<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 17, 2000
-------------------------
North Coast Energy, Inc.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-18691 34-1594000
- -------------------- --------- ------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
1993 Case Parkway, Twinsburg, Ohio 44087-2343
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Registrant's telephone number, including area code: (330) 425-2330
--------------------
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
As previously reported by the Company on the Company's Form 8-K dated
March 22, 2000, on March 17, 2000, the Company acquired Peake Energy, Inc.
("Peake") through a purchase of all of Peake's outstanding capital stock (the
"Acquisition") from Belden & Blake Corporation ("BBC"). The Acquisition was
consummated pursuant to a Stock Purchase Agreement dated March 17, 2000 between
the Company and BBC, with an effective date of January 1, 2000.
The purchase price for the Peake stock was $72.5 million subject to
various adjustments and escrowed amounts. The Company paid the purchase price in
full in cash at closing, with approximately $5,126,000 being deposited in escrow
pending the receipt of certain consents.
The purchase price was determined through arm's-length negotiation
between the Company and BBC and was based upon the Company's valuation of
Peake's business and assets. There were no material relationships between the
Company, its officers, directors or affiliates, and BBC or its officers,
directors and affiliates.
The cash paid in connection with the Acquisition was derived from loans
which the Company obtained from Nuon International Projects B.V., the Company's
majority stockholder. On March 17, 2000, Nuon loaned $72.5 million to the
Company in the form of a $48.5 million Non-Negotiable Subordinated Promissory
Note and a $24.0 million Non-Negotiable Subordinated Convertible Promissory
Note. Interest on both Notes is payable semi-annually and accrues at the
applicable LIBOR Rate. The principal amount of each Note is payable on February
28, 2015. The Convertible Note affords Nuon the right, at its election, to
convert the principal amount of the Note to shares of the Company's common stock
at any time based upon an exchange price of $2.50 per share. Any issuance of
Company stock in connection with such a conversion election is subject to
stockholder approval. Both Notes are subordinated to the Company's senior debt.
Nuon has the right to secure the indebtedness considered by the Notes by a lien
on Peake's assets, subject to the rights of the senior lender. The Company
agreed to grant Nuon registration rights for shares issued in the conversion.
Nuon exercised its right under the Convertible Note to convert the Note
into 9,600,000 shares of the Company's common stock. Shareholder approval
pursuant to the Company's Information Statement on Schedule 14C was obtained on
May 3, 2000 and the 9,600,000 shares of the Company's common stock were issued
to Nuon on May 4, 2000.
BUSINESS OF PEAKE. Peake owns properties in West Virginia, Kentucky and
Virginia. These properties consist of approximately 1,900 wells and in excess of
900 miles of natural gas gathering lines.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
-------------------------------------------------------------------
(a) Financial Statements of Businesses Acquired. Page
------------------------------------------- ----
Report of Independent Auditors 4
Peake Energy, Inc. Balance Sheets 5
2
<PAGE> 3
Page
----
Peake Energy, Inc. Statements of Operations 6
Peake Energy, Inc.
Statement of Changes in Belden & Blake Investment 7
Peake Energy, Inc. Statements of Cash Flows 8
Peake Energy, Inc. Notes to Financial Statements 9
(b) Pro Forma Financial Information.
--------------------------------
Incorporated by reference to the pro forma financial
information presented in the Company's Information
Statement on Schedule 14C, dated April 12, 2000.
(c) Exhibits.
---------
2.1 Stock Purchase Agreement, dated March 17, 2000, between North
Coast Energy, Inc. and Belden & Blake Corporation (1)
4.1 Non-Negotiable Subordinated Promissory Note (1)
4.2 Non-Negotiable Subordinated Convertible Promissory Note (1)
99.1 Press Release dated March 20, 2000 (1)
99.2 The Company's Information Statement on Schedule 14C, dated
April 12, 2000 (2)
(1) Incorporated by reference to the corresponding exhibit to the
Company's Form 8-K dated March 22, 2000.
(2) Previously filed.
3
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
To the Shareholder of Peake Energy, Inc.
We have audited the accompanying balance sheets of Peake Energy, Inc.
("Successor Company") as of December 31, 1999 and 1998, and the related
statements of operations, changes in Belden & Blake investment and cash flows
for the years ended December 31, 1999 and 1998 and the six month period ended
December 31, 1997 ("Successor periods"). We have also audited the accompanying
statements of operations, changes in Belden & Blake investment and cash flows of
Peake Energy, Inc. ("Predecessor Company") for the six month period ended June
30, 1997 ("Predecessor period"). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Peake Energy, Inc. at December
31, 1999 and 1998 and the results of its operations and its cash flows for the
Successor periods and the Predecessor period in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
March 27, 2000
4
<PAGE> 5
PEAKE ENERGY, INC.
BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 108 $ 189
Accounts receivable, net 3,669 3,849
Inventories 272 437
Deferred income taxes 506 643
Other current assets 13 20
-------- --------
TOTAL CURRENT ASSETS 4,568 5,138
PROPERTY AND EQUIPMENT, AT COST
Oil and gas properties (successful efforts method) 135,025 135,659
Gas gathering systems 8,752 8,676
Land, buildings, machinery and equipment 2,096 2,082
-------- --------
145,873 146,417
Less accumulated depreciation, depletion and amortization 92,949 87,695
-------- --------
PROPERTY AND EQUIPMENT, NET 52,924 58,722
OTHER ASSETS 33 33
-------- --------
$ 57,525 $ 63,893
======== ========
LIABILITIES AND INVESTMENTS
- ---------------------------
CURRENT LIABILITIES
Accounts payable $ 102 $ 472
Accrued expenses 2,432 3,574
-------- --------
TOTAL CURRENT LIABILITIES 2,534 4,046
DEFERRED INCOME TAXES 1,940 2,305
BELDEN & BLAKE INVESTMENT 53,051 57,542
-------- --------
$ 57,525 $ 63,893
======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
PEAKE ENERGY, INC.
STATEMENTS OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
---------------------------------------------- -----------
YEAR YEAR SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
REVENUES
Oil and gas sales $ 14,810 $ 17,597 $ 8,138 $ 6,983
Gas gathering 1,543 2,722 1,308 1,287
Other 1,186 1,318 1 (1)
-------- -------- -------- --------
17,539 21,637 9,447 8,269
EXPENSES
Production expense 3,288 3,880 1,710 1,157
Production taxes 1,371 1,606 591 699
Gas gathering 267 298 164 151
Exploration expense 772 969 431 428
General and administrative expense 924 801 273 347
Depreciation, depletion and amortization 5,893 10,486 4,764 1,756
Impairment of oil and gas properties
and other assets -- 73,007 -- --
Franchise, property and other taxes 117 211 28 90
Interest expense 5,376 5,972 2,828 660
-------- -------- -------- --------
18,008 97,230 10,789 5,288
-------- -------- -------- --------
(LOSS) INCOME BEFORE INCOME TAXES (469) (75,593) (1,342) 2,981
(Benefit) provision for income taxes (228) (30,190) (534) 1,193
-------- -------- -------- --------
NET (LOSS) INCOME $ (241) $(45,403) $ (808) $ 1,788
======== ======== ======== ========
</TABLE>
See accompanying notes.
6
<PAGE> 7
PEAKE ENERGY, INC.
STATEMENT OF CHANGES IN BELDEN & BLAKE INVESTMENT
(in thousands)
<TABLE>
<CAPTION>
TOTAL
EQUITY
---------
<S> <C>
BELDEN & BLAKE INVESTMENT AT JANUARY 1, 1997 $ 42,377
Net change in Belden & Blake advances 2,476
Net income 1,788
Effect of purchase accounting upon
sale of parent 42,340
---------
BELDEN & BLAKE INVESTMENT AT JUNE 30, 1997 88,981
Net change in Belden & Blake advances 14,631
Net loss (808)
---------
BELDEN & BLAKE INVESTMENT AT DECEMBER 31, 1997 102,804
Net change in Belden & Blake advances 141
Net loss (45,403)
---------
BELDEN & BLAKE INVESTMENT AT DECEMBER 31, 1998 57,542
Net change in Belden & Blake advances (4,250)
Net loss (241)
---------
BELDEN & BLAKE INVESTMENT AT DECEMBER 31, 1999 $ 53,051
=========
</TABLE>
See accompanying notes.
7
<PAGE> 8
PEAKE ENERGY, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
--------------------------------------------- -----------
YEAR YEAR SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1999 1998 1997 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (241) $(45,403) $ (808) $ 1,788
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation, depletion and amortization 5,893 10,486 4,764 1,756
Impairment of oil and gas properties and other assets -- 73,007 -- --
Exploration expense 772 969 431 428
Deferred income taxes (228) (30,190) (534) 1,193
Loss (gain) on disposal of property and equipment 11 (251) -- --
Change in operating assets and liabilities, net of
effects of purchases of businesses:
Accounts receivable and other operating assets (421) (2,299) (753) 13
Inventories 123 (113) (76) (13)
Accounts payable and accrued expenses (1,512) (34) 102 809
-------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,397 6,172 3,126 5,974
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of cash acquired -- (1,192) (9,672) (6,501)
Proceeds from property and equipment disposals 597 1,441 106 (41)
Exploration expense (772) (969) (431) (428)
Additions to property and equipment (53) (5,538) (7,647) (1,493)
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (228) (6,258) (17,644) (8,463)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in Belden & Blake investment (4,250) 141 14,631 2,476
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (4,250) 141 14,631 2,476
-------- -------- -------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (81) 55 113 (13)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 189 134 21 34
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108 $ 189 $ 134 $ 21
======== ======== ======== ========
</TABLE>
See accompanying notes.
8
<PAGE> 9
PEAKE ENERGY, INC.
NOTES TO FINANCIAL STATEMENTS
(1) BUSINESS DESCRIPTION AND BASIS OF PRESENTATION
On March 17, 2000, Belden & Blake Corporation ("BBC") sold all of the
issued and outstanding capital stock of Peake Energy, Inc. ("Peake"), its
wholly-owned subsidiary, to North Coast Energy, Inc. ("North Coast"), an
independent oil and gas company, with an effective date of January 1, 2000. The
sale included substantially all of BBC's oil and gas properties in West Virginia
and Kentucky. The sale resulted in net proceeds of approximately $69 million to
BBC.
Peake operates in the oil and gas industry. Peake's principal business
is the production, development, acquisition and gathering of oil and gas
reserves. Sales of oil are ultimately made to refineries. Sales of natural gas
are ultimately made to gas utilities and industrial consumers in West Virginia
and Kentucky. The price of oil and natural gas has a significant impact on
Peake's working capital and results of operations.
On March 27, 1997, BBC signed a definitive merger agreement with TPG
Partners II, L.P. ("TPG"), a private investment partnership, pursuant to which
TPG and certain other investors acquired BBC in an all-cash transaction valued
at $440 million (the "Acquisition"). Under the terms of the agreement, TPG and
such investors paid $27 per share for all common shares outstanding plus an
additional amount to redeem certain stock options held by directors and
employees. The transaction was completed on June 27, 1997 and for financial
reporting purposes has been accounted for as a purchase effective June 30, 1997.
The Acquisition resulted in a new basis of accounting reflecting estimated fair
values for assets and liabilities at that date. Accordingly, the financial
statements for the periods subsequent to June 30, 1997 are presented on BBC's
new basis of accounting, while the results of operations for the period ended
June 30, 1997 reflect the historical results of the predecessor company. A
vertical black line is presented to separate the financial statements of the
predecessor and successor companies.
The accompanying financial statements pertain to the business which was
sold to North Coast, and are presented on a carve-out basis prepared from
Peake's historical accounting records. The financial statements include
allocations of interest expense, income taxes and direct and indirect BBC
corporate administrative costs attributable to Peake. The methods by which such
amounts are attributed and allocated are deemed reasonable by management. All
intercompany transactions including allocated expenses are deemed to be paid in
the period recorded and are shown as a net change in Belden & Blake investment
on the balance sheet.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE FINANCIAL STATEMENTS
- --------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts. Significant estimates used in the
preparation of Peake's financial statements which could be subject to
significant revision in the near term include estimated oil and gas reserves.
Although actual results could differ from these estimates, significant
adjustments to these estimates historically have not been required.
9
<PAGE> 10
CASH EQUIVALENTS
- ----------------
For purposes of the statements of cash flows, cash equivalents are
defined as all highly liquid debt instruments purchased with an initial maturity
of three months or less.
CONCENTRATIONS OF CREDIT RISK
- -----------------------------
Credit limits, ongoing credit evaluation and account monitoring
procedures are utilized to minimize the risk of loss. Collateral is generally
not required. Expected losses are provided for currently and actual losses have
been within management's expectations.
INVENTORIES
- -----------
Inventories of material, pipe and supplies are valued at average cost.
Crude oil inventory is stated at the lower of average cost or market.
PROPERTY AND EQUIPMENT
- ----------------------
Peake utilizes the "successful efforts" method of accounting for its oil
and gas properties. Under this method, property acquisition and development
costs and certain productive exploration costs are capitalized while
non-productive exploration costs, which include certain geological and
geophysical costs, dry holes, expired leases and delay rentals, are expensed as
incurred. Capitalized costs related to proved properties are depleted using the
unit-of-production method. Depreciation, depletion and amortization of proved
oil and gas properties is calculated on the basis of estimated recoverable
reserve quantities. These estimates can change based on economic or other
factors. No gains or losses are recognized upon the disposition of oil and gas
properties except in extraordinary transactions. Sales proceeds are credited to
the carrying value of the properties. Maintenance and repairs are expensed, and
expenditures which enhance the value of properties are capitalized.
Unproved oil and gas properties are stated at cost and consist of
undeveloped leases. These costs are assessed periodically to determine whether
their value has been impaired, and if impairment is indicated, the costs are
charged to expense. During 1998, Peake recorded a $406,000 impairment charge
which wrote-down unproved oil and gas properties to their estimated fair value.
Gas gathering systems are stated at cost. Depreciation expense is
computed using the straight-line method over 15 years.
Property and equipment are stated at cost. Depreciation of non-oil and
gas properties is computed using the straight-line method over the useful lives
of the assets ranging from 3 to 15 years for machinery and equipment and 30 to
40 years for buildings. When assets other than oil and gas properties are
retired or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is reflected in
income for the period. The cost of maintenance and repairs is charged to income
as incurred, and significant renewals and betterments are capitalized.
Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount may not be recoverable. If
the sum of the expected future undiscounted cash flows is less than the carrying
amount of the asset, a loss is recognized for the difference between the fair
value and the carrying amount of the asset. In performing the review for
long-lived asset recoverability during 1998, Peake recorded $69.0 million and
$3.6 million of impairments which wrote-down producing properties and other
assets, respectively, to their estimated fair value. Fair value was based on
estimated future cash flows to be generated by the assets, discounted at a
market rate of interest.
10
<PAGE> 11
REVENUE RECOGNITION
- -------------------
Oil and gas production revenue is recognized as production and delivery
take place.
INCOME TAXES
- ------------
Historically, Peake's results were included in the consolidated federal
income tax return filed by BBC. The income tax provision for each period
presented represents the current and deferred income taxes that would have
resulted if Peake's operations were a stand-alone taxable entity filing its own
income tax returns. Accordingly, the calculation of tax provisions and deferred
taxes necessarily requires certain assumptions, allocations and estimates which
management believes are reasonable to reflect the tax reporting for Peake as a
stand-alone taxpayer.
STOCK-BASED COMPENSATION
- ------------------------
Peake measures expense associated with stock-based compensation under
the provisions of Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees."
BBC common stock held by Peake employees in BBC's 401k plan is subject
to variable plan accounting. The changes in share value are reported as
adjustments to compensation expense. The reduction in share value in 1999 and
1998 resulted in a reduction in compensation expense of $111,000 and $46,000,
respectively.
(3) RELATED PARTY TRANSACTIONS
For the purpose of these carve-out financial statements, payables and
receivables related to transactions between Peake and BBC are included as a
component of Belden & Blake investment.
BBC provided Peake with certain services including insurance, cash
management, tax, legal, computer systems and support, accounting and other
corporate functions. Charges for these services were allocated based on usage
and other methods that management believed to be reasonable and amounted to $1.3
million, $1.2 million and $460,000 for the successor company's years ended
December 31, 1999 and 1998 and six months ended December 31, 1997, respectively
and $721,000 for the predecessor company's six months ended June 30, 1997. These
charges are included in production expense, exploration expense and general and
administrative expense.
BBC allocated interest expense to Peake based on relative asset value.
Interest expense allocated by BBC was $5.4 million, $6.0 million and $2.8
million for the successor company's years ended December 31, 1999 and 1998 and
six months ended December 31, 1997, respectively and $660,000 for the
predecessor company's six months ended June 30, 1997.
(4) ACQUISITIONS
The following acquisitions were accounted for as purchase business
combinations. Accordingly, the results of operations of the acquired businesses
are included in Peake's statements of operations from the date of the respective
acquisitions.
During 1998, Peake acquired working interests in oil and gas wells in
West Virginia for approximately $1.1 million. Estimated proved developed
reserves associated with the wells totaled 1.2 Bcfe (billion cubic feet of
natural gas equivalent) net to Peake's interest at the time of acquisition.
11
<PAGE> 12
During 1997, Peake acquired working interests in oil and gas wells in
West Virginia for approximately $9.7 million for the successor company's six
months ended December 31, 1997 and $6.5 million for the predecessor company's
six months ended June 30, 1997. Estimated proved developed reserves associated
with the wells totaled 23.6 Bcf (billion cubic feet) of natural gas and 4,886
Bbls (barrels) of oil net to Peake's interest at the time of the acquisitions.
The pro forma effects of 1999, 1998 and 1997 (predecessor and successor
periods) acquisitions were not material.
(5) DETAILS OF BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $ 1,110 $ 353
Allowance for doubtful accounts (59) (98)
Oil and gas production receivable 2,618 3,594
------- -------
$ 3,669 $ 3,849
======= =======
INVENTORIES
Oil 87 92
Material, pipe and supplies 185 345
------- -------
$ 272 $ 437
======= =======
ACCRUED EXPENSES
Accrued expenses $ 122 $ 378
Accrued drilling and completion costs -- 471
Ad valorem and other taxes 983 1,282
Compensation and related benefits 227 331
Undistributed production revenue 1,100 1,112
------- -------
$ 2,432 $ 3,574
======= =======
</TABLE>
(6) LEASES
Peake leases certain equipment, vehicles and office space under
noncancelable agreements with lease periods of one to five years. Rent expense
amounted to $272,000, $229,000 and $89,000 for the successor company's years
ended December 31, 1999 and 1998 and six months ended December 31, 1997,
respectively, and $89,000 for the predecessor company's six months ended June
30, 1997. Future commitments under leasing arrangements were not significant at
December 31, 1999.
12
<PAGE> 13
(7) TAXES
Income tax provisions and related assets and liabilities are determined
as if Peake prepared its tax return on a stand-alone basis (see Note 2). The
(benefit) provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
--------------------------------------------- -----------
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
------------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
CURRENT
Federal $ -- $ -- $ -- $ --
State -- -- -- --
-------- -------- -------- --------
-- -- -- --
DEFERRED
Federal (177) (23,387) (414) 924
State (51) (6,803) (120) 269
(228) (30,190) (534) 1,193
-------- -------- -------- --------
TOTAL $ (228) $(30,190) $ (534) $ 1,193
======== ======== ======== ========
</TABLE>
The effective tax rate for continuing operations differs from the U.S.
federal statutory tax rate as follows:
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
-------------------------------------- -----------
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------- DECEMBER 31, JUNE 30,
1999 1998 1997 1997
-------- -------- ------------ -----------
<S> <C> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0% 34.0%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal tax benefit 7.2 5.9 5.9 6.0
Variable plan accounting for stock 7.7 -- -- --
Other, net (0.3) -- -- --
---- ---- ---- ----
Effective income tax rate for the period 48.6% 39.9% 39.9% 40.0%
==== ==== ==== ====
</TABLE>
13
<PAGE> 14
Significant components of deferred income tax liabilities and assets are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Deferred income tax liabilities:
Property and equipment, net $ (3,338) $ (3,240)
Deferred income tax assets:
Accrued expenses 473 633
Inventories 9 10
Net operating loss carryforwards 1,398 935
Other, net 24 --
------------ ------------
Total deferred income tax assets 1,904 1,578
------------ ------------
Net deferred income tax liability $ (1,434) $ (1,662)
============ ============
Long-term liability $ (1,940) $ (2,305)
Current asset 506 643
------------ ------------
Net deferred income tax liability $ (1,434) $ (1,662)
============ ============
</TABLE>
At December 31, 1999, on a stand-alone basis, Peake had approximately
$3.5 million of net operating loss carryforwards available for federal and state
income tax reporting purposes. These net operating loss carryforwards will
expire between 2011 and 2019.
(8) EMPLOYEE BENEFIT PLANS
BBC has a non-qualified profit sharing arrangement, covering
substantially all employees of Peake, under which BBC contributes discretionary
amounts determined by the compensation committee of its Board of Directors.
Amounts are allocated to substantially all employees based on relative
compensation. BBC contributed $64,000, $161,000 and $74,000 to Peake employees
for the successor company's years ended December 31, 1999 and 1998 and six
months ended December 31, 1997, respectively, and $74,000 for the predecessor
company's six months ended June 30, 1997 to the profit sharing plan. The 1999
amount was paid in cash. For the 1998 and 1997 periods, one half was paid in
cash and one half was paid in shares of BBC's common stock contributed into each
eligible employee's 401(k) plan account. Additional discretionary bonuses were
also made.
BBC has a qualified defined contribution plan (a 401(k) plan) covering
substantially all of the employees of Peake. Under the plan, an amount equal to
2% of participants' compensation is contributed by BBC to the plan each year.
Eligible employees may also make voluntary contributions which BBC matches $.50
for every $1.00 contributed up to 6% of an employee's annual compensation. Prior
to January 1, 1998, BBC matched $.25 for every $1.00 contributed up to 6% of an
employee's annual compensation. Retirement plan expense amounted to $101,000,
$92,000 and $41,000 for the successor company's years ended December 31, 1999
and 1998 and six months ended December 31, 1997, respectively, and $30,000 for
the predecessor company's six months ended June 30, 1997.
BBC also has non-qualified deferred compensation plans which permit
certain Peake employees to elect to defer a portion of their compensation.
Certain Peake employees have also participated in BBC's non-qualified stock
option plan.
14
<PAGE> 15
(9) COMMITMENTS AND CONTINGENCIES
Peake is involved in various legal actions arising in the normal course
of business. In the opinion of management, the ultimate disposition of these
matters will not have a material adverse effect on the financial position,
results of operations or cash flows of Peake.
(10) SUPPLEMENTARY INFORMATION ON OIL AND GAS ACTIVITIES
The following disclosures of costs incurred related to oil and gas
activities are presented in accordance with SFAS 69.
<TABLE>
<CAPTION>
PREDECESSOR
SUCCESSOR COMPANY COMPANY
------------------------------------ -----------
SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED
---------------------- DECEMBER 31, JUNE 30,
(IN THOUSANDS) 1999 1998 1997 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Acquisition costs
Proved properties $ -- $1,143 $9,554 $6,501
Unproved properties -- -- 118 --
Developmental costs -- 3,853 3,726 647
Exploratory costs 772 969 431 428
</TABLE>
PROVED OIL AND GAS RESERVES (UNAUDITED)
Peake's proved developed and proved undeveloped reserves are all located
within the United States. Peake cautions that there are many uncertainties
inherent in estimating proved reserve quantities and in projecting future
production rates and the timing of development expenditures. In addition,
estimates of new discoveries are more imprecise than those of properties with a
production history. Accordingly, these estimates are expected to change as
future information becomes available. Material revisions of reserve estimates
may occur in the future, development and production of the oil and gas reserves
may not occur in the periods assumed, and actual prices realized and actual
costs incurred may vary significantly from those used. Proved reserves represent
estimated quantities of natural gas, crude oil and condensate that geological
and engineering data demonstrate, with reasonable certainty, to be recoverable
in future years from known reservoirs under economic and operating conditions
existing at the time the estimates were made. Proved developed reserves are
proved reserves expected to be recovered through wells and equipment in place
and under operating methods being utilized at the time the estimates were made.
The estimates of proved developed reserves have been reviewed by
independent petroleum engineers. The estimates of proved undeveloped reserves
were prepared by Peake's petroleum engineers and the December 31, 1999 and 1998
proved undeveloped reserves have been reviewed by independent petroleum
engineers.
15
<PAGE> 16
The following table sets forth changes in estimated proved and proved
developed reserves for the periods indicated:
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY TOTAL
------------------------ ------------------------- ------------------------
OIL GAS OIL GAS OIL GAS
(BBLS) (MCF) (BBLS) (MCF) (BBLS) (MCF)
-------- ----------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996 -- -- 1,313,050 59,483,775 1,313,050 59,483,775
Extensions and discoveries -- 2,766,495 -- 787,138 -- 3,553,633
Purchase of reserves in place 4,886 16,727,227 -- 6,875,751 4,886 23,602,978
Sale of reserves in place -- -- -- -- -- --
The Acquisition 981,989 67,267,025 (981,989) (67,267,025) -- --
Revisions of previous estimates (376,936) (10,342,950) (282,455) 2,056,021 (659,391) (8,286,929)
Production (47,243) (2,395,241) (48,606) (1,935,660) (95,849) (4,330,901)
-------- ----------- -------- --------- -------- ----------
DECEMBER 31, 1997 562,696 74,022,556 -- -- 562,696 74,022,556
Extensions and discoveries -- 2,896,960 -- 2,896,960
Purchase of reserves in place 2,395 1,182,083 2,395 1,182,083
Sale of reserves in place (1,061) (5,479,665) (1,061) (5,479,665)
Revisions of previous estimates (179,755) 6,394,716 (179,755) 6,394,716
Production (82,037) (5,645,167) (82,037) (5,645,167)
-------- ----------- -------- --------- -------- ----------
DECEMBER 31, 1998 302,238 73,371,483 -- -- 302,238 73,371,483
Extensions and discoveries -- -- -- --
Purchase of reserves in place -- -- -- --
Sale of reserves in place -- (427,188) -- (427,188)
Revisions of previous estimates 371,576 (910,694) 371,576 (910,694)
Production (71,141) (5,473,586) (71,141) (5,473,586)
-------- ----------- -------- --------- -------- ----------
DECEMBER 31, 1999 602,673 66,560,015 -- -- 602,673 66,560,015
======== =========== ======== ========= ======== ==========
PROVED DEVELOPED RESERVES
December 31, 1997 562,696 69,685,661 562,696 69,685,661
======= ========== ======= ==========
December 31, 1998 302,238 69,343,403 302,238 69,343,403
======= ========== ======= ==========
DECEMBER 31, 1999 602,673 62,841,767 602,673 62,841,767
======= ========== ======= ==========
</TABLE>
Bbls - Barrels Mcf - Thousand cubic feet
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL
AND GAS RESERVES (UNAUDITED)
The following tables, which present a standardized measure of discounted
future net cash flows and changes therein relating to proved oil and gas
reserves, are presented pursuant to SFAS No. 69. In computing this data,
assumptions other than those required by the FASB could produce different
results. Accordingly, the data should not be construed as representative of the
fair market value of Peake's proved oil and gas reserves. The following
assumptions have been made:
- Future revenues were based on year-end oil and gas prices.
Future price changes were included only to the extent provided
by existing contractual agreements.
- Production and development costs were computed using year-end
costs assuming no change in present economic conditions.
- Future net cash flows were discounted at an annual rate of 10%.
- Future income taxes were computed using the approximate
statutory tax rate and giving effect to available net operating
losses, tax credits and statutory depletion.
16
<PAGE> 17
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves is presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Estimated future cash inflows (outflows)
Revenues from the sale of oil and gas $ 185,175 $ 184,015 $ 227,619
Production and development costs (73,614) (73,844) (87,023)
--------- --------- ---------
Future net cash flows before income taxes 111,561 110,171 140,596
Future income taxes (24,780) (26,590) (39,096)
Future net cash flows 86,781 83,581 101,500
10% timing discount (45,769) (44,487) (54,427)
--------- --------- ---------
Standardized measure of discounted
future net cash flows $ 41,012 $ 39,094 $ 47,073
========= ========= =========
</TABLE>
The principal sources of changes in the standardized measure of future net cash
flows are as follows (the successor and predecessor periods are combined in 1997
for purposes of this presentation):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Beginning of year $ 39,094 $ 47,073 $ 44,685
Sale of oil and gas, net of
production costs (11,569) (13,716) (12,254)
Extensions and discoveries, less
related estimated future
development and production costs -- 2,734 3,467
Purchase of reserves in place less
estimated future production costs -- 796 17,645
Sale of reserves in place less
estimated future production costs (386) (768) --
Revisions of previous quantity estimates 686 (120) (10,207)
Net changes in prices and production costs 5,787 (12,490) (3,386)
Change in income taxes 2,159 4,227 1,371
Accretion of 10% timing discount 5,330 6,597 6,495
Changes in production rates (timing)
and other (89) 4,761 (743)
-------- -------- --------
End of year $ 41,012 $ 39,094 $ 47,073
======== ======== ========
</TABLE>
(11) INDUSTRY SEGMENT FINANCIAL INFORMATION
Peake operates in one reportable segment, as an independent energy
company engaged in producing oil and natural gas; exploring for and developing
oil and gas reserves; acquiring and enhancing the economic performance of
producing oil and gas properties and gathering natural gas for delivery to
17
<PAGE> 18
intrastate and interstate gas transmission pipelines. Peake's operations are
conducted entirely in the United States.
MAJOR CUSTOMERS
- ---------------
Sales of oil and gas are ultimately made to refineries, gas utilities,
industrial customers and natural gas brokers. Gas sales to two customers each
exceeded 10% of total revenue during the year ended December 31, 1999 which
amounted to $6.1 million and $2.2 million. Two customers that exceeded 10% of
total revenue during the year ended December 31, 1998 amounted to $9.4 million
and $2.2 million. One customer exceeded 10% of total revenue during the
successor company's six months ended December 31, 1997 which amounted to $4.8
million and during the predecessor company's six months ended June 30, 1997
which amounted to $4.8 million.
(12) SALE OF TAX CREDIT PROPERTIES
In March 1998, Peake sold certain interests that qualify for the
nonconventional fuel source tax credit. The interests were sold for
approximately $695,000 in cash and a volumetric production payment under which
100% of the cash flow from the properties will go to Peake until approximately
10.2 Bcf of gas has been produced and sold. In addition to receiving 100% of the
cash flow from the properties, Peake will receive quarterly incentive payments
based on production from the interests. Peake has the option to repurchase the
interests at a future date.
18
<PAGE> 19
SIGNATURE
---------
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 hereunto duly authorized.
NORTH COAST ENERGY, INC.
Date: May 23, 2000 By: /s/ Thomas A Hill
------------------------------
Thomas A. Hill, Secretary
19
<PAGE> 20
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
2.1 Stock Purchase Agreement, dated March 17, 2000,
between North Coast Energy, Inc. and Belden & Blake
Corporation (1)
4.1 Non-Negotiable Subordinated Promissory Note (1)
4.2 Non-Negotiable Subordinated Convertible Promissory
Note (1)
99.1 Press Release dated March 20, 2000 (1)
99.2 The Company's Information Statement on Schedule 14C,
dated April 12, 2000 (2)
(1) Incorporated by reference to the corresponding exhibit
to the Company's Form 8-K dated March 22, 2000.
(2) Previously filed.
E-1
