UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-12396
THE BEARD COMPANY
(Exact name of registrant as specified in its charter)
OKLAHOMA 73-0970298
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ENTERPRISE PLAZA, SUITE 320
5600 NORTH MAY AVENUE
OKLAHOMA CITY, OKLAHOMA 73112
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 842-2333
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of September 30, 1997.
Common Stock $.001 par value - 2,824,629
<PAGE>
THE BEARD COMPANY
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1997 (Unaudited) and
December 31, 1996
Statements of Operations - Three Months and Nine Months
ended September 30, 1997 and 1996 (Unaudited)
Statements of Shareholders' Equity, Year ended
December 31, 1996 and Nine Months ended
September 30, 1997 (Unaudited)
Statements of Cash Flows - Nine Months ended
September 30, 1997 and 1996 (Unaudited)
Notes to Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Securities
ITEM 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
Financial Statements
September 30, 1997 (Unaudited) and December 31, 1996 and for the
Three Months and Nine Months Ended September 30, 1997, and 1996 (Unaudited)
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
THE BEARD COMPANY AND SUBSIDIARIES
Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996
September 30, December 31,
Assets 1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 729,000 $ 375,000
Accounts receivable, less allowance for doubtful
receivables of $62,000 in 1997 and
$53,000 in 1996 2,987,000 2,405,000
Inventories 671,000 2,003,000
Prepaid expense 277,000 442,000
Other assets 110,000 73,000
------------- -------------
Total current assets 4,774,000 5,298,000
------------- -------------
Investments and other assets 1,698,000 1,710,000
Property, plant and equipment, at cost 18,233,000 16,793,000
Less accumulated depreciation, depletion
and amortization 9,072,000 8,094,000
------------ -------------
Net property, plant and equipment 9,161,000 8,699,000
------------ -------------
Intangible assets, at cost 4,409,000 4,305,000
Less accumulated amortization 3,640,000 3,539,000
------------ -------------
Net intangible assets 769,000 766,000
------------ -------------
$ 16,402,000 $ 16,473,000
============ =============
Liabilities and Shareholders' Equity
Current liabilities:
Trade accounts payable $ 1,946,000 $ 1,395,000
Accrued expense and other liabilities 581,000 609,000
Short-term debt - 639,000
Current maturities of long-term debt 916,000 910,000
------------- ------------
Total current liabilities 3,443,000 3,553,000
------------- ------------
Long-term debt less current maturities 3,408,000 2,911,000
Redeemable preferred stock of $100 stated value;
5,000,000 shares authorized; 90,156 shares
issued and outstanding (note 4) 1,200,000 1,200,000
Minority interest in consolidated subsidiaries 88,000 153,000
Common shareholders' equity:
Common stock of $.001 par value per share;
10,000,000 shares authorized; 2,824,629 and
2,794,074 shares issued and outstanding in
1997 and 1996, respectively 3,000 3,000
Capital in excess of par value 41,685,000 41,629,000
Accumulated deficit (33,425,000) (32,976,000)
------------- ------------
Total common shareholders' equity 8,263,000 8,656,000
------------- ------------
Commitments and contingencies (note 8)
$ 16,402,000 $ 16,473,000
============= ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Operations
(Unaudited)
For the Three Months For the Nine Months
Ended Ended
----------------------- ----------------------
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Environmental/resource recovery $ 1,557,000 $ 810,000 $4,081,000 $1,868,000
Carbon dioxide 122,000 73,000 378,000 225,000
Other 12,000 17,000 36,000 47,000
----------- ---------- ---------- ----------
1,691,000 900,000 4,495,000 2,140,000
Expenses:
Environmental/resource recovery
(exclusive of depreciation,
depletion and amortization
shown separately below) 1,394,000 657,000 3,528,000 1,787,000
Carbon dioxide (exclusive of
depreciation, depletion and
amortization shown separately
below) 26,000 18,000 80,000 67,000
Selling, general and
administrative 523,000 485,000 1,539,000 1,335,000
Depreciation, depletion and
amortization 117,000 85,000 318,000 203,000
Other 7,000 19,000 23,000 41,000
----------- ---------- ---------- ----------
2,067,000 1,264,000 5,488,000 3,433,000
Operating profit (loss):
Environmental/resource recovery (238,000) (162,000) (578,000) (654,000)
Carbon dioxide 90,000 55,000 280,000 157,000
Other (228,000) (257,000) (695,000) (796,000)
----------- ---------- ---------- ----------
(376,000) (364,000) (993,000) (1,293,000)
Other income (expense):
Interest income 1,000 1,000 6,000 4,000
Interest expense (77,000) (44,000) (198,000) (80,000)
Gain on sale of assets 1,000 47,000 51,000 140,000
Minority interest in operations of
consolidated subsidiaries 35,000 16,000 65,000 13,000
Other, including unconsolidated
affiliates 21,000 2,000 33,000 (101,000)
----------- ---------- ---------- ----------
Loss before income taxes (395,000) (342,000) (1,036,000) (1,317,000)
Income taxes (note 7) (28,000) - (45,000) -
----------- ---------- ---------- ----------
Loss from continuing operations (423,000) (342,000) (1,081,000) (1,317,000)
Earnings from discontinued dry ice
and real estate operations, net
of taxes of $11,000 and $19,000
for the three and nine-months
ended September 30, 1997
(notes 2 and 7) 377,000 463,000 632,000 1,378,000
----------- ---------- ---------- ----------
Net earnings (loss) $ (46,000) $ 121,000 $ (449,000) $ 61,000
=========== ========== ========== ==========
Net earnings (loss) applicable
to common shareholders $ (46,000) $ 121,000 $ (449,000) $ 61,000
=========== ========== ========== ==========
Earnings (loss) per common share
and common equivalent share
(primary EPS) (note 5)
Loss from continuing operations $ (0.15) $ (0.12) $ (0.39) $ (0.47)
Earnings from discontinued
operations 0.13 0.16 0.23 0.49
Earnings (loss) (0.02) 0.04 (0.16) 0.02
Earnings (loss) per common share
assuming maximum dilution (fully
diluted EPS) (note 5)
Loss from continuing operations $ (0.15) $ (0.10) $ (0.39) $ (0.40)
Earnings from discontinued
operations 0.13 0.14 0.23 0.42
Earnings (loss) (0.02) 0.04 (0.16) 0.02
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Shareholders' Equity
(Unaudited)
Total
Capital in Common
Common Excess of Accumulated Shareholders'
Stock Par Value Deficit Equity
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1995 $ 3,000 $ 41,446,000 $(32,661,000) $ 8,788,000
Net loss, year ended December
31, 1996 - - (315,000) (315,000)
Issuance of 68,244 shares of
common stock - 183,000 - 183,000
----------- ------------ ------------ ------------
Balance, December 31, 1996 3,000 41,629,000 (32,976,000) 8,656,000
Net loss, nine months ended
September 30, 1997 - - (449,000) (449,000)
Issuance of 25,555 shares of
common stock - 56,000 - 56,000
----------- ------------ ------------ ------------
Balance, September 30, 1997
(unaudited) $ 3,000 $ 41,685,000 $(33,425,000) $ 8,263,000
=========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
------------------------------
September 30, September 30,
1997 1996
-------------- --------------
<S> <C> <C>
Operating activities:
Cash received from customers $ 16,053,000 $ 13,562,000
Cash paid to suppliers and employees (14,306,000) (12,682,000)
Cash received from settlement of
take-or-pay contract - 539,000
Interest received 6,000 8,000
Interest paid (277,000) (278,000)
-------------- --------------
Net cash provided by operating
activities 1,476,000 1,149,000
-------------- --------------
Investing activities:
Acquisition of property, plant and equipment (1,138,000) (1,380,000)
Proceeds from sale of assets 81,000 319,000
Other investments 82,000 20,000
-------------- --------------
Net cash used in investing activities (975,000) (1,041,000)
-------------- --------------
Financing activities:
Proceeds from lines of credit and term notes 1,729,000 2,784,000
Payments on lines of credit and term notes (1,916,000) (3,032,000)
Proceeds from issuance of stock 40,000 25,000
-------------- --------------
Net cash used in financing activities (147,000) (223,000)
-------------- --------------
Net increase (decrease) in cash and cash
equivalents 354,000 (115,000)
Cash and cash equivalents at beginning of
period 375,000 220,000
-------------- --------------
Cash and cash equivalents at end of period $ 729,000 $ 105,000
============== ==============
</TABLE>
<TABLE>
<CAPTION>
THE BEARD COMPANY AND SUBSIDIARIES
Statements of Cash Flows
(Unaudited)
Reconciliation of Net earnings (loss) to Net Cash Provided by (Used in)
Operating Activities
For the Nine Months Ended
-------------------------
September 30, September 30,
1997 1996
-------------- -------------
<S> <C> <C>
Net earnings (loss) $ (449,000) $ 61,000
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in)
operating activities:
Depreciation, depletion and amortization 1,133,000 972,000
Provision for impairment of assets 90,000 150,000
Gain on sale of assets (62,000) (140,000)
Interest and other costs (capitalized)
recognized on real estate project 359,000 (13,000)
Gain on take-or-pay contract settlement - (400,000)
Equity in net (income) loss of unconsoli-
dated affiliates (199,000) (49,000)
Other, including minority interest in con-
solidated subsidiaries (11,000) (5,000)
Increase in accounts receivable, prepaids
and other current assets from operating
activities (476,000) (117,000)
Decrease in inventories from operating
activities 1,065,000 248,000
Increase in accounts payable and accrued
expenses from operating activities 26,000 442,000
------------- ------------
Net cash provided by operating activities $ 1,476,000 $ 1,149,000
============= ============
Supplemental Schedule of Noncash Investing
and Financing Activities
Purchase of property, plant and equipment
and intangible assets through issuance
of debt obligations $ 67,000 $ 1,040,000
============= ============
Receipt of property, plant and equipment
as part of settlement of take-or-pay
contract $ - $ 400,000
============= ============
Payment of note payable through
issuance of 50,000 shares of common stock $ - $ 138,000
============= ============
Sale of property for a note receivable $ 87,000 $ 104,000
============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE BEARD COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
September 30, 1997 and 1996
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Accordingly, certain footnote disclosures normally
prepared in accordance with generally accepted accounting principles have
been omitted. The accompanying consolidated financial statements and notes
thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Beard's 1996 annual report on Form
10-K.
The accompanying consolidated financial statements include the accounts
of The Beard Company and its wholly and majority-owned subsidiaries ("Beard"
or the "Company"). All significant intercompany transactions have been
eliminated.
The financial information included herein is unaudited; however, such
information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented.
The results of operations for the three and nine-month periods ended
September 30, 1997, are not necessarily indicative of the results to be
expected for the full year.
The Company operates within two major industry segments: (1) the
environmental/resource recovery ("E/RR") Segment, consisting of environmental
services and resource recovery activities, and (2) the carbon dioxide ("CO{2}")
Segment, comprised of the production of CO{2}. The Company's real estate
("R/E") Segment, consisting of real estate construction and development, was
discontinued in January, 1997. In addition, the Company sold, in October
of 1997, substantially all of the operating assets of its subsidiary engaged
in the manufacture and distribution of dry ice (solid CO{2}). See Note
2 below. The Company also has other operations, including a minority-owned
investment in a joint venture for the extraction, production and sale of crude
iodine.
(2) DISCONTINUED OPERATIONS
In January 1997, the Company approved a formal plan to dispose of the assets
of its R/E Segment. The Company estimated that it would incur a loss of
$180,000 from discontinuing real estate construction and development
activities. The loss was recorded in the fourth quarter of 1996 and
represented the difference in the estimated amounts to be received from
disposing of the real estate construction and development assets and the
assets' recorded values as of December 31, 1996.
Results of operations of the R/E Segment for the three and nine months ended
September 30, 1996, have been restated as discontinued operations in the
accompanying statements of operations. Operating results of the
discontinued operations through the date of sale of all remaining assets are
not expected to be significant.
During the nine months ended September 30, 1997, the Company disposed of
certain real estate construction and development assets for $1,534,000 which
approximated the Company's estimated disposition values of those assets.
As of September 30, 1997, the significant remaining asset of the R/E Segment
consisted of one speculative home which the Company expects to dispose of by
December 31, 1997 at its September 30, 1997 recorded value.
In August 1997, the Company entered into an agreement to sell substantially
all of the assets of Carbonic Reserves (an 85% owned subsidiary of Beard in
the CO{2} Segment) for cash OF $19.4 million and the assumption of certain
liabilities. The sale was closed on October 13, 1997 and resulted in a gain
of approximately $11.3 million. The operations of Carbonic Reserves have
been presented as discontinued in the statements of operations for all
periods presented. As of November 12, 1997, the Company has paid down all
but approximately $769,000 of the Company's outstanding indebtedness. The
Company expects to use the remaining proceeds to provide working capital
to exploit the Company's remaining assets. See Note 4 below.
As a result of this sale, the Company's continuing operations now include (A)
several subsidiaries engaged in environmental services and resource recovery
activities and (B) its directly owned CO{2} production activities, consisting
of (i) its working and overriding royalty interests in a CO{2} producing unit
in Colorado, and (ii) working interests in a producing CO{2} unit in New Mexico
and a shut-in CO{2} gas well in south central Utah.
Revenues applicable to discontinued operations of Carbonic Reserves were
$4,061,000, $10,614,000, $3,980,000, and $10,160,000 for the three and nine-
month periods ended September 30, 1997 and 1996, respectively.
(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 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
prior to May 21, 1996, are not included in the Company's consolidated
financial statements.
(4) REDEEMABLE PREFERRED STOCK
The Company's preferred stock is mandatorily redeemable through December 31,
2002, from one-third of Beard's "consolidated net income" as defined. The
Company's operations through September 30, 1997, were not sufficient to
begin the sharing of the consolidated net income. Accordingly, one-third of
future "consolidated net income" will accrete directly to preferred
stockholders and reduce earnings per common share. To the extent that the
preferred stock is not redeemed by December 31, 2002, the shares of
preferred stock can be converted into shares of the Company's common stock.
The Company has entered into an Agreement to purchase 303,890 shares of its
common stock and 47,729 shares of its preferred stock from several parties.
Closing of the purchase will take place in November 1997 and January 1998
with a total repurchase price of $4,160,590. In addition, the Company
anticipates redeeming $1.459 million (14,590 shares) of the Company's pre-
ferred stock in the first quarter of 1998 as a result of the gain realized
from the Asset Sale.
(5) EARNINGS (LOSS) PER SHARE
Primary earnings per common share for the three and nine-month periods ended
September 30, 1996 are computed by dividing net earnings available to common
shareholders by the weighted average number of shares of common stock and
common stock equivalents outstanding during the period. Common stock
equivalents include shares issuable upon exercise of incentive and non-
qualified stock options using the treasury stock method. Fully diluted
earnings per share for the periods listed above include the potential
dilution of the earnings available to common stockholders as if the
preferred stock was converted to common stock. The calculation includes the
weighted average number of shares of common stock outstanding, the common
stock equivalents, and the common shares that would result from the
conversion of the preferred shares.
The calculation of loss per common share for the three and nine-month
periods ended September 30, 1997, does not include common equivalent shares
or potentially dilutive securities outstanding, as the effect would be
antidilutive.
The following table contains the components of the common share and common
equivalent share amounts used in the calculation of earnings (loss) per
share in the Company's statements of operations:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Primary EPS:
Weighted average common
shares outstanding 2,805,306 2,756,752 2,801,174 2,743,067
Options considered to be
common stock equivalents - 42,155 - 39,196
--------- --------- --------- ---------
2,805,306 2,798,907 2,801,174 2,782,263
========= ========= ========= =========
Fully diluted EPS:
Weighted average common
shares outstanding 2,805,306 2,756,752 2,801,174 2,743,067
Options considered to be
common stock equivalents - 42,155 - 39,196
Conversion of preferred stock - 462,445 - 462,445
--------- --------- --------- ---------
2,805,306 3,261,352 2,801,174 3,244,708
========= ========= ========= =========
</TABLE>
(6) SETTLEMENT OF TAKE-OR-PAY CONTRACT
In February 1996, the Company negotiated a settlement of a take-or-pay contract
under which a customer was obligated to purchase certain volumes of liquid
CO{2}. As a result of the settlement, the Company received $539,000 of cash
and a CO{2} 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 CO{2} volumes. The Company realized a gain of
$939,000 related to this settlement.
(7) INCOME TAXES
In accordance with the provisions of the Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes ("SFAS No. 109"), the
Company's net deferred tax asset is being carried at zero book value, which
reflects the uncertainties of the Company's utilization of the net
deductible timing differences. There is no provision for regular federal
income taxes in 1997 or 1996 due to the availability of net operating losses
and other carryforwards. The provision in the statements of operations for
the three and nine-month periods ending September 30, 1997 consists of
$11,000 and $19,000 in state income tax and $28,000 and $45,000 in federal
alternative minimum tax, respectively.
At September 30, 1997, the Company estimates that it had the following
income tax carryforwards available for both income tax and financial
reporting purposes (in thousands):
<TABLE>
<CAPTION>
Expiration
Date Amount
---------- ---------
<S> <C> <C>
Federal regular tax operating loss carryforwards 2001-2010 $ 65,212
Investment tax credit carryforward 1997-2000 679
Tax depletion carryforward Indefinite 5,500
---------
Total $ 71,391
=========
</TABLE>
(8) COMMITMENTS AND CONTINGENCIES
In the normal course of business various actions and claims have been
brought or asserted against the Company. Management does not consider them
to be material to the Company's financial position, liquidity or results of
operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion focuses on material changes in the Company's
financial condition since December 31, 1996 and results of operations for the
quarter ended September 30, 1997 compared to the prior year third quarter and
the nine months ended September 30, 1997 compared to the prior year nine
months. Such discussion should be read in conjunction with the Company's
financial statements including the related footnotes.
In preparing the discussion and analysis, the Company has presumed readers
have read or have access to the discussion and analysis of the prior year's
results of operations, liquidity and capital resources as contained in the
Company's 1996 Form 10-K.
The Company operates within two major industry segments: (1) the environ-
mental/resource recovery ("E/RR") Segment, consisting of environmental services
and resource recovery activities, and (2) the carbon dioxide ("CO{2}") Segment
involving the production of CO{2}. As more fully explained below, on
October 13, 1997, the Company closed the sale of substantially all of the
operating assets of Carbonic Reserves ("the Asset Sale"), its 85% owned
subsidiary engaged in dry ice manufacturing and distribution, leaving the
Company's CO{2} production interests as the remaining component of this
segment. The operations of Carbonic Reserves have been presented as dis-
continued for all periods presented. See Note 2 to the financial
statements. 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, including the assets of
the Company's former real estate construction and development ("R/E") Segment,
the operations of which were discontinued in January, 1997. See Note 2 to the
financial statements.
MATERIAL CHANGES IN FINANCIAL CONDITION - SEPTEMBER 30, 1997 AS
COMPARED WITH DECEMBER 31, 1996.
The following table reflects some of the changes in the Company's financial
condition during the periods indicated:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, INCREASE
1997 1996 (DECREASE)
------------- ------------ ----------
<S> <C> <C> <C>
Cash and cash equivalents $ 729,000 $ 375,000 $354,000
Working capital $1,331,000 $1,745,000 $(414,000)
Current ratio 1.39 to 1 1.49 to 1
</TABLE>
The Company's ability to generate working capital from operations during the
first nine months of 1997 was adversely affected by seasonality during the
first three months of the year. The first quarter is normally a poor one for
the dry ice business, and cold and/or rainy weather also normally causes a
slowdown of sales in the environmental services portion of the E/RR Segment.
As previously mentioned, the Company has discontinued the R/E Segment and the
sale of substantially all of its assets in this segment during the first nine
months of 1997 provided cash of $1,304,000 and working capital of $449,000.
The proceeds from the sale were used to pay down the short-term debt associated
with the construction cost of these assets. Despite the seasonal decline,
however, net working capital generated by the above sale and by operations as a
result of increased activity in the E/RR Segment for the first nine months of
1997 amounted to $861,000, compared to $576,000 generated in the first nine
months of 1996.
In addition to the proceeds from the sale of assets in the R/E Segment, the
Company has been able to satisfy its liquidity needs through its working
capital and borrowing arrangements. Future cash flows and availability of
credit are subject to a number of variables, including continuing private and
governmental demand for environmental services. Because of the sale in October
of 1997 of substantially all of the operating assets of Carbonic Reserves, the
Company anticipates that its cash flow from operations will be more than
adequate to meet its planned operating costs and capital spending requirements
for some period of time.
Capital additions of $1,494,000 were made by the following segments in
property, plant and equipment during the first nine months of 1997, as
reflected in the table below:
Environmental/resource recovery $ 453,000
Carbon dioxide, including Carbonic Reserves 1,041,000
----------
$1,494,000
==========
Included in the above are $356,000 of additions financed through the
issuance of seller-financed notes.
The Company's working capital is expected to be more than adequate to
fund the current and presently foreseeable capital expenditure requirements,
including the $1,550,000 projected for the last three months of 1997.
On October 13, 1997, the Company closed the sale of substantially all of
its dry ice manufacturing and distribution assets for cash of $19.4 million
and the assumption of certain liabilities. The Company recognized a gain from
the Asset Sale of approximately $11.3 million. As of November 10, 1997, the
Company had paid off a significant portion of its indebtedness. The Company has
entered into an Agreement to purchase 303,890 shares of its common stock and
47,729 shares of its preferred stock from several parties. Closing of the pur-
chase will take place in November 1997 and January 1998 with a total repurchase
price of $4,160,590. In addition, the Company anticipates redeeming $1.459
million (14,590 shares) of the Company's preferred stock in the first quarter
of 1998 as a result of the gain realized from the Asset Sale. The Company
expects to use the remaining proceeds to provide working capital to exploit
the Company's remaining assets. See Notes 2 and 4 to the accompanying financial
statements.
Through the period ending December 31, 2002, the Company's liquidity will
be reduced to the extent it is required to redeem any of the Beard preferred
stock pursuant to the mandatory redemption provisions. See Note 4 to the
accompanying financial statements.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - QUARTER ENDED
SEPTEMBER 30, 1997 AS COMPARED WITH THE QUARTER ENDED SEPTEMBER 30, 1996.
The loss for the quarter ended September 30, 1997 was $46,000, compared
to income of $121,000 for the third quarter of the prior year. The current
quarter resulted in a $12,000 decline over the operating income recorded in the
year earlier quarter. There were revenue gains in both the CO{2} and the E/RR
Segments; however, the improved operating margin in the CO{2} Segment was more
than offset by lower margins in the E/RR Segment and "Other" caused by greater
operating expenses.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
OPERATING PROFIT (LOSS):
Environmental/resource
recovery $ (238,000) $ (162,000)
Carbon dioxide 90,000 55,000
----------- ------------
Subtotal (148,000) (107,000)
Other (228,000) (257,000)
----------- ------------
TOTAL $ (376,000) $ (364,000)
=========== ============
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
ENVIRONMENTAL/RESOURCE RECOVERY
The E/RR Segment generated a $76,000 larger operating loss in the third
quarter of 1997 compared to the same period in 1996. The segment reflected a
47% increase in revenues as a result of the completion of several large
drilling and water main projects. Management of the Company has been
pursuing and will continue to pursue the commercial development of its patented
Mulled Coal technology. The costs of pursuing this development, as well as
increased operating expenses related to the Company's environmental services
activities, offset the increased revenues and resulted in the decline in
operating margins.
CARBON DIOXIDE
Third quarter 1997 operations reflected an operating profit of $90,000
compared to a $55,000 profit for the 1996 third quarter. Revenues from this
segment for the third quarter ended September 30, 1997 approximated $122,000,
a 67% increase over last year's third quarter. The primary factor contributing
to this improvement was additional CO{2} sales resulting from a develop-
ment program which began in July of 1996 to meet increased demand for the
CO{2} produced from one of the fields in which the Company has small working
and overriding royalty interests.
OTHER ACTIVITIES
Other operations, consisting mostly of general and corporate activities,
generated a slightly smaller operating loss for the third quarter of 1997 than
the same period of last year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses ("SG&A") in the
current quarter increased to $523,000 from $485,000 in the 1996 third quarter.
SG&A expenses incurred by the E/RR Segment during the third quarter of 1997,
which represent 55% of the total SG&A costs, increased by $53,000 over the same
period last year. This increase was associated with an increase in expenses
related to increases in the cost of health benefits for employees in this
segment.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES
The third quarter of 1997 had an increase in DD&A expense of $32,000,
reflecting additions to property, plant and equipment made during the past
year.
OTHER INCOME AND EXPENSES
Other income and expenses resulted in a loss of $19,000 for the third
quarter of 1997, down from the $22,000 gain recorded for such items in the same
period of 1996. The decrease was due, in part, to the fact that the third
quarter of 1997 included an increase in interest expense of $33,000 over the
same period in 1996. The third quarter of 1997 also showed a decrease in the
gain on sale of assets of $46,000 compared to the third quarter of 1996. Such
items were offset by a $38,000 increase in income from other items and the
minority interest in the operations of consolidated subsidiaries.
DISCONTINUED OPERATIONS
As previously discussed, the Company discontinued its real estate
construction and development activities in January of 1997 in order to focus
its attention on other segments which are considered to have greater potential
for growth and profitability. As discussed in Note 2 to the Financial
Statements, the Company recognized the estimated loss of disposing of the R/E
Segment's assets in the fourth quarter of 1996. In the first quarter of 1997,
the Company sold all of the R/E Segment's assets, except for two completed
speculative homes, for $1,196,000. One of the two homes was sold during the
second quarter of 1997 for $338,000. The Company expects to dispose of the
remaining speculative home by December 31, 1997.
On October 13, 1997, the Company closed the sale of substantially all of
its dry ice manufacturing and distribution assets for cash of $19.4 million
and the assumption of certain liabilities. The Company recognized a gain from
the Asset Sale of approximately $11.3 million. As of November 10, 1997, the
Company had paid off a significant portion of its indebtedness. The Company
has entered into an Agreement to purchase 303,890 shares of its common stock
and 47,729 shares of its preferred stock from several parties. Closing of the
purchase will take place in November 1997 and January 1998 with a total repur-
chase price of $4,160,590. In addition, the Company anticipates redeeming
$1.459 million (14,590 shares) of the Company's preferred stock in the first
quarter of 1998 as a result of the gain realized from the Asset Sale. The
Company expects to use the remaining proceeds to provide working capital to
exploit the Company's remaining assets. See Notes 2 and 4 to the accompanying
financial statements.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - NINE MONTHS ENDED
SEPTEMBER 30, 1997 AS COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER 30, 1996.
The loss for the nine months ended September 30, 1997 was $449,000,
compared to income of $61,000 for the first nine months of the prior year. The
first three quarters of 1996 benefited from a settlement of the take-or-pay
agreement in the CO{2} Segment in the amount of $939,000. This income, along
with the other results of operations for Carbonic Reserves and the R/E Segment,
have been presented as discontinued operations for all periods presented.
Increased revenues in all segments were more than offset by increases in
operating, SG&A and other expense classifications resulting in a loss for the
first nine months of 1997.
Operating results of the Company's two segments are reflected below:
<TABLE>
<CAPTION>
1997 1996
------------- -----------
<S> <C> <C>
Operating profit (loss):
Environmental/resource
recovery $ (578,000) $ (654,000)
Carbon dioxide 280,000 157,000
------------- -----------
Subtotal (298,000) (497,000)
Other (695,000) (796,000)
------------- -----------
TOTAL $ (993,000) $(1,293,000)
============= ===========
</TABLE>
The "Other" in the above table reflects primarily general and corporate
activities, as well as other activities and investments of the Company.
ENVIRONMENTAL/RESOURCE RECOVERY
A significant increase in revenues generated by the E/RR Segment in the
first nine months of the year led to a $76,000 improvement in operating margins
as compared to the same period in 1996. This increase in revenues was primarily
caused by the completion of several large drilling and water main replacement
projects and the full nine months impact of Horizontal Drilling Technologies,
Inc. ("HDT"), resulting from Beard's purchase of 80% of HDT'S common stock (the
"HDT acquisition") in May 1996. The revenue increase was partially offset by
the increased operating costs related to the Company's other environmental
services activities and by the development costs associated with the Company's
patented Mulled Coal technology. Management of the Company will continue to
pursue the commercial development of this technology.
CARBON DIOXIDE
Operations for the first nine months of 1997 resulted in an operating profit
of $280,000 compared to a $157,000 operating profit for the 1996 first nine
months. The sole component of revenue for this segment is now the revenue from
the Company's small working and overriding royalty interests in two producing
CO{2} units located in Colorado and New Mexico. The nine months operating
results of 1997 compared to 1996 reflect the increased revenue resulting from
the development project begun in 1996 on one of the properties.
Revenues from this segment totaled $378,000 for the first nine months of
1997, a 68% increase over the same period last year. This improvement in
revenues was partially offset by increases in expenses associated with the
development program.
OTHER ACTIVITIES
Other operations, consisting mostly of general and corporate activities,
generated a $101,000 smaller operating loss for the first nine months of 1997
as compared to the same period last year. The principal reason for the smaller
loss is the result of a change in the method of allocating expenses for health
benefits among members of the consolidated group whereby the other members now
bear a larger share of the expected costs for health insurance.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The Company's selling, general and administrative expenses ("SG&A") in the
first nine months of 1997 increased to $1,539,000 from $1,335,000 in the
comparable 1996 period. SG&A expenses incurred by the E/RR Segment during the
first nine months of 1997, which represent 55% of the total SG&A costs,
increased by $296,000 over the same period last year. The effect of the HDT
acquisition accounted for $173,000 or 58% of this increase. Other members of
the segment incurred increases in SG&A costs as a result of increased operating
activity.
DEPRECIATION, DEPLETION AND AMORTIZATION EXPENSES
The first nine months of 1997 had an increase in DD&A expense of $115,000,
reflecting additions to property, plant and equipment made during the past
year.
OTHER INCOME AND EXPENSES
The negative net effect of other income and expenses for the first nine
months of 1997 increased slightly compared to the same period in 1996.
Interest expense increased $118,000 for the first nine months of 1997 compared
to the same period in 1996 as a result of increased borrowings to meet working
capital needs in the E/RR Segment and other operations. The first nine months
of 1997 realized $89,000 less gain on the sale of assets compared to the first
nine months of 1996. Other items included a $60,000 smaller impairment
provision in 1997, compared to the first nine months of 1996, recorded against
the carrying value of the Company's interest in certain investments and a
$149,000 improvement in the earnings of its unconsolidated affiliates for the
same period.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS NOT YET ADOPTED
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
SFAS No. 128 is effective for financial statements issued for periods ending
after December 15, 1997, and restatement of prior-period earnings per share
data is required. The new standard will not apply to Beard's financial
statements until the fourth quarter of 1997. SFAS No. 128 revises the current
calculation methods and presentation of primary and fully diluted earnings per
share. Beard has reviewed the requirements of SFAS No. 128 and has concluded
that they will not have a material effect on the calculation of Beard's
historical earnings (loss) per share data.
PART II. OTHER INFORMATION.
Item 2. Changes in Securities.
The Company's preferred stock is mandatorily redeemable through December
31, 2002 from one-third of Beard's "consolidated net income" as defined in
the instrument governing the rights of the preferred stockholders. Accordingly,
one-third of future "consolidated net income" will accrete directly to
preferred stockholders and reduce earnings per common share. As a result of
these redemption requirements, the payment of any dividends to the common
stockholders in the near future is very unlikely. See Note 4 to the
accompanying financial statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) The following exhibits are filed with this Form 10-Q and are identified
by the numbers indicated:
Exhibit Description
- ------- -----------
10(M) Letter Agreement dated August 15, 1997 by and among Clifford H.
Collen, Jr., Carbonic Reserves, Beard Oil Company and Registrant.
10(N) Letter Agreement dated October 8, 1997 by and among Randy D.
Thacker, Carbonic Reserves, and Registrant.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the period covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
(Registrant) THE BEARD COMPANY
HERB MEE, JR.
(Date) November 12, 1997 ___________________________________
Herb Mee, Jr., President and
Chief Financial Officer
JACK A. MARTINE
(Date) November 12, 1997 ___________________________________
Jack A. Martine, Controller and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Method of Filing
- ----------- ----------- ----------------
<S> <C> <C>
10(M) Letter Agreement dated August 15, Filed herewith electronically
1997 by and among Clifford H.
Collen, Jr., Carbonic Reserves,
Beard Oil Company and Registrant
10(N) Letter Agreement dated October Filed herewith electronically
8, 1997 by and among Randy D.
Thacker, Carbonic Reserves, and
Registrant
27 Financial Data Schedule Filed herewith electronically
</TABLE>
EXHIBIT 10(M)
THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
Fax (405) 842-9901
(405) 842-2333
August 15, 1997
Mr. Clifford H. Collen, Jr.
c/o Carbonic Reserves
4754 Shavano Oak, Suite 102
San Antonio, TX 78249
Re: Agreement in Connection with the Sale of
the Assets of Carbonic Reserves ("Carbonics")
Dear Buddy:
Within the next few days we expect to execute an Asset Purchase Agreement (the
"Agreement") by and between Airgas Carbonic Reserves, Inc. (" Airgas") as
Purchaser, Carbonics as Seller, and The Beard Company ("Beard") and you as
Shareholders which calls for the sale of substantially all of the assets of
Carbonics (the "Sale") to Airgas. The Agreement also calls for the execution
by you at Closing of (i) an employment agreement and (ii) a non-competition and
confidentiality agreement (the "Non-Compete") with Airgas. In connection with
the employment agreement you will become an employee of Airgas on October 1,
1997, and in connection with the Non-Compete you will receive a total
consideration of $500,000 from Airgas.
In order to facilitate the Sale, release you from your present obligations to
Carbonics and make your services available to Airgas, it is hereby agreed among
you, Carbonics, Beard and Beard Oil Company ("Beard Oil") as follows:
(1) On January 2, 1998, Carbonics will purchase the 24,000 shares of common
stock, par value $0.10 per share, of Carbonics which you own for a cash con-
sideration of Nine Hundred Thousand Dollars ($900,000). Such amount will be
paid to you by wire transfer or other immediately-available funds. The obliga-
tion for this purchase may, if desired, be assumed by Beard. In addition,
Carbonics (or Beard) will pay you interest on such funds from the date funds
are received by Carbonics following Closing until January 2, 1998, at the rate
of 5.5% per annum. (E.g., if funds are received on September 30, 1997, you will
receive $12,747.95 interest = $900,000 x 5.5% x 94/365).
(2) On January 2, 1998, Carbonics shall pay to you in a lump sum the
$100,000 termination payment called for in Paragraph 4.02 of the Conversion
Agreement dated as of the 31st day of January, 1995, by and among Beard,
Carbonics and you. The obligation for this payment may, if desired, be assumed
by Beard. In addition, Carbonics (or Beard) will pay you interest on such funds
from the date funds are received by Carbonics following Closing until January 2,
1998, at the rate of 5.5% per annum. (E.g., if funds are received on September
30, 1997, you will receive $1,416.44 interest = $100,000 x 5.5% x 94/365).
(3) Simultaneously with the Closing of the Sale to Airgas and the sale of
your shares to Carbonics, all of the existing contracts among you, Carbonics,
Beard and Beard Oil (with the exception of the $100,000 obligation to you set
forth in paragraph (2) above) will be terminated and have no further force and
effect, including (i) any obligations by Carbonics pursuant to that certain
Change in Control Compensation Agreement dated as of the 24th day of January,
1997, by and between you and Carbonics; (ii) any obligations by you, Carbonics,
Beard or Beard Oil in connection with the Employment Agreement dated April 3,
1995, by and among such parties; and (iii) any obligations by you, Carbonics,
or Beard in connection with that certain Stockholders' Agreement dated January
27, 1993, and that certain Conversion Agreement entered into as of January 31,
1995, by and among such parties.
(4) The parties have agreed that following the termination of the Employ-
ment Agreement as provided in paragraph (3) above, neither Carbonics, Beard nor
Beard Oil shall have any further obligation to pay the Key-Employee Bonus
provided in Section 3.06 of the Employment Agreement. Carbonics will set aside
a bonus pool of Two Hundred Thousand Dollars ($200,000) which will be utilized
as determined by the Board of Directors of Carbonics to pay bonuses to other
Carbonics employees and to settle any obligations Carbonics may have under its
Change of Control Compensation Agreements (the " Compensation Agreements")
with Randy D. Thacker and Kenneth E. Shewbert. The payment of such bonuses and
any obligations which may arise under the Compensation Agreements shall be
solely the obligations of Carbonics, and you shall have no obligations
therefor. Any such obligations may be assumed by Beard.
This Agreement, upon acceptance by the parties, shall be binding upon and inure
to the benefit of all of the parties hereto and their respective successors and
assigns.
Sincerely,
THE BEARD COMPANY
HERB MEE, JR.
Herb Mee, Jr., President
ACCEPTED AND AGREED TO AS OF THE 18th DAY OF AUGUST, 1997:
CARBONIC RESERVES
By: CLIFFORD H. COLLEN, JR.
Clifford H. Collen, Jr., President
BEARD OIL COMPANY
By: HERB MEE, JR.
Herb Mee, Jr., President
CLIFFORD H. COLLEN, JR.
Clifford H. Collen, Jr.
EXHIBIT 10(N)
THE BEARD COMPANY
Enterprise Plaza, Suite 320
5600 North May Avenue
Oklahoma City, Oklahoma 73112
Fax (405) 842-9901
(405) 842-2333
October 8, 1997
Mr. Randy D. Thacker
C/o Carbonic Reserves
4754 Shavano Oak, Suite 102
San Antonio, TX 78249
Re: Agreement in Connection with the Sale of
the Assets of Carbonic Reserves ("Carbonics")
Dear Randy:
As you know, within the next few days we expect to close the sale of
substantially all of the assets of Carbonics (the "Sale") to Airgas Carbonic
Reserves, Inc. ("Airgas"). You have advise us that you have decided not to
accept Airgas's employment offer but have instead accepted an offer to serve as
a consultant to them for a period of time.
Since your agreement with Airgas does not exactly fit with the termination
provisions set forth in that certain Change in Control Compensation Agreement
(the "Agreement") dated as of the 24th day of January, 1997, by and between you
and Carbonics, we have mutually agreed to terminate such Agreement and, in lieu
thereof, have agreed to the following:
(1) On or before the endo of the month following the closing of the Sale,
Carbonics shall pay you the sum of $64,000. The obligation for this
payment may, if desired, be assumed by The Beard Company (" Beard").
(2) On January 2, 1998, Carbonics shall pay you the sum of $90,000. The
obligation for this payment may, if desired, be assumed by Beard.
(3) Beard has agreed that, upon the closing of the Sale, the ISO Option
previously granted to you to purchase 7,500 shares of common stock
under the Beard Company 1993 Stock Option Plan will become fully vested
and exercisable at the price of $2.00 per share.
(4) Your Group Health coverage under Beard's Group Health (SUBSIDIARY:
Carbonic Reserves) coverage will be continued under Cobra for a period
of up to 18 months at your election and your sole cost and expense
upon submittal of the specified monthly payment premiums when due.
(4) You will make yourself availabel to provide consultation services to
Carbonics and/or Beard for a period of two (2) years following the
Sale.
(5) Any obligations by Carbonics pursuant to that certain Change in
Control Compensation Agreement dated as of the 24th day of January,
1997, by and between you and Carbonics are hereby terminated and of no
further force and effect.
This Agreement, upon acceptance by the parties, shall be binding upon and inure
to the benefit of all of the parties hereto and their respective successors and
assigns.
Sincerely,
THE BEARD COMPANY
HERB MEE, JR.
Herb Mee, Jr., President
ACCEPTED AND AGREED TO AS OF THE 9th DAY OF OCTOBER, 1997:
CARBONIC RESERVES
By: HERB MEE, JR.
Herb Mee, Jr., Vice President
RANDY D. THACKER
Randy D. Thacker
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000909992
<NAME> THE BEARD COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 729
<SECURITIES> 0
<RECEIVABLES> 3,049
<ALLOWANCES> (62)
<INVENTORY> 671
<CURRENT-ASSETS> 4,774
<PP&E> 18,233
<DEPRECIATION> (9,072)
<TOTAL-ASSETS> 16,402
<CURRENT-LIABILITIES> 3,443
<BONDS> 0
1,200
0
<COMMON> 3
<OTHER-SE> 8,260
<TOTAL-LIABILITY-AND-EQUITY> 16,402
<SALES> 378
<TOTAL-REVENUES> 4,495
<CGS> 0
<TOTAL-COSTS> 5,488
<OTHER-EXPENSES> (176)
<LOSS-PROVISION> 112
<INTEREST-EXPENSE> 198
<INCOME-PRETAX> (1,036)
<INCOME-TAX> 45
<INCOME-CONTINUING> 45
<DISCONTINUED> 632
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (449)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
