UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
Oklahoma 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 30, 1997.
Common Stock $.001 par value - 2,799,074
<PAGE>
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1997 (Unaudited) and
December 31, 1996
Statements of Operations - Three Months and Six Months
ended June 30, 1997 and 1996 (Unaudited)
Statements of Shareholders' Equity, Year ended
December 31, 1996 and Six Months ended
June 30, 1997 (Unaudited)
Statements of Cash Flows - Six Months ended
June 30, 1997 and 1996 (Unaudited)
Notes to Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Financial Statements
<PAGE>
June 30, 1997 (Unaudited) and December 31, 1996 and for the
Three Months and Six Months Ended June 30, 1997, and 1996 (Unaudited)
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
June 30, 1997 (Unaudited) and December 31, 1996
<CAPTION>
June 30, December 31,
ASSETS 1997 1996
----------------- ---------------
<S> <C> <C>
Current assets:
- --------------
Cash and cash equivalents $ 52,000 $ 375,000
Accounts receivable, less allowance for doubtful
receivables of $57,000 in 1997 and $71,000 in 1996 2,803,000 2,405,000
Inventories 621,000 2,003,000
Prepaid expense 337,000 442,000
Other assets 140,000 73,000
----------- ------------
Total current assets 3,953,000 5.298,000
----------- ------------
Investments and other assets 1,675,000 1,710,000
Property, plant and equipment, at cost 17,971,000 16,793,000
Less accumulated depreciation, depletion and amortization 8,746,000 8,094,000
----------- ------------
Net property, plant and equipment 9,225,000 8,699,000
----------- ------------
Intangible assets, at cost 4,409,000 4,305,000
Less accumulated amortization 3,606,000 3,539,000
----------- ------------
Net intangible assets 803,000 766,000
----------- ------------
$15,656,000 $ 16,473,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
- -------------------
Trade accounts payable $ 1,671,000 $ 1,395,000
Accrued expense and other liabilities 451,000 609.000
Short-term debt - 639,000
Current maturities of long-term debt 921,000 910,000
----------- ------------
Total current liabilities 3,043,000 3,553,000
----------- ------------
Long-term debt less current maturities 3,037,000 2,911,000
Minority interest in consolidated subsidiaries 123,000 153,000
Redeemable preferred stock of $100 stated value; 5,000,000 shares
authorized; 90,156 shares issued and outstanding (note 4) 1,200,000 1,200,000
Common shareholders'equity:
Common stock of $.001 par value per share; 10,000,000 shares
authorized; 2,799,074 shares issued and
outstanding in 1997 and 1996 3,000 3,000
Capital in excess of par value 41,629,000 41,629,000
Accumulated deficit (33,379,000) (32,976,000)
------------ ------------
Total common shareholders' equity 8,253,000 8,656,000
------------ ------------
Commitments and contingencies (note 8)
$15,656,000 $ 16,473,000
=========== ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
<CAPTION>
For Three Months Ended For Six Months Ended
------------------------- ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
Revenues:
Carbon dioxide $ 3,891,000 $ 3,553,000 $ 6,809,000 $ 6,332,000
Environmental/resource recovery 1,252,000 708,000 2,421,000 1,058,000
Other 92,000 13,000 127,000 30,000
----------- ----------- ----------- -----------
5,235,000 4,274,000 9,357,000 7,420,000
Expenses:
Carbon dioxide 2,501,000 2,419,000 4,554,000 4,483,000
Environmental/resource recovery 1,139,000 603,000 2,134,000 1,130,000
Selling, general and administrative 1,181,000 1,087,000 2,212,000 2,034,000
Depreciation, depletion & amortization 373,000 320,000 734,000 622,000
Other 9,000 8,000 16,000 22,000
------------ ----------- ----------- ---------
5,203,000 4,437,000 9,650,000 8,291,000
Operating profit (loss):
Carbon dioxide 435,000 246,000 514,000 160,000
Environmental/resource recovery (165,000) (139,000) (340,000) (492,000)
Other (238,000) (270,000) (467,000) (539,000)
------------- ------------ ------------ ----------
32,000 (163,000) (293,000) (871,000)
Other income (expense):
Interest income 4,000 4,000 7,000 6,000
Interest expense (99,000) (52,000) (187,000) (98,000)
Gain on sale of assets - 74,000 53,000 86,000
Gain on take-or-pay contract settlement (note 6) - - - 939,000
Other, including unconsolidated affiliates 89,000 (7,000) 12,000 (103,000)
Minority interest in operations of
consolidated subsidiaries 20,000 (3,000) 30,000 (3,000)
------------- ------------ ------------ ----------
Earnings (loss) from continuing operations
before income tax 46,000 (147,000) (378,000) (44,000)
Income taxes (note 7) (25,000) - (25,000) -
------------- ------------ ------------ ----------
Earnings (loss) from continuing operations 21,000 (147,000) (403,000) (44,000)
Loss from discontinued real estate
operations (note 2) - (8,000) - (16,000)
------------- ------------ ------------ ----------
Net earnings (loss) $ 21,000 $ (155,000) $ (403,000) $ (60,000)
============= ============ ============ ==========
Net earnings (loss attributable to
common shareholders $ 21,000 $ (155,000) $ (403,000) $ (60,000)
============ ============ ============ ==========
Earnings (loss) per common share and common
equivalent share (primary EPS) (note 5):
Earnings (loss) from continuing operations $ 0.01 $ (0.06) $ (0.14) (0.02)
Loss from discontinued operations - - - -
Earnings (loss) $ 0.01 $ (0.06) $ (0.14) $ (0.02)
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
<CAPTION>
TOTAL
CAPITAL IN COMMON
COMMON EXCESS OF ACCUMULATED SHAREHOLDERS'
STOCK PAR VALUE DEFICIT EQUITY
------ ----------- ------------ --------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $3,000 $41,446,000 $(32,661,000) $8,788,000
Net loss, year ended December 31, 1996 - - (315,000) (315,000)
Issuance of 68,244 shares of common stock - 183,000 - 183,000
------ ----------- ------------ --------------
Balance, December 31, 1996 3,000 41,629,000 (32,976,000) 8,656,000
Net loss, six months ended June 30, 1997 - - (403,000) (403,000)
------ ----------- ------------ --------------
Balance, June 30, 1997 $3,000 $41,629,000 $(33,379,000) $8,253,000
====== =========== ============ ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Cash received from customers $10,493,000 $7,501,000
Cash paid to suppliers and employees (9,245,000) (7,805,000)
Cash received from settlement of
take-or-pay contract - 539,000
Interest received 6,000 4,000
Interest paid (199,000) (140,000)
----------- ----------
Net cash provided by operating activities 1,055,000 99,000
----------- ----------
INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (904,000) (813,000)
Proceeds from sale of assets 58,000 241,000
Other investments 22,000 33,000
----------- ----------
Net cash used in investing activities (824,000) (539,000)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from line of credit and term notes 1,229,000 2,263,000
Payments on line of credit and term notes (1,783,000) (1,778,000)
Proceeds from issuance of stock - 25,000
----------- ----------
Net cash provided by (used in) financing
activities (554,000) 510,000
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (323,000) 70,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 375,000 220,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $52,000 $290,000
=========== ==========
Continued
</TABLE>
<TABLE>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
<CAPTION>
Reconciliation of Net loss to Net Cash
Provided by Operating Activities
FOR THE SIX MONTHS ENDED
----------------------------------
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Net loss $(403,000) $(60,000)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation, depletion and
amortization 734,000 625,000
Gain on sale of assets (53,000) (86,000)
Interest and other costs
(capitalized) recognized
on real estate project 478,000 (66,000)
Provision for impairment of assets 60,000 120,000
Gain on take-or-pay contract
settlement - (400,000)
Other, including minority interest
in consolidated subsidiaries (82,000) (10,000)
---------- ----------
Net cash provided by operations
before changes in current
assets and liabilities 734,000 123,000
Increase in accounts receivable,
prepaids and other current
assets (308,000) (53,000)
(Increase) decrease in inventories 932,000 (543,000)
Increase (decrease) in accounts
payable, accrued expenses
and other liabilities (303,000) 572,000
---------- ----------
Net cash provided by operating
activities $1,055,000 $99,000
========== ==========
Supplemental Schedule of Noncash
Investing and Financing Activities
Purchase of property, plant and
equipment and intangible assets
through issuance of debt
obligations $ - $1,013,000
========== ==========
Receipt of property, plant, and
equipment as part of settlement
of take-or-pay contract $ - $ 400,000
========== ==========
Sale of inventory for a note
receivable $ 87,000 $ -
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1997 and 1996
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally
prepared in accordance with generally accepted accounting principles have
been omitted. The accompanying consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Beard's 1996 annual report on Form
10-K.
The accompanying consolidated financial statements include the accounts of
The Beard Company and its wholly and majority-owned subsidiaries ("Beard or
the Company"). All significant intercompany transactions have been
eliminated.
The financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented.
The results of operations for the three and six-month periods ended June 30,
1997, are not necessarily indicative of the results to be expected for the
full year.
The Company operates within two major industry segments: (1) the carbon
dioxide ("CO2") Segment, comprised of (a) the manufacture and distribution
of dry ice (solid CO2) and (b) the production of CO2; and (2) the environ-
mental/resource recovery ("E/RR") Segment, consisting of environmental
services and resource recovery activities. The Company's real estate ("R/E")
Segment, consisting of real estate construction and development, was dis-
continued in January, 1997. See Note 2 below. The Company also has
other operations, including a minority-owned investment in a joint venture
for the extraction, production and sale of crude iodine.
(2) DISCONTINUED OPERATIONS
In January 1997, the Company approved a formal plan to dispose of the assets
of its R/E Segment. The Company estimated that it would incur a loss of
$180,000 from discontinuing real estate construction and development
activities. The loss was recorded in the fourth quarter of 1996 and
represented the difference in the estimated amounts to be received from
disposing of the real estate construction and development assets and the
asset's recorded values as of December 31, 1996.
Results of operations of the R/E Segment for the three and six months ended
June 30, 1996, have been restated as discontinued operations in the
accompanying statements of operations. Operating results of the
discontinued operations through the date of sale of all remaining assets are
not expected to be significant.
During the six months ended June 30, 1997, the Company disposed of certain
real estate construction and development assets for $1,534,000 which
approximated the Company's estimated disposition values of those assets.
As of June 30, 1997 the significant remaining asset of the R/E Segment
consisted of one speculative home which the Company expects to dispose of by
December 31, 1997 at its June 30, 1997 recorded value.
(3) ACQUISITION
On May 21, 1996, the Company acquired 80% of the outstanding common stock of
Horizontal Drilling Technologies, Inc. ("HDT") for $482,000. HDT utilizes
trenchless technology and specializes in directional drilling for utility,
underground cable and environmental remediation projects. The purchase
price consisted of a non-interest bearing contingent payment obligation, a
non-interest bearing $150,000 note, convertible at the option of the holder
into common stock of the Company, and 20% of the Company's ownership in an
existing subsidiary involved in environmental/resource recovery operations.
The contingent payment obligation is payable only from 80% of specified cash
flows of HDT and the existing environmental/resource recovery subsidiary and
was recorded based upon its estimated present value. The non-interest
bearing note was also recorded at its present value and was converted into
the Company's common stock subsequent to the acquisition. The fair value of
the net identifiable assets of HDT approximated $143,000 on the acquisition
date. The excess of the purchase price over the fair value of the net
identifiable assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over ten years. The acquisition has been
accounted for by the purchase method and accordingly, the results of
operations of HDT prior to May 21, 1996, are not included in the Company's
consolidated financial statements.
(4) REDEEMABLE PREFERRED STOCK
The Company's preferred stock is mandatorily redeemable through December 31,
2002, from one-third of Beard's "consolidated net income" as defined. The
Company's operations through June 30, 1997, were not sufficient to begin the
sharing of the consolidated net income. Accordingly, one-third of future
"consolidated net income" will accrete directly to preferred stockholders
and reduce earnings per common share. To the extent that the preferred
stock is not redeemed by December 31, 2002, the shares of preferred stock
can be converted into shares of the Company's common stock.
(5) EARNINGS (LOSS) PER SHARE
Earnings (loss) per common share for the respective three and six-month
periods ended June 30, 1997 and 1996 have been computed by dividing the
earnings (loss) by the weighted average number of common shares outstanding
during the respective periods. Common share equivalents and any potentially
dilutive securities outstanding were not considered as the effects would not
have been dilutive.
The table below contains the components of the common share and common
equivalent share amounts used in the calculation of earnings (loss) per
share in the Company's statements of operations:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
----------------------------- --------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Primary EPS:
Weighted average common
shares outstanding 2,799,074 2,736,141 2,799,074 2,736,141
Options considered to be
common stock equivalents - - - -
--------- --------- --------- ---------
2,799,074 2,736,141 2,799,074 2,736,141
========= ========= ========= =========
</TABLE>
(6) SETTLEMENT OF TAKE-OR-PAY CONTRACT
In February 1996, the Company negotiated a settlement of a take-or-pay con-
tract under which a customer was obligated to purchase certain volumes of
liquid CO2. As a result of the settlement, the Company received $539,000
of cash and assets with an estimated fair value of $400,000 and the Company
released the party of its contractual obligation to purchase the contracted
liquid CO2 volumes. The Company realized a gain of $939,000 related
to this settlement.
(7) INCOME TAXES
In accordance with the provisions of the Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"), the
Company's net deferred tax asset is being carried at zero book value, which
reflects the uncertainties of the Company's utilization of the net
deductible timing differences. There is no provision for regular federal
income taxes in 1997 or 1996 due to the availability of net operating losses
and other carryforwards. The provision in the statements of operations for
the three and six-month periods ending June 30, 1997 consists of $8,000 in
state income tax and $17,000 in federal alternative minimum tax.
At June 30, 1997, the Company estimates that it had the following income tax
carryforwards available for both income tax and financial reporting purposes
(in thousands):
<TABLE>
<CAPTION>
Expiration
Date Amount
----------- -------
<S> <C> <C>
Federal regular tax operating loss
carryforwards 2001-2010 $ 65,788
Investment tax credit carryforward 1997-2000 679
Tax depletion carryforward Indefinite 5,500
---------
Total $ 71,967
=========
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
In the normal course of business various actions and claims have been
brought or asserted against the Company. Management does not consider them
to be material to the Company's financial position, liquidity or results of
operations.
(9) LETTER OF INTENT
In June 1997, the Company signed a letter of intent to sell substantially
all of the assets of Carbonic Reserves (an 85% owned subsidiary of Beard in
the CO2 Segment) for cash and the assumption of certain liabilities. The
sale is expected to close on October 1, 1997 and result in a gain ranging
from $10 to $12 million. The sale is subject to approval by the Company's
shareholders at the annual meeting scheduled to be held on September 25,
1997 and to certain other conditions. If the sale is consummated as
anticipated, the Company's continuing operations will consist of its
environmental services and resource recovery activities, and the CO2 Seg-
ment's operations will be presented as discontinued in the statements of
operations for all periods presented. The sale is expected to result in the
redemption of approximately $3.5 million (35,000 shares) of the Company's
preferred stock. The other proceeds from the sale are expected to be used
to pay down virtually all of the Company's outstanding indebtedness and
provide working capital to exploit the Company's remaining assets.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussion focuses on material changes in the Company's financial
condition since December 31, 1996 and results of operations for the quarter
ended June 30, 1997 compared to the prior year second quarter and the six
months ended June 30, 1997 compared to the prior year six months. Such discus-
sion should be read in conjunction with the Company's financial statements in-
cluding the related footnotes.
In preparing the discussion and analysis, the Company has presumed readers have
read or have access to the discussion and analysis of the prior year's results
of operations, liquidity and capital resources as contained in the Company's
1996 Form 10-K.
The Company operates within two major industry segments: (1) the carbon dioxide
("CO2") Segment, comprised of (a) the manufacture and distribution of dry ice
(solid CO2) and (b) the production of CO2; (2) the environmental/resource re-
covery ("E/RR") Segment, consisting of environmental services and resource
recovery activities. The Company also has other operations, including (i) a
minority-owned investment in a joint venture for the extraction, production
and sale of crude iodine, and (ii) various assets and investments which the Com-
pany has been liquidating as opportunities have materialized, including the as-
sets of the Company's former real estate construction and development ("R/E")
Segment, the operations of which were discontinued in January, 1997. See
Note 2 to the financial statements.
Material changes in financial condition - June 30, 1997 as compared with
December 31, 1996.
The following table reflects some of the changes in the Company's financial con-
dition during the periods indicated:
<TABLE>
<CAPTION>
June 30, December 31, Increase
1997 1996 (Decrease)
-------- ------------ ----------
<S> <C> <C> <C>
Cash and cash equivalents $ 52,000 $ 375,000 $ (323,000)
Working capital $ 910,000 $1,745,000 $ (835,000)
Current ratio 1.30 to 1 1.49 to 1
</TABLE>
The Company's ability to generate working capital from operations during the
first six months of 1997 was adversely affected by seasonality during the
first three months of the year. The first quarter is normally a poor one for
the dry ice business, and cold and/or rainy weather also normally causes a
slowdown of sales in the environmental services portion of the E/RR Segment.
As previously mentioned, the Company has discontinued the R/E Segment and
the sale of substantially all of its assets in this segment during the first
six months of 1997 provided cash of $1,305,000 and working capital of
$452,000. The proceeds from the sale were used to pay down the short-term
debt associated with the construction cost of these assets. Despite the sea-
sonal decline, however, net working capital generated by the above sale and
by operations as a result of increased activity in the E/RR Segment for the
first six months of 1997 amounted to $734,000, compared to $123,000 generated
in the first six months of 1996.
In addition to the proceeds from the sale of assets in the R/E Segment, the Com-
pany has been able to satisfy its liquidity needs through its working capital
and borrowing arrangements. Future cash flows and availability of credit are
subject to a number of variables, including the price and demand for dry ice, a
continuing source of economical CO2, continuing private and governmental demand
for environmental services. Despite these uncertainties, the Company antici-
pates that its cash flow from operations and continued availability of credit
on a basis similar to that experienced to date will be sufficient to meet its
planned operating costs and capital spending requirements.
Capital additions of $1,185,000 were made by the following segments during the
first six months of 1997, as reflected in the table on the following page:
Carbon dioxide $ 915,000
Environmental/resource recovery 266,000
Other 4,000
-----------
$ 1,185,000
===========
Seller-provided financing and other debt obligations provided $281,000 of the
funds for such capital investments.
The Company's working capital, the CO2 Segment's line of credit, and a recently
finalized $500,000 bank line of credit are expected to be sufficient to fund the
Company's current and presently foreseeable capital expenditure requirements,
including the $264,000 projected for the last six months of 1997.
In June 1997, the Company signed a letter of intent to sell substantially all
of its dry ice assets for cash and the assumption of certain liabilities.
The sale is subject to approval by the Company's shareholders at its annual
meeting of stockholders presently scheduled to be held on September 25, 1997.
If consummated, the sale is expected to close on October 1, 1997 and result
in (i) a gain ranging from $10 to $12 million, (ii) the redemption of ap-
proximately $3.5 million (35,000 shares) of the Company's preferred stock
and (iii) the paydown of virtually all of the Company's outstanding indebted-
ness. If the sale is consummated as anticipated, it will significantly enhance
the Company's working capital and liquidity and improve the Company's common
shareholders' equity. See Note 9 to the accompanying financial statements.
Through the period ending December 31, 2002, the Company's liquidity will be
reduced to the extent it is required to redeem any of the Beard preferred
stock pursuant to the mandatory redemption provisions. See Note 4 to the
accompanying financial statements.
Material changes in results of operations - Quarter ended June 30, 1997 as
compared with the Quarter ended June 30, 1996.
The income for the quarter ended June 30, 1997 was $21,000, compared to a loss
of $155,000 for the second quarter of the prior year. There was a significant
improvement in the operating margin in the CO2 Segment while a small decline
in the operating margin in the E/RR Segment was more than offset by a small
improvement in "Other", primarily general and corporate activities. As a
result, operating results improved $195,000 from a $163,000 loss in the
second quarter of 1996 to a profit of $32,000 for the same period in 1997.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $ 435,000 $ 246,000
Environmental/resource recovery (165,000) (139,000)
----------- -----------
Subtotal 270,000 107,000
Other (238,000) (270,000)
----------- -----------
Total $ 32,000 $ (163,000)
=========== ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
Carbon dioxide
Second quarter 1997 operations reflected an operating gain of $435,000 compared
to a $246,000 gain for the 1996 second quarter. The primary component of
revenues for this segment is dry ice sales which are seasonal with the down-
turn occurring from December through February, while the brisk sales period oc-
curs from June through August and then again in October. The dry ice component
of this segment generated an operating profit of $330,000 in the second
quarter of 1997 versus an operating profit of $198,000 in the comparable period
of 1996.
Revenues from this segment totaled $3,891,000 for the second quarter of 1997, a
10% increase over last year's second quarter. The factors contributing to this
improvement included increases in the volume of dry ice sales, in the sales
of equipment, and in the Company's allocated share of sales from its working
interest in a producing CO2 unit. This improvement in revenues was somewhat
offset by increases in expenses associated with advertising and sales, in-
surance, and an incentive-sales arrangement for employees.
Environmental/resource recovery
The E/RR Segment generated a larger operating loss in the second quarter of
1997 as compared with the same period in 1996. The segment reflected a 77%
increase in revenues, which resulted primarily from the increased activity
of the environmental services companies, as well as the full quarter impact
of Horizontal Drilling Technologies, Inc. ("HDT"), resulting from Beard's
purchase of 80% of HDT's common stock (the "HDT acquisition") in May 1996.
The increase in revenues created by HDT was offset by a decline in the revenues
generated by resource recovery activities due to the completion in February 1996
of a contract with U. S. Department of Energy involving activities related to
the Company's patented Mulled Coal technology. Management has been pursuing
and will continue to pursue the commercial development of this technology
during the remainder of 1997. The costs of pursuing this development, addi-
tional HDT operations resulting from the HDT acquisition, as well as increased
operating expenses related to the Company's other environmental services
activities, more than offset the increased revenues and resulted in the
decline in operating margins.
Other activities
Other operations, consisting mostly of general and corporate activities, gen-
erated a slightly smaller operating loss for the second quarter of 1997 than
the same period of last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in the cur-
rent quarter increased to $1,181,000 from $1,087,000 in the 1996 second quarter.
SG&A expenses incurred by the CO2 Segment during the second quarter of 1997,
which represent 57% of the total SG&A costs, increased by $44,000 over the
same period last year. This increase was associated with an increase in
expenses related to Carbonics' advertising and sales expenses, insurance,
and an incentive sales arrangement for employees. SG&A expenses incurred by
the E/RR Segment during the second quarter of 1997 increased by $79,000 over
the same period for 1996. $67,000 of this increase was due to the impact of
the HDT acquisition. Other operations incurred approximately $23,000 less in
SG&A for the second quarter of 1997 compared to the same period in 1996.
Depreciation, depletion and amortization expenses
The second quarter of 1997 had an increase in DD&A expense of $53,000, reflect-
ing additions to property, plant and equipment made since June 30, 1996.
Other income and expenses
Other income and expenses netted to a total income of $14,000 for the second
quarter of 1997, down slightly from the $16,000 in income recorded for such
items in the same period of 1996. The decrease was due primarily to a
$123,000 increase in the earnings of unconsolidated affiliates, offset by a
decrease in the gain on sale of assets of $74,000, as well as a $47,000 in-
crease in interest expense.
Discontinued operations
As previously noted, the Company discontinued its real estate construction and
development activities in January of 1997 in order to focus its attention on
other segments which are considered to have greater potential for growth and
profitability. As discussed in Note 2 to the Financial Statements, the Com-
pany recognized the estimated loss of disposing of the R/E Segment's assets
in the fourth quarter of 1996. In the first quarter of 1997, the Company
sold all of the R/E Segment's assets, except for two completed speculative
homes, for $1,196,000. One of the two homes was sold during the second
quarter of 1997 for $338,000. The Company expects to dispose of the remain-
ing speculative home by December 31, 1997.
Material changes in results of operations - Six months ended June 30, 1997 as
compared with the Six months ended June 30, 1996.
The loss for the six months ended June 30, 1997 was $403,000, compared to a loss
of $60,000 for the first six months of the prior year. The first half of 1996
benefited from the February 1996 settlement of a take-or-pay agreement in the
amount of $939,000. The first half of 1997 benefited from increased revenues
due to an approximate 11% increase in sales volume of dry ice. In addition,
the segment benefited from increased revenue from the sale of CO2 gas from
the Company's working interests in two producing CO2 gas units in Colorado and
New Mexico. The E/RR Segment benefited from an increase in revenues of
$1,363,000. These increases, however, were partially offset by increased
operating expenses of the Company's two operating segments.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Operating profit (loss):
Carbon dioxide $ 514,000 $ 160,000
Environmental/resource recovery (340,000) (492,000)
----------- -----------
Subtotal 174,000 (332,000)
Other (467,000) (539,000)
----------- -----------
Total $ (293,000) $ (871,000)
=========== ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
Carbon dioxide
Operations for the first six months of 1997 resulted in an operating profit of
$514,000 compared to a $160,000 operating profit for the 1996 first half. The
primary component of revenues for this segment is dry ice sales which are
seasonal with the downturn occurring from December through February, while
the brisk sales period occurs from June through August and then again in
October. The six months operating results of both 1997 and 1996 reflect
the normal downturn in the sales cycle at the first of the year. The dry ice
component of this segment generated an operating profit of $324,000 in the
1997 first half versus an operating profit of $58,000 in the comparable 1996
period.
Revenues from this segment totaled $6,809,000 for the first six months of 1997,
an 8% increase over the same period last year. The factors contributing to this
improvement included increases in the volume of dry ice sales and in the
Company's allocated share of sales from its working interest in a producing CO2
unit. This improvement in revenues was somewhat offset by increases in expenses
associated with advertising and sales, insurance, and an incentive-sales ar-
rangement for employees.
Environmental/resource recovery
A significant increase in revenues generated by the E/RR Segment led to an
improvement in operating margins in the first six months of 1997 as compared
to the same period in 1996. This increase in revenues was primarily caused
by an increase in environmental services activity in the first six months of
the year, as well as the inclusion, for the full six months in 1997, of the
operations of HDT, acquired on May 21, 1996. The increase in revenues
created by HDT was partially offset by the completion in February 1996 of a
contract involving the resource recovery activities related to the Company's
patented Mulled Coal technology. Management intends to pursue the commercial
development of this technology during the remainder of 1997. Increased revenue
as a result of increases in environmental services activity in the first
quarter of 1997 as compared to the same period in 1996 coupled with a de-
crease in operating expenses as a percentage of sales have resulted in an
improvement in the operating margins for this segment for the six months in
1997 compared to the same period in 1996.
Other activities
Other operations, consisting mostly of general and corporate activities, gen-
erated a slightly smaller operating loss for the first half of 1997 as com-
pared to the same period last year.
Selling, general and administrative expenses
The Company's selling, general and administrative expenses ("SG&A") in the
first half of 1997 increased to $2,212,000 from $2,034,000 in the 1996 six
months. SG&A expenses incurred by the CO2 Segment during the first half of
1997, which represent 54% of the total SG&A costs, increased by $12,000 over
the same period last year. This increase was associated with increases in
expenses related to advertising and sales, insurance, and an incentive-sales
arrangement for employees. SG&A of the E/RR Segment increased by $237,000
during the first six months of 1997 compared to the same period in 1996.
The effect of the HDT acquisition accounted for $162,000 or 68% of this
increase. Other members of the segment incurred increases in SG&A as a
result of increased operating activity.
Depreciation, depletion and amortization expenses
The first half of 1997 had an increase in DD&A expense of $112,000, reflecting
additions to property, plant and equipment made since June 30, 1996.
Other income and expenses
The other income and expenses for the first six months of 1997 netted to an
$85,000 loss compared to $827,000 in net income for the same period in 1996.
As previously mentioned, the Company benefited in the first six months of
1996 from the February 1996 settlement of a take-or-pay agreement in the CO2
Segment. This settlement resulted in a gain of $939,000. The first six
months of 1997 included an increase of $89,000 in interest expense as a
result of greater borrowings to meet working capital needs, a $33,000 de-
crease in the gain on sale of assets, a $32,000 increase in the minority
interest in the operations of consolidated subsidiaries and a $129,000 in-
crease in income from unconsolidated affiliates.
Impact of Recently Issued Accounting Standards Not Yet Adopted
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." SFAS No. 128 is
effective for financial statements issued for periods ending after December
15, 1997, and restatement of prior-period earnings per share data is required.
The new standard will not apply to Beard's financial statements until the fourth
quarter of 1997. SFAS No. 128 revises the current calculation methods and
presentation of primary and fully diluted earnings per share. Beard has re-
viewed the requirements of SFAS No. 128 and has concluded that they will not
have a material effect on the calculation of Beard's historical earnings
(loss) per share data.
<PAGE>
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Company's preferred stock is mandatorily redeemable through December 31,
2002 from one-third of Beard's "consolidated net income" as defined in the
instrument governing the rights of the preferred stockholders. Accordingly,
one-third of future "consolidated net income" will accrete directly to pre-
ferred stockholders and reduce earnings per common share. As a result of
these redemption requirements, the payment of any dividends to the common
stockholders in the near future is very unlikely. See Note 4 to the ac-
companying financial statements.
Item 6. Exhibits and Reports on Form 8-K:
(a) The following exhibits are filed with this Form 10-Q and are identified
by the numbers indicated:
27 Financial Data Schedules.
(b) No reports on Form 8-K were filed during the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
August 8, 1997 HERB MEE, JR.
Herb Mee, Jr., President and
Chief Financial Officer
August 8, 1997 JACK A. MARTINE
Jack A. Martine, Controller and
Chief Accounting Officer
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