<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
---------------
COMMISSION FILE NUMBER 001-14256
---------------
BELCO OIL & GAS CORP.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction
of incorporation or organization)
767 FIFTH AVENUE
NEW YORK, NEW YORK
(Address of principal executive offices)
13-3869719
(IRS Employer Identification Number)
10153
(Zip Code)
(212) 644-2200
(Registrant's telephone number, including area code)
---------------
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
As of October 31, 1998, there were 31,613,000 shares of the Registrant's
Common Stock, par value $.01 per share, outstanding.
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<PAGE> 2
FINANCIAL STATEMENTS
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
<TABLE>
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . $ 15,480 $ 12,260
Accounts receivable, oil and gas. . . . . . 27,164 43,867
Assets from commodity price risk management
activities . . . . . . . . . . . . .. . . 10,304 936
Advances to oil and gas operators . . . . . 350 346
Marketable equity securities. . . . . . . . -- 28,884
Other current assets. . . . . . . . . . . . 905 710
------ ------
Total current assets . . . . . . . . . 54,203 87,003
PROPERTY AND EQUIPMENT:
Oil and gas properties at cost based on full
cost accounting--
Proved oil and gas properties . . . . . . . 891,752 793,475
Unproved oil and gas properties . . . . . . 82,531 86,172
Less--Accumulated depreciation, depletion
and amortization. . . . . . . . . . . . . (479,210) (282,750)
Net oil and gas property . . . . . . . 495,073 596,897
Building and other equipment, net . . . . . 6,456 6,877
OTHER ASSETS
Assets from commodity price risk management
activities. . . . . . . . . . . . . . . . 6,087 797
Other . . . . . . . . . . . . . . . . . . . 16,785 5,535
-------- --------
Total assets. . . . . . . . . . . . . . . . $578,604 $697,109
======== ========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities. . $ 15,532 $ 33,651
Liabilities from commodity price risk
management activities . . . . . . . . . . 9,076 9,555
Accrued interest. . . . . . . . . . . . . . 6,466 7,040
------ ------
Total current liabilities . . . . . . . . . 31,074 50,246
------ ------
LONG-TERM DEBT . . . . . . . . . . . . . . . . . 290,540 352,090
DEFERRED INCOME TAXES. . . . . . . . . . . . . . 57,803 110,047
LIABILITIES FROM COMMODITY PRICE RISK MANAGEMENT
ACTIVITIES . . . . . . . . . . . . . . . . . . 9,770 78
STOCKHOLDERS' EQUITY
6-1/2% Convertible Preferred Stock, $.01
par value; 10,000,000 shares authorized;
4,370,000 issued and outstanding. . . . . 44 --
Common stock ($.01 par value, 120,000,000
shares authorized; 35,049,000 and
31,584,400 shares issued and 31,613,000
and 31,584,400 outstanding at September
30, 1998 and December 31, 1997,
respectively) . . . . . . . . . . . . . . 316 316
Additional paid-in capital. . . . . . . . . 302,739 196,864
Retained earnings (deficit) . . . . . . . . (112,094) (8,664)
Unearned compensation . . . . . . . . . . . (813) (1,093)
Notes receivable for equity interest. . . . (775) (775)
Unrealized loss on marketable equity
securities. . . . . . . . . . . . . . . . -- (2,000)
-------- ---------
Total stockholders' equity . . . . . . 189,417 184,648
-------- ---------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $578,604 $697,109
======== ========
</TABLE>
<PAGE> 3
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales . . . . . . . . . .$ 29,179 $ 27,163 $ 97,438 $ 89,742
Commodity price risk management . . . 5,299 (4,576) 7,469 (7,674)
Interest and other. . . . . . . . . . 212 1,058 637 2,326
--------- --------- -------- ---------
Total revenues . . . . . . . . . . 34,690 23,645 105,544 84,394
--------- --------- -------- ---------
COSTS AND EXPENSES:
Oil and gas operating expenses. . . . 9,238 2,152 28,433 6,657
Depreciation, depletion and
amortization. . . . . . . . . . . . 13,666 10,491 42,461 32,190
General and administrative . . . . . 1,222 807 3,620 2,476
Interest expenses . . . . . . . . . . 5,057 -- 14,734 --
Impairment of oil and gas properties. -- -- 154,000 --
Loss on sale of equity securities . . 240 -- 14,340 --
--------- --------- -------- ---------
Total costs and expenses . . . . . 29,423 13,450 257,588 41,323
--------- --------- -------- ---------
INCOME (LOSS) BEFORE INCOME TAXES . . . 5,267 10,195 (152,044) 43,071
--------- --------- -------- ---------
PROVISION (BENEFIT) FOR INCOME TAXES. . 1,828 3,492 (52,244) 14,752
--------- --------- -------- ---------
NET INCOME (LOSS) . . . . . . . . . . . $3,439 $6,703 ($99,800) $28,319
========= ========= ======== =========
PREFERRED STOCK DIVIDENDS . . . . . . . ($1,775) $ -- ($3,630) $ --
========= ========= ======== =========
EARNINGS (LOSS) ON COMMON STOCK . . . . $1,664 $6,703($103,430) $28,319
========= ========= ======== =========
EARNINGS (LOSS) PER SHARE OF COMMON
STOCK, BASIC AND FULLY DILUTED. . . . $0.05 $0.21 ($3.27) $0.90
========= ========= ======== =========
AVERAGE NUMBER OF COMMON SHARES USED IN
COMPUTATION, BASIC AND FULLY DILUTED. 31,613 31,582 31,602 31,582
========= ========= ======== =========
</TABLE>
<PAGE> 4
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Preferred Common Stock Notes Loss on
Stock Outstanding Additional Unearned Retained Receivable Marketable
------------- ------------- Paid-In Compen- Earnings for Equity Equity
Shares Amount Shares Amount Capital sation (Deficit) Interest Securities Total
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
<S>
BALANCE, December 31, 1997 -- -- 31,584 $ 316 $196,864 ($1,093) ($8,664) ($775) ($2,000) $184,648
- ----------------------------------------------------------------------------------------------------------------
Issuance of Preferred Stock 4,370 $ 44 -- -- 105,451 -- -- -- -- 105,495
Restricted stock issued/
earned -- -- 29 -- 424 280 -- -- -- 704
Loss recognized on market-
able equity securities -- -- -- -- -- -- -- -- 2,000 2,000
Net Loss -- -- -- -- -- -- (99,800) -- -- (99,800)
Preferred dividend paid -- -- -- -- -- -- (3,630) -- -- (3,630)
- ----------------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1998 4,370 $ 44 31,613 $ 316 $302,739 ($813)($112,094) ($775) -- $189,417
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 5
BELCO OIL & GAS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . ($99,800) $ 28,319
Adjustments to reconcile net income (loss) to net
operating cash inflows--
Depreciation, depletion and amortization . . . . 42,461 32,190
Impairment of oil and gas properties . . . . . . 154,000 --
Deferred tax provision . . . . . . . . . . . . . (52,244) 12,138
Loss on sale of marketable equity securities . . 14,340 --
Amortization of restricted stock compensation. . 704 185
Commodity price risk management activities . . . (5,445) 5,572
Changes in operating assets and liabilities --
Accounts receivable, oil and gas . . . . . . . . 16,703 4,217
Other current assets . . . . . . . . . . . . . . (195) 430
Income taxes payable . . . . . . . . . . . . . . -- (2,394)
Accounts payable and accrued liabilities . . . . (4,198) (1,616)
-------- --------
Net operating cash inflows. . . . . . . . . . 66,326 79,041
CASH FLOWS FROM INVESTING ACTIVITIES:
Exploration and development expenditures . . . . (58,752) (101,994)
Purchases of oil and gas properties. . . . . . . (39,756) --
Proceeds from sale of oil and gas properties . . 3,872 13,885
Changes in accounts payable and accrued
liabilities for oil and gas expenditures . . . (14,495) (6,272)
Change in advances to oil and gas operators. . . (4) (917)
Equity investment in Big Bear Exploration Ltd. . (10,268) --
Proceeds from sale of marketable equity
securities . . . . . . . . . . . . . . . . . . 18,395 --
Purchase of marketable equity securities . . . . (1,851) (30,870)
Changes in other assets. . . . . . . . . . . . . (562) (7,858)
--------- ---------
Net investing cash outflows . . . . . . . . (103,421) (134,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from preferred stock offering, net. . . 105,495 --
Proceeds from debt offerings . . . . . . . . . . -- 150,000
Long-term debt repayments. . . . . . . . . . . . (61,550) --
Preferred dividend paid. . . . . . . . . . . . . (3,630) --
-------- -------
Net financing cash inflows. . . . . . . . . 40,315 150,000
-------- -------
INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . 3,220 95,015
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD. . . 12,260 43,473
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . $ 15,480 $ 138,488
========= =========
</TABLE>
<PAGE> 6
BELCO OIL & GAS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Accounting Policies: The financial statements included herein have
been prepared by Belco Oil & Gas Corp. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments which are, in the opinion of
management, necessary to present a fair statement of the results for the
interim periods, on a basis consistent with the annual audited financial
statements. All such adjustments are of a normal recurring nature.
The results of operations for the interim period are not necessarily
indicative of the results to be expected for an entire year. Certain
information, accounting policies, and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the Company's Form 10-K for the calendar
year 1997 which includes financial statements and notes thereto.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
Actual results could differ from those estimates. Significant estimates
with regard to these financial statements include the estimated fair value of
oil and gas commodity price risk management contracts and the estimate of
proved oil and gas reserve volumes and the related discounted future net cash
flows therefrom.
New Accounting Standards: In June 1998, the Financial Accounting
Standards Board issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133 is effective for
fiscal years beginning after June 15, 1999. FAS 133 requires all derivatives
to be recorded on the balance sheet at fair value and established "special
accounting" for the following three different types of hedges: hedges of
changes in the fair value of assets, liabilities, or firm commitments
(referred to as fair value hedges); hedges of the variable cash flows of
forecasted transactions (cash flow hedges); and hedges of foreign currency
exposures of net investments in foreign operations. Though the accounting
treatment and criteria for each of the three types of hedges is unique, they
all result in offsetting changes in fair values or cash flows of both the
hedge and the hedged item being recognized in earnings in the same period.
Changes in fair value of derivatives that do not meet the criteria of one of
these three categories of hedges are included in income. Transition
adjustments resulting from adoption of FAS 133 must be recognized in income
and comprehensive income, as appropriate, as a cumulative effect of an
accounting change. Belco has not yet determined the effect of total
compliance, but it is not expected to materially impact the financial
statements of the Company.
<PAGE> 7
Note 2 - Commodity Price Risk Management Activities: The Company
periodically enters into commodity price risk management transactions such as
swaps and options in order to manage its exposure to oil and gas price
volatility. Gains and losses related to qualifying hedges of the Company's
oil and gas production are deferred and recognized as revenues as the
associated production occurs. Reference is made to the December 31, 1997
financial statements of Belco Oil & Gas Corp., included in the Form 10-K for
the calendar year 1997, for a more thorough discussion of the Company's
commodity price risk management activities.
The Company uses the mark-to-market method of accounting for instruments
that do not qualify for hedge accounting. Under mark-to-market accounting,
those contracts which do not qualify for hedge accounting are reflected at
market value at the end of the period and recorded as assets and liabilities
in the consolidated balance sheet. Under such method, changes in the market
value of outstanding financial instruments are recognized in income as
unrealized gain or loss in the period of change.
For the nine months ended September 30, 1998, the Company had net gains
of $7.5 million ($4.0 million in cash gains and $3.5 million in non-cash
mark-to-market gains). This compares to a $7.7 million net loss consisting of
$2.7 million in cash losses and $5.0 million in non-cash mark-to-market
losses, reported in the first nine months of 1997 related to the Company's
price risk management activities.
Note 3 - Impairment of Oil and Gas Properties: Under full-cost accounting
rules, the capitalized costs of proved oil and gas properties are subject to a
"ceiling test", which limits such costs to the estimated present value net of
related tax effects, discounted at a 10 percent interest rate, of future net
cash flows from proved reserves, based on current economic and operating
conditions (PV10). If capitalized costs exceed this limit, the excess is
charged to expense. Application of these rules during periods of relatively
low oil and gas prices, even if of short-term duration, may result in
write-downs which in management's opinion may not reflect the longer term
value of the relevant oil and gas reserves.
During the first and second quarters of 1998, the Company recorded a
combined non-cash impairment provision related to oil and gas properties in
the amount of approximately $154 million ($100 million after-tax) primarily
due to the significant decline in oil prices as required by full-cost
accounting ceiling test rules described above.
Note 4 - Investment in Hugoton Energy Corporation: In June 1997 the Company
purchased 2,940,000 shares of common stock of Hugoton Energy Corporation
(Hugoton) at $10.50 per share for a total investment of $30.9 million. In
March, 1998 Hugoton was merged into Chesapeake Energy Corp. (CHK) and the
Company received 3,822,000 common shares of CHK. During the first nine months
of 1998, the Company liquidated this investment realizing a loss of $14.3
million.
Note 5 - Issuance of Preferred Stock: On March 10, 1998 the Company
completed the closing and sale of 4,370,000 shares at $25 per share ($109.3
million) of 6-1/2% Convertible Preferred Stock in an underwritten public
offering. Each share of Convertible Preferred Stock can be converted into
Belco Common Stock at an initial conversion rate of 1.1292 shares of Common
Stock for each share of Convertible Preferred Stock, equivalent to a
conversion price of $22.14 per share of Common Stock. The net proceeds of the
offering in the amount of $105.5 million were used to reduce bank indebtedness
and fund capital expenditures.
<PAGE> 8
Note 6 - Capital Stock: Net Income (Loss) Per Common Share
A reconciliation of the components of basic and diluted net income (loss)
per common share for the three and nine months ended September 30, 1998 and
1997 is presented in the table below (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------- ------ ------- ------
<S> <C> <C> <C> <C>
Basic net income (loss) per share:
Net income (loss) $3,439 $ 6,703 ($99,800) $28,319
Less: Preferred Stock dividends (1,775) -- (3,630) --
-------- ------- --------- -------
Earnings (loss) available to
common shareholders $1,664 $ 6,703 ($103,430) $28,319
Weighted average shares of common
stock outstanding(1) 31,613 31,582 31,602 31,582
------- ------- ------- -------
Basic net income (loss) per share $ 0.05 $ 0.21 ($3.27) $ 0.90
======= ======= ======= =======
Diluted net income (loss) per share:
Weighted average shares of common
stock outstanding(1) 31,613 31,582 31,602 31,582
Effect of dilutive securities:
Restricted stock (2) (3) -- -- -- --
Preferred stock, warrants and
stock options (2) (3) -- -- -- --
------ ------ ------ ------
Average shares of common stock
outstanding including dilutive
securities 31,613 31,582 31,602 31,582
------ ------ ------ ------
Diluted net income (loss) per
share $0.05 $ 0.21 ($3.27) $0.90
====== ====== ======= ======
</TABLE>
_____________
(1) Includes shares issued and outstanding plus vested restricted stock.
(2) Calculated using the treasury stock method, including unearned
compensation of restricted stock as proceeds.
(3) Amounts are not included in the computation of diluted net income (loss)
per share in 1997 or 1998 because to do so would have been antidilutive.
Note 7 - Comprehensive Income: In the first quarter of 1998 the Company
adopted SFAS No. 130, "Reporting Comprehensive Income" which requires
disclosure of comprehensive income and its components in the financial
statements. For the Company, comprehensive income includes net income and
reserve for unrealized losses on marketable equity securities held. The
components of comprehensive income for the three and nine months ended
September 30, 1998 and 1997 are as follows (in thousands):
<PAGE> 9
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1998 1997 1998 1997
------ ------ ------- ------
<S> <C> <C> <C> <C>
Net income (loss) $3,439 $6,703 ($99,800) $28,319
Less: Reclassification
adjustment for losses included
in net income -- -- 2,000 --
------ ------ -------- -------
Total Comprehensive Income $3,439 $6,703 ($97,800) $28,319
====== ====== ======== =======
</TABLE>
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Belco Oil & Gas Corp. (the "Company") is an independent energy company
engaged in the exploration for and the acquisition, exploitation, development
and production of natural gas and oil primarily in the Rocky Mountains, the
Permian Basin, the Mid-Continent region and the Austin Chalk Trend. Since its
inception in April 1992, the Company has grown its reserve base largely
through a balanced program of exploration and development drilling and through
acquisitions. The Company concentrates its activities primarily in four core
areas in which it has accumulated detailed geologic knowledge and has
developed significant management and technical expertise. Additionally, the
Company structures its participation in natural gas and oil exploration and
development activities to minimize initial costs and risks, while permitting
substantial follow-on investment.
The Company's operations are currently focused in the Rocky Mountains,
primarily in the Green River (which includes the Moxa Arch Trend), Wind River
and Big Horn Basins of Wyoming, the Permian Basin in west Texas, the
Mid-Continent region in Oklahoma and north Texas, and the Austin Chalk Trend,
primarily in Texas. These areas accounted for approximately 98% of the
Company's reserves at December 31, 1997.
The Company's revenue, profitability and future rate of growth are
substantially dependent upon prevailing prices for natural gas, oil and
condensate. These prices are dependent upon numerous factors beyond the
Company's control, such as economic, political and regulatory developments and
competition from other sources of energy. Energy markets have historically
been very volatile, and there can be no assurance that oil and natural gas
prices will not be subject to wide fluctuations in the future. A substantial
or extended decline in oil and natural gas prices could have a material
adverse effect on the Company's financial position, results of operations and
access to capital, as well as the quantities of natural gas and oil reserves
that the Company may economically produce. Natural gas produced is sold under
contracts that primarily reflect spot market conditions for their particular
area. The Company markets its oil with other working interest owners on spot
price contracts and typically receives a small premium to the price posted for
such oil. Currently, approximately 59% of the Company's production volumes
relate to the sale of natural gas based on six Mcf of gas considered
equivalent to one barrel of oil.
The Company utilizes commodity swaps and options and other commodity
price risk management transactions related to a portion of its oil and natural
gas production to achieve a more predictable cash flow, and to reduce its
exposure to price fluctuations. The Company accounts for these transactions
as hedging activities or uses mark-to-market accounting for those contracts
that do not qualify for hedge accounting. As of September 30, 1998, the
Company has various natural gas and oil price risk management contracts in
place with respect to portions of its estimated production for the remainder
of 1998 and with respect to lesser portions of its estimated production
for 1999 and 2000. The Company expects from time to time to either add or
reduce the amount of price risk management contracts that it has in place in
keeping with its hedging strategy.
<PAGE> 11
The following table sets forth certain operations data of the Company for
the periods presented:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Variances Ended June 30, Variances
------------------ --------------- ------------------ --------------
1998 1997 AMOUNT % 1998 1997 AMOUNT %
-------- -------- -------- ------ -------- -------- -------- -----
<C> <C> <C> <C> <C> <C> <C> <C>
<S>
Oil and Gas Sales
(Unhedged)(in thousands) . $ 29,179 $ 27,163 $ 2,016 7% $ 97,438 $ 89,742 $ 7,696 9%
Commodity Price Risk
Management (in thousands) 5,299 (4,576) 9,875 216% 7,469 (7,674) 15,143 197%
Weighted Average Sales Prices
(Unhedged):
Oil (per Bbl) $ 12.87 $ 18.94 ($6.07) (32%) $ 13.69 $ 19.92 ($6.23) (31%)
Gas (per Mcf) 1.74 1.87 (0.13) (7%) 1.91 2.04 (0.13) (6%)
Net Production Data:
Oil (MBbl) 1,058 263 795 302% 3,238 716 2,522 352%
Gas (MMcf) 8,922 11,873 (2,951) (25%) 27,838 36,973 (9,135) (25%)
Gas equivalent (MMcfe) 15,270 13,450 1,820 14% 47,266 41,269 5,997 15%
Data per Mcfe:
Oil and gas sales revenues
(Unhedged) $ 1.91 $ 2.02 ($0.11) (5%) $ 2.06 $ 2.17 ($0.11) (5%)
Commodity Price Risk
Management Activities-- 0.34 (0.34) 0.68 200% 0.16 (0.18) 0.34 189%
Oil and gas operating
expenses (0.61) (0.16) (0.45) 281% (0.60) (0.16) (0.44) 275%
General and administrative (0.08) (0.06) (0.02) 33% (0.08) (0.06) (0.02) 33%
Depreciation, depletion and
amortization (0.90) (0.78) (0.12) 15% (0.90) (0.78) (0.12) 15%
-------- ------- ------- ---- ------- ------- ------ ----
Pre-tax operating
profit (1) $ 0.66 $ 0.68 ($0.02) (3%) $ 0.64 $ 0.99 ($0.35) (35%)
======== ======= ======= ===== ======== ======= ======= =====
</TABLE>
__________________
(1) Excluding ceiling test provision, impairment of equity securities and
interest income and expenses.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 Compared to September 30, 1997
Revenues
During the third quarter of 1998, oil and gas sales revenues increased $2.0
million, or 7%, to $29.2 million over the prior year comparable period. The
revenue increase is largely the result of a 14% increase in Mcfe production
over the prior year third quarter to 166 MMcfe per day despite a 5% decline in
average realized prices. Natural gas production represented approximately 59%
of total Company production on an Mcfe basis compared to the prior year third
quarter when natural gas production represented 88% of the total Company
production. Oil production increased by 302% over the prior year quarter
primarily due to the acquisition of Coda Energy, Inc. ("Coda") in November,
1997.
<PAGE> 12
Commodity price risk management activities resulted in a net pre-tax gain
of $5.3 million in the third quarter of 1998 of which $3.3 million was cash.
The third quarter of 1997 included a net pre-tax commodity price risk
management loss of $4.6 million consisting of $3.7 million in cash gain offset
by a $8.3 million non-cash mark-to-market loss. The net impact of such
activities on an Mcfe basis was a $0.34 gain per Mcfe ($0.21 cash gain and
$0.13 non-cash gain) for the third quarter of 1998 compared to a $0.34 loss
per Mcfe ($0.28 cash gain and $0.62 non-cash loss) in the 1997 third quarter.
Costs and Expenses
Production and operating expenses increased 329% from $2.2 million for the
third quarter of 1997 to $9.2 million for the comparable period in 1998. The
increase is identified with the growth in oil production through secondary
recovery techniques following the Coda acquisition and reflects the higher
costs normally associated with such production when compared to natural gas.
Operating costs were $0.61 per Mcfe for the third quarter of 1998 when
compared to $0.16 per Mcfe in the third quarter of 1997 reflecting the more
balanced oil/gas production profile for the Company.
Depreciation, depletion and amortization ("DD&A"), for the quarter ended
September 30, 1998 increased 30% over the prior year comparable period, from
$10.5 million to $13.7 million. The current DD&A rate per Mcfe is $0.90, up
$0.12 over the comparable prior year quarter.
General and administrative expense ("G&A") increased 51% in the third
quarter of 1998 to $1.2 million when compared to the $0.8 million incurred in
the third quarter of 1997, reflecting the addition of personnel related to the
acquisition of Coda in November, 1997. The rate per Mcfe for G&A costs
increased from $0.06 to $0.08 quarter to quarter.
Interest expense is incurred on $150 million of 8-7/8% Senior Subordinated
Notes due 2007 issued in September 1997, $109 million 10-1/2% Senior
Subordinated Notes due 2006 (the "Coda Notes") assumed in the Coda acquisition
in November 1997 and bank debt incurred to fund both the Coda acquisition and
capital expenditures.
The Company's investment in Hugoton Energy Corporation ("Hugoton") in the
form of 2,940,000 shares of common stock was converted into 3,822,000 shares
of Chesapeake Energy Corporation ("CHK") common stock following a merger of
the two companies on March 10, 1998. Subsequent to June 30, 1998, the Company
sold all the remaining shares of CHK at a nominal additional loss of $240,000.
Income Before Income Taxes
The Company's reported pre-tax income for the third quarter of 1998 was
$5.3 million. This compares to a pre-tax income of $10.2 million reported in
the third quarter of 1997. The decline is the result of lower commodity
prices and higher operating costs as described above.
Income Taxes
Income tax was recorded for the third quarter of 1998 in the amount of $1.8
million compared with a provision of $3.5 million recorded in the prior year
comparable quarter.
<PAGE> 13
Nine Months Ended September 30, 1998 Compared to September 30, 1997
Revenues
For the first nine months of 1998, oil and gas sales revenues (unhedged)
increased $7.7 million, or 9%, to $97.4 million over the prior year comparable
period despite a substantial decline in commodity prices. The revenue
increase is the result of a 15% increase Mcfe production over the prior year
comparable period. Average Mcfe price realizations excluding price risk
management activities declined by 5% in the first nine months of 1998 compared
to last year's first nine months. Natural gas production represented
approximately 59% of total Company production on an Mcfe basis, compared to
the 90% reported for the first nine months of 1997. Oil production increased
by 352% over the prior year comparable period due to the inclusion of Coda
properties.
Commodity price risk management activities during the first nine months of
1998 resulted in a net pre-tax gain of $7.5 million, consisting of $4.0
million in cash gains and $3.5 million of non-cash mark-to-market gains. The
impact of such activities on an Mcfe basis amounted to a net gain of $0.16
($0.09 cash and $0.07 non-cash) and a net loss of $0.19 ($0.07 cash and $0.12
non-cash) per Mcfe for the first nine months of 1998 and 1997, respectively.
Costs and Expenses
Production and operating expenses increased to $28.4 million for the first
nine months of 1998 when compared to the $6.7 million for the comparable
period in 1997. The increase is identified with the growth in oil production
through secondary recovery techniques following the Coda acquisition and
reflects the higher costs normally associated with such production when
compared to natural gas. Operating costs were $0.60 per Mcfe for the first
nine months of 1998 when compared to $0.16 per Mcfe in the first nine months
of 1997.
DD&A for the nine months ended September 30, 1998 was $42.5 million when
compared to the $32.2 million recorded in the prior year comparable period.
The first nine months DD&A rate per Mcfe is $0.90, up $0.12 over the
comparable prior year period. For the nine months ending September 30, 1998,
the Company recorded a $154 million ($100 million after-tax) non-cash ceiling
test provision as required by full-cost accounting rules. This provision was
the result of applying substantially lower commodity prices to estimated
recoverable reserves as of March 31, 1998 and June 30, 1998.
G&A costs increased by 46% in the first nine months of 1998 to $3.6 million
when compared to the $2.5 million incurred in the first nine months of 1997,
primarily due to the addition of personnel acquired from the Coda transaction.
The rate per Mcfe for such costs increased from $0.06 to $0.08.
Interest expense is incurred on $150 million of 8-7/8% Senior Subordinated
Notes due 2007 issued in September 1997, $109 million of 10-1/2% Senior
Subordinated Notes due 2006 assumed in the Coda acquisition in November 1997
and bank debt incurred to fund the Coda acquisition and capital expenditures.
As a result of the substantial decline in the market value of CHK
securities, the Company realized a loss of $14.3 million in disposing these
securities during the first nine months of 1998.
<PAGE> 14
Income (Loss) Before Income Taxes
The Company's reported loss before income tax benefits for the first nine
months of 1998 was $152.0 million. This compares to a pre-tax profit of $43.1
million reported in the first nine months of 1997. The loss is the result of
the non-cash ceiling test impairment of $154 million ($100 million after-tax)
mandated by current accounting rules and the $14.3 million loss related to the
disposition of equity securities. Income before income taxes, excluding the
effect of the impairment provisions, was $16.3 million.
Income Taxes
Income tax benefits were recorded for the first nine months of 1998 in the
amount of $52.2 million as a result of the reported pre-tax loss. The
provision for income taxes for the comparable nine month period of 1997 was
$14.8 million.
LIQUIDITY AND CAPITAL RESOURCES
General
On March 29, 1996, the Company successfully completed an initial public
offering of 6.5 million shares of common stock (the "Offering"). The Offering
provided the Company with approximately $113 million net of Offering expenses.
Proceeds from the Offering were used to repay approximately $35 million of
indebtedness under the Company's previous credit facility, fund capital
expenditures and for other general corporate purposes. The remaining proceeds
from the Offering, together with cash flows from operations, were used to fund
planned capital expenditures, including lease acquisitions, commitments, other
working capital requirements and general corporate purposes.
In September 1997, the Company entered into a new five-year $150 million
Credit Agreement dated September 23, 1997 (the "Credit Facility") with The
Chase Manhattan Bank, N.A., as administrative agent (the "Agent") and other
lending institutions (the "Banks"). The Credit Facility provides for an
aggregate principal amount of revolving loans of up to the lesser of $150
million or the Borrowing Base (as defined) as in effect from time to time,
which includes a subfacility from the Agent for letters of credit. The
Borrowing Base at September 30, 1998 was set at $150 million with $25 million
advanced to the Company at that date. The borrowing base will be redetermined
by the Agent and the Banks semi-annually based upon their usual and customary
oil and gas lending criteria as such exist from time to time. In addition,
the Company may request two additional redeterminations and the Banks may
request one additional redetermination per year.
Indebtedness of the Company under the Credit Facility is secured by a
pledge of the capital stock of each of the Company's material subsidiaries.
Indebtedness under the Credit Facility bears interest at a floating rate
based (at the Company's option) upon (i) the ABR with respect to ABR Loans or
(ii) the Eurodollar Rate (as defined) for one, two, three or six months (or
nine or twelve months if available to the Banks) Eurodollar Loans (as
defined), plus the Applicable Margin. The ABR is the greater of (i) the Prime
Rate (as defined), (ii) the Base CD Rate (as defined) plus 1% or (iii) the
Federal Funds Effective Rate (as defined) plus 0.50%. The Applicable Margin
for Eurodollar Loans varies from 0.50% to 0.875% depending on the Borrowing
<PAGE> 15
Base usage. Borrowing Base usage is determined by a ratio of (i) outstanding
Loans (as defined) and letters of credit to (ii) the then effective Borrowing
Base. Interest on ABR Loans is payable quarterly in arrears and interest on
Eurodollar Loans is payable on the last day of the interest period therefor
and, if longer than three months, at three month intervals.
The Company is required to pay to the Banks a commitment fee based on the
committed undrawn amount of the lesser of the aggregate commitments or the
then effective Borrowing Base during a quarterly period equal to a percent
that varies from 0.20% to 0.30% depending on the Borrowing Base usage.
In September 1997, the Company issued $150 million of 8-7/8% Senior
Subordinated Notes due 2007 (the "8-7/8% Notes"). Interest on the 8-7/8%
Notes accrues at the rate of 8-7/8% per annum and is payable semi-annually in
arrears on March 15 and September 15 of each year, commencing on March 15,
1998. The 8-7/8% Notes mature on September 15, 2007 unless previously
redeemed. Except under limited circumstances, the 8-7/8% Notes are not
redeemable at the Company's option prior to September 15, 2002. Thereafter,
the 8-7/8% Notes will be subject to redemption at the option of the Company,
in whole or in part, at specified redemption prices, plus accrued and unpaid
interest, if any, thereon to the applicable redemption date. In addition,
upon a change of control (as defined in the indenture pursuant to which the
8-7/8% Notes were issued) the Company is required to offer to redeem the
8-7/8% Notes for cash at 101% of the principal amount, plus accrued and unpaid
interest, if any, thereon to the applicable date of repurchase.
The 8-7/8% Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined in the 8-7/8% Indenture) of the Company, which includes borrowings
under the Credit Facility described above. The 8-7/8% Notes rank pari passu
in right of payment with any existing or future senior subordinated debt of
the Company and rank senior in right of payment to all other subordinated
indebtedness of the Company.
In November 1997, the Company completed the acquisition of Coda. The
Company paid an aggregate of $324 million including approximately $192 million
in cash ($150 million plus a $42 million adjustment for proceeds from the
disposition of Taurus Energy Corp. ("Taurus"), a subsidiary of Coda (which
occurred on the day prior to closing of the Coda acquisition)), assumption of
$110 million of Coda long-term debt outstanding and three year warrants to
purchase 1,666,667 shares of Common Stock of the Company at $27.50 per share
issued to the holders of the outstanding common stock, preferred stock and
options to purchase common stock of Coda. Concurrently with the closing of
the acquisition of Coda, the Company contributed $23 million to Coda that Coda
utilized, together with the funds from the disposition of Taurus, to repay all
of the debt outstanding under Coda's revolving credit facility (approximately
$65 million in principal amount), plus accrued interest thereon, and such
credit facility was thereafter terminated. At closing, the Company funded the
cash portion of the consideration and the cash contribution to Coda through
cash on hand and borrowings of $84 million under its Credit Facility.
As of September 30, 1998, the Company also had $109,000,000 principal
amount outstanding under the Coda Notes. Interest on the Coda Notes accrue at
the rate of 10-1/2% per annum and is payable semi-annually in arrears on April
1 and October 1 of each year. Except under limited circumstances, the Coda
Notes are not redeemable at the Company's option prior to April 1, 2001.
Thereafter the Coda Notes will be subject to redemption at specified prices,
plus accrued and unpaid interest, if any, thereon to the applicable redemption
date. On February 25, 1998, the Company merged Coda into Belco and Belco
assumed the obligations under the Coda Notes.
<PAGE> 16
The Coda Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future Senior Debt (as
defined) including any bank debt.
In December 1997, the Company entered into interest rate swap agreements
converting two long-term debt fixed rate obligations to floating rate
obligations as follows:
<TABLE>
<CAPTION>
Agreement Fixed Floating Floating Rate
Amount Rate Rate Expiration Date
------------ --------- ---------- ------------------
<S> <C> <C> <C> <C>
$100 million 8.875% 8.28% March 15, 2000 (a)
$110 million 10.5% 10.12% April 1, 2000 (a)
$50 million 8.875% 8.08% March 15, 1999 (a)
</TABLE>
_______________________
(a) Floating rate is redetermined at each six month period following the
expiration through September 15, 2007.
The agreements obligate the Company to actually pay the indicated floating
rate rather than the original fixed rate. The floating rates are capped at
8.875% through September 15, 2001 and at 10% from March 15, 2002 through
September 15, 2007 on the 8.875% Bonds and capped at 10-1/2% through October
1, 1999 and 11.625% from April 1, 2000 through April 1, 2003 on the 10.5%
Bonds. The agreements reduced the Company's 1998 interest expense by
approximately $1 million through October 1, 1998.
On March 10, 1998 the Company completed the sale of 4.37 million shares
of its 6-1/2% Preferred Stock. The Preferred Stock has a liquidation
preference of $25 per share and is convertible at the option of the holder
into shares of the Company's Common Stock at an initial conversion rate of
1.1292 shares of Common Stock for each share of Preferred Stock, equivalent to
a conversion price of $22.14 per share of Common Stock. The Company received
net proceeds from the sale of the Preferred Stock of $105.5 million, which was
used to pay down bank indebtedness.
On June 12, 1998, the Company purchased approximately $10.5 million of 5%
Convertible Preferred Stock of Big Bear Exploration Ltd., a Canadian oil and
gas company ("Big Bear"), at approximately $0.85 per share with each share
convertible into one common share of Big Bear. The Company was also issued
approximately $120 million of Special Acquisition Warrants at a price of
approximately $0.72 per warrant. In connection with the issuance of the
Special Acquisition Warrants, the Company deposited a $60 million letter of
credit and 3,436,000 shares of the Company's common stock into an escrow
account. On November 10, 1998, the Company executed a restructuring agreement
whereby the Company agreed to convert the Big Bear 5% Convertible Preferred
Stock into 21,428,571 shares of Big Bear Common Stock at a conversion price of
approximately $0.50 per share (reduced from $0.85 per share). Following the
conversion, the Company will own approximately 26.4% of Big Bear's outstanding
common stock. The conversion is subject to the approval of Big Bear's
stockholders and the Toronto Stock Exchange, as well as certain other
conditions. In connection with the restructuring, the Special Acquisition
Warrants were canceled, the Belco representatives resigned from Big Bear's
<PAGE> 17
Board of Directors, the $60 million letter of credit was canceled, and the
3,436,000 shares of Company common stock held in the escrow account were
returned to the Company and designated as unissued.
In October 1998, the Company acquired approximately 20 Bcfe of long-lived
reserves on producing properties in Oklahoma and Kansas, as well as certain
undeveloped acreage and 3-D seismic data, for an estimated $14.7 million. The
properties are currently producing approximately 6.8 MMcfe per day with 81% of
the reserves natural gas. Belco expects to assume operations for 74% of the
properties which comprise approximately 90% of the production and value. This
transaction had an effective date of November 1, 1998.
Cash Flow
Net operating cash flow (pre-tax), a measure of performance for
exploration and production companies, is generally derived by adjusting net
income to eliminate the effects of the non-cash depreciation, depletion and
amortization expense, provision for deferred income taxes and the non-cash
effects of commodity price risk management activities. Net operating cash
flow (pre-tax) before changes in working capital was approximately $54.0 and
$78.4 million for the first nine months of 1998 and 1997, respectively. The
Company had working capital of $23.1 million as of September 30, 1998, a
decrease of $13.7 million from the $36.8 million available as of December 31,
1997.
Capital Expenditures
Capital expenditures in the first nine months of 1998 including the $37.5
million acquisition of EnerVest properties on February 27, 1998 and before
sale of assets of $3.9 million were approximately $99 million. The Company's
current 1998 capital budget is approximately $130 million including the
recently completed $14.7 million property acquisition.
The Company intends to fund its future capital expenditures, commitments
and working capital requirements through cash flows from operations,
borrowings under the Credit Facility or other potential financings. If there
are changes in oil and natural gas prices, however, that correspondingly
affect cash flows and the Borrowing Base under the Credit Facility, the
Company has the discretion and ability to adjust its capital budget. The
Company believes that it will have sufficient capital resources and liquidity
to fund its capital expenditures and meet all of its financial obligations as
they come due.
Commodity Price Risk Management Transactions
Certain of the Company's commodity price risk management arrangements
require the Company to deliver cash collateral or other assurances of
performance to the counterparties in the event that the Company's payment
obligations with respect to its commodity price risk management transactions
exceed certain levels.
With the primary objective of achieving more predictable revenues and
cash flows and reducing the exposure to fluctuations in oil and natural gas
prices, the Company has entered into commodity price risk management
transactions of various kinds with respect to both oil and natural gas. While
the use of certain of these price risk management arrangements limits the
downside risk of adverse price movements, it may also limit future revenues
from favorable price movements. The Company engages in transactions such as
selling covered calls or straddles which are marked-to-market at the end of
<PAGE> 18
the relevant accounting period. Since the futures market historically has
been highly volatile, these fluctuations may cause significant impact on the
results of any given accounting period. The Company has entered into price
risk management transactions with respect to a substantial portion of its
estimated production for the remainder of 1998 through 1999 and lesser
portions of its estimated production thereafter. The Company continues to
evaluate whether to enter into additional price risk management transactions
for 1998 and future years. In addition, the Company may determine from time
to time to unwind its then existing price risk management positions as part of
its price risk management strategy.
Other
Environmental Matters
The Company's operations are subject to various federal, state and local
laws and regulations relating to the protection of the environment, which have
become increasingly stringent. The Company believes its current operations
are in material compliance with current environmental laws and regulations.
There are no environmental claims pending or, to the Company's knowledge,
threatened against the Company. There can be no assurance, however, that
current regulatory requirements will not change, currently unforeseen
environmental incidents will not occur or past noncompliance with
environmental laws will not be discovered on the Company's properties.
Year 2000 Compliance
The Company believes that its internal financial and most other
operational systems are currently Year 2000 compliant. The Company has not
incurred and does not expect to incur any significant cost in becoming
Year 2000 compliant. The Company does not know whether its significant
vendors' and customers' systems are yet Year 2000 compliant. If they are not,
such failure could partially effect the ability of the Company to sell its oil
and gas and receive related payments. In addition, there may be disruptions
in getting vendors to provide supplies and services in support of the
Company's operations. The Company believes that its significant vendors and
suppliers will be Year 2000 compliant before that critical date. The Company
is investigating contingency strategies in the event of any system failure.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities ("FAS
133"). FAS 133 is effective for fiscal years beginning after June 15, 1999.
FAS 133 requires all derivatives to be recorded on the balance sheet at fair
value and established "special accounting" for the following three different
types of hedges: hedges of changes in the fair value of assets, liabilities,
or firm commitments (referred to as fair value hedges); hedges of the variable
cash flows of forecasted transactions (cash flow hedges); and hedges of
foreign currency exposures of net investments in foreign operations. Though
the accounting treatment and criteria for each of the three types of hedges is
unique, they all result in offsetting changes in fair values or cash flows of
both the hedge and the hedged item being recognized in earnings in the same
period. Changes in fair value of derivatives that do not meet the criteria of
one of these three categories of hedges are included in income. Transitions
adjustments resulting from adoption must be recognized in income and
comprehensive income, as appropriate, as a cumulative effect of an accounting
<PAGE> 19
change. Belco has not yet determined the effect of total compliance, but it
is not expected to materially impact the financial statements of the Company.
Information Regarding Forward Looking Statements
The information contained in this Form 10-Q includes certain
forward-looking statements. When used in this document, such words as
"expect", "believes", "potential", and similar expressions are intended to
identify forward-looking statements. Although the Company believes that its
expectations are based on reasonable assumptions, it is important to note that
actual results could differ materially from those projected by such
forward-looking statements. Important factors that could cause actual results
to differ materially from those in the forward-looking statements include, but
are not limited to, the timing and extent of changes in commodity prices for
oil and gas, the need to develop and replace reserves, environmental risk, the
substantial capital expenditures required to fund its operations, drilling and
operating risks, risks related to exploration and development, uncertainties
about the estimates of reserves, competition, government regulation and the
ability of the Company to implement its business strategy.
<PAGE> 20
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
See footnotes to the financial statements of the Company for the year
ending December 31, 1997 for further discussion of this item.
<PAGE> 21
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
Exhibit No.
27* Financial Data Schedule
___________________
* Filed herewith
(b) Reports on Form 8-K:
None
<PAGE> 22
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
BELCO OIL & GAS CORP.,
<TABLE>
<S> <C>
Date: 11/13/98 LAURENCE D. BELFER
-------------------------------------
LAURENCE D. BELFER
(PRESIDENT AND CHIEF OPERATING OFFICER)
Date: 11/13/98 DOMINICK J. GOLIO
--------------------------------------
DOMINICK J. GOLIO
(SENIOR VICE PRESIDENT - FINANCE AND
CHIEF FINANCIAL OFFICER)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 15,480
<SECURITIES> 0
<RECEIVABLES> 27,164
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 54,203
<PP&E> 974,283
<DEPRECIATION> (479,210)
<TOTAL-ASSETS> 578,604
<CURRENT-LIABILITIES> 31,074
<BONDS> 290,540
0
44
<COMMON> 316
<OTHER-SE> 189,057
<TOTAL-LIABILITY-AND-EQUITY> 578,604
<SALES> 97,438
<TOTAL-REVENUES> 105,544
<CGS> 224,894<F1>
<TOTAL-COSTS> 224,894
<OTHER-EXPENSES> 17,960<F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,734
<INCOME-PRETAX> (152,044)
<INCOME-TAX> (52,244)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (99,800)
<EPS-PRIMARY> (3.27)
<EPS-DILUTED> (3.27)
<FN>
<F1>INCLUDES CEILING TEST RELATED COSTS ON IMPAIRMENT OF OIL AND GAS PROPERTIES
OF $154 MILLION. REFER NOTE 3 TO CONSOLIDATED FINANCIAL STATEMENTS.
<F2>INCLUDES ONE TIME LOSS ON SALE OF EQUITY SECURITIES OF $14.3 MILLION. REFER
NOTE 4 TO CONSOLIDATED FINANCIAL STATEMENTS.
</FN>
</TABLE>
