UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-9971
BURLINGTON RESOURCES INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1413284
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5051 Westheimer, Suite 1400, Houston, Texas 77056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 624-9500
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 issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding
Common Stock, par value $.01 per share,
as of March 31, 1998 177,096,233
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
-------------------
1998 1997
------ ------
(In Millions, Except per Share Amounts)
<S> <C> <C>
Revenues .................................. $ 432 $ 568
Costs and Expenses ........................ 333 361
---- ----
Operating Income .......................... 99 207
Interest Expense .......................... 36 36
Other Income - Net ........................ 3 -
---- ----
Income Before Income Taxes ................ 66 171
Income Tax Expense ........................ 18 40
----- -----
Net Income ................................ $ 48 $ 131
===== =====
Basic Earnings per Common Share ........... $ .27 $ .74
===== =====
Diluted Earnings per Common Share ......... $ .27 $ .73
===== =====
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BURLINGTON RESOURCES INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
------- ------------
(In Millions, Except Share Data)
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents ............................................ $ 74 $ 152
Short-term Investments ............................................... 78 83
Accounts Receivable .................................................. 335 376
Inventories .......................................................... 41 39
Other Current Assets ................................................. 31 28
------ ------
559 678
------ ------
Oil & Gas Properties (Successful Efforts Method) ....................... 8,809 8,666
Other Properties ....................................................... 694 689
------ ------
9,503 9,355
Accumulated Depreciation, Depletion and Amortization ................. 4,411 4,315
------ ------
Properties - Net .................................................. 5,092 5,040
------ ------
Other Assets ........................................................... 112 103
------ ------
Total Assets .................................................... $5,763 $5,821
====== ======
LIABILITIES
Current Liabilities
Accounts Payable ..................................................... $ 266 $ 395
Taxes Payable ........................................................ 82 71
Accrued Interest ..................................................... 47 28
Dividends Payable .................................................... 24 24
Deferred Revenue ..................................................... 18 19
Other Current Liabilities ............................................ 1 1
------ ------
438 538
------ ------
Long-term Debt ......................................................... 1,748 1,748
------ ------
Deferred Income Taxes .................................................. 209 203
------ ------
Deferred Revenue ....................................................... 52 56
------ ------
Other Liabilities and Deferred Credits ................................. 267 260
------ ------
Commitments and Contingent Liabilities
STOCKHOLDERS' EQUITY
Preferred Stock, Par Value $.01 Per Share
(Authorized 75,000,000 Shares; No Shares Issued) .................... -- --
Common Stock, Par Value $.01 Per Share
(Authorized 325,000,000 Shares; Issued 202,795,635 Shares) .......... 2 2
Paid-in Capital ........................................................ 3,000 3,001
Retained Earnings ...................................................... 1,074 1,051
------ ------
4,076 4,054
Cost of Treasury Stock
(25,699,402 and 26,087,134 Shares for 1998 and 1997, respectively) ... 1,027 1,038
------ ------
Stockholders' Equity ................................................... 3,049 3,016
------ ------
Total Liabilities and Stockholders' Equity ....................... $5,763 $5,821
====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BURLINGTON RESOURCES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER
-------------------
1998 1997
------ ------
(In Millions)
<S> <C> <C>
Cash Flows From Operating Activities
Net Income .................................................................. $ 48 $ 131
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities
Depreciation, Depletion and Amortization .................................. 131 137
Deferred Income Taxes ..................................................... 8 9
Exploration Costs ......................................................... 54 61
Working Capital Changes
Accounts Receivable ....................................................... 41 190
Inventories ............................................................... (2) (7)
Other Current Assets ...................................................... (3) (8)
Accounts Payable .......................................................... (129) (88)
Taxes Payable ............................................................. 11 17
Accrued Interest .......................................................... 19 19
Other Current Liabilities ................................................. (1) (27)
Other ....................................................................... 59 (19)
------- -------
Net Cash Provided By Operating Activities ........................... 236 415
------- -------
Cash Flows From Investing Activities
Additions to Properties ..................................................... (245) (203)
Short-term Investments ...................................................... 5 -
Proceeds from Sales and Other ............................................... (45) 61
------- -------
Net Cash Used In Investing Activities ............................... (285) (142)
------- -------
Cash Flows From Financing Activities
Reduction in Long-term Debt ................................................. - (78)
Dividends Paid .............................................................. (24) (19)
Common Stock Purchases ...................................................... - (25)
Other. ...................................................................... (5) 7
------- -------
Net Cash Used In Financing Activities ............................... (29) (115)
------- -------
Increase (Decrease) in Cash and Cash Equivalents .............................. (78) 158
Cash and Cash Equivalents
Beginning of Year ........................................................... 152 77
------- -------
End of Period ............................................................... $ 74 $ 235
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BURLINGTON RESOURCES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The 1997 Annual Report on Form 10-K of Burlington Resources Inc. (the
"Company") includes certain definitions and a summary of significant accounting
policies and should be read in conjunction with this Quarterly Report on Form
10-Q ("Quarterly Report"). The financial statements for the periods presented
herein are unaudited, condensed and do not contain all information required by
generally accepted accounting principles to be included in a full set of
financial statements. In the opinion of management, all material adjustments
necessary to present fairly the results of operations have been included. All
such adjustments are of a normal, recurring nature. The results of operations
for any interim period are not necessarily indicative of the results of
operations for the entire year. The consolidated financial statements include
certain reclassifications that were made to conform to current presentation.
Amounts related to the first quarter of 1997 have been restated to include the
combined business activities for the Company and The Louisiana Land and
Exploration Company ("LL&E").
Basic earnings per common share ("EPS") is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. The weighted average number of common shares
outstanding for computing basic EPS was 177 million for the first quarter of
1998 and 1997. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. The weighted average number of common shares outstanding for
computing diluted EPS, including dilutive stock options, was 178 million for the
first quarter of 1998 and 1997. No adjustments were made to reported net income
in the computation of EPS.
2. COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries are involved in several proceedings
challenging the Company's payment of royalties for its crude oil and natural gas
production.
The Company has entered into settlement agreements in two private class
action lawsuits with respect to the payment of royalties for natural gas and
crude oil. On May 25, 1995, the 270th Judicial District Court of Harris County,
Texas entered an order in a lawsuit styled Caroline Altheide, et al. v. Meridian
Oil Inc., et al., which allowed the suit to be maintained as a class action on
behalf of all royalty and overriding royalty interest owners in all of the
properties of Burlington Resources Oil & Gas Company, a subsidiary of the
Company which was formerly known as Meridian Oil Inc. ("BROG"), and all working
interest owners in properties operated by BROG who received payments from BROG
at any time from and after December 1, 1986 based upon wellhead sales of natural
gas to its affiliate Burlington Resources Trading Inc. ("BRTI"). The lawsuit
involves claims for unspecified actual and punitive damages based upon alleged
breaches of duties owed to interest owners because of the use of corporate
affiliates to gather, treat and market natural gas. The plaintiffs allege that
BROG's gas producing affiliates have sold natural gas to marketing affiliates at
below market prices which were then used as the basis for accounting to interest
owners. Plaintiffs also allege that BROG's pricing includes inappropriate
deductions of gathering and transportation costs. BROG has consistently denied
liability. On August 6, 1996, the parties executed a settlement agreement and
the trial court entered a Judgment giving final approval to the terms of the
settlement agreement on November 12, 1996. Four class members who objected to
5
<PAGE>
the settlement filed a motion for a new trial or, in the alternative, to modify,
alter or amend judgment. On December 16, 1996, the trial court entered an order
denying the motion. The objectors purported to perfect an appeal of the Judgment
and on July 24, 1997, the Fourteenth Court of Appeals of the State of Texas
dismissed the appeal. On October 17, 1997, the objectors filed a Petition for
Review with The Supreme Court of Texas ("Court"). The Court has not acted to
either grant or deny the Petition for Review but has requested that the parties
file legal briefs on the issue of the objectors standing to appeal the Judgment.
The Company and the plaintiffs intend to defend this appeal vigorously.
On November 20, 1997, the Company and several other defendants entered
into a settlement agreement in a lawsuit styled as The McMahon Foundation, et
al. v. Amerada Hess Corporation, et al. This lawsuit is a proposed class action
consisting of both working interest owners and royalty owners against numerous
defendants, all of which are oil companies and/or purchasers of oil from oil
companies, including BROG and LL&E, a subsidiary of the Company. The plaintiffs
allege that the defendants conspired to fix, depress, stabilize and maintain at
artificially low levels the prices paid for oil by, among other things, setting
their posted prices at arbitrary levels below competitive market prices, and
that the defendants paid royalties based on the purchase by the oil companies'
marketing affiliates at posted prices rather than the gross proceeds ultimately
received by such marketing affiliates. Under the settlement agreement, the
Company's share of the settlement payment would be approximately $4.9 million.
Cases involving similar allegations have been filed in federal courts in other
states. On January 14, 1998, the United States Judicial Panel on Multidistrict
Litigation issued an order consolidating these cases and transferring the
McMahon case to the United States District Court for the Southern District of
Texas in Corpus Christi, where a consolidated resolution of the issues will be
sought.
The Company is also involved in several governmental proceedings
relating to the payment of royalties. Various administrative proceedings are
pending before the Minerals Management Service ("MMS") of the United States
Department of the Interior with respect to the proper valuation of oil and gas
produced on federal and Indian lands for purposes of paying royalties on
production sold by BROG to its marketing affiliate, BRTI, or gathered by its
affiliate Burlington Resources Gathering Inc. ("BRGI"). In general, these
proceedings stem from regular MMS audits of the Company's royalty payments over
various periods of time and involve the interpretation of the relevant federal
regulations. Most of these administrative proceedings currently have been
suspended pending negotiations between the Company and the MMS to resolve their
disputes regarding the appropriate valuation methodology.
In late February 1998, the Company and numerous other oil and gas
companies received a complaint filed in a lawsuit in the United States District
Court for the Eastern District of Texas in Lufkin styled as United States of
America ex rel J. Benjamin Johnson, Jr., et al v. Shell Oil Company, et al.
alleging violations of the civil False Claims Act. The United States has
intervened in this lawsuit as to some of the defendants, including the Company,
and has filed a separate complaint. This suit alleges that the Company underpaid
royalties for crude oil produced on federal and Indian lands through the use of
below-market posted prices in the sale of oil from BROG to BRTI. The suit
alleges that royalties paid by BROG based on these posted prices were lower than
the royalties allegedly required to be paid under federal regulations, and that
the forms filed by BROG with the MMS reporting the royalties paid were false,
thereby violating the civil False Claims Act. In addition, the Company has been
advised that it is a target of an investigation and has responded to various
grand jury subpoenas duces tecum in connection with an investigation by the
United States Attorney for the District of Wyoming into the alleged underpayment
of oil and gas royalties. The Company is cooperating with the investigation.
Based on the Company's present understanding of the various
governmental proceedings, the Company believes that it has substantial defenses
to these claims and the Company intends to vigorously assert such defenses.
6
<PAGE>
The Company and its subsidiaries are named defendants in numerous
lawsuits and named parties in numerous governmental proceedings arising in the
ordinary course of business. While the outcome of lawsuits and other proceedings
cannot be predicted with certainty, management expects these matters, including
the above-described litigation, will not have a materially adverse effect on the
consolidated financial position or results of operations of the Company.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition and Liquidity
The total long-term debt to capital (total long-term debt and
stockholders' equity) ratio at March 31, 1998 and December 31, 1997 was 36
percent and 37 percent, respectively.
During the first quarter of 1998, the Company renegotiated its bank
lines of credit, increasing the commitments thereunder to $1 billion from $900
million. The Company's credit facilities are comprised of a $600 million
revolving credit agreement that expires in February 2003 and a $400 million
revolving credit agreement that expires in February 1999. The $400 million
revolving credit agreement is renewable annually by mutual consent. As of March
31, 1998, there were no borrowings outstanding under the credit facilities. The
Company also has the capacity to issue $500 million of debt securities under a
shelf registration statement filed with the Securities and Exchange Commission.
Net cash provided by operating activities for the first three months of
1998 was $236 million compared to $415 million in 1997. The decrease was
primarily due to significantly lower operating income and working capital and
other changes.
As of March 31, 1998, the Company had $78 million invested in
highly-liquid debt securities with maturities of more than three months. These
short-term investments when combined with cash and cash equivalents equaled $152
million as of March 31, 1998.
The Company is involved in certain environmental proceedings and other
related matters. Although it is possible that new information or future
developments could require the Company to reassess its potential exposure
related to these matters, the Company believes, based upon available
information, the resolution of these issues will not have a materially adverse
effect on the consolidated financial position or results of operations of the
Company.
Capital Expenditures
Capital expenditures for the first three months of 1998 totaled $245
million compared to $203 million in 1997. Capital expenditures, excluding proved
property acquisitions, are currently projected to be approximately $1.15 billion
for all of 1998 and are expected to be primarily for the development and
exploration of oil and gas properties and plant and pipeline expenditures.
Capital expenditures will be funded from internal cash flow supplemented, if
needed, by external financing.
7
<PAGE>
Dividends
On April 8, 1998, the Board of Directors declared a common stock
quarterly dividend of $.1375 per share, payable July 1, 1998.
Results of Operations - First Quarter 1998 Compared to First Quarter 1997
The Company reported net income of $48 million or $.27 per share for
the first quarter of 1998 compared to $131 million or $.74 per share in 1997.
Operating income for the first quarter of 1998 was $99 million compared to $207
million in 1997.
Revenues were $432 million for the first quarter of 1998 compared to
$568 million in 1997. Natural gas sales prices decreased 17 percent to $2.03 per
MCF and gas sales volumes decreased 5 percent to 1,648 MMCF per day which
decreased revenues $62 million and $18 million, respectively. Average oil sales
prices decreased 29 percent to $15.26 per barrel and oil sales volumes decreased
5 percent to 86.1 MBbls per day which decreased revenues $48 million and $8
million, respectively. Gas and oil sales volumes decreased primarily due to the
sales of the oil and gas properties associated with the Company's 1996
divestiture program which was completed during the second quarter of 1997.
Costs and expenses were $333 million for the first quarter of 1998
compared to $361 million in 1997. The decrease was primarily due to a $13
million decrease in production and processing expenses resulting from a 5
percent decrease in 1998 production levels, a $7 million decrease in exploration
costs, a $6 million decrease in depreciation, depletion and amortization, and a
$2 million decrease in general and administrative expenses.
The effective income tax rate was an expense of 28 percent for the
first quarter of 1998 compared to 24 percent in 1997. The increased tax expense
in 1998 is primarily a result of lower non-conventional fuel tax credits.
Other Matters
In March 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, which is effective
for fiscal years beginning after December 15, 1997. This statement revises
employers' disclosures about pension and other postretirement benefit plans. It
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefits obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer as
useful as they were when SFAS No. 87 and No. 88 were issued. The Company plans
to adopt SFAS No. 132 for the year ended December 31, 1998.
Forward-looking Statements
This Quarterly Report contains projections and other forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934. These projections and statements reflect the Company's current views with
respect to future events and financial performance. No assurances can be given,
however, that these events will occur or that these projections will be achieved
and actual results could differ materially from those projected as a result of
certain factors. A discussion of these factors is included in the Company's 1997
Annual Report on Form 10-K.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note 2 of Notes to Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on March 26, 1998. The
following were nominated and elected to serve as Directors of
Burlington Resources Inc. for a term of one year or until their
successors shall have been duly elected and qualified:
Nominee For Withheld
J. V. Byrne 153,938,304 1,516,122
S. P. Gilbert 153,967,365 1,487,061
L. I. Grant 153,975,892 1,478,534
J. T. LaMacchia 153,970,658 1,483,768
J. F. McDonald 153,993,684 1,460,742
K. W. Orce 153,952,505 1,501,921
D. M. Roberts 153,986,328 1,468,098
J. F. Schwarz 153,971,272 1,483,154
W. Scott, Jr. 153,939,021 1,515,405
B. S. Shackouls 153,938,010 1,516,416
H. L. Steward 153,861,517 1,592,909
W. E. Wall 153,946,335 1,508,091
9
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ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
The following exhibits are filed as part of this report.
Exhibit Nature of Exhibit Page
4.1 The Company and its subsidiaries either *
have filed with the Securities and Exchange
Commission or upon request will furnish
a copy of any instrument with respect to
long-term debt of the Company.
27.1 Financial Data Schedule **
* Exhibit incorporated by reference.
** Exhibit required only for filings made electronically using the Securities
and Exchange Commission's EDGAR System.
B. Reports on Form 8-K
On January 5, 1998, the Company filed Form 8-K/A No. 1 to provide
certain pro forma financial information related to the Agreement
and Plan of Merger with The Louisiana Land and Exploration
Company.
Items 2, 3 and 5 of Part II are not applicable and have been omitted.
10
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) 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.
BURLINGTON RESOURCES INC.
(Registrant)
By /s/ John E. Hagale
John E. Hagale
Executive Vice President and
Chief Financial Officer
By /s/ Philip W. Cook
Philip W. Cook
Vice President, Controller and
Chief Accounting Officer
Date: April 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED
FROM THE BURLINGTON RESOURCES INC. CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 1998 AND THE RELATED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTH
PERIOD ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 74
<SECURITIES> 78
<RECEIVABLES> 335
<ALLOWANCES> 0
<INVENTORY> 41
<CURRENT-ASSETS> 559
<PP&E> 9,503
<DEPRECIATION> 4,411
<TOTAL-ASSETS> 5,763
<CURRENT-LIABILITIES> 438
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 3,047
<TOTAL-LIABILITY-AND-EQUITY> 5,763
<SALES> 432
<TOTAL-REVENUES> 432
<CGS> 333
<TOTAL-COSTS> 333
<OTHER-EXPENSES> (3)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 66
<INCOME-TAX> 18
<INCOME-CONTINUING> 48
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
