<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10578
-----------
VINTAGE PETROLEUM, INC.
--------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 73-1182669
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4200 One Williams Center Tulsa, Oklahoma 74172
- --------------------------------------------------------------------------------
(Address of principal (Zip Code)
executive offices)
(918) 592-0101
----------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
----- ----------------------------
Common Stock, $.005 Par Value 25,774,443
-1-
<PAGE>
PART I
FINANCIAL INFORMATION
-2-
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
-----------------------------
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(IN THOUSANDS, EXCEPT SHARES
AND PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,008 $ 2,774
Accounts receivable -
Oil and gas sales 50,298 68,219
Joint operations 5,569 4,445
Prepaids and other current assets 14,773 9,252
---------- ----------
Total current assets 73,648 84,690
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost:
Oil and gas properties, full cost method 1,138,839 964,623
Oil and gas gathering systems 13,945 13,489
Other 9,173 8,439
---------- ----------
1,161,957 986,551
Less accumulated depreciation, depletion and amortization 320,498 275,392
---------- ----------
841,459 711,159
---------- ----------
OTHER ASSETS, net 20,744 18,101
---------- ----------
TOTAL ASSETS $ 935,851 $ 813,950
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Revenue payable $ 24,683 $ 24,746
Accounts payable - trade 18,368 20,355
Other payables and accrued liabilities 26,980 26,595
Current portion of long-term debt 5,329 6,629
Acquisition costs payable - 35,051
-------- --------
Total current liabilities 75,360 113,376
-------- --------
LONG-TERM DEBT, less current portion above 445,983 372,390
-------- --------
DEFERRED INCOME TAXES 61,165 57,610
-------- --------
OTHER LONG-TERM LIABILITIES 2,794 3,641
-------- --------
MINORITY INTEREST IN SUBSIDIARY 2,031 1,828
-------- --------
STOCKHOLDERS' EQUITY per accompanying statement:
Preferred stock, $.01 par, 5,000,000 shares authorized,
zero shares issued and outstanding - -
Common stock, $.005 par, 80,000,000 and 40,000,000
shares authorized, 25,769,443 and 24,069,112 shares
issued and outstanding 129 120
Capital in excess of par value 202,048 152,321
Retained earnings 146,341 112,664
-------- --------
348,518 265,105
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $935,851 $813,950
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-4-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
1997 1996 1997 1996
------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $85,366 $64,301 $169,363 $122,942
Oil and gas gathering 4,367 5,430 9,214 10,445
Gas marketing 10,567 6,252 20,838 13,472
Other income (expense) (457) 60 (338) 524
------- ------- -------- --------
99,843 76,043 199,077 147,383
------- ------- -------- --------
COSTS AND EXPENSES:
Lease operating, including production taxes 28,876 22,743 53,390 44,815
Oil and gas gathering 3,441 4,512 7,765 8,693
Gas marketing 9,979 5,691 19,831 12,386
General and administrative 4,861 4,386 9,252 8,197
Depreciation, depletion and amortization 25,250 16,526 45,250 33,541
Interest 9,774 7,418 17,952 14,737
------- ------- -------- --------
82,181 61,276 153,440 122,369
------- ------- -------- --------
Income before provision for income
taxes and minority interest 17,662 14,767 45,637 25,014
PROVISION FOR INCOME TAXES:
Current 569 1,569 1,984 1,569
Deferred 2,774 3,212 8,228 6,277
MINORITY INTEREST IN
INCOME OF SUBSIDIARY (86) (190) (203) (198)
------- ------- -------- --------
NET INCOME $14,233 $ 9,796 $ 35,222 $ 16,970
======= ======= ======== ========
EARNINGS PER SHARE $ .54 $ .40 $ 1.36 $ .70
======= ======= ======== ========
Weighted average common shares and
common equivalent shares outstanding 26,313 24,474 25,990 24,400
======= ======= ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-5-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock In Excess
-------------- of Par Retained
Shares Amount Value Earnings Total
------ ------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 24,069 $120 $152,321 $112,664 $265,105
Net income - - - 35,222 35,222
Issuance of common stock 1,500 8 47,075 - 47,083
Exercise of stock options and
resulting tax effects 200 1 2,652 - 2,653
Cash dividends declared
($.06 per share) - - - (1,545) (1,545)
------- ---- -------- -------- --------
Balance at June 30, 1997 25,769 $129 $202,048 $146,341 $348,518
======= ==== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
-6-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 35,222 $ 16,970
Adjustments to reconcile net income to
cash provided by operating activities -
Depreciation, depletion and amortization 45,250 33,541
Minority interest in income of subsidiary 203 198
Provision for deferred income taxes 8,228 6,277
--------- --------
88,903 56,986
Decrease (increase) in receivables 16,797 (5,264)
Increase (decrease) in payables and accrued liabilities 332 (1,196)
Other (5,211) 2,425
--------- --------
Cash provided by operating activities 100,821 52,951
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment -
Oil and gas properties (174,216) (57,494)
Other property and equipment (1,190) (1,034)
Purchase of subsidiaries (39,116) (4,520)
Other (1,687) (598)
--------- --------
Cash used by investing activities (216,209) (63,646)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 47,718 1,532
Sale of 8 5/8% Senior Subordinated Notes 96,270 -
Advances on revolving credit facility and other borrowings 143,427 26,503
Payments on revolving credit facility and other borrowings (169,453) (14,148)
Dividends paid (1,493) (1,192)
Other (847) 1,024
--------- --------
Cash provided by financing activities 115,622 13,719
--------- --------
Net increase in cash and cash equivalents 234 3,024
Cash and cash equivalents, beginning of period 2,774 2,545
--------- --------
Cash and cash equivalents, end of period $ 3,008 $ 5,569
========= ========
</TABLE>
See notes to unaudited consolidated financial statements.
-7-
<PAGE>
VINTAGE PETROLEUM, INC. AND SUBSIDIARIES
----------------------------------------
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
JUNE 30, 1997 AND 1996
1. GENERAL
The accompanying financial statements are unaudited. The consolidated
financial statements include the accounts of the Company and its wholly- and
majority-owned subsidiaries. Management believes that all material
adjustments (consisting of only normal recurring adjustments) necessary for
a fair presentation have been made. These financial statements and notes
should be read in conjunction with the 1996 audited financial statements and
related notes.
2. SIGNIFICANT ACCOUNTING POLICIES
Statements of Cash Flows
During the six months ended June 30, 1997 and 1996, cash payments for
interest totaled $14,192,276 and $12,013,947, respectively. During the six
months ended June 30, 1997 and 1996, cash payments for U.S. Federal and
state income taxes totaled $2,935,100 and $100,000, respectively. During the
six months ended June 30, 1997, $5,204 were paid for Argentina withholding
taxes. During the six months ended June 30, 1996, the Company made no cash
payments for foreign income taxes.
Depreciation, Depletion and Amortization
Amortization per equivalent barrel of the Company's oil and gas properties
for the three months and six months ended June 30, 1997 and 1996, were as
follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1996 1997 1996
------- ------- ------ -------
<S> <C> <C> <C> <C>
United States $4.30 $3.68 $4.13 $3.78
Argentina 4.40 4.14 4.28 4.20
Bolivia (1) 3.71 - 3.67 -
Total 4.34 3.79 4.19 3.87
----- ----- ----- -----
</TABLE>
___________________
(1) The Company had no Bolivia operations prior to January 1997.
-8-
<PAGE>
3. PUBLIC OFFERINGS
On February 5, 1997, the Company completed a public offering of 1,500,000
shares of its common stock, all of which were sold by the Company. Net
proceeds to the Company of approximately $47.1 million were used to repay a
portion of existing indebtedness under the Company's revolving credit
facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96.3 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
The 8 5/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 2002. Upon a change in control (as
defined) of the Company, holders of the 8 5/8% Notes may require the Company
to repurchase all or a portion of the 8 5/8% Notes at a purchase price equal
to 101 percent of the principal amount thereof, plus accrued and unpaid
interest. The 8 5/8% Notes mature on February 1, 2009, with interest payable
semiannually on February 1 and August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes
Due 2005. The indenture for the 8 5/8% Notes contains limitations on, among
other things, additional indebtedness and liens, the payment of dividends
and other distributions, certain investments and transfers or sales of
assets.
4. RECENT PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings Per Share ("SFAS No. 128"), which establishes new
standards for computing and presenting earnings per share. The provisions of
SFAS No. 128 are effective for earnings per share calculations for periods
ending after December 15, 1997. At that time, the Company will be required
to change the method currently used to compute earnings per share and to
restate all prior periods. If the provisions of SFAS No. 128 had been
adopted in the first half of 1997, basic and diluted earnings per share
would have been as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1997 1996 1997 1996
------- ------- ------- -------
Earnings per share:
<S> <C> <C> <C> <C>
Basic $0.55 $0.41 $1.39 $0.71
Diluted $0.54 $0.40 $1.36 $0.70
</TABLE>
-9-
<PAGE>
5. SIGNIFICANT ACQUISITION
On April 1, 1997, the Company acquired certain producing oil and gas
properties and facilities located in the Gulf Coast areas of Texas and
Louisiana from subsidiaries of Burlington Resources Inc. for approximately
$101.4 million in cash (the "Burlington Acquisition"). Funds for this
acquisition were provided by advances under the Company's revolving credit
facility.
If the Burlington Acquisition had been consummated as of January 1, 1996,
the Company's unaudited pro forma revenues and net income for the six months
ended June 30, 1997 and 1996, would have been as shown below; however, such
pro forma information is not necessarily indicative of what actually would
have occurred had the transaction occurred on such dates.
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------
1997 1996
---------- ----------
(In thousands, except
per share amounts)
<S> <C> <C>
Revenues............ $213,795 $179,945
Net Income.......... $ 37,971 $ 23,394
Earnings Per Share.. $ 1.44 $ .96
</TABLE>
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
---------------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
RESULTS OF OPERATIONS
The Company's results of operations have been significantly affected by its
success in acquiring oil and gas properties and its ability to maintain or
increase production through its exploitation and exploration activities.
Fluctuations in oil and gas prices have also significantly affected the
Company's results. The following table reflects the Company's oil and gas
production and its average oil and gas prices for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Production:
Oil (MBbls) -
U.S............ 2,515 1,921 4,530 3,773
Argentina...... 1,407 953 2,727 1,851
Bolivia (1).... 34 - 59 -
Total.......... 3,956 2,874 7,316 5,624
Gas (MMcf) -
U.S............ 8,604 8,187 16,182 16,592
Bolivia (1).... 1,627 - 2,843 -
Total.......... 10,231 8,187 19,025 16,592
Total MBOE....... 5,661 4,239 10,487 8,390
Average prices:
Oil (per Bbl) -
U.S............ $ 17.03 $18.01 $ 18.25 $ 17.34
Argentina...... 17.23 15.89 17.54 15.88
Bolivia (1).... 17.52 - 17.78 -
Total.......... 17.10 17.31 17.98 16.86
Gas (per Mcf) -
U.S............ $ 1.84 $ 1.78 $ 2.13 $ 1.69
Bolivia (1).... 1.15 - 1.18 -
Total.......... 1.73 1.78 1.99 1.69
------- ------ ------- -------
</TABLE>
_______________________
(1) Bolivia operations commenced January 1997.
-11-
<PAGE>
Average U.S. oil prices received by the Company fluctuate generally with
changes in the West Texas Intermediate ("WTI") posted prices for oil. The
Company's Argentina oil production is sold at WTI spot prices less a specified
differential. The Company experienced a seven percent increase in its average
oil price in the first six months of 1997 compared to the same period in 1996.
During the first half of 1997, the Company had oil hedges in place on 50 percent
of its Argentina oil production (1.358 MMBbls) reducing the average Argentina
oil price by 75 cents to $17.54 per Bbl and reducing the Company's overall
average oil price by 28 cents to $17.98 per Bbl. The Company had oil hedges in
place for the first half of 1996 covering 1.477 MMBbls reducing the Company's
overall average oil price 39 cents to $16.86 per Bbl. The Company's average
realized oil price, before the impact of oil hedges, for the first half of 1997
was 93 percent of WTI posted prices.
Average gas prices received by the Company fluctuate generally with changes in
spot market prices for gas, which may vary significantly by region. The
Company's average gas price for the first six months of 1997 was 18 percent
higher than the same period in 1996. The Company's average gas price during the
first half of 1996 was negatively impacted by 10 cents per Mcf as a result of
certain gas hedges that were in place for 40,000 Mcf of gas per day for the
period January through March 1996.
The Company has previously engaged in oil and gas hedging activities and will
continue to consider various hedging arrangements to realize commodity prices
which it considers favorable. Currently, oil hedges for the last half of 1997
cover 1.380 MMBbls at an average NYMEX reference price of $18.67 per Bbl.
Before the impact of oil hedges, the Company's average realized oil price for
the first half of 1997 was $18.26 per Bbl, or approximately 86 percent of the
average NYMEX reference price.
Relatively modest changes in either oil or gas prices significantly impact the
Company's results of operations and cash flow. However, the impact of changes in
the market prices for oil and gas on the Company's average realized prices may
be reduced from time to time based on the level of the Company's hedging
activities. Based on second quarter 1997 oil production, a change in the average
oil price realized by the Company of $1.00 per Bbl would result in a change in
net income and cash flow before income taxes on a quarterly basis of
---------------
approximately $2.9 million and $3.9 million, respectively. A 10 cent per Mcf
change in the average price realized by the Company for gas would result in a
change in net income and cash flow before income taxes on a quarterly basis of
---------------
approximately $0.6 million and $1.0 million, respectively, based on second
quarter 1997 gas production.
-12-
<PAGE>
PERIOD TO PERIOD COMPARISONS
THREE MONTHS ENDED JUNE 30, 1997, COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
Net income was $14.2 million for the quarter ended June 30, 1997, up 45
percent from $9.8 million for the same period in 1996. An increase in the
Company's oil and gas production of 34 percent on an equivalent barrel basis was
primarily responsible for the increase in net income. The production increases
primarily relate to the exploitation activities in Argentina, the acquisition of
certain producing oil and gas properties from Burlington Resources Inc. (the
"Burlington Properties") in April 1997, and the acquisitions of Vintage
Petroleum Boliviana, Ltd. (formerly Shamrock Ventures (Boliviana) Ltd.) from
affiliates of Diamond Shamrock, Inc. and Austrofueguina, S.A. and certain
producing oil and gas properties from Exxon Company, U.S.A. (collectively, the
"1996 Acquisitions").
Oil and gas sales increased $21.1 million (33 percent), to $85.4 million for
the second quarter of 1997 from $64.3 million for the second quarter of 1996. A
38 percent increase in oil production, partially offset by a one percent
decrease in average oil prices, accounted for $17.9 million of the increase. A
25 percent increase in gas production, partially offset by a three percent
decrease in average gas prices, contributed an additional $3.2 million increase.
Lease operating expenses, including production taxes, increased $6.2 million
(27 percent), to $28.9 million for the second quarter of 1997 from $22.7 million
for the second quarter of 1996. The increase in lease operating expenses is due
primarily to costs associated with the Burlington Properties and the 1996
Acquisitions. Lease operating expenses per equivalent barrel produced decreased
to $5.10 in the second quarter of 1997 from $5.37 for the same period in 1996.
General and administrative expenses increased $500,000 (11 percent), to $4.9
million for the second quarter of 1997 from $4.4 million for the second
quarter of 1996, due primarily to the acquisition of Vintage Petroleum
Boliviana, Ltd. and the addition of personnel as a result of the acquisition of
the Burlington Properties.
Depreciation, depletion and amortization increased $8.8 million (53 percent),
to $25.3 million for the second quarter of 1997 from $16.5 million for the
second quarter of 1996, due primarily to the 34 percent increase in production
on an equivalent barrel basis. Amortization per equivalent barrel of the
Company's U.S. oil and gas properties increased to $4.30 in the second quarter
of 1997 from $3.68 in 1996. Amortization per equivalent barrel of the Company's
Argentina oil and gas properties for the second quarter of 1997 was $4.40 as
compared to $4.14 for the second quarter of 1996. Amortization per equivalent
barrel of the Company's Bolivia oil and gas properties for the second quarter of
1997 was $3.71. The Company had no Bolivia operations prior to January 1997.
Interest expense increased $2.4 million (32 percent), to $9.8 million for the
second quarter of 1997 from $7.4 million for the second quarter of 1996, due
primarily to a 36 percent increase in the Company's total average outstanding
debt as a result of the acquisition of the Burlington Properties and the 1996
Acquisitions. The increase was partially offset by a decrease in the Company's
overall average interest rate from 8.59% in the second quarter of 1996 to 8.09%
in the second quarter of 1997.
-13-
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net income was $35.2 million for the first six months of 1997, up 107 percent
from $17.0 million for the same period in 1996. Increases in the Company's oil
and gas production of 25 percent on an equivalent barrel basis, an increase of
18 percent in natural gas prices, and an increase of seven percent in oil prices
are primarily responsible for the increase in net income. The production
increases primarily relate to the exploitation activities in Argentina, the
acquisition of the Burlington Properties and the 1996 Acquisitions.
Oil and gas sales increased $46.5 million (38 percent), to $169.4 million for
the first six months of 1997 from $122.9 million for the first six months of
1996. A 30 percent increase in oil production and a seven percent increase in
average oil prices combined to account for $36.8 million of the increase. A 15
percent increase in gas production and an 18 percent increase in average gas
prices contributed an additional $9.7 million increase.
Oil and gas gathering net margins (revenue less expenses) decreased $300,000
(17 percent), to $1.5 million for the first six months of 1997 from $1.8 million
for the first six months of 1996, due primarily to increased compression costs
and a 41 percent reduction in third party volumes transported at the Company's
Galveston Bay gathering facilities.
Other income (expense) decreased from $525,000 of income for the first six
months of 1996 to net expenses of $350,000 for the first six months of 1997, due
primarily to the accrual in the first six months of 1997 for estimated costs
related to a gas contract settlement dispute, with no similar accrual in the
first six months of 1996.
Lease operating expenses, including production taxes, increased $8.6 million
(19 percent), to $53.4 million for the first six months of 1997 from $44.8
million for the first six months of 1996. The increase in lease operating
expenses is due primarily to costs associated with the Burlington Properties,
the 1996 Acquisitions and an increase in severance taxes related to higher oil
and gas sales. Lease operating expenses per equivalent barrel produced
decreased to $5.09 in the first six months of 1997 from $5.34 for the same
period in 1996.
General and administrative expenses increased $1.1 million (13 percent), to
$9.3 million for the first six months of 1997 from $8.2 million for the first
six months of 1996, due primarily to the acquisition of Vintage Petroleum
Boliviana, Ltd. and the addition of personnel as a result of the acquisition of
the Burlington Properties.
Depreciation, depletion and amortization increased $11.8 million (35
percent), to $45.3 million for the first six months of 1997 from $33.5 million
for the first six months of 1996, due primarily to the 25 percent increase in
production on an equivalent barrel basis. Amortization per equivalent barrel of
the Company's U.S. oil and gas properties increased to $4.13 in the first six
months of 1997 from $3.78 in 1996. Amortization per equivalent barrel of the
Company's Argentina oil and gas properties for the first six months of 1997 was
$4.28 as compared to $4.20 for the first six months of 1996. Amortization per
equivalent barrel of the Company's Bolivia oil and gas properties for the first
six months of 1997 was $3.67. The Company had no Bolivia operations prior to
January 1997.
-14-
<PAGE>
Interest expense increased $3.3 million (22 percent), to $18.0 million for
the first six months of 1997 from $14.7 million for the first six months of
1996, due primarily to a 26 percent increase in the Company's total average
outstanding debt as a result of the acquisition of the Burlington Properties and
the 1996 Acquisitions. The increase was partially offset by a decrease in the
Company's overall average interest rate from 8.46% in the first six months of
1996 to 8.07% in the first six months of 1997.
CAPITAL EXPENDITURES
During the first six months of 1997, the Company's U.S. and South American
non-acquisition related capital expenditures totaled $36.8 million and $31.2
million, respectively. The timing of most of the Company's capital expenditures
is discretionary with no material long-term capital expenditure commitments.
Consequently, the Company has a significant degree of flexibility to adjust the
level of such expenditures as circumstances warrant. The Company primarily uses
internally generated cash flow to fund capital expenditures other than
significant acquisitions and anticipates that its cash flow, net of debt
service obligations, will be sufficient to fund its planned total 1997 non-
acquisition capital expenditures of approximately $64 million and $60 million in
the U.S. and South America, respectively.
The Company had $106.8 million of oil and gas property acquisition related
capital expenditures in the first six months of 1997. The largest of these
expenditures was the acquisition on April 1, 1997, of certain producing oil and
gas properties located in the Gulf Coast areas of Texas and Louisiana from
subsidiaries of Burlington Resources Inc. for approximately $101.4 million in
cash. Funds for this acquisition were provided by advances under the Company's
revolving credit facility. The Company does not have a specific acquisition
budget since the timing and size of acquisitions are difficult to forecast. The
Company is actively pursuing additional acquisitions of oil and gas properties.
In addition to internally generated cash flow and advances under the Company's
revolving credit facility, the Company may seek additional sources of capital to
fund any future significant acquisitions (see "-Liquidity").
LIQUIDITY
Internally generated cash flow and the borrowing capacity under its revolving
credit facility are the Company's major sources of liquidity. In addition, the
Company may use other sources of capital, including the issuance of additional
debt securities or equity securities, to fund any major acquisitions it might
secure in the future and to maintain its financial flexibility. The Company
funds its capital expenditures (excluding acquisitions) and debt service
requirements primarily through internally generated cash flows from operations.
Any excess cash flow is used to reduce outstanding advances under the Company's
revolving credit facility.
In the past, the Company has accessed the public markets to finance
significant acquisitions and provide liquidity for its future activities. In
conjunction with the purchase of substantial oil and gas assets in 1990, 1992
and 1995, the Company completed three public equity offerings, as well as a
public debt offering in 1995, which provided the Company with aggregate net
proceeds of approximately $272 million.
-15-
<PAGE>
On February 5, 1997, the Company completed a public offering of 1,500,000
shares of its common stock, all of which were sold by the Company. Net proceeds
to the Company of approximately $47.1 million were used to repay a portion of
existing indebtedness under the Company's revolving credit facility.
Also on February 5, 1997, the Company issued $100 million of its 8 5/8%
Senior Subordinated Notes Due 2009 (the "8 5/8% Notes"). Net proceeds to the
Company of approximately $96.3 million were used to repay a portion of existing
indebtedness under the Company's revolving credit facility.
The 8 5/8% Notes are redeemable at the option of the Company, in whole or in
part, at any time on or after February 1, 2002. Upon a change in control (as
defined) of the Company, holders of the 8 5/8% Notes may require the Company to
repurchase all or a portion of the 8 5/8% Notes at a purchase price equal to 101
percent of the principal amount thereof, plus accrued and unpaid interest. The 8
5/8% Notes mature on February 1, 2009, with interest payable semiannually on
February 1 and August 1 of each year.
The 8 5/8% Notes are unsecured senior subordinated obligations of the
Company, rank subordinate in right of payment to all senior indebtedness (as
defined) and rank pari passu with the Company's 9% Senior Subordinated Notes Due
2005. The indenture for the 8 5/8% Notes contains limitations on, among other
things, additional indebtedness and liens, the payment of dividends and other
distributions, certain investments and transfers or sales of assets.
Under its Credit Agreement dated August 29, 1996, as amended (the "Credit
Agreement"), certain banks have provided to the Company an unsecured revolving
credit facility. The Credit Agreement establishes a borrowing base (currently
$385 million, which exceeds the $375 million facility amount) determined by the
banks' evaluation of the Company's U.S. and certain Argentina oil and gas
reserves.
Outstanding advances under the revolving credit facility bear interest
payable quarterly at a floating rate based on Bank of Montreal's alternate base
rate (as defined) or, at the Company's option, at a fixed rate for up to six
months based on the eurodollar market rate ("LIBOR"). The Company's interest
rate increments above the alternate base rate and LIBOR vary based on the level
of outstanding senior debt and the portion of the borrowing base attributable to
the U.S. reserves at the time. As of August 6, 1997, the Company had elected a
fixed rate based on LIBOR for a substantial portion of its outstanding advances
which resulted in an average interest rate of approximately 6.5 percent per
annum. In addition, the Company must pay a commitment fee ranging from 0.25 to
0.375 percent per annum on the unused portion of the banks' commitment.
On a semiannual basis, the Company's borrowing base is redetermined by the
banks based upon their review of the Company's U.S. and certain Argentina oil
and gas reserves. If the sum of outstanding senior debt (excluding debt of the
Company's foreign subsidiaries) exceeds the borrowing base, as redetermined, the
Company must repay such excess. Any principal advances outstanding at October
1, 1999, will be payable in 12 equal consecutive quarterly installments
commencing January 1, 2000, with maturity at October 1, 2002.
-16-
<PAGE>
The unused portion of the revolving credit facility was approximately $185
million at August 6, 1997. The unused portion of the revolving credit facility
and the Company's internally generated cash flow provide liquidity which may be
used to finance future capital expenditures, including acquisitions. As
additional U.S. and Argentina acquisitions are made and properties are added to
the borrowing base, the banks' determination of the borrowing base and their
commitment may be increased.
INCOME TAXES
The total provision for U.S. income taxes is based on the Federal corporate
statutory income tax rate plus an estimated average rate for state income taxes.
The Company incurred a current provision for U.S. income taxes of approximately
$2.0 million in the first half of 1997. The Company had a current provision for
U.S. income taxes of $1.6 million in the first half of 1996. The Company has a
$5.4 million U.S. alternative minimum tax credit carryforward which does not
expire and is available to offset U.S. regular income taxes in future years, but
only to the extent that U.S. regular income taxes exceed the U.S. alternative
minimum tax in such years.
Earnings of the Company's foreign subsidiaries, Cadipsa S.A. and Vintage Oil
Argentina, Inc., are subject to Argentina income taxes. Due to significant
Argentina net operating loss carryforwards for both companies, the Company does
not expect to pay any foreign income taxes related to these subsidiaries in
1997. Earnings of the Company's foreign subsidiary, Vintage Petroleum
Boliviana, Ltd., is subject to Bolivia income taxes. Bolivian income taxes are
provided on the earnings of this subsidiary based on the tax laws and
regulations of Bolivia. No U.S. deferred tax liability will be recognized
related to the unremitted earnings of these foreign subsidiaries, as it is the
Company's intention, generally, to reinvest such earnings permanently.
FOREIGN OPERATIONS
Substantially all of the Company's foreign operations are located in
Argentina. The Company believes Argentina offers a politically stable
environment and does not anticipate any significant change in the near future.
The current democratic form of government has been in place since 1983 and,
since 1989, has pursued a steady process of privatization, deregulation and
economic stabilization and reforms involving the reduction of inflation and
public spending. Argentina's 12-month trailing inflation rate measured by the
Argentine Consumer Price Index declined from 200.7 percent as of June 1991 to
0.1 percent as of December 1996.
The Company believes that its Argentine operations present minimal currency
risk. All of the Company's Argentine revenues are U.S. dollar based, while a
large portion of its costs are Argentine peso denominated. The Argentina
Central Bank is obligated by law to sell dollars at a rate of one Argentine peso
to one U.S. dollar and has sought to prevent appreciation of the peso by buying
dollars at rates of not less than 0.998 peso to one U.S. dollar. As a result,
the Company believes that should any devaluation of the Argentine peso occur,
its revenues would be unaffected and its operating costs would not be
significantly increased. At the present time, there are no foreign exchange
controls preventing or restricting the conversion of pesos into dollars.
-17-
<PAGE>
With the purchase of Vintage Petroleum Boliviana, Ltd. (formerly Shamrock
Ventures (Boliviana) Ltd.), the Company expanded its international operations
into Bolivia. Since the mid-1980's, Bolivia has been undergoing major economic
reform including the establishment of a free-market economy and the
encouragement of private foreign investment. Economic activities that had been
reserved for government corporations were opened to foreign and domestic private
investments. Barriers to international trade have been reduced and tariffs
lowered. A new investment law and revised codes for mining and the petroleum
industry, intended to attract foreign investment, have been introduced.
On January 1, 1987, a new currency, the Boliviano (Bs), replaced the peso at
the rate of one million pesos to one Boliviano. The exchange rate is set daily
by the Government's exchange house (the "Bolsin") which is under the supervision
of the Bolivian central bank. Foreign exchange transactions are not subject to
any controls. The US$:Boliviano exchange rate at July 31, 1997, was US$1:Bs
5.25. This rate at December 31, 1996, was US$1:Bs 5.19. The Company believes
that any currency risk associated with its Bolivian operations would not have a
material impact on the Company's financial position or results of operations.
-18-
<PAGE>
PART II
OTHER INFORMATION
-19-
<PAGE>
Item 1. Legal Proceedings
-----------------
On April 4, 1997, Mr. Patrick I. Chapman of Hockley, Texas, formerly
Vice President-Marketing for the Company, sued the Company in the
United States District Court for the Southern District of Texas
alleging damages of $1.5 million for breach of an employment contract
and damages of $4 million for fraudulent inducement. Additionally, Mr.
Chapman seeks exemplary damages of at least $16 million. The case
has been reassigned to the United States District Court for the
Northern District of Oklahoma, Case No. 97-CV-622-K. Under the "tort-
reform" law of Oklahoma, claims for exemplary damages, such as Mr.
Chapman's, cannot exceed twice the actual damages proved at trial. The
Company intends to vigorously defend itself against Mr. Chapman's
allegations. Although the Company cannot predict the outcome of this
litigation, based upon the advice of counsel, the Company does not
expect this claim to have a material adverse impact on the Company's
financial position or results of operations.
For information regarding other legal proceedings, see the Company's
Form 10-K for the year ended December 31, 1996.
Item 2. Changes in Securities
---------------------
An amendment to the Company's Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock, $.005 par
value per share, from 40,000,000 to 80,000,000 was approved by the
stockholders of the Company at the Company's Annual Meeting held on May
13, 1997. A Certificate of Amendment was filed with the Secretary of
State of Delaware on May 21, 1997.
Item 3. Defaults Upon Senior Securities
-------------------------------
not applicable
-20-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Stockholders of the Company (the "Annual
Meeting") was held on May 13, 1997, in Tulsa, Oklahoma. At the Annual
Meeting, the stockholders of the Company elected William C. Barnes as a
Class I director of the Company for a three-year term. The stockholders
also considered and approved an amendment to the Company's Restated
Certificate of Incorporation to increase the number of authorized
shares of Common Stock from 40,000,000 to 80,000,000 and the
appointment of Arthur Andersen LLP as the independent auditors of the
Company for the fiscal year ending December 31, 1997.
There were present at the Annual Meeting, in person or by proxy,
stockholders holding 21,813,290 shares of the Common Stock of the
Company, or 84.83% of the total stock outstanding and entitled to vote
at the Annual Meeting. The table below describes the results of voting
at the Annual Meeting.
<TABLE>
<CAPTION>
Votes Broker
Votes Against or Non-
For Withheld Abstentions Votes
------------ ------------ ------------- --------
<S> <C> <C> <C> <C>
1. Election of Director:
William C. Barnes 21,314,506 498,784 -0- -0-
2. Approval of amendment to
the Company's Restated
Certificate of Incorporation
to increase the number of
authorized shares of Common
Stock from 40,000,000
to 80,000,000 20,990,624 794,570 28,096 -0-
3. Ratification of Arthur Andersen
LLP as independent auditors
of the Company for fiscal 1997 21,786,859 1,734 24,697 -0-
</TABLE>
Item 5. Other Information
-----------------
not applicable
-21-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
The following documents are included as exhibits to this Form
10-Q. Those exhibits below incorporated by reference herein are
indicated as such by the information supplied in the parenthetical
thereafter. If no parenthetical appears after an exhibit, such
exhibit is filed herewith.
3.1 Certificate of Amendment of the Company's Restated
Certificate of Incorporation.
3.2 Restated Certificate of Incorporation, as amended, of the
Company.
27. Financial Data Schedule.
b) Reports on Form 8-K
Form 8-K was filed April 16, 1997, to report under Item 2 the
acquisition of certain oil and gas properties and facilities from
subsidiaries of Burlington Resources Inc. Amendment No. 1 to such
Form 8-K was filed June 13, 1997, in order to include financial
statements as required by Item 7 with respect to the acquisition
of such oil and gas properties and facilities. Such amendment also
included under Item 5 certain information with respect to the
Company's revolving credit facility.
************************************************************************
-22-
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VINTAGE PETROLEUM, INC.
-----------------------
(Registrant)
DATE: August 13, 1997 /s/ Michael F. Meimerstorf
---------------- ----------------------------------------------
Michael F. Meimerstorf
Vice President and Controller
(Principal Accounting Officer)
-23-
<PAGE>
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q. Those
exhibits below incorporated by reference herein are indicated as such by the
information supplied in the parenthetical thereafter. If no parenthetical
appears after an exhibit, such exhibit is filed herewith.
Exhibit
Number Description
- ------ ------------------------------------------------------
3.1 Certificate of Amendment of the Company's Restated
Certificate of Incorporation.
3.2 Restated Certificate of Incorporation, as amended, of
the Company.
27. Financial Data Schedule.
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
VINTAGE PETROLEUM, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, at a meeting
duly held on February 20, 1997, duly adopted resolutions setting forth a
proposed amendment to the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that said
amendment be considered at the next annual meeting of stockholders. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that, subject to the approval of the stockholders of the
Company, the Restated Certificate of Incorporation of the Company be,
and the same hereby is, amended by changing paragraph (a) of Article
FIFTH so that, as amended, said paragraph (a) of Article FIFTH shall be
and read in its entirety as follows:
"FIFTH. (a) The total number of shares of all classes of stock
which the Corporation shall have authority to issue is eighty-
five million (85,000,000) shares consisting of eighty million
(80,000,000) shares of Common Stock, having a par value of One-
Half Cent ($.005) per share, and five million (5,000,000) shares
of Preferred Stock, having a par value of One Cent ($.01) per
share."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the 1997 annual meeting of stockholders of said corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of said amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Vintage Petroleum, Inc. has caused this certificate
to be signed by S. Craig George, its President, and attested by William C.
Barnes, its Secretary, this 19th day of May, 1997.
VINTAGE PETROLEUM, INC.
By: /s/ S. Craig George
-----------------------------------
ATTEST: S. Craig George
President
/s/ Williams C. Barnes
- --------------------------------
William C. Barnes
Secretary
<PAGE>
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
(AS AMENDED)
OF
VINTAGE PETROLEUM, INC.
This Restated Certificate of Incorporation of Vintage Petroleum, Inc.,
which has been duly adopted in accordance with the provisions of Sections 242
and 245 of the General Corporation Law of the State of Delaware, amends and
restates the Restated Certificate of Incorporation of Vintage Petroleum, Inc.,
which was filed with the Secretary of State of the State of Delaware on January
2, 1987. Such Restated Certitficate of Incorporation is hereby amended and
restated to read, in its entirety, as follows:
FIRST. The name of the Corporation is VINTAGE PETROLEUM, INC.
SECOND. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, Delaware 19801. The name of its registered agent at such address
is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH. In furtherance of the objects and purposes of the Corporation,
the Corporation shall have all the powers and privileges granted by the General
Corporation Law of the State of Delaware, by any other law, or by this
Certificate of Incorporation, including, but without limitation, the following
powers, among others:
(a) To purchase or otherwise acquire, own, use, lease as lessor,
lease as lessee, sell or otherwise dispose of, develop, improve, maintain,
mortgage, pledge, encumber, hypothecate and otherwise deal in and with oil, gas,
petroleum, coal, sulphur, helium, hydrocarbons, natural resources, and other
mineral rights, leases, interests, claims, concessions, and fee lands, together
with all real property of whatsoever kind or nature; to find, locate, prospect
for, mine, drill for, explore for, produce, exploit, extract, and obtain oil,
gas, petroleum, coal, sulphur, helium, hydrocarbons, or any other minerals or
natural resources, and to that end, to drill wells or to sink shafts for the
same and to develop and improve all lands, leases, rights or claims wherever the
same may be found;
(b) To produce, mine, extract and recover oil, gas, petroleum, coal,
sulphur, helium, hydrocarbons, or other minerals or natural resources of every
kind and nature, and to market, store, treat, refine, process, distill,
transport, manufacture, purchase, sell, distribute, lease, trade, or otherwise
deal in and with the same and any and all derivatives thereof or products
therefrom; and in connection therewith, to build, purchase, or otherwise
acquire, lease as lessor, lease as lessee, maintain, operate, own, use,
mortgage, pledge, encumber, hypothecate, sell or otherwise dispose of, and to
deal in or with any and all necessary or convenient machinery, equipment,
apparatus, refineries, wells, mines, pumps, compressors, facilities, fixtures,
<PAGE>
pipelines, lateral lines, gathering lines, storage tanks, appliances, materials,
buildings, plants, properties of every kind and nature, or appurtenances
thereto;
(c) To organize, promote, manage and participate in oil, gas,
petroleum, coal, sulphur, helium, hydrocarbons, or other mineral or natural
resource drilling, exploration, mining and/or development programs, partnerships
or ventures and, to that end, to participate in the same as a partner, agent,
manager, participant, or otherwise, and to offer, issue, sell, register,
guarantee, underwrite, transfer, convey, assign, hypothecate, exchange, accept,
deliver and otherwise deal in and with such programs, partnerships or ventures,
or securities, leases, properties or interests pertaining thereto;
(d) To generally engage in and carry on the business of exploration,
production, development and marketing of oil, gas, petroleum, coal, sulphur,
helium, hydrocarbons, or other minerals or natural resources of every kind and
description whatsoever;
(e) To generally carry on the business of buying, selling, leasing
(as lessor or lessee), dealing in and with, or otherwise investing in real
estate, oil, gas, petroleum, coal, sulphur, helium, hydrocarbons, and all other
minerals and natural resources;
(f) To perform any of the above enumerated objects and purposes
either in an individual capacity or as agent, manager or operator for any
domestic or foreign corporation, company, partnership, venture, association,
trust, firm or person;
(g) To engage in any other business incidental to, or connected
with, or similar to, the business of the Corporation set forth above;
(h) To do any and all things necessary or convenient to the business
of the Corporation as authorized by law; and
(i) To borrow or raise money and otherwise contract indebtedness for
any of the purposes of the Corporation; to draw, make, accept, endorse, execute
and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures and other negotiable or non-negotiable instruments and evidences of
indebtedness; and to secure the payment of any of the foregoing and of the
interest thereon by mortgage, pledge, assignment, deed of trust or lien of or
upon any or all of the corporate property (real, personal or mixed), whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the Corporation for its corporate
purposes.
FIFTH. (a) The total number of shares of all classes of stock which the
Corporation shall have authority to issue is eighty-five million (85,000,000)
shares consisting of eighty million (80,000,000) shares of Common Stock, having
a par value of One-Half Cent ($.005) per share, and five million (5,000,000)
shares of Preferred Stock, having a par value of One Cent ($.01) per share.
-2-
<PAGE>
(b) Each share of Common Stock shall entitle the registered holder
thereof to one vote on all matters brought before the stockholders of the
Corporation for a vote.
(c) The Corporation may issue one or more series of Preferred Stock,
each such series to consist of such number of shares as shall be determined by
resolution of the Board of Directors creating such series. The Preferred Stock
of each such series shall have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating.
optional, redemption, conversion, exchange or other special rights, and
qualifications, limitations or restrictions thereof; as shall be stated and
expressed by the Board of Directors in the resolution or resolutions providing
for the issuance of such series of Preferred Stock pursuant to the authority to
do so which is hereby expressly vested in the Board of Directors.
(d) Upon adoption by the Board of Directors of a resolution or
resolutions regarding Preferred Stock, a Certificate of Designation of
Preferences and Rights of Preferred Stock, setting forth the voting powers,
designations, preferences, rights, qualifications and limitations with respect
to Preferred Stock, shall be filed with the appropriate Delaware authorities,
and, once filed, such Certificate of Designation shall be incorporated as an
integral part of this Article Fifth and may not be amended or changed without
the consent of a majority of the outstanding shares of such series of Preferred
Stock then outstanding.
(e) Except as otherwise provided in any resolution or resolutions of
the Board of Directors providing for the issuance of any particular series of
Preferred Stock, the number of shares of stock of any such series so set forth
in such resolution or resolutions may be increased (but not above the total
number of authorized shares of Preferred Stock) or decreased (but not below the
number of shares of such series then outstanding) by a resolution or resolutions
likewise adopted by the Board of Directors.
(f) Except as otherwise provided in any resolution or resolutions of
the Board of Directors providing for the issuance of any particular series of
Preferred Stock, Preferred Stock redeemed or otherwise acquired by the
Corporation shall assume the status of authorized but unissued Preferred Stock
and shall be unclassified as to series and may thereafter, subject to the
provisions of this Article Fifth and to any restrictions contained in any
resolution or resolutions of the Board of Directors providing for the issuance
of any such series of Preferred Stock, be reissued in the same manner as other
authorized but unissued Preferred Stock.
SIXTH. The Corporation is to have perpetual existence.
SEVENTH. The private property of the stockholders shall not be subject
to the payment of corporate debts to any extent whatever.
EIGHTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, alter or
repeal the By-Laws of the Corporation.
-3-
<PAGE>
NINTH. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors, and
of the stockholders or class of stockholders of the Corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
TENTH. Meetings of the stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the By-Laws of the Corporation. Elections of
Directors need not be by written ballot unless the By-Laws of the Corporation
shall so provide.
ELEVENTH. The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH. To the fullest extent permitted by the General Corporation Law
of the State of Delaware, as the same exists or may hereafter be amended, a
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. No amendment to or repeal of this Article Twelfth shall apply to, or
have any effect on, the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
THIRTEENTH. The business of the Corporation shall be managed under the
direction of a Board of Directors in accordance with the following:
(a) The number of directors constituting the entire Board of
Directors shall be not less than three (3) directors, nor more than fifteen (15)
directors, the exact number within such limits to be determined from time to
time by resolution adopted by the affirmative vote of a majority of the entire
Board of Directors, provided however, that the number of directors shall not be
-4-
<PAGE>
reduced so as to shorten the term of any director at that time in office, and
provided further, that the number of directors constituting the entire Board of
Directors shall be six (6) until otherwise fixed by a majority of the entire
Board of Directors.
(b) The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. All classes shall be as nearly
equal in number as possible, and no class shall include less than one (1)
director. The terms of office of the directors initially classified shall be as
follows: at the 1990 annual meeting of stockholders, Class I directors shall be
elected for a one-year term expiring at the next annual meeting of
stockholders; Class II directors for a two-year term expiring at the second
succeeding annual meeting of stockholders; and Class III directors for a three-
year term expiring at the third succeeding annual meeting of stockholders. At
each annual meeting of stockholders after such initial classification, directors
to replace those whose terms expire at such annual meeting shall be elected to
hold office until the third succeeding annual meeting. Each director shall hold
office until the expiration of that director's term and until that director's
successor is elected and qualifies or until that director's earlier death,
resignation or removal. If the number of directors is changed in accordance with
the terms of this Certificate of Incorporation, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal in number as possible.
(c) Nominations of candidates for election as directors of the
Corporation at any meeting of the stockholders at which election of one or
more directors shall be held (an "Election Meeting") may be made by or at the
direction of the Board of Directors or by any stockholder entitled to vote at
such Election Meeting, in accordance with the following procedures. Nominations
made by or at the direction of the Board of Directors may be made at any time.
At the request of the Secretary of the Corporation, each proposed nominee shall
provide the Corporation with such information concerning the proposed nominee as
is required, under the rules of the Securities and Exchange Commission, to be
included in the Corporation's proxy statement soliciting proxies for the
nominee's election as a director. Nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. Not less than forty-five (45)
days nor more than ninety (90) days prior to the date of the Election Meeting
any stockholder who intends to make a nomination at the Election Meeting shall
deliver a notice to the Secretary of the Corporation setting forth (1) the
name, age, business address and residence address of each nominee proposed in
such notice, (2) the principal occupation or employment of each such nominee,
(3) the number and type of shares of stock of the Corporation which are
beneficially owned by each such nominee, and (4) such other information
concerning each such nominee as would be required, under the rules of the
Securities and Exchange Commission, in a proxy statement soliciting proxies for
the election of such nominees. Such notice shall include a signed consent of
each such nominee to serve as a director of the Corporation, if elected. In the
event that a person who is validly designated as a nominee in accordance with
this paragraph shall thereafter become unable or unwilling to stand for election
to the Board of Directors, the Board of Directors may designate a substitute
nominee. If the Chairman of the Election Meeting determines that a nomination
was not made in accordance with the foregoing procedures, such nomination shall
be void.
-5-
<PAGE>
(d) Any vacancies in the Board of Directors for any reason, and any
directorships resulting from any increase in the number of directors, may be
filled by the Board of Directors, acting by a majority of the directors then in
office, although less than a quorum, and any director so chosen shall hold
office until the next election of the class for which such director shall have
been chosen and until such director's successor shall be elected and shall
qualify.
(e) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), any director or the entire
Board of Directors may be removed at any time by the affirmative vote of a
majority of the outstanding shares of stock of the Corporation entitled to vote
on that matter, but only for cause.
(f) Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of Preferred Stock issued by the Corporation shall have
the right, voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto (including the
resolutions adopted by the Board of Directors pursuant to Article Fifth), and
such directors so elected shall not be divided into classes pursuant to
paragraph (b) of this Article Thirteenth unless expressly provided by such
terms.
(g) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), any proposal to amend or
repeal, or adopt any provision inconsistent with, this Article Thirteenth or any
provision hereof shall require the affirmative vote of the holders of seventy-
five percent (75%) or more of the outstanding shares of stock of the Corporation
entitled to vote on such matter.
FOURTEENTH. No action required to be taken or which may be taken at
any annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
FIFTEENTH. (a) In addition to any affirmative vote required by law, by
this Certificate of Incorporation or otherwise, and except as expressly provided
in paragraph (b) of this Article Fifteenth, approval of any Business Combination
(such term and other capitalized terms used in this Article Fifteenth being
defined in paragraph (c) of this Article Fifteenth) shall require the
affirmative vote of at least two-thirds of the Voting Shares, voting together as
a single class, excluding Voting Shares beneficially owned by the interested
Stockholder involved in such Business Combination. Such affirmative vote shall
be required notwithstanding the fact that no vote may be required or that a
lesser percentage or a separate class vote may be specified by law, agreement or
otherwise.
-6-
<PAGE>
(b) Paragraph (a) of this Article Fifteenth shall not apply to a
particular Business Combination, if all of the conditions specified in
either subparagraph (1) or (2) below are met:
(1) The Business Combination has been approved by a majority of
the Continuing Directors; or
(2) Both of the following conditions are met:
----
(A) The aggregate amount of cash and the Fair Market Value,
determined as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per
share by holders of Common Stock in such Business Combination shall
be at least equal to the highest of the following:
(i) The highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid
by the Interested Stockholder for any Voting Shares acquired
by it (a) within the two-year period immediately prior to the
date of the first public announcement of the proposed Business
Combination, or (b) in the transaction in which it became an
Interested Stockholder, whichever is higher;
(ii) The Fair Market Value per share of Common Stock on
the date of the first public announcement of the proposed
Business Combination or on the date on which the Interested
Stockholder became an Interested Stockholder, whichever is
higher; or
(iii) The per share book value of the Common Stock as
reported at the end of the fiscal quarter immediately
preceding the date of the first public announcement of the
proposed Business Combination.
The price determined in accordance with clauses (i), (ii) and (iii)
above shall be subject to appropriate adjustment in the event of any
stock split, stock dividend, subdivision or reclassification with
respect to Common Stock.
(B) The consideration, to be received by holders of Common
Stock in the Business Combination shall be either all cash or cash and
non-cash consideration in the same form as previously paid by the
Interested Stockholder in connection with its acquisition of Beneficial
Ownership of shares of Common Stock of the Corporation. If the
consideration paid for the Common Stock by the Interested Stockholder
varied as to form, the form of consideration to be paid in the Business
Combination shall be either cash or the same type of consideration used
to acquire the largest number of shares of Common Stock previously
acquired by the Interested Stockholder. The non-cash portion, if any, of
the consideration to be paid in the Business Combination shall not be
greater than the non-cash portion of consideration paid by the
Interested Stockholder in connection
-7-
<PAGE>
with its acquisition of Beneficial Ownership of the largest number of
shares of Common Stock of the Corporation. The value of any non-cash
consideration to be paid in the Business Combination shall be determined
as of the date of consummation of the Business Combination.
(c) For the purposes of this Article Fifteenth, the following terms when
capitalized shall have the following meanings:
(1) "Affiliate" of any Person shall mean and include any other Person
that, directly or indirectly, or through one or more intermediaries,
controls, or is controlled by, or is under common control with such Person,
including without limitation an officer, director, general partner or
Beneficial Owner of ten percent (10%) or more of any class of equity
securities of such Person or any parent or Subsidiary thereof, and the
spouse or other relative who has the same home as such Person.
(2) "Beneficial Owner" of a Voting Share shall mean a Person and its
Affiliates who, directly or indirectly, have:
(A) The power to vote or direct the voting of such Voting Share;
(B) Investment power to dispose of or direct the disposition of such
Voting Share; or
(C) The right to become the Beneficial Owner of such Voting Share
within sixty (60) days.
(3) "Business Combination" shall mean any of the following:
(A) Any merger or consolidation of the Corporation or any Subsidiary
with or into (i) any Interested Stockholder or (ii) any other corporation
which is or, after such merger or consolidation, would be an Interested
Stockholder or an Affiliate of an Interested Stockholder;
(B) Any sale, lease, exchange, mortgage, pledge, transfer or other
disposition to or with any Interested Stockholder or any Affiliate of any
Interested Stockholder of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value of One Million Dollars ($1,000,000)
or more in one transaction or a series of related transactions;
(C) The issuance or transfer by the Corporation or any Subsidiary of
any securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof) having an
aggregate Fair Market Value of One Million Dollars ($1,000,000) or more in
one transaction or a series of related transactions;
-8-
<PAGE>
(D) Adoption of any plan for the liquidation or dissolution of the
Corporation proposed by or on behalf of any Interested Stockholder or any
Affiliate of any Interested Stockholder;
(E) Any reclassification of securities (including any stock split or
reverse stock split) or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any Subsidiary or any similar
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
of equity or convertible securities of the Corporation or any Subsidiary
which is directly or indirectly owned by any Interested Stockholder or any
Affiliate of any Interested Stockholder; or
(F) Any agreement, contract or other arrangement providing for any of
the transactions described in this definition of Business Combination.
(4) "Continuing Director," with respect to any particular Business
Combination with, or proposed by or on behalf of, any Interested Stockholder
or any Affiliate of any Interested Stockholder or any person who thereafter
would be an Affiliate of any Interested Stockholder, means any member of the
Board of Directors of the Corporation, while such person is a member of the
Board of Directors, who is not an Affiliate or representative of such
Interested Stockholder and was a member of the Board of Directors prior to
the time that such Interested Stockholder became an Interested Stockholder,
and any successor of a Continuing Director, while such successor is a member
of the Board of Directors, who is not an Affiliate or representative of such
Interested Stockholder and is recommended or elected to succeed the
Continuing Director by a majority of Continuing Directors.
(5) "Fair Market Value" shall mean:
(A) In the case of stock, the highest closing sale price during the
30-day period immediately preceding the date in question of a share of
such stock on the Composite Tape for New York Stock Exchange-Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York
Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States Securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is
not listed on any such exchange, the highest closing sale price with
respect to a share of stock during the 30-day period preceding the date in
question as reported by the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") or any similar system then in
use, or if no such sale prices are available, the highest of the means
between the last reported bid and ask price with respect to a share of such
stock on each day during the 30-day period preceding the date in question
as reported by NASDAQ, or if no such quotations are available, the fair
market
-9-
<PAGE>
value on the date in question of a share of such stock as determined in
good faith by a majority of the Continuing Directors; and
(B) In the case of property other than cash or stock, the fair market
value of such property on the date in question as determined in good faith
by a majority of the Continuing Directors.
(6) "Interested Stockholder" shall mean any Person (other than the
Corporation or any corporation of which a majority of each class of equity
securities is owned, directly or indirectly, by the Corporation) which, as
of the record date for the determination of stockholders entitled to notice
of and to vote on a Business Combination, or immediately prior to the
consummation of any such transaction:
(A) Is the Beneficial Owner, directly or indirectly, of more than ten
percent (10%) of the Voting Shares; or
(B) Is an Affiliate of the Corporation and at any time within two
years prior thereto was the Beneficial Owner, directly or indirectly, of
not less than ten percent (10%) of the then outstanding Voting Shares; or
(C) Is an assignee of or successor in interest to any shares of
capital stock of the Corporation which were at any time within two years
prior thereto Beneficially Owned by any Interested Stockholder, and such
assignment or succession shall have occurred in the course of a transaction
or series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
(7) "Person" shall mean any individual, corporation, partnership or
other entity.
(8) "Subsidiary" shall mean any corporation of which a majority of the
outstanding shares of any class of equity securities is owned directly or
indirectly by the Corporation.
(9) "Voting Shares" shall mean all issued and outstanding shares of
equity securities and all rights to acquire any equity securities which are
generally entitled to vote in the election of directors. The number of
Voting Shares deemed to be outstanding shall include shares of which an
Interested Stockholder is deemed to be the Beneficial Owner, but shall not
include any other Voting Shares which may be issuable to other persons
pursuant to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(10) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received," as used
in paragraph
-10-
<PAGE>
(b)(2)(A) of this Article Fifteenth, shall include the shares of Common
Stock and/or the shares of any other class or series of capital stock
retained by the holders of such shares.
(d) A majority of the Continuing Directors shall have the power and duty
to determine in good faith, for the purposes of this Article Fifteenth, on the
basis of information known to them, (1) whether a Person is an Interested
Stockholder, (2) the number of Voting Shares of which any Person is the
Beneficial Owner, (3) whether a Person is an Affiliate of another, (4) whether
a Person has the power to vote or dispose of Voting Shares or to direct the
voting or disposition of Voting Shares, (5) whether the assets subject to any
Business Combination or the consideration received for the issuance or transfer
of securities by the Corporation or any Subsidiary in any Business Combination
has an aggregate Fair Market Value of One Million Dollars ($1,000,000) or
more, or (6) whether a Person has the right to become the Beneficial Owner of
Voting Shares. A majority of the entire Board of Directors shall have the power
and duty to determine in good faith, for the purposes of this Article Fifteenth,
on the basis of information known to them, whether a director is a Continuing
Director.
(e) Nothing contained in this Article Fifteenth shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by law.
(f) Notwithstanding any other provisions of this Certificate of
Incorporation or the By-Laws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation), any proposal to amend, repeal,
or adopt any provision inconsistent with, this Article Fifteenth or any
provision hereof shall require the affirmative vote of the holders of seventy-
five percent (75%) or more of the Voting Shares, voting together as a single
class, excluding, when such proposal is made by or on behalf of an Interested
Stockholder or its Affiliates, the Voting Shares beneficially owned by such
Interested Stockholder, unless such amendment, repeal or adoption is declared
advisable by the affirmative vote of (1) two-thirds of the entire Board of
Directors, and (2) a majority of the Continuing Directors.
IN WITNESS WHEREOF, the undersigned have set their hands this 5th day of
June, 1990.
/s/ Jo Bob Hille
----------------------
Jo Bob Hille
President
ATTEST:
/s/ William C. Barnes
- -----------------------------
William C. Barnes, Secretary
-11-
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,008
<SECURITIES> 0
<RECEIVABLES> 55,867
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,773
<PP&E> 1,161,957
<DEPRECIATION> 320,498
<TOTAL-ASSETS> 935,851
<CURRENT-LIABILITIES> 75,360
<BONDS> 445,983
0
0
<COMMON> 129
<OTHER-SE> 348,389
<TOTAL-LIABILITY-AND-EQUITY> 935,851
<SALES> 199,415
<TOTAL-REVENUES> 199,077
<CGS> 80,986
<TOTAL-COSTS> 80,986
<OTHER-EXPENSES> 54,502
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,952
<INCOME-PRETAX> 45,637
<INCOME-TAX> 10,212
<INCOME-CONTINUING> 35,222
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 35,222
<EPS-PRIMARY> 1.36
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