-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, NiNVMXzhlrw2CWiJwjgI5OjPhrYGlCC7gHS7ETEaBVa5X7xknSQS21r7cQqtwp/T aK9pXF0FFiAIx5Qfh5+7mA== 0000912057-95-003033.txt : 19950508 0000912057-95-003033.hdr.sgml : 19950508 ACCESSION NUMBER: 0000912057-95-003033 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941230 FILED AS OF DATE: 19950501 DATE AS OF CHANGE: 19950505 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOREST OIL CORP CENTRAL INDEX KEY: 0000038079 STANDARD INDUSTRIAL CLASSIFICATION: 1311 IRS NUMBER: 250484900 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-04597 FILM NUMBER: 95533640 BUSINESS ADDRESS: STREET 1: 1500 COLORADO NATIONAL BLDG STREET 2: 950 17TH ST CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 8143687171 10-K/A 1 FORM 10-K/A - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K/A (Mark One) [ 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, 1994 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: 0-4597 FOREST OIL CORPORATION (Exact name of registrant as specified in its charter) State of incorporation: New York I.R.S. Employer Identification No. 25-0484900 1500 Colorado National Building 950 - 17th Street Denver, Colorado 80202 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 303-592-2400 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class ------------------- Common Stock, Par Value $.10 Per Share Warrants to purchase shares of Common Stock $.75 Convertible Preferred Stock, Par Value $.01 Per Share Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [x] Yes [ ] No 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 the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by persons other than officers and directors of the registrant was approximately $60,298,023 as of March 31, 1995 (based on the last sale price of such stock as quoted on the National Market System of NASDAQ System). There were 28,250,647 shares of the registrant's Common Stock, Par Value $.10 Per Share outstanding as of March 31, 1995. Document incorporated by reference: None. - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- TABLE OF CONTENTS Page No ------- PART I Item 4A. Executive Officers of Forest 1 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 3 Item 6. Selected Financial and Operating Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 8. Financial Statements and Supplementary Data 24 PART III Item 10. Directors and Executive Officers of the Registrant 54 Item 11. Executive Compensation 58 Item 12. Security Ownership of Certain Beneficial Owners and Management 64 Item 13. Certain Relationships and Related Transactions 67 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 71 ITEM 4A. EXECUTIVE OFFICERS OF FOREST The following information with respect to the executive officers of Forest is furnished pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Years with Name (A) Age Forest Office (B) ------- --- ----------- ----------- William L. Dorn* 46 23 Chairman of the Board and Chairman of the Executive Committee since July 1991. Member of the Executive Committee since August 1988. President from February 1990 until November 1993 and Chief Executive Officer since February 1990. Executive Vice President from August 1989 until February 1990. Member of the Royalty Bonus Committee since August 1991 and Chairman since May 1994. Robert S. Boswell* 45 5 President since November 1993. Vice President from May 1991 until November 1993 and Chief Financial Officer since May 1991. Financial Vice President from September 1989 until May 1991. Member of the Executive Committee since July 1991 and member of the Royalty Bonus Committee since August 1991. V. Bruce Thompson 48 0 Vice President and General Counsel since August 1994. Vice President - Legal of Mid- America Dairymen, Inc. from November 1993 to August 1994. Chief of Staff for Oklahoma Congressman James M. Inhofe from February 1990 to November 1993. Bulent A. Berilgen 46 10 Vice President of Operations since December 1993. Prior thereto Vice President - Engineering and Development since January 1992. Prior thereto Regional Reservoir Engineer.
1
Years with Name (A) Age Forest Office (B) ------- --- ----------- ----------- Kenton M. Scroggs 43 11 Vice President since December 1993 and Treasurer since May 1988. Member of the Company's Employee Benefits Committee, which assumed the duties of the Trustees of the Pension Trust and of the Administrative Committee of the Retirement Savings Plan in August 1994. Forest D. Dorn 40 17 Vice President since February 1991 and General Business Manager since December 1993. Prior thereto General Manager - Operations since January 1992. Prior thereto Assistant Division Manager of the Southern Division. David H. Keyte 39 7 Vice President and Chief Accounting Officer since December 1993. Prior thereto Corporate Controller since January 1989. Chairman of the Company's Employee Benefits Committee, which assumed the duties of the Trustees of the Pension Trust and of the Administrative Committee of the Retirement Savings Plan in August 1994. Daniel L. McNamara 49 23 Secretary and Corporate Counsel since January 1991. Prior thereto Assistant Secretary and Associate Corporate Counsel. Member of the Company's Employee Benefits Committee, which assumed the duties of the Trustees of the Pension Trust and of the Administrative Committee of the Retirement Savings Plan in August 1994. Joan C. Sonnen 41 5 Controller since December 1993. Prior thereto Director of Financial Accounting and Reporting since April 1991 and Manager of Financial Systems and Reporting since July 1989. - - -------------------- *Also a Director (A) William L. Dorn and Forest D. Dorn are brothers, and they are nephews of John C. Dorn, a director of the Company. (B) The term of office of each officer is one year from the date of his or her election immediately following the last annual meeting of shareholders and until the officer's respective successor has been elected and qualified or until his or her earlier death, resignation or removal from office whichever occurs first. Each of the named persons has held the office indicated since the last annual meeting of shareholders, except as otherwise indicated.
2 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Forest Oil Corporation has one class of common equity securities outstanding. The Common Stock, par value $.10 per share, has one vote per share. During 1993, each share of the Class B Stock, par value $.10 per share, which had 10 votes per share, was reclassified into 1.1 shares of Common Stock pursuant to a vote of the shareholders. In the event of dissolution, liquidation or insolvency, holders of Common Stock share ratably in the net assets of Forest, subject to the liquidation rights of the holders of the $.75 Convertible Preferred Stock. The Company also has outstanding Warrants to purchase shares of its Common Stock. Each Warrant entitles the holder to purchase one share of Common Stock at a price of $3.00, is non-callable and expires on October 1, 1996. As of March 31, 1995, 28,250,647 shares of Common Stock were held by 2,060 recordholders and 1,244,715 Warrants were held by 80 recordholders. Subject to the prior right of the holders of Forest's $.75 Convertible Preferred Stock, the only restrictions on its present or future ability to pay dividends are (i) the provisions of the New York Business Corporation Law (NYBCL), (ii) certain restrictive provisions in the Indenture executed in connection with Forest's 11 1/4% Senior Subordinated Notes due September 1, 2003 pursuant to which the Company is currently prohibited from paying any cash dividends other than on its $.75 Convertible Preferred Stock, and (iii) the Company's Credit Agreement dated December 1, 1993 with The Chase Manhattan Bank (National Association), as agent, under which the Company is restricted in amounts it may pay as dividends (other than dividends payable in common stock). Under the dividend restrictions in the Credit Agreement, the Company is prohibited from paying cash dividends on its $.75 Convertible Preferred Stock after the February 1, 1995 dividend. While these restrictions are effective, subsequent dividends, when and as declared, will be paid in shares of Forest Oil Corporation Common Stock. There is no assurance that Forest will pay any dividends. For further information on Forest's ability to pay dividends on its Common Stock and $.75 Convertible Preferred Stock, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 4, 7 and 8 of Notes to Consolidated Financial Statements. The Company has one class of preferred stock outstanding. Annual dividends on the $.75 Convertible Preferred Stock are cumulative and are payable quarterly each February 1, May 1, August 1 and November 1, when and as declared. Dividends may be paid in cash or, at the Company's election, in shares of Common Stock or in a combination of cash and Common Stock. As described above, the Company is prohibited from paying cash dividends on its $.75 Convertible Preferred Stock after the February 1, 1995 dividend, due to restrictions contained in the Credit Agreement with its lending banks. While these restrictions are effective, subsequent dividends, when and as declared, will be paid in shares of Forest Oil Corporation Common Stock. Whenever dividends on the $.75 Convertible Preferred Stock have not been paid, the amount of the deficiency, plus an amount equal to the accumulated dividend for the then current quarterly dividend period, must be fully paid, or declared and set apart for payment, before any dividend may be declared and paid or set apart for payment upon the Common Stock, except for dividends paid in shares of Common Stock. Whenever $.75 Convertible Preferred Stock dividends are in arrears in an amount equivalent to six full quarterly dividends, the holders of the $.75 Convertible Preferred Stock, voting separately as a class and with one vote per share, will have the right to elect two directors. If two consecutive dividend payments are in arrears, the holder of each share of $.75 Convertible Preferred Stock will be entitled to a penalty conversion right enabling such holder to convert each such share, plus accumulated dividends, into a share of Common Stock during a two-day period 30 days after the second dividend payment date at a conversion price of 75% of the average of the last reported sales prices of the Common Stock during the period from such second dividend payment date to five trading days prior to the conversion date. The holder of each share of $.75 Convertible Preferred Stock has the right to convert each such share into 3.5 shares of Common Stock at any time. The conversion rate is subject to adjustment in certain events. 3 The $.75 Convertible Preferred Stock may be redeemed at the option of the Company, in whole or in part, upon notice duly given, at any time after the earlier of (i) July 1, 1996, and (ii) the date on which the last reported sales price of the Common Stock will have been $7.50 or higher for at least 20 of the prior 30 trading days, at the redemption prices set forth below, in each case with an amount equal to dividends (whether or not declared) accrued to the date fixed for redemption and remaining unpaid:
Redemption Price Per Redemption Period Share ----------------------------- ---------- July 1, 1994 to June 30, 1995 $10.33 July 1, 1995 to June 30, 1996 $10.17 July 1, 1996 and thereafter $10.00
As of March 31, 1995, 2,880,973 shares of $.75 Convertible Preferred Stock were held by 92 recordholders. Forest's Common Stock is traded on the National Market System of the National Association of Securities Dealers, Inc., Automated Quotation System (NASDAQ/NMS). The High and Low sales prices of the Common Stock for each quarterly period of the years presented as reported by the NASDAQ/NMS are listed in the chart below. The Class B Stock was not traded in any public trading market. There were no dividends on Common Stock or Class B Stock in 1993, 1994 or in the first quarter of 1995.
High Low ---- --- 1993 ---- First Quarter $ 4-1/2 $ 2-7/8 Second Quarter 5-13/16 4 Third Quarter 5-13/16 4-1/4 Fourth Quarter 5-7/16 3-5/16 1994 ---- First Quarter $ 4-3/4 $ 3-7/16 Second Quarter 4-9/16 3-7/16 Third Quarter 4-7/16 3-5/16 Fourth Quarter 3-7/16 2-1/8 1995 ---- First Quarter (through March 31) $ 2-3/8 $ 1-1/2
On March 31, 1995, the last reported sales price of the Common Stock as quoted on the NASDAQ/NMS was $2-5/16 per share. 4 The Warrants are traded on the NASDAQ/NMS. The High and Low sales prices of the Warrants for each quarterly period of the years presented as reported by the NASDAQ/NMS are listed in the chart below.
High Low ---- --- 1993 ---- First Quarter $ 2-3/8 $ 1-1/8 Second Quarter 3-5/8 2-1/16 Third Quarter 3-5/8 2-5/8 Fourth Quarter 3 1-3/4 1994 ---- First Quarter $ 2-3/4 $ 1-7/8 Second Quarter 2-1/2 1-3/4 Third Quarter 2-1/8 1-5/8 Fourth Quarter 1-5/8 1/2 1995 ---- First Quarter (through March 31) $ 5/8 $ 3/8
On March 31, 1995, the last reported sales price of the Warrants as quoted on the NASDAQ/NMS was $3/8 per Warrant. The $.75 Convertible Preferred Stock is traded on the NASDAQ/NMS. The High and Low sales prices of the $.75 Convertible Preferred Stock for each quarterly period of the years presented as reported by the NASDAQ/NMS are listed in the chart below.
Dividends High Low Paid (A) 1993 ---- --- ---------- ---- First Quarter $15-3/4 $ 10-3/4 0.068587 Second Quarter 20-1/8 14-1/4 0.057176 Third Quarter 20-5/8 15-1/2 0.038513 Fourth Quarter 18-3/4 12 0.044563 1994 ---- First Quarter $17 $ 13-1/2 $ .1875 Second Quarter 16-1/2 13-1/4 .1875 Third Quarter 16 12-1/2 .1875 Fourth Quarter 13 8-3/4 .1875 1995 ---- First Quarter (through March 31) $ 9-1/8 $ 6-1/2 $ .1875 (A) In 1993 the dividends on the $.75 Convertible Preferred Stock were paid in shares of Common Stock at the above stated rates. In 1994, the dividends on the $.75 Convertible Preferred Stock were paid in cash. On February 1, 1995, a cash dividend of $.1875 was paid to holders of record on January 10, 1995. On February 23, 1995 the Board of Directors declared a dividend payable in shares of Common Stock on May 1, 1995 to holders of record on April 10, 1995. The number of shares of Common Stock to be issued per share of the $.75 Convertible Preferred Stock will be 0.094693, determined in accordance with the formula for determining dividends payable.
On March 31, 1995, the last reported sales price of the $.75 Convertible Preferred Stock as quoted on the NASDAQ/NMS was $9-1/8 per share. 5 In October 1993, the Board of Directors adopted a shareholders' rights plan (the "Plan"). The Company issued a dividend of a preferred stock purchase right (the "Rights") on each outstanding share of Common Stock of the Company, which, after the Rights become exercisable, entitles the holder to purchase 1/100th of a share of a newly issued series of the Company's preferred stock at a purchase price of $30 per 1/100th of a preferred share, subject to adjustment. The Rights expire on October 29, 2003 unless extended or redeemed earlier. The Rights will become exercisable (unless previously redeemed or the expiration date of the Rights has occurred) following a public announcement that a person or group (an "Acquiring Person") has acquired 20% or more of the Common Stock or has commenced (or announced an intention to make) a tender offer or exchange offer for 20% or more of the Common Stock. In certain circumstances each holder of Rights (other than an Acquiring Person) will have the right to receive, upon exercise, (i) shares of Common Stock of the Company having a value significantly in excess of the exercise price of the Rights, or (ii) shares of Common Stock of an acquiring company having a value significantly in excess of the exercise price of the Rights. It is the Company's intention to amend the Plan to exclude from the provisions of the Plan shares of Common Stock acquired by The Anschutz Corporation pursuant to the transaction discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, "Liquidity and Capital Resources." For further information regarding the Company's equity securities and related stockholder matters, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto. 6 ITEM 6. SELECTED FINANCIAL AND OPERATING DATA The following table sets forth selected data regarding the Company as of and for each of the years in the five-year period ended December 31, 1994. This data should be read in conjunction with Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and Notes thereto.
Years Ended December 31, --------------------------------------------------- 1994(1) 1993 1992(2) 1991 1990 ---- ---- ---- ---- ---- (In Thousands Except per Share Amounts and Volumes) FINANCIAL DATA Revenue $115,947 105,148 113,186 69,897 84,824 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary items $(67,853) (9,355) 7,298 (34,850) (75,549) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) before extraordinary items $(81,843) (10,478) 7,298 (34,850) (75,549) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings (loss) $(81,843) (21,213) 7,298 (25,348) (75,549) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average number of common shares outstanding 28,097 21,997 13,774 12,494 12,307 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings (loss) attributable to common stock $(84,004) (23,463) 4,950 (30,557) (85,395) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Primary earnings (loss) per share: (3) Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary items $(2.49) (.53) .36 (3.21) (6.94) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Earnings (loss) before extraordinary items $(2.99) (.58) .36 (3.21) (6.94) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings (loss) attributable to common stock $(2.99) (1.07) .36 (2.45) (6.94) -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Total assets $324,832 426,755 378,532 296,189 339,676 Long-term obligations and redeemable preferred stock 271,128 288,588 250,672 203,136 220,508 Shareholders' equity 6,086 88,156 59,881 54,840 58,457 OPERATING DATA Annual production (4): Gas (MMCF) 48,048 41,114 29,174 23,877 31,415 Oil (MBBLS) 1,543 1,493 1,450 847 912 Average price received (4): Gas (per MCF) $1.90 1.88 1.70 1.84 2.06 Oil (per Barrel) 14.83 16.97 18.14 25.31 23.19 Capital expenditures $42,544 170,821 106,627 35,664 65,466 Overhead Costs $18,719 19,561 18,760 23,292 41,176 Proved Reserves (4): Gas (MMCF) 246,996 273,382 194,655 193,471 205,013 Oil (MBBLS) 7,532 8,198 7,560 5,315 6,559 Standardized measure of discounted future net cash flows relating to proved oil and gas reserves $207,463 258,917 187,761 157,921 241,303 Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments $230,149 299,053 227,009 188,069 241,303 Average spot price received at end of year Gas (per MCF) $1.77 2.48 2.38 2.01 2.32 Oil (per barrel) 15.50 12.00 18.00 17.75 27.60 (1) Effective January 1, 1994 the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method. See Note 1 of Notes to Consolidated Financial Statements. (2) The results for 1992 include the effects of the ONEOK settlement. (3) Fully diluted earnings (loss) per share was the same as primary earnings (loss) per share in all years except 1992. In 1992, fully diluted earnings per share was $.29. (4) Includes amounts attributable to required deliveries under volumetric production payments. See Notes 5 and 16 of Notes to Consolidated Financial Statements.
7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. RESULTS OF OPERATIONS NET EARNINGS (LOSS). The Company's net loss was $81,843,000 in 1994 compared to a net loss of $21,213,000 in 1993 and net earnings of $7,298,000 in 1992. There would have been a net loss of $16,745,000 in 1992 excluding the effects of the settlement of gas contract litigation with ONEOK Inc. (the ONEOK settlement). Earnings from operations (consisting of total revenue less oil and gas production expense and expensed general and administrative costs) increased in 1994 compared to 1993 as a result of increased natural gas production from acquisitions made throughout 1993; however, this increase was more than offset by a $58,000,000 writedown of the book value of the Company's oil and gas properties due to a ceiling test limitation and a charge of $13,990,000 to reflect the cumulative effects of a change in the Company's method of accounting for oil and gas sales from the sales ("takes") method to the entitlements method. Earnings from operations increased in 1993 compared to the 1992 results (excluding the effects of the ONEOK settlement) as a result of the acquisition of properties; however, this increase was more than offset by higher depreciation and depletion expense, an extraordinary loss of $10,735,000 (net of tax benefit of $4,652,000) recorded as a result of the redemption or purchase of all of the Company's 12 3/4% Senior Secured Notes and long-term subordinated debt and a charge of $1,123,000 to reflect the cumulative effects of changes in accounting principles related to postretirement benefits and income taxes. The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. As a result, earnings from operations for 1994 increased by $3,584,000. Earnings from operations for 1993 and 1992, on a pro forma basis, would have been higher by $5,393,000 and $8,868,000, respectively, as a result of this change in accounting method. The 1993 and 1992 amounts presented herein are not required to be restated to show the effects of this change. 8 The ONEOK settlement in 1992 had a significant impact on the Company's reported revenue, expense and net earnings. A summary of the Company's income and expenses for 1992, before and after the amounts recorded as a result of the ONEOK settlement, is as follows:
Year ended Effects of December 31, 1992 Year ended ONEOK excluding ONEOK December 31, 1992 settlement settlement ----------------- ---------- ----------------- (In Thousands) REVENUE: Oil and gas sales $ 99,239 22,392 76,847 Miscellaneous, net 13,947 15,149 (1,202) ------ ------ ------ Total revenue 113,186 37,541 75,645 EXPENSES: Oil and gas production 15,865 1,589 14,276 General and administrative 11,611 (477) 12,088 Interest 27,800 - 27,800 Depreciation and depletion 46,624 - 46,624 ------ ------ ------ Total expenses 101,900 1,112 100,788 ------- ------ ------- Earnings (loss) before income taxes 11,286 36,429 (25,143) Income tax expense Current 435 - 435 Deferred expense (benefit) 3,553 12,386 (8,833) ------ ------ ----- 3,988 12,386 (8,398) ------ ------ ----- Net earnings $ 7,298 24,043 (16,745) ------ ------ ------ ------ ------ ------
The inclusion of the effects of the ONEOK settlement in a discussion of the Company's results of operations distorts the trends which would otherwise be reported. In the discussion which follows, results for 1992 exclude the effects of the ONEOK settlement in order to more meaningfully compare and discuss the Company's results of operations for 1994, 1993 and 1992. REVENUE. Total revenue increased 10% to $115,947,000 in 1994 from $105,148,000 in 1993, and increased 39% in 1993 from $75,645,000 in 1992. Oil and gas sales increased to $114,541,000 from $102,883,000, or by approximately 11%, in 1994 compared to 1993 due primarily to increased natural gas production from properties acquired throughout 1993 and the effects of the change in method of accounting for oil and gas sales, partially offset by normal production declines. In 1994, natural gas production volumes were up 17% compared to 1993 while oil production volumes were 3% higher. The increase in revenue attributable to increased production was partially offset by a 13% decrease in the average sales price for oil. The average sales price for natural gas in 1994 did not differ significantly from the 1993 price. Oil and gas sales increased to $102,883,000 from $76,847,000, or by approximately 34%, in 1993 compared to 1992 due primarily to increased production from newly-acquired properties and an 11% increase in the average sales price for natural gas. In 1993, oil production volumes were up 3% and natural gas production volumes were up 41% compared to 1992. The increase in revenue attributable to the increased production was partially offset by a 6% decrease in the average sales price for oil. 9 The production volumes and average sales prices for the years ended December 31, 1994, 1993 and 1992 for Forest and its wholly-owned subsidiaries were as follows:
Years Ended December 31, ------------------------------------ 1994 1993 1992 ---- ---- ---- NATURAL GAS Production under long-term fixed price contracts (MMCF) (1) 16,656 19,065 9,689 Average contract sales price (per MCF) $ 1.78 1.65 1.67 Production sold on the spot market (MMCF) 31,392 22,049 19,485 Spot sales price received (per MCF) (2) $ 1.90 2.21 1.78 Effects of energy swaps (per MCF) (3) .06 (.13) (.07) ------ ------ ------ Average spot sales price (per MCF) (2) $ 1.96 2.08 1.71 Total production (MMCF) 48,048 41,114 29,174 Average sales price (per MCF) $ 1.90 1.88 1.70 OIL AND CONDENSATE (1)(4) Total production (MBBLS) 1,543 1,493 1,450 Average sales price (per BBL) $ 14.83 16.97 18.14 - - ------------------ (1) Production under long-term fixed price contracts includes scheduled deliveries under volumetric production payments, net of royalties. For further information concerning volumes and prices recorded under volumetric production payments, see "Liquidity and Capital Resources -- Volumetric Production Payments" and Notes 5 and 16 of Notes to Consolidated Financial Statements. (2) The 1992 amounts exclude $1.15 per MCF attributable to the ONEOK settlement. Including such amount, the spot sales price received and the average spot sales price for natural gas were $2.93 and $2.86 per MCF, respectively. (3) Energy swaps were entered into to hedge the price of spot market volumes against price fluctuation. Hedged volumes were 12,184 MMCF, 8,057 MMCF and 4,691 MMCF for the years ended December 31, 1994, 1993 and 1992, respectively. (4) Oil and condensate production is sold primarily on the spot market. An immaterial amount of production is covered by long-term fixed price contracts, including scheduled deliveries under volumetric production payments.
10 Natural gas delivered pursuant to volumetric production payment agreements and other long-term fixed price contracts represented approximately 35% of total production in 1994 versus 46% in 1993 and 33% in 1992. In recent years, the industry trend has been for more natural gas to be sold on the spot market as long-term contracts expire. The overall increase experienced by Forest in natural gas sold under long-term fixed price contracts over the three year period presented herein was the result of the Company entering into volumetric production payments. Miscellaneous net revenue of $1,406,000 in 1994 included income from the sale of miscellaneous pipeline systems and equipment and the reversal of an accounts receivable reserve, partially offset by a reserve for settlement of a royalty dispute and a payment of deferred maintenance costs of a real estate complex used for general business purposes. Miscellaneous net revenue of $2,265,000 in 1993 included $1,380,000 of interest income on short-term investments and an adjustment to reduce accrued severance taxes based on discussions with the applicable state taxing authorities. The net expense of $1,202,000 in 1992 was primarily attributable to a $926,000 provision for future rent payments on vacated office space. OIL AND GAS PRODUCTION EXPENSE. Oil and gas production expense increased 15% to $22,384,000 in 1994 compared to $19,540,000 in 1993 due primarily to increased natural gas production as a result of property acquisitions throughout 1993, partially offset by a decrease in workover expenses and a general decrease in expenses due to the sale of properties. Oil and gas production expense increased 37% to $19,540,000 in 1993 compared to $14,276,000 in 1992, due primarily to increased production from newly acquired properties and increased workover expense. In 1994 and 1993, production expense was approximately $.39 on an MCFE basis compared to $.38 in 1992. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased 7% to $11,166,000 in 1994 compared to $12,003,000 in 1993. Decreases in salaries, wages and burden from the termination of executives and middle level managers and increases in production operation credits were partially offset by increases in insurance and office and storage rental expenses. General and administrative expense for 1993 was $12,003,000 compared to $12,088,000 in 1992. Increases attributable to severance and employee relocation costs and the effects of the postretirement medical benefit accrual in 1993 were more than offset by lower office and storage rentals and lower professional services expense. The capitalization rate remained relatively constant from 1992 to 1994. Total overhead costs, including amounts related to exploration and development activities, were $18,719,000 in 1994, $19,561,000 in 1993 and $19,237,000 in 1992. Excluding the severance and employee relocation costs in 1993 described below, total overhead costs were approximately 8% higher in 1994 than in 1993. This increase is primarily due to an increase in storage rentals and higher insurance expense attributable to a larger asset base, partially offset by a decrease in salaries, wages and burden from the termination of executives and middle level managers as described below. The increase in 1993 from 1992 was only 2% despite charges amounting to $2,300,000 for severance and employee relocation costs and $480,000 for postretirement medical benefits; without these charges, total overhead costs would have decreased by approximately 13% in 1993 compared to 1992. Severance and employee relocation costs of approximately $2,300,000 in 1993 resulted from the termination of 10 executives and middle level managers and a loss incurred on an employee's former residence in accordance with the Company's relocation policy. The following table summarizes the total overhead costs incurred during the periods:
Years Ended December 31, ---------------------------- 1994 1993 1992 ----- ----- ----- (In Thousands) Overhead costs capitalized $ 7,553 7,558 7,149 General and administrative costs expensed 11,166 12,003 12,088 ------ ------ ------ Total overhead costs $ 18,719 (A) 19,561 (B) 19,237 ------ ------ ------ ------ ------ ------ (A) Includes $510,000 for postretirement medical benefits. (B) Includes approximately $2,300,000 of severance and employee relocation costs and $483,000 for postretirement medical benefits.
11 RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the Company entered into retirement agreements with seven executives and directors ("Retirees") pursuant to which the Retirees will receive supplemental retirement payments totalling approximately $1,127,700 per year through 1996, $1,087,400 in 1997, $938,400 in 1998 and approximately $740,400 per year in 1999 and 2000. The liability to the Retirees was recorded in 1990 and 1991. INTEREST EXPENSE. Interest expense of $26,773,000 increased $3,044,000 or 13% compared to 1993 due to higher loan balances as a result of recent capital spending. Interest expense of $23,729,000 in 1993 decreased $4,071,000 or 15% compared to 1992, primarily due to redemptions or purchases of certain of the Company's subordinated debentures and 12 3/4% Senior Secured Notes in 1993, partially offset by the interest expense incurred in connection with the Company's new 11 1/4% Senior Subordinated Notes. DEPRECIATION AND DEPLETION EXPENSE. Depreciation and depletion expense increased 8% to $65,468,000 in 1994 from $60,581,000 in 1993 due to increased production in the 1994 period as a result of property acquisitions. Depreciation and depletion expense increased 30% to $60,581,000 in 1993 from $46,624,000 in 1992 due to increased production in the 1993 period as a result of property acquisitions and workovers. The depletion rate was $1.13 per MCFE for U.S. production in 1994 compared to corresponding rates of $1.19 for U.S. production in 1993 and $1.21 for U.S. production and $1.19 for Canadian production in 1992. IMPAIRMENT OF OIL AND GAS PROPERTIES. The Company recorded a writedown of its oil and gas properties of $58,000,000 in 1994 due primarily to a decrease in spot market prices for natural gas. The Company could have chosen to lessen or completely eliminate the need for a writedown by entering into financial derivatives (swaps) and locking in future natural gas prices. The Company would have had to contract a significant portion of its natural gas reserve base to avoid the entire writedown. Company management decided not to enter into such contracts because it believes the natural gas market is now at a cyclical low, and such arrangements would ultimately be detrimental to the Company's shareholders. In addition, the Company considered but chose not to adopt successful efforts accounting. It is management's belief that full cost accounting remains the most appropriate method of accounting for the Company's current mix of operations, despite the quarterly ceiling test requirement. Additional writedowns of the full cost pool may be required if prices decrease, undeveloped property values decrease, estimated proved reserve volumes are revised downward or costs incurred in exploration, development, or acquisition activities exceed the discounted future net cash flows from the additional reserves, if any. The average Gulf Coast spot price received by the Company for natural gas declined from $1.77 per MCF at December 31, 1994 to $1.59 per MCF at April 1, 1995. The West Texas Intermediate price for crude oil increased from $15.50 per barrel at December 31, 1994 to $17.25 per barrel at April 1, 1995. Based on April 1, 1995 prices the standardized measure of discounted future net cash flows, exclusive of amounts attributable to volumetric production payments, would have been approximately $193,600,000 at December 31, 1994. CHANGES IN ACCOUNTING The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993, was a charge of $13,990,000. The effect of this change on 1994 was an increase in earnings from operations of $3,584,000 and an increase in 12 production volumes of 1,555,000 MCF. There were no related income tax effects in 1994. As the Company adopted this change in the fourth quarter of 1994, previously reported 1994 quarterly information has been restated to reflect the change effective January 1, 1994. See Note 15 for restated selected quarterly financial data. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (SFAS No. 106) required the Company to accrue expected costs of providing postretirement benefits to employees and the employees' beneficiaries and covered dependents. The Company adopted the provisions of SFAS No. 106 in the first quarter of 1993. The estimated accumulated postretirement benefit obligation as of January 1, 1993 was approximately $4,822,000. This amount, reduced by applicable income tax benefits, was charged to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. The annual net postretirement benefit cost (included in total overhead costs) was approximately $510,000 for 1994 and $483,000 for 1993. Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109), required the Company to adopt the liability method of accounting for income taxes. The Company adopted such method on a prospective basis as of January 1, 1993 and, as such, prior periods have not been restated. The cumulative effect of adopting SFAS No. 109 as of January 1, 1993 resulted in a reduction of the net amount of deferred income taxes recorded as of December 31, 1992 of approximately $2,060,000. This amount was credited to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. LIQUIDITY AND CAPITAL RESOURCES RECENT DEVELOPMENTS. On April 17, 1995, the Company signed letters of intent with The Anschutz Corporation (Anschutz) and with Joint Energy Development Investments Limited Partnership (JEDI), an affiliate of Enron Corp. in each case as described below. The Anschutz letter of intent contemplates that Anschutz will purchase 18,800,000 shares of the Company's common stock and shares of newly-issued preferred stock that are convertible into 6,200,000 additional shares of common stock for a total consideration of $45.0 million, or $1.80 per share. The preferred stock will have a liquidation preference and will receive dividends ratably with the common stock. The investment will be made in two closings. In the first closing, expected to occur in early May 1995, Anschutz will loan the Company $9.9 million for a term of 9 months. The loan will bear interest at 8% per annum for 16 weeks and at 12.5% per annum thereafter. The loan will be secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd. and certain other assets acceptable to Anschutz. The loan may be converted into 5,500,000 shares of Forest's common stock at Anschutz's election, but the loan must be so converted at the second closing. At the second closing, expected to occur by July 1995 following receipt of shareholder approval of the transactions contemplated by the letter of intent, Anschutz will purchase 13,300,000 shares of common stock and the convertible preferred stock. In connection with this purchase, Anschutz will agree to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing, including (a) a limit on voting, subject to certain exceptions, that would require Anschutz to vote all shares of common stock acquired by Anschutz in the transaction in excess of an amount equal to 19.99% of the shares of common stock then outstanding in the same proportion as all other shares of common stock are voted, (b) a limit on the number of persons associated with Anschutz that may at any time be elected as directors of the Company and (c) a limit on the acquisition of additional shares of common stock by Anschutz (whether pursuant to the exercise of the $2.10 warrants or the option received from JEDI, each as described below, or otherwise), subject to certain exceptions, that would prohibit any acquisition by Anschutz that would result in Anschutz owning 40% or more of the shares of common stock then issued and outstanding. While the foregoing limitations are in effect, Anschutz will have a minority representation on the board of directors. The JEDI letter of intent contemplates that, at the second closing referred to above, Forest and JEDI will restructure JEDI's existing loan currently having a principal balance of approximately $62.1 million. In exchange for certain warrants referred to below, JEDI will relinquish the net profits interest that it holds in certain Forest properties and will reduce the interest rate relating to the loan. As a result of the loan restructuring and the issuance of the warrants, the Company anticipates a reduction of the recorded amount of the related liability to approximately $45.0 million and a reduction of interest expense of approximately $2.1 million per annum. The JEDI letter of intent also contemplates that, at the second closing, JEDI will receive warrants to purchase 11,250,000 shares of the Company's common stock for $2.00 per share and warrants to purchase 19,444,444 shares of common stock at $2.10 per share. The $2.00 warrants expire on December 31, 2002, except that, in certain circumstances, the Company may terminate the warrants at any time beginning 36 months after the second closing if the average closing price of the common stock for both the 90 day and 15 day periods immediately preceding the termination is in excess of $2.50 per share. For the first 36 months after the second closing, the $2.00 warrants may be exercised only on the dates and in the respective numbers of shares required to be delivered by JEDI to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz, as described below. The $2.10 warrants are exercisable during the first 18 months after the second closing, subject to extension in certain circumstances to 36 months after the second closing. The letters of intent also contemplate that, at the second closing, JEDI will assign to Anschutz the $2.10 warrants and will grant to Anschutz an option to purchase up to 11,250,000 shares of common stock during the first 36 months after the second closing. The letters of intent require the Company to pay Anschutz and JEDI certain fees and expenses in connection with the letters of intent and the transactions contemplated thereby in certain circumstances. The Anschutz letter of intent requires the Company to pay to Anschutz a fee (called a subsequent event fee) of up to $2,500,000 upon the occurrence of certain events prior to the second closing (or, if the second closing does not occur, April 17, 1996), such as a merger, consolidation or other business combination between the Company and a 13 person other than Anschutz. In the Anschutz letter of intent, the Company has agreed not to solicit proposals for transactions that would require the Company to pay a subsequent event fee and to keep Anschutz generally informed regarding the receipt and disposition by the Company of proposals regarding such transactions made by other persons. The transactions contemplated by the letters of intent are subject to, among other things, the preparation and execution of definitive documentation satisfactory to the parties and to the approval of Forest's board of directors and certain of its creditors. The purchase by Anschutz of common stock at the second closing, the restructure of JEDI's existing loan and the transactions between Anschutz and JEDI described above are also subject to, among other things, the prior approval of Forest's shareholders and Hart-Scott-Rodino clearance. The Company believes that short-term and long-term liquidity would be significantly improved by the conclusion of the transactions, described above. Although the Company believes that the conditions to the closing of the transactions can be satisfied, there can be no assurance that the transactions will close on the terms and on the dates referred to above, or at all. SHORT-TERM LIQUIDITY. During 1994 and the first quarter of 1995, the Company's operating cash flows and working capital were adversely affected by a severe industry-wide decline in the price of natural gas. The prices the Company receives for its future oil and natural gas production will significantly impact future operating cash flows. No prediction can be made as to the prices the Company will receive for its future oil and gas production. Since December 31, 1994, the Company has taken steps and committed to certain actions to address its short-term liquidity needs, including the recent developments described above. Key short-term actions taken and committed to are set forth below. The Company has reduced its budgeted general and administrative expenditures for 1995 principally through a workforce reduction in March 1995. As a result, total overhead for 1995 is expected to decrease by approximately $4,000,000 compared to 1994 or by approximately 20%. In response to current market conditions, the Company has reduced its budgeted capital expenditures to those required to maintain its producing oil and gas properties as well as certain essential development, drilling and other activities. The Company's 1995 budgeted expenditures for exploration and development are approximately $5,700,000, and $12,300,000, respectively, including capitalized overhead of $2,300,000 and $3,600,000, respectively. The planned levels of capital expenditures could be further reduced if the Company experiences lower than anticipated net cash provided by operations or other liquidity needs. The Company has a secured credit facility (the Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit Facility, the Company may borrow up to $17,500,000 for acquisition or development of proved oil and gas reserves and up to $32,500,000 for working capital and general corporate purposes, subject to semi-annual redetermination at the banks' discretion. The total borrowing capacity of the Company under the Credit Facility is $50,000,000. In March 1995, the banks completed their most recent semi-annual redetermination of the Credit Facility and advised the Company that the maximum borrowing capacity would be maintained at $50,000,000. However, the amount of the maximum borrowings under the Credit Facility is at the discretion of the banks and is subject to change at any time. The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries, and a negative pledge on remaining assets. The maturity date of the Credit Facility is December 31, 1996. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests (which may from time to time restrict the Company's activities), including restrictions or requirements with respect to working capital, net cash flow, additional debt, asset sales, mergers, cash dividends on capital stock and reporting responsibilities. At December 31, 1994 the outstanding balance under this facility was $33,000,000, and the Company was in compliance with the covenants of the Credit Facility. The Company currently anticipates that it may not meet the Credit Facility's working capital and/or interest coverage ratio tests during 1995. Management believes that any instances of noncompliance can be cured within the period of time permitted or that waivers can be obtained from the banks, although there can be no assurance that this will be the case. At March 31, 1995, the outstanding balance under the Credit Facility was $45,000,000. The Company has used the facility for a $1,500,000 letter of credit, leaving an available borrowing capacity of $3,500,000, which the Company intends to use to meet monthly cash flow requirements. On April 13, 1995 Forest sold to a bank a participation interest in Forest's claim in a bankruptcy proceeding as described in Item 3. Legal Proceedings. Consideration received consisted of a $4,000,000 nonrecourse loan, in exchange for which the bank will receive, solely from the proceeds of the bankruptcy claim, an amount equal to the loan principal plus accrued interest at 16.5% per annum plus 25% of the excess, if any, of the proceeds over the loan principal and interest. The Company may, under certain conditions, limit the overall cost of financing to 23.5% per annum by exercising its option to repurchase the bank's interest in the bankruptcy claim prior to receipt of any proceeds of the claim. Proceeds from this sale will be used for working capital needs. Based on the Company's actions taken to date and its plans, including the recent developments described above, management believes the Company will have adequate sources of short-term liquidity to meet its working capital needs, fund capital expenditures at reduced levels, and meet its current debt service obligations. CASH FLOW. Historically, one of the Company's primary sources of capital has been funds provided by operations, which has varied dramatically in prior periods depending upon factors such as natural gas contract settlements and price fluctuations which are difficult to predict. 14 The following summary table reflects comparative cash flows for the Company for the periods ended December 31, 1994, 1993 and 1992:
Years Ended December 31, ------------------------------- 1994 1993 1992 ----- ------ ----- (In Thousands) Funds provided by operations (A) $ 60,987 52,667 24,433 (B) Net cash provided by operating activities 42,546 41,722 45,991 (C) Net cash used by investing activities (32,307)(D) (170,134) (83,354) Net cash provided (used) by financing activities (14,231) 71,886 30,846 (A) Funds provided by operations consists of net cash provided by operating activities adjusted for the change in working capital and non-cash items. (B) Excludes $36,429,000 of net proceeds associated with the ONEOK settlement. (C) Excludes $51,250,000 of revenue associated with the ONEOK settlement in 1992. (D) Includes approximately $4,400,000 representing repayment of an advance by the Company's Canadian affiliate.
LONG-TERM LIQUIDITY. The Company has historically addressed its long-term liquidity needs through the use of nonrecourse production-based financing and through issuance of debt and common stock when market conditions permit. Significant events affecting the Company's long-term liquidity over the past few years are discussed below. In December, 1992, the Company received gross proceeds of $51,250,000 as a result of the ONEOK settlement. The net proceeds, after payment of related royalties and production taxes, were approximately $36,429,000. Pursuant to the terms of its 12 3/4% Senior Secured Notes, the Company was required to make an offer to purchase $16,000,000 principal amount of the 12 3/4% Senior Secured Notes at a purchase price of 100% of their principal amount plus accrued interest to the date of purchase. Pursuant to such offer, the Company purchased approximately $3,926,000 principal amount of 12 3/4% Senior Secured Notes in February, 1993. The remainder of the net proceeds were used for general corporate purposes, including working capital, debt reduction and the acquisition of oil and gas properties. On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00 per share in a public offering. The net proceeds from the issuance of the shares totalled approximately $51,506,000 after issuance costs and underwriting fees, of which the Company used approximately $30,300,000 to purchase or redeem a portion of its 12 3/4% Senior Secured Notes. The remainder of the net proceeds was used for general corporate purposes, including working capital, debt reduction and the acquisition of oil and gas properties. On September 8, 1993, the Company completed a public offering of $100,000,000 aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1, 2003. The 11 1/4% Senior Subordinated Notes were issued at a price of 99.259% yielding 11.375% to the holders. On October 13, 1993 the Company used the net proceeds from the sale of the 11 1/4% Senior Subordinated Notes of approximately $95,827,000, together with approximately $19,400,000 of available cash, to redeem all of its outstanding 12 3/4% Senior Secured Notes and long-term subordinated debentures. On November 9, 1993, the Company purchased $308,000 principal amount of its 5 1/2% Convertible Subordinated Debentures. The remaining $7,171,000 principal amount of the 5 1/2% Debentures was redeemed February 1, 1994. On December 30, 1993, the Company entered into a nonrecourse secured loan agreement (the Enron loan) arranged by Enron Finance Corp., an affiliate of Enron Gas Services. For a further discussion of the Enron loan, see "Nonrecourse Secured Loan and Dollar-Denominated Production Payment" below. This financing provided acquisition capital, and capital to execute Forest's exploitation strategy. 15 Many of the factors which may affect the Company's future operating performance and long-term liquidity are beyond the Company's control, including, but not limited to, oil and natural gas prices, governmental actions and taxes, the availability and attractiveness of properties for acquisition, the adequacy and attractiveness of financing and operational results. The Company continues to examine alternative sources of long-term liquidity, including public and private issuances of equity and refinancing debt with equity. VOLUMETRIC PRODUCTION PAYMENTS. Through December 31, 1994, the Company received approximately $139,058,000 (net of fees) from the sale of volumetric production payments and, in return, committed to deliver from the subject properties approximately 80.1 BCF of natural gas and 770,000 barrels of oil to entities associated with Enron Corp. (Enron). As of December 31, 1994, the volumes remaining to be delivered were approximately 19.1 BCF of natural gas and 261,000 barrels of oil. Amounts received for volumetric production payments are recorded as deferred revenue, which is amortized as sales are recorded based upon the scheduled deliveries under the production payment agreements. The Company is required to deliver the scheduled volumes from the subject properties or to make a cash payment for volumes produced but not delivered, in combination not to exceed a specified percentage of monthly production. If production levels are not sufficient to meet scheduled delivery commitments, the Company must account for and make up such shortages, at market-based prices, from future production. The purchaser of a volumetric production payment determines the amount paid to the Company for the production payment by calculating the net present value of the scheduled deliveries priced using the purchaser's assumed future prices. However, the sales price per MCFE recorded by the Company upon delivery of production payment volumes is determined by dividing the net proceeds from the sale of the production payment by the total volumes scheduled to be delivered. This price is therefore fixed at the inception of the production payment and does not change. There is no interest expense recorded with respect to a volumetric production payment, the interest factor having been effectively netted against the calculated sales price. In addition, the Company must pay applicable royalties on volumes delivered and is responsible for production- related costs associated with operating the properties subject to the production payment agreements. These accounting treatments should be considered when assessing the Company's financial statements and related information, including information presented with respect to cash flows and average prices for volumes sold under fixed contracts. Deferred revenue relating to production payments was $35,908,000 as of December 31, 1994. The annual amortization of deferred revenue and the corresponding delivery and net sales volumes are set forth below:
Net sales volumes Volumes required to be attributable to production delivered to Enron payment deliveries (1) ---------------------- -------------------------- Annual amortization Natural Natural of deferred revenue Oil Gas Oil Gas (In Thousands) (MBBLS) (MMCF) (MBBLS) (MMCF) ------------------- ----- ---- ----- ---- 1995 $ 20,770 174 11,045 145 8,899 1996 7,546 87 3,721 74 2,998 1997 2,439 -- 1,410 -- 1,136 1998 1,593 -- 892 -- 719 Thereafter 3,560 -- 1,994 -- 1,606 ----- -- ----- -- ----- $ 35,908 261 19,062 219 15,358 ------ --- ------ --- ------ ------ --- ------ --- ------ (1) Represents volumes required to be delivered to Enron net of estimated royalty volumes.
NONRECOURSE SECURED LOAN AND DOLLAR-DENOMINATED PRODUCTION PAYMENT. Under the terms of the Enron loan agreement and the dollar-denominated production payment, the Company is required to make payments based on the net proceeds, as defined, from certain subject properties. The terms of the Enron loan will be restructured based on the terms of a letter of intent as described in "Recent Developments." 16 The Enron loan, which bears annual interest at the rate of 12.5%, was recorded at a discounted amount to reflect the conveyance to the lender of a 20% interest in the net profits, as defined, of properties located in south Texas. At December 31, 1994 the principal amount of the loan was $61,717,000 and the recorded liability was $57,840,000. Under the terms of the Enron loan, additional funds may be advanced to fund a portion of the development projects which will be undertaken by the Company on the properties pledged as security for the loan. Payments of principal and interest under the Enron loan are due monthly and are equal to 90% of total net operating income from the secured properties, reduced by 80% of allowable capital expenditures, as defined. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that 1995 payments will reduce the recorded liability by approximately $524,000. Estimated liability reductions, including required principal payments, for 1996 through 1999, under the same production, pricing, capital expenditure and discount scenario are approximately $11,280,000, $18,741,000, $15,119,000 and $9,113,000, respectively. Payments, if any, under the net profits conveyance will commence upon repayment of the principal amount of the Enron loan and will cease when the lender has received an internal rate of return, as defined, of 18% (15.25% through December 31, 1995). Properties to which approximately 22% of the Company's estimated proved reserves are attributable, on an MCFE equivalent basis, are dedicated to repayment of the Enron loan. Under the provisions of the Enron loan, the Company is required to make periodic principal payments, beginning in February 1996, if the outstanding balance of the loan exceeds specified balances and the cash flow (as defined) from the mortgaged properties is less than specified minimums. Based upon current projections, the Company anticipates that these provisions will require a significant principal payment in February 1996 to avoid an event of default. As described above, the Company has signed a letter of intent to restructure the loan. The original amount of the dollar-denominated production payment was $37,550,000, which was recorded as a liability of $28,805,000 after a discount to reflect a market rate of interest. At December 31, 1994 the remaining principal amount was $23,373,000 and the recorded liability was $18,534,000. Under the terms of this production payment, the Company must make a monthly cash payment which is the greater of a base amount or 85% of the net proceeds from the subject properties, as defined, except that the amount required to be paid in any given month shall not exceed 100% of the net proceeds from the subject properties. The Company retains a management fee equal to 10% of sales from the properties, which is deducted in the calculation of net proceeds. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that 1995 payments will reduce the recorded liability by approximately $1,112,000. Estimated liability reductions for 1996 through 1999, under the same production, pricing, capital expenditure and discount scenario are approximately $811,000, $1,177,000, $2,988,000 and $4,220,000, respectively. Properties to which approximately 8% of the Company's estimated proved reserves are attributable, on an MCFE basis, are dedicated to this production payment financing through July 1999. HEDGING PROGRAM. In addition to the volumes of natural gas and oil dedicated to volumetric production payments, the Company has also used energy swaps and other financial agreements to hedge against the effects of fluctuations in the sales prices for oil and natural gas. In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed upon third-party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. At December 31, 1994, the Company had natural gas swaps and collars for an aggregate of approximately 27.5 BBTU (billion British Thermal Units) per day of natural gas during 1995 at fixed prices (NYMEX basis) ranging from $1.90 to $2.38 per MMBTU (million British Thermal Units) and an aggregate of approximately 16.7 BBTU per day of natural gas during 1996 at fixed prices and floors ranging from $1.96 to $2.37 per MMBTU. At December 31, 1994 the Company had oil swaps for an aggregate of approximately 1,300 barrels per day of oil during 1995 at fixed prices ranging from $16.70 to $17.75 (NYMEX basis) and an aggregate of approximately 1,000 barrels per day of oil from January, 1996 through June, 1996 at fixed prices ranging from $16.70 to $17.75 per barrel. 17 OPTION AGREEMENT. In 1993, under another agreement (the Option Agreement), the Company paid a premium of $516,000 in conjunction with the closing of the Enron loan agreement. The payment of this premium gave Forest the right to set a floor price of $1.70 per MMBTU on a total of 18,400 BBTU of natural gas over a five year period commencing January 1, 1995. In order to exercise this right to set a floor, the Company must pay an additional premium of 10 CENTS per MMBTU, effectively setting the floor at $1.60 per MMBTU. The option agreement is broken into five calendar year periods with the option for each calendar year expiring four trading days prior to the last trading day for the January NYMEX contract for that year. The Company was able to sell its 1995 option, covering approximately 4,300 BBTU, for $25,000 a few days prior to expiration when the 1995 swap price was approximately $1.73 per MMBTU. The options for calendar years 1996 through 1999 remain in place. SUMMARY OF CASH FLOW CONSIDERATIONS AND EXPOSURE TO PRICE AND RESERVE RISK. Pursuant to certain of the Company's financing arrangements, significant amounts of production are contractually dedicated to production payments and the repayment of nonrecourse debt over the next five years (dedicated volumes). The dedicated volumes decrease over the next five years and also decrease as a percentage of the Company's total production during this period. The production volumes not contractually dedicated to repayment of nonrecourse debt (undedicated volumes) are relatively stable but increase as a percentage of the Company's total production over the next five years. This relative stability of undedicated volumes is due to the fact that the decrease in dedicated volumes corresponds generally to the Company's estimates of the decrease in its total production. In the Company's opinion, the relative stability of undedicated volumes should provide a more constant level of cash flow available for corporate purposes other than debt repayment. The following table presents, on a percentage basis, the Company's estimates of dedicated and undedicated volumes as a percentage of estimated total production:
1995 1996 1997 1998 1999 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Dedicated volumes 47% 44% 38% 39% 39% 18% 33% Undedicated volumes 53 56 62 61 61 82 67 --- --- --- --- --- --- --- Total production 100% 100% 100% 100% 100% 100% 100% --- --- --- --- --- --- --- --- --- --- --- --- --- ---
As a result of volumetric production payments, energy swaps and fixed contracts, the Company currently estimates that approximately 59% of its natural gas production and 51% of its oil production will not be subject to price fluctuations from January 1995 through December 1995. It is estimated that existing volumetric production payments, energy swaps, collars and fixed contracts currently cover approximately 41% (including the option to purchase the $1.70 floor described above) of the Company's natural gas production and 23% of its oil production for the year ending December 31, 1996. Currently, it is the Company's intention to commit no more than 75% of its anticipated total production and no more than 85% of its anticipated undedicated production to such arrangements at any point in time. See "Hedging Program" above. The Company's hedging strategy for dedicated volumes differs from that for undedicated volumes. The Company believes that hedging of dedicated volumes provides for greater assurance of debt repayment and decreased financial risk. The Company believes that hedging undedicated volumes is also warranted in order to facilitate its short-term planning and budgeting. The Company has not hedged significant amounts of undedicated volumes beyond 36 months. The Company may consider long-term hedging of undedicated volumes in the future if product prices rise to significantly higher levels. The Company believes that stability of cash flow should be considered by separately reviewing its hedge position relative to dedicated volumes and undedicated volumes. The following table reflects the estimated hedge position as a percentage of the Company's undedicated volumes:
1995 1996 1997 1998 1999 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Volumes not hedged 61% 79% 84% 99% 99% 100% 91% Volumes hedged 39 21 16 1 1 0 9 -- -- -- -- -- --- -- Total undedicated volumes 100% 100% 100% 100% 100% 100% 100% --- --- --- --- --- --- --- --- --- --- --- --- --- ---
18 The Company believes it is important to hedge volumes dedicated to production payments or required to repay debt. The following table reflects the estimated hedge position as a percentage of the Company's dedicated volumes. (Volumes attributable to volumetric production payments are treated as hedged for purposes of this presentation):
1995 1996 1997 1998 1999 Thereafter Total ---- ---- ---- ---- ---- ---------- ----- Volumes not hedged 21% 39% 49% 69% 74% 91% 55% Volumes hedged 79 61 51 31 26 9 45 -- -- -- -- -- -- -- Total dedicated volumes 100% 100% 100% 100% 100% 100% 100% --- --- --- --- --- --- --- --- --- --- --- --- --- ---
Estimates of commercially recoverable oil and gas reserves and of the future net cash flows therefrom are based upon a number of variable factors and assumptions, such as historical production from the subject properties, comparison with other producing properties, the assumed effects of regulation by governmental agencies and assumptions concerning future oil and gas prices and future operating costs, severance and excise taxes, abandonment costs, development costs and workover and remedial costs, all of which may in fact vary considerably from actual results. All such estimates are to some degree speculative. Actual production, revenues, severance and excise taxes, development expenditures, workover and remedial expenditures, abandonment expenditures and operating expenditures with respect to the Company's reserves will likely vary from such estimates, and such variances may be material. 19 CAPITAL EXPENDITURES. The Company's expenditures for property acquisition, exploration and development for the past three years, were as follows:
Years Ended December 31, ------------------------------------------ 1994 1993 1992 ---- ---- ---- (In Thousands) Property acquisition costs: Proved properties $ 9,553 121,882 70,466 Undeveloped properties 209 23,034 18,306 ------ ------- ------- 9,762 144,916 88,772 Exploration costs: Direct costs $15,229 4,923 1,391 Overhead capitalized 464 510 906 ------ ------- ------- 15,693 5,433 2,297 Development costs: Direct costs $10,000 13,424 9,315 Overhead capitalized 7,089 7,048 6,243 ------ ------- ------- 17,089 20,472 15,558 ------ ------- ------- $42,544 170,821 106,627 ------ ------- ------- ------ ------- -------
In 1994, the Company's property acquisition expenditures of $9,762,000 resulted in proved reserve additions of an estimated 8.2 BCF of natural gas and 17,000 barrels of oil, as measured at the closing dates of the acquisitions for financial accounting purposes. In 1993, the Company's property acquisition expenditures of $144,916,000 resulted in proved reserve additions of an estimated 94.7 BCF of natural gas and 1.7 million barrels of oil, as measured at the closing dates, as well as eight exploitation prospects and three exploratory offshore blocks. In 1992, the Company's property acquisition expenditures, as measured at the closing dates, of $88,772,000 resulted in proved reserve additions of an estimated 63 BCF of natural gas and 5.8 million barrels of oil, including reserves acquired as a result of gas balancing settlements. The Company's 1995 budgeted expenditures for exploration and development are approximately $5,700,000, and $12,300,000, respectively, including capitalized overhead of $2,300,000 and $3,600,000, respectively. During 1995, the Company intends to continue a strategy of acquiring reserves that meet its investment criteria; however, no assurance can be given that the Company can locate or finance any property acquisitions. In order to finance future acquisitions, the Company is exploring many options including, but not limited to: a variety of debt instruments; sale of production payments or other nonrecourse financing; the issuance of net profits interests; sales of non-strategic properties, prospects and technical information or joint venture financing. Availability of these sources of capital and, therefore, the Company's ability to execute its operating strategy will depend upon a number of factors, some of which are beyond the control of the Company. If adequate sources of liquidity are not available to the Company in 1995, the amount invested in exploration, development and reserve acquisitions may be reduced due principally to the desire of the Company to protect its capital in the event of inadequate liquidity. OTHER MATTERS GAS BALANCING. The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes 20 produced. Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. As of December 31, 1994 the Company had produced approximately 8.4 BCF more than its entitled share of production. The undiscounted value of this imbalance is approximately $14,260,000, of which $5,735,000 is reflected on the balance sheet as a short-term liability and the remaining $8,525,000 is reflected on the balance sheet as a long-term liability. UNFUNDED PENSION LIABILITIES. In 1994, in response to market conditions, the Company increased from 7.5% to 9% the discount rate used in determining the actuarial present value of the projected benefit obligations under its qualified defined benefit trusteed pension plan and its supplemental executive retirement plan. As a result of the change in the discount rate, the Company reduced the liability representing the unfunded liabilities of these plans by approximately $1,570,000 with a corresponding increase in capital surplus. The Company does not expect the change in discount rate to have a significant impact on future expense due to a pension plan curtailment effected May 31, 1991. The Company currently is not required to make a contribution to the pension plan under the minimum funding requirements of ERISA, but may choose to do so or may be required to do so in the future. NATURAL GAS SALES CONTRACTS. The Company had two natural gas sales contracts with Columbia Gas Transmission Corp. (Transmission), a subsidiary of Columbia Gas System (CGS). On July 31, 1991, CGS and Transmission filed Chapter 11 bankruptcy petitions with the United States Bankruptcy Court for the District of Delaware. Both contracts have been rejected pursuant to the bankruptcy proceedings. The Company has filed a proof of claim in the bankruptcy proceeding consisting of a secured claim of $1,600,000 based on Louisiana vendor lien laws and an unsecured claim relating to the rejection of the contracts. The secured claim arises from Transmission's failure to pay the contract price for a period of time prior to rejection of the contracts. The unsecured claim was calculated on an undiscounted basis and without any assumption of mitigation of damages through spot market sales. No prediction can be given as to when or how these matters will ultimately be concluded. The Company sold a participation interest in the claim to a bank on April 13, 1995, as discussed above under "Liquidity and Capital Resources". NET OPERATING LOSS AND TAX CREDIT CARRYFORWARDS. At December 31, 1994, the Company estimated that for United States federal income tax purposes, it had consolidated net operating loss carryforwards of $57,044,000, depletion carryforwards of approximately $19,879,000 and investment tax credit carryforwards of approximately $3,674,000. The availability of some of these tax attributes to reduce current and future taxable income of the Company is subject to various limitations under the Internal Revenue Code of 1986, as amended (the Code). In particular, the Company's ability to utilize such tax attributes could be severely restricted due to the occurrence of an "ownership change" within the meaning of Section 382 of the Code resulting from the 1991 recapitalization. At December 31, 1994, the Company estimated that net operating loss and investment tax credit carryforwards would be limited to offset current taxable income to the extent described below. Approximately $46,000,000 of the net operating loss carryforwards are not subject to the provisions of Section 382 as they were generated subsequent to the ownership change. Even though the Company is limited in its ability to use the remaining net operating loss carryforwards under the general provisions of Section 382, it may be entitled to use these net operating loss carryovers to offset (a) gains recognized in the five years following the ownership change on the disposition of certain assets, to the extent that the value of the assets disposed of exceeds its tax basis on the date of the ownership change or (b) any item of income which is properly taken into account in the five years following the ownership change but which is attributable to periods before the ownership change ("built-in gain"). The ability of the Company to use these net operating loss carryovers to offset built-in gain first requires that the Company have total built-in gains at the time of the ownership change which are greater than a threshold amount. In addition, the use of these net operating loss carryforwards to offset built-in gain cannot exceed the amount of the total built-in gain. The Company believes that due to the amount of built-in gain as of the date of ownership change, and the recognition of such gain through December 31, 1994, that there will be no significant limitation on the Company's ability to use these net operating loss carryforwards or investment tax credit carryforwards. 21 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Information concerning this Item begins on the following page. 22 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders Forest Oil Corporation: We have audited the accompanying consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Forest Oil Corporation and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. As discussed in Notes 6 and 10 of Notes to Consolidated Financial Statements, the Company adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" and Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" in 1993. KPMG PEAT MARWICK LLP Denver, Colorado March 30, 1995, except as to Note 17 which is as of April 17, 1995 23 FOREST OIL CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 1993 ---- ---- (In Thousands) ASSETS Current assets: Cash and cash equivalents $ 2,869 6,949 Accounts receivable 20,418 25,257 Other current assets 2,231 3,309 ---------- ---------- Total current assets 25,518 35,515 Property and equipment, at cost: Oil and gas properties - full cost accounting method (Note 2) 1,171,887 1,140,656 Buildings, transportation and other equipment 12,649 12,420 ---------- ---------- 1,184,536 1,153,076 Less accumulated depreciation, depletion and valuation allowance 907,927 787,380 ---------- ---------- Net property and equipment 276,609 365,696 Investment in and advances to affiliate (Note 3) 11,652 16,451 Other assets 11,053 9,093 ---------- ---------- $ 324,832 426,755 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Cash overdraft $ 4,445 3,894 Current portion of long-term debt (Notes 4 and 17) 1,636 11,542 Current portion of gas balancing liability 5,735 -- Accounts payable 26,557 28,348 Retirement benefits payable to executives and directors (Note 10) 630 553 Accrued expenses and other liabilities: Interest 4,318 3,817 Other 4,297 1,857 ---------- ---------- Total current liabilities 47,618 50,011 Commitments and contingencies (Notes 10 and 12) Long-term debt (Notes 4 and 17) 207,054 194,307 Retirement benefits payable to executives and directors (Note 10) 3,505 4,135 Gas balancing liability 8,525 -- Other liabilities 16,136 22,918 Deferred revenue (Note 5) 35,908 67,228 Shareholders' equity (Notes 4, 7, 8 and 17): Preferred stock 15,845 15,845 Common stock 2,829 2,825 Capital surplus 190,074 193,717 Accumulated deficit (199,499) (117,656) Foreign currency translation (1,337) (785) Treasury stock, at cost (1,826) (5,790) ---------- ---------- Total shareholders' equity 6,086 88,156 ---------- ---------- $ 324,832 426,755 ---------- ---------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements. 24 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994 1993 1992 ------- ------- ------- (In Thousands Except Per Share Amounts) Revenue: Oil and gas sales: Gas $ 91,309 77,249 72,011 Oil and condensate 22,874 25,341 26,299 Products and other 358 293 929 ------- ------- ------- 114,541 102,883 99,239 Miscellaneous, net 1,406 2,265 13,947 ------- ------- ------- Total revenue 115,947 105,148 113,186 Expenses: Oil and gas production 22,384 19,540 15,865 General and administrative 11,166 12,003 11,611 Interest 26,773 23,729 27,800 Depreciation and depletion 65,468 60,581 46,624 Provision for impairment of oil and gas properties 58,000 -- -- ------- ------- ------- Total expenses 183,791 115,853 101,900 ------- ------- ------- Earnings (loss) before income taxes, cumulative effects of changes in accounting principles and extraordinary item (67,844) (10,705) 11,286 Income tax expense (benefit) (Note 6): Current 9 254 435 Deferred -- (1,604) 3,553 ------- ------- ------- 9 (1,350) 3,988 ------- ------- ------- Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item (67,853) (9,355) 7,298 Cumulative effects of changes in accounting principles: Oil and gas sales (Note 1) (13,990) -- -- Postretirement benefits, net of income tax benefit of $1,639,000 (Note 10) -- (3,183) -- Income taxes (Note 6) -- 2,060 -- ------- ------- ------- (13,990) (1,123) -- Earnings (loss) before extraordinary item (81,843) (10,478) 7,298 Extraordinary item - extinguishment of debt, net of income tax benefit of $4,652,000 in 1993 (Note 4) -- (10,735) -- ------- ------- ------- Net earnings (loss) $ (81,843) (21,213) 7,298 ------- ------- ------- ------- ------- ------- Weighted average number of common shares outstanding 28,097 21,997 13,774 ------- ------- ------- ------- ------- ------- Net earnings (loss) attributable to common stock $ (84,004) (23,463) 4,950 ------- ------- ------- ------- ------- ------- Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item $ (3,962) 13,151 ------- ------- ------- ------- Net earnings (loss) (15,820) 13,151 ------- ------- ------- -------
(continued on following page) See accompanying Notes to Consolidated Financial Statements. 25 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 1993 1992 -------- ------- ------- (In Thousands Except Per Share Amounts) Primary earnings (loss) per common share (1): Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item $ (2.49) (.53) .36 Cumulative effects of changes in accounting principles (.50) (.05) -- -------- ------- ------- Earnings (loss) before extraordinary item (2.99) (.58) .36 Extraordinary item - extinguishment of debt -- (.49) -- -------- ------- ------- Net earnings (loss) attributable to common stock $ (2.99) (1.07) .36 -------- ------- ------- -------- ------- ------- Pro forma amounts assuming the change in accounting for oil and gas sales is applied retroactively: Primary earnings (loss) per common share: Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item $ (.28) .78 ------- ------- ------- ------- Net earnings (loss) attributable to common stock $ (.82) .78 ------- ------- ------- ------- Fully diluted earnings (loss) per common share: Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item $ (.28) .51 ------- ------- ------- ------- Net earnings (loss) attributable to common stock $ (.82) .51 ------- ------- ------- ------- (1) Fully diluted earnings (loss) per share was the same as primary earnings (loss) per share in all years except 1992. In 1992, fully diluted earnings per share was $.29.
See accompanying Notes to Consolidated Financial Statements. 26 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
$.75 CONVERTIBLE PREFERRED COMMON CLASS B CAPITAL STOCK STOCK STOCK SURPLUS ---------- ---------- --------- --------- (In Thousands) Balance December 31, 1991 $ 17,280 951 375 149,069 Net earnings -- -- -- -- $.75 Convertible Preferred Stock dividends paid in Common Stock (Note 7) -- 153 -- (153) Conversions of $.75 Convertible Preferred Stock to Common Stock (66) 4 -- 62 Issuance of Common Stock in payment of executive retirement liability (Note 10) -- 16 -- 173 Treasury stock contributed to the Retirement Savings Plan and other -- 10 (10) (3,758) Foreign currency translation -- -- -- -- --------- ------ ------ ------- Balance December 31, 1992 $ 17,214 1,134 365 145,393 Net loss -- -- -- -- Common Stock issued, net of offering costs (Note 8) -- 1,108 -- 50,398 $.75 Convertible Preferred Stock dividends paid in Common Stock (Note 7) -- 64 -- (64) Conversions of $.75 Convertible Preferred Stock to Common Stock (1,369) 87 -- 1,282 Reclassification of Class B to Common Stock (Note 8) -- 396 (360) (36) Exercise of employee stock options (Note 8) -- 13 -- 383 Stock issued to the Retirement Savings Plan for profit sharing contributions (Note 10) -- 18 -- 597 Unfunded pension liability (Note 10) -- -- -- (3,038) Treasury stock contributed to the Retirement Savings Plan and other -- 5 (5) (1,198) Foreign currency translation -- -- -- -- --------- ------ ------ ------- Balance December 31, 1993 $ 15,845 2,825 -- 193,717 Net loss -- -- -- -- Exercise of employee stock options (Note 8) -- 3 -- 102 $.75 Convertible Preferred Stock dividends paid in cash (Note 7) -- -- -- (2,161) Treasury stock issued to the Retirement Savings Plan for profit sharing contributions (Note 10) -- -- -- (824) Treasury stock contributed to the Retirement Savings Plan and other -- 1 -- (760) Foreign currency translation -- -- -- -- --------- ------ ------ ------- Balance December 31, 1994 $ 15,845 2,829 -- 190,074 --------- ------ ------ ------- --------- ------ ------ ------- ACCUMU- FOREIGN LATED CURRENCY TREASURY DEFICIT TRANSLATION STOCK --------- ------------- --------- (In Thousands) Balance December 31, 1991 (103,741) 2,476 (11,570) Net earnings 7,298 -- -- $.75 Convertible Preferred Stock dividends paid in Common Stock (Note 7) -- -- -- Conversions of $.75 Convertible Preferred Stock to Common Stock -- -- -- Issuance of Common Stock in payment of executive retirement liability (Note 10) -- -- -- Treasury stock contributed to the Retirement Savings Plan and other -- -- 4,215 Foreign currency translation -- (2,903) -- -------- ----- ------- Balance December 31, 1992 (96,443) (427) (7,355) Net loss (21,213) -- -- Common Stock issued, net of offering costs (Note 8) -- -- -- $.75 Convertible Preferred Stock dividends paid in Common Stock (Note 7) -- -- -- Conversions of $.75 Convertible Preferred Stock to Common Stock -- -- -- Reclassification of Class B to Common Stock (Note 8) -- -- -- Exercise of employee stock options (Note 8) -- -- -- Stock issued to the Retirement Savings Plan for profit sharing contributions (Note 10) -- -- -- Unfunded pension liability (Note 10) -- Treasury stock contributed to the Retirement Savings Plan and other -- -- 1,565 Foreign currency translation -- (358) -- -------- ----- ------- Balance December 31, 1993 (117,656) (785) (5,790) Net loss (81,843) -- -- Exercise of employee stock options (Note 8) -- -- -- $.75 Convertible Preferred Stock dividends paid in cash (Note 7) -- -- -- Treasury stock issued to the Retirement Savings Plan for profit sharing contributions (Note 10) -- -- 1,035 Treasury stock contributed to the Retirement Savings Plan and other -- -- 2,929 Foreign currency translation -- (552) -- -------- ----- ------- Balance December 31, 1994 (199,499) (1,337) (1,826) -------- ----- ------- -------- ----- -------
See accompanying Notes to Consolidated Financial Statements. 27 FOREST OIL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 1993 1992 ---- ---- ---- (In Thousands) Cash flows from operating activities: Earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item $ (67,853) (9,355) 7,298 Adjustments to reconcile earnings (loss) before cumulative effects of changes in accounting principles and extraordinary item to net cash provided by operating activities: Depreciation and depletion 65,468 60,581 46,624 Provision for impairment of oil and gas properties 58,000 -- -- Deferred Federal income tax expense (benefit) -- (1,604) 3,553 Other, net 5,372 3,045 3,387 -------- -------- -------- 60,987 52,667 60,862 Net changes in other operating assets and liabilities: (Increase) decrease in accounts receivable 4,839 2,264 (3,447) (Increase) decrease in other current assets 1,078 375 (1,903) Increase (decrease) in accounts payable 4,021 (12,668) 13,090 Increase (decrease) in accrued expenses and other liabilities 2,941 (1,078) 1,772 Proceeds from volumetric production payments 4,353 40,468 45,057 Amortization of deferred revenue (35,673) (40,306) (18,190) -------- -------- -------- Net cash provided by operating activities 42,546 41,722 97,241 Cash flows from investing activities: Capital expenditures for property and equipment (42,780) (171,166) (107,425) Proceeds of sales of property and equipment, net 12,941 2,997 25,730 Increase in other assets, net (2,468) (1,965) (1,659) -------- -------- -------- Net cash used by investing activities (32,307) (170,134) (83,354) Cash flows from financing activities: Proceeds of long-term bank debt 31,500 25,000 9,623 Repayments of long-term bank debt (23,500) -- (9,623) Proceeds of nonrecourse secured loan 1,400 57,400 -- Proceeds of production payment -- -- 28,805 Repayments of production payment (2,771) (5,980) (1,520) Proceeds of common stock offering, net of offering costs -- 51,506 -- Issuance of senior subordinated notes, net of offering costs -- 95,827 -- Redemptions and repurchases of subordinated debentures and secured notes (7,171) (148,918) (1,115) Payment of preferred stock dividends (2,161) -- -- Deferred debt and exchange offer costs (772) (1,336) (285) Increase (decrease) in cash overdraft 551 (1,347) 2,963 Increase (decrease) in other liabilities, net (11,307) (266) 1,998 -------- -------- -------- Net cash provided (used) by financing activities (14,231) 71,886 30,846 Effect of exchange rate changes on cash (88) (12) (110) -------- -------- -------- Net increase (decrease) in cash and cash equivalents (4,080) (56,538) 44,623 Cash and cash equivalents at beginning of year 6,949 63,487 18,864 -------- -------- -------- Cash and cash equivalents at end of year $ 2,869 6,949 63,487 -------- -------- -------- -------- -------- -------- Cash paid during the year for: Interest $ 23,989 23,123 26,079 -------- -------- -------- -------- -------- -------- Income taxes $ 9 452 177 -------- -------- -------- -------- -------- --------
See accompanying Notes to Consolidated Financial Statements. 28 FOREST OIL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: - - -------------------------------------------------------------------------------- BASIS OF CONSOLIDATION - The consolidated financial statements include the accounts of Forest Oil Corporation (the Company) and its wholly-owned subsidiaries. Significant intercompany balances and transactions are eliminated. CASH EQUIVALENTS - For purposes of the statements of cash flows, the Company considers all debt instruments with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT - The Company uses the full cost method of accounting for oil and gas properties. Presently, the Company's operations are conducted in the United States. All costs incurred in the acquisition, exploration and development of properties (including costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration and development activities) are capitalized. Capitalized costs are depleted using the units of production method. A reserve is provided for estimated future costs of site restoration, dismantlement and abandonment activities as a component of depletion. Unusually significant investments in unproved properties, including related capitalized interest costs, are not depleted pending the determination of the existence of proved reserves. As of December 31, 1994, 1993 and 1992, there were undeveloped property costs of $30,441,000, $41,216,000 and $18,306,000, respectively, in the United States which were not being depleted. Depletion per unit of production was determined based on conversion to common units of measure using one barrel of oil as an equivalent to six MCF of natural gas. Depletion per unit of production (MCFE) for each of the Company's cost centers was as follows:
UNITED STATES CANADA ------------- ------ 1994 $1.13 - 1993 1.19 - 1992 1.21 1.19
Capitalized costs less related accumulated depletion and deferred income taxes may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. As a result of this limitation on capitalized costs, the accompanying financial statements include a provision for impairment of oil and gas property costs of $58,000,000 in 1994. There was no impairment of oil and gas property costs in 1993 or 1992. Gain or loss is recognized only on the sale of oil and gas properties involving significant reserves. Buildings, transportation and other equipment are depreciated on the straight- line method based upon estimated useful lives of the assets ranging from five to forty-five years. OIL AND GAS SALES - The Company changed its method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994. Under the sales method previously used by the Company, all proceeds from production credited to the Company were recorded as revenue until such time as the Company had produced its share of related reserves. Under the entitlements method, revenue is recorded based upon the Company's share of volumes sold, regardless of whether the Company has taken its proportionate share of volumes produced. 29 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D): - - -------------------------------------------------------------------------------- Under the entitlements method, the Company records a receivable or payable to the extent it receives less or more than its proportionate share of the related revenue. The Company believes that the entitlements method is preferable because it allows for recognition of revenue based on the Company's actual share of jointly owned production and provides a better matching of revenue and related expenses. The cumulative effect of the change for the periods through December 31, 1993 was a charge of $13,990,000. The effect of this change on 1994 was an increase in earnings from operations of $3,584,000 and an increase in production volumes of 1,555,000 MCF. There were no related income tax effects in 1994. As the Company adopted this change in the fourth quarter of 1994, previously reported 1994 quarterly information has been restated to reflect the change effective January 1, 1994. See Note 15 for restated selected quarterly financial data. The pro forma amounts shown on the consolidated statements of operations have been adjusted for the effect of the retroactive application of the change and related income taxes. As of December 31, 1994 the Company had produced approximately 8.4 BCF more than its entitled share of production. The estimated value of this imbalance is approximately $14,260,000, which is reflected on the accompanying balance sheet as a short-term liability of $5,735,000 and a long-term liability of $8,525,000. HEDGING TRANSACTIONS - In order to minimize exposure to fluctuations in oil and natural gas prices, the Company hedges the price of future oil and natural gas production by entering into certain contracts and financial arrangements. Gains and losses related to these hedging transactions are recognized as adjustments to revenue recorded for the related production. Costs associated with the purchase of certain hedge instruments are deferred and amortized against revenue related to hedged production. INCOME TAXES - The adoption of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), effective January 1, 1993 changed the Company's method of accounting for income taxes from the deferred method to an asset and liability method. Previously, the Company deferred the tax effects of timing differences between financial reporting and taxable income. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between financial accounting bases and tax bases of assets and liabilities. FOREIGN CURRENCY TRANSLATION - Assets and liabilities related to Canadian investments are generally translated at current exchange rates, and related translation adjustments are reported as a component of shareholders' equity. Income statement accounts are translated at the average rates during the period. EARNINGS (LOSS) PER SHARE - Primary earnings (loss) per share is computed by dividing net earnings (loss) attributable to common stock by the weighted average number of common shares and common share equivalents outstanding during each period, excluding treasury shares. Net earnings (loss) attributable to common stock represents net earnings (loss) less preferred stock dividend requirements of $2,161,000 in 1994, $2,250,000 in 1993 and $2,348,000 in 1992. Common share equivalents include, when applicable, dilutive stock options using the treasury stock method and warrants using the if converted method. Fully diluted earnings per share is computed assuming, in addition to the above, (i) that convertible debentures were converted at the beginning of each period or date of issuance, if later, with earnings being increased for interest expense, net of taxes, that would not have been incurred had conversion taken place, (ii) that convertible preferred stock was converted at the beginning of each period or date of issuance, if later, and (iii) any additional dilutive effect of stock options and warrants. The effects of these assumptions were anti-dilutive in 1994 and 1993. The weighted average number of shares outstanding on a fully-diluted basis was 26,515,000 for the year ended December 31, 1992. RECLASSIFICATIONS - Certain amounts in the 1993 and 1992 financial statements have been reclassified to conform to the 1994 financial statement presentation. 30 (2) ACQUISITIONS: - - -------------------------------------------------------------------------------- During 1994, the Company completed acquisitions totaling $9,762,000, including additional interests in properties acquired in 1993. In order to finance one of the acquisitions, the Company sold a volumetric production payment for approximately $4,353,000 (net of fees). In May and December, 1993, the Company purchased interests in properties from Atlantic Richfield Company (ARCO) for approximately $60,862,000. In conjunction with the ARCO acquisitions, the Company sold volumetric production payments from certain of the ARCO properties for approximately $40,468,000 (net of fees). In December 1993, the Company purchased interests in offshore properties for approximately $24,050,000 and interests in properties in south Texas for approximately $59,458,000. In conjunction with these acquisitions, the Company entered into a nonrecourse secured loan agreement for $51,600,000. In February 1992, Forest I Development Company, a wholly-owned subsidiary of the Company, purchased substantially all of the assets of Harbert Energy Corporation and its associated entities in an acquisition accounted for as a purchase. The purchase price of $40,400,000 was funded primarily through the sale of a dollar- denominated production payment which was recorded at its present value of $28,805,000. In July 1992, the Company purchased Transco Exploration and Production Company (TEPCO) for approximately $45,000,000. In conjunction with the acquisition, the Company sold a volumetric production payment from certain of the TEPCO properties for approximately $38,500,000 (net of fees). The Company's results of operations for the year ended December 31, 1993 include the effects of the first ARCO acquisition since May 1, 1993 and the offshore properties and the second ARCO acquisition since December 1, 1993. The Company's results of operations for the year ended December 31, 1992 include the effects of the Harbert and TEPCO acquisitions since February 1, 1992 and August 1, 1992, respectively. (3) INVESTMENT IN AND ADVANCES TO AFFILIATE: - - -------------------------------------------------------------------------------- In May 1992, the Company transferred substantially all of its Canadian oil and gas properties to a wholly-owned Canadian subsidiary, Forest Canada I Development Ltd. (FCID). In September 1992, FCID sold its Canadian assets and related operations to CanEagle Resources Corporation (CanEagle) for approximately $51,250,000 in Canadian funds ($41,000,000 U.S.). CanEagle was formed for the purpose of acquiring the assets and related operations of FCID. In the transaction, FCID received cash of approximately $28,000,000 CDN ($22,400,000 U.S.), net of expenses, and provided financing in the aggregate principal amount of $22,000,000 CDN ($17,600,000 U.S.). On June 24, 1994, CanEagle sold a significant portion of its oil and gas properties in Canada to a third party. In conjunction with this transaction, the Company received payment of $6,124,000 CDN ($4,400,000 U.S.) representing principal and unpaid interest on a CanEagle subordinated debenture held by the Company. In addition, the Company exchanged its remaining investment in CanEagle for preferred shares of a newly formed entity, Archean Energy, Ltd. (Archean). The Company has accounted for the proceeds from the aforementioned transactions as reductions in the carrying value of its investment in and advances to its Canadian affiliates. The Company accounts for its investment in Canadian affiliates in a manner analagous to equity accounting. Losses will be recognized to the extent that the Canadian affiliates' losses are attributable to the Company's interest. Earnings will be recognized only if realization is assured. No earnings or losses attributable to the investment in Canadian affiliates have been recognized in 1994, 1993 or 1992. 31 (4) LONG-TERM DEBT: - - -------------------------------------------------------------------------------- Long-term debt at December 31, 1994 and 1993 consists of the following:
1994 1993 -------- ------- Bank debt $ 33,000 25,000 Nonrecourse secured loan 57,840 53,101 Production payment obligation 18,534 21,305 11-1/4% Subordinated debentures 99,316 99,272 5-1/2% Subordinated debentures - 7,171 -------- ------- 208,690 205,849 Less current portion (1,636) (11,542) -------- ------- Long-term debt $207,054 194,307 -------- ------- -------- -------
BANK DEBT: The Company has a secured credit facility (The Credit Facility) with The Chase Manhattan Bank, NA. (Chase) as agent for a group of banks. Under the Credit Facility, the Company may borrow up to $17,500,000 for acquisition or development of proved oil and gas reserves, and up to $32,500,000 for working capital and general corporate purposes, subject to semi-annual redemption at the banks' discretion. The total borrowing capacity of the Company under the Credit Facility is $50,000,000. In March, 1995, the banks completed their most recent semi-annual redetermination of the Credit Facility and advised the Company that the maximum borrowing capacity would be maintained at $50,000,000. However, the amount of the maximum borrowings under the Credit Facility is at the discretion of the banks and is subject to change at any time. The Credit Facility is secured by a lien on, and a security interest in, a majority of the Company's proved oil and gas properties and related assets (subject to prior security interests granted to holders of volumetric production payment agreements), a pledge of accounts receivable, material contracts and the stock of material subsidiaries, and a negative pledge on remaining assets. The maturity date of the Credit Facility is December 31, 1996. Under the terms of the Credit Facility, the Company is subject to certain covenants and financial tests (which may from time to time restrict the Company's activities), including restrictions or requirements with respect to working capital, net cash flow, additional debt, asset sales, mergers, cash dividends on capital stock and reporting responsibilities. At December 31, 1994 the outstanding balance under the Credit Facility was $33,000,000 at interest rates ranging from 7.255% to 8.875% and the Company was in compliance with the covenants of the Credit Facility. The Company currently anticipates that it may not meet the working capital and/or interest coverage ratio tests during 1995. Management believes, however, that any instances of noncompliance can be cured within the period of time permitted or that waivers can be obtained from the banks. NONRECOURSE SECURED LOAN: On December 30, 1993, the Company entered into a nonrecourse secured loan agreement arranged by Enron Finance Corp., an affiliate of Enron Gas Services (the Enron loan). Advances under the loan agreement bear annual interest at the rate of 12.5%. Approximately $51,600,000 was advanced on December 30, 1993 to provide financing for acquisitions. Another $5,800,000 of the available balance was advanced on December 30, 1993 to fund a portion of the development projects which will be undertaken by the Company on the properties pledged as security for the loan. Under the terms of the Enron loan, additional funds may be advanced to fund additional development projects which will be undertaken by the Company on the properties pledged as security for the loan. The loan was recorded at a discount to reflect conveyance to the lender of a 20% interest in the net profits, as defined, of properties located in south Texas. This discount of $4,299,000 is being amortized over the life of the loan using the effective interest method. At December 31, 1994 the principal amount of the loan was $61,717,000 and the recorded liability was $57,840,000. Payments of principal and interest under the Enron loan are due monthly and are equal to 90% of total net operating income from the secured properties, reduced by 80% of allowable capital expenditures, as defined. The 32 (4) LONG-TERM DEBT (CONT'D): - - -------------------------------------------------------------------------------- Company's current estimate, based on expected production and prices, budgeted capital expenediture levels and expected discount amortization, is that 1995 payments will reduce the recorded liability by approximately $524,000. This amount is included in current liabilities. Estimated liability reductions, including required principal payments, for 1996 through 1999, under the same production, pricing, capital expenditure and discount scenario, are approximately $11,280,000, $18,741,000, $15,119,000 and $9,113,000, respectively. Payments, if any, under the net profits conveyance will commence upon repayment of the principal amount of the Enron loan and will cease when the lender has received an internal rate of return, as defined, of 18% (15.25% through December 31, 1995). The Company has signed a letter of intent to restructure the loan as described in Note 17. PRODUCTION PAYMENT OBLIGATION: The original principal amount of the dollar-denominated production payment was $37,550,000, which was recorded as a liability of $28,805,000 after a discount to reflect a market rate of interest of 15.5%. At December 31, 1994 the remaining principal amount was $23,373,000 and the recorded liability was $18,534,000. Under the terms of this production payment, the Company must make a monthly cash payment which is the greater of a base amount or 85% of net proceeds from the subject properties, as defined, except that the amount required to be paid in any given month shall not exceed 100% of the net proceeds from the subject properties. The Company retains a management fee equal to 10% of sales from the properties, which is deducted in the calculation of net proceeds. The Company's current estimate, based on expected production and prices, budgeted capital expenditure levels and expected discount amortization, is that 1995 payments will reduce the recorded liability by approximately $1,112,000; this amount is included in current liabilities. Estimated liability reductions for 1996 through 1999, under the same production, pricing, capital expenditure and discount scenario, are $811,000, $1,177,000, $2,988,000 and $4,220,000, respectively. 11-1/4% SUBORDINATED DEBENTURES: On September 8, 1993 the Company completed a public offering of $100,000,000 aggregate principal amount of 11-1/4% Senior Subordinated Notes due September 1, 2003. The Senior Subordinated Notes were issued at a price of 99.259% yielding 11.375% to the holders. The Company used the net proceeds from the sale of the Senior Subordinated Notes of approximately $95,827,000, together with approximately $19,400,000 of available cash, to redeem all of its outstanding Senior Secured Notes and long-term subordinated debentures. The redemptions resulted in a net loss of $15,387,000 which was recorded as an extraordinary loss of $10,735,000 (net of income tax benefit of $4,652,000). The Senior Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after September 1, 1998 initially at a redemption price of 105.688%, plus accrued interest to the date of redemption, declining at the rate of 1.896% per year to September 9, 2000 and at 100% thereafter. In addition, the Company may, at its option, redeem prior to September 1, 1996 up to 30% of the initially outstanding principal amount of the Notes at 110% of the principal amount thereof, plus accrued interest to the date of redemption, with the net proceeds of any future public offering of its Common Stock. Under the terms of the Senior Subordinated Notes, the Company must meet certain tests before it is able to pay cash dividends (other than dividends on the Company's $.75 Convertible Preferred Stock) or make other restricted payments, incur additional indebtedness, engage in transactions with its affiliates, incur liens and engage in certain sale and leaseback arrangements. The terms of the Senior Secured Notes also limit the Company's ability to undertake a consolidation, merger or transfer of all or substantially all of its assets. In addition, the Company is, subject to certain conditions, obligated to offer to repurchase Senior Subordinated Notes at par value plus accrued and unpaid interest to the date of repurchase, with the net cash proceeds of certain sales or dispositions of assets. Upon a change of control, as defined, the Company will be required to make an offer to purchase the Senior Subordinated Notes at 101% of the principal amount thereof, plus accrued interest to the date of purchase. 5-1/2% SUBORDINATED DEBENTURES: At December 31, 1993 the 5-1/2% Convertible Subordinated Debentures had a remaining balance of $7,171,000 which was paid in full on the February 1, 1994 due date. 33 (5) DEFERRED REVENUE: - - -------------------------------------------------------------------------------- From April 1991 through May 1993, the Company entered into four volumetric production payments with entities associated with Enron Corp. (Enron) for net proceeds of $121,498,000. Under the terms of these production payments, the Company was required to deliver 70.1 BCF of natural gas and 770,000 barrels of oil over periods ranging from three to six years. Effective November 1, 1993, the four separate volumetric payment financings described above between the Company and Enron were consolidated into one production payment. The delivery schedules from the previously separate production payments were not adjusted; however, delivery shortfalls on any property can now be made up from excess production from any other property which is dedicated to the production payment obligation. The consolidation also provided that certain acreage previously committed to the production payments was released and can be developed by the Company unburdened by the delivery obligations of the production payment. In connection with the purchase of interests in properties from ARCO in December 1993, a volumetric production payment from certain of the ARCO properties was sold to Enron for net proceeds of $13,207,000. This production payment covered approximately 7.3 BCF of natural gas to be delivered over 8 years. In July 1994, the Company purchased additional interests in the properties acquired from ARCO in December 1993. In connection with this transaction, a volumetric production payment was sold to Enron for net proceeds of $4,353,000. This production payment covered approximately 2.7 BCF of natural gas to be delivered over 8 years. The Company is required to deliver the scheduled volumes from the subject properties or to make a cash payment for volumes produced but not delivered, in combination not to exceed a specified percentage of monthly production. If production levels are not sufficient to meet scheduled delivery commitments, the Company must account for and make up such shortages, at market-based prices, from future production. The Company is responsible for royalties and for production costs associated with operating the properties subject to the production payment agreements. The Company may grant liens on properties subject to the production payment agreements, but it must notify prospective lienholders that their rights are subject to the prior rights of the production payment owner. Amounts received were recorded as deferred revenue. Volumes associated with amortization of deferred revenue for the years ended December 31, 1994, 1993 and 1992 were as follows:
Net sales volume attributable to production Volumes delivered (1) payment deliveries (2) ----------------------- -------------------------- Natural Natural Oil Gas Oil Gas (MBBLS) (MMCF) (MBBLS) (MMCF) ------- ------- ------- ------ 1994 218 19,985 182 16,005 1993 221 23,392 185 18,731 1992 70 11,689 59 9,117 (1) Amounts settled in cash in lieu of volumes were $1,611,381, $3,138,628 and $7,965,945, for the years ended December 31, 1994, 1993 and 1992, respectively. (2) Represents volumes required to be delivered to Enron net of estimated royalty volumes.
34 (5) DEFERRED REVENUE (CONT'D): - - -------------------------------------------------------------------------------- Future amortization of deferred revenue, based on the scheduled deliveries under the production payment agreements, is as follows:
Net sales volumes Volumes required to be attributable to production delivered to Enron payment deliveries (1) ------------------------- -------------------------- Annual Natural Gas Oil Natural Gas Oil Amortization (MMCF) (MBBLS) (MMCF) (MBBLS) ------------ ------ ------- ------ ------- (In Thousands) 1995 $ 20,770 11,045 174 8,899 145 1996 7,546 3,721 87 2,998 74 1997 2,439 1,410 - 1,136 - 1998 1,593 892 - 719 - Thereafter 3,560 1,994 - 1,606 - -------- --------- ---- -------- ----- $35,908 19,062 261 15,358 219 -------- --------- ---- -------- ----- -------- --------- ---- -------- ----- - - ----------- (1) Represent volumes required to be delivered to Enron net of estimated royalty volumes.
(6) INCOME TAXES: - - -------------------------------------------------------------------------------- The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS No. 109) on a prospective basis effective January 1, 1993. The cumulative effect of this change in accounting for income taxes of $2,060,000 was determined as of January 1, 1993 and was reported separately in the Consolidated Statement of Operations for the year ended December 31, 1993. The income tax expense (benefit) is different from amounts computed by applying the statutory Federal income tax rate for the following reasons:
1994 1993 1992 ---- ---- ---- (In Thousands) Tax expense (benefit) at 35% (34% for 1992) of earnings (loss) before income taxes, cumulative effects of changes in accounting principles and extraordinary item $(23,749) (3,747) 3,837 Change in the balance of the valuation allowance for deferred tax assets attributable to loss before income taxes, cumulative effects of changes in accounting principles and extraordinary item 23,220 2,034 - Expiration of tax carryforwards 455 318 - Other 83 45 151 -------- -------- -------- Total income tax expense (benefit) $ 9 (1,350) 3,988 -------- -------- -------- -------- -------- --------
The Omnibus Budget Reconciliation Act of 1993 increased the Federal corporate tax rate from 34% to 35% retroactively to January 1, 1993. As a result of this tax increase, the tax benefits at December 31, 1994 and December 31, 1993, respectively, on the losses from continuing operations were approximately $677,000 and $167,000 less than such amounts would have been without such increase in the tax rate. However, due to limitations on the recognition of deferred tax assets, the total tax benefit at December 31, 1994 and December 31, 1993, including the tax benefit on the cumulative effect of the change in accounting method in 1994 and on the extraordinary loss on extinguishment of debt in 1993, is unaffected by the tax rate increase. The impact of the tax rate increase will be recognized when future taxable income allows the unrecognized deferred tax asset to be realized. Deferred income taxes generally result from recognizing income and expenses at different times for financial and tax reporting. These differences result from recording proceeds from the sale of properties in the full cost pool, capitalization of certain development, exploration and other costs under the full cost method of accounting and the provision for impairment of oil and gas properties for financial accounting purposes. 35 (6) INCOME TAXES (CONT'D): - - -------------------------------------------------------------------------------- The components of the net deferred tax liability, computed in accordance with SFAS No. 109 are as follows:
December 31, 1994 January 1, 1994 ----------------- --------------- (In Thousands) Deferred tax assets: Accounts receivable, due to allowance for doubtful accounts $ 289 468 Current and long term liabilities due to accrual for retirement benefits 1,475 1,641 Current and long term liabilities due to accrual for medical benefits 2,040 1,857 Current and long term liabilities due to accrual for sales recorded on the entitlements method 3,642 - Net operating loss carryforward 19,965 13,990 Depletion carryforward 6,958 6,958 Contribution carryforward 106 348 Investment tax credit carryforward 3,674 3,885 Alternative minimum tax credit carryforward 2,206 2,206 Other 94 96 --------- --------- Total gross deferred tax assets 40,449 31,449 Less valuation allowance (36,258) (8,142) --------- --------- Net deferred tax assets 4,191 23,307 Deferred tax liabilities: Full cost pool, due principally to capitalized expenditures (4,191) (23,307) --------- --------- Net deferred tax liability $ - - --------- --------- --------- ---------
The valuation allowance for deferred tax assets as of January 1, 1994 was $8,142,000. The net change in the total valuation allowance for the tax year ended December 31, 1994 was an increase of $28,116,000. The total increase in the valuation allowance includes $4,896,000 resulting from the cumulative effect of the change in accounting for oil and gas sales from the sales method to the entitlements method. The Alternative Minimum Tax (AMT) credit carryforward available to reduce future Federal regular taxes aggregated $2,206,000 at December 31, 1994. This amount may be carried forward indefinitely. Regular and AMT net operating loss carryforwards at December 31, 1994 were $57,044,000 and $55,387,000, respectively, and will expire in the years indicated below:
REGULAR AMT ------- --- (In Thousands) 2000 $ 2,665 4,143 2005 8,307 - 2008 28,999 31,800 2009 17,073 19,444 ------- ------ $57,044 55,387 ------- ------ ------- ------
AMT net operating loss carryforwards can be used to offset 90% of AMT income in future years. Investment tax credit carryforwards available to reduce future Federal income taxes aggregated $3,674,000 at December 31, 1994 and expire at various dates through the year 2001. Percentage depletion carryforwards available to reduce future Federal taxable income aggregated $19,879,000 at December 31, 1994. This amount may be carried forward indefinitely. The net operating loss and investment tax credit carryforwards have been recognized as a deferred tax asset, subject to a valuation allowance. 36 (6) INCOME TAXES (CONT'D): - - -------------------------------------------------------------------------------- The availability of some of these tax attributes to reduce current and future taxable income of the Company is subject to various limitations under the Internal Revenue Code. In particular, the Company's ability to utilize such tax attributes could be severely restricted due to the occurrence of an "ownership change" within the meaning of Section 382 of the Internal Revenue Code resulting from the Company's 1991 recapitalization. At December 31, 1994, the Company estimated that net operating loss and investment tax credit carryforwards would be limited to offset current taxable income to the extent described below. The net operating loss carryforwards which expire in 2008 and 2009 are not subject to the provisions of Section 382 as they were generated subsequent to the ownership change. Even though the Company is limited in its ability to use the remaining net operating loss carryovers under the general provisions of Section 382, it may be entitled to use these net operating loss carryovers to offset (a) gains recognized in the five years following the ownership change on the disposition of certain assets, to the extent that the value of the assets disposed of exceeds its tax basis on the date of the ownership change or (b) any item of income which is properly taken into account in the five years following the ownership change but which is attributable to periods before the ownership change ("built-in gain"). The ability of the Company to use these net operating loss carryovers to offset built-in gain first requires that the Company have total built-in gains at the time of the ownership change which are greater than a threshold amount. In addition, the use of these net operating loss carryforwards to offset built-in gain cannot exceed the amount of the total built-in gain. The Company believes that due to the amount of built-in gain as of the date of ownership change, and the recognition of such gain through December 31, 1994, there is no significant limitation on the Company's ability to use these net operating loss carryforwards or investment tax credit carryforwards. (7) PREFERRED STOCK: - - -------------------------------------------------------------------------------- The Company has 10,000,000 shares of $.75 Convertible Preferred Stock authorized, par value $.01 per share, of which there were 2,880,973 shares outstanding at December 31, 1994 and 1993, with an aggregate liquidation preference of $28,809,730 at December 31, 1994 and 1993. This stock is convertible at any time, at the option of the holder, at the rate of 3.5 shares of Common Stock for each share of $.75 Convertible Preferred Stock, subject to adjustment upon occurrence of certain events. During 1994, no shares of $.75 Convertible Preferred Stock were converted into shares of Common Stock. The $.75 Convertible Preferred Stock is redeemable, in whole or in part, at the option of the Company, at any time after the earlier of (i) July 1, 1996 or (ii) the date on which the last reported sales price of the Common Stock will have been $7.50 or higher for at least 20 of the prior 30 trading days, at a redemption price of $10.33 per share during the twelve-month period which began July 1, 1994 and declining ratably to $10.00 per share at July 1, 1996 and thereafter, including accumulated and unpaid dividends. Cumulative annual dividends of $.75 per share are payable quarterly, in arrears, on the first day of February, May, August and November, when and as declared. Until December 31, 1993, the Company paid such dividends in shares of Common Stock. After such date, dividends may be paid in cash or, at the Company's election, in shares of Common Stock or in a combination of cash and Common Stock. However, the Company is prohibited from paying cash dividends on its $.75 Convertible Preferred Stock after the February 1, 1995 dividend due to restrictions contained in the Credit Agreement with its lending banks. Common Stock delivered in payment of dividend will be valued for dividend payment purposes at between 75% and 90%, based on trading volume, of the average last reported sales price of the Common Stock during a specified period prior to the record date for the dividend payment. During any period in which dividends on preferred stock are in arrears, no dividends or distributions, except for dividends paid in shares of Common Stock, may be paid or declared on the Common Stock, nor may any shares of Common Stock be acquired by the Company. 37 (8) COMMON STOCK: - - -------------------------------------------------------------------------------- The Company has 112,000,000 shares of Common Stock authorized, par value $.10 per share, of which there were 28,295,209 and 28,250,445 shares issued at December 31, 1994 and 1993, respectively, with 105,940 and 335,813 shares held by the Company at December 31, 1994 and 1993, respectively. The Common Stock is entitled to one vote per share. Prior to May 1993 the Company also had Class B stock which had superior voting rights to the Company's Common Stock, had limited transferability and was not traded in any public market but was convertible at any time into shares of Common Stock on a share-for-share basis. At the Company's Annual Meeting of Shareholders on May 12, 1993, the shareholders adopted amendments to the Company's Restated Certificate of Incorporation to increase the number of authorized shares of Common Stock to 112,000,000 and to reclassify each share of Class B Stock into 1.1 shares of Common Stock. On June 15, 1993, the Company issued 11,080,000 shares of Common Stock for $5.00 per share in a public offering. The net proceeds from the issuance of the shares totalled approximately $51,506,000 after deducting issuance costs and underwriting fees. On October 29, 1993 the Company paid a dividend distribution of one Preferred Share Purchase Right on each outstanding share of the Company's Common Stock. The Rights are exercisable only if a person or group acquires 20% or more of the Company's Common Stock or announces a tender offer which would result in ownership by a person or group of 20% or more of the Common Stock. Each Right initially entitles each shareholder to buy 1/100th of a share of a new series of Preferred Stock at an exercise price of $30.00, subject to adjustment upon certain occurrences. Each 1/100th of a share of such new Preferred Stock that can be purchased upon exercise of a Right has economic terms designed to approximate the value of one share of Common Stock. The Rights will expire on October 29, 2003, unless extended or terminated earlier. The Company has Warrants outstanding which permit holders thereof to purchase 1,244,715 shares of Common Stock at an exercise price of $3.00 per share. The Warrants are noncallable by the Company and expire on October 1, 1996. The exercise price is payable in cash. In March 1992, the Company adopted the 1992 Stock Option Plan under which non- qualified stock options may be granted to key employees and non-employee directors. The aggregate number of shares of Common Stock which the Company may issue under options granted pursuant to this plan may not exceed 10% of the total number of shares outstanding or issuable at the date of grant pursuant to outstanding rights, warrants, convertible or exchangeable securities or other options. The exercise price of an option may not be less than 85% of the fair market value of one share of the Company's Common Stock on the date of grant. The options vest 20% on the date of grant and an additional 20% on each grant anniversary date thereafter. The Company may, in its discretion, grant each optionee a cash bonus upon the exercise of each granted option. A summary of stock option activity related to the Plan is as follows:
Option Price Shares Per Share ----------- ----------- Options granted during 1992 and outstanding at December 31, 1992 1,740,000 $ 3.00 Granted 1,525,000 5.00 Exercised (132,000) 3.00 Cancelled or surrendered (79,000) 3.00 ----------- ----------- Options outstanding at December 31, 1993 3,054,000 3.00-5.00 Granted 310,000 5.00 Exercised (35,000) 3.00 Cancelled or surrendered (35,000) 5.00 ----------- ----------- Options outstanding at December 31, 1994 3,294,000 $ 3.00-5.00 ----------- ----------- ----------- ----------- Options exercisable at December 31, 1994 1,860,400 $ 3.00-5.00 ----------- ----------- ----------- -----------
38 (9) GAS PURCHASE CONTRACT SETTLEMENT: - - -------------------------------------------------------------------------------- On December 17, 1992, the Company and ONEOK, Inc. (ONEOK) agreed to settle the case styled Forest Oil Corporation v. ONEOK, Inc. (Number 71,582) and its companion case styled Forest Oil Corporation v. ONEOK, Inc. (Case No. C-89-53). The cases involved take-or-pay damages relating to a natural gas purchase contract between the Company and ONEOK. The settlement encompassed all disputed contracts, claims and future claims. The cash proceeds of $51,250,000 were received by the Company on December 24, 1992. Proceeds after deducting related royalties and production taxes were approximately $36,429,000. The ONEOK settlement increased the Company's net earnings for 1992 by approximately $24,043,000 or $1.75 per share. (10) EMPLOYEE BENEFITS: - - -------------------------------------------------------------------------------- PENSION PLANS: The Company has a qualified defined benefit pension plan (Pension Plan). The Company has effected a curtailment of the Pension Plan pursuant to which all benefit accruals were suspended effective May 31, 1991. The benefits under the Pension Plan are based on years of service and the employee's average compensation during the highest consecutive sixty-month period in the fifteen years prior to retirement. No contribution was made in 1994, 1993 or 1992. The following table sets forth the Pension Plan's funded status and amounts recognized in the Company's consolidated financial statements at December 31:
1994 1993 ---- ---- (In Thousands) Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $23,953,000 in 1994 and $28,484,000 in 1993 $(23,953) (28,484) -------- -------- -------- -------- Projected benefit obligation for service rendered to date $(23,953) (28,484) Plan assets at fair market value, consisting primarily of listed stocks, bonds and other fixed income obligations 23,443 25,576 -------- -------- Plan assets in excess of projected benefit obligation (unfunded pension liability) (510) (2,908) Unrecognized net loss from past experience different from that assumed and effects of changes in assumptions 1,468 3,642 -------- -------- Pension asset recognized in the balance sheet $ 958 734 -------- -------- -------- --------
For 1994 the discount rate used in determining the actuarial present value of the projected benefit obligation was 9% and the expected long-term rate of return on assets was 9%. For 1993, the discount rate used in determining the actuarial present value of the projected benefit obligation was 7.5% and the expected long-term rate of return on assets was 9%. For 1992, the discount rate used in determining the actuarial present value of the projected benefit obligation was 9% and the expected long-term rate of return on assets was 9%. The components of net pension expense (benefit) for the years ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992 ------ ------ ------ (In Thousands) Net pension expense (benefit) included the following components: Interest cost on projected benefit obligation $ 1,976 2,039 2,074 Actual return on plan assets (245) (3,534) (1,890) Net amortization and deferral (1,955) 1,441 (240) ------- ------- ------- Net pension expense (benefit) $ (224) (54) (56) ------- ------- ------- ------- ------- -------
39 (10) EMPLOYEE BENEFITS (CONT'D): - - -------------------------------------------------------------------------------- The Company has a non-qualified unfunded supplementary retirement plan that provides certain officers with defined retirement benefits in excess of qualified plan limits imposed by Federal tax law. Benefit accruals under this plan were suspended effective May 31, 1991 in connection with suspension of benefit accruals under the Company's Pension Plan. At December 31, 1994 the projected benefit obligation under this plan totaled $480,000, which is included in other liabilities in the accompanying balance sheet. The projected benefit obligation is determined using the same discount rate as is used for calculations for the Pension Plan. In 1993 as a result of the change in the discount rate for the Pension Plan and the supplementary retirement plan, the Company recorded a liability of $3,038,000 representing the unfunded pension liability and a corresponding decrease in capital surplus. As a result of the increase in the discount rate for the Pension Plan and the supplementary retirement plan in 1994, the Company reduced the liability representing the unfunded pension liability by approximately $1,570,000 with a corresponding increase in capital surplus. RETIREMENT SAVINGS PLAN: The Company sponsors a qualified tax deferred savings plan in accordance with the provisions of Section 401(k) of the Internal Revenue Code. Employees may defer up to 10% of their compensation, subject to certain limitations. The Company matches the employee contributions up to 5% of employee compensation. In 1994, 1993 and 1992, Company contributions were made using treasury stock. The expense associated with the Company's contribution was $516,000 in 1994, $367,000 in 1993 and $454,000 in 1992. Effective January 1, 1992 the plan was amended to include profit-sharing contributions by the Company. In 1994, the Company did not make any profit sharing contributions. The Company's profit-sharing contributions were made using Company stock valued at $276,000 and $465,000 for 1993 and 1992, respectively. ANNUAL INCENTIVE PLAN: The Forest Oil Corporation Annual Incentive Plan (the Incentive Plan), which became effective January 1, 1992, permits participating employees to earn annual bonus awards payable in cash or in shares of the Company's Common Stock, generally based in part upon the Company attaining certain levels of performance. In 1994, no bonuses were awarded. In 1993 and 1992, the Company accrued bonuses of $426,000 and $930,000, respectively, under the Incentive Plan. Amounts awarded will be disbursed in equal annual installments over the succeeding three-year period. EXECUTIVE RETIREMENT AGREEMENTS: The Company entered into Agreements in December 1990 (the Agreements) with certain executives and directors (the Retirees) whereby each executive retired from the employ of the Company as of December 28, 1990. Pursuant to the terms of the Agreements, the Retirees are entitled to receive supplemental retirement payments from the Company in addition to the amounts to which they are entitled under the Company's retirement plan. In addition, the Retirees and their spouses are entitled to lifetime coverage under the Company's group medical and dental plans, tax and other financial services, and payments by the Company in connection with certain club membership dues. The Retirees will also continue to participate in the Company's royalty bonus program until December 31, 1995. The Company has also agreed to maintain certain life insurance policies in effect at December 1990, for the benefit of each of the Retirees. Six of the Retirees have subsequently resigned as directors. One of the Retirees continues to serve as a director and will be paid the customary non- employee director's fee. Pursuant to the terms of the retirement agreements, the former directors and any other Retiree who ceases to be a director (or his spouse) will be paid $2,500 a month until December 2000. The Company's obligation to one retiree under a revised retirement agreement is payable in Common Stock or cash, at the Company's option, in May of each year from 1993 through 1996 at approximately $190,000 per year with the balance of $149,000 payable in May 1997. The retirement agreements for the other six Retirees, one of 40 (10) EMPLOYEE BENEFITS (CONT'D): - - -------------------------------------------------------------------------------- whom received in 1991 the payments scheduled to be made in 1999 and 2000, provide for supplemental retirement payments totalling approximately $938,400 per year through 1998 and approximately $740,400 per year in 1999 and 2000. The present value of the amounts due under the agreements, discounted at 13%, has been recorded as retirement benefits payable to executives and directors. LIFE INSURANCE: The Company provides life insurance benefits for certain key employees and retirees under split dollar life insurance plans. The premiums paid for the life insurance policies were $916,000, $861,000, and $995,000 in 1994, 1993 and 1992, respectively, including $831,000, $766,000 and $765,000 paid for policies for retired executives. Under the life insurance plans, the Company is assigned a portion of the benefits which is designed to recover the premiums paid. HEALTH AND DENTAL INSURANCE: The Company provides health and dental insurance to all of its employees, eligible retirees and eligible dependents. The Company provides these benefits at nominal cost to employees and retirees who are required to contribute an estimated 50% of the cost of dependent coverage. In 1994, 1993 and 1992 the costs of providing these benefits for both active and retired employees totalled $1,714,000, $1,350,000 and $1,359,000, respectively. The 1994 cost includes $1,384,000 related to 191 participating active employees and 4 employees on long-term disability and $330,000 related to 115 eligible retirees. The 1993 cost includes $993,000 related to 184 participating active employees and 4 employees on long-term disability and $357,000 related to 125 eligible retirees. The 1992 cost includes $1,011,000 related to 183 participating active employees and $348,000 related to 119 eligible retirees. POSTRETIREMENT BENEFITS: The Company accrues expected costs of providing postretirement benefits to employees, their beneficiaries and covered dependents in accordance with Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," (SFAS No. 106). The Company adopted the provisions of SFAS No. 106 in the first quarter of 1993. The estimated accumulated postretirement benefit obligation as of January 1, 1993 was approximately $4,822,000. This amount, reduced by applicable income tax benefits, was charged to operations in the first quarter of 1993 as the cumulative effect of a change in accounting principle. The annual net postretirement benefit cost was approximately $510,000 for 1994 and $483,000 in 1993. At December 31, 1994, December 31, 1993 and January 1, 1993 the discount rates used in determining the actuarial present value of the accumulated postretirement benefit obligation were 9%, 7.5% and 8.5%, respectively. (11) RELATED PARTY TRANSACTIONS: - - -------------------------------------------------------------------------------- During 1994, the Company used a real estate complex (the Complex) owned directly or indirectly by certain stockholders and members of the Board of Directors for Company-sponsored seminars, the accommodation of business guests, the housing of personnel attending corporate meetings and for other general business purposes. In 1994, in connection with the Company's termination of usage, the Company paid $662,000 on account of the business use of such property, and an additional $300,000 as a partial reimbursement of deferred maintenance costs. The Company incurred expenses for its use of the Complex of $635,000 in 1993 and $611,000 in 1992. John F. Dorn resigned as an executive officer and director of the Company in 1993. The Company agreed to pay John F. Dorn his salary at time of resignation through September 30, 1996. In addition, the Company provided certain other benefits and services to Mr. Dorn. The present value of the severance package was estimated at $500,000, which amount was recorded as an expense and a liability at December 31, 1993. 41 (11) RELATED PARTY TRANSACTIONS (CONT'D): - - -------------------------------------------------------------------------------- In March 1994, the Company sold certain non-strategic oil and gas properties to an entity controlled by John F. Dorn and another former executive officer of the Company for net proceeds, after costs of sale and purchase price adjustments, of $3,661,000. The Company established the sales price based upon an opinion from an independent third party. The purchasers financed 100% of the purchase price with a loan bearing interest at the rate of prime plus 1%. The loan was secured by a mortgage on the properties and personal guarantees of the purchasers. The Company participated as a lender in the loan in the amount of approximately $800,000. In addition, the Company agreed to subordinate to the other lender its right of payment of principal on default. The purchasers have separately agreed with the Company that certain options to purchase company stock will be cancelled to the extent that the Company's participation in the loan is not repaid in full. Collectively, the purchasers have options to purchase 275,000 shares of the Company's Common Stock at $3.00 per share and 275,000 shares at $5.00 per share. (12) COMMITMENTS AND CONTINGENCIES: - - -------------------------------------------------------------------------------- Future rental payments for office facilities and equipment under the remaining terms of noncancelable leases are $1,619,000, $1,138,000, $961,000, $969,000 and $1,002,000 for the years ending December 31, 1995 through 1999, respectively. Net rental payments applicable to exploration and development activities and capitalized in the oil and gas property accounts aggregated $851,000 in 1994, $688,000 in 1993 and $874,000 in 1992. Net rental payments charged to expense amounted to $3,512,000 in 1994, $3,098,000 in 1993 and $3,112,000 in 1992. Rental payments include the short-term lease of vehicles. None of the leases are accounted for as capital leases. The Company, in the ordinary course of business, is a party to various legal actions. In the opinion of management, none of these actions, either individually or in the aggregate, will have a material adverse effect on the Company's financial condition, liquidity or results of operations. (13) FINANCIAL INSTRUMENTS: - - -------------------------------------------------------------------------------- The Company is exposed to off-balance-sheet risks associated with energy swap agreements arising from movements in the prices of oil and natural gas and from the unlikely event of non-performance by the counterparty to the swap agreements. In order to hedge against the effects of declines in oil and natural gas prices, the Company enters into energy swap agreements with third parties and accounts for the agreements as hedges based on analogy to the criteria set forth in Statement of Financial Accounting Standards No. 80, "Accounting for Futures Contracts." In a typical swap agreement, the Company receives the difference between a fixed price per unit of production and a price based on an agreed-upon third party index if the index price is lower. If the index price is higher, the Company pays the difference. The Company's current swaps are settled on a monthly basis. For the years ended December 31, 1994, 1993 and 1992, the Company incurred swap gains (losses) of $1,810,000, $(2,050,000) and $(1,642,000), respectively. The following table indicates outstanding energy swaps of the Company which were in place at December 31, 1994:
Fixed Product Volume Price Duration ----------- ------------------ ----------- ----------- Natural Gas 5,000 MMBTU/day $1.90-$2.38 1/95-12/95 Natural Gas 194 to 16,275 MMBTU/day $2.06-$2.535 1/95-12/99 Natural Gas 10,000 MMBTU/day $2.00-$2.37 1/95-12/97 Natural Gas 10 to 350 MMBTU/day $2.12-$3.003 1/95-12/02 Natural Gas 5,000 MMBTU/day $2.25 1/95-2/95 Natural Gas 850 to 1,377 MMBTU/day $2.255 1/95-9/95 Oil 657 BBLS/day $16.70 1/95-4/96 Oil 657 BBLS/day $17.75 1/95-6/96
42 (13) FINANCIAL INSTRUMENTS: - - -------------------------------------------------------------------------------- OPTION AGREEMENT. In 1993, under another agreement (the Option Agreement), the Company paid a premium of $516,000 in conjunction with the closing of the Enron loan agreement. The payment of this premium gave Forest the right to set a floor price of $1.70 per MMBTU on a total of 18,400 BBTU of natural gas over a five year period commencing January 1, 1995. In order to exercise this right to set a floor, the Company must pay an additional premium of 10CENTS per MMBTU, effectively setting the floor at $1.60 per MMBTU. The option agreement is broken into five calendar year periods with the option for each calendar year expiring four trading days prior to the last trading day for the January NYMEX contract for that year. The premium of $516,000 related to the Option Agreement was recorded as a long-term asset and will be amortized as a reduction to oil and gas income beginning in 1995 based on the volumes involved. Set forth below is the estimated fair value of certain on and off-balance sheet financial instruments, along with the methods and assumptions used to estimate such fair values as of December 31, 1994: CASH AND CASH EQUIVALENTS, ACCOUNTS RECEIVABLES AND ACCOUNTS PAYABLE: The carrying amount of these instruments approximates fair value due to their short maturity. NONRECOURSE SECURED LOAN: The fair value of the Company's nonrecourse secured loan has been estimated as approximately $58,684,000 by discounting the projected future cash payments required under the agreement by 14.45%. PRODUCTION PAYMENT OBLIGATION: The fair value of the Company's production payment obligation has been estimated as approximately $17,405,000 by discounting the projected future cash payments required under the agreement by 12.5%. SENIOR SUBORDINATED NOTES The fair value of the Company's 11 1/4% Subordinated Notes was approximately $91,000,000, based upon quoted market prices for the same or similar issues. ENERGY SWAP AGREEMENTS: The fair value of the Company's energy swap agreements was approximately $7,673,000, based upon the estimated net amount the Company would receive to terminate the agreements. (14) MAJOR CUSTOMERS: - - -------------------------------------------------------------------------------- The Company's sales of oil and natural gas to individual customers which exceeded 10% of the Company's total sales (exclusive of the effects of energy swaps and hedges) were:
1994 1993 1992 ---- ---- ---- (In Thousands) Enron Affiliates (A) $58,805 63,075 12,646 Chevron USA Production Company 12,829 -- -- ONEOK Exploration Company (B) -- -- 22,392 (A) The amount shown for Enron Affiliates includes oil and natural gas sales to Enron Gas Marketing Inc., Enron Oil & Gas Company, EOTT Energy Corporation, Cactus Funding Corporation, Cactus Hydrocarbon III Limited Partnership, Enron Gas Services Corporation and Enron Reserve Acquisition. Approximately $29,046,000, $32,702,000 and $14,081,000 represent sales recorded for deliveries under volumetric production payments in the years ended December 31, 1994, 1993 and 1992, respectively. (B) The amount shown for ONEOK Exploration Company represents the amount recorded as a result of the gas purchase contract settlement described in Note 9.
43 (15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED): - - --------------------------------------------------------------------------------
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In Thousands Except Per Share Amounts) 1994 (A) - - -------- Revenue $ 32,543 32,977 28,207 22,220 --------- --------- --------- --------- --------- --------- --------- --------- Earnings from operations $ 24,241 23,600 19,387 13,763 --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) before cumulative effects of changes in accounting principles and extraordinary item $ 236 (265) (32,873) (34,951) --------- --------- --------- --------- --------- --------- --------- --------- Net loss $ (13,754) (265) (32,873) (34,951) --------- --------- --------- --------- --------- --------- --------- --------- Net loss attributable to common stock $ (14,294) (805) (33,414) (35,491) --------- --------- --------- --------- --------- --------- --------- --------- Primary and fully diluted loss per share before cumulative effects of changes in accounting principles and extraordinary item $ (.01) (.03) (1.19) (1.26) --------- --------- --------- --------- --------- --------- --------- --------- Primary and fully diluted loss per share $ (.51) (.03) (1.19) (1.26) --------- --------- --------- --------- --------- --------- --------- --------- (A) Amounts have been restated to give retroactive effect to the change in accounting for oil and gas sales as discussed in Note 1. Restated amounts for the first quarter reflect increases of $1,473,000 in Revenue and in Earnings from operations and $1,131,000 in Income (loss) before cumulative effects of changes in accounting principles and extraordinary item; an increase of $12,859,000 in Net loss and in Net loss attributable to common stock; a decrease of $.04 in Primary and fully diluted loss per share before cumulative effects of changes in accounting principles and extraordinary item; and an increase of $.46 in Primary and fully diluted loss per share. Restated amounts for the second quarter reflect increases of $1,220,000 in Revenue and in Earnings from operations; decreases of $993,000 in Loss before cumulative effects of changes in accounting principles and extraordinary item, Net loss and Net loss attributable to common stock; and decreases of $.03 in the per share losses presented. Restated amounts for the third quarter reflect increases of $1,147,000 in Revenue and in Earnings from operations; decreases of $866,000 in Loss before cumulative effects of changes in accounting principles and extraordinary item, Net loss and Net loss attributable to common stock; and decreases of $.03 in the per share losses presented.
First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- (In Thousands Except Per Share Amounts) 1993 - - ---- Revenue $25,126 27,975 26,214 25,833 --------- --------- --------- --------- --------- --------- --------- --------- Earnings from operations $16,949 21,029 18,275 15,087 --------- --------- --------- --------- --------- --------- --------- --------- Loss before cumulative effects of changes in changes in accounting principles and extraordinary item $(1,266) (938) (2,353) (4,798) --------- --------- --------- --------- --------- --------- --------- --------- Net loss $(2,389) (938) (13,102) (4,784) --------- --------- --------- --------- --------- --------- --------- --------- Net loss attributable to common stock $(2,976) (1,508) (13,653) (5,326) --------- --------- --------- --------- --------- --------- --------- --------- Primary and fully diluted loss per share before cumulative effects of changes in accounting principles and extraordinary item $(.12) (.09) (.11) (.19) --------- --------- --------- --------- --------- --------- --------- --------- Primary and fully diluted loss per share $(.20) (.09) (.50) (.19) --------- --------- --------- --------- --------- --------- --------- ---------
44 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED): The following information is presented in accordance with Statement of Financial Accounting Standards No. 69, "Disclosure about Oil and Gas Producing Activities," (SFAS No. 69), except as noted. (A) COSTS INCURRED IN OIL AND GAS EXPLORATION AND DEVELOPMENT ACTIVITIES - The following costs were incurred in oil and gas exploration and development activities during the years ended December 31, 1994, 1993 and 1992:
United States Canada Total ------ ------ ----- (In Thousands) 1994 - - ---- Property acquisition costs (undeveloped leases and proved properties) $ 9,762 - 9,762 Exploration costs 15,693 - 15,693 Development costs 17,089 - 17,089 -------- -------- -------- Total $ 42,544 - 42,544 -------- -------- -------- -------- -------- -------- 1993 - - ---- Property acquisition costs (undeveloped leases and proved properties) $ 144,916 - 144,916 Exploration costs 5,433 - 5,433 Development costs 20,472 - 20,472 -------- -------- -------- Total $ 170,821 - 170,821 -------- -------- -------- -------- -------- -------- 1992 - - ---- Property acquisition costs (undeveloped leases and proved properties) $ 88,770 2 88,772 Exploration costs 2,171 126 2,297 Development costs 14,828 730 15,558 -------- -------- -------- Total $ 105,769 858 106,627 -------- -------- -------- -------- -------- --------
(B) AGGREGATE CAPITALIZED COSTS - The aggregate capitalized costs relating to oil and gas activities were incurred as of the dates indicated:
December 31, 1994 1993 1992 ------ ------ ------ (In Thousands) Costs related to proved properties $ 1,109,158 1,079,164 928,890 Costs related to unproved properties: Costs subject to depletion (including wells in progress) 32,288 20,276 24,785 Costs not subject to depletion 30,441 41,216 18,306 ---------- ---------- ---------- 1,171,887 1,140,656 971,981 Less accumulated depletion and valuation allowance 895,335 778,226 717,444 ---------- ---------- ---------- $ 276,552 362,430 254,537 ---------- ---------- ---------- ---------- ---------- ----------
45 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS ACTIVITIES (UNAUDITED) (CONT'D): - - -------------------------------------------------------------------------------- (C) RESULTS OF OPERATIONS FROM PRODUCING ACTIVITIES - Results of operations from producing activities for 1994, 1993 and 1992 are presented below. Income taxes are different from income taxes shown in the Consolidated Statements of Operations because this table excludes general and administrative and interest expense.
United States Canada Total -------- ------- ------ (In Thousands) 1994 - - ---- Oil and gas sales $ 114,541 - 114,541 Production expense 22,384 - 22,384 Depletion expense 64,883 - 64,883 Provision for impairment of oil and gas properties 58,000 - 58,000 Income tax benefit (A) - - - --------- --------- --------- 145,267 - 145,267 --------- --------- --------- Results of operations from producing activities $ (30,726) - (30,726) --------- --------- --------- --------- --------- --------- 1993 - - ---- Oil and gas sales $ 102,883 - 102,883 Production expense 19,540 - 19,540 Depletion expense 59,759 - 59,759 Income tax expense (B) - - - --------- --------- --------- 79,299 - 79,299 --------- --------- --------- Results of operations from producing activities $ 23,584 - 23,584 --------- --------- --------- --------- --------- --------- 1992 - - ---- Oil and gas sales $ 94,289 (C) 4,950 99,239 (C) Production expense 14,516 (D) 1,349 15,865 (D) Depletion expense 43,052 2,625 45,677 Income tax expense 12,615 332 12,947 --------- --------- --------- 70,183 4,306 74,489 --------- --------- --------- Results of operations from producing activities $ 24,106 644 24,750 --------- --------- --------- --------- --------- --------- (A) No income tax benefit has been recognized as it has not been realized by the Company. (B) No income tax expense was reflected in results of operations from producing activities in 1993 because of the availability of tax loss, percentage depletion and credit carryforwards. (C) Includes $22,392,000 attributable to the ONEOK settlement. (D) Includes $1,589,000 attributable to the ONEOK settlement.
46 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (unaudited): - - -------------------------------------------------------------------------------- (D) ESTIMATED PROVED OIL AND GAS RESERVES - The Company's estimate of its proved and proved developed future net recoverable oil and gas reserves and changes for 1992, 1993 and 1994 follows. Such estimates are inherently imprecise and may be subject to substantial revisions. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions; i.e., prices and costs as of the date the estimate is made. Prices include consideration of changes in existing prices provided only by contractual arrangement, including energy swap agreements (see Note 13), but not on escalations based on future conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of fluid injection or other improved mechanisms of primary recovery are included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed program has confirmed through production response that increased recovery will be achieved. The Company's presentation of estimated proved oil and gas reserves has been restated to exclude, for each of the years presented, those quantities attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled at expected BTU factors, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. This restatement was made following discussion with the Staff of the Securities and Exchange Commission. The Company has also presented, as additional information, proved oil and gas reserves including quantities attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements as the related oil and gas property costs and deferred revenue are included on the Company's balance sheets for each of the years presented. This additional information is not presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis. 47 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - - --------------------------------------------------------------------------------
OIL AND CONDENSATE GAS ------------------------------------ -------------------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------ ------ ----- Balance at December 31, 1991 3,131 2,184 5,315 148,758 23,752 172,510 Revisions of previous estimates (139) 33 (106) (9,837) (219) (10,056) Extensions and discoveries 9 -- 9 1,127 -- 1,127 Production (1,249) (142) (1,391) (18,697) (1,360) (20,057) Sales of reserves in place (646) (2,075) (2,721) (20,273) (22,173) (42,446) Purchases of reserves in place 5,867 -- 5,867 63,343 -- 63,343 ----- ----- ----- ------- ------ ------- Balance at December 31, 1992 6,973 -- 6,973 164,421 -- 164,421 Additional disclosures: Volumes attributable to volumetric production payments 587 -- 587 30,234 -- 30,234 ----- ----- ----- ------- ------ ------- Balance at December 31, 1992, including volumes attributable to volumetric production payments 7,560 -- 7,560 194,655 -- 194,655 ----- ----- ----- ------- ------ ------- ----- ----- ----- ------- ------ ------- Balance at December 31, 1992 6,973 -- 6,973 164,421 -- 164,421 Revisions of previous estimates 507 -- 507 17,874 -- 17,874 Extensions and discoveries 201 -- 201 8,395 -- 8,395 Production (1,308) -- (1,308) (22,383) -- (22,383) Sales of reserves in place (280) -- (280) (18,941) -- (18,941) Purchases of reserves in place 1,704 -- 1,704 94,730 -- 94,730 ----- ----- ----- ------- ------ ------- Balance at December 31, 1993 7,797 -- 7,797 244,096 -- 244,096 Additional disclosures: Volumes attributable to volumetric production payments 401 -- 401 29,286 -- 29,286 ----- ----- ----- ------- ------ ------- Balance at December 31, 1993, including volumes attributable to volumetric production payments 8,198 -- 8,198 273,382 -- 273,382 ----- ----- ----- ------- ------ ------- ----- ----- ----- ------- ------ ------- Balance at December 31, 1993 7,797 -- 7,797 244,096 -- 244,096 Revisions of previous estimates 989 -- 989 7,848 -- 7,848 Extensions and discoveries 41 -- 41 9,894 -- 9,894 Production (1,361) -- (1,361) (32,043) -- (32,043) Sales of reserves in place (170) -- (170) (6,377) -- (6,377) Purchases of reserves in place 17 -- 17 8,220 -- 8,220 ----- ----- ----- ------- ------ ------- Balance at December 31, 1994 7,313 -- 7,313 231,638 -- 231,638 Additional disclosures: Volumes attributable to volumetric production payments 219 -- 219 15,358 -- 15,358 ----- ----- ----- ------- ------ ------- Balance at December 31, 1994, including volumes attributable to production payments 7,532 -- 7,532 246,996 -- 246,996 ----- ----- ----- ------- ------ ------- ----- ----- ----- ------- ------ -------
Purchases of reserves in place represent volumes recorded on the closing dates of the acquisitions for financial accounting purposes. The revisions of previous estimates for natural gas in 1994 include 5,833 MMCF for an adjustment related to the change in accounting for oil and gas sales from the sales method to the entitlements method. 48 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - - -------------------------------------------------------------------------------- (D) ESTIMATED PROVED OIL AND GAS RESERVES (CONT'D)
OIL AND CONDENSATE GAS ---------------------------------- ---------------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------ ------ ----- Proved developed reserves: December 31, 1991 2,903 1,824 4,727 132,434 20,807 153,241 December 31, 1992 5,831 -- 5,831 146,048 -- 146,048 December 31, 1993 6,377 -- 6,377 187,534 -- 187,534 December 31, 1994 6,775 -- 6,775 179,574 -- 179,574
The Company's proved developed reserves, including amounts attributable to volumetric production payments, are shown below. This disclosure is presented as additional information and is not intended to represent required disclosure pursuant to SFAS No. 69.
OIL AND CONDENSATE GAS ---------------------------------- ---------------------------------- (MBBLS) (MMCF) UNITED UNITED STATES CANADA TOTAL STATES CANADA TOTAL ------ ------ ----- ------ ------ ----- Proved developed reserves, including amounts attributable to volumetric production payments at: December 31, 1991 2,903 1,824 4,727 153,395 20,807 174,202 December 31, 1992 6,418 -- 6,418 176,282 -- 176,282 December 31, 1993 6,778 -- 6,778 216,820 -- 216,820 December 31, 1994 6,994 -- 6,994 194,932 -- 194,932
(E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS - Future oil and gas sales and production and development costs have been estimated using prices and costs in effect at the end of the years indicated, except in those instances where the sale of oil and natural gas is covered by contracts, energy swap agreements or volumetric production payments. In the case of contracts, the applicable contract prices, including fixed and determinable escalations, were used for the duration of the contract. Thereafter, the current spot price was used. Prior to December 31, 1993 the contracts included natural gas sales contracts with a company which is involved in Chapter 11 bankruptcy proceedings. Subsequent to December 31, 1993 the volumes applicable to this contract were priced at spot prices. Future oil and gas sales include the estimated effects of existing energy swap agreements as discussed in Note 13. 49 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - - -------------------------------------------------------------------------------- Future income tax expenses are estimated using the statutory tax rate of 35%. Estimates for future general and administrative and interest expenses have not been considered. Changes in the demand for oil and natural gas, inflation and other factors make such estimates inherently imprecise and subject to substantial revision. This table should not be construed to be an estimate of the current market value of the Company's proved reserves. Management does not rely upon the information that follows in making investment decisions. The Company's presentation of the standardized measure of discounted future net cash flows and changes therein has been restated to exclude, for each of the years presented, amounts attributable to future deliveries required under volumetric production payments. In order to calculate such amounts, the Company has assumed that deliveries under volumetric production payments are made as scheduled, that production costs corresponding to the volumes delivered are incurred by the Company at average rates for the properties subject to the production payments, and that delivery commitments are satisfied through delivery of actual volumes as opposed to cash settlements. This restatement was made following discussions with the Staff of the Securities and Exchange Commission. The Company has also presented, as additional information, the standardized measure of discounted future net cash flows and changes therein including amounts attributable to future deliveries required under volumetric production payments. The Company believes that this information is informative to readers of its financial statements because the related oil and gas property costs and deferred revenue are shown on the Company's balance sheets for each of the years presented. This additional information is not required to be presented in accordance with SFAS No. 69; however, the Company believes this additional information is useful in assessing its reserve acquisitions and financial position on a comprehensive basis.
DECEMBER 31, ------------------------------------- 1994 1993 1992 ------ ------ ------ (In Thousands) Future oil and gas sales $ 502,186 662,265 497,567 Future production and development costs (193,376) (240,145) (187,604) -------- -------- ------- Future net revenue 308,810 422,120 309,963 10% annual discount for estimated timing of cash flows (100,480) (138,917) (103,636) -------- -------- ------- Present value of future net cash flows before income taxes 208,330 283,203 206,327 Present value of future income tax expense (867) (24,286) (18,566) -------- -------- ------- Standardized measure of discounted future net cash flows $ 207,463 258,917 187,761 Additional disclosures: Amounts attributable to volumetric production payments 22,686 40,136 39,248 -------- -------- ------- Total discounted future net cash flows, including amounts attributable to volumetric production payments $ 230,149 299,053 227,009 -------- -------- ------- -------- -------- -------
Undiscounted future income tax expense was $1,348,000 at December 31, 1994, $35,028,000 at December 31, 1993 and $32,718,000 at December 31, 1992. 50 (16) SUPPLEMENTAL FINANCIAL DATA - OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) (CONTINUED): - - -------------------------------------------------------------------------------- (E) STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (CONT'D) CHANGES IN THE STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS RELATING TO PROVED OIL AND GAS RESERVES - An analysis of the changes in the standardized measure of discounted future net cash flows during each of the last three years is as follows:
1994 1993 1992 ---- ---- ---- (In Thousands) Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at beginning of year $258,917 187,761 164,651 Changes resulting from: Sales of oil and gas, net of production costs (69,607) (59,572) (52,090) Net changes in prices and future production costs (80,526) (22,010) 14,287 Net changes in future development costs 7,432 (18,724) (2,444) Extensions, discoveries and improved recovery 10,817 15,322 2,122 Previously estimated development costs incurred during the period 10,000 13,424 9,315 Revisions of previous quantity estimates 16,840 25,262 (11,450) Sales of reserves in place (10,630) (28,802) (67,877) Purchases of reserves in place 8,467 127,418 113,567 Accretion of discount on reserves at beginning of year before income taxes 32,334 24,558 20,392 Net change in income taxes 23,419 (5,720) (2,712) ------- ------- ------- Standardized measure of discounted future net cash flows relating to proved oil and gas reserves, at end of year $207,463 258,917 187,761 Additional disclosures: Amounts attributable to volumetric production payments 22,686 40,136 39,248 ------- ------- ------- Total discounted future net cash flows relating to proved oil and gas reserves, including amounts attributable to volumetric production payments, at end of year $230,149 299,053 227,009 ------- ------- ------- ------- ------- -------
As of April 1, 1995 the Company was receiving an average price of $1.59 per MCF and $17.25 per barrel. Based on these prices the standardized measure of discounted future net cash flows, exclusive of amounts attributable to volumetric production payments, would have been approximately $193,600,000 at December 31, 1994. 51 (17) SUBSEQUENT EVENTS On April 13, 1995 the Company sold to a bank a participation interest in the Company's claim in a bankruptcy proceeding. Consideration received consisted of a $4,000,000 nonrecourse loan, in exchange for which the bank will receive, solely from the proceeds of the bankruptcy claim, an amount equal to the loan principal plus accrued interest at 16.5% per annum plus 25% of the excess, if any, of the proceeds over the loan principal and interest. The Company may, under certain conditions, limit the overall cost of financing to 23.5% per annum by exercising its option to repurchase the bank's interest in the bankruptcy claim prior to receipt of any proceeds of the claim. On April 17, 1995, the Company signed letters of intent with The Anschutz Corporation (Anschutz) and with Joint Energy Development Investments Limited Partnership (JEDI), an affiliate of Enron Corp., in each case as described below. The Anschutz letter of intent contemplates that Anschutz will purchase 18,800,000 shares of the Company's common stock and shares of newly-issued preferred stock that are convertible into 6,200,000 additional shares of common stock for a total consideration of $45,000,000, or $1.80 per share. The preferred stock will have a liquidation preference and will receive dividends ratably with the common stock. The investment will be made in two closings. In the first closing, expected to occur in early May 1995, Anschutz will loan the Company $9,900,000 for a term of 9 months. The loan will bear interest at 8% per annum for 16 weeks and at 12.5% per annum thereafter. The loan will be secured by oil and gas properties owned by the Company, the preferred stock of Archean Energy Ltd. and certain other assets acceptable to Anschutz. The loan may be converted into 5,500,000 shares of Forest's common stock at Anschutz's election, but the loan must be so converted at the second closing. At the second closing, expected to occur by July 1995 following receipt of shareholder approval of the transactions contemplated by the letters of intent, Anschutz will purchase 13,300,000 shares of common stock and the convertible preferred stock. In connection with this purchase, Anschutz will agree to certain voting, acquisition, and transfer limitations regarding shares of common stock for five years after the second closing, including (a) a limit on voting, subject to certain exceptions, that would require Anschutz to vote all shares of common stock acquierd by Anschutz in the transaction in excess of an amount equal to 19.99% of the shares of common stock then outstanding in the same proportion as all other shares of common stock are voted, (b) a limit on the number of persons associated with Anschutz that may at any time be elected as directors of the Company and (c) a limit on the acquisition of additional shares of common stock by Anschutz (whether pursuant to the exercise of the $2.10 warrants or the option received from JEDI, each as described below, or otherwise), subject to certain exceptions, that would prohibit any acquisition by Anschutz that would result in Anschutz owning 40% or more of the shares of common stock then issued and outstanding. While the foregoing limitations are in effect, Anschutz will have a minority representation on the board of directors. The JEDI letter of intent contemplates that, at the second closing referred to above, Forest and JEDI will restructure JEDI's existing loan currently having a principal balance of approximately $62,100,000. In exchange for certain 52 warrants referred to below, JEDI will relinquish the net profits interest that it holds in certain Forest properties and will reduce the interest rate relating to the loan. As a result of the loan restructuring and the issuance of the warrants, the Company anticipates a reduction of the recorded amount of the related liability to approximately $45.0 million and a reduction of interest expense of approximately $2.1 million per annum. In addition, beginning 18 months after the second closing, the Company may prepay the loan at any time and may tender its interest in the underlying properties in full satisfaction of the loan. The JEDI letter of intent also contemplates that, at the second closing, JEDI will receive warrants to purchase 11,250,000 shares of the Company's common stock for $2.00 per share and warrants to purchase 19,444,444 shares of common stock at $2.10 per share. The $2.00 warrants expire on December 31, 2002, except that, in certain circumstances, the Company may terminate the warrants at any time beginning 36 months after the second closing if the average closing price of the common stock for both the 90 day and 15 day periods immediately preceding the termination is in excess of $2.50 per share. For the first 36 months after the second closing, the $2.00 warrants may be exercised only on the dates and in the respective numbers of shares required to be delivered by JEDI to Anschutz pursuant to the exercise of the option granted by JEDI to Anschutz, as described below. The $2.10 warrants are exercisable during the first 18 months after the second closing, subject to extension in certain circumstances to 36 months after the second closing. The letters of intent also contemplate that, at the second closing, JEDI will assign to Anschutz the $2.10 warrants and will grant to Anschutz an option to purchase up to 11,250,000 shares of common stock during the first 36 months after the second closing. The letters of intent require the Company to pay Anschutz and JEDI certain fees and expenses in connection with the letters of intent and the transactions contemplated thereby in certain circumstances. The Anschutz letter of intent requires the Company to pay to Anschutz a fee (called a subsequent event fee) of up to $2,500,000 upon the occurence of certain events prior to the second closing (or, if the second closing does not occur, April 17, 1996), such as a merger, consolidation or other business combination between the Company and a person other than Anschutz. In the Anschutz letter of intent, the Company has agreed not to solicit proposals for transactions that would require the Company to pay a subsequent event fee and to keep Anschutz generally informed regarding the receipt and disposition by the Company of proposals regarding such transactions made by other persons. The transactions contemplated by the letters of intent are subject to, among other things, the preparation and execution of definitive documentation satisfactory to the parties and to the approval of Forest's board of directors and certain of its creditors. The purchase by Anschutz of common stock at the second closing, the restructure of JEDI's existing loan and the transactions between Anschutz and JEDI described above are also subject to, among other things, the prior approval of Forest's shareholders and Hart-Scott-Rodino clearance. The Company believes that short-term and long-term liquidity would be significantly improved by the conclusion of the transactions, described above. Although the Company believes that the conditions to the closing of the transactions can be satisfied, there can be no assurance that the transactions will close on the terms and on the dates referred to above, or at all. 53 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS OF FOREST The Company's By-laws currently provide that the Board of Directors shall be divided into four classes as nearly equal in number as possible, with each class having not less than three members, whose terms of office expire at different times in annual succession. Currently the number of directors is fixed at 12. If the transactions with Anschutz are approved by the Shareholders at the Annual Meeting of Shareholders, then five directors will resign as directors and the Board of Directors will appoint three Anschutz representatives as directors, pursuant to the Shareholders' Agreement with Anschutz. If the transactions with Anschutz are approved, the size of the Board will be reduced to 10 members. If the transactions with Anschutz are not approved, such persons will not resign and the size of the Board will be reduced to 11 members. The Board of Directors, effective at the 1994 Annual Meeting, reapportioned the number of Directors to three in each class. The Board of Directors, effective at the 1995 Annual Meeting, will reduce the minimum number of Directors in each class to two members. Jack D. Riggs, previously a Class IV Director, was reclassified as a Class I Director with a term expiring at the 1995 Annual Meeting. Mr. Riggs, a Class I Director, is not standing for reelection. Each class of directors is elected for a term expiring at the Annual Meeting to be held four years after the date of their election. The Class I Nominees were elected at the 1991 Annual Meeting, the Class II Directors were elected at the 1992 Annual Meeting and the Class III Directors were elected at the 1993 Annual Meeting. The Class IV Directors were elected at the 1994 Annual Meeting.
PRINCIPAL OCCUPATION, SERVED AGE AND POSITIONS WITH COMPANY AS A YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR NAME WITH COMPANY DURING LAST FIVE YEARS SINCE ---- ---------------- ------------------------ ------- Donald H. Anderson 46 - 2 President, Chief Executive Officer 1993 and Director of Associated Natural Gas Corporation, a wholly owned subsidiary of Panhandle Eastern Corporation, since September 1989 and January 1989, respectively and Chairman of Associated Natural Gas, Inc., a wholly-owned subsidiary of Panhandle Eastern Corporation, since December 1994. Member of the Audit Committee.
54
PRINCIPAL OCCUPATION, SERVED AGE AND POSITIONS WITH COMPANY AS A YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR NAME WITH COMPANY DURING LAST FIVE YEARS SINCE ---- ---------------- ----------------------- -------- Austin M. Beutner 35 - 2 President, Chief Executive Officer 1993 and Director of the Fund for Large Enterprises in Russia since March 1994. Prior thereto General Partner of The Blackstone Group since 1991. Prior thereto a Vice President of Blackstone. Member of the Compensation Committee. Robert S. Boswell 45 - 10 President since November 1993. 1985 Vice President from May 1991 until November 1993. Chief Financial Officer since May 1991. Financial Vice President from September 1989 until May 1991. Member of the Executive Committee since July 1991 and the Royalty Bonus Committee since August 1991. Director of Franklin Supply Company Ltd. Richard J. Callahan 53 - 2 Executive Vice President of 1993 U S WEST, Inc. since January 1988 and President of U S WEST International and Business Development Group since October 1991. Member of the Compensation Committee. Dale F. Dorn 52 - 28 Resigned as a Vice President 1977 in September 1989; currently engaged in private investments. John C. Dorn 67 - 45 Retired as Regional Vice President 1956 in December 1990. 55 PRINCIPAL OCCUPATION, SERVED AGE AND POSITIONS WITH COMPANY AS A YEARS OF SERVICE AND BUSINESS EXPERIENCE DIRECTOR NAME WITH COMPANY DURING LAST FIVE YEARS SINCE ---- ---------------- ----------------------- -------- William L. Dorn 46 - 23 Chairman of the Board and 1982 Chairman of the Executive Committee since July 1991 and Chief Executive Officer since February 1990. Member of the Executive Committee since August 1988. President from February 1990 until November 1993. Executive Vice President from August 1989 until February 1990. Member of the Royalty Bonus Committee since August 1991 and Chairman since May 1994. Harold D. Hammar 71 - 10 Member of the Audit Committee and 1985 Compensation Committee. Financial Consultant. James H. Lee 46 - 4 Managing Partner, Lee, Hite & 1991 Wisda Ltd. Member of the Executive Committee since February 1994. Jeffrey W. Miller 43 - 7 Independent Biologist. 1988 Jack D. Riggs 70 - 41 Chairman of the Audit Committee. 1977 Member of the Compensation Committee. Member of the Royalty Bonus Committee since May 1994. Retired as Vice President in January 1987; currently engaged in private investments. Michael B. Yanney 61 - 3 Chairman and Chief Executive Officer 1992 of the America First Companies, L.L.C. and a director of Burlington Northern Inc., Lozier Corporation, MFS Communications Company, Inc. and America First REITs Inc. Chairman of the Compensation Committee.
Refer to Item 4A. for the Executive Officers. 56 SECTION 16 REPORTING Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the SEC and the National Association of Security Dealers, Inc. Officers, directors, and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of copies of such forms received by it and written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that, during the period from January 1, 1994 to March 31, 1995, its officers, directors, and greater than 10% beneficial owners complied with all applicable filing requirements, except that Dale F. Dorn, John C. Dorn and Michael B. Yanney each failed to file a monthly report of one transaction, but such transactions were reported in their year-end reports on Form 5, which were timely filed. 57 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth certain information regarding compensation earned during each of the Company's last three fiscal years by the Company's Chief Executive Officer and each of the Company's four other most highly compensated executive officers (collectively, the "Named Executive Officers"), based on salary and bonus earned in 1994: SUMMARY COMPENSATION TABLE
Long-Term Compensation Annual Compensation Awards (4) ------------------------------------- --------------- All Other Other Annual Securities Compen- Name and Compen- Underlying sation Principal Position Year Salary ($) Bonus ($)(1)(2) sation ($)(3) Options (#) ($)(5) - - ------------------ ---- --------- -------------- ------------ ---------- ---- William L. Dorn, 1994 $300,012 -0- $2,795 -0- $22,942 Chairman of the 1993 250,008 100,159 665 175,000 32,640 Board and Chief 1992 250,008 75,618 624 175,000 10,618 Executive Officer Robert S. Boswell, 1994 284,004 -0- 2,515 -0- 21,559 President 1993 234,000 88,239 607 175,000 30,503 1992 234,000 94,017 567 175,000 10,445 Bulent A. Berilgen, 1994 166,512 -0- -0- -0- 11,507 Vice President 1993 137,850 53,336 -0- 100,000 16,458 of Operations 1992 131,932 41,456 -0- 100,000 6,234 David H. Keyte, 1994 165,000 -0- 21,945 -0- 11,469 Vice President 1993 139,494 36,433 18,192 100,000 16,517 and Chief 1992 131,618 58,419 -0- 100,000 6,234 Accounting Officer Forest D. Dorn, 1994 163,800 -0- 18,335 -0- 12,910 Vice President 1993 160,650 22,013 324 100,000 20,342 and General 1992 156,250 35,219 316 100,000 8,769 Business Manager 58 (1) The following amounts indicate the awards made with respect to the years indicated, under the Forest Oil Corporation Incentive Plan (the "Incentive Plan"): 1992 1993 1994 ---- ---- ---- William L. Dorn $68,126 $30,500 -0- Robert S. Boswell 61,965 29,020 -0- Bulent A. Berilgen 37,565 18,135 -0- David H. Keyte 34,542 16,185 -0- Forest D. Dorn 31,328 14,819 -0- Distributions of awards are made pursuant to the Incentive Plan in equal installments over a three-year period. Pursuant to the Incentive Plan if a participant's employment is terminated prior to the vesting of awards, the remainder of such awards is reallocated to other participants. Amounts reallocated in 1994 for the years 1992 and 1993 were as follows: William L. Dorn - $3,445; Robert S. Boswell - $3,224; Bulent A. Berilgen - $1,836; David H. Keyte - $1,838; and Forest D. Dorn - $2,167. See "Report of the Compensation Committee on Executive Compensation-Incentive Plan Awards". (2) During 1994, the Company assigned to certain of its executive officers and other key personnel, as additional compensation, certain bonuses of undivided interests in overriding royalty interests in the gross production from certain exploratory oil and gas prospects in which the Company had an interest. The cost to the Company at the time of the assignment of such royalty interests was $3,599 each for William L. Dorn, Robert S. Boswell and Forest D. Dorn, $2,061 for Bulent A. Berilgen and $2,041 for David H. Keyte. During 1994 interests in nine exploratory oil and gas prospects were so awarded by the Royalty Bonus Committee. (3) Does not include perquisites and other personal benefits because the value of these items did not exceed the lesser of $50,000 or 10% of reported salary and bonus of any of the Named Executive Officers, except for David H. Keyte and Forest D. Dorn, each of whose 1994 total includes a cash auto allowance of $15,000. (4) No stock appreciation rights ("SARs") or restricted stock awards were granted to any of the Named Executive Officers during any of the last three fiscal years. (5) The 1994 totals include (i) the fair market value of the Company's matching contribution of Common Stock to the Retirement Savings Plan in the following amounts: William L. Dorn - $7,500; Robert S. Boswell - $7,500; Bulent A. Berilgen - $7,500; David H. Keyte - $7,500; and Forest D. Dorn - $7,500; (ii) the fair market value of the Company's profit sharing bonus contribution of Common Stock to the Retirement Savings Plan in the following amounts: William L. Dorn - $5,448; Robert S. Boswell - $5,400; Bulent A. Berilgen - $3,181; David H. Keyte - $3,219; and Forest D. Dorn - $3,707; (iii) the Company's matching contribution pursuant to deferred compensation agreements in the following amounts: William L. Dorn - $7,501; Robert S. Boswell - $6,700; Bulent A. Berilgen - $826; David H. Keyte - $750; and Forest D. Dorn - $690; and (iv) the 59 Company's profit sharing bonus contribution of $322 pursuant to the deferred compensation agreement of William L. Dorn. The 1994 totals also include the following amounts attributable to the term life portion of premiums paid by the Company pursuant to a split dollar insurance arrangement: William L. Dorn - $2,171; Robert S. Boswell - $1,959; and Forest D. Dorn - $1,013. The remainder of the premium is not included and does not benefit the Named Executive Officers because the Company has the right to the cash surrender value of the policy.
YEAR END STOCK OPTION VALUES No stock options were granted to the Named Executive Officers in 1994. There were no stock option exercises by any Named Executive Officers during 1994. The following table shows the number of shares covered by both exercisable and non-exercisable stock options as of December 31, 1994 and their values at such date: OUTSTANDING STOCK OPTION VALUES AS OF DECEMBER 31, 1994
Number of Securities Underlying Value of Unexercised Options Unexercised In-the-Money at Fiscal Year Options at Fiscal Year End (#) End ($)(1) -------------------------------- ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ---- ----------- ------------- ----------- ------------- William L. Dorn 175,000 175,000 $0 $0 Robert S. Boswell 175,000 175,000 0 0 Bulent A. Berilgen 100,000 100,000 0 0 David H. Keyte 100,000 100,000 0 0 Forest D. Dorn 100,000 100,000 0 0 (1) On December 31, 1994, the last reported sales price of the Common Stock as quoted on the NASDAQ/NMS was $2.25 per share. The option price for the options granted in 1992 is $3.00 per share and the option price for the options granted in 1993 is $5.00 per share. Since the last reported sales price at December 31, 1994 was lower than the option price for the options granted in 1992 and 1993, no value is ascribed to those options in the above table.
60 PENSION PLAN The Company's Pension Plan is a qualified, non-contributory defined benefit plan. On May 8, 1991, the Company's Board of Directors suspended benefit accruals under the Pension Plan effective as of May 31, 1991. The following table shows the estimated maximum annual benefits payable upon retirement at age 65 as a straight life annuity to participants in the Pension Plan for the indicated levels of average annual compensation and various periods of service, assuming no future changes in such plan:
ESTIMATED MAXIMUM ANNUAL PENSION BENEFITS (2) --------------------------------------------- YEARS OF SERVICE ---------------- REMUNERATION (1) 10 20 30 ---------------- -- -- -- $100,000 36,846 48,060 53,400 200,000 73,692 96,120 106,800 300,000 79,282 103,412 114,902 400,000 79,282 103,412 114,902 (1) For each Named Executive Officer, the level of compensation used to determine benefits payable under the Pension Plan is such officer's base salary for 1991. (2) Normal retirement benefits attributable to the Company's contributions are limited under certain provisions of the Code to $120,000 in 1995, as increased annually thereafter for cost of living adjustments.
The amount of the Company's contribution, payment or accrual in respect to any specified person in the Pension Plan is not and cannot readily be separately or individually calculated by the Pension Plan actuaries. Annual benefits at normal retirement are approximately 24% of average annual earnings (excluding bonuses) for any consecutive 60-month period, which produces the 61 highest amount, in the last 15 years prior to retirement, up to May 31, 1991, when benefit accruals ceased plus 21% of such earnings prorated over 20 years of credited service, and 1/2 of 1% of such earnings for each year of credited service in excess of 20, subject to certain adjustments for lack of plan participation. There is no Social Security offset. Such benefits are payable for life with a 10 year certain period, or the actuarial equivalent of such benefit. As a result of the suspension of benefit accruals under the Pension Plan and the substitution of profit sharing contributions to the Retirement Savings Plan, the following amounts are the estimated increases (decreases) in the annual combined benefit payments to the Named Executive Officers under the Pension Plan and the Retirement Savings Plan (whether combined benefits increased or decreased is a function of the combination of length of service and salary levels):
ESTIMATED INCREASE/(DECREASE) IN ANNUAL PAYMENTS ------------------- William L. Dorn $ (33,928) Robert S. Boswell (127,141) Bulent A. Berilgen (35,472) Forest D. Dorn 21,104 David H. Keyte (34,661)
Because benefit accruals under the Pension Plan were suspended effective May 31, 1991, the years of credited service for the Named Executive Officers are as follows: William L. Dorn - 20; Robert S. Boswell - 2; Bulent A. Berilgen - 9; Forest D. Dorn - 14 and David H. Keyte - 4. The estimated annual accrued benefit payable, based on a life annuity benefit, upon normal retirement for each of such persons is: William L. Dorn - $45,994; Robert S. Boswell - $4,436; Bulent A. Berilgen - $11,832; David H. Keyte - $5,401; and Forest D. Dorn - $18,886. Neither Robert S. Boswell nor David H. Keyte is vested in such benefit pursuant to the provisions of the Pension Plan. Certain participants in the Pension Plan have been prevented by the limits of the Code from receiving the full amount of pension benefits to which they would otherwise have been entitled. Such persons have had benefits credited to them under a Supplemental Retirement Plan, which together with the benefits payable under the Pension Plan, equaled the benefit to which they would have been entitled under the Pension Plan but for such Code limits. The Supplemental Retirement Plans for each participant were unfunded, non-qualified, non- contributory benefit plans. Benefits payable vest to the same extent as the Pension Plan benefits and are unsecured general obligations of the Company. Benefit accruals under these plans were suspended effective May 31, 1991 in conjunction with the suspension of benefit accruals under the Company's Pension Plan. 62 DIRECTOR COMPENSATION Each director who is not an employee of the Company is compensated for services at the rate of $20,000 annually, and in addition, is paid a fee of $2,500 for attendance in person at each meeting or series of meetings of the Board. All directors, whether employees or not, are reimbursed for all costs incurred by them in their capacities as directors, including the costs of attending directors' meetings and committee meetings. The non-employee directors and the amounts each was paid during 1994 as directors were: John C. Dorn, Dale F. Dorn, Harold D. Hammar, Jeffrey W. Miller, Jack D. Riggs and Michael B. Yanney - $30,000; Donald H. Anderson - $27,500; Austin M. Beutner and Richard J. Callahan - $25,000. James H. Lee received $30,000 for his services as a director, $2,000 for attendance at meetings of the Audit and Compensation Committees and $41,666.68 as payment for his service on the Executive Committee, which began March 1, 1994. Messrs. Hammar and Riggs each received an additional $8,000 for attending meetings of the Audit and Compensation Committees. Mr. Yanney received an additional $3,000 for attending meetings of the Compensation Committee and Mr. Anderson was paid an additional $4,000 for attending meetings of the Audit Committee. No additional amounts are paid for committee participation or special assignments, except that (i) each member of the Compensation Committee is paid $1,000 per meeting which he attends up to a maximum of $4,000 per year for service on that committee, (ii) each member of the Audit Committee is paid $1,000 per meeting which he attends up to a maximum of $4,000 per year for service on that committee, and (iii) Mr. Lee will be paid $50,000 per year for service on the Executive Committee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Compensation Committee of the Board of Directors consists of Messrs. Beutner, Callahan, Hammar, Riggs and Yanney. Mr. Riggs retired as a Vice President of the Company in 1987 and is not standing for reelection as a director. The Executive Committee members are William L. Dorn, Robert S. Boswell and James H. Lee. The members of the Royalty Bonus Committee are William L. Dorn, Robert S. Boswell and Jack D. Riggs. William L. Dorn is Chairman of the Board and Chief Executive Officer and Robert S. Boswell is President. During 1994 there were no compensation committee interlocks between the Company and any other entity. A real estate complex (the "Complex") owned by members of the Dorn and Miller families, located near Bradford, Pennsylvania, had been historically used by the Company for business purposes. In 1994, the Company notified the owners of the Complex that it intended to terminate its annual usage after 1994. In 1994, in connection with the Company's termination of usage, the Company paid $662,000 on account of the business use of such property, and an additional $300,000 as a partial reimbursement of deferred maintenance costs. Members of the Dorn and Miller families who were directors and/or executive officers of the Company (and their immediate families) who owned a direct or indirect interest in such Complex during 1994 were Dale F. Dorn, his brother 63 and his two sisters; William L. Dorn and Forest D. Dorn and their father and two sisters; John C. Dorn and his four children; and Jeffrey W. Miller, his father and two sisters. For further information with respect to other transactions with management and others see Item 13 Transactions with Management and Others. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL HOLDERS OF SECURITIES The Company currently has one class of voting securities outstanding. On March 31, 1995, there were 28,250,647 shares of Common Stock outstanding, with each such share being entitled to one vote. On March 31, 1995 members of the Dorn and Miller families, descendants of the founders of the Company, owned 3,425,820 shares of Common Stock, constituting approximately 12.13% of the voting power of the Company. As of March 31, 1995, to the knowledge of the Company's Board of Directors the only shareholders who owned beneficially more than 5% of the outstanding shares of the Company's Common Stock were:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS - - -------------- -------------------------- --------------------- ----------- Common Stock (1) R.B. Haave Associates,Inc. 3,134,050 (2) 10.68% 270 Madison Avenue New York, NY 10016 Metropolitan Life 1,855,000 (3) 6.57% Insurance Company One Madison Avenue New York, NY 10010 Smith Barney Inc. 2,270,277 (4)(5) 8.04% 1345 Avenue of the Americas New York, NY 10115 (1) Based on Schedules 13D and 13G and amendments thereto filed with the SEC and the Company by the reporting person through April 1, 1995 and the amount of Common Stock outstanding on March 31, 1995. (2) Includes 1,101,450 shares of Common Stock that the reporting person has the right to acquire upon the conversion of 314,700 shares of the Company s $.75 Convertible Preferred Stock. 64 (3) These shares are beneficially owned by State Street Research and Management Company, a subsidiary of Metropolitan Life Insurance Company, which disclaims beneficial ownership of these securities. (4) Smith Barney Holdings Inc. is the sole common stockholder of Smith Barney Inc., and The Travelers Inc. is the sole stockholder of Smith Barney Holdings Inc. Smith Barney Holdings Inc. and The Travelers Inc. disclaim beneficial ownership of these securities. (5) Includes 1,750 and 45 shares of Common Stock that the reporting person has the right to acquire upon the conversion of 500 shares of the Company s $.75 Convertible Preferred Stock and the exercise of Warrants to purchase shares of Common Stock, respectively.
SECURITY OWNERSHIP OF MANAGEMENT The following table shows, as of March 31, 1995, the number of shares of the Company's Common Stock beneficially owned by each director and nominee, each of the executive officers named in the Summary Compensation Table set forth in Item 11 Executive Compensation above, and all directors and executive officers as a group. Unless otherwise indicated, each of the persons has sole voting power and sole investment power with respect to the shares beneficially owned by such person. If the Company's shareholders approve the issuance by the Company of certain securities to Anschutz and the transactions contemplated by the Anschutz letter of intent are consummated, based on the number of outstanding shares of Common Stock as of March 31, 1995, Anschutz would own approximately 39.9% of the voting power of the Company. In addition, subject to the 40% ownership restriction contemplated by the Anschutz letter of intent, Anschutz would have the right to acquire an additional 36,894,444 shares of Common Stock through the exercise of warrants and an option and the conversion of preferred stock it would acquire in such transactions. See "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Recent Developments".
COMMON STOCK (2) ---------------- NAME OF INDIVIDUAL OR NUMBER PERCENT NUMBER IN GROUP (1) OF SHARES OF CLASS --------------------- ---------- -------- Donald H. Anderson 10,000 * Bulent A. Berilgen 121,081(3) * Austin M. Beutner - - Robert S. Boswell 245,673(4) * Richard J. Callahan 2,000 * Dale F. Dorn 116,156(5) * Forest D. Dorn 239,714(6) * John C. Dorn 250,485(7) * William L. Dorn 449,532(8) 1.55 Harold D. Hammar 2,500 * David H. Keyte 126,222(9) * James H. Lee 1,000 * Jeffrey W. Miller 331,220(10) 1.17 Jack D. Riggs 6,635 * Michael B. Yanney 5,000 * All directors and executive officers as a group (19 persons, including the 15 named above) 2,175,826(11) 7.70% 65 * The percentage of shares beneficially owned does not exceed one percent of the outstanding shares of the class. (1) William L. Dorn and Forest D. Dorn are brothers, and they and Dale F. Dorn are nephews of John C. Dorn. See "Principal Holders of Securities". (2) Amounts reported also include shares held for the benefit of certain directors and executive officers by the trustee of the Company's Retirement Savings Plan Trust as of December 31, 1994. (3) Includes 120,000 shares of Common Stock that Bulent A. Berilgen has the vested right to purchase pursuant to the terms of the 1992 Stock Option Plan. (4) Includes 210,000 shares of Common Stock that Robert S. Boswell has the vested right to purchase pursuant to the terms of the 1992 Stock Option Plan. Does not include 225 shares of Common Stock held by Robert S. Boswell's wife or 830 shares held by his children, of which shares Mr. Boswell disclaims beneficial ownership. (5) Includes 14,699 shares of Common Stock held of record by Dale F. Dorn as trustee of a trust for the benefit of his immediate family. Dale F. Dorn disclaims beneficial ownership of these shares. Also includes 12,250 shares of Common Stock that Dale F. Dorn has the right to acquire upon the conversion of 3,500 shares of the Company's $.75 Convertible Preferred Stock. (6) Includes 120,000 shares of Common Stock that Forest D. Dorn has the vested right to purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes 25,800 shares of Common Stock held of record by Forest D. Dorn as co-trustee of a trust for the benefit of his mother (see Footnote 8), of which shares Mr. Dorn disclaims beneficial ownership. Does not include 8,628 shares of Common Stock held by Forest D. Dorn's wife or 25,967 shares held by his children, of which shares Mr. Dorn disclaims beneficial ownership. (7) Includes 43,685 shares of Common Stock held of record by John C. Dorn as trustee of trusts for the benefit of related parties. Does not include (i) 265,676 shares of Common Stock held of record by The Glendorn Foundation of which John C. Dorn is one of the seven trustees, or (ii) 72,547 shares of Common Stock held by John C. Dorn's wife, of which shares Mr. Dorn disclaims beneficial ownership. (8) Includes 210,000 shares of Common Stock that William L. Dorn has the vested right to purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes (i) 25,800 shares of Common Stock held of record by William L. Dorn as co-trustee of a trust for the benefit of his mother (see Footnote 6), and (ii) 74,223 shares of Common Stock held of record by William L. Dorn as trustee of trusts for the benefit of related parties, of which shares Mr. Dorn disclaims beneficial ownership. Does not include 14,990 shares of Common Stock held by William L. Dorn's wife or 35,997 shares held by his children, of which shares Mr. Dorn disclaims beneficial ownership.
66 (9) Includes 120,000 shares of Common Stock that David H. Keyte has the vested right to purchase pursuant to the terms of the 1992 Stock Option Plan. Also includes 7,000 shares of Common Stock that David H. Keyte has the right to acquire upon the conversion of 2,000 shares of the Company's $.75 Convertible Preferred Stock. (10) Includes 99,825 shares of Common Stock held of record by Jeffrey W. Miller as custodian for his minor children, of which shares Mr. Miller disclaims beneficial ownership. (11) Includes 1,035,000 shares of Common Stock held by various executive officers who have the vested right to purchase such shares pursuant to the terms of the 1992 Stock Option Plan and 21,350 shares of Common Stock that a director and two executive officers have the right to acquire upon the conversion of 6,100 shares of the Company's $.75 Convertible Preferred Stock. ITEM 13. TRANSACTIONS WITH MANAGEMENT AND OTHERS RETIREMENT BENEFITS FOR EXECUTIVES AND DIRECTORS. In December 1990, the Company entered into retirement agreements with seven executives and directors ("Retirees") pursuant to which the Retirees will receive supplemental retirement payments in addition to the amounts to which they are entitled under the Company's retirement plan. In addition, the Retirees and their spouses are entitled to lifetime coverage under the Company's group medical and dental plans, tax and other financial services and payments by the Company in connection with certain club membership dues. The Retirees will also continue to participate in the Company's royalty bonus program until December 31, 1995. The Company has also agreed to maintain certain life insurance policies in effect at December 1990, for the benefit of each of the Retirees. Six of the Retirees have subsequently resigned as directors. One of the Retirees continues to serve as a director and will be paid the customary non- employee director's fee. Pursuant to the terms of the retirement agreements, the former directors and any other Retiree who ceases to be a director (or his spouse) will be paid $2,500 a month until December 2000. The Company's obligation to one Retiree under a revised retirement agreement is payable in Common Stock or cash, at the Company's option, in May of 1995 and 1996 at approximately $190,000 per year with the balance ($149,000) payable in May 1997. The retirement agreements for the other six Retirees, one of whom received in 1991 the payments scheduled to be made in 1999 and 2000, provide for supplemental retirement payments totaling approximately $938,400 per year through 1998 and approximately $740,400 per year in 1999 and 2000. EXECUTIVE SEVERANCE AGREEMENTS. The Company has entered into executive severance agreements (the "Executive Severance Agreements") with certain executive officers, including the Named Executive Officers. The Executive Severance Agreements provide for severance benefits for termination without cause and for termination following a "change of control" of the Company. The Executive Severance Agreements provide that if an executive's employment is terminated either (a) by the Company for reasons other than cause or other than as a consequence 67 of death, disability, or retirement, or (b) by the executive for reasons of diminution of responsibilities, compensation, or benefits or, in the case of change of control, a significant change in the executive's principal place of employment, the executive will receive certain payments and benefits. In March 1995, the Compensation Committee renewed the Executive Severance Agreements and extended their term to December 1997. In addition, the definition of "change of control" was modified. In the case of termination of an executive's employment which does not occur within two years of a change of control, these severance benefits include (a) payment of the executive's base salary for a term of months equal to the whole number of times that the executive's base salary can be divided by $10,000, limited to 30 months (such amounts payable will be reduced by 50% if the executive obtains new employment during the term of payment) and (b) continued coverage of the executive and any of his or her dependents under the Company's medical and dental benefit plans throughout the payment term without any cost to the executive. If an executive's employment by the Company is terminated under the circumstances described above within two years after the date upon which a change of control occurs, the Company would be obligated to take the following actions after the last day of the executive's employment: (a) the Company will pay to the executive an amount equal to 2.5 times the executive's base salary; (b) the Company will permit the executive and those of his dependents who are covered under the Company's medical and dental benefit plans to be covered by such plans without any cost to the executive for a two-year period of time; (c) the Company will cause any and all outstanding options to purchase stock of the Company held by the executive to become immediately exercisable in full and cause the executive's accrued benefits under any non-qualified deferred compensation plans to become immediately non- forfeitable; and (d) if any payment or distribution to the executive, whether or not pursuant to such agreement, is subject to the federal excise tax on "excess parachute payments", the Company will be obligated to pay to the executive such additional amount as may be necessary so that the executive realizes, after the payment of any income or excise tax on such additional amount, an amount sufficient to pay all such excise taxes. The Executive Severance Agreements also provide that the Company will pay legal fees and expenses incurred by an executive to enforce rights or benefits under such agreements. Under the Executive Severance Agreements, a "change of control" of the Company would be deemed to occur if, as modified in March, 1995, (i) the Company is not the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company); (ii) the Company sells, leases or exchanges all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company); (iii) the Company is dissolved and liquidated; (iv) any person or 68 entity, including a "group" as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, acquires or gains ownership or control (including, without limitation, power to vote) of more than 40% of the outstanding shares of the Company's voting stock (based upon voting power); or (v) as a result of or in connection with a contested election of directors, the persons who were directors of the Company before such election cease to constitute a majority of the Company's Board of Directors. OTHER TRANSACTIONS. For a description of other transactions with management and others see Item 11 Compensation Committee Interlocks and Insider Participation. In 1994, the Company engaged The Blackstone Group to perform certain investment banking services. Austin M. Beutner, a director of the Company, was, until March 1994, a General Partner of The Blackstone Group, which is also providing investment banking services in 1995. TRANSACTIONS WITH FORMER EXECUTIVE OFFICERS. John F. Dorn resigned as an executive officer and director of the Company in 1993. John F. Dorn is the brother of Dale F. Dorn, a director of the Company. Kenneth W. Smith resigned as an executive officer in March 1994. The Company had previously entered into severance agreements with the former executive officers and the Company's other executive officers as described above under "Executive Severance Agreements". In lieu of the severance payments due under their severance agreements, the Company agreed to pay John F. Dorn and Kenneth W. Smith for 30 months and 24 months, respectively, their salaries at the time of the termination of their employment. In addition, the Company has agreed with the former executive officers with respect to the following matters: (a) their stock options are fully vested and are not subject to early termination; (b) they received payments from the Company equivalent to amounts they would have received as deferred payments under the Incentive Plan with respect to 1992 and 1993; (c) John F. Dorn received full vesting with respect to split dollar life insurance at the Company's expense; (d) they continued to participate in the Company's Executive Overriding Royalty Bonus Plan until April 1, 1994; (e) they were given their Company automobiles and office furnishings and the Company paid for the cost of relocating their offices; (f) the Company will provide John F. Dorn with certain accounting, financial and estate planning services for a limited period of time; and (g) until March 31, 1996, if John F. Dorn decides to relocate from Colorado, the Company will pay his moving expenses and purchase his home, in accordance with the Company's employee relocation policy. In March 1994, the Company sold certain non-strategic oil and gas properties for $4,400,000 to an entity controlled by John F. Dorn and Kenneth W. Smith. The properties included in this transaction contained interests in approximately 70 wells. All of the properties were non-operated working interests or overriding royalty interests. The Company established the sales price based upon an opinion from an independent third party. The purchaser financed 100% of the purchase price with a loan. The loan bears interest at the rate of prime plus 1% and is secured by a mortgage on the properties and John F. Dorn's and Kenneth W. Smith's personal guarantees. The Company participated as a lender in the loan in the amount of approximately $800,000. In addition, the Company agreed to subordinate to the other lender its right of payment of principal on default. John F. Dorn and Kenneth W. Smith have separately agreed with 69 the Company that their stock options will be canceled to the extent that the Company's participation in the loan is not repaid in full. The number of stock options canceled will be based upon a Black-Scholes valuation. Collectively, they have options to purchase 275,000 shares of the Company's Common Stock at $3.00 per share and 275,000 shares at $5.00 per share. In 1994, the Company paid approximately $234,500 to the entity that purchased the properties to settle title disputes. 70 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a). (1) FINANCIAL STATEMENTS 1. Independent Auditors' Report 2. Consolidated Balance Sheets - December 31, 1994 and 1993 3. Consolidated Statements of Operations - Years ended December 31, 1994, 1993 and 1992 4. Consolidated Statements of Shareholders' Equity - Years ended December 31, 1994, 1993 and 1992 5. Consolidated Statements of Cash Flows - Years ended December 31, 1994, 1993 and 1992 6. Notes to Consolidated Financial Statements - Years ended December 31, 1994, 1993 and 1992 (2) FINANCIAL STATEMENT SCHEDULES All schedules have been omitted because the information is either not required or is set forth in the financial statements or the notes thereto. (3) Exhibits - Forest shall, upon written request to Daniel L. McNamara, Corporate Secretary of Forest, addressed to Forest Oil Building, Bradford, Pennsylvania 16701, provide copies of each of the following Exhibits: Exhibit 3(i) Restated Certificate of Incorporation of Forest Oil Corporation dated October 14, 1993, incorporated herein by reference to Exhibit 3(i) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). 71 Exhibit 3(ii) Restated By-Laws of Forest Oil Corporation as of May 9, 1990, Amendment No. 1 to By-Laws dated as of April 2, 1991, Amendment No. 2 to By-Laws dated as of May 8, 1991, Amendment No. 3 to By-Laws dated as of July 30, 1991, Amendment No. 4 to By-Laws dated as of January 17, 1992, Amendment No. 5 to By- Laws dated as of March 18, 1993 and Amendment No. 6 to By-Laws dated as of September 14, 1993, incorporated herein by reference to Exhibit 3(ii) to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 3(ii)(a) Amendment No. 7 to By-Laws dated as of December 3, 1993, incorporated herein by reference to Exhibit 3(ii)(a) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 3(ii)(b) Amendment No. 8 to By-Laws dated as of February 24, 1994, incorporated herein by reference to Exhibit 3(ii)(b) to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 4.1 Indenture dated as of September 8, 1993 between Forest Oil Corporation and Shawmut Bank Connecticut, National Association, incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). Exhibit 4.2 Credit Agreement dated as of December 1, 1993 between Forest Oil Corporation and Subsidiary Borrowers and Subsidiary Guarantors and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 4.3 Amendment No. 1 dated as of December 28, 1993 relating to Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.3 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 4.4 Amendment No. 2 dated as of January 27, 1994 relating to Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 4.5 Amendment No. 3 dated as of June 3, 1994 relating to Exhibit 4.2 hereof, incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.6 Security Agreement dated as of December 1, 1993 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent, incorporated herein by reference to Exhibit 4.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). Exhibit 4.7 Amendment No. 1 dated as of June 28, 1994 relating to Exhibit 4.6 hereof, incorporated herein by reference to Exhibit 4.2 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.8 Amendment No. 2 dated as of August 31, 1994 relating to Exhibit 4.6 hereof, incorporated herein by reference to Exhibit 4.1 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1994 (File No. 0-4597). *Exhibit 4.9 Deed of Trust, Mortgage, Security Agreement, Assignment of Production, Financing Statement (Personal Property including Hydrocarbons), and Fixture Filing dated as of June 3, 1994 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as agent. *Exhibit 4.10 Amendment No. 1 entered into as of June 3, 1994 relating to Exhibit 4.9 hereof. Exhibit 4.11 Loan Agreement between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership dated as of December 28, 1993, incorporated herein by reference to Exhibit 4.1 to Form 8- K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.12 First amendment dated as of December 28, 1993 relating to Exhibit 4.11 hereof, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). 72 Exhibit 4.13 Deed of Trust, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 by and between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.2 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.14 First Amendment dated as of June 15, 1994 relating to Exhibit 4.13 hereof, incorporated herein by reference to Exhibit 4.4 to Form 10-Q for Forest Oil Corporation for the quarter ended June 30, 1994 (File No. 0-4597). Exhibit 4.15 Act of Mortgage, Assignment of Production, Security Agreement and Financing Statement dated as of December 28, 1993 between Forest Oil Corporation and Joint Energy Development Investments Limited Partnership, incorporated herein by reference to Exhibit 4.3 to Form 8-K for Forest Oil Corporation dated December 30, 1993 (File No. 0-4597). Exhibit 4.16 Warrant Agreement dated as of December 3, 1991 between Forest Oil Corporation and The Chase Manhattan Bank (National Association), as Warrant Agent (including Form of Warrant), incorporated herein by reference to Exhibit 4.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). Exhibit 4.17 Rights Agreement between Forest Oil Corporation and Mellon Securities Trust Company, as Rights Agent dated as of October 14, 1993, incorporated herein by reference to Exhibit 4.3 to Form 10-Q for Forest Oil Corporation for the quarter ended September 30, 1993 (File No. 0-4597). No other instruments regarding long-term debt are filed because the amount of the securities authorized thereunder do not, in any case, exceed 10% of the total assets of Forest Oil Corporation on a consolidated basis, but a copy of such instruments will be furnished to the Commission upon request. +Exhibit 10.1 Description of Employee Overriding Royalty Bonuses, incorporated herein by reference to Exhibit 10.1 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). +Exhibit 10.2 Description of Executive Life Insurance Plan, incorporated herein by reference to Exhibit 10.2 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). *+Exhibit 10.3 Executive Deferred Compensation Plan. +Exhibit 10.4 Form of non-qualified Supplemental Executive Retirement Plan, incorporated herein by reference to Exhibit 10.4 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). +Exhibit 10.5 Form of Executive Retirement Agreement, incorporated herein by reference to Exhibit 10.5 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1990 (File No. 0-4597). +Exhibit 10.6 Forest Oil Corporation 1992 Stock Option Plan and Option Agreement, incorporated herein by reference to Exhibit 10.7 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). +Exhibit 10.7 Letter Agreement with Richard B. Dorn relating to a revision to Exhibit 10.5 hereof, incorporated herein by reference to Exhibit 10.11 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1991 (File No. 0-4597). +Exhibit 10.8 Forest Oil Corporation Annual Incentive Plan effective as of January 1, 1992, incorporated herein by reference to Exhibit 10.8 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1992 (File No. 0-4597). 73 +Exhibit 10.9 Form of Executive Severance Agreement, incorporated herein by reference to Exhibit 10.9 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). +Exhibit 10.10 Form of Settlement Agreement and General Release between John F. Dorn and Forest Oil Corporation dated March 7, 1994, incorporated herein by reference to Exhibit 10.10 to Form 10-K for Forest Oil Corporation for the year ended December 31, 1993 (File No. 0-4597). *Exhibit 11 Forest Oil Corporation and Subsidiaries - Calculation of Earnings per Share of Common Stock. *Exhibit 18 Letter on change in accounting principles. **Exhibit 24 Independent Auditors' Consent. *Exhibit 25 Powers of Attorney of the following Officers and Directors: Donald H. Anderson, Austin M. Beutner, Robert S. Boswell, Richard J. Callahan, Dale F. Dorn, John C. Dorn, William L. Dorn, Harold D. Hammar, David H. Keyte, James H. Lee, Daniel L. McNamara, Jeffrey W. Miller, Jack D. Riggs and Michael B. Yanney. *Exhibit 27 Financial Data Schedule. **Exhibit 28 Financial Statements of the Retirement Savings Plan of Forest Oil Corporation for the year ended December 31, 1994. * Previously filed. ** Filed with this report. + Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report. (b). REPORTS ON FORM 8-K No reports on Form 8-K were filed by Forest during the last quarter of 1994. 74 SIGNATURES Pursuant to the requirements of Section 13 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. FOREST OIL CORPORATION (Registrant) Date: May 1, 1995 By: /s/ Daniel L. McNamara ------------------------ Daniel L. McNamara Secretary 75 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - - ------- ----------- 24 Independent Auditors' Consent. 28 Financial Statements of the Retirement Savings Plan of Forest Oil Corporation for the year ended December 31, 1994. 76 EX-24 2 EXHIBIT 24 Exhibit 24 CONSENT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS FOREST OIL CORPORATION: We consent to the incorporation by reference in (i) the Registration Statements (Nos. 2-74151, 2-76946, 33-2748 and 33-59504) on Form S-8 of Forest Oil Corporation - Retirement Savings Plan of Forest Oil Corporation, (ii) the Registration Statement (No. 33-48440) on Form S-8 and S-3 of Forest Oil Corporation - 1992 Stock Option Plan of Forest Oil Corporation, (iii) the Registration Statement (No. 33-43292) on Form S-3 of Forest Oil Corporation - Common Stock issuable upon exercise of the Warrants of Forest Oil Corporation and (iv) the Registration Statements (Nos. 33-47477 and 33-47478) on Forms S-2 and S-3 of Forest Oil Corporation - Common Stock issuable to Richard Dorn and resales thereof, of our report dated March 30, 1995, except as to Note 17 which is as of April 17, 1995, relating to the consolidated balance sheets of Forest Oil Corporation and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994, which report appears in the December 31, 1994 annual report on Form 10-K of Forest Oil Corporation. Our report on the consolidated financial statements refers to a change in the method of accounting for oil and gas sales from the sales method to the entitlements method effective January 1, 1994 and to changes in the method of accounting for postretirement benefits and income taxes in 1993. KPMG PEAT MARWICK LLP Denver, Colorado May 1, 1995 EX-28 3 EXHIBIT 28 Exhibit 28 - - -------------------------------------------------------------------------------- RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1993 (WITH INDEPENDENT AUDITORS' REPORT THEREON) RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION TABLE OF CONTENTS - - -------------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . 1 STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS -- December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 2 STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS -- Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . . 3 NOTES TO FINANCIAL STATEMENTS -- December 31, 1994 and 1993 . . . . 4 SCHEDULE 1 ASSETS HELD FOR INVESTMENT -- December 31, 1994. . . . . . . . . . . . . . . . . . . . 11 2 REPORTABLE TRANSACTIONS -- Year Ended December 31, 1994 . . . . . . . . . . . . . . 12 INDEPENDENT AUDITORS' REPORT THE PARTICIPANTS AND ADMINISTRATIVE COMMITTEE RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION: We have audited the accompanying statements of net assets available for plan benefits of the Retirement Savings Plan of Forest Oil Corporation as of December 31, 1994 and 1993, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan'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 net assets available for plan benefits of the Retirement Savings Plan of Forest Oil Corporation as of December 31, 1994 and 1993, and the changes in those net assets for the years then ended in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment as of December 31, 1994 and reportable transactions for the year ended December 31, 1994 are presented for purposes of additional analysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The supplemental schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements for the year ended December 31, 1994 and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP April 14, 1995 1 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS DECEMBER 31, 1994 AND 1993 - - --------------------------------------------------------------------------------
1994 1993 ---- ---- ASSETS: Investments, at fair value: Forest Oil Corporation Stock Fund $ 1,986,372 3,754,135 Morley GIC Fund 2,469,216 2,298,816 Fidelity Asset Manager Fund 2,454,382 2,254,177 Janus Fund 1,680,467 1,573,677 Harbor International Fund 1,089,952 804,856 Pimco Low Duration Fund 422,702 573,839 ---------- ---------- 10,103,091 11,259,500 Other investments: Loans to participants 378,458 293,411 Cash and short-term investments 3,772 56,238 ---------- ---------- Total investments 10,485,321 11,609,149 Receivable for investments sold -- 191,771 Contributions receivable: Company 38,261 36,050 Participants 56,171 50,402 Investment income receivable 5,532 5,980 Other receivables 7,917 7,861 ---------- ---------- Total assets 10,593,202 11,901,213 LIABILITIES: Forfeitures available to the Company to reduce future contributions 24,688 17,494 Other liabilities 38,259 36,050 ---------- ---------- Total liabilities 62,947 53,544 ---------- ---------- Net assets available for plan benefits, including distributions payable to participants of $593,700 in 1994 and $444,500 in 1993 $10,530,255 11,847,669 ---------- ---------- ---------- ----------
See accompanying notes to financial statements. 2 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS YEARS ENDED DECEMBER 31, 1994 AND 1993 - - --------------------------------------------------------------------------------
1994 1993 ---- ---- Additions: Contributions: Company: Common stock $ 812,392 1,041,464 Cash 25 30 Participants 722,543 637,603 Dividends and interest income 233,790 389,792 ---------- ---------- 1,768,750 2,068,889 Net realized and unrealized appreciation (depreciation) in fair value of investments (2,045,408) 1,745,784 ---------- ---------- Total additions (decreases) (276,658) 3,814,673 Deductions: Distributions to participants 1,033,562 1,122,161 Change in value of forfeited contributions 7,194 31,817 ---------- ---------- 1,040,756 1,153,978 ---------- ---------- Net increase (decrease) in net assets available for plan benefits (1,317,414) 2,660,695 Net assets available for plan benefits at beginning of year 11,847,669 9,186,974 ---------- ---------- Net assets available for plan benefits at end of year $10,530,255 11,847,669 ---------- ---------- ---------- ----------
See accompanying notes to financial statements. 3 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1993 - - -------------------------------------------------------------------------------- (1) DESCRIPTION OF THE PLAN The Retirement Savings Plan of Forest Oil Corporation (the Plan) is a profit sharing, defined contribution plan which includes a cash or deferred arrangement under Section 401(k) of the Internal Revenue Code. The Plan is available to any employee of Forest Oil Corporation and its affiliates (the Company) that have adopted the Plan. Effective July 1, 1993, the investment options were: Forest Oil Corporation Stock Fund Common stock of Forest Oil Corporation Morley GIC Fund Collective trust consisting of guaranteed insurance contracts Fidelity Asset Manager Fund Mutual fund consisting of investments in money market instruments, intermediate to long-term bonds, and equity securities Janus Fund Mutual fund consisting primarily of common stocks and similar equity securities Harbor International Fund Mutual fund consisting of non-U.S. equity securities Pimco Low Duration Fund Mutual fund consisting primarily of government and corporate fixed income debt instruments Prior to July 1, 1993, participants could choose among any combination of the following investment options under the Plan: (1) Forest Oil common stock (the Forest Oil Stock Fund), (2) Fidelity Equity Income Fund, (3) Fidelity Intermediate Bond Fund, and (4) Fidelity Cash Reserves Fund. Employees enrolled in the Plan may elect to defer from 1% to 10% of their compensation on a pre-tax basis as a contribution to the Plan (Deferred Compensation Contribution). Each month, the Company contributes an amount equal to 100% of the Deferred Compensation Contributions made by or on behalf of each participant limited to 5% of the participant's compensation (Company Matching Contribution). For each Plan Year, the Company may contribute as a Company Profit-Sharing Contribution an amount determined in the sole discretion of the Executive Committee of Forest Oil's Board of Directors. The Company Profit-Sharing Contribution, if any, is in addition to Company Matching Contribution and is allocated among certain qualifying participants based on compensation. At the sole discretion of the Executive Committee of Forest Oil's Board of Directors, Company Matching and/or Profit-Sharing Contributions shall be made in cash, in shares of Forest Oil common stock, or in any combination of cash and shares of Forest Oil common stock. Profit-sharing contributions of Forest Oil common shares were $210,150 and $614,713 for 1994 and 1993, respectively. Company Matching and Profit-Sharing Contributions made for a participant's account are vested under certain conditions, including a graduated schedule where full vesting occurs upon the completion of five years of service. Nonvested Company Matching and Profit-Sharing Contributions are subject to forfeiture under certain conditions and forfeited balances are available to reduce the next succeeding Company Matching Contribution to the Plan. A participant is fully vested in his own contributions at all times. 4 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED - - -------------------------------------------------------------------------------- Expenses associated with the administration and investment activities of the Plan are paid by the Company. The Company maintains the right to terminate or amend the Plan at any time. In the event of a termination or partial termination of the Plan, or complete discontinuance of Company Matching and Profit-Sharing Contributions to the Plan, the invested balance of the affected members under the Plan as of the date of the termination or discontinuance shall be nonforfeitable. The total amount in each member's accounts shall be distributed as the administrative committee shall direct, to the participant or for the participant's benefit, or continued in trust for the participant's benefit. The foregoing description of the Plan provides only general information. Participants should refer to the Summary Plan Description for a more complete description of the Plan's provisions. Copies of the Summary Plan Description are available from the administrative committee of the Plan. (2) SIGNIFICANT ACCOUNTING POLICIES VALUATION OF INVESTMENTS Investments in the Forest Oil Stock Fund, Morley GIC Fund, Fidelity Asset Manager Fund, Janus Fund, Pimco Low Duration Fund, and Harbor International Fund are valued at market for financial reporting purposes. Purchases and sales of securities are recorded on a trade-date basis. A Plan participant's interest in the Morley GIC Fund, Fidelity Asset Manager Fund, Janus Fund, Pimco Low Duration Fund, and Harbor International Fund is represented by units. The average unit value for each fund is computed by dividing the number of units outstanding into the total value of the fund. The total value of each fund at any given time consists of the market value of the investments held in the fund, including any income retained on such investments. 5 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED - - -------------------------------------------------------------------------------- (3) INVESTMENTS The Plan's investments are held by a bank-administered trust fund. During 1994 and 1993, the Plan's investments appreciated (depreciated) in fair value by $(2,045,408) and $1,745,784 respectively, as follows:
Net appreciation (depreciation) in fair value Fair value at during the year end of year ---------------- ----------- Year ended December 31, 1994: Common stock of Forest Oil Corporation $(1,839,694) 1,986,372 Morley GIC Fund 138,546 2,469,216 Mutual funds: Fidelity Asset Manager Fund (262,380) 2,454,382 Janus Fund (52,077) 1,680,467 Harbor International Fund (3,917) 1,089,952 Pimco Low Duration Fund (25,886) 422,702 ---------- ---------- $(2,045,408) 10,103,091 ---------- ---------- ---------- ---------- Year ended December 31, 1993: Common stock of Forest Oil Corporation $ 1,194,651 3,754,135 Morley GIC Fund 81,279 2,298,816 Mutual funds: Fidelity Equity Income Fund 198,931 -- Fidelity Intermediate Bond Fund 37,141 -- Fidelity Asset Manager Fund 139,507 2,254,177 Janus Fund (18,589) 1,573,677 Pimco Low Duration Fund (4,474) 573,839 Harbor International Fund 117,338 804,856 ---------- ---------- $ 1,745,784 11,259,500 ---------- ---------- ---------- ----------
6 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED - - -------------------------------------------------------------------------------- (3) INVESTMENTS (CONTINUED) The fair values of individual investments that represent 5% or more of the Plan's net assets are as follows:
1994 1993 ---- ---- Forest Oil Corporation Common Stock $1,986,372 3,754,135 Morley GIC Fund 2,469,216 2,298,816 Fidelity Asset Manager Fund 2,454,382 2,254,177 Janus Fund 1,680,467 1,573,677 Harbor International Fund 1,089,952 804,856
7 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION Notes to Financial Statements, Continued
(4) Funds Summary The changes in net assets available for plan benefits by investment option for the year ended December 31, 1994 are summarized as follows: Fidelity Forest Oil Asset Corporation Morley Manager Janus Total Stock Fund GIC Fund Fund Fund ----- ----------- -------- -------- --------- Net assets available for plan benefits, January 1, 1994 $ 11,847,669 3,943,263 2,354,401 2,271,614 1,588,417 Additions: Contributions: Company: Common stock 812,392 812,392 - - - Cash 25 25 - - - Participants 722,543 106,694 78,561 207,910 179,033 Dividends and interest income 233,790 338 20,812 97,872 34,909 ------------ --------- --------- --------- --------- 1,768,750 919,449 99,373 305,782 213,942 Net realized and unrealized appreciation (depreciation) in fair value of investments (2,045,408) (1,839,694) 138,546 (262,380) (52,077) ------------ --------- --------- --------- --------- Total additions (decreases) (276,658) (920,245) 237,919 43,402 161,865 Deductions: Distributions to participants 1,033,562 273,573 59,719 204,740 204,049 Change in value of forfeited contributions 7,194 5,925 1,269 - - ------------ --------- --------- --------- --------- 1,040,756 279,498 60,988 204,740 204,049 Transfers (including loan activity) - (624,900) 62,064 247,061 56,747 ------------ --------- --------- --------- --------- NET ASSETS AVAILABLE FOR PLAN BENEFITS, DECEMBER 31, 1994 $ 10,530,255 2,118,620 2,593,396 2,357,337 1,602,980 ------------ --------- --------- --------- --------- ------------ --------- --------- --------- --------- Harbor Pimco Inter- Low Loans national Duration to Fund Fund Participants -------- -------- ------------ Net assets available for plan benefits, January 1, 1994 810,804 577,898 301,272 Additions: Contributions: Company: Common stock - - - Cash - - - Participants 110,078 40,267 - Dividends and interest income 50,508 29,351 - --------- ------- ------- 160,586 69,618 - Net realized and unrealized appreciation (depreciation) in fair value of investments (3,917) (25,886) - --------- ------- ------- Total additions (decreases) 156,669 43,732 - Deductions: Distributions to participants 231,216 60,265 - Change in value of forfeited contributions - - - --------- ------- ------- 231,216 60,265 Transfers (including loan activity) 344,398 (105,943) 20,573 --------- ------- ------- NET ASSETS AVAILABLE FOR PLAN BENEFITS, DECEMBER 31, 1994 1,080,655 455,422 321,845 --------- ------- ------- --------- ------- -------
8 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION Notes to Financial Statements, Continued
(4) Funds Summary The changes in net assets available for plan benefits by investment option for the year ended December 31, 1993 are summarized as follows: Fidelity Fidelity Forest Oil Fidelity Cash Asset Corporation Fidelity Equity Intermediate Reserve Morley Manager Total Stock Fund Income Fund Bond Fund Fund GIC Fund Fund ----- ----------- --------------- ------------- ---------- -------- -------- Net assets available for plan benefits, January 1, 1993 $ 9,186,974 2,413,839 2,061,435 1,016,209 3,407,692 - - Additions: Contributions: Company: Common stock 1,041,464 1,041,464 - - - - - Cash 30 30 - - - - - Participants 637,603 109,928 110,049 59,125 100,708 35,493 90,854 Dividends and interest income 389,792 290 34,934 42,868 50,678 23,266 107,682 ------------ --------- --------- --------- --------- --------- --------- 2,068,889 1,151,712 144,983 101,993 151,386 58,759 198,536 Net realized and unrealized appreciation (depreciation) in fair value of investments 1,745,784 1,194,651 198,931 37,141 - 81,279 139,507 ------------ --------- --------- --------- --------- --------- --------- Total additions 3,814,673 2,346,363 343,914 139,134 151,386 140,038 338,043 Deductions: Distributions to participants 1,122,161 271,038 278,251 19,186 86,078 463,008 1,511 Change in value of forfeited contributions 31,817 32,678 1,046 868 11,677 (14,452) - ------------ --------- --------- --------- --------- --------- --------- 1,153,978 303,716 279,297 20,054 97,755 448,556 1,511 Transfers (including loan activity) - (513,223) (2,126,052) (1,135,289) (3,461,323) 2,662,919 1,935,082 ------------ --------- --------- --------- --------- --------- --------- NET ASSETS AVAILABLE FOR PLAN BENEFITS, DECEMBER 31, 1993 $ 11,847,669 3,943,263 - - - 2,354,401 2,271,614 ------------ --------- --------- --------- --------- --------- --------- ------------ --------- --------- --------- --------- --------- --------- Harbor Pimco Inter- Low Loans Janus national Duration to Fund Fund Fund Participants ----- -------- -------- ------------ Net assets available for plan benefits, January 1, 1993 - - - 287,799 Additions: Contributions: Company: Common stock - - - - Cash - - - - Participants 75,610 32,190 23,646 - Dividends and interest income 100,988 6,970 22,116 - --------- ------- ------- ------- 176,598 39,160 45,762 - Net realized and unrealized appreciation (depreciation) in fair value of investments (18,589) 117,338 (4,474) - --------- ------- ------- ------- Total additions 158,009 156,498 41,288 - Deductions: Distributions to participants 2,747 342 - - Change in value of forfeited contributions - - - - --------- ------- ------- ------- 2,747 342 - - Transfers (including loan activity) 1,433,155 654,648 536,610 13,473 --------- ------- ------- ------- NET ASSETS AVAILABLE FOR PLAN BENEFITS, DECEMBER 31, 1993 1,588,417 810,804 577,898 301,272 --------- ------- ------- ------- --------- ------- ------- -------
9 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION NOTES TO FINANCIAL STATEMENTS, CONTINUED - - -------------------------------------------------------------------------------- (5) RECONCILIATION TO INTERNAL REVENUE SERVICE (IRS) FORM 5500 Benefits payable to terminated employees are shown as a liability on IRS Form 5500. For financial statement purposes, all net assets of the Plan are considered to be available for plan benefits; therefore, benefits identified for payment to participants of the Plan are not deducted from total assets to derive net assets available for benefits. Net assets available for plan benefits include $593,700 and $444,500 of benefits payable to participants as of December 31, 1994 and 1993, respectively. Correspondingly, distributions to participants include only actual amounts paid during the year for financial statement purposes. For purposes of the IRS Form 5500, distributions expense includes amounts payable to terminated participants. (6) FEDERAL INCOME TAXES Prior to certain recent amendments to the Plan, the IRS had issued a determination letter in September 1991 indicating that the Plan qualified under Section 401(a) of the Internal Revenue Code (Code) and that the trust is therefore exempt from federal income tax under Section 501(a) of the Code. As a result of the amendments to the Plan, a request for a determination letter has been filed with the IRS. The Administrative Committee believes that the Plan continues to meet all applicable sections of the Code. 10 SCHEDULE 1 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION ASSETS HELD FOR INVESTMENT DECEMBER 31, 1994 - - --------------------------------------------------------------------------------
Number of Fair market shares or units Cost value --------------- ---- ----- Common stock of Forest Oil Corporation: Common Stock 882,832 $ 3,342,429 1,986,372 GIC pooled funds: Morley GIC fund 156,775 2,276,458 2,469,216 Mutual funds: Fidelity Asset Manager Fund 177,468 2,592,055 2,454,382 Janus Fund 89,482 1,747,036 1,680,467 Harbor International Fund 44,579 1,004,859 1,089,952 Pimco Low Duration Fund 43,713 446,779 422,702 ---------- ---------- 11,409,616 10,103,091 Money market funds: State Street Short-Term Investment Funds 3,772 3,772 3,772 Loans to participants 378,458 378,458 ---------- ---------- TOTAL INVESTMENTS $11,791,846 10,485,321 ---------- ---------- ---------- ----------
See accompanying independent auditors' report. 11 SCHEDULE 2 RETIREMENT SAVINGS PLAN OF FOREST OIL CORPORATION REPORTABLE TRANSACTIONS YEAR ENDED DECEMBER 31, 1994 - - --------------------------------------------------------------------------------
Net realized Cost of Proceeds gain Description of asset Description of transaction purchases from sales (loss) -------------------- -------------------------- --------- ---------- ---- Common stock of Aggregate of 31 purchases Forest Oil Corporation and 40 sales $ 1,043,365 976,793 (26,085) Fidelity Asset Manager Fund Aggregate of 32 purchases 893,790 -- --
See accompanying independent auditors' report. 12 Exhibits. 1. Consent of Independent Auditors to Incorporation by Reference in Form S-8 13 EXHIBIT 1 CONSENT OF INDEPENDENT AUDITORS BOARD OF DIRECTORS FOREST OIL CORPORATION: We consent to the incorporation by reference in the Registration Statement (No. 33-59504) on Form S-8 of Forest Oil Corporation of our report dated April 14, 1995 relating to the statements of net assets available for plan benefits of the Retirement Savings Plan of Forest Oil Corporation as of December 31, 1994 and 1993 and the statements of changes in net assets available for plan benefits for the years then ended and related schedules for the year ended December 31, 1994, which report appears as an exhibit in the December 31, 1994 annual report on Form 10-K of Forest Oil Corporation. KPMG PEAT MARWICK LLP Denver, Colorado May 1, 1995 -----END PRIVACY-ENHANCED MESSAGE-----