<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ________________
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
Securities registered pursuant to Section 12(b) of the Act:
(Name of each
exchange on
(Title of each class) which registered)
Common Stock, $.001 par value American Stock Exchange
Redeemable Preferred Stock, $1.00 par value None
Securities registered pursuant to Section 12(g) of the Act: None
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 requirement for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form l0-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting common stock held by
non-affiliates of the registrant, computed by using the closing price of
registrant's common stock on the American Stock Exchange as of the close of
business on February 28, 1997 was $6,739,000.
The number of shares outstanding of each of the registrant's classes of
common stock as of February 28, 1997 was Common Stock $.001 par value -
2,799,074
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE> 2
THE BEARD COMPANY
FORM 10-K
For the Fiscal Year Ended December 31, 1996
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
SIGNATURES
<PAGE> 3
THE BEARD COMPANY
FORM 10-K
FORWARD LOOKING STATEMENTS
This document contains "forward looking statements" as defined by the
Securities Litigation Reform Act of 1995. These statements should be read in
conjunction with the cautionary statements included in this document, including
those found under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
PART I
Item 1. Business.
(a) General development of business.
General. The name of a wholly-owned subsidiary formed in Oklahoma by Beard
Oil Company ("Beard Oil") in 1974 was changed to Beard Investment Company in
November of 1989 and to The Beard Company ("Beard" or the "Company") in August
of 1993. Beard conducts various non-oil and gas operations which may be
categorized into two industry segments: (1) the carbon dioxide segment (the
"CO2 Segment"), comprised of (a) the manufacture and distribution of dry ice
(solid CO2) and (b) the production of CO2; and (2) the environmental/resource
recovery segment (the "E/RR" Segment"), consisting of environmental services
and resource recovery. Beard also holds a minority interest in a joint venture
involved in the extraction, production and sale of crude iodine.
As a result of the 1993 Reorganization (the "Reorganization" - see below)
Beard has more than $66.9 million of unused net operating losses ("NOL's")
available for carryforward. Unless the context otherwise requires, references
to Beard and the Company herein include Beard and its consolidated
subsidiaries, including Beard Oil.
THE 1993 REORGANIZATION
The 1993 Reorganization. As a result of a reorganization (the
"Reorganization"), effective in October 1993, and a settlement agreement in
April 1995 (the "Settlement") with four institutional lenders (the "Lenders"):
(a) Beard divested substantially all of its oil and gas assets; (b)
$101,498,000 of long-term debt and other obligations were effectively
eliminated; and (c) the Lenders received 25% of Beard's then outstanding common
stock and $9,125,000 stated value (91,250 shares, or 100%) of Beard's then
outstanding preferred stock.
Subsequent Sale of Stock by Certain Lenders; Current Stock Ownership by the
Lenders. On January 2, 1997 three of the four Lenders sold their common and
preferred shares to five parties, one of whom owns more than 5% of the
Company's outstanding common and preferred stock. As a result of the
Reorganization, and after giving effect to (i) the redemption of 1,094.14
preferred shares in April of 1995; (ii) the sale by three of the Lenders of
351,044 common shares and 47,728.76 preferred shares in January of 1997; and
(iii) the 2,799,074 common shares outstanding as of February 28, 1997, the
other Lender holds 9.57% of the voting power of Beard through its ownership of
common stock and an additional 6.67% through its holdings of preferred stock,
for a total of 16.24% of the total outstanding voting stock of the Company. The
preferred holders have elected a director to serve on Beard's six-member Board
of Directors.
Mandatory Redemptions on Beard 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. Accordingly, one-third of future
"consolidated net income" will accrete directly to preferred stockholders and
reduce earnings per common share.
Conversion of Beard Preferred Stock. Each share of Beard preferred stock
which has not previously been redeemed may be converted into 5.129421 shares of
Beard common stock after December 31, 2002. Fractional shares will not be
issued, and cash will be paid in redemption thereof.
Preservation of NOL's. The Company estimates that at year-end 1996, Beard
and its consolidated subsidiaries had NOL's of approximately $66.9 million.
Beard considers such NOL's, which expire between 2001 and 2010, to be one of
its most valuable assets and that loss of the NOL's would have a severe
negative impact on the Company's future value. Beard is currently considering
action to protect the assets and prevent the triggering of an "ownership
change" as defined in Section 382 of the Code (which would severely limit the
use of the NOL's) by re-imposing restrictions (to replace those restrictions
which expired October 26, 1996) on all of its shares to prevent transfer
without the Board of Directors' consent to any person if that person was, or
would thereby become, a holder of 5% or more of the fair market value of
Beard's outstanding capital stock.
<PAGE> 4
Indemnification Obligations. As a result of the Reorganization, the Company
has indemnified Sensor and the Lenders for certain losses (i) arising out of
the ownership and/or operation of Beard Oil's former oil and gas assets,
including environmental liabilities; (ii) arising under any employee benefit or
severance plan; or (iii) relating to any misrepresentation or inaccuracy in any
representation made by the Company or Beard Oil in connection with the
Reorganization (collectively, the "Obligations"). Neither Beard nor Beard Oil
is presently aware of any material liabilities existing as a result of such
Obligations.
Discontinued Operations. In January of 1997 the Company made the decision to
discontinue its real estate construction and development activities. As a
result, Beard's continuing operations consist primarily of the CO2 Segment and
other activities which include the E/RR Segment and other unrelated activities.
Accordingly, the net operating results of the Company's real estate segment
have been presented as discontinued operations in 1996 and for all periods
presented in the consolidated statements of operations. As of March 13, 1997,
the Company had sold all of the real estate construction and development assets
with the exception of three speculative homes. One of these is under contract
for closing on March 21, 1997, and another is under contract for closing on May
30, 1997, leaving one home remaining for sale.
CONTINUING OPERATIONS
Carbon Dioxide Operations. The Company's carbon dioxide ("CO2") operations
are now concentrated on the manufacturing and distribution of dry ice (solid
CO2) which are conducted by an 85%-owned subsidiary, Carbonic Reserves ("Car-
bonics"), and the production of CO2 gas which is conducted through Beard. The
Company owns working interests in two producing CO2 gas units in Colorado and
New Mexico.
As the result of two significant acquisitions in 1990 and subsequent
expansion in 1991 and 1995, the Company's dry ice manufacturing and
distribution activities now consist of six plants and 13 distribution centers
as compared with one plant and three distribution centers at year-end 1989. As
a result of this growth, the size and scope of its dry ice manufacturing and
distribution operations have expanded to the point where management believes it
is one of the largest producers of dry ice in the continental United States.
Environmental/Resource Recovery Activities. When Beard divested itself of
Beard Oil's oil and gas assets in 1993, it redirected the focus of its oilfield
services subsidiaries to environmental services activities. The Company and its
management have considerable expertise in the environmental field stemming from
previous experience as the founder, as officers and directors, and as the
principal shareholder of USPCI, Inc. (NYSE) from 1968 until its acquisition by
Union Pacific Corporation in 1987-88.
In 1993 Whitetail Services, Inc. ("Whitetail") terminated its oilfield
construction activities and converted its operations to focus upon
environmental services, including soil and groundwater treatment system
installations, site remediation, bioremediation, waste stabilization and
solidification, underground storage tank removal, heavy equipment operations
and emergency spill response. Whitetail's environmental service capabilities
were expanded in 1995 by the addition of environmental drilling, wastewater
storage tank rentals, waste transportation and storage, and CO2 blaster
cleaning services, all of which had previously been conducted by separate
subsidiaries.
In 1990 the Company acquired more than 80% of Energy International
Corporation ("EI"), a research and development firm specializing in
coal-related technologies. During the four years that Beard owned EI, EI
developed a new patented technology know as Mulled Coal Technology (the "M/C
Technology"). In May of 1994 Beard sold EI to a subsidiary of The Williams
Companies, Inc. for $2,199,000, but retained the M/C Technology which was
contributed to a wholly-owned subsidiary, Beard Technologies, Inc. ("BTI"). BTI
has continued to pursue the commercial development of the M/C Technology. In
1995 BTI served as the principal subcontractor to EI on a contract which EI had
entered into with the United States Department of Energy (the "DOE") to
demonstrate the storage, handling and transportation characteristics of Mulled
Coal under commercial conditions. The final report on this project was
delivered to the DOE in March of 1996, with the results and conclusions far
surpassing BTI's original expectations. (See "Resource Recovery Activities -
Department of Energy Contract").
In May of 1996 the Company acquired 80% of Horizontal Drilling Technologies,
Inc. ("HDT"), a company specializing in trenchless technology. As part of the
purchase consideration the seller received 20% of the common stock of
Whitetail. HDT specializes in directional drilling and has completed various
aspects of utility and environmental remediation projects in 12 states. It has
focused much of its attention since the acquisition on cable and fiber optics
installations.
Collectively, the E/RR Segment can provide environmental related services to
industry and government on a nationwide scale utilizing the newest emerging
<PAGE> 5
technologies and state of the art assessment-to-remediation techniques. Now
that BTI has successfully demonstrated the commercial feasibility of its M/C
Technology, it is focusing its current efforts on marketing such technology in
the coal producing states, where it hopes to set up several coal recovery
projects for the larger coal companies operating there.
Other Activities. In addition to the above, Beard's other activities include
(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 Company intends to liquidate as opportunities materialize. Such
assets consist primarily of the residue of its discontinued real estate
operations (see "Discontinued Operations" above); drilling rigs, yards and
equipment; real estate limited partnerships; and miscellaneous other
investments. See "Business -- Other Activities." As excess funds become
available from such liquidations they will be utilized for working capital,
reinvested in Beard's ongoing business activities or re-deployed into newly
targeted opportunities.
Oil and Gas Assets and Related Liabilities Retained by Beard Oil. Pursuant
to the Reorganization, Beard Oil retained 18 oil and gas leases on which near
term sale or plugging and remediation work was contemplated. Any liabilities
incurred by Beard Oil will be considered as a redemption of an equivalent
amount of the mandatorily redeemable preferred stock by Beard, subject to
specified limitations. As of December 31, 1996, plugging had been completed on
15 leases, at a cost of approximately $81,000. It is possible that further
remediation work may be required, but no material liability is anticipated.
(b) Financial information about industry segments.
Financial information about industry segments is contained in the Statements
of Operations and Note (16) of Notes to the Company's Financial Statements. See
Part II, Item 8---Financial Statements and Supplementary Data.
(c) Narrative description of business segments.
The Company operates within two major industry segments: CO2 and E/RR. All
of such activities, with the exception of Beard's CO2 production activities,
are conducted through subsidiaries. Beard, through its corporate staff,
performs management, financial, consultative, administrative and other services
for its subsidiaries.
CARBON DIOXIDE OPERATIONS
General. The Company's CO2 operations are conducted directly and through a
subsidiary. Such activities include the operations of (1) the Company's 85%-
owned subsidiary, Carbonic Reserves ("Carbonics"), which operates six dry ice
(solid CO2) producing plants and 13 sales and distribution centers, and (2)
Beard's directly owned working interests in (i) two carbon dioxide producing
units and (ii) a shut-in CO2 gas well in south central Utah.
Carbonic Reserves
History. Carbonics was founded in 1987 by Beard Oil and Clifford H. Collen,
Jr. ("Collen"), its President, to enter the liquid CO2 business. It is
headquartered in San Antonio, Texas. The original concept was to build a
liquids business based upon Collen's expertise involving many years of
experience in the CO2 industry and Beard Oil's large CO2 gas reserves which
were subsequently transferred to Beard. The common stock of Carbonics is
presently owned 85% by Beard and 15% by Collen. In addition Beard owns
$14,358,000 of Carbonics preferred stock which is mandatorily redeemable out of
one-third of Carbonics' consolidated pre-tax net income.
Evolution of Current Strategy. In 1987, Carbonics built a liquid CO2 plant
at Clayton, New Mexico (the "Bravo Plant") and entered the liquid CO2 business
by distributing its product in New Mexico, Texas, Kansas and Oklahoma. This
proved to be a very commodity-oriented business which generated unacceptably
low margins. In 1989, Carbonics changed its basic strategy, virtually
withdrawing from the sale of liquid CO2 and CO2 gas, in order to concentrate
its efforts on the manufacturing and distribution of dry ice.
1990-1991 Expansion Activities. At year-end 1989, Carbonics owned one dry
ice plant at Clayton, New Mexico and operated three sales and distribution
centers located in Amarillo and Lubbock, Texas and Denver, Colorado. In 1990,
it acquired three dry ice manufacturing plants and a distribution center from a
major competitor and also acquired a dry ice manufacturing plant and eight
distribution centers from two affiliated parties in Denver. Carbonics opened
two additional distribution centers in late 1990 and added three additional
distribution centers in 1991.
Dry Ice Manufacturing and Distribution. Carbonics is a dry ice manufacturer
and distributor with its principal offices located in San Antonio, Texas.
Following its 1990 and 1991 expansion activities, Carbonics had five
manufacturing plants located in Cortez, Colorado; the Bravo Plant at Clayton,
New Mexico; Enid, Oklahoma; Corpus Christi, Texas; and Cheyenne, Wyoming. In
1995 it began operating a sixth manufacturing plant under contract in Dallas,
<PAGE> 6
Texas. These six plants supply Carbonics' sales and distribution warehouses
located in Denver and Longmont, Colorado; Wichita, Kansas; Albuquerque, New
Mexico; Tulsa, Oklahoma and Amarillo, Austin, Corpus Christi, Dallas,
Harlingen, Houston, Lubbock and San Antonio, Texas. The Bravo plant has a 90
ton/day capacity, the Cortez plant has a 60 ton/day capacity and the other four
plants have a 50 ton/day capacity. All of Carbonics' facilities are in leased
premises except (i) the Wichita warehouse; (ii) the Denver warehouse where
Carbonics owns a building on leased land; and (iii) the Dallas and Amarillo
warehouse which are under lease/purchase options.
Bravo Plant. The Bravo plant is a 240 ton/day CO2 liquification and
purification plant and a 90 ton/day dry ice plant. The liquification and
purification portion of the Bravo plant is currently being upgraded to produce
a higher quality CO2 and to increase the efficiency of the plant. Liquid CO2
from this leased facility is used as a raw material at Carbonics' adjoining dry
ice plant, and is also available for sale to third parties.
Take-or-Pay Contract. Until February of 1996, Carbonics was selling liquid
CO2 exclusively to a customer on a take-or-pay basis under a 10-year contract
expiring in 1999. Pursuant to a settlement agreement executed in February of
1996, the customer terminated its obligation at such time by the payment of
$539,000 in cash and the transfer of liquid CO2 processing equipment valued at
$400,000 to Carbonics. The settlement added $939,000 of pre-tax income to the
Company's financial results for 1996 and for the first quarter thereof.
Principal Products. The principal product produced through Beard's CO2
operations is dry ice which accounted for the following percentage of the
Company's consolidated revenues from continuing operations and Segment revenues
for each of the last three years:
<TABLE>
<CAPTION>
Percent of
Fiscal Year Consolidated Revenues Percent of
Ended from Continuing Operations Segment Revenues
----------- -------------------------- ----------------
<S> <C> <C>
12/31/96 73.2% 89.7%
12/31/95 69.3% 87.3%
12/31/94 68.7% 89.9%
</TABLE>
Market Demand and Competition. Dry ice is marketed directly to meat packing
plants, food processing plants and wholesale grocery companies. Health science
centers are an emerging market for the product. It is used extensively by
commercial airlines to keep their food and drinks cold prior to and during
service to passengers. Additionally, Carbonics is focusing its efforts on
developing sales of dry ice to retail customers through grocery and convenience
store outlets. The principal retail use is for keeping foods and beverages cold
in containers for hunters, fishermen, travelers, etc.
The dry ice business is highly competitive in that portion of the
continental United States outside of Carbonics' present market area, which may
limit Carbonics' ability for further expansion.
Availability of Raw Materials. Carbonics believes that it has adequate CO2
available to handle its present and foreseeable manufacturing requirements. In
addition, by virtue of Beard's ownership of CO2 reserves in the McElmo Dome and
Bravo Dome fields, it has the ability to trade a portion of such reserves for
needed product at its various supply points.
Trademarks. Carbonics is the sole manufacturer of Penguin BrandTM dry ice.
Carbonics has developed a program to market its dry ice in individual plastic
bags bearing the Penguin BrandTM trademark to the general public. By placing
one of Penguin's dry ice dispensers--an insulated chest freezer requiring no
electrical hookup--in a retail store next to a wet ice dispenser, the public is
given the choice of either wet or dry ice.
Carbonics' marketing efforts have been focused on sales through corporate
chains of grocery stores such as Kroger, Randalls, Albertsons and King Soopers.
As a result, Penguin BrandTM dry ice is currently being marketed through more
than 1,800 grocery stores in Arizona, Arkansas, Colorado, Kansas, Missouri,
Nevada, New Mexico, Oklahoma, Texas, Utah and Wyoming.
In 1993 Carbonics decided to concentrate its marketing efforts on increasing
sales of Penguin BrandTM dry ice, which has resulted in steady improvement in
the ratio of Penguin ice sales to total dry ice sales, to consolidated revenues
from continuing operations and to CO2 Segment revenues, as illustrated by the
following table:
<PAGE> 7
<TABLE>
<CAPTION>
Percent of
Percent Consolidated Revenues Percent of Total
Fiscal Year Penguin of Dry from Continuing Segment Dry Ice
Ended Ice Sales Sales Operations Revenues Sales
- ----------- --------- ------- --------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
12/31/96 $2,598,000 21.3% 15.6% 19.1% $12,206,000
12/31/95 $2,038,000 19.6% 13.6% 17.1% $10,407,000
12/31/94 $1,674,000 17.3% 11.9% 15.5% $ 9,697,000
</TABLE>
Equipment and Process Technology Development; Patents. Carbonics has
developed and continues to develop dry ice freezing equipment for the food
processing industry. Such developments include tunnel freezers, cabinet
freezers and dry ice handling equipment. The primary markets for this equipment
are mid-sized food processing or meat packing facilities.
In March of 1992, Carbonics filed a patent application with the U.S. Patent
Office for the patent rights to a "Fluidized Bed Air Cooling System." This
patent was issued in June, 1993. A patent was issued to Carbonics in March of
1993 for an "Apparatus for Cutting Blocks of Ice." Carbonics currently has a
patent application pending for an "Enhanced Method of Producing Dry Ice
Pellets."
It is possible that some of the other equipment and process technology being
developed by Carbonics may be patentable; if so, patent protection will be
sought and pursued.
ECO2 Solutions. Through its ECO2 Solutions Division, Carbonics is a licensed
distributor of a dry ice pellet blaster which is a substitute for sand blast
cleaning in the foundry and food processing industries. In 1996 Whitetail took
over the CO2 blaster cleaning service operations previously conducted by
Carbonics. (See "Environmental Services Activities---Whitetail Services,
Inc.").
ECO2 Solutions is also the sole licensee in Texas for the patented AQUA
FREED process, which offers an environmentally safe, chemical-free alternative
to water well stimulation and new well stimulation operations. The process
utilizes liquid CO2 injected under pressure to fracture and energize the target
formation and increase production capacity.
Seasonality. To the extent dry ice is sold at the retail level for
recreational purposes, the product is considered highly seasonal to the summer
months and the month of October.
Carbon Dioxide (CO2) Properties
McElmo Dome. During 1983, the McElmo Dome Field in Montezuma and Dolores
Counties of Western Colorado was formed into a field-wide unit (the "Unit")
covering a 240,000-acre area which is producing CO2 gas. Beard owns a 0.545610%
working interest (0.471926% net revenue interest) and an overriding royalty
interest equivalent to a 0.092190% net revenue interest in the Unit, giving it
a total 0.564116% net revenue interest in the Unit.
Deliveries of CO2 gas from the Unit are transported through a 502-mile
pipeline (the Cortez pipeline) to the Permian Basin oilfields in West Texas
where such gas is utilized primarily for tertiary oil recovery. Shell Western
E&P, Inc. ("SWEPI") is the operator of the Unit. There are 41 producing wells
in the Unit, ranging from 7,634 feet to 8,026 feet in depth. McElmo Dome and
Bravo Dome (see below) are believed to be the two largest producing CO2 fields
in the world. The gas from McElmo is estimated to be approximately 97% pure
CO2.
In 1996 Beard sold 1,695,000 Mcf (thousand cubic feet) attributable to its
working and overriding royalty interest at an average price of $.17 per Mcf. In
1995, Beard sold 1,095,000 Mcf attributable to its working and overriding
royalty interest at an average price of $.20 per Mcf. In 1994 the Company sold
701,000 Mcf attributable to its working and overriding royalty interest at an
average price of $.19 per Mcf. Beard was underproduced by 604,000 Mcf on the
sale of its share of McElmo Dome gas at year-end 1996.
In July of 1996 SWEPI advised the working interest owners that current
demand for McElmo Dome CO2 had increased from less than 600 million cubic feet
per day in 1995 to over 700 million cubic feet per day, and is expected to
increase to one billion cubic feet per day beginning in July of 1997. In order
to meet such demand SWEPI commenced a $29.7 million development program in July
of 1996 which is targeted for completion in July of 1997. Beard's share of the
estimated development cost amounts to approximately $162,000, of which $69,000
was incurred in 1996.
Bravo Dome. In addition to its reserves in the McElmo Dome Unit, Beard also
owns a very small working interest in the 1,000,000-acre Bravo Dome CO2 Gas
Unit
<PAGE> 8
which is situated in Union, Harding and Quay Counties of northeastern New
Mexico. Beard acquired a 0.05863% working interest in this unit in 1987. Beard
takes its share of the unit CO2 production in kind and sells it to Carbonics.
Beard is currently underproduced by 47,000 Mcf on the sale of its share of
Bravo Dome gas. The CO2 gas purchased by Carbonics from Beard, which amounted
to $9,000 in 1996, $9,000 in 1995, and $8,000 in 1994, is used in the
manufacturing of dry ice at its Bravo plant.
Amoco Production Company operates a CO2 production plant in the middle of
the Bravo Dome Unit which was formed in 1979. There are 265 producing wells in
the Bravo Dome Unit, each being approximately 2,500 feet in depth. The gas is
extremely pure, being approximately 98% CO2.
Net CO2 Production. The following table sets forth Beard's net CO2
production for each of the last three fiscal years:
<TABLE>
<CAPTION>
Net CO2
Fiscal Year Production
Ended (Mcf)
----------- ----------
<S> <C>
12/31/96 1,723,000
12/31/95 1,123,000
12/31/94 726,000
</TABLE>
Average Sales Price and Production Cost. The following table sets forth
Beard's average sales price per unit of CO2 produced and the average lifting
cost, lease operating expenses and production taxes, per unit of production for
the last three fiscal years:
<TABLE>
<CAPTION>
Average Sales Average Lifting
Fiscal Year Price Per Mcf Cost Per Mcf
Ended of CO2 of CO2
------------ ------------- ----------------
<S> <C> <C>
12/31/96 $0.18 $0.06
12/31/95 $0.20 $0.09
12/31/94 $0.19 $0.14
</TABLE>
<PAGE> 9
Productive Wells and Acreage. Beard's principal CO2 properties are held
through its ownership of working interests in oil and gas leases which produce
CO2 gas. As of December 31, 1996, Beard held a working interest in a total of
307 gross (1.25 net) CO2 wells located in the continental United States. The
table below is a summary of such developed properties by state:
<TABLE>
<CAPTION>
Number of Wells
---------------
State Gross Net
----- ----- ---
<S> <C> <C>
Colorado................ 41 0.224
New Mexico.............. 265 0.029
Utah (a)................ 1 1.000
--- -----
307 1.253
=== =====
</TABLE>
- --------
(a) Includes the Tanner #1-27 shut-in CO2 well in Wayne County, Utah.
Employees. As of December 31, 1996 the CO2 Segment employed 110 full time
and eight part time employees. All such employees were employed by Carbonics.
Financial Information. Financial information about the Company's CO2
operations is contained in the Company's Financial Statements. See Part II,
Item 8---Financial Statements and Supplementary Data.
ENVIRONMENTAL/RESOURCE RECOVERY ACTIVITIES
General. Following the 1993 Reorganization, the operations of several of
Beard Oil's oilfield services subsidiaries were redirected to focus upon
environmental services activities, and another subsidiary was formed to assist
in the marketing effort for such activities. Following the sale of the
Company's research and development company in 1994 another subsidiary has
continued to pursue the commercial development of the patented coal technology
developed by its R&D predecessor. In 1996 a company was acquired which utilizes
trenchless technology for its environmental remediation projects. In January of
1997 another subsidiary became the exclusive U.S. licensee for the use of a
chemical process for the remediation of creosote and PAH contamination.
The Company and its management have considerable expertise in the
environmental area stemming from previous experience as the founder, as
officers and directors, and as the principal shareholder of USPCI, Inc. (NYSE)
from 1968 until its takeover by Union Pacific Corporation in 1987-88.
Environmental Services Activities
Whitetail Services, Inc. In 1990 Beard Oil took over the operations of a
small oilfield construction business operating in central Oklahoma. Beard Oil
operated the business through a wholly-owned subsidiary named Whitetail
Services, Inc. ("Whitetail") which started to expand the business. With the
deterioration in oil and gas drilling activities in early 1991, Whitetail's
services were broadened to include environmental cleanup of nonhazardous
material.
In 1993 Beard Oil made the decision to discontinue Whitetail's oilfield
construction activities and Whitetail's outstanding construction contracts were
concluded. The employees involved with such contracts were terminated. Beard
Oil transferred the corporate shell of Whitetail and part of its equipment to
Beard. Whitetail retained 12 employees who were involved in its environmental
cleanup activities.
Whitetail handles a wide range of environmental services, including soil and
groundwater treatment system installations, site remediation, bioremediation,
waste stabilization and solidification, underground storage tank ("UST")
removal, heavy equipment operations and emergency spill response. Recently
Whitetail has diversified its capabilities to include the replacement of old
water lines with new lines in order to upgrade municipal water distribution
systems.
In early 1993 Beard changed the name of a wholly-owned, inactive subsidiary
to SQG Services, Inc. ("SQG"), which commenced operations on April 1. In 1995
SQG was merged into Whitetail and became the SQG Services Division of Whitetail
("SQG Services"). SQG Services provides consulting services to generators of
small quantities of hazardous and non-hazardous industrial waste and handles
the removal and disposal of same. SQG Services also provides services for
removal and disposal of waste products, and handles all related documentation,
ensuring compliance with government regulations and reducing future liability.
One of SQG Services' unique features is its characterization services which
sample and identify the customer's waste, ensuring that it is properly analyzed
and safely handled from that point forward.
<PAGE> 10
All of SQG Services' personnel must undergo rigorous training, including
OSHA required 40 Hour Hazardous Waste Operations and Emergency Response
training ("HAZWOPER"), CPR/First Aid, Confined Space and other specialized
training certifications that apply to their work.
In 1995 Whitetail also took over most of the wastewater storage tank rental
operations of another Beard's environmental service companies, Incorporated
Tank Systems. As a result, Whitetail has 36 wastewater storage tanks available
for rental. As of March 24, 1997, two tanks were rented.
In addition, Whitetail has taken over the CO2 blaster cleaning service
operations previously conducted by Carbonic Reserves. Dry ice pellet blasting
is a substitute for sand blast cleaning in the foundry and food processing
industries. In this environmentally safe cleaning system, extremely dense dry
ice pellets shatter, blasting away contaminants from most all surfaces, and
instantaneously returning to gas upon impact with a surface. The system
eliminates the use of chemical solvents, and is non-hazardous and non-toxic.
In late 1996 Whitetail shifted its marketing focus, placing increased
emphasis on the development of private sector accounts while continuing to
service current governmental, public sector clients. While it has handled jobs
in several other states, Whitetail has operated primarily to date in Oklahoma,
Texas, Kansas, Arkansas, and Missouri. As a result of the HDT acquisition (see
below), Beard's ownership in Whitetail was reduced to 80%.
Since the takeover of Whitetail's operations by Beard the number of
Whitetail's employees has increased from 12 to 32 (29 full time and three part
time) as of December 31, 1996.
Horizontal Drilling Technologies, Inc. In May of 1996 the Company acquired
80% of the common stock of Horizontal Drilling Technologies, Inc. ("HDT"). The
seller received 20% of the common stock of Whitetail as part of the
consideration for the purchase of HDT. HDT specializes in directional
horizontal drilling and in the installation of horizontal wells for soil and
ground-water remediation. HDT has completed a broad range of projects for
utiliies, municipalities, pipeline companies, environmental service companies
and others in 12 states. Because of the tremendous growth currently being
enjoyed by the telecommunications industry, HDT is concentrating much of its
present marketing efforts on cable and fiber optic installations.
Currently HDT and Whitetail, in a joint marketing effort, are diversifying
into several phases of utility construction utilizing directional drilling
capabilities and other trenchless technologies.
BSK, Inc. In 1994 Beard organized BSK, Inc. ("BSK") which is 90%-owned by
Beard and 10%-owned by BSK management. BSK was formed to provide marketing
assistance for the other subsidiaries in the E/RR Segment.
Subsequent Event
ISITOP, Inc. In January of 1997 Beard changed the name of a wholly-owned,
inactive subsidiary to ISITOP, Inc. ("ISITOP"). ISITOP has obtained an
exclusive license for the United States from a company which has developed a
chemical (54GOTM 101) and has tested a process which utilizes such chemical for
the remediation of creosote and PAH contamination. A process and composition
patent has been applied for and issuance of the patent is expected in the near
future. ISITOP is 80%-owned by Beard and 20%-owned by two members of ISITOP's
management team, who are also the principals of the company from which the
license was obtained. Pursuant to employment agreements and other related
agreements these two parties also have options to acquire an additional 30% of
ISITOP following payout of all sums owed by ISITOP to Beard.
Creosote is a very complex mixture of hydrocarbons and hydrocarbon
derivatives. It revolutionized the use of wood and wood products in wet
environments by preventing rapid decomposition. Creosote compounds are still in
use today, primarily to treat telephone poles, railroad ties, bridge timbers
and similar construction materials and to a lesser extent as medicinal agents.
Creosote mixtures contain many compounds that are known to cause several
forms of cancer in animals and have been linked to several types of cancer
(skin, etc.) in humans. The specific chemical family of cancer producing agents
found in creosote are a group of molecules that are made up of several
connected ring structures known as polycyclic aromatic hydrocarbons ("PAH's").
These compounds are in families of chemicals known by names like "anthracene",
"fluorene" and "benzo-pyrenes". These mixtures make up the preparations known
as "creosote" and are related by their poly ring structure. Because of this
biological structure, many are either known carcinogens or cancer suspect
agents.
Even though the use of creosote was "restricted" in the mid-1960's, it and
many of its sister mixtures are still in wide use both in the U.S. and
throughout the world. The U.S. alone has over 700 wood preserving plants which
are estimated to use or produce more than 495,000 tons of creosote and creosote
byproducts per year.
<PAGE> 11
The very nature of creosote, as a preservation agent, works against the
environmental remediation of creosote materials that are or were spilled or
otherwise made their way into the soil at manufacturing and storage sites. Past
attempts to clean up such sites have been only about 90% effective. However, a
recent test utilizing the 54GOTM 101 chemical product in a bench test on an
age-hardened (more than 25 years old) sample of creosote indicated that the
creosote and PAH's had been remediated to near background levels, or a
reduction of nearly 100%.
In the three-step licensed process used by ISITOP, the contaminated soils
are placed into on-site containers for processing using a proprietary chemical
wash (54GOTM 101---solvent specific) followed by bioremediation and perhaps
some air drying. The process can take place at the contaminated area,
eliminating the high costs and exposure of disposal and trucking.
Currently ISITOP is conducting the first test of the chemical process in the
field. The site selected is the storage yard of an old narrow gauge railroad
near Durango, Colorado, where railroad ties have been stored for many years.
Preliminary indications are that the test is proceeding in accordance with
expectations, but it is too early to draw any final conclusions. Negotiations
are currently underway to determine the location for a larger, second test
which will be conducted upon completion of the test now in progress.
Resource Recovery Activities
History/Formation of Beard Technologies, Inc. In early 1990, the Company
acquired more than 80% of Energy International Corporation ("EI"), a research
and development firm specializing in coal-related technologies. During the four
years that Beard owned EI, EI developed a new technology known as Mulled Coal
Technology (the "M/C Technology").
In May 1994 Beard sold EI to a subsidiary of The Williams Companies, Inc. for
$2,199,000, retaining certain assets and the patent rights to the M/C Technology
which Beard contributed to a wholly-owned subsidiary which was renamed Beard
Technologies, Inc. ("BTI"). BTI has continued to pursue the commercial
development of the M/C Technology. BTI has one full time employee.
The M/C Technology. Underground coal mines have always produced a certain
amount of fine coal which is difficult to clean and to market due to handling
problems. Existing washing processes used to deal with this problem are all wet
processes, and the end product must be dewatered to make it acceptable in the
market place, which is difficult and usually expensive. The Mulled Coal process
is an innovative and inexpensive solution to fine coal handling problems. It is
a process which involves the addition of a low cost specifically formulated
reagent to wet fine coal in a simple mixing step to produce a material ("Mulled
Coal") that handles, stores and transports like dry coal. But, unlike thermally
dried fine coal, Mulled Coal is not dusty, will not rewet, will not freeze, and
causes no environmental or safety hazards related to fugitive coal dust.
Patent Protection. The U.S. patent for the M/C Technology was issued in
1993. Since then patents have been issued for Australia, Europe (enforceable in
Germany, Great Britain, Italy and Spain), Poland and South Africa. Patent
applications are pending in a number of other nations.
Department of Energy Contract. Prior to 1994 the M/C Technology had only
been successfully demonstrated in the laboratory. In March 1994 the United
States Department of Energy (the "DOE") awarded a contract to EI under which
the DOE agreed to fund a majority of the cost of demonstrating the feasibility
of the M/C Technology at a near commercial scale. Since the M/C Technology was
transferred to BTI within a month of the contract award, BTI, EI and the DOE
entered into agreements whereby EI remained as the prime contractor with BTI
providing technical and on-site management for the project.
The project was located at a large coal preparation plant near Birmingham,
Alabama, which is owned and operated by a major coal producer. At the
completion of the production phase of the project, the Mulled Coal was shipped
to an Alabama power company. The 23-month program was completed in February of
1996 and the final project reports were delivered to the DOE in March of 1996.
BTI is very encouraged by the results of the demonstration project. The
design of process equipment and controls worked very well. Excellent quality
Mulled Coal was produced on a continuous basis, in a commercial environment and
at a production rate which was 50 times higher than production rates for
previous pilot plant tests. Actual operating costs at the near commercial scale
were far lower than costs which had been projected from laboratory and pilot
plant tests. And, most importantly, the Mulled Coal caused no problems with
storage, handling and shipping.
Commercial Development Activities. As a result of the demonstration project,
BTI considers the M/C Technology to be fully ready for commercialization.
Efforts have been made to make producers in the U.S. and other coal producing
<PAGE> 12
nations aware of the technology and its advantages. BTI has called and will
continue to call on selected coal producers, preparation plant builders and
coal preparation engineering firms to acquaint them with the technology and to
explore licensing arrangements related to the M/C Technology. It also plans to
call on utilities that burn large quantities of coal.
Millions of tons of fine wet coal have been discarded to large coal slurry
impoundments throughout the eastern coal producing states, representing an
enormous potential source of low cost fuel. BTI will pursue entering into
selected slurry impoundment recovery projects as a venture partner with an
experienced coal producer, preparation plant operator or allied service
company.
Negotiations are currently in progress with a large coal producing company
headquartered in the midwest which owns several potential slurry pond recovery
sites. The initial site selected for evaluation by BTI contains two ponds which
collectively are estimated to contain 3.1 million tons of raw coal. If
negotiations are successfully concluded and financing is secured, it is
anticipated that construction of a recovery facility will commence prior to
year end.
Facilities. Whitetail, its SQG Services Division and HDT utilize an office
and related facilities owned by Whitetail in Oklahoma City. HDT also rents a
small office in Wichita. BTI leases an office and laboratory facilities from
the Applied Research Center at the University of Pittsburgh ("UPARC"). The
UPARC facilities give BTI access to a wide range of coal and mineral testing
capabilities. BSK occupies a portion of Beard's leased space at its Oklahoma
City office. ISITOP is furnished office space in Farmington, New Mexico as part
of its arrangement with the company from which it obtained its license.
Principal Products and Services. The principal services rendered by Beard's
E/RR Segment are: (1) Soil and groundwater treatment system installations; site
remediation; UST removal; construction; drilling and emergency response
services; and consulting and safety training services for the handling of
hazardous and non-hazardous materials and the removal and disposal of same.
Such services are furnished through Whitetail and its SQG Services Division.
(2) Through HDT the segment offers directional horizontal drilling services
which have numerous environmental applications and also provides a broad range
of services for utilities, municipalities, pipeline companies, environmental
service companies and telecommunication companies. (3) Through ISITOP the
segment believes it can demonstrate the capability to clean up manufacturing
and storage sites which have been contaminated by creosote materials. (4)
Through BTI the segment offers proprietary consulting technology and has the
capability to undertake large reclamation projects and the cleanup of slurry
pond recovery sites.
The E/RR Segment accounted for the following percentages of the Company's
consolidated revenues for each of the last three years.
<TABLE>
<CAPTION>
Percent of
Fiscal Year Consolidated Revenues
Ended from Continuing Operations
----------- --------------------------
<S> <C>
12/31/96 18.0%
12/31/95 20.2%
12/31/94 22.7%
</TABLE>
Market demand and competition. The environmental services industry is highly
competitive, and in such activities the E/RR Segment must compete against major
services companies, as well as a number of small independent concerns.
Competition is largely on the basis of customer service. Beard's approach has
been to seek out niches of opportunity where it perceives that customers are
not being adequately served, and then to provide services using well-trained
personnel at reasonable rates. The regulatory environment is rapidly changing,
at times creating new markets which the larger companies in the industry do not
recognize or have no desire to pursue, and thus creating opportunities for
smaller, aggressive entities such as Beard.
The environmental services entities provided their services to 179 customers
in 1996. Environmental services activities performed under subcontracts for 32
customers who were working for the State of Oklahoma Indemnity Fund (the
"Fund"), primarily for UST removal, accounted for 72% of the E/RR Segment's
1996 revenues. However, the Company does not feel that the loss of any single
customer would have a material adverse effect on the Company and its
subsidiaries as a whole. The Fund normally pays for such work in 90 to 120
days, and the primary contractors normally pay the subcontractors in 120 to 150
days for such billings, resulting in extended payment terms for this type of
activity.
The resource recovery business is also highly competitive and the E/RR
Segment is competing against much larger and better financed companies. Beard's
<PAGE> 13
approach has been to develop lower cost technology that will create a market
opportunity.
Availability of raw materials. Materials used in the E/RR Segment, as well
as products purchased for resale, are available from a number of competitive
manufacturers.
Seasonality. The environmental services and resource recovery businesses are
both seasonal, as there is a tendency for field operations to be reduced in bad
weather. Seasonality normally affects the first quarter of the year, and this
tendency is compounded by the public sector's propensity to delay the startup
of environmental services contracts during such period.
Employees. As of December 31, 1996 the E/RR Segment employed 42 full time
and three part time employees.
Financial information. Financial information about the E/RR Segment is set
forth in the Company's Financial Statements. See Part II, Item 8---Financial
Statements and Supplementary Data.
OTHER ACTIVITIES
Iodine. Beard is involved in the extraction, production and sale of crude
iodine through its 40% ownership of North American Brine Resources ("NABR"), a
joint venture with two Japanese partners. Beard is the managing partner. In
Kingfisher County, Oklahoma, the Company collects waste brine from wells
operated by third parties (the "Berkenbile Plant"). The Company receives a
payment for furnishing the brine to NABR for iodine extraction at the
Berkenbile Plant and for the subsequent disposal of the brine.
In Woodward County, Oklahoma, NABR operates a second iodine extraction plant
(the "Woodward Plant") which has roughly six times the production capacity of
the Berkenbile Plant. Brine is produced from wells owned by NABR and iodine is
extracted using the blowing-out process. The waste brine is then reinjected
into NABR-owned wells. The Woodward Plant is located in the Woodward Trench, a
narrow geologic formation found 6,000 to 10,000 feet below the surface, which
contains the world's highest concentration of iodine-bearing brine water.
Iodine is used in animal feed supplements, catalysts, inks and colorants,
pharmaceuticals, photographic equipment, sanitary and industrial disinfectants,
stabilizers and radiopaque media.
From 1990 to 1994 the worldwide price received for iodine decreased more
than 50% from its peak of approximately $18 per kilogram as a result of
increased production capacity in the United States and Chile. The price
bottomed out in mid-1994 at $7 per kilogram and is currently expected to be in
the $17 to $18 per kilogram range for the coming months.
Because of the severely depressed industry pricing conditions, NABR
determined to shut down the operations of the Woodward Plant for an indefinite
period of time until the oversupply situation was rectified. Accordingly, the
Woodward Plant shut down in June of 1993. By the third quarter of 1996 the
oversupply situation appeared to have corrected itself and the decision was
made to reactivate the Woodward Plant, which came back on stream in October of
1996. In January of 1997 NABR shipped the first 8,000 kilograms produced at the
plant since its reactivation. The total cost of reactivating the plant,
including the cost of drilling a new production well plus the additional
working capital required, was approximately $1.1 million. Such funds were
loaned to NABR by our Japanese partners. No capital distributions will be made
from the joint venture until the loan by the Japanese partners has been fully
repaid with interest.
Other Assets. Beard also has a number of other assets and investments which
it intends to liquidate as opportunities materialize. Such assets consist
primarily of drilling rigs and equipment, land and improvements, real estate
limited partnerships in which the Company is a limited partner and
miscellaneous other investments. As excess funds become available from such
liquidations they will be utilized for working capital, reinvested in Beard's
ongoing business activities or redeployed into newly targeted opportunities.
Office and Other Leases. Beard leases office space in Oklahoma City,
Oklahoma, aggregating 5,817 square feet under a lease expiring September 30,
2000, at a current annual rental of $53,807. In addition, Beard's subsidiaries
lease space at a number of locations as required to serve their respective
needs.
Employees. As of December 31, 1996, Beard employed 161 full time and 11 part
time employees in all of its operations, including nine full time employees on
the corporate staff.
(d) Financial information about foreign and domestic operations and export
sales.
See Item 1(c) for a description of foreign and domestic operations and
export sales.
<PAGE> 14
Item 2. Properties.
See Item 1(c) for a description of properties.
Item 3. Legal Proceedings.
Neither Beard nor any of its subsidiaries are engaged in any litigation or
governmental proceedings which Beard believes will have a material adverse
effect upon the results of operations or financial condition of any of such
companies.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
(a) Market information.
The Company's common stock trades on the American Stock Exchange ("ASE")
under the ticker symbol BOC. The following table sets forth the high and low
sales price for the Company's common stock, as reflected in the ASE monthly
detail reports, for each full quarterly period within the two most recent
fiscal years.
<PAGE> 15
<TABLE>
<CAPTION>
1996 High Low
---- ---- ---
<S> <C> <C>
Fourth quarter $2-7/8 $2-1/2
Third quarter 3-1/4 2-3/4
Second quarter 3-1/4 2-1/4
First quarter 2-3/8 2-1/8
1995 High Low
---- ---- ---
<S> <C> <C>
Fourth quarter $2-1/2 $2
Third quarter 2-3/4 2-1/4
Second quarter 2-1/2 2-1/8
First quarter 2-3/16 1-5/8
</TABLE>
(b) Holders.
As of February 28, 1997 the Company had 555 record holders of common stock.
(c) Dividends.
To date, the Company has not paid any cash dividends. The payment of cash
dividends in the future will be subject to the financial condition, capital
requirements and earnings of the Company. The Company intends to employ its
earnings, if any, in its CO2 and E/RR activities and does not expect to pay
cash dividends for the foreseeable future. The redemption provisions of the
Beard preferred stock limit the Company's ability to pay cash dividends. (See
"Business-General development of business").
Item 6. Selected Financial Data.
The following financial data are an integral part of, and should be read in
conjunction with, the financial statements and notes thereto. Information
concerning significant trends in the financial condition and results of
operations is contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations on pages 19 through 25 of this report.
<PAGE> 16
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Operating revenues from
continuing operations $ 16,683 $ 15,012 $ 14,123 $ 13,281 $ 10,849
Interest income 18 25 20 21 110
Interest expense (259) (166) (116) (92) (210)
Earnings (loss) from
continuing operations (140) (478) 508 (893) (6,622)
Earnings (loss) from
discontinued operations (175) 75 214 (11,183) (25,871)
Gain on debt restructuring - - - 46,928 -
Net earnings (loss) (315) (403) 717 34,852 (32,493)
Net earnings (loss) from
continuing operations
per share:
(primary EPS) (0.05) (0.20) 0.17 (0.42) (3.33)
(fully diluted EPS) (0.05) (0.20) 0.14 (0.41) (3.33)
Net earnings (loss) per share:
(primary EPS) (0.11) (0.17) 0.25 16.51 (16.34)
(fully diluted EPS) (0.11) (0.17) 0.21 15.86 (16.34)
Balance sheet data:
Working capital $ 1,745 $ 1,989 $ 2,427 $ 1,765 $ 1,830
Total assets 16,473 14,615 13,856 14,966 15,441
Long-term debt (excluding
current maturities) 2,911 1,454 982 1,137 947
Redeemable preferred stock 1,200 1,200 1,200 1,200 -
Total common shareholders'
equity (deficit) $ 8,656 $ 8,788 $ 9,066 $ 8,407 $(27,743)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion addresses the significant factors affecting the
results of operations, financial condition, liquidity and capital resources of
the Company. Such discussion should be read in conjunction with the Company's
financial statements including the related footnotes and the Company's selected
financial information.
Overview
General. The Company operates within two major industry segments: (1) the
carbon dioxide segment (the "CO2 Segment"), comprised of (a) the manufacture
and distribution of dry ice (solid CO2) and (b) the production of CO2; and (2)
the environmental/resource recovery segment (the "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 Company has been liquidating as opportunities have
materialized.
The Company's continuing operations reflect a loss of $140,000 in 1996, a
loss of $478,000 in 1995 and earnings of $503,000 in 1994. The Company made the
decision to discontinue its real estate construction and development activities
in January of 1997 in order to focus its attention on the CO2 and E/RR Segments
which are considered to have greater potential for growth and profitability.
The results from continuing operations exclude a loss of $175,000 in 1996 and
profits of $75,000 and $214,000, respectively in 1995 and 1994 from such
discontinued operations.
1996 results of operations reflected continuing improvement in the operating
<PAGE> 17
margins of the CO2 Segment, which is the Company's largest segment. This
improvement was largely offset by disappointing results in the E/RR Segment
where a significant decline in revenues in the first half of the year resulted
in a sharp decline in operating margins for 1996 compared to 1995. The
acquisition of Horizontal Drilling Technologies, Inc. ("HDT") in May of 1996
partially ameliorated the revenue decline but was of little assistance in
making up the decline in margins. 1996 benefited from the settlement of a
take-or-pay contract (the "1996 Settlement") by the Company's dry ice
subsidiary, Carbonic Reserves ("Carbonics"), which resulted in the addition of
$939,000 of pre-tax income.
1995 results of operations reflected significant improvement in the
operating margins of the CO2 Segment. This improvement was partially offset by
disappointing results in the E/RR Segment where an increase in overhead costs
due to business expansion contributed to a higher operating loss in 1995 than
in the previous year. 1995 benefited from a $423,000 gain on the sales of
various assets, principally drilling rigs and related equipment, and from the
sale of a branch operation by the dry ice company.
1994 results benefited from the sale of Energy International Corporation
("EI"), which resulted in a gain of $1.94 million. This gain was partially
offset by $441,000 of impairment provisions on certain long-term investments.
The Company's continuing operations generated an operating loss of $916,000,
despite significant operating improvement in the CO2 Segment. These gains were
offset in part by administrative overhead formerly shared with oil and gas
operations discontinued in 1993.
Liquidity and capital resources
Capital investments. The Company's capital investment programs have
required more cash than has been generated from operations during the past
three years. Cash flows provided by (used by) operations during 1996, 1995 and
1994 were $924,000, $(414,000) and $(185,000), respectively, while capital
additions were $3,131,000, $1,626,000, and $1,650,000, respectively, as
indicated in the table on the following page:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Carbon dioxide $1,978,000 $1,265,000 $1,252,000
Environmental/resource recovery 1,138,000 339,000 352,000
Other 15,000 22,000 46,000
---------- ---------- ----------
Total $3,131,000 $1,626,000 $1,650,000
========== ========== ==========
</TABLE>
<PAGE> 18
Seller-provided financing and other debt obligations provided $889,000,
$487,000 and $435,000 of the funds for such capital investments in 1996, 1995,
and 1994, respectively.
Capital investments over the three year period totaled $6,475,000 of which
$4,495,000 was invested in the CO2 Segment where it was utilized in the dry ice
operations of Carbonics. Investments made in this segment replaced equipment
acquired during the expansion of activities in the early 1990's. This equipment
was partially depreciated at the time of acquisition and had reached a fully-
depreciated status. Additional investments were made to upgrade Carbonics'
production capacity and quality specifications, and increase production
efficiencies and revenue capabilities in order to facilitate its strategy of
increasing its market share.
The Company's 1997 capital expenditure budget has preliminarily been set at
$5,568,000. Presently anticipated capital expenditures include (i) $885,000 for
dry ice operations, (ii) $4,663,000 for the E/RR Segment, and (iii) $20,000 of
additional investment for other activities. $4,195,000 of the estimated total
is speculative since it is targeted for expenditure on a mulled coal recovery
plant on which negotiations are currently in progress.
Liquidity. To date the Company has been able to satisfy its liquidity needs
through its working capital, borrowing arrangements and cash flows. 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 and continuing private and governmental demand for environmental services.
Despite these uncertainties, the Company anticipates that its cash flows 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.
Working capital for 1996 decreased from 1995. All categories of current
assets, except inventories, increased over the prior year with a total net
increase of $136,000. The increase in current assets was offset by a larger
increase in accrued expenses and other liabilities which was attributable to
the Company's increased level of business.
Liquidity should improve in 1997 as a result of the reduction in debt as
sales occur from the Company's real estate construction and development
segment's assets (the "Assets"). As of March 13, 1997, all of the Assets except
three speculative homes have been sold for a total of $955,000. $647,000 of the
funds from such sales have been used to reduce debt.
Selected liquidity highlights for the Company for the past three years are
summarized below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents $ 375,000 $ 220,000 $ 566,000
Accounts receivable, net 2,405,000 2,259,000 2,041,000
Inventories 2,003,000 2,282,000 1,964,000
Trade accounts payable 1,395,000 1,354,000 1,502,000
Short-term debt 639,000 957,000 79,000
Current maturities of
long-term debt 910,000 520,000 539,000
Long-term debt 2,911,000 1,454,000 982,000
Working capital 1,745,000 1,989,000 2,427,000
Current ratio 1.49 to 1 1.63 to 1 1.93 to 1
Net cash provided by
operations before changes
in current assets and
liabilities 688,000 315,000 291,000
Net cash provided by
(used in) operations 924,000 (414,000) (185,000)
</TABLE>
In total, the Company's operations provided cash of $924,000 in 1996.
Currently the Company's cash flows from operations are heavily dependent on its
CO2 Segment. Improved operating results in this segment have significantly
increased the Company's operating cash flow. The dry ice operations of the CO2
Segment provided $1,986,000 of cash flow in 1996. This cash flow was offset by
(i) higher levels of selling, general and administrative expenses in the E/RR
Segment as the segment expanded into new lines of business and (ii) higher
levels of general and administrative at the corporate level as the Company
pursued additional business opportunities. The E/RR Segment and other corporate
activities generated net operating cash outflows of $37,000 and $1,025,000,
respectively. (See "Results of operations---Other activities" below).
<PAGE> 19
The 1996 Settlement significantly enhanced the Company's overall liquidity
through the infusion of $539,000 cash into Carbonics. The infusion of this cash
plus $400,000 of equipment resulted in the addition of $939,000 of pre-tax
income. Cash received from the 1996 Settlement enabled Carbonics to cover more
than 25% of Carbonics' capital expenditures for 1996.
The Company's investing activities used cash of $1,203,000 in 1996. Capital
expenditures and investments in various activities more than offset proceeds
from the sale of assets.
The Company's financing activities generated a positive cash flow of
$434,000 in 1996. This resulted mainly from increased borrowings to fund
capital expenditures, to develop real estate inventory, and to fund working
capital for general corporate purposes.
During the fourth quarter of 1996 the Company (i) increased the long-term
line of credit which funds Carbonics' working capital requirements from
$750,000 to $1,250,000 in order satisfy its continuing growth requirements, and
(ii) added a new $500,000 line of credit at the parent Company level to provide
the capital needed for the development drilling currently underway at McElmo
Dome and to fund working capital for general corporate purposes. In addition,
credit lines obtained by the Company from three trusts were extended to become
long-term, and the limits thereof were increased.
At year-end 1996 the Company has $295,000 of credit available under the
parent Company's new $500,000 bank line of credit, and had $45,000 of credit
available under its line of credit with the William M. Beard and Lu Beard 1988
Charitable Unitrust. In addition, Carbonics had $150,000 of unused credit
under its $1,250,000 bank line of credit, although such funds were not
available at the time since Carbonics was already at its borrowing base
limitation (December being a low month due to the seasonality of the dry ice
business).
Effect of Reorganization on Liquidity. 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 "The 1993 Reorganization---Mandatory Redemptions of Beard
Preferred Stock."
Results of operations
General. The period of 1994-1996 was a time of transition for the Company.
Following the Reorganization in 1993, the Company shifted its focus to the
management of its non-oil and gas investments. During this period the Company
divested itself of its alternative fuels research and development activities
and in January 1997 decided to discontinue its real estate construction and
development activities. As a result, the corporate staff has devoted more
attention to the CO2 Segment and the E/RR Segment, which are considered to have
the greatest potential for growth and profitability, while liquidating assets
no longer in line with the Company's strategic objectives. Operating profit
(loss) for the Company's remaining principal segments for the three years was
as set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating profit (loss):
Carbon dioxide $887,000 $502,000 $300,000
Environmental/resource recovery (757,000) (325,000) (254,000)
---------- -------- --------
Subtotal 130,000 177,000 46,000
Other - principally corporate (1,032,000) (992,000) (961,000)
---------- -------- --------
Total $(902,000) $(815,000) $(915,000)
========== ========= =========
</TABLE>
Following is a discussion of results of operations for the three year period
ended December 31, 1996.
Carbon dioxide. The primary component of revenues for this segment is the
sale of dry ice by Carbonics. A period of business acquisition and expansion in
1990 and 1991 led to a dramatic growth in market share in the following years,
which management believes made this segment the third largest producer of dry
ice in the United States. Subsequent to this expansion Carbonics divested
certain operations and focused its efforts on increasing its market share
within a more manageable geographic area. A core part of its strategy has been
the move from standard industry commodity-type sales into application niche
marketing. The resulting increase in market share is reflected in Carbonics'
revenues in the table below:
<PAGE> 20
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Dry ice sales $12,209,000 $10,407,000 $9,697,000
Other sales and income 1,098,000 1,299,000 957,000
----------- ----------- ----------
Total sales $13,307,000 $11,706,000 $10,654,000
=========== =========== ===========
</TABLE>
The success of Carbonics' niche marketing is reflected in the results of its
retail marketing division. The retail division, which markets Penguin BrandTM
dry ice, generates higher operating margins than Carbonics' overall margin and
has experienced rapid growth, with revenues increasing (i) 86% to $1.7 million
in 1994, (ii) 18% to $2.0 million in 1995 and (iii) 27% to $2.6 million in
1996.
A big contributor to increased sales in 1995 was revenue generated from a
take-or-pay contract. The large increase in 1995 was attributable to the
resolution in 1994 of a take-or-pay contract that had been in dispute during
1992 and 1993. In February 1996, Carbonics and the other party to the agreement
reached a settlement of the take-or-pay contract. Carbonics received cash and
assets totaling approximately $939,000 which the Company recorded as a gain and
is reflected in the 1996 Statement of Operations as other income.
The settlement terminated the take-or-pay contract.
Results of operations for the CO2 Segment reflected an operating profit of
$887,000 for 1996, $502,000 for 1995 and $300,000 for 1994. In addition to the
increased revenues, cost-cutting measures implemented since 1994 contributed to
the improved operating margins. Carbonics' operating margin has improved from
3.2% in 1994 to 3.4% in 1995 and 5.3% in 1996.
The other component of revenues from this segment is the sale of CO2 gas
from the Company's working interests in two producing CO2 gas units in Colorado
and New Mexico. CO2 sales in 1996 increased 43% from 1995, which was caused by
production gains offset by a slight decrease in CO2 prices. CO2 sales in 1995
increased 58% over 1994's level, reflecting a slight increase in price and an
increase in production due to a change in allocation of sales from one of the
units to make up the Company's underproduced status. Operating margins for
these activities have improved, going from a loss of $46,000 in 1994 to
earnings of $108,000 in 1995 and earnings of $184,000 in 1996.
Environmental/resource recovery. Following the 1993 Reorganization the
Company redirected the activities of its oilfield services subsidiaries to
focus upon environmental services activities. Another subsidiary was activated
in 1994 to assist in the marketing effort for such activities. An additional
subsidiary focuses on the commercial development of the Company's proprietary
coal technology. HDT, which utilizes trenchless technology for environmental
remediation purposes, was acquired in 1996. Another subsidiary has been added
in 1997 which utilizes a chemical for which it is the sole U.S. licensee of a
process for the remediation of creosote.
Collectively, this group of companies provides a wide range of environmental
services and resource recovery activities. Revenues for this segment have
decreased, falling from $3,212,000 in 1994 to $3,026,000 in 1995 and $3,009,000
in 1996. The 1995 decline resulted from the sale in May of 1994 of certain
technologies in this segment. The 1996 decline was caused primarily by a severe
decline in revenues during the first half of the year resulting from the
suspension of several jobs by a state agency. The first half decline was
largely offset by revenues generated by HDT during the last half of the year.
The proprietary Mulled Coal technology retained by Beard Technologies, Inc.
("BTI") at the time of the EI sale generated $139,000 in revenue and $13,000 of
the segment's operating loss during 1995. Following the completion of the DOE
contract in the first quarter of 1996 BTI spent the remainder of the year
determining the best way to market its new technology. As a result, BTI
generated operating losses for the remainder of the year which adversely
affected the E/RR Segment's operating results.
Other activities. Other activities include general and corporate operations,
as well as assets unrelated to the Company's principal lines of business or
held for investment. These activities generated an operating loss of $1,032,000
in 1996, as compared to losses of $992,000 in 1995 and $961,000 in 1994. A
decrease in revenues generated by the corporate group and an increase in legal
expenses associated with negotiating a settlement with preferred stockholders
were the main factors contributing to the increased loss in 1995. A higher
level of general and administrative expenses also impacted the bottom line in
1996 as the Company continued to pursue additional business opportunities.
The Company has an equity investment (40%) in North American Brine Resources
("NABR"), a joint venture for the extraction, production and sale of crude
iodine. In the second half of 1996 NABR determined to reactivate its Woodward
Plant (with iodine priced in the $17-18/kilogram range), which had been shut
down since mid-1993 due to severely depressed iodine prices (bottomed at
$7/kilogram in mid-1994). NABR's 1996 net loss totaled $468,000 compared to
$265,000 in 1995 due primarily to plant re-opening costs at the Woodward plant
of $214,000. Beard's share of NABR's 1996 operating loss was approximately
$43,000 compared to $13,000 in 1995.
Although the Company owns 80% of the common stock of Cibola Corporation
("Cibola"), it does not have financial control of this gas marketing
subsidiary. Cibola, formed in May of 1996, contributed $99,000 of pre-tax net
income to the Company for fiscal year 1996 pursuant to a tax sharing agreement.
Depreciation, depletion and amortization. The Company's depreciation,
depletion and amortization expenses increased 13.7% in 1996 over 1995's expense
and 4.9% in 1995 over 1994's expense. These increases were a consequence of the
higher depreciable base which resulted from the expansions and capital
expenditures made within the CO2 and E/RR Segments. The acquisition of HDT in
<PAGE> 21
May of 1996 also contributed to the increased DD&A in 1996.
Other expenses, including impairment. The 1996 Settlement resulted in
$939,000 of other income to the Company. In 1996 and 1995, the Company
recognized other expenses of $78,000 and $152,000, respectively, consisting of
impairment of the carrying value of certain assets held for investment, as well
as expenses incurred in evaluating investments that did not materialize. In
1995, these expenses were offset by the recognition of $220,000 of income
received from an escrow related to a previous reorganization. In 1994, the
Company recorded a $426,000 impairment provision of the carrying value of
certain long-term investments outside of the Company's three Segments. The
provision primarily resulted from the expectation at that time of continued low
iodine prices.
Selling, general and administrative expenses. Selling, general and
administrative expenses ("SG&A") increased to $4.1 million in 1996 from $3.6
million in 1995 and $3.5 million in 1994. SG&A expense incurred by the CO2
Segment during 1996, which represents 54% of SG&A costs, increased by $354,000
over 1995's expense and increased by $123,000 in 1995 over 1994's costs.
However, as a percentage of the CO2 Segment's revenues, these expenses fell
from 16.1% in 1994 to 15.6% in 1995 and increased to 16.2% in 1996. Within the
remaining segments, reductions in SG&A resulting from the sale of EI in 1994
were offset by expansions in the E/RR Segment and the heavier corporate and
other overhead burden after the 1993 Reorganization.
Interest expense. Net interest expense has increased steadily from $93,000
in 1994 to $138,000 in 1995 and to $241,000 in 1996. Such increases reflect the
higher level of debt incurred by the CO2 and E/RR Segments as they have added
additional equipment.
Gain on sale of assets. In 1996, the gain on the sale of assets reflected
proceeds from the sale of certain assets which are in the process of being
liquidated, principally drilling rigs and related equipment. These activities
generated gains of $171,000 in 1996, $423,000 in 1995 and $63,000 in 1994. 1995
also benefited from a $188,000 gain from the sale of a branch operation by
Carbonics, while 1994 recorded a gain of $1.94 million from the sale of
technologies from the E/RR Segment.
Income taxes. The Company has approximately $73.1 million of net operating
loss carryforwards, investment tax credits, and depletion carryforwards to
reduce future income taxes. Based on the Company's historical results of
operations, it is not likely that the Company will be able to realize the
benefit of its net operating loss carryforwards and investment tax credit
carryforwards before they begin to expire in 2001 and 1997, respectively. At
December 31, 1996 and 1995, the Company has not reflected as a deferred tax
asset any future benefit it may realize as a result of its tax credits and loss
carryforwards. Future regular taxable income of the Company will be effectively
sheltered from tax as a result of the Company's substantial tax credits and
loss carryforwards. The Company paid $5,000 in alternative minimum tax as the
result of operations for 1994. It is anticipated that the Company will continue
to incur minor alternative minimum tax in the future, despite the Company's
carryforwards and credits.
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. During 1996 the Company sold three
homes in The Oaks development adjacent to the Oak Tree Golf Club in Edmond,
Oklahoma, compared to six and eleven homes sold in 1995 and 1994, respectively.
As of March 13, 1997, the Company had sold all of the real estate construction
and development assets (the "Assets") with the exception of three speculative
homes. One of these is under contract for closing on March 21, 1997, and
another is under contract for closing on May 30, 1997, leaving one home
remaining to be sold.
The Company estimated and accrued $180,000 at December 31, 1996,
representing the difference in the estimated amounts to be received from
disposing of the Assets and the Assets' recorded value at December 31, 1996.
Operating results of the discontinued operations through the date of sale of
all remaining assets are not expected to be significant.
Forward looking statements. The previous discussions include statements that
are not purely historical and are "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, including statements regarding the Company's expectations, hopes, beliefs,
intentions and strategies regarding the future. The Company's actual results
could differ materially from its expectations discussed herein.
Impact of Recently Issued Accounting Standards
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities ("SFAS No. 125"). SFAS
No. 125 is effective for certain transfers and servicing of financial assets
and
<PAGE> 22
extinguishment of liabilities occurring after December 31, 1996. It is
effective for other transfers of financial assets occurring after December 31,
1997. It is to be applied prospectively. SFAS No. 125 provides accounting and
reporting standards for transfers and servicing of financial-components
approach that focuses on control. It distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. Management of
the Company does not expect that adoption of SFAS No. 125 will have a material
impact on the Company's financial position or results of operations.
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities." SOP 96-1 was adopted by the Company on January 1, 1997. It
requires, among other things, that environmental remediation liabilities be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. SOP 96-1 also provides guidance with respect to the measurement of
the remediation liabilities. Such accounting is consistent with the Company's
current method of accounting for environmental remediation costs. Therefore,
adoption of SOP 96-1 will not have a material impact on the Company's financial
position or results of operations.
Item 8. Financial Statements and Supplementary Data
The Beard Company and Subsidiaries
Index to Financial Statements
Forming a Part of Form 10-K Annual Report
to the Securities and Exchange Commission
<TABLE>
<CAPTION>
Page Number
<S> <C>
Independent Auditors' Report
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Operations, Years ended December 31, 1996, 1995 and 1994
Statements of Shareholders' Equity, Years ended December 31, 1996,
1995 and 1994
Statements of Cash Flows, Years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements, December 31, 1996, 1995 and 1994
</TABLE>
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
The Beard Company:
We have audited the financial statements of The Beard Company and subsidiaries
as listed in the accompanying index. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Beard Company and
subsidiaries at December 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1996 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
March 19, 1997
<PAGE> 24
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31,
Assets 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 375,000 $ 220,000
Accounts receivable, less allowance
for doubtful receivables of $71,000
in 1996 and $43,000 in 1995 2,405,000 2,259,000
Inventories 2,003,000 2,282,000
Prepaid expense 442,000 329,000
Other assets 73,000 72,000
------------ ------------
Total current assets (notes 8 and 9) 5,298,000 5,162,000
Investments and other assets 1,710,000 1,935,000
Property, plant and equipment, at cost 16,793,000 14,291,000
Less accumulated depreciation, depletion
and amortization 8,094,000 7,133,000
------------ ------------
Net property, plant and equipment
(notes 6 and 9) 8,699,000 7,158,000
Intangible assets, at cost 4,305,000 3,795,000
Less accumulated amortization 3,539,000 3,435,000
------------ ------------
Net intangible assets (notes 7 and 9) 766,000 360,000
------------ ------------
$ 16,473,000 $ 14,615,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 1,395,000 $ 1,354,000
Accrued expense and other liabilities 609,000 342,000
Short-term debt (note 8) 639,000 957,000
Current maturities of long-term debt (note 9) 910,000 520,000
------------ ------------
Total current liabilities 3,553,000 3,173,000
------------ ------------
Long-term debt less current maturities (note 9) 2,911,000 1,454,000
Minority interest in consolidated subsidiaries 153,000 --
Redeemable preferred stock of $100 stated value;
5,000,000 shares authorized; 90,156 shares issued
and outstanding in 1996 and 995, respectively
(notes 1 and 4) 1,200,000 1,200,000
Common shareholders' equity:
Common stock of $.001 par value per share;
10,000 shares authorized; 2,799,074 and
2,730,830 shares issued and outstanding in
1996 and 1995, respectively 3,000 3,000
Capital in excess of par value 41,629,000 41,446,000
Accumulated deficit (32,976,000) (32,661,000)
------------ ------------
Total common shareholders' equity 8,656,000 8,788,000
------------ ------------
Commitments and contingencies (notes 4,
11, and 15)
$ 16,473,000 $ 14,615,000
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 25
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Carbon dioxide $ 13,608,000 $ 11,915,000 $ 10,787,000
Environmental/resource
recovery 3,009,000 3,026,000 3,212,000
Other 66,000 71,000 124,000
------------ ------------ ------------
16,683,000 15,012,000 14,123,000
Expenses:
Carbon dioxide (exclusive of
depreciation, depletion and
amortization shown separately
below) 9,478,000 8,598,000 7,822,000
Environmental/resource
recovery (exclusive of
depreciation, depletion and
amortization shown separately
below) 2,642,000 2,420,000 2,562,000
Selling, general and
administrative 4,079,000 3,560,000 3,486,000
Depreciation, depletion, and
amortization 1,309,000 1,151,000 1,097,000
Other 77,000 98,000 71,000
------------ ------------ ------------
17,585,000 15,827,000 15,038,000
Operating profit (loss):
Carbon dioxide 887,000 502,000 300,000
Environmental/resource
recovery (757,000) (325,000) (254,000)
Other, principally corporate (1,032,000) (992,000) (961,000)
------------ ------------ ------------
(902,000) (815,000) (915,000)
Other income (expense):
Interest income 18,000 25,000 20,000
Interest expense (259,000) (166,000) (116,000)
Equity in net loss of
unconsolidated affiliates (42,000) (13,000) (41,000)
Gain on sale of assets (note 5) 171,000 423,000 2,001,000
Gain on take-or-pay contract
settlement (note 10) 939,000 -- --
Other, including impairment of
investments (78,000) 68,000 (441,000)
Minority interest in operations of
consolidated subsidiaries 13,000 -- --
------------ ------------ ------------
Earnings (loss) from continuing operations
before income taxes (140,000) (478,000) 508,000
Income taxes from continuing operations
(note 12) -- -- (5,000)
------------ ------------ ------------
Earnings (loss) from continuing
operations (140,000) (478,000) 503,000
Discontinued operations (notes 1 and 2):
Earnings from operations of
discontinued real estate
construction and development
activities 5,000 75,000 214,000
Loss from discontinuing real estate
construction and development
activities (180,000) -- --
------------ ------------ ------------
Earnings (loss) from discontinued
operations (175,000) 75,000 214,000
------------ ------------ ------------
Net earnings (loss) $ (315,000) $ (403,000) $ 717,000
============ ============ ============
Net earnings (loss) attributable to
common shareholders $ (315,000) $ (454,000) $ 659,000
============ ============ ============
Net earnings (loss) per common share
(primary EPS) (note 1):
Earnings (loss) from continuing
operations $ (0.05) $ (0.20) $ 0.17
Earnings (loss) from discontinued
operations (0.06) 0.03 0.08
Net earnings (loss) (0.11) (0.17) 0.25
Net earnings (loss) per common share
assuming maximum dilution (fully
diluted EPS) (note 1):
Earnings (loss) from continuing
operations $ (0.05) $ (0.20) $ 0.14
Earnings (loss) from discontinued
operations (0.06) 0.03 0.07
Net earnings (loss) (0.11) (0.17) 0.21
</TABLE>
See accompanying notes to financial statements.
<PAGE> 26
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Total
Capital in Common
Common Excess of Accumulated Shareholders'
Stock Par Value Deficit Equity
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 $ 3,000 $ 41,379,000 ($32,975,000) $ 8,407,000
Net earnings, year ended
December 31, 1994 -- -- 717,000 717,000
Accretion of discount on
preferred stock -- (58,000) -- (58,000)
------------ ------------ ------------ ------------
Balance, December 31, 1994 3,000 41,321,000 (32,258,000) 9,066,000
Net loss, year ended
December 31, 1995 -- -- (403,000) (403,000)
Accretion of discount on
preferred stock -- (51,000) -- (51,000)
Issuance of 78,700 shares
of common stock -- 176,000 -- 176,000
------------ ------------ ------------ ------------
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
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE> 27
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating activities:
Cash received from customers $ 17,763,000 $ 16,564,000 $ 17,136,000
Cash paid to suppliers and
employees (17,045,000) (16,741,000) (17,129,000)
Cash received from settlement
of take-or-pay contract 539,000 -- --
Interest received 15,000 28,000 23,000
Interest paid (348,000) (265,000) (215,000)
Net cash provided by (used in) -- --
activities 924,000 (414,000) (185,000)
------------ ------------ ------------
Investing activities:
Acquisition of property, plant
and equipment (1,765,000) (1,035,000) (1,145,000)
Proceeds from sale of assets 434,000 317,000 2,428,000
Proceeds from escrowed or restricted cash -- 220,000 --
Other investments 128,000 (397,000) (65,000)
Net cash provided by (used in) -- --
investing activities (1,203,000) (895,000) 1,218,000
------------ ------------ ------------
Financing activities:
Proceeds from line of credit
and term notes 3,728,000 3,195,000 898,000
Payments on line of credit and
term notes (3,331,000) (2,351,000) (2,109,000)
Other 37,000 119,000 --
------------ ------------ ------------
Net cash provided by (used in)
financing activities 434,000 963,000 (1,211,000)
------------ ------------ ------------
Net increase (decrease) in cash
and cash equivalents 155,000 (346,000) (178,000)
Cash and cash equivalents at
beginning of year 220,000 566,000 744,000
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 375,000 $ 220,000 $ 566,000
============ ============ ============
</TABLE>
<PAGE> 28
THE BEARD COMPANY AND SUBSIDIARIES
Statement of Cash Flows
Reconciliation of Net earnings (loss) to Net cash provided by (used in)
operating activities
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Net earnings (loss) $ (315,000) $ (403,000) $ 717,000
Adjustments to reconcile net
earnings (loss) to net cash
provided by (used in) operating
activities:
Loss from discontinuing operations 180,000 -- --
Depreciation, depletion and amor-
tization 1,313,000 1,158,000 1,102,000
Gain on sale of assets (171,000) (423,000) (2,001,000)
Provision for uncollectible
accounts and notes 28,000 54,000 27,000
Provision for impairment of
other assets and investments 180,000 102,000 441,000
Interest capitalized on real
estate project (94,000) (81,000) (88,000)
Gain on take-or-pay contract
settlement (400,000) -- --
Equity in net loss of unconsoli-
dated affiliates 42,000 13,000 41,000
Other (75,000) (105,000) 52,000
Increase in accounts receivable,
prepaid expenses and other current
assets (114,000) (266,000) (285,000)
(Increase) decrease in inventories 134,000 (221,000) 501,000
Increase (decrease) in trade accounts
payables, accrued expenses and other
liabilities 216,000 (242,000) (692,000)
----------- ----------- -----------
Net cash provided by (used in)
operating activities $ 924,000 $ (414,000) $ (185,000)
=========== =========== ===========
Supplemental Schedule of Noncash Investing and Financing Activities
Purchase of property, plant and
equipment and intangible assets
through issuance of debt obli-
gations $ 889,000 $ 487,000 $ 435,000
=========== =========== ===========
Purchase of business for note
payable subsequently converted
to common stock $ 138,000 $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 29
(1) Summary of Significant Accounting Policies
The Beard Company's ("Beard" or the "Company") accounting policies reflect
industry practices and conform to generally accepted accounting principles. The
more significant of such policies are briefly described below.
Nature of Business
The Company currently 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 exploration for and production
of CO2; and (2) the environmental/resource recovery ("E/RR") segment,
consisting of environmental services and resource recovery activities. The
Company also operated in the real estate construction and development segment
which was discontinued in January 1997. The Company also has other operations,
including a minority-owned investment in a joint venture for the extraction,
production and sale of crude iodine. Prior to the 1993 Reorganization discussed
in note 4, the Company also operated in the oil and gas exploration and
production and oilfield services industries.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries and those subsidiaries in which the
Company has a controlling financial interest. All significant intercompany
transactions have been eliminated in the accompanying financial statements. The
Company owns 80% of the outstanding common stock of Cibola Corporation, a
natural gas marketing company, but does not consolidate the assets,
liabilities, revenues or expenses of Cibola because Cibola's assets are
controlled by the minority common stockholders and preferred stockholders of
Cibola. The Company earned $99,000 of pretax income from its ownership interest
of Cibola in 1996.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers investments
in securities whose remaining terms at date of purchase are less than 90 days
to be cash equivalents.
Inventories
Inventories represent primarily the costs associated with the residential real
estate construction and development project which was discontinued by the
Company (see note 2 below) and CO2 tunnel freezers constructed by a subsidiary
of the Company in the carbon dioxide segment. On December 31, 1996, the real
estate inventory is carried at net realizable value. See note 2 below. Prior to
1996, the inventory was carried at cost on a specific cost basis, not exceeding
net realizable value. The costs associated with the acquisition, development
and construction of the real estate project were capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 67, "Accounting for
Costs and Initial Rental Operations of Real Estate Projects." Accordingly,
during 1996, 1995, and 1994, general and administrative costs that relate
directly to the project of $30,000, $162,000, and $169,000, respectively, were
capitalized as inventory costs, and at December 31, 1996, and 1995, inventories
included approximately $209,000 and $239,000 respectively, of such costs. The
Company also capitalizes interest costs during the construction phase of the
project and in 1996, 1995, and 1994, capitalized interest costs of $94,000,
$81,000 and $88,000, respectively.
The CO2 tunnel freezers are carried on a specific cost basis, not exceeding net
realizable value. Net realizable value of the CO2 tunnel freezers has been
established by recent sales which are in excess of costs.
Investments
Investments are accounted for principally by the use of the equity method, and
consist primarily of a 40% interest in North American Brine Resources ("NABR"),
a joint venture which extracts iodine from saltwater brine, notes receivable
from companies involved in the environmental/resource recovery industry, and
10% to 32% interests in certain real estate limited partnerships for which the
Company does not serve as general partner. The summarized financial position
and operating results of NABR for each of the three years ended December 31,
are as follows (unaudited):
<PAGE> 30
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current assets $ 778,000 $ 245,000 $ 308,000
Noncurrent assets 3,746,000 3,749,000 3,915,000
Current liabilities 580,000 122,000 88,000
Noncurrent liabilities 540,000 -- --
----------- ----------- -----------
Venture equity $ 3,404,000 $ 3,872,000 $ 4,135,000
=========== =========== ===========
Net sales 263,000 282,000 211,000
Gross margin (deficit) 102,000 102,000 (48,000)
Net loss ($ 468,000) ($ 264,000) ($ 377,000)
=========== =========== ===========
</TABLE>
The Company's carrying value of its investment in NABR on December 31, 1996 was
approximately $1,059,000, or $288,000 less than its 40% ownership in the
underlying equity of NABR. In 1992 and 1994, the Company recorded $529,000 and
$408,000, respectively, of economic impairment of its investment in NABR due to
closure of NABR's larger iodine plant and low iodine prices. NABR did
not record economic impairment of its assets at the venture level. Beard is
amortizing the difference between the carrying amount of its investment in
NABR and its share of NABR's recorded equity based on the expected useful life
of the iodine plant and certain maintenance costs incurred by NABR during the
closure period. As a result of higher iodine prices, the closed iodine plant
was reopened in late 1996. Beard amortized $144,000, $92,000 and $109,000 of
the difference between the carrying amount of its investment in NABR and its
share of NABR's recorded equity in 1996, 1995 and 1994, respectively.
The Company's equity in other investees' operations and net assets is not
material to the Company's results of operations or financial position. In 1996,
the Company recorded a provision of $180,000 for economic impairment of an
unsecured note held by the Company in a research and development entity. The
face value of the note is $362,000 and management of the Company believes the
remainder of the note to be collectible.
Property, Plant and Equipment
Property, plant and equipment are depreciated by use of the straight-line
method using estimated asset lives of 3 to 20 years. Depreciation, depletion
and amortization of properties producing CO2 are computed by the
units-of-production method using estimates of unrecovered proved developed CO2
reserves.
The Company charges maintenance and repairs directly to expense as incurred
while betterments and renewals are generally capitalized. When property is
retired or otherwise disposed of, the cost and applicable accumulated
depreciation, depletion and amortization are removed from the respective
accounts and the resulting gain or loss is reflected in operations.
Intangible Assets
Identifiable intangible assets, comprised primarily of acquired customer lists,
covenants not to compete, and patents, are amortized on a straight-line basis
over their respective estimated useful lives, ranging from five to 17 years.
The excess of acquisition cost over the fair value of net assets acquired
(goodwill) is amortized on a straight-line basis over the expected periods to
be benefited, generally, ten years. Intangible assets are evaluated
periodically, and if conditions warrant, an impairment valuation allowance is
provided. The Company assesses recoverability of its intangible assets under
the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of."
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of The
Company adopted the provisions of SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and Assets to be Disposed Of," on January 1, 1996. This
Statement requires that long-lived assets and certain identifiable intangibles
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this
statement did not have a material impact on the Company's financial position,
results of operations, or liquidity.
Fair value of financial instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
receivable, other current assets, trade accounts payables, accrued expenses and
short-term debt approximate fair value because of the short maturity of those
instruments. At December 31, 1996 and 1995, the fair value of the long-term
debt was not significantly different than the carrying value of that debt.
Use of estimates
Management of the Company has made a number of estimates and assumptions
<PAGE> 31
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Stock Option Plan
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense was recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net
earnings and pro forma earnings per share disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
Mandatorily Redeemable Preferred Stock
The Company's preferred stock is accounted for at fair value at the date of
issuance as determined by independent appraisal. The excess of the estimated
redeemable value over the fair value at the date of issuance is accreted over
the redemption term. The carrying value of the preferred stock is increased
annually for the estimated accretion with a corresponding reduction of capital
in excess of par value of common stock. The accretion of carrying value
decreases net income or increases net loss for purposes of calculating net
income (loss) attributable to common shareholders.
Earnings (Loss) Per Share
Loss per common share for 1996 and 1995 was determined by dividing the net loss
attributable to common shareholders by the weighted average number of shares of
common stock outstanding (2,756,094 and 2,662,048 shares in 1996 and 1995,
respectively) during the periods. The calculations do not include common
equivalent shares or potentially dilutive securities outstanding, as the effect
would be antidilutive.
Earnings per common share calculations for 1994 were based on the earnings
attributable to common shareholders and include the potential dilution
resulting from the conversion of the preferred stock to common stock. The
number of common shares used in calculating fully diluted earnings per share
for 1994 includes both the average common shares outstanding and the common
shares that would result from the assumed beginning of year conversion of the
preferred shares excluding those preferred shares redeemable from earnings
through the year ended December 31, 1994.
<PAGE> 32
Shares entering into the 1994 computation were:
<TABLE>
<CAPTION>
1994
----
<S> <C>
Average common shares outstanding 2,652,000
Assumed preferred stock conversion 465,000
---------
Shares used in fully diluted computation 3,117,000
=========
</TABLE>
Research and Development
The Company develops dry ice freezing equipment for the food processing
industry and also develops machinery for the efficient handling of dry ice
products. The Company expensed $116,000, $186,000, and $45,000 in 1996, 1995
and 1994, respectively, related to such development efforts which included the
costs of materials, personnel expense, facilities rental, and other direct
expenses.
Reclassifications
Certain 1995 and 1994 balances have been reclassified to conform with the 1996
presentation.
(2) Discontinued Real Estate Construction and Development Operations As a
result of the Company's plan to dispose of the assets of its real estate
construction and development segment, results of the real estate construction
and development segment have been reported as discontinued operations in the
accompanying statements of operations. Prior year financial statements have
been reclassified to present the real estate construction and development
segment as discontinued operations. Revenues applicable to discontinued
operations were $1,083,000, $1,949,000 and $3,358,000 in 1996, 1995 and 1994,
respectively.
As of December 31, 1996, the significant assets of the real estate construction
and development segment include 19 undeveloped lots, a business office and four
completed speculative homes and other real estate construction and development
assets valued at approximately $1,739,000. The significant liabilities of the
real estate construction and development segment consisted of short-term
obligations, accounts payable and accrued expenses of $710,000.
The 1996 statement of operations includes a loss from discontinuing real estate
construction and development activities of $180,000 which represents the
difference in the estimated amounts to be received from disposing of the real
estate construction and development assets and the assets' recorded values as
of December 31, 1996. Operating results of the discontinued operations through
the date of sale of all remaining assets are not expected to be significant.
Subsequent to December 31, 1996, the Company sold one completed speculative
home for $336,000, which approximated the estimated value of the home. Also, on
March 13, 1997, the Company sold the 19 undeveloped lots, the business office
and other real estate construction and development assets for $619,000, which
approximated the Company's estimated disposition values of these assets.
The Company expects to dispose of the three remaining completed speculative
homes by December 31, 1997 at their recorded values as of December 31, 1996.
(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 valued at
$301,000, 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, valued at $44,000, 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 50,000 shares of the Company's common
stock on July 1, 1996. The conversion rate used was the Company's July 1, 1996
closing stock price of $3.00. 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 have been included in the
Company's financial statements from May 21, 1996.
Had the Company acquired HDT as of January 1, 1995, revenues, loss from
continuing operations, net loss and related per share amounts on a pro forma
basis for 1996 and 1995 would not have been materially different than 1996 and
1995 amounts reported in the accompanying statements of operations.
<PAGE> 33
(4) Redeemable Preferred Stock
In 1992, Beard Oil Company ("Beard Oil"), which was then the Company's parent,
defaulted on two interest payments and on several restrictive financial
covenants in connection with its senior debt, and the Lenders declared $85
million of debt, together with accrued and deferred interest, immediately due
and payable. After lengthy negotiations, various agreements (the "Agreements")
were signed in July 1993 and consummated in October 1993 (the Reorganization).
As a result: (i) a company (Sensor Oil & Gas, Inc. ("Sensor")) owned by the
Lenders purchased substantially all of Beard Oil's oil and gas assets and
assumed a portion of Beard Oil's indebtedness; (ii) Beard Oil was released from
any remaining obligations thereunder; (iii) the Company replaced Beard Oil as
the publicly held company and the owner of the former assets of Beard Oil not
transferred to Sensor; (iv) Beard Oil became a wholly-owned subsidiary of the
Company; (v) the former shareholders of Beard Oil received 75% of the Company's
common stock; (vi) the Lenders received 25% of the Company's outstanding common
stock and $9,125,000 stated value, or 100%, of the Company's outstanding Series
A redeemable convertible zero coupon preferred stock.
Under the terms of a Settlement Agreement executed in April, 1995 (the
"Settlement"), the Company released Sensor from certain obligations under the
Agreements, and the Company was relieved from some of the mandatory redemption
obligations in connection with (i) certain asset sales or the issuance of
equity securities and (ii) future acquisitions financed by debt or preferred
stock.
The Agreements, as modified by the Settlement, result in the Company's
preferred stock being convertible by the Lenders into as much as 14.18% of the
Company's common stock on a fully diluted basis. Such preferred stock is
mandatorily redeemable through December 31, 2002 by the Company from one-third
of the Company's consolidated net income, as defined in the Agreements, payable
within 90 days of the end of the Company's fiscal year. To the extent not
redeemed, the preferred stock may be convertible by the Lenders after December
31, 2002 into as much as 14.18% of the Company's common stock on a fully
diluted basis at a conversion rate of 5.129425 common shares for each preferred
share. The common stock held by the Lenders gives them 20.33% of the
voting power of Beard and an additional 14.18% through their preferred stock
ownership, for a total of 34.51% of the total outstanding voting stock of the
Company. As of the Reorganization date and at December 31, 1996 and 1995, the
fair value of the mandatorily redeemable preferred stock was estimated to be
approximately $1,200,000. The redemption value of the mandatorily redeemable
preferred stock was $9,015,600 at December 31, 1996 and 1995. No accretion of
the carrying value of the mandatorily redeemable preferred stock was recorded
in 1996 due to the absence of consolidated net income, as defined in the
Agreements.
As of December 31, 1994, Sensor owed the Company $51,000 for plugging work
completed on retained oil and gas leases as previously discussed. As a result
of the Settlement, the amount owed by Sensor was canceled and an equivalent
amount of preferred stock was redeemed. Any additional payments made by the
Company for certain other contingent liabilities related to the Reorganization,
up to $250,000, will be treated as redemptions of shares of preferred stock.
(5) Sale of Assets
On May 5, 1994, the Company sold certain technologies of the
environmental/resource recovery segment for cash and also received repayment of
advances made to the alternative fuels research and development segment. The
transaction resulted in a gain of approximately $1,936,000. The Company
retained other research and development technology within the segment which the
Company is continuing to develop. During 1996, 1995, and 1994, the Company also
sold drilling rigs and related equipment and in 1995 sold a dry ice branch.
(6) Property, Plant and Equipment
Property, plant and equipment are summarized as follows:
<PAGE> 34
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
----------- -----------
<S> <C> <C>
Carbon dioxide:
Buildings, machinery and equipment $ 9,639,000 $ 8,182,000
Proved properties, projects in
progress, and unproved properties 2,811,000 2,742,000
Other depreciable assets 942,000 958,000
Land 64,000 14,000
----------- -----------
13,456,000 11,896,000
----------- -----------
Other operating segment and corporate assets:
Other depreciable assets 2,912,000 1,970,000
Land 425,000 425,000
----------- -----------
3,337,000 2,395,000
----------- -----------
$16,793,000 $14,291,000
=========== ===========
</TABLE>
Accumulated depreciation, depletion and amortization and valuation allowances
are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Carbon dioxide:
Buildings, machinery and equipment $3,637,000 $2,976,000
Proved properties, projects in
progress, and unproved properties 2,476,000 2,452,000
Other depreciable assets 595,000 535,000
---------- ----------
6,708,000 5,963,000
Other operating segment and
corporate depreciable assets 1,386,000 1,170,000
---------- ----------
$8,094,000 $7,133,000
========== ==========
</TABLE>
(7) Intangible Assets
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Carbon dioxide:
Covenants not to compete $1,728,000 $1,728,000
Acquired customer lists 943,000 943,000
Costs in excess of fair value
of net assets acquired 561,000 561,000
Other intangible assets, including
patents 397,000 369,000
---------- ----------
3,629,000 3,601,000
Other intangible assets, principally
goodwill 676,000 194,000
---------- ----------
$4,305,000 $3,795,000
========== ==========
</TABLE>
Accumulated amortization is as follows:
<PAGE> 35
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Carbon dioxide:
Covenants not to compete $1,728,000 $1,726,000
Acquired customer lists 921,000 907,000
Costs in excess of fair value
of net assets acquired 351,000 295,000
Other intangible assets, including
patents 354,000 352,000
---------- ----------
3,354,000 3,280,000
Other intangible assets,
principally goodwill 185,000 155,000
---------- ----------
$3,539,000 $3,435,000
========== ==========
</TABLE>
(8) Short-term Debt
Short-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---------- ----------
<S> <C> <C>
Real estate construction and
development (a) $639,000 $782,000
Other (b) - 175,000
-------- --------
$639,000 $957,000
======== ========
- ---------------
</TABLE>
(a) Secured short-term notes payable to banks in connection with the Company's
real estate construction and development project are collateralized by
approximately $1,739,000 of inventory. Interest rates were 10.0% and 9.75% as
of December 31, 1996 and 1995, respectively.
(b) In 1995, three affiliates of the Company's Chairman of the Board of the
Directors entered into loan agreements with the Company. In 1996, the loans
were converted to long-term and the maturities were extended. In February 1997
the maturities were extended to February 1999. Therefore, in 1996 the debt
balance is included in long-term debt.
(9) Long-term Debt
Long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
---------- ----------
<S> <C> <C>
Carbon dioxide (a) $1,479,000 $1,537,000
Environmental/resource recovery (b) 1,457,000 437,000
Corporate and other (c) 885,000 -
---------- ----------
$3,821,000 $1,974,000
========== ==========
</TABLE>
- ----------------
(a) Borrowings outstanding in the Company's CO2 segment include various notes
payable of $379,000 and $569,000, at December 31, 1996 and 1995, respectively,
which are collateralized by property, plant and equipment with an approximate
net book value of $347,000 at December 31, 1996. Payments are generally due
monthly with interest rates ranging from 6.75% to 14.5%, with approximate
weighted average interest rates of 8.5% and 10.0% as of December 31, 1996 and
1995, respectively. The various notes payable mature through May 2000.
Also, included in the carbon dioxide segment's long-term debt are $1,100,000
and $750,000 at December 31, 1996 and 1995, respectively, of borrowings under a
line of credit. $250,000 of the line of credit is due December 31, 1997 with
the remainder due April 30, 1998. The line of credit is secured by accounts
receivable and intangible assets and bears interest at 1% above the national
<PAGE> 36
prime lending rate which approximated 8.25% at December 31, 1996.
Included in the long-term debt of the CO2 segment at December 31, 1995, was
approximately $218,000 of secured long-term debt due in 1996 with an affiliate
of an owner of Sensor. Such affiliate owns 11.15% of the Company's common and
47.06% of the Company's preferred stock, and thus holds 16.24% of the total
outstanding voting stock of the Company. The debt was paid by the Company in
1996.
(b) Borrowings outstanding in the Company's E/RR segment include $874,000 and
$137,000 at December 31, 1996 and 1995, respectively, of various notes payable
which are collateralized by property, plant and equipment with an approximate
net book value of $964,000 at December 31, 1996. Payments are generally due
monthly with interest rates ranging from 4.9% to 16.6%, with approximate
weighted average interest rates of 9.5% and 9.0% as of December 31, 1996 and
1995, respectively. The various notes payable mature through July 2011.
Included in the E/RR segment's long-term debt are $282,000 and $300,000 at
December 31, 1996 and 1995, respectively, of borrowings under a line of credit.
The line of credit is due on April 30, 1997, and is secured by accounts
receivable and bears interest at 1/2% above the national prime lending rate,
which was 8.25% at December 31, 1996.
Long-term debt of the E/RR segment also includes a discounted $301,000
contingent payment obligation payable to the former sole shareholder of HDT,
resulting from the Company's acquisition of 80% of HDT's outstanding common
stock. The contingent payment obligation is payable only from 80% of the cash
flows (prescribed under the contingent payment obligation agreement) of HDT and
another subsidiary of the Company in the environmental/resources recovery
segment. The maximum amount payable under the contingent payment obligation is
$483,000. The Company discounted the maximum contingent payment obligation over
its estimated repayment term of ten years using a 10% interest rate.
(c) Borrowings outstanding for corporate and other operations include $680,000
due to affiliates of the Company's Chairman of the Board of Directors. The
loans were originally made in 1995, were extended in 1996, and extended again
in February 1997 to February 1999. In 1995, the obligation were recorded as
short-term debt. All of the loans are unsecured and bear interest at a rate of
10% per annum.
Included in corporate and other operations long-term debt are $205,000 of
borrowings under a line of credit. The line of credit is due on April 30, 1998,
is secured by the Company's working and overriding royalty interests in certain
CO2 producing properties, is guaranteed by the Company's Chairman of the Board
of Directors and bears interest at 1% above the national prime lending rate
which was 8.25% at December 31, 1996.
The annual maturities of long-term debt at December 31, 1996 are $910,000 for
1997, $1,409,000 for 1998, $1,005,000 for 1999, $140,000 for 2000, and $107,000
in 2001.
<PAGE> 37
(10) Settlement of Take-or-Pay Contract
During 1996, the Company negotiated a settlement of a take-or-pay contract
under which a customer was obligated to purchase certain volumes of liquid CO2.
As a result of the settlement, the Company received cash of $539,000 and a CO2
vapor recovery system 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 in 1996 relating to
this settlement.
(11) Operating Leases
Noncancelable operating leases relate principally to distribution facilities,
warehouse and office space, vehicles and operating equipment. Future minimum
payments under such leases as of December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
1997 $555,000
1998 468,000
1999 231,000
2000 111,000
2001 29,000
----------
$1,394,000
==========
</TABLE>
The $1,394,000 in future minimum payments consists primarily of $1,096,000 from
the CO2 segment.
Rent expense under operating leases aggregated $594,000 in 1996, $644,000 in
1995 and $506,000 in 1994.
(12) Income Taxes
The primary differences between the carrying values of the Company's assets for
financial and tax purposes result from the accounting methods used for
impairment of assets, depletion, depreciation and amortization of property and
equipment and debt restructuring.
<PAGE> 38
As of December 31, 1996 and 1995, the Company's net deferred tax assets, before
valuation allowances, approximated $28,182,000 and $32,939,000, respectively.
Based on the results of the Company's operations, management does not believe
that it is more likely than not that the Company will be able to realize the
benefit of the net operating loss carryforwards and other deductions and
credits before expiration. The Company has fully allowed for the tax deferred
assets through a valuation allowance. In order to fully realize the net
deferred tax assets, before consideration of the valuation allowance, the
Company would need to generate future taxable income of approximately
$76,000,000 prior to expiration of the net operating loss carryforwards which
will begin to expire in 2001 and investment tax credits which will expire from
1997 through 2000.
The 1994 income tax expense resulted from federal alternative minimum income
taxes. No regular current income tax expense was provided in any of the three
years ended December 31, 1996 due to the availability for regular income tax
reporting of net operating loss and depletion and investment tax credit
carryforwards.
The changes in the net deferred tax assets and valuation allowance were as
follows (in thousands):
<PAGE> 39
<TABLE>
<CAPTION>
1995 1996
Deferred Deferred
January 1, Expense December Expense December
1995 (Benefit) 31, 1995 (Benefit) 31, 1996
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deferred tax liability $ - $ 60 $ (60) $ 130 $ (190)
Deferred tax asset 33,551 552 32,999 4,627 28,372
------- ------ ------- -------- -------
Net deferred tax asset $33,551 $ 612 $32,939 $ 4,757 $28,182
Less valuation allowance 33,551 612 32,939 4,757 28,182
------- ------ ------- -------- -------
Deferred tax asset less
valuation allowance $ - $ - $ - $ - $ -
======= ====== ======= ======== =======
</TABLE>
At December 31, 1996, the Company had Federal regular tax operating loss
carryforwards of approximately $66.9 million that expire from 2001 to 2010,
investment tax credit carryforwards of approximately $679,000 that expire from
1997 to 2000, and tax depletion carryforwards of approximately $5.5 million.
These carryforwards may be limited if the Company undergoes a significant
ownership change. The decrease in the deferred tax asset in 1996 relates to the
utilization of Federal regular tax operating loss carryforwards to offset
taxable income resulting from capital transactions between the Company and its
carbon dioxide subsidiary and changes in estimates.
(13) Employee Benefit Plan
Employees of the Company participate in a defined contribution plan with
features under Section 401(k) of the Internal Revenue Code. The purpose of the
Plan is to provide retirement, disability and death benefits for all full-time
employees of the Company who meet certain service requirements. The Plan allows
voluntary "savings" contributions up to a maximum of 15%, and the employer
matches 100% of each employee's contribution up to 5% of such employee's
compensation. Benefits payable under the plan are limited to the amount of plan
assets allocable to the account of each plan participant. The Company retains
the right to modify, amend or terminate the plan at any time. During 1996, 1995
and 1994, the Company and its eligible subsidiaries made matching contributions
of $134,000, $116,000, and $100,000, respectively, to the plan.
(14) Stock Option Plans
The Company has reserved 175,000 shares of its common stock for issuance to key
management, professional employees and directors under The Beard Company 1993
Stock Option Plan (the "1993 Plan") adopted in August 1993. The 1993 Plan is
administered by the Compensation and Stock Option Committee (the "Committee")
of the Board of Directors. The option price is determined by the Committee but
cannot be less than the fair market value of the common stock of the Company at
the date of grant for incentive stock options and 75% of fair market value of
the common stock for non-qualified options. All options have ten-year terms and
become exercisable one year after the date of grant at the rate of 25% each
year until fully exercisable. Directors who are not key management employees of
the Company or subsidiaries of the Company shall only be eligible to be granted
non-qualified stock options. At December 31, 1996, there were 22,500 additional
shares available for grant under the Plan.
The per share weighted-average fair value of stock options granted during 1996
was $1.66 on the date of grant using the Black Scholes option pricing model
with the following assumptions: no expected dividend yield, risk-free interest
rate of 6.73%, expected life of ten years, and expected volatility of 38.89%.
No options were granted in 1995.
The Company applies APB Opinion No. 25 in accounting for its stock options and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
net loss and net loss per common share would not have been materially different
than the 1996 amounts reflected in the accompanying statements of operations.
Stock option activity during the periods indicated is as follows:
<PAGE> 40
<TABLE>
<CAPTION>
Number of Weighted-Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Balance at December 31, 1993 - $ -
Granted 145,000 2.01
Exercised - -
Forfeited - -
Expired - -
------- -----
Balance at December 31, 1994 145,000 $2.01
Granted - -
Exercised - -
Forfeited - -
Expired - -
------- -----
Balance at December 31, 1995 145,000 $2.01
Granted 12,500 2.63
Exercised (5,000) 2.00
Forfeited (5,000) 2.00
Expired - -
------- -----
Balance at December 31, 1996 147,500 $2.06
======= =====
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.00 - $2.63 and eight
years, respectively.
At December 31, 1996 and 1995, the number of options exercisable was 67,500 and
36,250 respectively, and the weighted-average exercise price of those options
was $2.01 for both years.
(15) 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.
The Company has contracts, which expire in April 2000, to purchase liquid CO2.
The contracts require that the Company purchase the lesser of 46,000 tons of
liquid CO2 or 50% of the Company's combined liquid CO2 requirements for certain
plants. The purchase price of the liquid CO2 is based on the contracts' base
year price adjusted annually for inflation. As of December 31, 1996, the
Company has estimated it will be required to purchase a minimum of $3,488,000
of liquid CO2 through the expiration date of the contracts. The Company's
required purchases under such contracts during each of the years ended December
31, 1996, 1995, and 1994 totaled $1,194,000, $801,000, and $856,000,
respectively.
(16) Business Segment Information
The Company operates principally within two industry segments: (1) the
manufacture and distribution of dry ice (solid CO2) and the production of
carbon dioxide ("CO2"); and (2) environmental/resource recovery.
The Company's carbon dioxide operations are comprised of its 85% owned
subsidiary, Carbonic Reserves, which owns a carbon dioxide liquification and
purification plant, five dry ice plants, 13 distribution centers, and operates
a sixth dry ice plant under a contractual arrangement. Carbon dioxide
operations are conducted in Arkansas, Colorado, Kansas, Missouri, New Mexico,
Oklahoma, Texas and Wyoming. Many of these operations are conducted in leased
premises. Also included in carbon dioxide operations is the ownership of
interests in two carbon dioxide producing units. The operations of the
environmental/resource recovery segment are conducted through two 80%-owned
subsidiaries, a 90%-owned subsidiary and a financially controlled subsidiary
headquartered in Oklahoma City, Oklahoma, as well as a wholly-owned subsidiary
headquartered in Pittsburgh, Pennsylvania.
The Company operates principally in only one geographic area, the United
States. Thus, all of its segment operations are domestic and it has no
significant export sales.
The Company and its subsidiaries grant credit, in the normal course of
business, to various entities within the industries they serve. Generally, no
collateral or other security is required of its customers. The Company and its
subsidiaries perform ongoing credit evaluations of its customers and maintain
allowances for potential bad debt losses.
Sales to unaffiliated customers, identifiable assets, depreciation, depletion
and amortization and additions to property, plant and equipment by industry
segment are presented in thousands of dollars:
<PAGE> 41
<TABLE>
<CAPTION>
Environmental/ Corporate
Carbon Resource and Consolidated
Dioxide Recovery Other Company
------- -------- -------- ------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated customers $13,608 $3,009 $ 66 $16,683
Operating profit (loss) 887 (757) (1,032) (902)
Depreciation, depletion and
amortization 1,008 267 34 1,309
Identifiable assets 9,475 3,268 3,730 16,473
Additions to property, plant and
equipment 1,978 1,138 15 3,131
1995
Sales to unaffiliated customers 11,915 3,026 71 15,012
Operating profit (loss) 502 (325) (992) (815)
Depreciation, depletion and
amortization 960 170 21 1,151
Identifiable assets 8,127 1,790 4,698 14,615
Additions to property, plant and
equipment 1,265 339 22 1,626
1994
Sales to unaffiliated customers 10,787 3,212 124 14,123
Operating profit (loss) 300 (254) (961) (915)
Depreciation, depletion and
amortization 933 147 17 1,097
Identifiable assets 7,708 1,218 4,930 13,856
Additions to property, plant and
equipment 1,252 352 46 1,650
</TABLE>
<PAGE> 42
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable
PART III
Item 10. Directors, Executive Officers and Significant Employees of the
Registrant.
The directors, executive officers and significant employees of the Company
are identified below. The table sets forth the age, positions with the Company
and the year in which each person became a director, executive officer or
significant employee. All positions are held with the Company unless otherwise
indicated.
<TABLE>
<CAPTION>
Director, Executive
Officer or Significant
Employee of Beard
Name Position or Beard Oil Since Age
- ---- -------- ---------------------- ---
<S> <C> <C> <C>
W. M. Beard Chairman of the Board,
Chief Executive Officer
and Director (a) June 1969 68
Herb Mee, Jr. President,
Chief Financial Officer
and Director (a) November 1973 68
Allan R. Hallock Director December 1986 67
W. R. Plugge Director September 1986 72
Ford C. Price Director March 1988 59
Michael E. Carr Director (b) February 1994 61
Clifford H.
Collen, Jr. President - Carbonic
Reserves (c,f) August 1987 40
Marc A. Messner President - Whitetail
Services, Inc. (d,f) &
Horizontal Drilling
Technologies, Inc. (d,f) February 1997 34
Philip R. Jamison President - Beard
Technologies, Inc. (e,f) February 1997 58
Philip W. Stack Vice President -
Corporate Development
and Treasurer (a) January 1982 50
Jack A. Martine Controller and Chief
Accounting Officer October 1996 47
</TABLE>
- ---------------
(a) Director of the Company.
(b) Trustee of certain assets of the Company's 401(k) Trust.
(c) Devotes all of his time to Carbonic Reserves.
(d) Devotes all of his time to these two subsidiaries.
(e) Devotes all of his time to Beard Technologies, Inc.
(f) Indicated entities are subsidiaries of the Registrant.
The executive officers and other officers of the Company serve at the
pleasure of the Board of Directors.
W. M. Beard has served Beard as its Chairman of the Board and Chief Executive
Officer since December 1992. He previously served as Beard's President and
Chief Executive Officer from the Company's incorporation in October 1974 until
January 1985. He has served Beard Oil as its Chairman of the Board and Chief
Executive Officer since its incorporation. He has also served as a director of
Beard and Beard Oil since their incorporation. Mr. Beard has been actively
involved since 1952 in all management phases of Beard and Beard Oil from their
inception, and as a partner of their predecessor company.
Herb Mee, Jr. has served as Beard's President since October 1989 and as its
Chief Financial Officer since June 1993. He has served as Beard Oil's President
since its incorporation, and as its Chief Financial Officer since June 1993. He
has also served as a director of Beard and Beard Oil since their incorporation.
Mr. Mee served as President of Woods Corporation, a New York Stock Exchange
diversified holding company, from 1968 to 1972 and as its Chief Executive
Officer from 1970 to 1972. He serves as a director of Liberty Bancorp, Inc.
("LBNA") and of its two principal banking subsidiaries. LBNA is a publicly-held
company (OTC).
Allan R. Hallock was elected a director of Beard in July 1993. He served as
<PAGE> 43
a director of Beard Oil from December 1986 until October 1993. Mr. Hallock
is currently an independent consulting geologist. He served as Vice President
and Exploration Manager of Gemini Corporation from 1970 until December 1986.
W. R. Plugge was elected a director of Beard in July 1993. He served as a
director of Beard Oil from September 1986 until October 1993. Mr. Plugge was
with Stanford Research Institute, a non-profit research corporation, from 1976
until his retirement in 1988, last serving as Vice President-International
Operations. He is a private investor, and also serves as a director of Computer
Horizons Inc., a publicly-held company (OTC).
Ford C. Price was elected a director of Beard in July 1993. He served as a
director of Beard Oil from June 1987 until October 1993. From 1961 until 1986
Mr. Price served in various capacities with The Economy Company, a
privately-held schoolbook publishing company, last serving as its Chairman of
the Board and Chief Executive Officer. Mr. Price is a private investor.
Michael E. Carr was elected by the preferred stockholders to serve as their
representative on the Board of Directors of Beard in February 1994. Mr. Carr
served as Senior Vice President of Beard Oil from December 1986 until October
1993. He served as President and Chief Executive Officer of Sensor Oil & Gas,
Inc. ("Sensor") from October 1993 until August 1996. He presently serves as
President of Mica Energy Corp.
Philip W. Stack has served as Vice President - Corporate Development of Beard
since October 1993, and has served in such capacity for Beard Oil since August
1989. He had previously served in varying positions as an officer of Beard Oil
since its incorporation.
Jack A. Martine was elected as Controller, Chief Accounting Officer and Tax
Manager of Beard in October 1996. Mr. Martine served as tax manager for Beard
from June 1989 until October 1993 at which time he joined Sensor in a similar
capacity. Mr. Martine is a certified public accountant.
Clifford H. Collen, Jr. has served as President of Carbonic Reserves since he
and Beard Oil founded the company in August 1987. Mr. Collen has been associated
with the CO2 industry since 1979, working in various positions in the liquid
carbon dioxide business and also serving as president of an engineering and
consulting company in the industrial and carbon dioxide gas plant industry.
Marc A. Messner has served as President of HDT since he and another person
founded the company in July 1993. He was elected President of Whitetail in
November 1996. Mr. Messner has been associated with the environmental services
industry since 1989, last serving as a project manager for a large national
environmental consulting firm before leaving to start HDT.
Philip R. Jamison has served as President of BTI since August 1994. Mr.
Jamison has been associated with the coal industry since 1960, working in
various positions. From 1972 to 1977 he served as Vice President Operations for
International Carbon and Minerals and as President and CEO of all its coal
producing subsidiaries. From 1979 to 1988 he served as CEO of four small
companies which were engaged in the production and sales of coal. From 1993 to
1995 he served as a consultant to EI in connection with its development of the
Mulled Coal process, and installed and operated the process at the Alabama coal
preparation plant in connection with the DOE contract.
The directors of the Company have been elected to serve until the annual
stockholders' meeting to be held in the year indicated opposite their
respective names or until their successors are duly elected and qualified:
<TABLE>
<CAPTION>
Director Term
-------- ----
<S> <C>
Allan R. Hallock 1997
Ford C. Price 1997
Herb Mee, Jr. 1998
W. M. Beard 1999
W. R. Plugge 1999
Michael E. Carr (a)
</TABLE>
- ----------
(a) Will serve until his successor has been duly elected and qualified.
There is no family relationship between any of the directors or executive
officers of the Company. All executive officers hold office until the first
meeting of the Board of Directors following the next annual meeting of
stockholders or until their prior resignation or removal.
Compliance with Section 16(a) of the Securities Exchange Act of 1934. Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors
and executive officers, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities (collectively "reporting
persons"), to file with the Securities and Exchange Commission and the American
Stock Exchange initial reports of ownership and reports of changes in ownership
of common stock and other equity securities of the Company. Reporting persons
are required by the SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
To the Company's knowledge, based solely on information received from each
reporting person which includes written representations that no other reports
were required during the fiscal year ended December 31, 1996, all Section 16(a)
filing requirements applicable to its reporting persons were complied with.
Item 11. Executive Compensation.
The table on the next page sets forth the compensation paid or accrued during
each of the last three fiscal years by the Company and its subsidiaries to the
Company's Chief Executive Officer and each of the Company's other most highly
compensated executive officers (hereafter referred to as the named executive
officers), whose aggregate salary and bonus exceeded $100,000, for any of the
fiscal years ended December 31, 1996, 1995 or 1994:
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
---------------------------
Annual Compensation Awards Payouts
- ----------------------------------------------------- ------ -------
(a) (b) (c) (d) (g) (h) (i)
Securities
Underlying All Other
Options/ LTIP Compen-
Name and Salary (A) Bonus (B) SAR's Payouts sation (C)
Principal Position Year ($) ($) (#) ($) ($)
- ------------------ ---- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
W. M. Beard 1996 99,000(D) -0-(D) -0- $35,150(D) 5,031(D)
Chairman & CEO 1995 129,250(D) -0-(D) -0- $4,850(D) 6,462(D)
1994 132,000 2,050 50,000 -0- 6,703
Herb Mee, Jr. 1996 132,000 1,150 -0- -0- 6,658
President & CFO 1995 132,000 1,100 -0- -0- 6,655
1994 132,000 1,050 50,000 -0- 6,653
C. H. Collen, Jr. 1996 100,000 13,750 -0- -0- 5,688
President-Carbonic 1995 103,134 633 -0- -0- 5,179
Reserves 1994 72,184 581 -0- -0- 3,600
</TABLE>
- --------------
(A) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred pursuant to the Company's
401(k) Plan at the election of those officers.
(B) Bonus for length of service with Beard, Beard Oil or Carbonics.
(C) Consists of the Company's contribution to the Company's 401(k) Plan.
(D) In 1996 Mr. Beard deferred one-fourth ($33,000) of his salary and all
($2,150) of his bonus for the year; in 1995 he deferred one-fourth ($2,750) of
his December salary and all ($2,100) of his bonus for the year pursuant to the
Company's Deferred Stock Compensation Plan.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during the Company's
last fiscal year and unexercised options held as of the end of the last fiscal
year:
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Unexercised In-the-Money
Options at Options at
FY-END(#) FY-End ($)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- --------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
W. M. Beard -0- $ -0- 25,000/25,000 $21,094/$21,094
Herb Mee, Jr. -0- $ -0- 25,000/25,000 $21,875/$21,875
C. H. Collen, Jr. -0- $ -0- -0-/-0- $-0-/$-0-
</TABLE>
Compensation of Directors
Messrs. Hallock, Plugge, Price and Carr received compensation of $4,927,
$86, $1,909 and $8,450, respectively, for services rendered during 1996 as
directors of Beard, excluding $8,500, $8,850 and $8,750 of fees deferred by
Messrs. Hallock, Price and Plugge, respectively, under the Company's Deferred
Stock Compensation Plan. Currently, the non-management directors each receive
$500 per month for their services, and also receive the following fees for
directors' meetings which they attend: annual and 1-1/2 day meetings -- $750;
regular meeting -- $500; telephone meeting -- $100 to $300 depending upon
length of meeting. The non-management directors also receive a small year-end
bonus depending upon their length of service as directors of Beard and Beard
Oil. Accordingly, Messrs. Plugge, Hallock, Price and Carr received $500, $400,
$400, and $100, respectively, in 1996. All of the directors except Mr. Carr
elected to defer such bonuses pursuant to the Plan. Beard also provides health
and accident insurance benefits for its non-management directors who are not
<PAGE> 45
otherwise covered and the value of these benefits is included in the above
compensation amounts. None of the directors received additional compensation in
1996 for their committee participation.
The three eligible non-management directors (Messrs. Hallock, Plugge, and
Price) were each granted 5,000 phantom stock units (the "Units") under the
Company's 1994 Phantom Stock Units Plan on November 1, 1994. Mr. Carr was
awarded 5,000 Units when he became eligible on February 22, 1995. All awards
were based on an award price of $2.00* per share and vest over a five year
period at the rate of 20% per year. Each participant has the option of
receiving payment for his award: (i) as it vests; (ii) at the conclusion of
the award period; or (iii) 50% as it vests, with the other 50% deferred to the
conclusion of the award period. Payments are based upon appreciation in the
market value of the Company's common stock during the appropriate time interval
selected.
- ---------------
*The market value on November 1, 1994 was $1.875 per share; on February 22,
1995 it was $1.75 per share.
Compensation Committee Interlocks and Insider Participation
Michael E. Carr, who has been elected by the preferred shareholders to serve
as their representative on the Board of Directors, was elected to serve as a
member of the Compensation Committee on April 26, 1994. Mr. Carr served as
Senior Vice President of Beard Oil from December 1986 until October 1993.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The table on the next page sets forth the name and address of each
shareholder who is known to the Company to own beneficially more than 5% of
Beard's outstanding common stock or preferred stock, the number of shares
beneficially owned by each and the percentage of outstanding common or
preferred stock so owned as of February 28, 1997. Unless otherwise noted, the
person named has sole voting and investment powers over the shares reflected
opposite his name.
<PAGE> 46
<TABLE>
<CAPTION>
Combined
Number of Number of Common
Preferred Common and
Shares and Shares and Preferred
Nature of Percent Nature of Percent Voting
Name and Address Ownership of Class Ownership of Class Percentage
---------------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
John Hancock Mutual Life 42,427.10 47.06% 312,040(1)(2) 11.15%(2) 16.24%(3)
Insurance Company ("Hancock")
57th Floor
200 Clarendon Street
Boston, Massachusetts 02117
The Beard Group 401(k) Plan
("Plan")
c/o The Liberty Bank and Trust
Company, Trustee None 0.00% 301,605(4) 10.78% 9.25%
100 N. Broadway Avenue
Oklahoma City, OK 73102
W. M. Beard None 0.00% 809,672(5) 28.67% 24.64%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Lu Beard None 0.00% 233,998(6) 8.36% 7.17%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
Warren B. Kanders 25,188.76 27.94% 174,274(2) 6.23%(2) 9.30%(3)
2100 South Ocean Boulevard
Suite 302 North
Palm Beach, FL 33480
Herb Mee, Jr. None 0.00% 233,079(7) 8.25% 7.09%
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, OK 73112
</TABLE>
- -----------------
(1) Shares are held by Hancock on behalf of itself and affiliated entities.
(2) Excludes the Beard preferred shares which will collectively become
convertible into 14.18% of the outstanding common stock (after conversion) on
January 1, 2003 to the extent not previously redeemed or converted.
(3) The preferred shareholders collectively own 663,084 common shares and
1,125,528 common equivalent shares (34.51%), after giving effect to the
conversion of their 90,155.86 preferred shares.
(4) Shares held by the Plan are owned by the participating employees, each of
whom has sole voting and investment power over the shares held in his or her
account. Includes 96,867.00, 121,631.70 and 25,552.18 shares held for the
accounts of Messrs. Beard, Mee and Collen, respectively, and 573.23 shares held
for the accounts of other executive officers.
(5) Includes 368,685 shares owned directly by Mr. Beard as to which he has sole
voting and investment power; 232,319 shares (or 8.30%) owned by the William M.
Beard and Lu Beard 1988 Charitable Unitrust (the "1988 Unitrust"), of which Mr.
Beard and his wife, Lu Beard, serve as co-trustees and share voting and
investment power; 16,666 shares each held by the William M. Beard Irrevocable
Trust "A," the William M. Beard Irrevocable Trust "B," and the William M. Beard
Irrevocable Trust "C" (collectively, the "Beard Irrevocable Trusts") of which
Messrs. Beard and Herb Mee, Jr. are trustees and share voting and investment
power; 6,738 shares each held by the John Mason Beard II Trust, the Joseph G.
Beard Trust and the Rebecca Banner Beard Trust as to which Mr. Beard is the
trustee and has sole voting and investment power; 3,256 shares held by the
Rebecca Banner Beard Lilly Living Trust as to which Mr. Beard is a co-trustee
and shares voting and investment power with his daughter; 96,867.00 shares held
by The Beard Group 401(k) Trust (the "401(k) Trust") for the account of Mr.
Beard as to which he has sole voting and investment power; and 13,333 shares
held by B & M Limited, a general partnership, of which Mr. Beard is a general
partner and shares voting and investment power with Mr. Mee. Also includes
25,000 shares subject to presently exercisable options. Excludes 1,679 shares
owned by his wife as to which Mr. Beard disclaims beneficial ownership. Also
excludes 41,228 shares held by four separate trusts for the benefit of Mr.
Beard's children.
(6) Represents 232,319 shares owned by the 1988 Unitrust, of which Mr. Beard
and Mrs. Beard serve as co-trustees and share voting and investment power. Also
<PAGE> 47
includes 1,679 shares owned directly by Mrs. Beard as to which she has sole
voting and investment power.
(7) Includes 16,450 shares owned directly by Mr. Mee as to which he has sole
voting and investment power; 6,666 shares held by Mee Investments, Inc., as to
which Mr. Mee has sole voting and investment power; 13,333 shares held by B & M
Limited as to which Mr. Mee shares voting and investment power with Mr. Beard
but as to which Mr. Mee has no present economic interest; and 121,631.70 shares
held by the 401(k) Trust for the account of Mr. Mee as to which he has sole
voting and investment power. Also includes 16,666 shares each held by the Beard
Irrevocable Trusts as to which Mr. Mee is a co-trustee and shares voting and
investment power with Mr. Beard but as to which Mr. Mee has no pecuniary
interest and disclaims beneficial ownership. Also includes 25,000 shares
subject to presently exercisable options. Excludes 45 shares owned by his wife,
Marlene W. Mee, as to which Mr. Mee disclaims beneficial ownership.
Security Ownership of Management
The following table sets forth certain information regarding the number of
shares of Beard common stock beneficially owned by each director and nominee,
the Chief Executive Officer ("CEO"), each named executive officer and by all
directors and executive officers as a group and the percentage of outstanding
common stock so owned as of February 28, 1997.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Name and Address Ownership of Class
---------------- ---------- --------
<S> <C> <C>
W. M. Beard 809,672(1) 28.67%
Herb Mee, Jr. 233,079(2) 8.25%
Allan R. Hallock 40,458(3) 1.45%
Michael E. Carr 28,643 1.02%
Ford C. Price 8,665(4) ---(8)
W. R. Plugge 2,000 ---(8)
C. H. Collen, Jr 42,602(5) 1.52%
Marc A. Messner 50,000 1.79%
Philip R. Jamison 240(6) ---(8)
All directors and executive
officers as a group (11 in number) 1,165,291(7) 40.76%
</TABLE>
- -----------------
(1) See footnote (5) to table "Security Ownership of Certain Beneficial
Owners."
(2) See footnote (7) to table "Security Ownership of Certain Beneficial
Owners."
(3) Reflects shares owned by A. R. Hallock & Co., a partnership, as to which
Mr. Hallock shares voting and investment power with his wife.
(4) Includes 5,399 shares owned directly by Mr. Price as to which he has sole
voting and investment power and 3,266 shares held by an IRA for the benefit of
Mr. Price as to which he has sole voting and investment power.
(5) Includes 17,050 shares owned directly by Mr. Collen as to which he has sole
voting and investment power and 25,552.18 shares held by the 401(k) Trust for
the account of Mr. Collen as to which he has sole voting and investment power.
(6) Represents Mr. Jamison's 20% vested interest in the 1,203 shares owned for
his account in the 401(k) Trust; Mr. Jamison has sole voting and investment
power as to such shares.
(7) Includes 825,927 shares as to which directors and executive officers have
sole voting and investment power and 339,364 shares as to which they share
voting and investment power with others.
(8) Reflects ownership of less than one (1) percent.
<PAGE> 48
Item 13. Certain Relationships and Related Transactions.
In September 1995, William M. Beard and Lu Beard, as trustees of the William
M. Beard and Lu Beard 1988 Charitable Unitrust (the "Unitrust") agreed to loan
the Company up to $250,000 under a revolving loan arrangement for a period of
one year. In March 1996, the Unitrust extended the maturity of such note to
October 1997; in October 1996 the credit line was increased to $500,000 and the
maturity was extended to March 1998. In February 1997 the maturity was extended
to February 1999. Various advances and repayments have been made under such
arrangement, and at year-end 1996 the principal balance due was $455,000. The
loan is unsecured and bears interest at the rate of 10% per annum.
In December 1995 the William M. Beard Irrevocable Trust "B" and the William
M. Beard Irrevocable Trust "C" agreed to loan $130,000 and $95,000,
respectively, to the Company for a period of one year. In March 1996, the
Trusts extended the maturity of such notes to October 1997. In February 1997
the maturity was extended to February 1999 and the principal amount of the
loans were increased to $140,000 and $105,000, respectively. Loans of $130,000
and $95,000, respectively, were outstanding pursuant to such arrangement as of
year-end 1996. The loans are unsecured and bear interest at the rate of 10% per
annum.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. Reference is made to the Index to Financial
Statements and Financial Statement Schedules appearing at
Item 8 on Page 26 of the report.
2. Financial Statement Schedules.
The financial statements of North American Brine Resources, a 40%
owned investee of Beard, as of December 31, 1996, and 1995 and for
each of the years in the three-year period ended December 31,
1996, are filed as a financial statement schedule.
Schedule II - Valuation and Qualifying Accounts
3. Exhibits. The following exhibits are filed with this Form 10-K and
are identified by the numbers indicated:
2 Agreement and Plan of Reorganization by and among Registrant, Beard Oil
Company ("Beard Oil") and New Beard, Inc., dated as of July 12, 1993 (see
Addendum A to Part I, which is incorporated herein by reference;
schedules to the Agreement have been omitted). (This Exhibit has been
previously filed as Exhibit 3(b), filed on July 27, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same is
incorporated by reference).
3(i) Amended and Restated Certificate of Incorporation of Registrant as filed
with the Secretary of State of Oklahoma on August 25, 1993. (This Exhibit
has been previously filed as Exhibit 3(a) to Amendment No. 1, filed on
September 3, 1993 to Registrant's Registration Statement on Form S-4,
File No. 33-66598, and same is incorporated by reference).
3(ii) Registrant's Restated By-Laws (as amended January 11, 1996). (This
Exhibit has been previously filed as Exhibit 3(ii) to Registrant's Form
10-K for the period ended December 31, 1995, filed on April 1, 1996, and
same is incorporated by reference).
4 Instruments defining the rights of security holders:
4(a) Agreement of Sale and Purchase by and among Beard Oil and Sensor Oil &
Gas, Inc. ("Sensor"). (This Exhibit has been previously filed as
Addendum B to Amendment No. 1, filed on September 3, 1993 to Registrant's
Registration Statement on Form S-4, File No. 33-66598, and same is
incorporated by reference).
<PAGE> 49
4(b) Certificate of Designations, Powers, Preferences and Relative,
Participating, Option and Other Special Rights, and the Qualifications,
Limitations or Restrictions Thereof of the Series A Convertible Voting
Preferred Stock of the Registrant. (This Exhibit has been previously
filed as Exhibit 3(c) to Amendment No. 2, filed on September 17, 1993 to
Registrant's Registration Statement on Form S-4, File No. 33-66598, and
same is incorporated by reference).
4(c) Stock Purchase Agreement by and among Registrant, Beard Oil, New York
Life Insurance Company ("NYL"), New York Life Insurance and Annuity
Company ("NYLIAC"), John Hancock Mutual Life Insurance Company ("Hancock")
and Memorial Drive Trust ("MDT"), dated July 12, 1993 (see Addendum C to
Part I which is incorporated herein by reference; schedules to the
Agreement have been omitted). (This Exhibit has been previously
filed as Exhibit 10(g) to Amendment No. 1, filed on September 3,
1993 to Registrant's Registration Statement on Form S-4,
File No. 33-66598, and same is incorporated by reference).
4(d) Settlement Agreement, with Certificate of Amendment attached thereto, by
and among Registrant, Beard Oil, NYL, NYLIAC, Hancock, MDT and Sensor,
dated as of April 13, 1995. (This Exhibit has been previously filed as
Exhibit 4(g) to Registrant's Form 10-K for the period ended December 31,
1994 and same is incorporated by reference).
4(e) Promissory Note from Carbonics to John Hancock Leasing Corporation
("JHLC") dated July 1, 1991. (This Exhibit has been previously filed as
Exhibit 4(f) to Registrant's Form 10-K for the period ended December 31,
1993 and same is incorporated by reference).
4(f) Security Agreement from Carbonics to JHLC dated June 11, 1991. (This
Exhibit has been previously filed as Exhibit 4(g) to Registrant's Form
10-K for the period ended December 31, 1993 and same is incorporated by
reference).
4(g) Guarantee from Registrant to JHLC dated July 1, 1991. (This Exhibit has
been previously filed as Exhibit 4(h) to Registrant's Form 10-K for the
period ended December 31, 1993 and same is incorporated by reference).
4(h) Loan Agreement by and among Registrant, Carbonics and Liberty Bank &
Trust Company of Oklahoma City, N.A. ("Liberty"), effective May 19, 1995.
(This Exhibit has been previously filed as Exhibit 4(n) to Registrant's
Form 10-Q for the period ended June 30, 1995, filed on August 7, 1995,
and same is incorporated by reference).
4(i) First Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated November 13, 1995. (This Exhibit has been previously filed
as Exhibit 4(r) to Registrant's Form 10-Q for the period ended March 31,
1996, filed on May 3, 1996, and same is incorporated by reference).
4(j) Second Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated effective March 12, 1996. (This Exhibit has been
previously filed as Exhibit 4(s) to Registrant's Form 10-Q for the period
ended March 31, 1996, filed on May 3, 1996, and same is incorporated by
reference).
4(k) Third Amendment to Loan Agreement by and among Registrant, Carbonics and
Liberty, dated effective April 30, 1996. (This Exhibit has been
previously filed as Exhibit 4.1 to Registrant's Form 10-Q for the period
ended June 30, 1996, filed on August 14, 1996, and same is incorporated
by reference).
4(l) Amended and Restated Loan Agreement by and among Registrant, Carbonics
and Liberty, dated as of October 31, 1996.
4(m) Letter Agreement for Construction Guidance Line of Credit between
Registrant d/b/a The Oaks Venture and Liberty, dated July 17, 1995. (This
Exhibit has been previously filed as Exhibit 4(o) to Registrant's Form
10-Q for the period ended June 30, 1995, filed on August 7, 1995, and
same is incorporated by reference).
4(n) Letter Agreement for Construction Guidance Line of Credit between
Registrant d/b/a The Oaks Venture and Liberty, dated effective March 21,
1996. (This Exhibit has been previously filed as Exhibit 4(t) to
Registrant's Form 10-Q for the period ended March 31, 1996, filed on May
3, 1996, and same is incorporated by reference).
4(o) Promissory Note from Registrant to the Trustees of the William M. Beard
and Lu Beard 1988 Charitable Unitrust (the "Trustees") dated September
20, 1995. (This Exhibit has been previously filed as Exhibit 4(o) to
Registrant's Form 10-K for the period ended December 31, 1995, filed on
April 1, 1996, and same is incorporated by reference).
<PAGE> 50
4(p) Extension and Renewal Promissory Note from Registrant to the Trustees
dated March 31, 1996. (This Exhibit has been previously filed as Exhibit
4(u) to Registrant's Form 10-Q for the period ended March 31, 1996, filed
on May 3, 1996, and same is incorporated by reference).
4(q) Amended and Restated Renewal Promissory Note from Registrant to the
Trustees dated October 11, 1996.
4(r) Amended and Restated Renewal Promissory Note from Registrant to the
Trustees dated February 17, 1997.
4(s) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "B" (the "B Trust") dated December 27, 1995. (This
Exhibit has been previously filed as Exhibit 4(p) to Registrant's Form
10-K for the period ended December 31, 1995, filed on April 1, 1996, and
same is incorporated by reference).
4(t) Extension and Renewal Promissory Note from Registrant to the B Trust
dated March 31, 1996. (This Exhibit has been previously filed as Exhibit
4(v) to Registrant's Form 10-Q for the period ended March 31, 1996, filed
on May 3, 1996, and same is incorporated by reference).
4(u) Amended and Restated Renewal Promissory Note from Registrant to the B
Trust dated February 17, 1997.
4(v) Promissory Note from Registrant to the Trustee of the William M. Beard
Irrevocable Trust "C" (the "C" Trust") dated December 27, 1995. (This
Exhibit has been previously filed as Exhibit 4(q) to Registrant's Form
10-K for the period ended December 31, 1995, filed on April 1, 1996, and
same is incorporated by reference).
4(w) Extension and Renewal Promissory Note from Registrant to the C Trust
dated March 31, 1996. (This Exhibit has been previously filed as Exhibit
4(w) to Registrant's Form 10-Q for the period ended March 31, 1996, filed
on May 3, 1996, and same is incorporated by reference).
4(x) Amended and Restated Renewal Promissory Note from Registrant to the C
Trust dated February 17, 1997.
10 Material contracts:
10(a) The Beard Company 1993 Stock Option Plan dated August 27, 1993. (This
Exhibit has previously been filed as Exhibit 10(f) to Amendment No. 1,
filed on September 3, 1993 to Registrant's Registration Statement on
Form S-4, File No. 33-66598, and same is incorporated by reference).*
10(b) The Beard Company 1994 Phantom Stock Units Plan adopted November 1, 1994.
(This Exhibit has been previously filed as Exhibit 10(h) to Registrant's
Form 10-K for the period ended December 31, 1994, filed on April 17,
1995, and same is incorporated by reference).*
10(c) Stockholders' Agreement made as of January 27, 1993 by and among
Registrant, Carbonics and Clifford Collen, Jr. ("Collen"). (This
Exhibit has been previously filed as Exhibit 10(i) to Registrant's
Form 10-K for the period ended December 31, 1994, filed on April 17,
1995, and same is incorporated by reference).*
10(d) Stock Purchase Agreement dated as of December 15, 1991 by and among
Registrant (formerly known as Beard Investment Company), Carbonics and
Collen. (This Exhibit has been previously filed as Exhibit 10.9 of Item
14(a) to Beard Oil's Form 8, Amendment No. 1, Form 10-K for the fiscal
year ended December 31, 1991 and same is incorporated herein by
reference).*
10(e) Conversion Agreement dated as of January 31, 1995 by and among
Registrant, Carbonics and Collen. (This Exhibit has been previously filed
as Exhibit 10(k) to Registrant's Form 10-K for the period ended December
31, 1994, filed on April 17, 1995, and same is incorporated herein by
reference).*
10(f) Employment Agreement dated April 3, 1995 by and among Registrant,
Carbonics, Collen and Beard Oil. (This Exhibit has been previously filed
as Exhibit 10(l) to Registrant's Form 10-K for the period ended December
31, 1994, filed on April 17, 1995, and same is incorporated herein by
reference).*
10(g) The Beard Company Deferred Stock Compensation Plan. (This Exhibit has been
previously filed as Exhibit 10(k) to Registrant's Form 10-K for the
period ended December 31, 1995, filed on April 1, 1996, and same is
incorporated by reference).*
<PAGE> 51
- ------------------
* Compensatory plan or arrangement.
10(h) Subscription Agreement by and between Cibola Corporation ("Cibola") and
Registrant, dated April 10, 1996. (This Exhibit has been previously filed
as Exhibit 10.1 to Registrant's Form 10-Q for the period ended June 30,
1996, filed on August 14, 1996, and same is incorporated by reference).
10(i) Nonrecourse Secured Promissory Note from Registrant to Cibola, dated
April 10, 1996. (This Exhibit has been previously filed as Exhibit 10.2
to Registrant's Form 10-Q for the period ended June 30, 1996, filed on
August 14, 1996, and same is incorporated by reference).
10(j) Security Agreement by and among Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996. (This Exhibit has been previously
filed as Exhibit 10.3 to Registrant's Form 10-Q for the period ended June
30, 1996, filed on August 14, 1996, and same is incorporated by
reference).
10(k) Tax Sharing Agreement by and among Registrant, Cibola and the Cibola
shareholders, dated April 10, 1996. (This Exhibit has been previously
filed as Exhibit 10.4 to Registrant's Form 10-Q for the period ended June
30, 1996, filed on August 14, 1996, and same is incorporated by
reference).
21 Subsidiaries of the Registrant.
23 Consents of KPMG Peat Marwick LLP.
27 Financial Data Schedules
The Company will furnish to any shareholder a copy of any of the above
exhibits upon the payment of $.25 per page. Any request should be sent to The
Beard Company, Enterprise Plaza, Suite 320, 5600 North May Avenue, Oklahoma
City, Oklahoma 73112
(b) No reports on Form 8-K were filed by the Company during the three months
ended December 31, 1996.
<PAGE> 52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
THE BEARD COMPANY
(Registrant)
HERB MEE, JR.
DATE: September 11, 1997 Herb Mee, Jr.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
W.M. BEARD
W.M. Beard Chief Executive Officer September 11, 1997
HERB MEE, JR.
Herb Mee, Jr. President and Chief September 11, 1997
Financial Officer
JACK A. MARTINE
Jack A. Martine Controller and Chief September 11, 1997
Accounting Officer
W.M. BEARD
W.M. Beard Chairman of the Board September 11, 1997
HERB MEE, JR.
Herb Mee, Jr. Director September 11, 1997
ALLAN R. HALLOCK
Allan R. Hallock Director September 11, 1997
FORD C. PRICE
Ford C. Price Director September 11, 1997
MICHAEL E. CARR
Michael E. Carr Director September 11, 1997
</TABLE>
<PAGE> 53
FINANCIAL STATEMENT SCHEDULE 1
NORTH AMERICAN BRINE RESOURCES
FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT AUDITORS' REPORT ON 1996)
<PAGE> 54
INDEPENDENT AUDITORS' REPORT
The Partners
North American Brine Resources:
We have audited the accompanying balance sheet of North American Brine
Resources as of December 31, 1996, and the related statements of operations,
partners' equity, and cash flows for the year then ended. These financial
statements are the responsibility of North American Brine Resources'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of North American Brine Resources
as of December 31, 1996, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
April 22, 1997
<PAGE> 55
NORTH AMERICAN BRINE RESOURCES
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 208,205 64,263
Accounts receivable 2,978 539
Inventory:
Raw materials 10,171 13,854
Work-in-process 70,594 4,691
Finished goods 383,864 21,857
------------ ------------
464,629 40,402
Supplies 58,200 84,700
Prepaid expenses 40,022 50,788
Other current assets 4,177 4,177
------------ ------------
Total current assets 778,211 244,869
------------ ------------
Property, plant and equipment 7,863,304 7,590,142
Less accumulated depletion, depreciation, and amortization 4,116,866 3,841,482
------------ ------------
Net property, plant and equipment 3,746,438 3,748,660
------------ ------------
$ 4,524,649 3,993,529
============ ============
Liabilities and Partners' Equity
--------------------------------
Current liabilities:
Accounts payable and accrued expenses 390,637 121,861
Deferred revenue 100,000 --
Current maturities of long-term debt 90,000 --
------------ ------------
Total current liabilities 580,637 121,861
------------ ------------
Long-term debt less current maturities 540,000 --
Partners' equity:
Partners' contributions 7,062,610 7,062,610
Accumulated deficit (3,658,598) (3,190,942)
------------ ------------
Net partners' equity 3,404,012 3,871,668
------------ ------------
$ 4,524,649 3,993,529
============ ============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 56
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Iodine sales $ 271,080 299,550 218,250
Less sales discounts and commissions 8,208 17,227 7,712
---------- ---------- ----------
Net iodine sales 262,872 282,323 210,538
Cost of iodine sales 160,960 179,912 162,962
---------- ---------- ----------
Gross margin 101,912 102,411 47,576
---------- ---------- ----------
Operating expense (30,478) (14,236) (22,124)
General and administrative expense (171,974) (122,263) (132,276)
Interest expense (7,063) -- --
Idled plant costs (119,631) (230,762) (273,624)
Plant re-opening costs (213,970) -- --
Reduction of supplies' carrying value to net
replacement cost (26,500) -- --
Other income 48 1,119 3,754
---------- ---------- ----------
(569,568) (366,142) (424,270)
---------- ---------- ----------
Net loss $ (467,656) (263,731) (376,694)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 57
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF PARTNERS' EQUITY
<TABLE>
<CAPTION>
GODOE The Inorgchem
(USA), Beard Developments
Inc. Company Inc. Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 (Unaudited) $ 2,274,853 1,789,792 447,448 4,512,093
Net loss (188,347) (150,678) (37,669) (376,694)
------------ ------------ ------------ ------------
Balance, December 31, 1994 (Unaudited) 2,086,506 1,639,114 409,779 4,135,399
Net loss (131,867) (105,491) (26,373) (263,731)
------------ ------------ ------------ ------------
Balance, December 31, 1995 (Unaudited) 1,954,639 1,533,623 383,406 3,871,668
Net loss (233,828) (187,062) (46,766) (467,656)
------------ ------------ ------------ ------------
Balance, December 31, 1996 $ 1,720,811 1,346,561 336,640 3,404,012
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 58
NORTH AMERICAN BRINE RESOURCES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (467,656) (263,731) (376,694)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depletion, depreciation, and amortization expense 293,806 166,701 174,231
Reduction in carrying value of supplies 26,500 -- --
Decrease (increase) in accounts receivable (2,439) 70,191 4,212
Increase in accounts payable and
accrued expenses 268,776 34,253 38,396
Increase in deferred revenue 100,000 -- --
Increase in inventory (424,227) (4,283) (3,193)
Decrease (increase) in prepaid expenses and
other current assets 10,766 (826) (12,477)
---------- ---------- ----------
Net cash provided by (used in) operating
activities (194,474) 2,305 (175,525)
---------- ---------- ----------
Cash flows from investing activities:
Purchase of plant and equipment (54,722) -- --
Development of producing properties (236,862) -- --
---------- ---------- ----------
Net cash used in investing activities (291,584) -- --
Cash flows from financing activities: --
Proceeds from credit agreements 630,000 -- --
---------- ---------- ----------
Net cash provided by financing activities 630,000 -- --
Net increase (decrease) in cash and cash equivalents 143,942 2,305 (175,525)
Cash and cash equivalents at beginning of year 64,263 61,958 237,483
---------- ---------- ----------
Cash and cash equivalents at end of year $ 208,205 64,263 61,958
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 59
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(INFORMATION AS OF DECEMBER 31, 1995 AND 1994 AND
FOR THE YEARS THEN ENDED IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
North American Brine Resources (NABR) was formed on June 5, 1981, as a
joint venture of GODOE (USA), Inc., The Beard Company, and Inorgchem
Developments, Inc. The participants make capital contributions and share
in the profits and losses of NABR as follows:
GODOE (USA), Inc. 50%
The Beard Company 40%
Inorgchem Developments, Inc. 10%
NABR operates two crude iodine extraction and processing plants in Dover
and Woodward, Oklahoma. All of NABR's revenues consist of sales of crude
iodine to Mitsui and Co. (USA), Inc. (see note 5).
In 1993, the Management Committee of NABR approved an indefinite
suspension of the Woodward, Oklahoma plant's operations. The suspension
was in response to a world oversupply of iodine which resulted in a
decline of iodine prices to unprofitable levels.
In June 1996, the Management Committee of NABR approved a plan to resume
operations at the Woodward, Oklahoma plant based on their assessment of
world supply and demand of iodine which has resulted in increased prices.
In the opinion of management, the accompanying unaudited financial
statements as of December 31, 1995 and 1994, and for the years then ended,
reflect adjustments (all of which were normal and recurring) which, in the
opinion of management, are necessary for a fair statement of the financial
position and the results of operations and cash flows for the periods
mentioned above.
CASH AND CASH EQUIVALENTS
NABR considers certificates of deposit and other similar securities, whose
remaining terms at date of purchase are less than 90 days, to be cash
equivalents.
INVENTORIES
Raw materials, work in process, and finished goods inventories are valued
at the lower of cost (on average cost basis) or market. Raw materials
consist of chemicals used in the extraction of iodine. At December 31,
1996 and 1995, finished goods inventory consisted of approximately 27,000
and 2,800 kilograms, respectively, of crude iodine.
SUPPLIES
Supplies represent various replacement parts for NABR's producing
properties and plant equipment. Supplies are carried at the lower of cost
or net replacement cost.
6
<PAGE> 60
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Expenditures for acquisition,
renewals and betterments are capitalized, whereas maintenance and repair
costs are expensed as incurred. When properties are retired or otherwise
disposed of, the appropriate accounts are relieved of costs and
accumulated depreciation and any resulting gain or loss is credited or
charged to operations.
Depreciation is provided on the straight-line method over periods of three
to ten years.
Producing properties represent NABR's cost of drilling and equipping wells
producing salt water for the extraction of brine and salt water disposal
wells, and the leasehold costs of such properties. Depreciation,
depletion, and amortization of producing properties is computed by the
straight-line method using an estimated recoverable period of ten years
for salt water brine reserves.
During the suspended operations of the Woodward, Oklahoma plant (1995,
1994, and 1993), NABR recorded 25% of the depletion, depreciation and
amortization of the salt water wells' leasehold, development, and
equipment costs and the plant's capitalized costs using the straight-line
method and a 10 year useful life. Upon the approval to resume the
Woodward, Oklahoma plant's operations in June 1996, NABR resumed recording
100% of the depletion, depreciation and amortization.
NABR adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," on January 1, 1996. This
Statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the
assets. Adoption of this Statement did not have a material impact on
NABR's financial position or results of operations.
DEFERRED REVENUE
Deferred revenue represents amounts received from Mitsui for future
deliveries of crude iodine (see note 5).
INCOME TAXES
No provision for income taxes is required in the financial statements
since the partners pay income taxes on, or receive as a deduction, their
distributive share of NABR's taxable income or losses.
IDLED PLANT COSTS
As previously noted, NABR suspended operations of the Woodward, Oklahoma
iodine extraction and processing plant in 1993. Included in idled plant
costs are the depreciation, depletion and amortization costs as well as
other costs incurred during the plant's suspended operations through
October 1996, the date the plant's operations resumed.
7
<PAGE> 61
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PLANT RE-OPENING COSTS
Plant re-opening costs represent costs incurred for readying the Woodward,
Oklahoma producing salt water wells and plant for resumed operations.
USE OF ESTIMATES
Management of NABR has made a number of estimates and assumptions relating
to the reporting of assets and liabilities to prepare these financial
statements in conformity with generally acceptable accounting principles.
Actual results could differ from those estimates.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
Plant and equipment $4,322,723 4,316,617
Autos and trucks 89,399 88,210
Furniture and fixtures 16,848 14,432
Producing properties 3,434,334 3,170,883
---------- ----------
$7,863,304 7,590,142
========== ==========
</TABLE>
(3) LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Borrowings under credit agreement (a) $450,000
Term note payable (b) 180,000
--------
Total long-term debt 630,000
Less current maturities 90,000
--------
Long-term debt, less current maturities $540,000
========
</TABLE>
(a) Amount represents unsecured borrowings under a credit agreement
with GODOE (USA), Inc., a 50% partner of NABR. The credit agreement allows
NABR to borrow up to a maximum amount of $896,000. Borrowings under the
credit agreement are due on December 31, 1998. Interest is paid quarterly
and is based on the floating three month London Interbank Offered Rate
(LIBOR) interest rate, plus .38% which approximated 5.94% at December 31,
1996. Subsequent to December 31, 1996, NABR borrowed an additional
$446,000 under the credit agreement.
8
<PAGE> 62
NORTH AMERICAN BRINE RESOURCES
NOTES TO FINANCIAL STATEMENTS, CONTINUED
(b) On December 31, 1996, NABR entered into a term note agreement
with Inorgchem Developments, Inc., a 10% partner of NABR. The term note is
unsecured and is payable in two installments of $90,000 on December 31,
1997 and 1998. Interest is paid quarterly and is based on the floating
three month LIBOR interest rate, plus .38%, which approximated 5.94% at
December 31, 1996.
(4) PROFIT SHARING PLAN
All eligible employees of NABR are eligible to participate in the North
American Brine Resources Salary Deferral Plan and Trust (the Plan).
Participant contributions up to 5% of the participant's total compensation
are matched 50% by NABR. The participant can make additional
contributions, which are not matched by NABR. During 1996, 1995, and 1994,
NABR contributed $3,500, $3,300, and $3,300, respectively, under the Plan.
Benefits payable under the Plan are limited to the amount of plan assets
allocable to the account of each Plan participant. NABR retains the right
to modify, amend, or terminate the Plan at any time.
(5) RELATED PARTY TRANSACTIONS
In connection with the formation of NABR, the partners executed a
technical assistance agreement, an operating agreement and a
distributorship agreement.
The technical assistance agreement specifies that GODOE (USA), Inc. will
provide assistance in the development of the process for extracting iodine
and other minerals from brine and will provide other support services for
NABR's plants. As compensation for these support services GODOE (USA),
Inc. is to receive reimbursement for the salary, travel, and other costs
of its personnel who assist NABR. No such costs were incurred by NABR
during 1996, 1995, and 1994.
The operating agreement specifies that The Beard Company will provide
assistance in obtaining necessary licenses and permits for the conduct of
business, locating appropriate plant sites and brine supplies, and
providing office space and clerical and accounting assistance. For these
services, The Beard Company is paid its actual cost plus 10%. Included in
general and administrative expense in 1996, 1995, and 1994 are
professional and clerical assistance charges by The Beard Company of
approximately $30,000, $12,400, and $7,800, respectively.
The distributorship agreement provides that Mitsui & Co. (USA), Inc. will
purchase all of NABR's output of iodine and other products at fair market
values. The distributorship agreement is renewed annually subject to
termination by either party upon six months' notice. Mitsui & Co. (USA),
Inc. is, in return, granted the exclusive worldwide marketing rights for
NABR's products. Mitsui & Co. (USA), Inc. is the parent company of
Inorgchem Developments, Inc. All of NABR's sales in 1996, 1995, and 1994,
were to Mitsui & Co. (USA), Inc. pursuant to this agreement.
Pursuant to a waste brine processing agreement, NABR purchases all of
required waste brine used for extracting iodine at its Berkenbile Facility
from The Beard Company. During 1996, 1995, and 1994, NABR purchased
$29,000, $33,000, and $35,000, respectively, of waste brine from The Beard
Company.
9
<PAGE> 63
Schedule II
The Beard Company
Schedule II-Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions Deductions
Balance at ---------------------------------- ---------- Balance at
Beginning Charged to Costs Charged to Other Write-Offs End
of Period and Expenses Accounts of Accounts of Period
--------- ------------ -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended:
December 31, 1994
Allowance for Doubtful
Receivables $22,200 19,100 0 6,800 $34,500
---------------------------------------------------------------------------
December 31, 1995
Allowances for Doubtful
Receivables $34,500 54,700 0 46,400 $42,800
---------------------------------------------------------------------------
December 31, 1996
Allowances for Doubtful
Receivables $42,800 28,600 6,400(1) 6,600 $71,200
---------------------------------------------------------------------------
</TABLE>
(1) Acquired in acquisition of Horizontal Drilling Technologies, Inc
.
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
23 Consents of KPMG Peat Marwick LLP
</TABLE>
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
The Beard Company:
We consent to incorporation by reference in the Registration Statements (No.
33-87110, 33-98482, and 333-06757) on Form S-8 of The Beard Company of our
report dated April 22, 1997, relating to the balance sheet of North American
Brine Resources (a 40% owned joint venture of The Beard Company) as of December
31, 1996, and the related statements of operations, Partners' equity and cash
flows for the year then ended, which report appears in the December 31, 1996,
annual report on Form 10-K/A of The Beard Company.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
September 9, 1997
<PAGE> 2
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
AND REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
The Beard Company:
The audits referred to in our report dated March 19, 1997, included financial
statement Schedule II for each of the years in the three-year period ended
December 31, 1996, included in the annual report Form 10-K/A for the year ended
December 31, 1996. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to incorporation by reference in the Registration Statements (No.
33-87110, 33-98482, and 333-06757) on Form S-8 of The Beard Company of our
report dated March 19, 1997, relating to the balance sheets of The Beard
Company and subsidiaries as of December 31, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the December 31, 1996, annual report on Form 10-K/A of The Beard Company.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
September 9, 1997
