------------------------------
The Company is exposed to off-balance-sheet risks associated with energy swap
agreements arising from movements in the prices of oil and natural gas and from
the unlikely event of non-performance by the counterparty to the swap
agreements.
In order to hedge against the effects of declines in oil and natural gas prices,
the Company enters into energy swap agreements with third parties and accounts
for the agreements as hedges based on analogy to the criteria set forth in
Statement of Financial Accounting Standards No. 80, "Accounting for Futures
Contracts." In a typical swap agreement, the Company receives the difference
between a fixed price per unit of production and a price based on an agreed-upon
third party index if the index price is lower. If the index price is higher,
the Company pays the difference. The Company's current swaps are settled on a
monthly basis. For the years ended December 31, 1994, 1993 and 1992, the
Company incurred swap gains (losses) of $1,810,000, $(2,050,000) and
$(1,642,000), respectively.
The following table indicates outstanding energy swaps of the Company which were
in place at December 31, 1994:
<TABLE>
<CAPTION>
Fixed
Product Volume Price Duration
----------- ------------------ ----------- -----------
<S> <C> <C> <C>
Natural Gas 5,000 MMBTU/day $1.90-$2.38 1/95-12/95
Natural Gas 194 to 16,275 MMBTU/day $2.06-$2.535 1/95-12/99
Natural Gas 10,000 MMBTU/day $2.00-$2.37 1/95-12/97
Natural Gas 10 to 350 MMBTU/day $2.12-$3.003 1/95-12/02
Natural Gas 5,000 MMBTU/day $2.25 1/95-2/95
Natural Gas 850 to 1,377 MMBTU/day $2.255 1/95-9/95
Oil 657 BBLS/day $16.70 1/95-4/96
Oil 657 BBLS/day $17.75 1/95-6/96
</TABLE>
42
<PAGE>
(13) FINANCIAL INSTRUMENTS:
- - --------------------------------------------------------------------------------
OPTION AGREEMENT. In 1993, under another agreement (the Option Agreement), the
Company paid a premium of $516,000 in conjunction with the closing of the Enron
loan agreement. The payment of this premium gave Forest the right to set a
floor price of $1.70 per MMBTU on a total of 18,400 BBTU of natural gas over a
five year period commencing January 1, 1995. In order to exercise this right to
set a floor, the Company must pay an additional premium of 10CENTS per MMBTU,
effectively setting the floor at $1.60 per MMBTU. The option agreement is
broken into five calendar year periods with the option for each calendar year
expiring four trading days prior to the last trading day for the January NYMEX
contract for that year. The premium of $516,000 related to the Option Agreement
was recorded as a long-term asset and will be amortized as a reduction to oil
and gas income beginning in 1995 based on the volumes involved.
Set forth below is the estimated fair value of certain on and off-balance sheet
financial instruments, along with the methods and assumptions used to estimate
such fair values as of December 31, 1994:
CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE:
The carrying amount of these instruments approximates fair value due to their
short maturity.
NONRECOURSE SECURED LOAN:
The fair value of the Company's nonrecourse secured loan has been estimated as
approximately $58,684,000 by discounting the projected future cash payments
required under the agreement by 14.45%.
PRODUCTION PAYMENT OBLIGATION:
The fair value of the Company's production payment obligation has been estimated
as approximately $17,405,000 by discounting the projected future cash payments
required under the agreement by 12.5%.
SENIOR SUBORDINATED NOTES
The fair value of the Company's 11 1/4% Subordinated Notes was approximately
$91,000,000, based upon quoted market prices for the same or similar issues.
ENERGY SWAP AGREEMENTS:
The fair value of the Company's energy swap agreements was approximately
$7,673,000, based upon the estimated net amount the Company would receive to
terminate the agreements.
(14) MAJOR CUSTOMERS:
- - --------------------------------------------------------------------------------
The Company's sales of oil and natural gas to individual customers which
exceeded 10% of the Company's total sales (exclusive of the effects of energy
swaps and hedges) were:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Enron Affiliates (A) $58,805 63,075 12,646
Chevron USA Production Company 12,829 -- --
ONEOK Exploration Company (B) -- -- 22,392
<FN>
(A) The amount shown for Enron Affiliates includes oil and natural gas sales to
Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation,
Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership,
Enron Gas Services Corporation and Enron Reserve Acquisition.
Approximately $29,046,000, $32,702,000 and $14,081,000 represent sales
recorded for deliveries under volumetric production payments in the years
ended December 31, 1994, 1993 and 1992, respectively.
(B) The amount shown for ONEOK Exploration Company represents the amount
recorded as a result of the gas purchase contract settlement described in
Note 9.
</TABLE>
43
<PAGE>
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In Thousands Except Per Share Amounts)
1994 (A)
- - --------
<S> <C> <C> <C> <C>
Revenue $ 32,543 32,977 28,207 22,220
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings from operations $ 24,241 23,600 19,387 13,763
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) before cumulative effects of changes in
accounting principles and extraordinary item $ 236 (265) (32,873) (34,951)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss $ (13,754) (265) (32,873) (34,951)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss attributable to common stock $ (14,294) (805) (33,414) (35,491)
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary and fully diluted loss per share before
cumulative effects of changes in accounting
principles and extraordinary item $ (.01) (.03) (1.19) (1.26)
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary and fully diluted loss per share $ (.51) (.03) (1.19) (1.26)
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
(A) Amounts have been restated to give retroactive effect to the change in
accounting for oil and gas sales as discussed in Note 1. Restated amounts
for the first quarter reflect increases of $1,473,000 in Revenue and in
Earnings from operations and $1,131,000 in Income (loss) before cumulative
effects of changes in accounting principles and extraordinary item; an
increase of $12,859,000 in Net loss and in Net loss attributable to common
stock; a decrease of $.04 in Primary and fully diluted loss per share
before cumulative effects of changes in accounting principles and
extraordinary item; and an increase of $.46 in Primary and fully diluted
loss per share. Restated amounts for the second quarter reflect increases
of $1,220,000 in Revenue and in Earnings from operations; decreases of
$993,000 in Loss before cumulative effects of changes in accounting
principles and extraordinary item, Net loss and Net loss attributable to
common stock; and decreases of $.03 in the per share losses presented.
Restated amounts for the third quarter reflect increases of $1,147,000 in
Revenue and in Earnings from operations; decreases of $866,000 in Loss
before cumulative effects of changes in accounting principles and
extraordinary item, Net loss and Net loss attributable to common stock; and
decreases of $.03 in the per share losses presented.
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In Thousands Except Per Share Amounts)
1993
- - ----
<S> <C> <C> <C> <C>
Revenue $25,126 27,975 26,214 25,833
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings from operations $16,949 21,029 18,275 15,087
--------- --------- --------- ---------
--------- --------- --------- ---------
Loss before cumulative effects of changes in changes in
accounting principles and extraordinary item $(1,266) (938) (2,353) (4,798)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss $(2,389) (938) (13,102) (4,784)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net loss attributable to common stock $(2,976) (1,508) (13,653) (5,326)
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary and fully diluted loss per share before
cumulative effects of changes in accounting
principles and extraordinary item $(.12) (.09) (.11) (.19)
--------- --------- --------- ---------
--------- --------- --------- ---------
Primary and fully diluted loss per share $(.20) (.09) (.50) (.19)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
44
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(UNAUDITED):
The following information is presented in accordance with Statement of Financial
Accounting Standards No. 69, "Disclosure about Oil and Gas Producing
Activities," (SFAS No. 69), except as noted.
(A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES - The
following costs were incurred in oil and gas exploration and development
activities during the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
United
States Canada Total
------ ------ -----
(In Thousands)
1994
- - ----
<S> <C> <C> <C>
Property acquisition costs (undeveloped
leases and proved properties) $ 9,762 - 9,762
Exploration costs 15,693 - 15,693
Development costs 17,089 - 17,089
-------- -------- --------
Total $ 42,544 - 42,544
-------- -------- --------
-------- -------- --------
1993
- - ----
Property acquisition costs (undeveloped leases and
proved properties) $ 144,916 - 144,916
Exploration costs 5,433 - 5,433
Development costs 20,472 - 20,472
-------- -------- --------
Total $ 170,821 - 170,821
-------- -------- --------
-------- -------- --------
1992
- - ----
Property acquisition costs (undeveloped leases and
proved properties) $ 88,770 2 88,772
Exploration costs 2,171 126 2,297
Development costs 14,828 730 15,558
-------- -------- --------
Total $ 105,769 858 106,627
-------- -------- --------
-------- -------- --------
</TABLE>
(B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to
oil and gas activities were incurred as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
1994 1993 1992
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Costs related to proved properties $ 1,109,158 1,079,164 928,890
Costs related to unproved properties:
Costs subject to depletion (including wells in progress) 32,288 20,276 24,785
Costs not subject to depletion 30,441 41,216 18,306
---------- ---------- ----------
1,171,887 1,140,656 971,981
Less accumulated depletion and valuation allowance 895,335 778,226 717,444
---------- ---------- ----------
$ 276,552 362,430 254,537
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
45
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS ACTIVITIES (UNAUDITED) (CONT'D):
- - --------------------------------------------------------------------------------
(C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations
from producing activities for 1994, 1993 and 1992 are presented below. Income
taxes are different from income taxes shown in the Consolidated Statements of
Operations because this table excludes general and administrative and interest
expense.
<TABLE>
<CAPTION>
United
States Canada Total
-------- ------- ------
(In Thousands)
1994
- - ----
<S> <C> <C> <C>
Oil and gas sales $ 114,541 - 114,541
Production expense 22,384 - 22,384
Depletion expense 64,883 - 64,883
Provision for impairment of oil and
gas properties 58,000 - 58,000
Income tax benefit (A) - - -
--------- --------- ---------
145,267 - 145,267
--------- --------- ---------
Results of operations from producing activities $ (30,726) - (30,726)
--------- --------- ---------
--------- --------- ---------
1993
- - ----
Oil and gas sales $ 102,883 - 102,883
Production expense 19,540 - 19,540
Depletion expense 59,759 - 59,759
Income tax expense (B) - - -
--------- --------- ---------
79,299 - 79,299
--------- --------- ---------
Results of operations from producing activities $ 23,584 - 23,584
--------- --------- ---------
--------- --------- ---------
1992
- - ----
Oil and gas sales $ 94,289 (C) 4,950 99,239 (C)
Production expense 14,516 (D) 1,349 15,865 (D)
Depletion expense 43,052 2,625 45,677
Income tax expense 12,615 332 12,947
--------- --------- ---------
70,183 4,306 74,489
--------- --------- ---------
Results of operations from producing activities $ 24,106 644 24,750
--------- --------- ---------
--------- --------- ---------
<FN>
(A) No income tax benefit has been recognized as it has not been realized by the Company.
(B) No income tax expense was reflected in results of operations from producing
activities in 1993 because of the availability of tax loss, percentage
depletion and credit carryforwards.
(C) Includes $22,392,000 attributable to the ONEOK settlement.
(D) Includes $1,589,000 attributable to the ONEOK settlement.
</TABLE>
46
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES
(unaudited):
- - --------------------------------------------------------------------------------
(D) ESTIMATED PROVED OIL AND GAS RESERVES - The Company's estimate of its
proved and proved developed future net recoverable oil and gas reserves and
changes for 1992, 1993 and 1994 follows. Such estimates are inherently
imprecise and may be subject to substantial revisions.
Proved oil and gas reserves are the estimated quantities of crude oil, natural
gas and natural gas liquids which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions; i.e., prices and
costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangement, including
energy swap agreements (see Note 13), but not on escalations based on future
conditions.
Proved developed oil and gas reserves are reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved mechanisms of primary recovery are included as
"proved developed reserves" only after testing by a pilot project or after the
operation of an installed program has confirmed through production response that
increased recovery will be achieved.
The Company's presentation of estimated proved oil and gas reserves has been
restated to exclude, for each of the years presented, those quantities
attributable to future deliveries required under volumetric production payments.
In order to calculate such amounts, the Company has assumed that deliveries
under volumetric production payments are made as scheduled at expected BTU
factors, and that delivery commitments are satisfied through delivery of actual
volumes as opposed to cash settlements. This restatement was made following
discussion with the Staff of the Securities and Exchange Commission.
The Company has also presented, as additional information, proved oil and gas
reserves including quantities attributable to future deliveries required under
volumetric production payments. The Company believes that this information is
informative to readers of its financial statements as the related oil and gas
property costs and deferred revenue are included on the Company's balance sheets
for each of the years presented. This additional information is not presented
in accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve acquisitions and financial
position on a comprehensive basis.
47
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
------------------------------------ --------------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1991 3,131 2,184 5,315 148,758 23,752 172,510
Revisions of previous estimates (139) 33 (106) (9,837) (219) (10,056)
Extensions and discoveries 9 -- 9 1,127 -- 1,127
Production (1,249) (142) (1,391) (18,697) (1,360) (20,057)
Sales of reserves in place (646) (2,075) (2,721) (20,273) (22,173) (42,446)
Purchases of reserves in place 5,867 -- 5,867 63,343 -- 63,343
----- ----- ----- ------- ------ -------
Balance at December 31, 1992 6,973 -- 6,973 164,421 -- 164,421
Additional disclosures:
Volumes attributable to volumetric
production payments 587 -- 587 30,234 -- 30,234
----- ----- ----- ------- ------ -------
Balance at December 31, 1992, including
volumes attributable to volumetric
production payments 7,560 -- 7,560 194,655 -- 194,655
----- ----- ----- ------- ------ -------
----- ----- ----- ------- ------ -------
Balance at December 31, 1992 6,973 -- 6,973 164,421 -- 164,421
Revisions of previous estimates 507 -- 507 17,874 -- 17,874
Extensions and discoveries 201 -- 201 8,395 -- 8,395
Production (1,308) -- (1,308) (22,383) -- (22,383)
Sales of reserves in place (280) -- (280) (18,941) -- (18,941)
Purchases of reserves in place 1,704 -- 1,704 94,730 -- 94,730
----- ----- ----- ------- ------ -------
Balance at December 31, 1993 7,797 -- 7,797 244,096 -- 244,096
Additional disclosures:
Volumes attributable to volumetric
production payments 401 -- 401 29,286 -- 29,286
----- ----- ----- ------- ------ -------
Balance at December 31, 1993, including
volumes attributable to volumetric
production payments 8,198 -- 8,198 273,382 -- 273,382
----- ----- ----- ------- ------ -------
----- ----- ----- ------- ------ -------
Balance at December 31, 1993 7,797 -- 7,797 244,096 -- 244,096
Revisions of previous estimates 989 -- 989 7,848 -- 7,848
Extensions and discoveries 41 -- 41 9,894 -- 9,894
Production (1,361) -- (1,361) (32,043) -- (32,043)
Sales of reserves in place (170) -- (170) (6,377) -- (6,377)
Purchases of reserves in place 17 -- 17 8,220 -- 8,220
----- ----- ----- ------- ------ -------
Balance at December 31, 1994 7,313 -- 7,313 231,638 -- 231,638
Additional disclosures:
Volumes attributable to volumetric
production payments 219 -- 219 15,358 -- 15,358
----- ----- ----- ------- ------ -------
Balance at December 31, 1994, including
volumes attributable to production payments 7,532 -- 7,532 246,996 -- 246,996
----- ----- ----- ------- ------ -------
----- ----- ----- ------- ------ -------
</TABLE>
Purchases of reserves in place represent volumes recorded on the closing dates
of the acquisitions for financial accounting purposes. The revisions of
previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment
related to the change in accounting for oil and gas sales from the sales method
to the entitlements method.
48
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- - --------------------------------------------------------------------------------
(D) ESTIMATED PROVED OIL AND GAS RESERVES (CONT'D)
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
---------------------------------- ----------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves:
December 31, 1991 2,903 1,824 4,727 132,434 20,807 153,241
December 31, 1992 5,831 -- 5,831 146,048 -- 146,048
December 31, 1993 6,377 -- 6,377 187,534 -- 187,534
December 31, 1994 6,775 -- 6,775 179,574 -- 179,574
</TABLE>
The Company's proved developed reserves, including amounts attributable to
volumetric production payments, are shown below. This disclosure is presented
as additional information and is not intended to represent required disclosure
pursuant to SFAS No. 69.
<TABLE>
<CAPTION>
OIL AND CONDENSATE GAS
---------------------------------- ----------------------------------
(MBBLS) (MMCF)
UNITED UNITED
STATES CANADA TOTAL STATES CANADA TOTAL
------ ------ ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Proved developed reserves, including
amounts attributable to volumetric
production payments at:
December 31, 1991 2,903 1,824 4,727 153,395 20,807 174,202
December 31, 1992 6,418 -- 6,418 176,282 -- 176,282
December 31, 1993 6,778 -- 6,778 216,820 -- 216,820
December 31, 1994 6,994 -- 6,994 194,932 -- 194,932
</TABLE>
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Future oil and
gas sales and production and development costs have been estimated using prices
and costs in effect at the end of the years indicated, except in those instances
where the sale of oil and natural gas is covered by contracts, energy swap
agreements or volumetric production payments. In the case of contracts, the
applicable contract prices, including fixed and determinable escalations, were
used for the duration of the contract. Thereafter, the current spot price was
used. Prior to December 31, 1993 the contracts included natural gas sales
contracts with a company which is involved in Chapter 11 bankruptcy proceedings.
Subsequent to December 31, 1993 the volumes applicable to this contract were
priced at spot prices. Future oil and gas sales include the estimated effects
of existing energy swap agreements as discussed in Note 13.
49
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- - --------------------------------------------------------------------------------
Future income tax expenses are estimated using the statutory tax rate of 35%.
Estimates for future general and administrative and interest expenses have not
been considered.
Changes in the demand for oil and natural gas, inflation and other factors make
such estimates inherently imprecise and subject to substantial revision. This
table should not be construed to be an estimate of the current market value of
the Company's proved reserves. Management does not rely upon the information
that follows in making investment decisions.
The Company's presentation of the standardized measure of discounted future net
cash flows and changes therein has been restated to exclude, for each of the
years presented, amounts attributable to future deliveries required under
volumetric production payments. In order to calculate such amounts, the Company
has assumed that deliveries under volumetric production payments are made as
scheduled, that production costs corresponding to the volumes delivered are
incurred by the Company at average rates for the properties subject to the
production payments, and that delivery commitments are satisfied through
delivery of actual volumes as opposed to cash settlements. This restatement
was made following discussions with the Staff of the Securities and Exchange
Commission.
The Company has also presented, as additional information, the standardized
measure of discounted future net cash flows and changes therein including
amounts attributable to future deliveries required under volumetric production
payments. The Company believes that this information is informative to readers
of its financial statements because the related oil and gas property costs and
deferred revenue are shown on the Company's balance sheets for each of the years
presented. This additional information is not required to be presented in
accordance with SFAS No. 69; however, the Company believes this additional
information is useful in assessing its reserve acquisitions and financial
position on a comprehensive basis.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1993 1992
------ ------ ------
(In Thousands)
<S> <C> <C> <C>
Future oil and gas sales $ 502,186 662,265 497,567
Future production and development costs (193,376) (240,145) (187,604)
-------- -------- -------
Future net revenue 308,810 422,120 309,963
10% annual discount for estimated timing of cash flows (100,480) (138,917) (103,636)
-------- -------- -------
Present value of future net cash flows before income taxes 208,330 283,203 206,327
Present value of future income tax expense (867) (24,286) (18,566)
-------- -------- -------
Standardized measure of discounted future net cash flows $ 207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments 22,686 40,136 39,248
-------- -------- -------
Total discounted future net cash flows, including amounts
attributable to volumetric production payments $ 230,149 299,053 227,009
-------- -------- -------
-------- -------- -------
</TABLE>
Undiscounted future income tax expense was $1,348,000 at December 31, 1994,
$35,028,000 at December 31, 1993 and $32,718,000 at December 31, 1992.
50
<PAGE>
(16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED)
(CONTINUED):
- - --------------------------------------------------------------------------------
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONT'D)
CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING
TO PROVED OIL AND GAS RESERVES - An analysis of the changes in the standardized
measure of discounted future net cash flows during each of the last three years
is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at beginning of year $258,917 187,761 164,651
Changes resulting from:
Sales of oil and gas, net of production costs (69,607) (59,572) (52,090)
Net changes in prices and future production costs (80,526) (22,010) 14,287
Net changes in future development costs 7,432 (18,724) (2,444)
Extensions, discoveries and improved recovery 10,817 15,322 2,122
Previously estimated development costs incurred during the period 10,000 13,424 9,315
Revisions of previous quantity estimates 16,840 25,262 (11,450)
Sales of reserves in place (10,630) (28,802) (67,877)
Purchases of reserves in place 8,467 127,418 113,567
Accretion of discount on reserves at beginning of year before
income taxes 32,334 24,558 20,392
Net change in income taxes 23,419 (5,720) (2,712)
------- ------- -------
Standardized measure of discounted future net cash flows relating
to proved oil and gas reserves, at end of year $207,463 258,917 187,761
Additional disclosures:
Amounts attributable to volumetric production payments 22,686 40,136 39,248
------- ------- -------
Total discounted future net cash flows relating to proved
oil and gas reserves, including amounts attributable to
volumetric production payments, at end of year $230,149 299,053 227,009
------- ------- -------
------- ------- -------
</TABLE>
As of April 1, 1995 the Company was receiving an average price of $1.59 per MCF
and $17.25 per barrel. Based on these prices the standardized measure of
discounted future net cash flows, exclusive of amounts attributable to
volumetric production payments, would have been approximately $193,600,000 at
December 31, 1994.
51
<PAGE>
(17) SUBSEQUENT EVENTS
On April 13, 1995 the Company sold to a bank a participation interest in the
Company's claim in a bankruptcy proceeding. Consideration received consisted
of a $4,000,000 nonrecourse loan, in exchange for which the bank will
receive, solely from the proceeds of the bankruptcy claim, an amount equal to
the loan principal plus accrued interest at 16.5% per annum plus 25% of the
excess, if any, of the proceeds over the loan principal and interest. The
Company may, under certain conditions, limit the overall cost of financing to
23.5% per annum by exercising its option to repurchase the bank's interest in
the bankruptcy claim prior to receipt of any proceeds of the claim.
On April 17, 1995, the Company signed letters of intent with The Anschutz
Corporation (Anschutz) and with Joint Energy Development Investments Limited
Partnership (JEDI), an affiliate of Enron Corp., in each case as described
below.
The Anschutz letter of intent contemplates that Anschutz will purchase
18,800,000 shares of the Company's common stock and shares of newly-issued
preferred stock that are convertible into 6,200,000 additional shares of
common stock for a total consideration of $45,000,000, or $1.80 per share. The
preferred stock will have a liquidation preference and will receive dividends
ratably with the common stock. The investment will be made in two closings.
In the first closing, expected to occur in early May 1995, Anschutz will loan
the Company $9,900,000 for a term of 9 months. The loan will bear interest at
8% per annum for 16 weeks and at 12.5% per annum thereafter. The loan will be
secured by oil and gas properties owned by the Company, the
preferred stock of Archean Energy Ltd. and certain other assets acceptable to
Anschutz. The loan may be converted into 5,500,000 shares of Forest's common
stock at Anschutz's election, but the loan must be so converted at the second
closing. At the second closing, expected to occur by July 1995 following
receipt of shareholder approval of the transactions contemplated by the
letters of intent, Anschutz will purchase 13,300,000 shares of common stock
and the convertible preferred stock. In connection with this purchase, Anschutz
will agree to certain voting, acquisition, and transfer limitations regarding
shares of common stock for five years after the second closing, including
(a) a limit on voting, subject to certain exceptions, that would require
Anschutz to vote all shares of common stock acquierd by Anschutz in the
transaction in excess of an amount equal to 19.99% of the shares of common stock
then outstanding in the same proportion as all other shares of common stock are
voted, (b) a limit on the number of persons associated with Anschutz that may at
any time be elected as directors of the Company and (c) a limit on the
acquisition of additional shares of common stock by Anschutz (whether pursuant
to the exercise of the $2.10 warrants or the option received from JEDI, each as
described below, or otherwise), subject to certain exceptions, that would
prohibit any acquisition by Anschutz that would result in Anschutz owning 40% or
more of the shares of common stock then issued and outstanding. While the
foregoing limitations are in effect, Anschutz will have a minority
representation on the board of directors.
The JEDI letter of intent contemplates that, at the second closing referred to
above, Forest and JEDI will restructure JEDI's existing loan currently having a
principal balance of approximately $62,100,000. In exchange for certain
52
<PAGE>
warrants referred to below, JEDI will relinquish the net profits interest that
it holds in certain Forest properties and will reduce the interest rate relating
to the loan. As a result of the loan restructuring and the issuance of the
warrants, the Company anticipates a reduction of the recorded amount of the
related liability to approximately $45.0 million and a reduction of interest
expense of approximately $2.1 million per annum. In addition, beginning 18
months after the second closing, the Company may prepay the loan at any time
and may tender its interest in the underlying properties in full satisfaction
of the loan.
The JEDI letter of intent also contemplates that, at the second closing, JEDI
will receive warrants to purchase 11,250,000 shares of the Company's common
stock for $2.00 per share and warrants to purchase 19,444,444 shares of common
stock at $2.10 per share. The $2.00 warrants expire on December 31, 2002,
except that, in certain circumstances, the Company may terminate the warrants at
any time beginning 36 months after the second closing if the average closing
price of the common stock for both the 90 day and 15 day periods immediately
preceding the termination is in excess of $2.50 per share. For the first 36
months after the second closing, the $2.00 warrants may be exercised only on the
dates and in the respective numbers of shares required to be delivered by JEDI
to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz,
as described below. The $2.10 warrants are exercisable during the first 18
months after the second closing, subject to extension in certain circumstances
to 36 months after the second closing. The letters of intent also contemplate
that, at the second closing, JEDI will assign to Anschutz the $2.10 warrants and
will grant to Anschutz an option to purchase up to 11,250,000 shares of common
stock during the first 36 months after the second closing.
The letters of intent require the Company to pay Anschutz and JEDI certain
fees and expenses in connection with the letters of intent and the transactions
contemplated thereby in certain circumstances. The Anschutz letter of intent
requires the Company to pay to Anschutz a fee (called a subsequent event fee) of
up to $2,500,000 upon the occurence of certain events prior to the second
closing (or, if the second closing does not occur, April 17, 1996), such as a
merger, consolidation or other business combination between the Company and a
person other than Anschutz. In the Anschutz letter of intent, the Company has
agreed not to solicit proposals for transactions that would require the
Company to pay a subsequent event fee and to keep Anschutz generally informed
regarding the receipt and disposition by the Company of proposals regarding such
transactions made by other persons.
The transactions contemplated by the letters of intent are subject to, among
other things, the preparation and execution of definitive documentation
satisfactory to the parties and to the approval of Forest's board of directors
and certain of its creditors. The purchase by Anschutz of common stock at the
second closing, the restructure of JEDI's existing loan and the transactions
between Anschutz and JEDI described above are also subject to, among other
things, the prior approval of Forest's shareholders and Hart-Scott-Rodino
clearance. The Company believes that short-term and long-term liquidity would
be significantly improved by the conclusion of the transactions,
described above. Although the Company believes that the conditions
to the closing of the transactions can be satisfied, there can be no
assurance that the transactions will close on the terms and on the dates
referred to above, or at all.
53
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF FOREST
The Company's By-laws currently provide that the Board of Directors shall be
divided into four classes as nearly equal in number as possible, with each class
having not less than three members, whose terms of office expire at different
times in annual succession. Currently the number of directors is
fixed at 12. If the transactions with Anschutz are approved by the
Shareholders at the Annual Meeting of Shareholders, then five directors
will resign as directors and the Board of Directors will appoint three
Anschutz representatives as directors, pursuant to the Shareholders'
Agreement with Anschutz. If the transactions with Anschutz are approved,
the size of the Board will be reduced to 10 members. If the transactions
with Anschutz are not approved, such persons will not resign and the size
of the Board will be reduced to 11 members.
The Board of Directors, effective at the 1994 Annual Meeting, reapportioned
the number of Directors to three in each class. The Board of Directors,
effective at the 1995 Annual Meeting, will reduce the minimum number of
Directors in each class to two members. Jack D. Riggs, previously a
Class IV Director, was reclassified as a Class I Director with a term expiring
at the 1995 Annual Meeting. Mr. Riggs, a Class I Director, is not standing for
reelection. Each class of directors is elected for a term expiring at the
Annual Meeting to be held four years after the date of their election. The
Class I Nominees were elected at the 1991 Annual Meeting, the Class II Directors
were elected at the 1992 Annual Meeting and the Class III Directors were elected
at the 1993 Annual Meeting. The Class IV Directors were elected at the 1994
Annual Meeting.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, SERVED
AGE AND POSITIONS WITH COMPANY AS A
YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
---- ---------------- ------------------------ -------
<S> <C> <C> <C>
Donald H. Anderson 46 - 2 President, Chief Executive Officer 1993
and Director of Associated Natural
Gas Corporation, a wholly owned
subsidiary of Panhandle Eastern
Corporation, since September 1989
and January 1989, respectively and
Chairman of Associated Natural
Gas, Inc., a wholly-owned subsidiary
of Panhandle Eastern Corporation,
since December 1994. Member of the
Audit Committee.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, SERVED
AGE AND POSITIONS WITH COMPANY AS A
YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
---- ---------------- ----------------------- --------
<S> <C> <C> <C>
Austin M. Beutner 35 - 2 President, Chief Executive Officer 1993
and Director of the Fund for Large
Enterprises in Russia since March
1994. Prior thereto General Partner
of The Blackstone Group since 1991.
Prior thereto a Vice President of
Blackstone. Member of the
Compensation Committee.
Robert S. Boswell 45 - 10 President since November 1993. 1985
Vice President from May 1991 until
November 1993. Chief Financial
Officer since May 1991. Financial
Vice President from September 1989
until May 1991. Member of the
Executive Committee since July 1991
and the Royalty Bonus Committee
since August 1991. Director of
Franklin Supply Company Ltd.
Richard J. Callahan 53 - 2 Executive Vice President of 1993
U S WEST, Inc. since January
1988 and President of U S WEST
International and Business
Development Group since October
1991. Member of the
Compensation Committee.
Dale F. Dorn 52 - 28 Resigned as a Vice President 1977
in September 1989; currently
engaged in private investments.
John C. Dorn 67 - 45 Retired as Regional Vice President 1956
in December 1990.
55
<PAGE>
PRINCIPAL OCCUPATION, SERVED
AGE AND POSITIONS WITH COMPANY AS A
YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR
NAME WITH COMPANY DURING LAST FIVE YEARS SINCE
---- ---------------- ----------------------- --------
William L. Dorn 46 - 23 Chairman of the Board and 1982
Chairman of the Executive Committee
since July 1991 and Chief Executive
Officer since February 1990. Member
of the Executive Committee since
August 1988. President from February
1990 until November 1993. Executive
Vice President from August 1989 until
February 1990. Member of the Royalty
Bonus Committee since August 1991 and
Chairman since May 1994.
Harold D. Hammar 71 - 10 Member of the Audit Committee and 1985
Compensation Committee. Financial
Consultant.
James H. Lee 46 - 4 Managing Partner, Lee, Hite & 1991
Wisda Ltd. Member of the Executive
Committee since February 1994.
Jeffrey W. Miller 43 - 7 Independent Biologist. 1988
Jack D. Riggs 70 - 41 Chairman of the Audit Committee. 1977
Member of the Compensation
Committee. Member of the Royalty
Bonus Committee since May 1994.
Retired as Vice President in January
1987; currently engaged in private
investments.
Michael B. Yanney 61 - 3 Chairman and Chief Executive Officer 1992
of the America First Companies, L.L.C.
and a director of Burlington Northern
Inc., Lozier Corporation, MFS
Communications Company, Inc. and
America First REITs Inc. Chairman
of the Compensation Committee.
</TABLE>
Refer to Item 4A. for the Executive Officers.
56
<PAGE>
SECTION 16 REPORTING
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers and directors, and persons who own more than 10% of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC and the National Association of
Security Dealers, Inc. Officers, directors, and greater than 10% shareholders
are required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
Based solely on its review of copies of such forms received by it and
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the period from
January 1, 1994 to March 31, 1995, its officers, directors, and greater than 10%
beneficial owners complied with all applicable filing requirements, except that
Dale F. Dorn, John C. Dorn and Michael B. Yanney each failed to file a monthly
report of one transaction, but such transactions were reported in their year-end
reports on Form 5, which were timely filed.
57
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned during each of the Company's last three fiscal years by the Company's
Chief Executive Officer and each of the Company's four other most highly
compensated executive officers (collectively, the "Named Executive Officers"),
based on salary and bonus earned in 1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards (4)
------------------------------------- ---------------
All Other
Other Annual Securities Compen-
Name and Compen- Underlying sation
Principal Position Year Salary ($) Bonus ($)(1)(2) sation ($)(3) Options (#) ($)(5)
- - ------------------ ---- --------- -------------- ------------ ---------- ----
<S> <C> <C> <C> <C> <C> <C>
William L. Dorn, 1994 $300,012 -0- $2,795 -0- $22,942
Chairman of the 1993 250,008 100,159 665 175,000 32,640
Board and Chief 1992 250,008 75,618 624 175,000 10,618
Executive Officer
Robert S. Boswell, 1994 284,004 -0- 2,515 -0- 21,559
President 1993 234,000 88,239 607 175,000 30,503
1992 234,000 94,017 567 175,000 10,445
Bulent A. Berilgen, 1994 166,512 -0- -0- -0- 11,507
Vice President 1993 137,850 53,336 -0- 100,000 16,458
of Operations 1992 131,932 41,456 -0- 100,000 6,234
David H. Keyte, 1994 165,000 -0- 21,945 -0- 11,469
Vice President 1993 139,494 36,433 18,192 100,000 16,517
and Chief 1992 131,618 58,419 -0- 100,000 6,234
Accounting
Officer
Forest D. Dorn, 1994 163,800 -0- 18,335 -0- 12,910
Vice President 1993 160,650 22,013 324 100,000 20,342
and General 1992 156,250 35,219 316 100,000 8,769
Business
Manager
58
<PAGE>
<FN>
(1) The following amounts indicate the awards made with respect to the years
indicated, under the Forest Oil Corporation Incentive Plan (the "Incentive
Plan"):
1992 1993 1994
---- ---- ----
William L. Dorn $68,126 $30,500 -0-
Robert S. Boswell 61,965 29,020 -0-
Bulent A. Berilgen 37,565 18,135 -0-
David H. Keyte 34,542 16,185 -0-
Forest D. Dorn 31,328 14,819 -0-
Distributions of awards are made pursuant to the Incentive Plan in equal
installments over a three-year period. Pursuant to the Incentive Plan if a
participant's employment is terminated prior to the vesting of awards, the
remainder of such awards is reallocated to other participants. Amounts
reallocated in 1994 for the years 1992 and 1993 were as follows: William
L. Dorn - $3,445; Robert S. Boswell - $3,224; Bulent A. Berilgen - $1,836;
David H. Keyte - $1,838; and Forest D. Dorn - $2,167. See "Report of the
Compensation Committee on Executive Compensation-Incentive Plan Awards".
(2) During 1994, the Company assigned to certain of its executive officers and
other key personnel, as additional compensation, certain bonuses of
undivided interests in overriding royalty interests in the gross production
from certain exploratory oil and gas prospects in which the Company had an
interest. The cost to the Company at the time of the assignment of such
royalty interests was $3,599 each for William L. Dorn, Robert S. Boswell
and Forest D. Dorn, $2,061 for Bulent A. Berilgen and $2,041 for David H.
Keyte. During 1994 interests in nine exploratory oil and gas prospects were
so awarded by the Royalty Bonus Committee.
(3) Does not include perquisites and other personal benefits because the value
of these items did not exceed the lesser of $50,000 or 10% of reported
salary and bonus of any of the Named Executive Officers, except for David
H. Keyte and Forest D. Dorn, each of whose 1994 total includes a cash auto
allowance of $15,000.
(4) No stock appreciation rights ("SARs") or restricted stock awards were
granted to any of the Named Executive Officers during any of the last three
fiscal years.
(5) The 1994 totals include (i) the fair market value of the Company's matching
contribution of Common Stock to the Retirement Savings Plan in the
following amounts: William L. Dorn - $7,500; Robert S. Boswell - $7,500;
Bulent A. Berilgen - $7,500; David H. Keyte - $7,500; and Forest D. Dorn -
$7,500; (ii) the fair market value of the Company's profit sharing bonus
contribution of Common Stock to the Retirement Savings Plan in the
following amounts: William L. Dorn - $5,448; Robert S. Boswell - $5,400;
Bulent A. Berilgen - $3,181; David H. Keyte - $3,219; and Forest D. Dorn -
$3,707; (iii) the Company's matching contribution pursuant to deferred
compensation agreements in the following amounts: William L. Dorn -
$7,501; Robert S. Boswell - $6,700; Bulent A. Berilgen - $826; David H.
Keyte - $750; and Forest D. Dorn - $690; and (iv) the
59
<PAGE>
Company's profit sharing bonus contribution of $322 pursuant to the
deferred compensation agreement of William L. Dorn. The 1994 totals also
include the following amounts attributable to the term life portion of
premiums paid by the Company pursuant to a split dollar insurance
arrangement: William L. Dorn - $2,171; Robert S. Boswell - $1,959; and
Forest D. Dorn - $1,013. The remainder of the premium is not included and
does not benefit the Named Executive Officers because the Company has the
right to the cash surrender value of the policy.
</TABLE>
YEAR END STOCK OPTION VALUES
No stock options were granted to the Named Executive Officers in 1994.
There were no stock option exercises by any Named Executive Officers during
1994. The following table shows the number of shares covered by both
exercisable and non-exercisable stock options as of December 31, 1994 and their
values at such date:
OUTSTANDING STOCK OPTION VALUES AS OF DECEMBER 31, 1994
<TABLE>
<CAPTION>
Number of Securities Underlying Value of
Unexercised Options Unexercised In-the-Money
at Fiscal Year Options at Fiscal Year
End (#) End ($)(1)
-------------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William L. Dorn 175,000 175,000 $0 $0
Robert S. Boswell 175,000 175,000 0 0
Bulent A. Berilgen 100,000 100,000 0 0
David H. Keyte 100,000 100,000 0 0
Forest D. Dorn 100,000 100,000 0 0
<FN>
(1) On December 31, 1994, the last reported sales price of the Common Stock as
quoted on the NASDAQ/NMS was $2.25 per share. The option price for the
options granted in 1992 is $3.00 per share and the option price for the
options granted in 1993 is $5.00 per share. Since the last reported sales
price at December 31, 1994 was lower than the option price for the options
granted in 1992 and 1993, no value is ascribed to those options in the
above table.
</TABLE>
60
<PAGE>
PENSION PLAN
The Company's Pension Plan is a qualified, non-contributory defined benefit
plan. On May 8, 1991, the Company's Board of Directors suspended benefit
accruals under the Pension Plan effective as of May 31, 1991.
The following table shows the estimated maximum annual benefits payable upon
retirement at age 65 as a straight life annuity to participants in the Pension
Plan for the indicated levels of average annual compensation and various periods
of service, assuming no future changes in such plan:
<TABLE>
<CAPTION>
ESTIMATED MAXIMUM ANNUAL PENSION BENEFITS (2)
---------------------------------------------
YEARS OF SERVICE
----------------
REMUNERATION (1) 10 20 30
---------------- -- -- --
<S> <C> <C> <C>
$100,000 36,846 48,060 53,400
200,000 73,692 96,120 106,800
300,000 79,282 103,412 114,902
400,000 79,282 103,412 114,902
<FN>
(1) For each Named Executive Officer, the level of compensation used to
determine benefits payable under the Pension Plan is such officer's base
salary for 1991.
(2) Normal retirement benefits attributable to the Company's contributions are
limited under certain provisions of the Code to $120,000 in 1995, as
increased annually thereafter for cost of living adjustments.
</TABLE>
The amount of the Company's contribution, payment or accrual in respect to
any specified person in the Pension Plan is not and cannot readily be separately
or individually calculated by the Pension Plan actuaries. Annual benefits at
normal retirement are approximately 24% of average annual earnings (excluding
bonuses) for any consecutive 60-month period, which produces the
61
<PAGE>
highest amount, in the last 15 years prior to retirement, up to May 31, 1991,
when benefit accruals ceased plus 21% of such earnings prorated over 20 years of
credited service, and 1/2 of 1% of such earnings for each year of credited
service in excess of 20, subject to certain adjustments for lack of plan
participation. There is no Social Security offset. Such benefits are payable
for life with a 10 year certain period, or the actuarial equivalent of such
benefit.
As a result of the suspension of benefit accruals under the Pension Plan
and the substitution of profit sharing contributions to the Retirement Savings
Plan, the following amounts are the estimated increases (decreases) in the
annual combined benefit payments to the Named Executive Officers under the
Pension Plan and the Retirement Savings Plan (whether combined benefits
increased or decreased is a function of the combination of length of service and
salary levels):
<TABLE>
<CAPTION>
ESTIMATED
INCREASE/(DECREASE)
IN ANNUAL
PAYMENTS
-------------------
<S> <C>
William L. Dorn $ (33,928)
Robert S. Boswell (127,141)
Bulent A. Berilgen (35,472)
Forest D. Dorn 21,104
David H. Keyte (34,661)
</TABLE>
Because benefit accruals under the Pension Plan were suspended effective May
31, 1991, the years of credited service for the Named Executive Officers are as
follows: William L. Dorn - 20; Robert S. Boswell - 2; Bulent A. Berilgen - 9;
Forest D. Dorn - 14 and David H. Keyte - 4. The estimated annual accrued
benefit payable, based on a life annuity benefit, upon normal retirement for
each of such persons is: William L. Dorn - $45,994; Robert S. Boswell - $4,436;
Bulent A. Berilgen - $11,832; David H. Keyte - $5,401; and Forest D. Dorn -
$18,886. Neither Robert S. Boswell nor David H. Keyte is vested in such benefit
pursuant to the provisions of the Pension Plan.
Certain participants in the Pension Plan have been prevented by the limits
of the Code from receiving the full amount of pension benefits to which they
would otherwise have been entitled. Such persons have had benefits credited to
them under a Supplemental Retirement Plan, which together with the benefits
payable under the Pension Plan, equaled the benefit to which they would have
been entitled under the Pension Plan but for such Code limits. The Supplemental
Retirement Plans for each participant were unfunded, non-qualified, non-
contributory benefit plans. Benefits payable vest to the same extent as the
Pension Plan benefits and are unsecured general obligations of the Company.
Benefit accruals under these plans were suspended effective May 31, 1991 in
conjunction with the suspension of benefit accruals under the Company's Pension
Plan.
62
<PAGE>
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is compensated for
services at the rate of $20,000 annually, and in addition, is paid a fee of
$2,500 for attendance in person at each meeting or series of meetings of the
Board. All directors, whether employees or not, are reimbursed for all costs
incurred by them in their capacities as directors, including the costs of
attending directors' meetings and committee meetings. The non-employee
directors and the amounts each was paid during 1994 as directors were: John C.
Dorn, Dale F. Dorn, Harold D. Hammar, Jeffrey W. Miller, Jack D. Riggs and
Michael B. Yanney - $30,000; Donald H. Anderson - $27,500; Austin M. Beutner and
Richard J. Callahan - $25,000. James H. Lee received $30,000 for his services
as a director, $2,000 for attendance at meetings of the Audit and Compensation
Committees and $41,666.68 as payment for his service on the Executive Committee,
which began March 1, 1994. Messrs. Hammar and Riggs each received an additional
$8,000 for attending meetings of the Audit and Compensation Committees. Mr.
Yanney received an additional $3,000 for attending meetings of the Compensation
Committee and Mr. Anderson was paid an additional $4,000 for attending meetings
of the Audit Committee.
No additional amounts are paid for committee participation or special
assignments, except that (i) each member of the Compensation Committee is paid
$1,000 per meeting which he attends up to a maximum of $4,000 per year for
service on that committee, (ii) each member of the Audit Committee is paid
$1,000 per meeting which he attends up to a maximum of $4,000 per year for
service on that committee, and (iii) Mr. Lee will be paid $50,000 per year for
service on the Executive Committee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Beutner, Callahan, Hammar, Riggs and Yanney. Mr. Riggs retired as a Vice
President of the Company in 1987 and is not standing for reelection as a
director. The Executive Committee members are William L. Dorn, Robert S.
Boswell and James H. Lee. The members of the Royalty Bonus Committee are
William L. Dorn, Robert S. Boswell and Jack D. Riggs. William L. Dorn is
Chairman of the Board and Chief Executive Officer and Robert S. Boswell is
President. During 1994 there were no compensation committee interlocks between
the Company and any other entity.
A real estate complex (the "Complex") owned by members of the Dorn and
Miller families, located near Bradford, Pennsylvania, had been historically used
by the Company for business purposes. In 1994, the Company notified the owners
of the Complex that it intended to terminate its annual usage after 1994.
In 1994, in connection with the Company's termination of usage, the Company
paid $662,000 on account of the business use of such property, and an additional
$300,000 as a partial reimbursement of deferred maintenance costs. Members of
the Dorn and Miller families who were directors and/or executive officers of the
Company (and their immediate families) who owned a direct or indirect interest
in such Complex during 1994 were Dale F. Dorn, his brother
63
<PAGE>
and his two sisters; William L. Dorn and Forest D. Dorn and their father and two
sisters; John C. Dorn and his four children; and Jeffrey W. Miller, his father
and two sisters.
For further information with respect to other transactions with management
and others see Item 13 Transactions with Management and Others.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES
The Company currently has one class of voting securities outstanding. On
March 31, 1995, there were 28,250,647 shares of Common Stock outstanding, with
each such share being entitled to one vote. On March 31, 1995 members of the
Dorn and Miller families, descendants of the founders of the Company, owned
3,425,820 shares of Common Stock, constituting approximately 12.13% of the
voting power of the Company.
As of March 31, 1995, to the knowledge of the Company's Board of Directors
the only shareholders who owned beneficially more than 5% of the outstanding
shares of the Company's Common Stock were:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- - -------------- -------------------------- --------------------- -----------
<S> <C> <C> <C>
Common Stock (1) R.B. Haave Associates,Inc. 3,134,050 (2) 10.68%
270 Madison Avenue
New York, NY 10016
Metropolitan Life 1,855,000 (3) 6.57%
Insurance Company
One Madison Avenue
New York, NY 10010
Smith Barney Inc. 2,270,277 (4)(5) 8.04%
1345 Avenue of the Americas
New York, NY 10115
<FN>
(1) Based on Schedules 13D and 13G and amendments thereto filed with the SEC
and the Company by the reporting person through April 1, 1995 and the
amount of Common Stock outstanding on March 31, 1995.
(2) Includes 1,101,450 shares of Common Stock that the reporting person has the
right to acquire upon the conversion of 314,700 shares of the Company s
$.75 Convertible Preferred Stock.
64
<PAGE>
(3) These shares are beneficially owned by State Street Research and Management
Company, a subsidiary of Metropolitan Life Insurance Company, which
disclaims beneficial ownership of these securities.
(4) Smith Barney Holdings Inc. is the sole common stockholder of Smith Barney
Inc., and The Travelers Inc. is the sole stockholder of Smith Barney
Holdings Inc. Smith Barney Holdings Inc. and The Travelers Inc. disclaim
beneficial ownership of these securities.
(5) Includes 1,750 and 45 shares of Common Stock that the reporting person has
the right to acquire upon the conversion of 500 shares of the Company s
$.75 Convertible Preferred Stock and the exercise of Warrants to purchase
shares of Common Stock, respectively.
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows, as of March 31, 1995, the number of shares of the
Company's Common Stock beneficially owned by each director and nominee, each of
the executive officers named in the Summary Compensation Table set forth in
Item 11 Executive Compensation above, and all directors and executive
officers as a group. Unless otherwise indicated, each of the persons has sole
voting power and sole investment power with respect to the shares beneficially
owned by such person. If the Company's shareholders approve the issuance by
the Company of certain securities to Anschutz and the transactions
contemplated by the Anschutz letter of intent are consummated, based on the
number of outstanding shares of Common Stock as of March 31, 1995, Anschutz
would own approximately 39.9% of the voting power of the Company. In
addition, subject to the 40% ownership restriction contemplated by the
Anschutz letter of intent, Anschutz would have the right to acquire an
additional 36,894,444 shares of Common Stock through the exercise of warrants
and an option and the conversion of preferred stock it would acquire in such
transactions. See "Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources -
Recent Developments".
<TABLE>
<CAPTION>
COMMON STOCK (2)
----------------
NAME OF INDIVIDUAL OR NUMBER PERCENT
NUMBER IN GROUP (1) OF SHARES OF CLASS
--------------------- ---------- --------
<S> <C> <C>
Donald H. Anderson 10,000 *
Bulent A. Berilgen 121,081(3) *
Austin M. Beutner - -
Robert S. Boswell 245,673(4) *
Richard J. Callahan 2,000 *
Dale F. Dorn 116,156(5) *
Forest D. Dorn 239,714(6) *
John C. Dorn 250,485(7) *
William L. Dorn 449,532(8) 1.55
Harold D. Hammar 2,500 *
David H. Keyte 126,222(9) *
James H. Lee 1,000 *
Jeffrey W. Miller 331,220(10) 1.17
Jack D. Riggs 6,635 *
Michael B. Yanney 5,000 *
All directors and executive
officers as a group (19
persons, including the 15
named above) 2,175,826(11) 7.70%
65
<PAGE>
<FN>
* The percentage of shares beneficially owned does not exceed one percent of
the outstanding shares of the class.
(1) William L. Dorn and Forest D. Dorn are brothers, and they and Dale F. Dorn
are nephews of John C. Dorn. See "Principal Holders of Securities".
(2) Amounts reported also include shares held for the benefit of certain
directors and executive officers by the trustee of the Company's
Retirement Savings Plan Trust as of December 31, 1994.
(3) Includes 120,000 shares of Common Stock that Bulent A. Berilgen has the
vested right to purchase pursuant to the terms of the 1992 Stock Option
Plan.
(4) Includes 210,000 shares of Common Stock that Robert S. Boswell has the
vested right to purchase pursuant to the terms of the 1992 Stock Option
Plan. Does not include 225 shares of Common Stock held by Robert S.
Boswell's wife or 830 shares held by his children, of which shares Mr.
Boswell disclaims beneficial ownership.
(5) Includes 14,699 shares of Common Stock held of record by Dale F. Dorn as
trustee of a trust for the benefit of his immediate family. Dale F. Dorn
disclaims beneficial ownership of these shares. Also includes 12,250
shares of Common Stock that Dale F. Dorn has the right to acquire upon the
conversion of 3,500 shares of the Company's $.75 Convertible Preferred
Stock.
(6) Includes 120,000 shares of Common Stock that Forest D. Dorn has the vested
right to purchase pursuant to the terms of the 1992 Stock Option Plan.
Also includes 25,800 shares of Common Stock held of record by Forest D.
Dorn as co-trustee of a trust for the benefit of his mother (see Footnote
8), of which shares Mr. Dorn disclaims beneficial ownership. Does not
include 8,628 shares of Common Stock held by Forest D. Dorn's wife or
25,967 shares held by his children, of which shares Mr. Dorn disclaims
beneficial ownership.
(7) Includes 43,685 shares of Common Stock held of record by John C. Dorn as
trustee of trusts for the benefit of related parties. Does not include
(i) 265,676 shares of Common Stock held of record by The Glendorn
Foundation of which John C. Dorn is one of the seven trustees, or (ii)
72,547 shares of Common Stock held by John C. Dorn's wife, of which shares
Mr. Dorn disclaims beneficial ownership.
(8) Includes 210,000 shares of Common Stock that William L. Dorn has the
vested right to purchase pursuant to the terms of the 1992 Stock Option
Plan. Also includes (i) 25,800 shares of Common Stock held of record by
William L. Dorn as co-trustee of a trust for the benefit of his mother
(see Footnote 6), and (ii) 74,223 shares of Common Stock held of record by
William L. Dorn as trustee of trusts for the benefit of related parties,
of which shares Mr. Dorn disclaims beneficial ownership. Does not include
14,990 shares of Common Stock held by William L. Dorn's wife or 35,997
shares held by his children, of which shares Mr. Dorn disclaims beneficial
ownership.
</TABLE>
66
<PAGE>
(9) Includes 120,000 shares of Common Stock that David H. Keyte has the vested
right to purchase pursuant to the terms of the 1992 Stock Option Plan.
Also includes 7,000 shares of Common Stock that David H. Keyte has the
right to acquire upon the conversion of 2,000 shares of the Company's $.75
Convertible Preferred Stock.
(10) Includes 99,825 shares of Common Stock held of record by Jeffrey W. Miller
as custodian for his minor children, of which shares Mr. Miller disclaims
beneficial ownership.
(11) Includes 1,035,000 shares of Common Stock held by various executive
officers who have the vested right to purchase such shares pursuant to the
terms of the 1992 Stock Option Plan and 21,350 shares of Common Stock that
a director and two executive officers have the right to acquire upon the
conversion of 6,100 shares of the Company's $.75 Convertible Preferred
Stock.
ITEM 13. TRANSACTIONS WITH MANAGEMENT AND OTHERS
RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the
Company entered into retirement agreements with seven executives and directors
("Retirees") pursuant to which the Retirees will receive supplemental retirement
payments in addition to the amounts to which they are entitled under the
Company's retirement plan. In addition, the Retirees and their spouses are
entitled to lifetime coverage under the Company's group medical and dental
plans, tax and other financial services and payments by the Company in
connection with certain club membership dues. The Retirees will also continue
to participate in the Company's royalty bonus program until December 31, 1995.
The Company has also agreed to maintain certain life insurance policies in
effect at December 1990, for the benefit of each of the Retirees.
Six of the Retirees have subsequently resigned as directors. One of the
Retirees continues to serve as a director and will be paid the customary non-
employee director's fee. Pursuant to the terms of the retirement agreements,
the former directors and any other Retiree who ceases to be a director (or his
spouse) will be paid $2,500 a month until December 2000.
The Company's obligation to one Retiree under a revised retirement agreement
is payable in Common Stock or cash, at the Company's option, in May of 1995 and
1996 at approximately $190,000 per year with the balance ($149,000) payable in
May 1997. The retirement agreements for the other six Retirees, one of whom
received in 1991 the payments scheduled to be made in 1999 and 2000, provide for
supplemental retirement payments totaling approximately $938,400 per year
through 1998 and approximately $740,400 per year in 1999 and 2000.
EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive
severance agreements (the "Executive Severance Agreements") with certain
executive officers, including the Named Executive Officers. The Executive
Severance Agreements provide for severance benefits for termination without
cause and for termination following a "change of control" of the Company. The
Executive Severance Agreements provide that if an executive's employment is
terminated either (a) by the Company for reasons other than cause or other than
as a consequence
67
<PAGE>
of death, disability, or retirement, or (b) by the executive for reasons of
diminution of responsibilities, compensation, or benefits or, in the case of
change of control, a significant change in the executive's principal place of
employment, the executive will receive certain payments and benefits. In March
1995, the Compensation Committee renewed the Executive Severance Agreements and
extended their term to December 1997. In addition, the definition of "change of
control" was modified.
In the case of termination of an executive's employment which does not occur
within two years of a change of control, these severance benefits include (a)
payment of the executive's base salary for a term of months equal to the whole
number of times that the executive's base salary can be divided by $10,000,
limited to 30 months (such amounts payable will be reduced by 50% if the
executive obtains new employment during the term of payment) and (b) continued
coverage of the executive and any of his or her dependents under the Company's
medical and dental benefit plans throughout the payment term without any cost to
the executive.
If an executive's employment by the Company is terminated under the
circumstances described above within two years after the date upon which a
change of control occurs, the Company would be obligated to take the following
actions after the last day of the executive's employment:
(a) the Company will pay to the executive an amount equal to 2.5 times
the executive's base salary;
(b) the Company will permit the executive and those of his dependents
who are covered under the Company's medical and dental benefit plans to be
covered by such plans without any cost to the executive for a two-year
period of time;
(c) the Company will cause any and all outstanding options to purchase
stock of the Company held by the executive to become immediately
exercisable in full and cause the executive's accrued benefits under any
non-qualified deferred compensation plans to become immediately non-
forfeitable; and
(d) if any payment or distribution to the executive, whether or not
pursuant to such agreement, is subject to the federal excise tax on "excess
parachute payments", the Company will be obligated to pay to the executive
such additional amount as may be necessary so that the executive realizes,
after the payment of any income or excise tax on such additional amount, an
amount sufficient to pay all such excise taxes.
The Executive Severance Agreements also provide that the Company will pay
legal fees and expenses incurred by an executive to enforce rights or benefits
under such agreements. Under the Executive Severance Agreements, a "change of
control" of the Company would be deemed to occur if, as modified in March, 1995,
(i) the Company is not the surviving entity in any merger, consolidation or
other reorganization (or survives only as a subsidiary of an entity other than a
previously wholly-owned subsidiary of the Company); (ii) the Company sells,
leases or exchanges all or substantially all of its assets to any other person
or entity (other than a wholly-owned subsidiary of the Company); (iii) the
Company is dissolved and liquidated; (iv) any person or
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<PAGE>
entity, including a "group" as contemplated by Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, acquires or gains ownership or
control (including, without limitation, power to vote) of more than 40% of the
outstanding shares of the Company's voting stock (based upon voting power); or
(v) as a result of or in connection with a contested election of directors, the
persons who were directors of the Company before such election cease to
constitute a majority of the Company's Board of Directors.
OTHER TRANSACTIONS. For a description of other transactions with
management and others see Item 11 Compensation Committee Interlocks and Insider
Participation.
In 1994, the Company engaged The Blackstone Group to perform certain
investment banking services. Austin M. Beutner, a director of the Company, was,
until March 1994, a General Partner of The Blackstone Group, which is also
providing investment banking services in 1995.
TRANSACTIONS WITH FORMER EXECUTIVE OFFICERS. John F. Dorn resigned as an
executive officer and director of the Company in 1993. John F. Dorn is the
brother of Dale F. Dorn, a director of the Company. Kenneth W. Smith resigned
as an executive officer in March 1994. The Company had previously entered into
severance agreements with the former executive officers and the Company's other
executive officers as described above under "Executive Severance Agreements".
In lieu of the severance payments due under their severance agreements, the
Company agreed to pay John F. Dorn and Kenneth W. Smith for 30 months and 24
months, respectively, their salaries at the time of the termination of their
employment. In addition, the Company has agreed with the former executive
officers with respect to the following matters: (a) their stock options are
fully vested and are not subject to early termination; (b) they received
payments from the Company equivalent to amounts they would have received as
deferred payments under the Incentive Plan with respect to 1992 and 1993; (c)
John F. Dorn received full vesting with respect to split dollar life insurance
at the Company's expense; (d) they continued to participate in the Company's
Executive Overriding Royalty Bonus Plan until April 1, 1994; (e) they were given
their Company automobiles and office furnishings and the Company paid for the
cost of relocating their offices; (f) the Company will provide John F. Dorn with
certain accounting, financial and estate planning services for a limited period
of time; and (g) until March 31, 1996, if John F. Dorn decides to relocate from
Colorado, the Company will pay his moving expenses and purchase his home, in
accordance with the Company's employee relocation policy.
In March 1994, the Company sold certain non-strategic oil and gas
properties for $4,400,000 to an entity controlled by John F. Dorn and Kenneth W.
Smith. The properties included in this transaction contained interests in
approximately 70 wells. All of the properties were non-operated working
interests or overriding royalty interests. The Company established the sales
price based upon an opinion from an independent third party. The purchaser
financed 100% of the purchase price with a loan. The loan bears interest at the
rate of prime plus 1% and is secured by a mortgage on the properties and John F.
Dorn's and Kenneth W. Smith's personal guarantees. The Company participated as
a lender in the loan in the amount of approximately $800,000. In addition, the
Company agreed to subordinate to the other lender its right of payment of
principal on default. John F. Dorn and Kenneth W. Smith have separately agreed
with
69
<PAGE>
the Company that their stock options will be canceled to the extent that the
Company's participation in the loan is not repaid in full. The number of stock
options canceled will be based upon a Black-Scholes valuation. Collectively,
they have options to purchase 275,000 shares of the Company's Common Stock at
$3.00 per share and 275,000 shares at $5.00 per share. In 1994, the Company
paid approximately $234,500 to the entity that purchased the properties to
settle title disputes.
70
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a). (1) FINANCIAL STATEMENTS
1. Independent Auditors' Report
2. Consolidated Balance Sheets - December 31, 1994 and 1993
3. Consolidated Statements of Operations - Years ended December 31,
1994, 1993 and 1992
4. Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1994, 1993 and 1992
5. Consolidated Statements of Cash Flows - Years ended December 31,
1994, 1993 and 1992
6. Notes to Consolidated Financial Statements - Years ended
December 31, 1994, 1993 and 1992
(2) FINANCIAL STATEMENT SCHEDULES
All schedules have been omitted because the information is either not
required or is set forth in the financial statements or the notes
thereto.
(3) Exhibits - Forest shall, upon written request to Daniel L. McNamara,
Corporate Secretary of Forest, addressed to Forest Oil Building,
Bradford, Pennsylvania 16701, provide copies of each of the following
Exhibits:
Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil
Corporation dated October 14, 1993, incorporated herein by reference to
Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
71
<PAGE>
Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9,
1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2
to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of
July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992,
Amendment No. 5 to By- Laws dated as of March 18, 1993 and Amendment No. 6 to
By-Laws dated as of September 14, 1993, incorporated herein by reference to
Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended
September 30, 1993 (File No. 0-4597).
Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993,
incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994,
incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest
Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil
Corporation and Shawmut Bank Connecticut, National Association, incorporated
herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation
for the quarter ended September 30, 1993 (File No. 0-4597).
Exhibit 4.2 Credit Agreement dated as of December 1, 1993 between
Forest Oil Corporation and Subsidiary Borrowers and Subsidiary Guarantors and
The Chase Manhattan Bank (National Association), as agent, incorporated
herein by reference to Exhibit 4.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 4.3 Amendment No. 1 dated as of December 28, 1993 relating to
Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.3 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1993 (File
No. 0-4597).
Exhibit 4.4 Amendment No. 2 dated as of January 27, 1994 relating to
Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.4 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1993 (File
No. 0-4597).
Exhibit 4.5 Amendment No. 3 dated as of June 3, 1994 relating to
Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.1 to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No.
0-4597).
Exhibit 4.6 Security Agreement dated as of December 1, 1993 between
Forest Oil Corporation and The Chase Manhattan Bank (National Association),
as agent, incorporated herein by reference to Exhibit 4.5 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597).
Exhibit 4.7 Amendment No. 1 dated as of June 28, 1994 relating to
Exhibit 4.6 hereof, incorporated herein by reference to Exhibit 4.2 to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No.
0-4597).
Exhibit 4.8 Amendment No. 2 dated as of August 31, 1994 relating to
Exhibit 4.6 hereof, incorporated herein by reference to Exhibit 4.1 to Form
10-Q for Forest Oil Corporation for the quarter ended September 30, 1994
(File No. 0-4597).
*Exhibit 4.9 Deed of Trust, Mortgage, Security Agreement, Assignment of
Production, Financing Statement (Personal Property including Hydrocarbons),
and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation
and The Chase Manhattan Bank (National Association), as agent.
*Exhibit 4.10 Amendment No. 1 entered into as of June 3, 1994 relating
to Exhibit 4.9 hereof.
Exhibit 4.11 Loan Agreement between Forest Oil Corporation and Joint
Energy Development Investments Limited Partnership dated as of December 28,
1993, incorporated herein by reference to Exhibit 4.1 to Form 8- K for Forest
Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.12 First amendment dated as of December 28, 1993 relating to
Exhibit 4.11 hereof, incorporated herein by reference to Exhibit 4.3 to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File
No. 0-4597).
72
<PAGE>
Exhibit 4.13 Deed of Trust, Assignment of Production, Security Agreement
and Financing Statement dated as of December 28, 1993 by and between Forest
Oil Corporation and Joint Energy Development Investments Limited Partnership,
incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil
Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.14 First Amendment dated as of June 15, 1994 relating to
Exhibit 4.13 hereof, incorporated herein by reference to Exhibit 4.4 to Form
10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File
No. 0-4597).
Exhibit 4.15 Act of Mortgage, Assignment of Production, Security
Agreement and Financing Statement dated as of December 28, 1993 between
Forest Oil Corporation and Joint Energy Development Investments Limited
Partnership, incorporated herein by reference to Exhibit 4.3 to Form 8-K for
Forest Oil Corporation dated December 30, 1993 (File No. 0-4597).
Exhibit 4.16 Warrant Agreement dated as of December 3, 1991 between
Forest Oil Corporation and The Chase Manhattan Bank (National Association),
as Warrant Agent (including Form of Warrant), incorporated herein by
reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for the year
ended December 31, 1991 (File No. 0-4597).
Exhibit 4.17 Rights Agreement between Forest Oil Corporation and Mellon
Securities Trust Company, as Rights Agent dated as of October 14, 1993,
incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil
Corporation for the quarter ended September 30, 1993 (File No. 0-4597).
No other instruments regarding long-term debt are filed because the
amount of the securities authorized thereunder do not, in any case, exceed
10% of the total assets of Forest Oil Corporation on a consolidated basis,
but a copy of such instruments will be furnished to the Commission upon
request.
+Exhibit 10.1 Description of Employee Overriding Royalty Bonuses,
incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil
Corporation for the year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated
herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1991 (File No. 0-4597).
*+Exhibit 10.3 Executive Deferred Compensation Plan.
+Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein
by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1990 (File No. 0-4597).
+Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option
Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for
Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597).
+Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a
revision to Exhibit 10.5 hereof, incorporated herein by reference to Exhibit
10.11 to Form 10-K for Forest Oil Corporation for the year ended December 31,
1991 (File No. 0-4597).
+Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as
of January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form
10-K for Forest Oil Corporation for the year ended December 31, 1992 (File
No. 0-4597).
73
<PAGE>
+Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein
by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the
year ended December 31, 1993 (File No. 0-4597).
+Exhibit 10.10 Form of Settlement Agreement and General Release between
John F. Dorn and Forest Oil Corporation dated March 7, 1994, incorporated
herein by reference to Exhibit 10.10 to Form 10-K for Forest Oil Corporation
for the year ended December 31, 1993 (File No. 0-4597).
*Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of
Earnings per Share of Common Stock.
*Exhibit 18 Letter on change in accounting principles.
**Exhibit 24 Independent Auditors' Consent.
*Exhibit 25 Powers of Attorney of the following Officers and Directors:
Donald H. Anderson, Austin M. Beutner, Robert S. Boswell,
Richard J. Callahan, Dale F. Dorn, John C. Dorn, William L.
Dorn, Harold D. Hammar, David H. Keyte, James H. Lee,
Daniel L. McNamara, Jeffrey W. Miller, Jack D. Riggs and
Michael B. Yanney.
*Exhibit 27 Financial Data Schedule.
**Exhibit 28 Financial Statements of the Retirement Savings Plan of
Forest Oil Corporation for the year ended December 31, 1994.
* Previously filed.
** Filed with this report.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.
(b). REPORTS ON FORM 8-K
No reports on Form 8-K were filed by Forest during the last quarter of
1994.
74
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
FOREST OIL CORPORATION
(Registrant)
Date: May 1, 1995 By: /s/ Daniel L. McNamara
------------------------
Daniel L. McNamara
Secretary
75
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- - ------- -----------
24 Independent Auditors' Consent.
28 Financial Statements of the Retirement Savings Plan of
Forest Oil Corporation for the year ended December 31, 1994.
76
<PAGE>
Exhibit 24
CONSENT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
FOREST OIL CORPORATION:
We consent to the incorporation by reference in (i) the Registration
Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of
Forest Oil Corporation - Retirement Savings Plan of Forest Oil Corporation,
(ii) the Registration Statement (No. 33-48440) on Form S-8 and S-3 of Forest
Oil Corporation - 1992 Stock Option Plan of Forest Oil Corporation, (iii) the
Registration Statement (No. 33-43292) on Form S-3 of Forest Oil Corporation -
Common Stock issuable upon exercise of the Warrants of Forest Oil Corporation
and (iv) the Registration Statements (Nos. 33-47477 and 33-47478) on Forms
S-2 and S-3 of Forest Oil Corporation - Common Stock issuable to Richard Dorn
and resales thereof, of our report dated March 30, 1995, except as to Note 17
which is as of April 17, 1995, relating to the consolidated balance sheets of
Forest Oil Corporation and subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994, which report appears in the December 31, 1994 annual report on Form 10-K
of Forest Oil Corporation.
Our report on the consolidated financial statements refers to a change in the
method of accounting for oil and gas sales from the sales method to the
entitlements method effective January 1, 1994 and to changes in the method of
accounting for postretirement benefits and income taxes in 1993.
KPMG PEAT MARWICK LLP
Denver, Colorado
May 1, 1995
<PAGE>
Exhibit 28
- - --------------------------------------------------------------------------------
RETIREMENT SAVINGS PLAN OF
FOREST OIL CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
TABLE OF CONTENTS
- - --------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . 1
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS --
December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 2
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS --
Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . . 3
NOTES TO FINANCIAL STATEMENTS -- December 31, 1994 and 1993 . . . . 4
SCHEDULE
1 ASSETS HELD FOR INVESTMENT --
December 31, 1994. . . . . . . . . . . . . . . . . . . . 11
2 REPORTABLE TRANSACTIONS --
Year Ended December 31, 1994 . . . . . . . . . . . . . . 12
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE PARTICIPANTS AND ADMINISTRATIVE COMMITTEE
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION:
We have audited the accompanying statements of net assets available for plan
benefits of the Retirement Savings Plan of Forest Oil Corporation as of
December 31, 1994 and 1993, and the related statements of changes in net assets
available for plan benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits of the
Retirement Savings Plan of Forest Oil Corporation as of December 31, 1994 and
1993, and the changes in those net assets for the years then ended in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment as of December 31, 1994 and reportable transactions for the
year ended December 31, 1994 are presented for purposes of additional analysis
and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedules have been subjected to the
auditing procedures applied in the audit of the basic financial statements for
the year ended December 31, 1994 and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
KPMG PEAT MARWICK LLP
April 14, 1995
1
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1994 AND 1993
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS:
Investments, at fair value:
Forest Oil Corporation Stock Fund $ 1,986,372 3,754,135
Morley GIC Fund 2,469,216 2,298,816
Fidelity Asset Manager Fund 2,454,382 2,254,177
Janus Fund 1,680,467 1,573,677
Harbor International Fund 1,089,952 804,856
Pimco Low Duration Fund 422,702 573,839
---------- ----------
10,103,091 11,259,500
Other investments:
Loans to participants 378,458 293,411
Cash and short-term investments 3,772 56,238
---------- ----------
Total investments 10,485,321 11,609,149
Receivable for investments sold -- 191,771
Contributions receivable:
Company 38,261 36,050
Participants 56,171 50,402
Investment income receivable 5,532 5,980
Other receivables 7,917 7,861
---------- ----------
Total assets 10,593,202 11,901,213
LIABILITIES:
Forfeitures available to the Company to reduce
future contributions 24,688 17,494
Other liabilities 38,259 36,050
---------- ----------
Total liabilities 62,947 53,544
---------- ----------
Net assets available for plan benefits, including
distributions payable to participants of
$593,700 in 1994 and $444,500 in 1993 $10,530,255 11,847,669
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31, 1994 AND 1993
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Additions:
Contributions:
Company:
Common stock $ 812,392 1,041,464
Cash 25 30
Participants 722,543 637,603
Dividends and interest income 233,790 389,792
---------- ----------
1,768,750 2,068,889
Net realized and unrealized appreciation (depreciation)
in fair value of investments (2,045,408) 1,745,784
---------- ----------
Total additions (decreases) (276,658) 3,814,673
Deductions:
Distributions to participants 1,033,562 1,122,161
Change in value of forfeited contributions 7,194 31,817
---------- ----------
1,040,756 1,153,978
---------- ----------
Net increase (decrease) in net assets available for
plan benefits (1,317,414) 2,660,695
Net assets available for plan benefits at beginning of year 11,847,669 9,186,974
---------- ----------
Net assets available for plan benefits at end of year
$10,530,255 11,847,669
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
- - --------------------------------------------------------------------------------
(1) DESCRIPTION OF THE PLAN
The Retirement Savings Plan of Forest Oil Corporation (the Plan) is a
profit sharing, defined contribution plan which includes a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code. The Plan is
available to any employee of Forest Oil Corporation and its affiliates (the
Company) that have adopted the Plan.
Effective July 1, 1993, the investment options were:
Forest Oil Corporation Stock Fund Common stock of Forest Oil
Corporation
Morley GIC Fund Collective trust consisting of
guaranteed insurance contracts
Fidelity Asset Manager Fund Mutual fund consisting of
investments in money market
instruments, intermediate to
long-term bonds, and equity
securities
Janus Fund Mutual fund consisting primarily of
common stocks and similar equity
securities
Harbor International Fund Mutual fund consisting of non-U.S.
equity securities
Pimco Low Duration Fund Mutual fund consisting primarily of
government and corporate fixed
income debt instruments
Prior to July 1, 1993, participants could choose among any combination of
the following investment options under the Plan: (1) Forest Oil common
stock (the Forest Oil Stock Fund), (2) Fidelity Equity Income Fund, (3)
Fidelity Intermediate Bond Fund, and (4) Fidelity Cash Reserves Fund.
Employees enrolled in the Plan may elect to defer from 1% to 10% of their
compensation on a pre-tax basis as a contribution to the Plan (Deferred
Compensation Contribution). Each month, the Company contributes an amount
equal to 100% of the Deferred Compensation Contributions made by or on
behalf of each participant limited to 5% of the participant's compensation
(Company Matching Contribution). For each Plan Year, the Company may
contribute as a Company Profit-Sharing Contribution an amount determined in
the sole discretion of the Executive Committee of Forest Oil's Board of
Directors. The Company Profit-Sharing Contribution, if any, is in addition
to Company Matching Contribution and is allocated among certain qualifying
participants based on compensation. At the sole discretion of the
Executive Committee of Forest Oil's Board of Directors, Company Matching
and/or Profit-Sharing Contributions shall be made in cash, in shares of
Forest Oil common stock, or in any combination of cash and shares of Forest
Oil common stock. Profit-sharing contributions of Forest Oil common shares
were $210,150 and $614,713 for 1994 and 1993, respectively.
Company Matching and Profit-Sharing Contributions made for a participant's
account are vested under certain conditions, including a graduated schedule
where full vesting occurs upon the completion of five years of service.
Nonvested Company Matching and Profit-Sharing Contributions are subject to
forfeiture under certain conditions and forfeited balances are available to
reduce the next succeeding Company Matching Contribution to the Plan. A
participant is fully vested in his own contributions at all times.
4
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- - --------------------------------------------------------------------------------
Expenses associated with the administration and investment activities of
the Plan are paid by the Company.
The Company maintains the right to terminate or amend the Plan at any time.
In the event of a termination or partial termination of the Plan, or
complete discontinuance of Company Matching and Profit-Sharing
Contributions to the Plan, the invested balance of the affected members
under the Plan as of the date of the termination or discontinuance shall be
nonforfeitable. The total amount in each member's accounts shall be
distributed as the administrative committee shall direct, to the
participant or for the participant's benefit, or continued in trust for the
participant's benefit.
The foregoing description of the Plan provides only general information.
Participants should refer to the Summary Plan Description for a more
complete description of the Plan's provisions. Copies of the Summary Plan
Description are available from the administrative committee of the Plan.
(2) SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Forest Oil Stock Fund, Morley GIC Fund, Fidelity Asset
Manager Fund, Janus Fund, Pimco Low Duration Fund, and Harbor International
Fund are valued at market for financial reporting purposes. Purchases and
sales of securities are recorded on a trade-date basis.
A Plan participant's interest in the Morley GIC Fund, Fidelity Asset
Manager Fund, Janus Fund, Pimco Low Duration Fund, and Harbor International
Fund is represented by units. The average unit value for each fund is
computed by dividing the number of units outstanding into the total value
of the fund. The total value of each fund at any given time consists of
the market value of the investments held in the fund, including any income
retained on such investments.
5
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- - --------------------------------------------------------------------------------
(3) INVESTMENTS
The Plan's investments are held by a bank-administered trust fund. During
1994 and 1993, the Plan's investments appreciated (depreciated) in fair
value by $(2,045,408) and $1,745,784 respectively, as follows:
<TABLE>
<CAPTION>
Net appreciation
(depreciation)
in fair value Fair value at
during the year end of year
---------------- -----------
<S> <C> <C>
Year ended December 31, 1994:
Common stock of Forest Oil Corporation $(1,839,694) 1,986,372
Morley GIC Fund 138,546 2,469,216
Mutual funds:
Fidelity Asset Manager Fund (262,380) 2,454,382
Janus Fund (52,077) 1,680,467
Harbor International Fund (3,917) 1,089,952
Pimco Low Duration Fund (25,886) 422,702
---------- ----------
$(2,045,408) 10,103,091
---------- ----------
---------- ----------
Year ended December 31, 1993:
Common stock of Forest Oil Corporation $ 1,194,651 3,754,135
Morley GIC Fund 81,279 2,298,816
Mutual funds:
Fidelity Equity Income Fund 198,931 --
Fidelity Intermediate Bond Fund 37,141 --
Fidelity Asset Manager Fund 139,507 2,254,177
Janus Fund (18,589) 1,573,677
Pimco Low Duration Fund (4,474) 573,839
Harbor International Fund 117,338 804,856
---------- ----------
$ 1,745,784 11,259,500
---------- ----------
---------- ----------
</TABLE>
6
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- - --------------------------------------------------------------------------------
(3) INVESTMENTS (CONTINUED)
The fair values of individual investments that represent 5% or more of the
Plan's net assets are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Forest Oil Corporation Common Stock $1,986,372 3,754,135
Morley GIC Fund 2,469,216 2,298,816
Fidelity Asset Manager Fund 2,454,382 2,254,177
Janus Fund 1,680,467 1,573,677
Harbor International Fund 1,089,952 804,856
</TABLE>
7
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
(4) Funds Summary
The changes in net assets available for plan benefits by investment option for the year ended December 31, 1994 are summarized
as follows:
Fidelity
Forest Oil Asset
Corporation Morley Manager Janus
Total Stock Fund GIC Fund Fund Fund
----- ----------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Net assets available
for plan benefits,
January 1, 1994 $ 11,847,669 3,943,263 2,354,401 2,271,614 1,588,417
Additions:
Contributions:
Company:
Common stock 812,392 812,392 - - -
Cash 25 25 - - -
Participants 722,543 106,694 78,561 207,910 179,033
Dividends and
interest income 233,790 338 20,812 97,872 34,909
------------ --------- --------- --------- ---------
1,768,750 919,449 99,373 305,782 213,942
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments (2,045,408) (1,839,694) 138,546 (262,380) (52,077)
------------ --------- --------- --------- ---------
Total additions
(decreases) (276,658) (920,245) 237,919 43,402 161,865
Deductions:
Distributions to
participants 1,033,562 273,573 59,719 204,740 204,049
Change in value
of forfeited
contributions 7,194 5,925 1,269 - -
------------ --------- --------- --------- ---------
1,040,756 279,498 60,988 204,740 204,049
Transfers (including loan
activity) - (624,900) 62,064 247,061 56,747
------------ --------- --------- --------- ---------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
DECEMBER 31,
1994 $ 10,530,255 2,118,620 2,593,396 2,357,337 1,602,980
------------ --------- --------- --------- ---------
------------ --------- --------- --------- ---------
Harbor Pimco
Inter- Low Loans
national Duration to
Fund Fund Participants
-------- -------- ------------
<C> <C> <C>
Net assets available
for plan benefits,
January 1, 1994 810,804 577,898 301,272
Additions:
Contributions:
Company:
Common stock - - -
Cash - - -
Participants 110,078 40,267 -
Dividends and
interest income 50,508 29,351 -
--------- ------- -------
160,586 69,618 -
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments (3,917) (25,886) -
--------- ------- -------
Total additions
(decreases) 156,669 43,732 -
Deductions:
Distributions to
participants 231,216 60,265 -
Change in value
of forfeited
contributions - - -
--------- ------- -------
231,216 60,265
Transfers (including loan
activity) 344,398 (105,943) 20,573
--------- ------- -------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
DECEMBER 31, 1994 1,080,655 455,422 321,845
--------- ------- -------
--------- ------- -------
</TABLE>
8
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
(4) Funds Summary
The changes in net assets available for plan benefits by investment option for the year ended December 31, 1993 are
summarized as follows:
Fidelity Fidelity
Forest Oil Fidelity Cash Asset
Corporation Fidelity Equity Intermediate Reserve Morley Manager
Total Stock Fund Income Fund Bond Fund Fund GIC Fund Fund
----- ----------- --------------- ------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net assets available
for plan benefits,
January 1, 1993 $ 9,186,974 2,413,839 2,061,435 1,016,209 3,407,692 - -
Additions:
Contributions:
Company:
Common stock 1,041,464 1,041,464 - - - - -
Cash 30 30 - - - - -
Participants 637,603 109,928 110,049 59,125 100,708 35,493 90,854
Dividends and
interest income 389,792 290 34,934 42,868 50,678 23,266 107,682
------------ --------- --------- --------- --------- --------- ---------
2,068,889 1,151,712 144,983 101,993 151,386 58,759 198,536
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments 1,745,784 1,194,651 198,931 37,141 - 81,279 139,507
------------ --------- --------- --------- --------- --------- ---------
Total additions 3,814,673 2,346,363 343,914 139,134 151,386 140,038 338,043
Deductions:
Distributions to
participants 1,122,161 271,038 278,251 19,186 86,078 463,008 1,511
Change in value
of forfeited
contributions 31,817 32,678 1,046 868 11,677 (14,452) -
------------ --------- --------- --------- --------- --------- ---------
1,153,978 303,716 279,297 20,054 97,755 448,556 1,511
Transfers (including loan
activity) - (513,223) (2,126,052) (1,135,289) (3,461,323) 2,662,919 1,935,082
------------ --------- --------- --------- --------- --------- ---------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
DECEMBER 31,
1993 $ 11,847,669 3,943,263 - - - 2,354,401 2,271,614
------------ --------- --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- --------- ---------
Harbor
Pimco
Inter- Low Loans
Janus national Duration to
Fund Fund Fund Participants
----- -------- -------- ------------
<C> <C> <C> <C>
Net assets available
for plan benefits,
January 1, 1993 - - - 287,799
Additions:
Contributions:
Company:
Common stock - - - -
Cash - - - -
Participants 75,610 32,190 23,646 -
Dividends and
interest income 100,988 6,970 22,116 -
--------- ------- ------- -------
176,598 39,160 45,762 -
Net realized and
unrealized appreciation
(depreciation) in fair
value of investments (18,589) 117,338 (4,474) -
--------- ------- ------- -------
Total additions 158,009 156,498 41,288 -
Deductions:
Distributions to
participants 2,747 342 - -
Change in value
of forfeited
contributions - - - -
--------- ------- ------- -------
2,747 342 - -
Transfers (including loan
activity) 1,433,155 654,648 536,610 13,473
--------- ------- ------- -------
NET ASSETS AVAILABLE
FOR PLAN BENEFITS,
DECEMBER 31,
1993 1,588,417 810,804 577,898 301,272
--------- ------- ------- -------
--------- ------- ------- -------
</TABLE>
9
<PAGE>
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
NOTES TO FINANCIAL STATEMENTS, CONTINUED
- - --------------------------------------------------------------------------------
(5) RECONCILIATION TO INTERNAL REVENUE SERVICE (IRS) FORM 5500
Benefits payable to terminated employees are shown as a liability on IRS
Form 5500. For financial statement purposes, all net assets of the Plan
are considered to be available for plan benefits; therefore, benefits
identified for payment to participants of the Plan are not deducted from
total assets to derive net assets available for benefits. Net assets
available for plan benefits include $593,700 and $444,500 of benefits
payable to participants as of December 31, 1994 and 1993, respectively.
Correspondingly, distributions to participants include only actual amounts
paid during the year for financial statement purposes. For purposes of the
IRS Form 5500, distributions expense includes amounts payable to terminated
participants.
(6) FEDERAL INCOME TAXES
Prior to certain recent amendments to the Plan, the IRS had issued a
determination letter in September 1991 indicating that the Plan qualified
under Section 401(a) of the Internal Revenue Code (Code) and that the trust
is therefore exempt from federal income tax under Section 501(a) of the
Code. As a result of the amendments to the Plan, a request for a
determination letter has been filed with the IRS. The Administrative
Committee believes that the Plan continues to meet all applicable sections
of the Code.
10
<PAGE>
SCHEDULE 1
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
ASSETS HELD FOR INVESTMENT
DECEMBER 31, 1994
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Fair market
shares or units Cost value
--------------- ---- -----
<S> <C> <C> <C>
Common stock of Forest Oil Corporation:
Common Stock 882,832 $ 3,342,429 1,986,372
GIC pooled funds:
Morley GIC fund 156,775 2,276,458 2,469,216
Mutual funds:
Fidelity Asset Manager Fund 177,468 2,592,055 2,454,382
Janus Fund 89,482 1,747,036 1,680,467
Harbor International Fund 44,579 1,004,859 1,089,952
Pimco Low Duration Fund 43,713 446,779 422,702
---------- ----------
11,409,616 10,103,091
Money market funds:
State Street Short-Term Investment Funds 3,772 3,772 3,772
Loans to participants
378,458 378,458
---------- ----------
TOTAL INVESTMENTS
$11,791,846 10,485,321
---------- ----------
---------- ----------
</TABLE>
See accompanying independent auditors' report.
11
<PAGE>
SCHEDULE 2
RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION
REPORTABLE TRANSACTIONS
YEAR ENDED DECEMBER 31, 1994
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net
realized
Cost of Proceeds gain
Description of asset Description of transaction purchases from sales (loss)
-------------------- -------------------------- --------- ---------- ----
<S> <C> <C> <C> <C>
Common stock of Aggregate of 31 purchases
Forest Oil Corporation and 40 sales $ 1,043,365 976,793 (26,085)
Fidelity Asset Manager Fund Aggregate of 32 purchases 893,790 -- --
</TABLE>
See accompanying independent auditors' report.
12
<PAGE>
Exhibits.
1. Consent of Independent Auditors to Incorporation by Reference in
Form S-8
13
<PAGE>
EXHIBIT 1
CONSENT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS
FOREST OIL CORPORATION:
We consent to the incorporation by reference in the Registration Statement (No.
33-59504) on Form S-8 of Forest Oil Corporation of our report dated April 14,
1995 relating to the statements of net assets available for plan benefits of the
Retirement Savings Plan of Forest Oil Corporation as of December 31, 1994 and
1993 and the statements of changes in net assets available for plan benefits for
the years then ended and related schedules for the year ended December 31, 1994,
which report appears as an exhibit in the December 31, 1994 annual report on
Form 10-K of Forest Oil Corporation.
KPMG PEAT MARWICK LLP
Denver, Colorado
May 1, 1995
