<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1998
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: 0-20100
BELDEN & BLAKE CORPORATION
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(Exact name of registrant as specified in its charter)
Ohio 34-1686642
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5200 Stoneham Road
North Canton, Ohio 44720
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(Address of principal executive offices) (Zip Code)
(330) 499-1660
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(Registrant's telephone number, including area code)
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(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.
[X] Yes [ ] No
Number of common shares of Belden & Blake Corporation
outstanding as of April 30, 1998
10,110,915
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BELDEN & BLAKE CORPORATION
INDEX
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<TABLE>
<CAPTION>
PAGE
----
PART I Financial Information:
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 ......................................... 1
Consolidated Statements of Operations:
Three months ended March 31, 1998 (Successor Company)
Three months ended March 31, 1997 (Predecessor Company) ....... 2
Consolidated Statements of Shareholders' Equity:
Three months ended March 31, 1998 (Successor Company)
Six months ended December 31, 1997 (Successor Company)
Six months ended June 30, 1997 (Predecessor Company)
Year ended December 31, 1996 (Predecessor Company) ............ 3
Consolidated Statements of Cash Flows:
Three months ended March 31, 1998 (Successor Company)
Three months ended March 31, 1997 (Predecessor Company) ....... 4
Notes to Consolidated Financial Statements ..................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................... 6
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K ........................ 10
</TABLE>
<PAGE> 3
BELDEN & BLAKE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash and cash equivalents $ 10,467 $ 6,552
Accounts receivable, net 31,660 35,743
Inventories 11,384 9,614
Deferred income taxes 2,638 2,702
Other current assets 4,756 4,052
------------ ------------
TOTAL CURRENT ASSETS 60,905 58,663
PROPERTY AND EQUIPMENT, AT COST
Oil and gas properties (successful efforts method) 509,980 499,864
Gas gathering systems 20,782 20,713
Land, buildings, machinery and equipment 26,405 25,602
------------ ------------
557,167 546,179
Less accumulated depreciation, depletion and amortization 47,206 31,036
------------ ------------
PROPERTY AND EQUIPMENT, NET 509,961 515,143
OTHER ASSETS 27,553 25,514
------------ ------------
$ 598,419 $ 599,320
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Accounts payable $ 8,668 $ 9,078
Accrued expenses 31,117 28,442
Current portion of long-term liabilities 1,271 1,297
------------ ------------
TOTAL CURRENT LIABILITIES 41,056 38,817
LONG-TERM LIABILITIES
Bank and other long-term debt 132,238 126,269
Senior subordinated notes 225,000 225,000
Other 4,025 4,380
------------ ------------
361,263 355,649
DEFERRED INCOME TAXES 104,556 107,996
SHAREHOLDERS' EQUITY
Common stock without par value; $.10 stated value
per share; authorized 58,000,000 shares; issued
and outstanding 10,110,915 and 10,000,000 shares 1,011 1,000
Paid in capital 108,176 107,230
Deficit (17,643) (11,372)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 91,544 96,858
------------ ------------
$ 598,419 $ 599,320
============ ============
</TABLE>
See accompanying notes
1
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BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
------------ | -----------
THREE MONTHS | THREE MONTHS
ENDED | ENDED
MARCH 31, 1998 | MARCH 31, 1997
------------ | -----------
<S> <C> | <C>
REVENUES |
Oil and gas sales $ 23,020 | $ 22,863
Gas marketing and gathering 11,013 | 12,304
Oilfield sales and service 5,093 | 6,379
Interest and other 677 | 768
------------ | -----------
39,803 | 42,314
EXPENSES |
Production expense 5,681 | 4,760
Production taxes 888 | 878
Cost of gas and gathering expense 8,983 | 10,836
Oilfield sales and service 5,196 | 5,964
Exploration expense 1,921 | 1,879
General and administrative expense 1,369 | 1,056
Depreciation, depletion and amortization 16,937 | 7,505
Franchise, property and other taxes 413 | 445
------------ | -----------
41,388 | 33,323
------------ | -----------
OPERATING (LOSS) INCOME (1,585) | 8,991
Interest expense 8,062 | 1,702
------------ | -----------
(LOSS) INCOME BEFORE INCOME TAXES (9,647) | 7,289
(Benefit) provision for income taxes (3,376) | 2,442
------------ | -----------
NET (LOSS) INCOME $ (6,271) | $ 4,847
============ | ===========
</TABLE>
See accompanying notes.
2
<PAGE> 5
BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR COMPANY PREDECESSOR COMPANY
---------------------- ------------------------
COMMON COMMON COMMON COMMON PREFERRED
SHARES STOCK SHARES STOCK STOCK
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
JANUARY 1, 1996 -- $ -- 11,137 $ 1,114 $ 2,400
Net income
Preferred stock dividend
Stock options exercised and
related tax benefit 3 --
Employee stock bonus 26 3
Restricted stock activity 4 --
Conversion of debentures 62 6
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DECEMBER 31, 1996 -- -- 11,232 1,123 2,400
Net loss
Preferred stock redeemed (2,400)
Preferred stock dividend
Subordinated debentures
converted to common stock 275 27
Stock options exercised and surrendered
and related tax benefit 1 --
Employee stock bonus 36 4
Restricted stock activity
Redemption of common stock (11,544) (1,154)
Sale of common stock 10,000 1,000
SUCCESSOR COMPANY:
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JUNE 30, 1997 10,000 1,000 -- -- --
Net loss
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DECEMBER 31, 1997 10,000 1,000 -- -- --
Employee stock bonus 111 11
Net loss
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March 31, 1998 (unaudited) 10,111 $ 1,011 -- $ -- $ --
=============================================================================================================
<CAPTION>
RETAINED UNEARNED
PAID IN EARNINGS RESTRICTED
CAPITAL (DEFICIT) STOCK TOTAL
--------- ---------- -------- -----------
<S> <C> <C> <C> <C>
PREDECESSOR COMPANY:
JANUARY 1, 1996 $ 126,063 $ 12,820 $ (106) $ 142,291
Net income 14,755 14,755
Preferred stock dividend (180) (180)
Stock options exercised and
related tax benefit 47 47
Employee stock bonus 418 421
Restricted stock activity 263 71 334
Conversion of debentures 1,244 1,250
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DECEMBER 31, 1996 128,035 27,395 (35) 158,918
Net loss (9,873) (9,873)
Preferred stock redeemed (2,400)
Preferred stock dividend (45) (45)
Subordinated debentures
converted to common stock 5,523 5,550
Stock options exercised and surrendered
and related tax benefit 1,596 1,596
Employee stock bonus 926 930
Restricted stock activity 17 35 52
Redemption of common stock (136,097) (17,477) (154,728)
Sale of common stock 107,230 108,230
SUCCESSOR COMPANY:
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JUNE 30, 1997 107,230 -- -- 108,230
Net loss (11,372) (11,372)
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DECEMBER 31, 1997 107,230 (11,372) -- 96,858
Employee stock bonus 946 957
Net loss (6,271) (6,271)
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March 31, 1998 (unaudited) $ 108,176 $ (17,643) $ -- $ 91,544
============================================================================================
</TABLE>
See accompanying notes.
3
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BELDEN & BLAKE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SUCCESSOR | PREDECESSOR
COMPANY | COMPANY
-------------- | --------------
THREE MONTHS | THREE MONTHS
ENDED | ENDED
MARCH 31, 1998 | MARCH 31, 1997
-------------- | --------------
<S> <C> | <C>
CASH FLOWS FROM OPERATING ACTIVITIES: |
Net (loss) income $ (6,271) | $ 4,847
Adjustments to reconcile net (loss) income to net cash |
provided by operating activities: |
Depreciation, depletion and amortization 16,937 | 7,505
(Gain) loss on disposal of property and equipment (1) | 294
Deferred income taxes (3,376) | 1,640
Deferred compensation and stock grants 1,118 | 962
Change in operating assets and liabilities, net of |
effects of purchases of businesses: |
Accounts receivable and other operating assets 974 | 1,464
Inventories (1,770) | (103)
Accounts payable and accrued expenses 2,265 | 39
-------------- | --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,876 | 16,648
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
Acquisition of businesses, net of cash acquired (3,478) |
Proceeds from property and equipment disposals 175 | 51
Additions to property and equipment (7,698) | (8,715)
Increase in other assets (386) | (315)
-------------- | --------------
NET CASH USED IN INVESTING ACTIVITIES (11,387) | (8,979)
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
Proceeds from revolving line of credit and long-term debt 6,000 | 3,000
Repayment of long-term debt and other obligations (574) | (11,131)
Preferred stock redeemed | (2,400)
Preferred stock dividends | (45)
Proceeds from sale of common stock and stock options | 15
-------------- | --------------
NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES 5,426 | (10,561)
-------------- | --------------
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,915 | (2,892)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,552 | 8,606
-------------- | --------------
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,467 | $ 5,714
============== | ==============
|
CASH PAID DURING THE PERIOD FOR: |
Interest $ 1,879 | $ 2,244
Income taxes, net of refunds (29) | 271
</TABLE>
See accompanying notes.
4
<PAGE> 7
BELDEN & BLAKE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1998
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(1) BASIS OF PRESENTATION
Throughout this report, the "Company" refers to Belden & Blake
Corporation ("Successor Company") and its predecessor which were acquired by TPG
Partners II L.P. ("TPG") on June 27, 1997. The operations of the successor
company represent 100% of the businesses of the predecessor. A vertical black
line is shown in the financial statements to separate the results of operations
of the predecessor and successor companies.
The accompanying unaudited consolidated financial statements of Belden
& Blake Corporation have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year ended December
31, 1997.
(2) JOINT VENTURE
On March 19, 1998, the Company entered into an agreement in principle
with FirstEnergy Corp. ("FirstEnergy") to form an equally-owned joint venture to
be named FE Holdings L.L.C. ("FE Holdings") to engage in the exploration,
development, production, transportation and marketing of natural gas. Formation
of the joint venture is subject to the negotiation and execution of a definitive
joint venture agreement. Upon the execution of such agreement, it is anticipated
that the Company would contribute its gas marketing division to FE Holdings and
provide FE Holdings with its gas marketing, operational and management
expertise.
FirstEnergy, a diversified energy services holding company
headquartered in Akron, Ohio, comprises the nation's twelfth largest
investor-owned electric utility system. Its electric utility operating
companies, Ohio Edison Company and its subsidiary, Pennsylvania Power Company;
The Illuminating Company; and Toledo Edison Company; serve 2.2 million customers
within 13,200 square miles of northern and central Ohio and western
Pennsylvania. FirstEnergy generates approximately $5 billion in annual revenues
and owns more than $18 billion in assets, including ownership in 18 power
plants. In an expansion of its energy-related products and services, FirstEnergy
in December 1997 acquired Roth Bros., Inc., and RPC Mechanical, Inc., which
together form one of the nation's largest providers of engineered heating,
ventilating and air-conditioning equipment and energy management and control
systems.
The joint venture is expected to substantially expand the Company's
market outlet for its production of natural gas and more fully utilize the
capabilities and capacity of the Company's Gas Marketing Division. The venture
will allow FirstEnergy to offer its customers total energy services, including
natural gas, electricity and related energy products and services.
5
<PAGE> 8
FE Holdings has entered into an agreement to acquire Marbel Energy
Corporation ("Marbel"), a privately-held, fully integrated natural gas company
headquartered in Canton, Ohio. Marbel owns interests in more than 1,800 gas and
oil wells and holds interests in more than 200,000 undeveloped acres in eastern
and central Ohio. Marbel's subsidiaries include MB Operating Company, Inc., a
natural gas exploration and production company, and Northeast Ohio Operating
Companies, Inc. ("NOOC"), a public utility holding company based in Lancaster,
Ohio. NOOC owns and operates over 1,300 miles of gas gathering lines and a local
gas distribution company with more than 3,000 customers in eastern and central
Ohio.
The acquisition of Marbel will provide FE Holdings with a base of
exploration, development and production capability, along with utility
transportation and distribution capability. Marbel's net production in 1997 was
approximately 6.3 Bcfe (billion cubic feet of natural gas equivalent). At
September 30, 1997, Marbel had estimated proved developed oil and gas reserves
of 55.7 Bcfe.
In order to complete the joint venture with FirstEnergy, the Company
will need consent from the lenders under its current revolving credit facility.
The Company will request a waiver from the bank group on any defaults as a
result of noncompliance with certain asset sale and investment covenants in
connection with the joint venture.
(3) ACQUISITIONS
During the first quarter of 1998, the Company acquired working
interests in oil and gas wells in Ohio and Michigan for approximately $2.0
million. Estimated proved developed reserves associated with the wells totaled
2.9 Bcfe net to the Company's interest at time of the acquisition.
(4) SALE OF TAX CREDIT PROPERTIES
In March 1998, the Company sold certain interests that qualify for the
nonconventional fuel source tax credit. The interests were sold for
approximately $510,000 in cash and a volumetric production payment under which
100% of the cash flow from the properties will go to the Company until
approximately 10.8 Bcf of gas has been produced and sold. In addition to
receiving 100% of the cash flow from the properties, the Company will receive
quarterly payments based on production from the interests. The Company has the
option to repurchase the interests at a future date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On March 27, 1997 the Company entered into a merger agreement with TPG
which resulted in all of the Company's common stock being acquired by TPG and
certain other investors on June 27, 1997 in a transaction accounted for as a
purchase. For financial reporting purposes, the merger was considered effective
June 30, 1997 and the operations of the company prior to July 1, 1997 were
classified as predecessor company operations. A vertical black line is shown in
the financial statements to separate the results of operations of the
predecessor and successor companies.
The allocation of the purchase price resulted in a significant increase
in the book value of the Company's assets. The increase in the book value of
assets resulted in materially higher charges for depreciation, depletion and
amortization in the first quarter of 1998 compared to the first quarter of 1997.
These higher charges are expected to continue in subsequent accounting periods.
6
<PAGE> 9
As a result of the substantial debt incurred to finance the acquisition
by TPG, the Company is highly leveraged, resulting in materially higher interest
charges in the first quarter of 1998 compared to the first quarter of 1997.
These higher interest charges are expected to continue in subsequent accounting
periods.
RESULTS OF OPERATIONS
As a result of the merger with TPG, the results of operations for the
periods subsequent to June 30, 1997 are not necessarily comparable to those
prior to July 1, 1997.
Operating income decreased $10.6 million (118%) from $9.0 million in
the first quarter of 1997 to an operating loss of $1.6 million in the first
quarter of 1998. The decrease in operating income was due primarily to an $9.4
million increase in depreciation, depletion and amortization expense due to
significant increases in the book value of property, equipment and other assets
as a result of the purchase accounting associated with the merger discussed
above. The operating income from the oil and gas operations segment decreased
$9.9 million (120%) from $8.2 million in the first quarter of 1997 to an
operating loss of $1.7 million in the first quarter of 1998. The operating
income from the oilfield sales and service segment decreased $674,000 from
$62,000 in the first quarter of 1997 to an operating loss of $612,000 in the
first quarter of 1998 due to decreased revenue in the first quarter of 1998 as a
result of work deferred due to low oil prices and extended frost laws limiting
access to roadways to drill or rework wells.
Net income decreased $11.1 million from net income of $4.8 million in
the first quarter of 1997 to a net loss of $6.3 million in the first quarter of
1998. This decrease was the result of the $9.4 million increase in depreciation,
depletion and amortization expense and an increase of $6.4 million in interest
expense offset by a decrease in the provision for income taxes of $5.8 million.
This decrease in the provision for income taxes was primarily due to the
decrease in income before income taxes.
Earnings before interest, income taxes, depreciation, depletion and
amortization and exploration expense ("EBITDAX") was $17.3 million in the first
quarter of 1998 compared to $18.4 million in the first quarter of 1997.
Total revenues decreased $2.5 million (6%) in the first quarter of 1998
compared to the first quarter of 1997. Gross operating margins in the first
quarter of 1998 were consistent when compared to the first quarter in 1997.
Oil volumes increased 6,000 Bbls (barrels) (3%) from 187,000 Bbls in
the first quarter of 1997 to 193,000 Bbls in the first quarter of 1998 resulting
in an increase in oil sales of approximately $110,000. Gas volumes increased 1.2
Bcf (billion cubic feet) (17%) from 6.4 Bcf in the first quarter of 1997 to 7.6
Bcf in the first quarter of 1998 resulting in an increase in gas sales of
approximately $3.3 million. These volume increases were primarily due to
production from properties acquired and wells drilled in 1997 and 1998.
The average price paid for the Company's oil decreased from $20.54 per
barrel in the first quarter of 1997 to $13.76 per barrel in the first quarter of
1998 which decreased oil sales by approximately $1.3 million. The average price
paid for the Company's natural gas decreased $.26 per Mcf (thousand cubic feet)
to $2.70 per Mcf in the first quarter of 1998 compared to the first quarter of
1997 which decreased gas sales in the first quarter of 1998 by approximately
$2.0 million. The average gas price for the first
7
<PAGE> 10
quarter of 1998 was enhanced by $.02 per Mcf as a result of the Company's
hedging activities for that period. There was no hedging activity in the 1997
period.
Production expense increased $921,000 (19%) from $4.8 million in the
first quarter of 1997 to $5.7 million in the first quarter of 1998. The average
production cost increased from $.63 per Mcfe (equivalent Mcf of natural gas) in
the first quarter of 1997 to $.65 per Mcfe in the first quarter of 1998. These
increases were due to an anticipated steep decline in production volumes from
certain high volume wells with low production costs, increased transportation
charges in Michigan and a reduction in operating fees received from third
parties primarily due to the purchase of certain third party working interests
by the Company. Such fees are recorded as a reduction of production expense.
These factors were partially offset by cost reductions from the Company's
decision to defer work on marginal oil wells due to low oil prices. Production
taxes increased $10,000 (1%) from $878,000 in the first quarter of 1997 to
$888,000 in the first quarter of 1998.
General and administrative expense increased by $313,000 (30%) from
$1.1 million in the first quarter of 1997 to $1.4 million in the first quarter
of 1998 primarily due to increased health care costs and compensation expense in
the first quarter of 1998.
Depreciation, depletion and amortization increased by $9.4 million
(126%) from $7.5 million in the first quarter of 1997 to $16.9 million in the
first quarter of 1998. Depletion expense increased $8.7 million (150%) from $5.8
million in the first quarter of 1997 to $14.5 million in the first quarter of
1998. Depletion per Mcfe increased from $.77 per Mcfe in the first quarter of
1997 to $1.66 per Mcfe in the first quarter of 1998. These increases were
primarily the result of significant increases in the book value of property,
equipment and other assets as a result of the purchase accounting associated
with the merger discussed above.
Interest expense increased $6.4 million (374%) from $1.7 million in the
first quarter of 1997 to $8.1 million in the first quarter of 1998. This
increase was primarily due to substantial additional debt incurred to finance
the merger. The Company incurred $92,000 in additional interest expense during
the first quarter of 1998 related to interest rate swaps.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources are closely related to
and dependent on the current prices paid for its oil and gas.
The Company's current ratio at March 31, 1998 was 1.48 to 1.00. During
the first three months of 1998, working capital remained consistent at $19.8
million. The Company's operating activities provided cash flows of $9.9 million
during the first three months of 1998.
On June 27, 1997, the Company entered into a senior revolving credit
agreement with several lenders. These lenders have committed to provide the
Company with revolving credit loans of up to the lessor of the borrowing base or
$200 million, of which $25 million will be available for the issuance of letters
of credit. The initial borrowing base has been set at $180 million. The
borrowing base is determined based on the Company's oil and gas reserves and
other assets and is subject to annual or semi-annual adjustment. The Company
borrowed $104 million under the credit agreement to partially finance the
acquisition of the Company by TPG, to repay certain existing outstanding
indebtedness of the Company and to pay certain fees and expenses related to the
transaction. The credit agreement matures on June 27, 2002. Outstanding balances
under the agreement incur interest at the Company's choice of several indexed
rates, the most favorable being 7.1875% at March 31, 1998.
8
<PAGE> 11
The credit agreement contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, prepay other indebtedness or amend
certain debt instruments, pay dividends, create liens on assets, enter into sale
and leaseback transactions, make investments, loans or advances, make
acquisitions, engage in mergers or consolidations, change the business conducted
by the Company or its subsidiaries, make capital expenditures or engage in
certain transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the credit agreement, the Company is required to
maintain specified financial ratios and tests, including minimum interest
coverage ratios and maximum leverage ratios.
The Company issued $225 million of 9.875% senior subordinated notes on
June 27, 1997. These notes mature June 15, 2007. Interest is payable
semiannually on June 15 and December 15 of each year.
The notes are general unsecured obligations of the Company and are
subordinated in right of payment to senior debt. Except as otherwise described
below, the notes are not redeemable prior to June 15, 2002. Thereafter, the
notes are subject to redemption at the option of the Company at specific
redemption prices. Prior to June 15, 2000, the Company may, at its option, on
any one or more occasions, redeem up to 40% of the original aggregate principal
amount of the notes at a redemption price equal to 109.875% of the principal
amount, plus accrued and unpaid interest, if any, on the redemption date, with
all or a portion of net proceeds of public sales of common stock of the Company;
provided that at least 60% of the original aggregate principal amount of the
notes remains outstanding immediately after the occurrence of such redemption;
and provided, further, that such redemption occurs within 60 days of the date of
the closing of the related sale of common stock of the Company. Prior to June
15, 2002, the notes may be redeemed as a whole at the option of the Company upon
the occurrence of a change of control.
The notes were issued pursuant to an indenture that contains certain
covenants that limit the ability of the Company and its subsidiaries to incur
additional indebtedness and issue stock, pay dividends, make distributions, make
investments, make certain other restricted payments, enter into certain
transactions with affiliates, dispose of certain assets, incur liens securing
indebtedness of any kind other than permitted liens, and engage in mergers and
consolidations.
The Company currently expects to spend approximately $38 million during
1998 on its drilling activities and approximately $10 million for other capital
expenditures. The Company's acquisition program may be financed with available
cash flow, available revolving credit line, additional borrowings or additional
equity.
The level of the Company's cash flow in the future will depend on a
number of factors including the demand and price levels for oil and gas, its
ability to acquire additional producing properties and the scope and success of
its drilling activities. The Company intends to finance such activities
principally through its available cash flow and through additional borrowings
under its credit agreement.
From time to time the Company may enter into interest rate swaps to
hedge the interest rate exposure associated with the credit facility, whereby a
portion of the Company's floating rate exposure would be exchanged for a fixed
interest rate. During October 1997, the Company entered into two interest rate
swap arrangements covering $90 million of debt. The Company swapped $40 million
of floating three-month LIBOR +1.5% for a fixed rate of 7.485% for three years,
extendible at the institution's option for an additional two years. The Company
also swapped $50 million of floating three-month LIBOR +1.5% for a fixed rate of
7.649% for five years.
9
<PAGE> 12
To manage its exposure to natural gas price volatility, the Company may
partially hedge its physical gas sales prices by selling futures contracts on
the New York Merchantile Exchange ("NYMEX") or by selling NYMEX based commodity
derivative contracts which are placed with major financial institutions that the
Company believes are minimal credit risks. The contracts may take the form of
futures contracts, swaps or options. The Company had a pretax gain on its
hedging activities of $115,000 in the first quarter of 1998. There was no
hedging activity in the first quarter of 1997. At March 31, 1998, the Company
had open futures contracts covering 8.5 Bcf of 1998 and 1999 gas production at a
weighted average NYMEX price of $2.43 per Mcf which represented a net unrealized
loss of $1.1 million.
FORWARD-LOOKING INFORMATION
The forward-looking statements regarding future operating and financial
performance contained in this report involve risks and uncertainties that
include, but are not limited to, the Company's future production and costs of
operation, the market demand for, and prices of, oil and natural gas, results of
the Company's future drilling and gas marketing activity, the uncertainties of
reserve estimates, environmental risks, and other factors detailed in the
Company's filings with the Securities and Exchange Commission. Actual results
may differ materially from forward-looking statements made in this report.
- --------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
10
<PAGE> 13
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
BELDEN & BLAKE CORPORATION
Date: May 6, 1998 By: /s/ Ronald L. Clements
---------------------------- ------------------------
Ronald L. Clements, Director
and Chief Executive Officer
Date: May 6, 1998 By: /s/ Ronald E. Huff
---------------------------- -----------------------
Ronald E. Huff, Director, President
and Chief Financial Officer
</TABLE>
11
<TABLE> <S> <C>
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<CIK> 0000880114
<NAME> BELDEN & BLAKE CORPORATION
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<S> <C>
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0
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